ENDEAVOUR INTERNATIONAL CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Quarterly Period Ended MARCH 31, 2004

or

[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _________ to ___________

COMMISSION FILE NUMBER: 1-13463

ENDEAVOUR INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Nevada 88-0448389
------ ----------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)

1001 FANNIN, SUITE 1700, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)

(713) 307-8700
(Registrant's telephone number, including area code)

NONE
(Former name, former address and former fiscal year,
if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

As of May 19, 2004, 69,320,819 shares of the registrant's common stock were
outstanding.

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ENDEAVOUR INTERNATIONAL CORPORATION

INDEX

Part I:
Item 1: Unaudited Financial Statements
Balance Sheets.....................................................................................1
Statements of Operations...........................................................................3
Statements of Cash Flows...........................................................................4
Notes to Consolidated Financial Statements.........................................................6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.............15
Item 3: Quantitative and Qualitative Disclosures about Market Risk........................................17
Item 4: Controls and Procedures...........................................................................17
Part II. Other Information
Item 1: Legal Proceedings.................................................................................18
Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities..................18
Item 6: Exhibits and Reports On Form 8-K..................................................................19
Signatures.....................................................................................................20

ITEM 1: UNAUDITED FINANCIAL STATEMENTS

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

1

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

2

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

See accompanying notes to consolidated financial statements.

4

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

See accompanying notes to consolidated financial statements.

5

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of Endeavour International Corporation,
formerly Continental Southern Resources, Inc., a Nevada corporation, included
herein have been prepared, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"), and, accordingly, certain
information normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States has been
condensed or omitted. As used in these Notes to the Consolidated Financial
Statements, the terms the "Company", "Endeavour", "we", "us", "our" and similar
terms refer to Endeavour International Corporation and, unless the context
indicates otherwise, its consolidated subsidiaries.

The financial statements herein reflect all normal recurring adjustments that,
in the opinion of management, are necessary for a fair presentation. Certain
amounts for prior periods have been reclassified to conform to the current
presentation. In preparing financial statements, management makes informed
judgments and estimates that affect the reported amounts of assets and
liabilities as of the date of the financial statements and affect the reported
amounts of revenues and expenses during the reporting period. Changes in facts
and circumstances may result in revised estimates and actual results may differ
from these estimates.

The accompanying consolidated financial statements of Endeavour should be read
in conjunction with the consolidated financial statements and notes included in
our Annual Report on Form 10-KSB for the year ended December 31, 2003.

In 2004, the Company significantly restructured its business in a series of
simultaneous transactions (the Offering, Merger and Restructuring) and changed
its name to Endeavour International Corporation (see Note 3).

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

STOCK-BASED COMPENSATION ARRANGEMENTS

In accordance with the provisions of Statement of Financial Accounting Standard
("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
our stock-based employee compensation plans are accounted for under the
intrinsic value method that requires compensation expense to be recorded only
if, on the date of grant, the current market price of our common stock exceeds
the exercise price the employee must pay for the stock.

The net loss for 2003 does not include any stock-based compensation cost, as
there was no stock-based compensation outstanding during the first quarter of
2003. The modification in 2003 of options granted to prior directors triggered
variable accounting under APB 25 and FASB

6

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

interpretation No. 44. This requires recording compensation expense if the
modified option price is lower than the market price of the stock at the end of
a reporting period until the options expire or are exercised. Since the modified
option exercise price for the 700,000 options was lower than the market price of
the stock at March 31, 2004, we recorded non-cash compensation expense of
$1,106,000 under APB 25 for the quarter ended March 31, 2004. See Note 7 for a
discussion of the restricted stock and stock option grants during 2004.

Had compensation expense for stock option plans been determined based on the
fair value at the grant date for awards through March 31, 2004 consistent with
the provisions of SFAS No. 123, our net loss and net loss per share would have
been reduced to the pro forma amounts indicated below:

These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be issued in future years. The
estimated fair value of each option granted was calculated using the
Black-Scholes Method. The following summarizes the weighted average of the
assumptions used in the method.

7

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

OTHER PROPERTY, PLANT AND EQUIPMENT

Other oil and gas assets and furniture and fixtures are recorded at cost, less
accumulated depreciation. The assets are depreciated using the straight-line
method over their estimated useful lives of two to five years.

NOTE 3 - THE OFFERING, MERGER AND RESTRUCTURING

On February 29, 2004, we completed a series of mutually interdependent
transactions to significantly expand our scope and objectives under the
leadership of a new management team.

THE OFFERING

In an offering of common stock (the "Offering") that closed February 26, 2004,
we issued 25 million shares of common stock at $2.00 per share in a private
placement. The estimated net proceeds of the Offering were $46,000,000, after
deduction of placement agent commissions of $2,500,000, financial advisory fees
of $1,250,000 and offering expenses of $101,000. In addition, warrants to
purchase 700,000 shares of common stock at $2.00 per share were issued to the
placement agent. The net proceeds were used for the purchase of approximately
14.1 million shares of common stock and 103,500.07 shares of our Series B
Preferred Stock for $5.3 million and for $1.5 million for repayment of the
principal amount of certain outstanding convertible notes, with the remainder of
the net proceeds to be used for general corporate purposes, including potential
acquisitions.

THE MERGER

Concurrent with the closing of the Offering, we acquired NSNV, Inc. ("NSNV"),
through a merger (the "Merger") of NSNV into a newly created Delaware corporate
subsidiary of the Company. The newly created subsidiary was the survivor of the
Merger and is a wholly-owned subsidiary of the company that was renamed
Endeavour Operating Corporation. NSNV was a private company owned by William L.
Transier, John N. Seitz and PGS Exploration (UK) Limited ("PGS"), a United
Kingdom corporation that is a provider of geophysical services. The former
shareholders of NSNV received an aggregate of 12.5 million shares of common
stock in the Merger, representing approximately 18.9% of outstanding common
stock immediately after the closing of the Merger.

The Merger was accounted for as a purchase of assets and not a business
combination. Therefore, the consideration given was allocated to the fair value
of the identifiable assets and liabilities acquired. Any consideration given in
excess of the fair value of identifiable assets acquired was expensed.

8

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

The following is a calculation of the consideration given:

Capitalized merger costs are the estimated professional expenses for legal and
accounting services.

The consideration given for the Merger was allocated, on a preliminary basis, as
follows:

(1) Includes $6.3 million of costs allocated to exploration seismic data of
which $1.8 million, representing the share of data received to date, was
expensed under the successful efforts method of accounting for oil and gas
properties.

THE RESTRUCTURING

Simultaneous with the consummation of the Merger and the Offering, we
restructured various financial and shareholder related items (the
"Restructuring"). Specifically, completed were the following:

o Repaid $1,500,000 principal amount of our outstanding convertible notes;

o Issued 1,026,624 shares of our common stock in exchange for the $1,550,000
principal balance and accrued interest due under the Michael P. Marcus
convertible debenture at a conversion price of $1.75;

9

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

o Issued 375,000 shares of our common stock in exchange for the $600,000
principal balance and accrued interest due under the Trident convertible
debenture at a conversion price of $1.60;

o Issued 2,808,824 shares of our common stock upon conversion of all of the
outstanding Series C Preferred Stock, and accrued dividends, at a
conversion price of $1.70 per share;

o Purchased all outstanding shares of Series A Preferred Stock and 20,212.86
shares of Series B Preferred Stock in exchange for certain of our non-core
assets (see below); and

o Purchased 14,097,672 shares of common stock and 103,500.07 shares of
Series B Preferred Stock from RAM Trading, Ltd. (who held more that 10% of
our outstanding stock prior to this purchase) for $5,330,948 in cash.

As consideration for the acquisition of all of the Series A Preferred Stock and
20,212.86 shares of the Series B Preferred Stock, we exchanged the following
non-core assets with CSOR Preferred Liquidation, LLC, a newly created entity
owned by the former holders of the Series A Preferred Stock and certain former
holders of the Series B Preferred Stock:

o 100% of the ownership interest in BWP Gas, LLC.;

o 864,560 shares of restricted common stock of BPK Resources, Inc.;

o 400,000 shares of common stock of Trimedia Group, Inc.;

o Note receivable due from CSR Hackberry, LLC with a principal balance of
$25,000;

o Note receivable due from Snipes, LLC in the principal amount of $122,500;

o Subscription receivable due from FEQ Investments in the principal amount
of $175,000;

o Subscription receivable due from GWR Trust in the principal amount of
$250,000; and

o Note receivable due from BPK Resources, Inc. with a principal balance of
$670,000.

As consideration for services rendered in connection with the purchase of the
shares of common stock and Series B Preferred stock from RAM, we issued to an
unrelated party 300,000 shares of our common stock.

During the first quarter of 2004, the Company sold all of its limited
partnership units in Knox Miss Partners, L.P. for $5,000,000 and received
$500,000 in cash and a $4,500,000 short-term note that is secured by a pledge of
the limited partnership interest.

NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION

We had noncash investing activities with the purchase of NSNV for 12.5 million
shares of our common stock with a total purchase price of approximately $25
million. Therefore, the Merger increased current assets by $1 million, oil and
gas property by $11.4 million, other assets by $8.3 million, current liabilities
by $2.5 million other liabilities by $3.5 million, and equity by $25 million
through a noncash transaction that was not reflected in the statement of cash
flows. However, $65,811 of acquisition costs reflected in "investing activities"
in the statement of cash

10

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

flows represents the cash expenses paid in connection with the Merger, less the
cash of NSNV on the date of the Merger. Noncash investing activities also were
incurred with the exchange of certain non-core assets, including BWP Gas, LLC,
for all of the Series A Preferred Stock and 20,212.86 shares of the Series B
Preferred Stock. Noncash financing activities were also incurred, including the
conversion of all of our Series C Preferred Stock and our convertible notes into
common stock.

NOTE 5 - LEASES

We are the lessee of various computer equipment under capital leases expiring in
various years through 2006. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are depreciated over the lower of their
related lease terms or their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense.

Minimum future lease payments under capital leases as of March 31, 2004, for
each of the next three years and in the aggregate are:

Interest rates on capitalized leases are approximately 3.5% and are imputed
based on the lower of company's incremental borrowing rate at the inception of
each lease or the lessor's implicit rate of return.

NOTE 6 - LOSS PER SHARE

Loss per common share is calculated in accordance with SFAS No. 128, "Earnings
Per Share." Basic loss per common share is computed by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per share is computed similarly to basic loss
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued and if the additional common shares were
dilutive. Shares associated with stock options, warrants and convertible debt
are not included because their inclusion would be antidilutive (i.e., reduce the
net loss per share). At March 31, 2004,

11

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

there were potentially dilutive shares of 2,473,046. After giving effect to the
Offering, Merger and Restructuring, we have 69,145,819 shares of common stock
outstanding at March 31, 2004.

NOTE 7 - DEFERRED COMPENSATION

Subsequent to the Merger, we issued restricted shares of common stock to our new
management, directors and employees as follows:

(1) The 2004 Stock Incentive Plan is subject to the approval by a majority of
shareholders at our 2004 Annual Shareholders Meeting.

In addition to the above restricted share grants, we granted options to purchase
2,140,000 shares of common stock at an exercise price of $2.00 to employees and
directors. One third of these options vest on January 1, 2005 and an additional
one-third on each January 1 thereafter. These options were granted under the
2004 Stock Incentive Plan, which is subject to the approval by a majority of
shareholders at our 2004 Annual Shareholders Meeting.

NOTE 8 - EQUITY TRANSACTIONS - NOT DESCRIBED ELSEWHERE

On February 4, 2004, in a private placement offering, 125,000 shares of our
common stock, $.001 par value per share, were issued at a purchase price of
$2.00 per share.

We exercised our call option to buy back 10 of the Company's 99 limited
partnership units in Knox Miss Partners, L.P. from RAM Trading, Ltd. on February
10, 2004 and issued 835,000 shares of our common stock in full payment of the
option. All of our interest in Knox Miss Partners, L.P. was sold in February
2004.

12

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

NOTE 9 - COMPREHENSIVE LOSS

Excluding net loss, our source of comprehensive loss is from the net unrealized
loss on marketable debt securities, which are classified as available-for-sale.
The following summarizes the components of comprehensive loss:

NOTE 10 - COMMITMENTS AND CONTINGENCIES

COMMITMENTS

As a part of the Merger, we acquired an obligation to purchase products and
services from PGS or its affiliates for a period of three years commencing on
December 16, 2003 as follows:

Year 1 $1,000,000
Year 2 1,500,000
Year 3 2,000,000
----------
$4,500,000
==========

LEGAL PROCEEDING

On or about March 4, 2004, the GHK Company, LLC, GHK/Potato Hills Limited
Partnership, and Brian F. Egolf (collectively "Plaintiffs") commenced an action
against Endeavour International Corporation ("Endeavour"), f/k/a Continental
Southern Resources, Inc., as well as BWP Gas, L.L.C. ("BWP") and HBA Gas, Inc.
("HBA") (collectively "defendants") in the state court in Oklahoma City,
Oklahoma. In the petition, Plaintiffs allege that CSOR intended to acquire a
majority of the membership interests in BWP and that HBA in turn entered into an
agreement to assign Plaintiff 2.5 million common shares of CSOR stock upon
compliance by

13

ENDEAVOUR INTERNATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED STATEMENTS
(UNAUDITED)

Plaintiffs with certain contractual obligations including but not limited to
completion and initial commercial production of the Mary #2-34 well, along with
the presentation of a development plan and the commencement of the next
exploration or development well in the Potato Hills Deep Prospect. Plaintiffs
further allege in their petition that BWP, HBA and Endeavour are alter egos of
each other and jointly and severally liable to Plaintiffs for failing to deliver
to Plaintiffs the CSOR common stock. Plaintiffs seek delivery of the stock as
well as a temporary restraining order, a primary and permanent injunction (i)
enjoining all dilutions of Plaintiff rights pertaining to CSOR stock; (ii)
enjoining Endeavour from all future stock issuances and transfers of assets not
in the ordinary course of business and (iii) prohibiting the alienation or
encumbrance of the CSOR stock that is allegedly in Plaintiff's possession. On
April 6, 2004, the defendants removed the action from the state court to the
United States District Court for the Western District of Oklahoma. Subsequently,
Endeavour made a motion for dismissal of the action for lack of jurisdiction
over Endeavour in Oklahoma. Management intends to litigate vigorously and
believes it has good and valid defenses beyond its jurisdictional defense.
However, the action has just begun and counsel is unable to opine on the outcome
of the litigation.

NOTE 11 - SUBSEQUENT EVENT

In May 2004, we completed the sale of our equity interest in Louisiana Shelf
Partners, L.P. for $2,250,000 and received $250,000 in cash and a $2,000,000
contingent deferred payment that is payable from proceeds of drilling activities
on the oil and gas leases held by Louisiana Shelf Partners, L.P. As of March 31,
2004, our net book value in Louisiana Shelf Partners, L.P. was approximately
$1.1 million.

14

ENDEAVOUR INTERNATIONAL CORPORATION

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

The information contained in this Quarterly Report on Form 10-Q and in other
public statements by the Company and Company officers or directors includes or
may contain certain forward-looking statements. The words "may," "will,"
"expect," "anticipate," "believe," "continue," "estimate," "project," "intend,"
and similar expressions used in this Report are intended to identify
forward-looking statements within the meaning of Section 27A of the U.S.
Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of
1934. You should not place undue reliance on these forward-looking statements,
which speak only as of the date made. We undertake no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events. You should also know that such statements
are not guarantees of future performance and are subject to risks, uncertainties
and assumptions. These factors include, but are not limited to, those risks
described in detail in the Company's Annual Report on Form 10-KSB under the
caption "Risk Factors" and other filings with the Securities and Exchange
Commission. Should any of these risks or uncertainties materialize, or should
any of these assumptions prove incorrect, actual results may differ materially
from those included within the forward-looking statements.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Unless the context otherwise requires, references to the "Company", "Endeavour",
"we", "us" or "our", mean Endeavour International Corporation or any of our
consolidated subsidiaries or partnership interests. The following discussion
should be read in conjunction with our Consolidated Financial Statements and
related Notes thereto included elsewhere in this Report.

RESULTS OF OPERATIONS

During the first quarter of 2004, we completed a series of mutually
interdependent transactions that significantly expanded our scope and objectives
- - the Offering, the Merger and the Restructuring as discussed in Note 3 to the
unaudited financial statements herein. With the transactions, we have a new
focus, primarily on international oil and gas exploration, and a license for
seismic data in the North Sea.

As a result of these transactions, all of our producing operations were sold as
well as our exploration activities in Mississippi. We retained our equity
interests in Thailand and Louisiana through the end of the first quarter,
however our equity interest in Louisiana was sold in April 2004. In addition,
all of the outstanding balances of our convertible debt were either repaid or
converted to common stock. Further, substantially all of our outstanding
preferred stock was repurchased or converted to common stock.

Exploration expenses increase from $610,255 during the first quarter of 2003 to
$2,201,373 during the first quarter of 2004. Exploration expenses for 2004
consisted primarily of the $1.8

15

ENDEAVOUR INTERNATIONAL CORPORATION

million expense for the portion of the seismic data, covering 79,200 square
kilometers of the North Sea which was acquired in the Merger, received through
March 31, 2004.

General and administrative expenses increased to $3,027,158 during the three
months ended March 31, 2004 as compared to $245,355 for the corresponding period
in 2003. Expenses for 2004 included a non-cash charge of approximately $1.1
million for the variable plan accounting adjustment for the options granted to
former officers and directors. In addition, general and administrative expenses
for 2004 included approximately $1.1 million in non-cash charges for the
amortization of deferred compensation granted to the new management and
employees after the Merger in February 2004. Expenses for 2003 consisted
primarily of professional fees, officer compensation and consulting fees.

Bad debt expenses were $900,000 during the three months ended March 31, 2003 and
consisted of impairment charges related to our investment in Touchstone
Resources, Ltd. At December 31, 2003, all investments in Touchstone Resources,
Ltd. were fully impaired.

Other expense increased to $9,920,722 during the three months ended March 31,
2004 as compared to other income of $441,437 for the corresponding period in
2003. The 2004 expense consisted of a $10.8 million expense for consideration
given in excess of fair value of identifiable assets acquired in the Merger,
interest expense of $252,672 incurred primarily on outstanding convertible debt
and a $206,971 loss in on the sale of marketable securities as part of the
Restructuring, partially offset by $1.2 million gain in connection with our sale
of our partnership interest in Knox Miss., L.P. The 2003 income consisted of a
$1.2 million gain in connection with the sale of CSR-Waha, offset by interest
expense of $846,025. All of the convertible debt and marketable securities were
sold or converted to common stock as part of the Restructuring. The 2003 expense
consisted primarily of interest expense incurred on outstanding convertible
debt. With the repayment or conversion of all of the outstanding convertible
debt, we do not expect to incur significant interest expense for the remainder
of 2004.

LIQUIDITY AND CAPITAL RESOURCES

On February 4, 2004, a private placement for 125,000 shares of our common stock,
$.001 par value per share, at a purchase price of $2.00 per share, was
completed.

On February 26, 2004, we completed an offering of 25 million shares of our
common stock for estimated net proceeds of $46,000,000, after deduction of
placement agent commissions of $2,500,000, financial advisory fees of $1,250,000
and offering expenses of $101,000. In addition, warrants to purchase 700,000
shares of common stock at an exercise price of $2.00 per share were issued to
the placement agent. The net proceeds were used for the purchase of
approximately 14.1 million shares of common stock and 103,500.07 shares of our
Series B Preferred Stock for $5.3 million and for the repayment of $1.5 million
of the principal amount of certain outstanding convertible notes, with the
remainder of the net proceeds to be used for general corporate purposes,
including potential acquisitions.

16

ENDEAVOUR INTERNATIONAL CORPORATION

After completion of the Offering with $50 million of gross proceeds, we believe
we have sufficient funding for at least 24 months to continue to execute our
business plan. Through the Restructuring, there is no outstanding debt and only
immaterial amounts of outstanding preferred stock. Therefore, we do not expect
to incur significant interest expense nor pay significant preferred dividends
for the remainder of 2004.

ANTICIPATED CHANGE IN METHOD OF ACCOUNTING FOR OIL AND GAS OPERATIONS

In May 2004, we expect to request preclearance by the Securities and Exchange
Commission to change our accounting method for oil and gas operations from the
successful efforts method to the full cost method in light of the significant
changes in our operations that have recently occurred. On February 26, 2004, we
completed a series of transactions that significantly transformed the nature and
scope of our business. These changes include:

o a new management team;

o an experienced technical team in both Houston and London;

o a new, balanced business strategy of exploration, exploitation and
acquisition of producing oil and gas properties that will be focused on
the North Sea; and

o the sale of all interests in U.S. oil and gas producing and exploration
ventures.

We believe that the full cost method of accounting is more appropriate for an
exploration focused company with a large regional concentration and will more
accurately reflect the results of our future operations. The full cost method of
accounting is used by many independent oil and gas companies and its use will
allow investors to better assess the performance of the company. We believe
capitalization of seismic and other exploration technology as well as the cost
of all exploratory wells recognizes the value these expenditures add to the
exploration program of an exploration focused company like Endeavour.
Amortization of these costs over the life of the discovered reserves provides a
more appropriate method of matching revenues and expenses related to our
exploration strategy.

We expect that this determination will be made in the second quarter.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our cash balances are primarily maintained in money market accounts and as such,
we do not believe we are exposed to significant market risk.

ITEM 4: CONTROLS AND PROCEDURES

Our Co-Chief Executive Officers and Chief Accounting Officer performed an
evaluation of our disclosure controls and procedures, which have been designed
to permit us to effectively identify and timely disclose important information.
They concluded that the controls and procedures were effective as of March 31,
2004 to ensure that material information was accumulated and communicated to the
Company's management, including our Co-Chief Executive Officers and

17

ENDEAVOUR INTERNATIONAL CORPORATION

Chief Accounting Officer, as appropriate to allow timely decisions regarding
required disclosure. During the three months ended March 31, 2004, no change in
our internal controls over financial reporting has been made that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.

PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS

On or about March 4, 2004, the GHK Company, LLC, GHK/Potato Hills Limited
Partnership, and Brian F. Egolf (collectively "Plaintiffs") commenced an action
against Endeavour International Corporation ("Endeavour"), f/k/a Continental
Southern Resources, Inc., as well as BWP Gas, L.L.C. ("BWP") and HBA Gas, Inc.
("HBA") (collectively "defendants") in the state court in Oklahoma City,
Oklahoma. In the petition, Plaintiffs allege that CSOR intended to acquire a
majority of the membership interests in BWP and that HBA in turn entered into an
agreement to assign Plaintiff 2.5 million common shares of CSOR stock upon
compliance by Plaintiffs with certain contractual obligations including but not
limited to completion and initial commercial production of the Mary #2-34 well,
along with the presentation of a development plan and the commencement of the
next exploration or development well in the Potato Hills Deep Prospect.
Plaintiffs further allege in their petition that BWP, HBA and Endeavour are
alter egos of each other and jointly and severally liable to Plaintiffs for
failing to deliver Plaintiffs the CSOR common stock. Plaintiffs seek delivery of
the stock as well as a temporary restraining order, a primary and permanent
injunction (i) enjoining all dilutions of Plaintiff rights pertaining to CSOR
stock; (ii) enjoining Endeavour from all future stock issuances and transfers of
assets not in the ordinary course of business and (iii) prohibiting the
alienation or encumbrance of the CSOR stock that is allegedly in Plaintiff's
possession. On April 6, 2004, the defendants removed the action from the state
court to the United States District Court for the Western District of Oklahoma.
Subsequently, Endeavour made a motion for dismissal of the action for lack of
jurisdiction over Endeavour in Oklahoma. Management intends to litigate
vigorously and believes it has good and valid defenses beyond its jurisdictional
defense. However, the action has just begun and counsel is unable to opine on
the outcome of the litigation.

ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

In each of the following transactions, the securities were issued in a private
placement exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof or Rule 506 of Regulation D
promulgated thereunder without payment of underwriting discounts or commissions
to any persons. Certain other issuances of unregistered securities during the
first quarter of 2004 were previously reported under Item 5 of our From 10-KSB.

On February 26, 2004, we acquired NSNV, Inc. for 12,500,000 shares of our
common stock.

18

ENDEAVOUR INTERNATIONAL CORPORATION

On February 26, 2004, we issued 2,808,824 shares of our common stock upon
conversion of all of the outstanding Series C Preferred Stock, and accrued
dividends, at a conversion price of $1.70 per share.

On February 26, 2004, we purchased 14,097,672 shares of our common stock and
103,500.07 shares of our Series B Preferred Stock from RAM Trading, Ltd. for
$5,330,948 in cash.

On February 26, 2004, we issued 375,000 shares of our common stock in exchange
for the $600,000 principal balance and accrued interest due under the Trident
convertible debenture.

On February 26, 2004, we issued 1,026,624 shares of our common stock in exchange
for the $1,550,000 principal balance and accrued interest due under the Michael
P. Marcus convertible debenture.

As consideration for services rendered in connection with the purchase of the
shares of common stock and Series B Preferred stock from RAM, we issued 300,000
shares of our common stock to an unrelated party.

On March 24, 2004, we issued 35,750 shares of our common stock to consultants as
compensation for services rendered in connection with the Merger.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are included herein:

10.1 Agreement between PGS Exploration (UK) Limited and NSNV, Inc. as
Licensee. (Portions of this exhibit have been omitted pursuant to a
request for confidential treatment.)

31.1 Certification of William L. Transier, Co-Chief Executive Officer,
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.

31.2 Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended.

31.3 Certification of Robert L. Thompson, Chief Accounting Officer, pursuant
to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended.

32.1 Certification of William L. Transier, Co-Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.

32.2 Certification of John N. Seitz, Co-Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.3 Certification of Robert L. Thompson, Chief Accounting Officer, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

19

ENDEAVOUR INTERNATIONAL CORPORATION

(b) Current Reports on Form 8-K filed during the three month period ended
March 31, 2004:

On February 27, 2004, we filed a Form 8-K dated February 27, 2004,
concerning the Offering, Merger and Restructuring. The items reported in such
Current Report were Item 2 (Acquisition or Disposition of Assets) and Item 7
(Financial Statements and Exhibits).

On March 1, 2004, we filed a Form 8-K dated March 1, 2004, concerning
change of our name to Endeavour International Corporation. The items reported in
such Current Report were Item 5 (Other Events and Regulation FD Disclosure) and
Item 7 (Financial Statements and Exhibits).

On April 2, 2004, we filed a Form 8-K/A dated February 27, 2004,
concerning the Offering, Merger and Restructuring. The items reported in such
Current Report were Item 7 (Financial Statements and Exhibits).

On May 3, 2004, we filed a Form 8-K dated April 29, 2004, concerning a
change in our independent auditors. The items reported in such Current Report
were Item 4 (Changes in Registrant's Certifying Accountant).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

ENDEAVOUR INTERNATIONAL CORPORATION

Date: May 20, 2004 /s/ William L. Transier /s/ John N. Seitz
-------------------------- --------------------------
William L. Transier John N. Seitz
Co-Chief Executive Officer Co-Chief Executive Officer

/s/ Robert L. Thompson
--------------------------
Robert L. Thompson
Vice President and Chief Accounting Officer

20

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.1 Agreement between PGS Exploration (UK) Limited and NSNV, Inc. as
Licensee. (Portions of this exhibit have been omitted pursuant to
a request for confidential treatment.)

31.1 Certification of William L. Transier, Co-Chief Executive Officer,
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended.

31.2 Certification of John N. Seitz, Co-Chief Executive Officer,
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended.

31.3 Certification of Robert L. Thompson, Chief Accounting Officer,
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended.

32.1 Certification of William L. Transier, Co-Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of John N. Seitz, Co-Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

32.3 Certification of Robert L. Thompson, Chief Accounting Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.