-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FBMDStCpioFF5bgM9318ntNQ/nXPVWmbk2Rb67RKNaViDhTO/8vHth5xoudk+fU8 H0L59s20BV9lRbo3luBnvQ== 0000930661-97-001528.txt : 19970616 0000930661-97-001528.hdr.sgml : 19970616 ACCESSION NUMBER: 0000930661-97-001528 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970501 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970613 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE RESOURCES PLC CENTRAL INDEX KEY: 0000937568 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-19013 FILM NUMBER: 97623684 BUSINESS ADDRESS: STREET 1: KINGSWAY HOUSE 15-17 KING STREET STREET 2: 011-44-71-9309337 CITY: LONDON ENGLAND STATE: NY ZIP: 19107-3496 MAIL ADDRESS: STREET 1: JENKENS & GILCHRIST PC STREET 2: 1445 ROSS AVENUE SUITE 2900 CITY: DALLAS STATE: TX ZIP: 75202 8-K/A 1 FORM 8-K/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 1, 1997 Alliance Resources Plc - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) England and Wales 333-19013 None - ------------------------------- -------------------- --------------------- (State of other jurisdiction of (Commission File (IRS Employer incorporation or organization) Number) Identification No.) Kingsbury House, 15-17 King Street, London SW1Y 6QU - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 44 (171) 930-9337 ================================================================================ This Amendment No. 1 to the Current Report on Form 8-K is filed to provide the financial information required by Item 7 of the Report. ITEM 2. Acquisition or Disposition of Assets - -------------------------------------------- Effective May 1, 1997, Alliance Resources Plc ("Alliance"), completed its acquisition of LaTex Resources, Inc. ("LaTex"), in which a newly formed, wholly owned subsidiary of Alliance merged (the "Merger") with and into LaTex, with LaTex being the surviving corporation in the Merger. In consideration of the Merger, the former shareholders of LaTex received an aggregate of 21,448,787 shares of Alliance, par value (pounds) 0.40 per share (the "New Alliance Shares") and warrants to purchase an additional 1,927,908 New Alliance Shares. As a result of the Merger, after giving effect to a 40-to-1 reverse stock split of the Alliance ordinary shares, each LaTex shareholder at the close of business on April 30, 1997, received 0.85981 of a New Alliance Share for each share of LaTex Common Stock then held, 2.58201 New Alliance Shares for each share of LaTex Series A stock then held, 6.17632 New Alliance Shares for each share of LaTex Series B stock then held, and a warrant to purchase 0.85981 of a New Alliance Share for each share of LaTex Common Stock subject to warrants issued by LaTex then held. Alliance has also issued 1,500,000 New Alliance Shares, convertible loan notes and warrants to LaTex's bank in payment of certain fees and in exchange for an overriding royalty interest held by the bank. As a result of the Merger and related transactions, Alliance has outstanding approximately 31,052,603 New Alliance Shares, warrants to purchase up to 3,138,946 New Alliance Shares and convertible loan notes convertible into 1,078,125 New Alliance Shares. After the close of business on April 30, 1997, no transfer of LaTex shares will be effected. As soon as practicable, a letter of transmittal will be mailed to all holders of LaTex shares to be used by those holders in surrendering to the transfer agent of Alliance their stock certificates representing LaTex shares and to receive in exchange certificates representing New Alliance Shares. The New Alliance Shares will be listed on the London Stock Exchange under the symbol "ARS." The consideration paid in the Merger and related transactions was determined through arms-length negotiations. The Merger and related transactions are intended to create an oil and gas exploration, development and production company with greater opportunity for growth through domestic acquisition and participation in foreign concessions than either of the companies could achieve separately. Management of Alliance intends to focus particularly on opportunities in the United States, the former Soviet Union and the Middle East. The Merger and the transactions related thereto are described in greater detail in the joint Proxy Statement/Prospectus of Alliance and LaTex dated March 14, 1997, which is incorporated by reference as an exhibit to this report. Item 7. Financial Statements and Exhibits - ----------------------------------------- (a) Financial statements of business acquired. Alliance's audited historical statements as of and for the years ended April 30, 1996, 1995 and 1994, and unaudited interim statement for the six months ended October 31, 1996, as well as LaTex's audited historical financial statements as of and for the years ended July 31, 1996, 1995 and 1994, and unaudited interim statements for the six months ended January 31, 1997, are included as exhibits to this report. (b) Pro forma financial information. The unaudited pro forma financial statements of Alliance as of October 31, 1996, giving effect to the Merger and concurrent transactions are included as exhibits to this report. (c) Exhibits. The following exhibits are furnished in accordance with Item 601 of Regulation S-K. 99.1 Press Release announcing completion of the Merger. 99.2 Proxy Statement/Prospectus of Alliance with respect to the Merger dated March 14, 1997 (incorporated by reference to the filings made pursuant to Rule 424(b)(3) on April 8 and April 11, 1997). 99.3 Audited financial statements of Alliance as of and for the years ended April 30, 1996, 1995 and 1994. 99.4 Unaudited interim statement of Alliance for the six months ended October 31, 1996. 99.5 Audited historical financial statements of LaTex as of and for the years ended July 31, 1996, 1995 and 1994. 99.6 Unaudited interim statements of LaTex for the six months ended January 31, 1997. 99.7 Unaudited pro forma financial statements of Alliance as of October 31, 1996. 3 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 of the undersigned hereunto duly authorized. ALLIANCE RESOURCES PLC Date: June 13, 1997 By: /s/ JOHN A. KEENAN ------------------------------------- Name: John A. Keenan Title: Managing Director EX-99.1 2 PRESS RELEASE Exhibit 99.1 Alliance Resources Plc & LaTex Resources, Inc. Announce Completion of Merger TULSA, Okla., April 30 -- Alliance Resources Plc, which is traded on the London Stock Exchange, and LaTex Resources, Inc. (Nasdaq: LATX) today announced the completion of the merger of LaTex with a wholly-owned subsidiary of Alliance. As a result of the Merger, after giving effect to a 40-to-1 reverse stock split of the Alliance shares, each LaTex shareholder at the close of business on April 30, 1997, will receive 0.85981 of a new Alliance share for each share of LaTex Common Stock then held, 2.58201 new Alliance shares for each share of LaTex Series A stock then held, 6.17632 new Alliance shares for each share of LaTex Series B stock then held, and a warrant to purchase 0.85981 of a new Alliance share for each share of LaTex Common Stock subject to warrants issued by LaTex then held. Alliance has also issued new Alliance shares, convertible loan notes and warrants to LaTex's bank in payment of certain fees and in exchange for an overriding royalty interest held by the bank. As a result of the merger and related transactions, Alliance has outstanding approximately 31,052,603 new Alliance shares, warrants to purchase up to 3,138,946 new Alliance shares and convertible loan notes convertible into 1,078,125 new Alliance shares. After the close of business on April 30, 1997, no transfer of LaTex shares will be effected. As soon as practicable, a letter of transmittal will be mailed to all holders of Latex shares to be used by those holders in surrendering to the transfer agent of Alliance their stock certificates representing LaTex shares and to receive in exchange certificates representing new Alliance shares. The new Alliance shares will be listed on the London Stock Exchange under the symbol "ARS." Quotations for the new Alliance shares are anticipated to be available in the daily US edition of the Financial Times. Investors may place orders for the purchase or sale of the shares through most licensed broker dealers in the US. The merger and related transactions are intended to create an oil and gas exploration, development and production company with greater opportunity for growth through domestic acquisitions and participation in foreign concessions than either of the companies could achieve separately. Management of Alliance intends to focus particularly on the opportunities in the United States, the former Soviet Union and the Middle East. SOURCE Latex Resources, Inc. EX-99.3 3 AUDITED FINANCIAL STATEMENTS EXHIBIT 99.3 CONSOLIDATED FINANCIAL STATEMENTS INDEX
PAGE ---- ALLIANCE Report of Independent Auditors F-2 Statement of Directors' Responsibility for Consolidated Financial Statements F-3 Consolidated Statement of Income for the years ended April 30, 1996, 1995, 1994 F-4 Consolidated Balance Sheet as at April 30, 1996 and 1995 F-5 Consolidated Statement of Stockholders' Equity for the years ended April 30, 1996, 1995, 1994 F-6 Consolidated Statement of Total Recognized Gains and Losses for the years ended April 30, 1996, 1995 1994 F-7 Consolidated Statement of Cash Flows for the years ended April 30, 1996, 1995, 1994 F-8 Notes to the Financial Statements F-9 Supplemental Oil and Gas data (unaudited) F-31
F-1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors ALLIANCE RESOURCES PLC We have audited the consolidated financial statements of Alliance Resources Plc and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the company's directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United Kingdom, which are substantially in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly in all material respects the financial position of Alliance Resources Plc and subsidiaries as of April 30, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three year period ended April 30, 1996 in conformity with generally accepted accounting principles in the United Kingdom. Generally accepted accounting principles in the United Kingdom vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected the results of operations and shareholders' equity as at and for the years ended April 30, 1995 and 1996, to the extent summarized in Note 29 to the consolidated financial statements. London, England KPMG Audit Plc October 16, 1996, except note 26 Chartered Accountants which is as of February 19, 1997 Registered Auditor F-2 STATEMENT OF DIRECTORS' RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS UK company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss for that period. In preparing those financial statements, the Directors are required to: . select suitable accounting policies and then apply them consistently; . make judgments and estimates that are reasonable and prudent; . state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; . prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the UK Companies Act of 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. F-3 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED APRIL 30, --------------------------------------- 1996 1995 1994 NOTES $ 000 $ 000 $ 000 ----- -------- -------- -------- Revenues: Oil and natural gas sales and other operating revenues (2) 3,686 1,483 837 -------- -------- -------- Costs and expenses: (5) Exceptional amounts written off oil and gas interests (3) - (14,881) - Exceptional costs arising from irregularities (4) (589) (1,787) - Direct operating expenses (2,262) (933) (903) Selling, general and administrative expenses (2,629) (1,637) (927) Depreciation, depletion and amortization (1,668) (63) (128) -------- --------- ------- OPERATING (LOSS) (6) (3,462) (17,818) (1,121) Other income and deductions: Interest (net) (8) 229 (114) (56) Profit on sales of fixed asset investment - 183 - Exceptional amounts written off investments (7) (201) (464) - Foreign exchange losses (159) - - -------- --------- -------- NET (LOSS) (3,593) (18,213) (1,177) ======== ========= ======== LOSS PER SHARE (CENTS) (10) (1.1) (13.0) (1.2) ======== ========= ========
F-4 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET
AS AT APRIL 30, --------------------- ASSETS 1996 1995 NOTES $ 000 $ 000 ----- -------- --------- Current assets: Cash and cash equivalents 1,177 64 Receivables: (14) Trade 736 626 Other 557 484 Prepaid expenses 64 88 Other current assets - 26 -------- --------- Total current assets 2,534 1,288 -------- --------- Net property, plant and equipment (full cost method for oil and gas properties) (11) 7,311 8,047 -------- --------- Total assets 9,845 9,335 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: (15) Bank loans and overdrafts 37 366 Development loans 5 2,356 Trade accounts payable 1,279 2,574 Accrued expenses - 1,262 Other 677 2,945 ------- --------- Total current liabilities 1,998 9,503 Long term debt, excluding current installments (16) 92 1,240 Other liabilities (16) - 30 ------- --------- Total liabilities 2,090 10,773 ------- --------- Stockholders' equity: Ordinary shares, (Pounds)0.01 par value. Authorized 465,000,000 shares; (17) 5,105 2,524 issued 324,152,633 in 1996 and 161,403,971 shares in 1995 Ordinary shares, (Pounds)0.01 par value to be issued (18) - 2,030 Share premium 20,157 7,922 Merger reserve 401 401 Special reserve (19) - 4,300 Retained earnings (17,908) (18,615) ------- --------- Total stockholders' equity 7,755 (1,438) ------- --------- Total liabilities and stockholders' equity 9,845 9,335 ======= =========
F-5 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ORDINARY ADDITIONAL TOTAL ORDINARY SHARES TO PAID IN MERGER SPECIAL RETAINED STOCKHOLDERS' SHARES BE ISSUED CAPITAL RESERVE RESERVE EARNINGS EQUITY $ 000 $ 000 $ 000 $000 $ 000 $ 000 $ 000 ------- --------- ------- ------- ------- -------- -------- As at April 30, 1993 3,678 - 5,808 - - (3,422) 6,064 Issues of shares 1,707 - 6,308 - - - 8,015 Goodwill arising on acquisition - - - - - (1,073) (1,073) Retained loss for the year - - - - - (1,177) (1,177) Foreign exchange translation - - - - - 460 460 ------- --------- ------- ------- ------- -------- -------- As at April 30, 1994 5,385 - 12,116 - - (5,212) 12,289 Issues of shares 449 - 1,931 401 - - 2,781 Shares to be issued - 2,030 - - - - 2,030 Share issue costs - - (317) - - - (317) Capital reduction (3,310) - (5,808) - 4,300 4,818 - Retained loss for the year - - - - - (18,213) (18,213) Foreign exchange translation - - - - - (8) (8) ------- --------- ------- ------- ------- -------- -------- As at April 30, 1995 2,524 2,030 7,922 401 4,300 (18,615) (1,438) Issues of shares 2,581 (2,030) 12,678 - - - 13,229 Share issue costs - - (443) - - - (443) Special reserve transfer - - - - (4,300) 4,300 - Retained loss for the year - - - - - (3,593) (3,593) ------- --------- ------- ------- ------- -------- -------- As at April 30, 1996 5,105 - 20,157 401 - (17,908) 7,755 ======= ========= ------- ======= ======= ======== ========
F-6 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
YEAR ENDED APRIL 30 -------------------------------------------------- 1996 1995 1994 $000 $000 $000 ---------- ------------- --------------- Loss for the year (3,593) (18,213) (1,177) Foreign exchange translation - (8) 460 Total recognized gains and losses for the period (3,593) (18,221) (717)
F-7 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, ------------------------------------------------- 1996 1995 1994 NOTES $ 000 $ 000 $ 000 ----- --------- ---------- ------------ NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (20) (5,399) 1,987 (1,597) ------- ------- ------- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 236 49 69 Interest paid (28) (163) (125) ------- ------- ------- NET CASH INFLOW/(OUTFLOW) FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 208 (114) (56) ------- ------- ------- INVESTING ACTIVITIES Payments to acquire tangible fixed assets (3,270) (3,413) (3,476) Payments to acquire investments (59) (165) (402) Purchases of subsidiaries (23) - (941) 416 Receipts from sale of investments 77 474 - Receipts from sales of tangible fixed assets 740 - - ------- ------- ------- NET CASH OUTFLOW FROM INVESTING ACTIVITIES (2,512) (4,045) (3,462) ------- ------- ------- NET CASH OUTFLOW BEFORE FINANCING (7,703) (2,172) (5,115) ------- ------- ------- FINANCING (21) Proceeds from issue of shares 12,087 - 6,031 Share issue costs (443) (317) (512) (Decrease)/increase in bank borrowings (904) (269) 260 Repayment of notes payable - - (483) (Repayment)/proceeds from development loans (1,351) 2,351 - (Repayment)/acquisitions of other loans (528) 620 - ------- ------- ------- NET CASH INFLOW FROM FINANCING 8,861 2,385 5,296 ------- ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS (22) 1,158 213 181 ======= ======= =======
F-8 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - ACCOUNTING POLICIES Basis of preparation At the time of drawing up the 1995 financial statements, the Company was in the process of investigating significant irregularities in the Group's affairs during the period in which Mr. O'Brien was Chief Executive and a forensic investigation had uncovered a number of matters which required significant adjustments to the books and records of the Group. In addition to the forensic investigation, the Company instructed Ryder Scott Company, a firm of independent petroleum reservoir engineers, to carry out an evaluation of the oil and gas reserves attributable to the Group. As the result of both the investigation which had at that time not been concluded and the Ryder Scott Company reserve review, exceptional write downs of $16,668,000 relating to the Group's oil and gas reserves and $464,000 relating to fixed asset investments, were charged to the profit and loss account. It was not possible to properly allocate these charges between items relating to the irregularities and the evaluation of the Group's oil and gas reserves at that time. The forensic investigation has been concluded and a settlement with Mr. O'Brien has been agreed. Consequently, $1,787,000 which had originally been capitalized and provided for in the 1995 accounts as part of the $16,668,000 exceptional write down of the Group's oil and gas fixed assets, has since been identified as the estimated loss to the Group arising from the alleged fraudulent activities and has now been reclassified as a separate item (see note 4). The exceptional write down relating to oil and gas assets has accordingly been restated as $14,881,000. The accumulated cost and depletion of oil and gas interests at 1 May 1995 have been reduced by $1,787,000. In addition $285,000 of payments made to acquire tangible fixed assets have been similarly classified to operating cash flow. The accounting policies set out below have been used by the Company in the preparation of the financial statements. Accounting convention The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Goodwill Goodwill relating to businesses purchased by the Group, where arising, is set off immediately against reserves. Reporting currency The Group's current operations are in the oil and gas industry in the United States and are conducted through its subsidiaries, Alliance Resources (USA), Inc. and Source Petroleum, Inc. Transactions are conducted primarily in US dollars. As a result, the directors consider that the US dollar is the functional currency of the Group and the Group's financial statements have been prepared in US dollars. The Company's share capital is denominated in sterling and for the purposes of the financial statements, is translated into US dollars at the rate of exchange at the time of its issue. Foreign currency translation The accounts of companies of the Group whose functional currency is not US dollars are translated for consolidation purposes at the rate of exchange ruling at the balance sheet date. Exchange differences arising on the retranslation of opening net assets are taken directly to reserves. F-9 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For those companies whose functional currency is not US dollars, transactions with third parties are translated into US dollars at the exchange rate prevailing at the date of each transaction. Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the exchange rate prevailing at the balance sheet date. Any exchange gain or loss is dealt with through the profit and loss account. Abandonment Provision is made for abandonment costs net of estimated salvage values, on a unit-of-production basis, where appropriate. Turnover Turnover represents income from production and delivery of oil and gas, recorded net of royalties and fees for the provision of technical services. All turnover arises from activities within the United States. Oil and gas interests The Group follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are capitalized as tangible fixed assets. Such costs include lease acquisition costs, geological and geophysical costs, the costs of drilling both productive and non-productive wells, production equipment and related overhead costs. Capitalized costs, plus estimated future development costs, are accumulated in pools on a country-by-country basis and depleted using the unit-of-production method based upon estimated proved net reserve volumes. Reserve volumes are combined into equivalent units using relative energy content. Costs of acquiring and evaluating unproved properties and major development projects are excluded from the depletion calculation until it is determined whether or not proved reserves are attributable to the properties, the major development projects are completed, or impairment occurs, at which point such costs are transferred into the pool. Proceeds from the sale or disposal of properties are deducted from the relevant cost pool with any overall deficit or surplus being recognized in the profit and loss account. The Group performs a 'ceiling test' calculation in line with industry practice. Costs permitted to be accumulated in respect of each cost pool are limited to the future estimated net recoverable amount from estimated production of proved reserves. Depreciation of other fixed assets Other tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight line basis to reduce the cost of assets, net of estimated residual values, over their estimated useful lives as follows: Fixtures and equipment - 3 to 7 years Freehold buildings - 30 years No depreciation is provided on freehold land. Deferred taxation Deferred taxation, calculated using the liability method, is provided only where it is probable that a liability will crystallize. F-10 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Joint ventures The Group's exploration, development and production activities are generally conducted in joint ventures with other companies. The financial statements reflect the relevant proportions of turnover, production, capital expenditure and operating costs applicable to the Group's interests. Fixed asset investments Fixed asset investments are stated at cost less any provisions required for permanent diminutions in value. Leases Rentals under operating leases are charged to the profit and loss account on a straight line basis over the lease term. Cash equivalents Deposits with original terms of maturity of 90 days or less are considered to be cash equivalents. NOTE 2 - SEGMENTAL REPORTING The Group's current operating activities are principally conducted in the United States of America and relate to the oil and gas exploration and production business and the provision of oil and gas services to this business. All turnover arises from activities within the United States of America, with turnover by destination not materially different from turnover by origin. NOTE 3 - EXCEPTIONAL AMOUNTS WRITTEN OFF OIL AND GAS INTERESTS The proved oil and gas reserves of the Group and the net recoverable amount arising therefrom were estimated as at April 30, 1995 by Ryder Scott Company, a firm of independent petroleum engineers following the discovery that Valentine #14 well was not capable of commercial production and that the Group had relinquished title to its undeveloped acreage in the Valentine field. The amount of $14,881,000 (see note 1) written off in the year to April 30, 1995 represents the write down relating to the carrying value of the Group's oil and gas interests as restated after the reclassification of $1,787,000 as a separate exceptional item (see note 4). The net book value of the oil and gas interests as at April 30, 1995 is included in the balance sheet at that date at the estimated net amount recoverable through production. NOTE 4 - EXCEPTIONAL COSTS ARISING FROM IRREGULARITIES During the year ended April 30, 1996, following the discovery that Mr. O'Brien appeared to have been fraudulently misrepresenting the position at the Valentine field relating to the #14 well, the Company undertook (with the assistance of external advisers) an investigation into the involvement of Mr. O'Brien in the affairs of the Company. This investigation has revealed that the Group has suffered a financial loss as the result of a number of transactions involving Mr. O'Brien or parties now known to have been connected with him. F-11 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The resulting exceptional charge comprises:
1996 1995 $ 000 $ 000 ----- ------ Loss arising from transactions with certain companies related to Mr. O'Brien 73 1,787 Professional fees 788 - Estimated proceeds resulting from the settlement with Mr. O'Brien (272) - ----- ------ 589 1,787 ===== ======
Loss arising from transactions with certain companies related to Mr. O'Brien The loss of $73,000 relates to an improper payment on the June 19, 1995 of (Pounds)48,750 to Jasmine Consultants Limited. Jasmine Consultants Limited is an off-shore company beneficially owned by Mr. O'Brien. The loss of $1,787,000 arises from a number of transactions with certain companies related to Mr. O'Brien in the year to April 30, 1995 as set out below: . On August 10, 1994, the Company issued 7,500,000 ordinary shares to Progas Holdings Limited, a company in which Mr. O'Brien now admits to have an interest and which is incorporated in Delaware, USA. This issue of shares was in consideration for a 5.75% working interest in the Valentine field. It has subsequently been discovered that Progas Holdings Limited acquired this interest in the Valentine field from its previous owners on 21 July 1994 at a price of $255,000. . On January 15, 1995 the Group entered into a loan agreement with Progas Holdings Limited to record the terms of a loan of which $1,129,000 had been advanced by Progas Holdings Limited between July 28, 1994 and December 16, 1994. The principal terms of the loan were: . a facility of $1,400,000 to be drawn down solely for the purpose of drilling and developing the Valentine #14 well; . if the well was successful in proving commercially recoverable quantities of oil and gas the amount drawn down together with a 100% premium would be payable to Progas Holdings Limited from commencement of production to July 30, 1995 at the latest, with the Group reserving a right of early settlement in full; . if the well was abandoned within six months of the date of the agreement the amount drawn down was repayable immediately. . On February 22, 1995, on the basis of representations from Mr. O'Brien that Valentine #14 well was successful, it was agreed that 10,351,966 ordinary shares of the Company would be issued to Progas Holdings Limited at 6p per share in satisfaction of $1,000,000 of the debt with the remaining $1,258,000 to be repaid in cash. . On May 10, 1995, 10,351,966 ordinary shares were so issued and the aggregate sum of (Pounds)794,000 was paid to Progas Holdings Limited to satisfy the liability of $1,258,000. The premium paid of $1,129,000 was not justified. . On April 5, 1995, the Group made a payment of $ 175,000 to Progas Holdings Limited for no apparent commercial reason. F-12 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) . Between August 26, 1993 and September 1, 1993, the Group acquired a 1.375% overriding royalty interest in the Valentine field from Royalty Investments Limited (a company which Mr. O'Brien now admits he owns), for $185,000. Royalty had acquired a 0.125% overriding royalty interest in the Valentine field from an unrelated third party on August 23, 1993 for $7,500. The Company believes the interest purchased to have been overvalued by $102,000. Professional fees The exceptional cost of $788,000 in the year to 30 April 1996 relates to the estimated cost of professional assistance obtained by the directors in relation to actions taken arising from the alleged fraudulent activities in the period in which Mr. O'Brien was Chief Executive. Estimated proceeds resulting from the settlement with Mr. O'Brien The Company has reached a settlement with Mr. O'Brien. One of the terms of the settlement requires the disposal of 10,351,966 shares in the Company held in the name of Progas Holdings Limited and the payment of the proceeds of sale of those shares to the Company. These shares are currently in the custody of an independent third party, pending their sale. Mr. J. A. Keenan, the Managing Director of Alliance, has a proxy over the voting rights attaching to these shares and to certain other shares in the Company held by Mr. O'Brien, Diamond Securities Limited and Havensworth Limited, the latter two being companies beneficially owned by Mr. O'Brien, pending their sale by Mr. O'Brien and these companies as required by the settlement. The exceptional credit of $272,000 relates to the expected proceeds resulting from the sale of the shares in the name of Progas Holdings Limited calculated using the market price prior to suspension of the Company's shares. NOTE 5 - OPERATING COSTS
1996 1995 1994 $000 $000 $000 -------- -------- -------- Total operating costs were: 7,148 19,301 1,958 ====== ======== ===== Made up as follows: Cost of sales Exceptional amounts written off oil and gas interests (note 3) - 14,881 - Exceptional costs arising from irregularities (note 4) - 1,787 - Operating costs and production taxes 2,318 996 903 Depletion of oil and gas interests 1,612 - 125 3,930 17,664 1,028 ====== ======== ===== Administrative expenses Exceptional professional fees net of expected settlement proceeds (note 4) 589 - - Administrative expenses 2,629 1,637 930 ------ -------- ----- 3,218 1,637 930 ====== ======== ===== The gross (loss)/profit was: (244) (16,181) 191 ====== ======== =====
F-13 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 6 - OPERATING LOSS The operating loss has been arrived at after charging the following:
1996 1995 1994 $000 $000 $000 ------- ------- ------ Auditors' remuneration - audit 188 48 30 Auditors' remuneration - non-audit services 41 68 103 Depreciation, depletion and amortization of tangible fixed assets 56 63 3 (excluding oil and gas assets) Depreciation, depletion and amortization of oil and gas fixed assets 1,612 14,881 125 (including ceiling test write-down) Lease costs on buildings 35 62 41 Hire of plant and equipment 78 4 42 ------ ------- ----
In the year ended April 30, 1995, in addition to the $68,000 charged to the profit and loss account , $129,000 of fees paid to KPMG were charged to the share premium account in connection with the placing and open offer which was completed on May 9, 1995. NOTE 7 - EXCEPTIONAL AMOUNTS WRITTEN OFF INVESTMENTS Following the removal of Mr. O'Brien, the Group reviewed its portfolio of investments, unlisted investments and joint venture interests. It was considered unlikely that significant amounts would be recovered from the Tatarstan investment or from the Geos joint venture. Accordingly, charges have been made to the profit and loss account in the years ended April 30, 1995 and 1996 in respect of costs incurred in relation to these investments. NOTE 8 - INTEREST (NET)
1996 1995 1994 $000 $000 $000 -------- -------- -------- Interest receivable 257 49 69 Interest payable on bank loans and overdrafts wholly repayable within five years (28) (163) (125) ----- ----- ---- 229 (114) (56) ===== ===== ====
NOTE 9 - TAXATION No material charge to UK corporation tax or US federal income tax arises on the results for the year to April 30, 1996 (1995:$nil, 1994:$nil) due to the availability of substantial losses for taxation purposes. Deferred taxation has not been provided as at April 30, 1996 as sufficient losses exist to extinguish potential deferred liabilities (1995: $nil; 1994: $nil). NOTE 10 - LOSS PER SHARE The calculation of loss per share is based upon the following:
1996 1995 1994 ------------- ------------ ------------ Loss for the period ($000) 3,593 18,213 1,177 ============ ============ =========== Weighted average number of shares 317,175,674 140,416,616 99,598,313 ============ ============ ===========
F-14 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - NET PROPERTY, PLANT AND EQUIPMENT
FREEHOLD LAND AND OIL AND GAS FIXTURES & BUILDINGS INTERESTS EQUIPMENT TOTAL $000 $000 $000 $000 ------------ ------------ ----------- ------- COST At May 1, 1994 - 16,150 55 16,205 Additions - 6,220 49 6,269 Acquisitions 104 2,012 148 2,264 Disposals - - (29) (29) ------------ ------------ ----------- ------- At May 1, 1995 104 24,382 223 24,709 Additions - 1,657 15 1,672 Disposals - (735) (125) (860) ------------ ------------ ----------- ------- At April 30, 1996 104 25,304 113 25,521 ============ ============ =========== ======= DEPRECIATION, DEPLETION AND AMORTIZATION At May 1, 1994 - 1,704 17 1,721 Charge for the year 1 - 62 63 Exceptional charge - 14,881 - 14,881 Transfer to current assets - - (3) (3) ------------ ------------ ----------- ------- At May 1, 1995 1 16,585 76 16,662 Charge for the year 3 1,612 53 1,668 Disposals - - (120) (120) ------------ ------------ ----------- ------- At April 30, 1996 4 18,197 9 18,210 ============ ============ =========== ======= NET BOOK VALUE At April 30, 1996 100 7,107 104 7,311 ============ ============ =========== ======= At April 30, 1995 103 7,797 147 8,047 ============ ============ =========== =======
A substantial portion of the Group's oil and gas exploration, development and production activities are conducted jointly with others. All of the Group's producing oil and gas interests are located in one onshore US oil and gas pool. As at April 30, 1995 the Group had an interest in the Donkerbroek field, a non- producing pre-development field located off-shore The Netherlands which had not been included in the full cost pool and had not been subject to depletion. On June 5, 1995, the Group sold this interest for consideration after associated costs of $398,000. On July 12, 1995, the Group sold its oil and gas interests in Colorado, USA for net consideration of $283,000. Freehold land of $25,000 is not depreciated. F-15 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - INVESTMENTS
$ 000 ----- Cost and net book value At May 1, 1994 Additions 590 Amounts written off 165 Disposal (464) (291) ----- At May 1, 1995 Additions - Amounts written off 201 Disposal (201) - ----- At April 30, 1996 - =====
As explained in note 7, an exceptional charge of $201,000 (1995: $464,000) was made in the year ended April 30, 1996 relating to the investment in Tatarstan and Geos joint venture. F-16 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 13 - PRINCIPAL SUBSIDIARIES The principal subsidiaries of the Company all of which were wholly owned at April 30, 1996, were as follows:-
ISSUED AND PLACE OF FULLY PAID % REGISTRATION SHARE CAPITAL OWNED NATURE OF BUSINESS Alliance Resources (USA) Inc. USA 2,000 100 Oil and gas common exploration and shares US$1 production each Manx Petroleum Plc* England 2,585,705 100 Oil services ordinary shares of 5p each and 1,300,000 non-voting deferred shares of 95p each Celtic Basin Oil England 621,110 100 Oil and gas Exploration Ltd ordinary exploration and shares of (Pounds)1 production each Source Petroleum Inc. USA 100 common 100 Oil and gas shares of exploration and US$1 each production Alliance Resources Group Inc.* USA 100 common 100 Investment shares of US$1 each ARNO Inc. USA 100 common 100 Oil and gas shares of no exploration and par value production ARCOL Inc. USA 100 common 100 Oil and gas shares of no exploration and par value production
* owned directly by the Company. The place of registration of each subsidiary undertaking is also its principal country of operation. F-17 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - ACCOUNTS RECEIVABLE
1996 1995 $ 000 $ 000 ------- ------- Due within one year: Trade debtors 736 626 Other debtors 557 484 Prepayments and accrued income 64 88 ------- ------- 1,357 1,198 ======= =======
NOTE 15 - CURRENT LIABILITIES
1996 1995 $ 000 $ 000 ------- ------- Bank loans (secured) 37 321 Bank overdrafts - 45 Trade creditors 1,279 2,574 Other creditors including taxation and social security 677 2,945 Development loans and other loans 5 2,356 Accruals - 1,262 ------- ------- 1,998 9,503 ======= =======
Development loans represented specific loans granted during the year ended April 30, 1995 to provide funds for drilling and developing the Valentine #14 well. F-18 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 16 - LONG-TERM DEBT AND OTHER LIABILITIES
1996 1995 $ 000 $ 000 ----- ------- Bank loans (secured) - 620 Trade creditors - 30 Other loans (secured) 92 620 ----- ------- 92 1,270 ===== ======= Bank loans and overdrafts were repayable as follows: 1996 1995 $ 000 $ 000 ----- ------- Less than one year (see note 15) 37 366 Between one and two years - 311 Between two and five years - 309 37 986 Less: amounts included in current liabilities (37) (366) ----- ------- Amounts due after more than one year - 620 ===== ======= Development loans and other loans were repayable as follows: 1996 1995 $ 000 $ 000 ----- ------- Less than one year (see note 15) 5 2,356 Between one and two years 6 560 Between two and five years 21 42 After five years 65 18 ----- ------- 97 2,976 Less: amounts included in current liabilities (5) (2,356) ----- ------- Amounts due after more than one year 92 620 ===== =======
The bank loan as at April 30, 1995, of $620,000 falling due after more than one year and $308,000 falling due within one year, was repayable in equal monthly instalments by June 6, 1998 at a fixed rate of interest of 8% and was secured by a $3,000,000 collateral mortgage and security interests in certain mineral leases of the Group. This loan was repaid after April 30, 1995 from the proceeds of the placing and open offer which was completed on May 9, 1995. Other loans as at April 30, 1996 and April 30, 1995 comprised a $92,000 (1995:$95,000) loan repayable in instalments, bearing interest at 9% per annum, which was secured on the Group's freehold land and buildings. Also included in other loans at April 30, 1995 a $525,000 loan which was free of interest and secured upon certain mineral leases of the Group. Further information in relation to development loans is set out in note 25. F-19 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 17 - SHARE CAPITAL
1996 1995 ------------ ------------ Authorized - - ordinary shares of 1p each 465,000,000 216,000,000 ============ ============ Allotted, called up and fully paid - - ordinary shares of 1p each 324,152,633 161,403,971 ============ ============ 1996 1995 Amount in SterlinG (Pounds)000 (Pounds)000 ------------ ------------ Authorized - - ordinary shares of 1p each 4,650 2,160 ------------ ------------ Allotted, called up and fully paid - - ordinary shares of 1p each 3,242 1,614 ============ ============ 1996 1995 Amount in US dollars $ 000 $ 000 ------------ ------------ Allotted, called up and fully paid - - ordinary shares of 1p each 5,105 2,524 ============ ============
AUTHORIZED SHARE CAPITAL On May 4, 1995, the authorized share capital of the Company was increased to 465,000,000 ordinary shares of 1p nominal value by the creation of an additional 249,000,000 ordinary shares of 1p each, ranking pari passu with the existing ordinary shares. ISSUE OF SHARES The following 1p ordinary shares were issued in the year to April 30, 1996: (i) on May 9, 1995, 18,426,500 ordinary shares were issued in part consideration for the acquisition of a portfolio of oil and gas assets in the US from North American Gas Investment Trust PLC that had been made during the year ended 30 April 1995; (ii) on May 10, 1995, 127,470,196 ordinary shares were issued at 6p per share by way of a placing and open offer which raised net proceeds of US$11,663,000 after share issue costs of US$443,000; (iii) on May 9, 1995, 10,351,966 ordinary shares were issued at 6p in part repayment of a development loan from Progas Holdings Limited; (iv) on July 19, 1995, 1,500,000 ordinary shares were issued in consideration for the acquisition of all the issued 'A' ordinary share capital of Geological Forecast Technology Limited; (v) on November 27, 1995, 5,000,000 ordinary shares were issued as final consideration for the repayment of a development loan from North American Gas Investment Trust PLC that had been made during the year ended April 30, 1995. F-20 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) SHARE OPTIONS On June 15, 1995, the following share options were granted pursuant to Alliance Resources Plc Share Option Scheme (No. 1) to directors and employees of the Company, exercisable at 6p per share. John X F O'Brien 2,500,000 options Nicholas C Gray 1,500,000 options Other employees 1,325,000 options At April 30, 1996 all options had ceased to be exercisable and have subsequently lapsed. At the time of issue of the 1996 financial statements, there were no options granted under the schemes but the Board has resolved that the following share options be granted to the following executive directors: John A Keenan 6,000,000 options H Brian K Williams 2,500,000 options Paul R Fenemore 1,000,000 options Such options were to be granted at an appropriate time and at a price to be determined in accordance with the provisions of the Company's Share Option Scheme. By an agreement dated March 31, 1994, the Company granted to John Duncan and Co Limited an option to subscribe for 2,000,000 ordinary shares at 7.25p per share in consideration for professional services. The option is exercisable in whole or in part at any time from January 1, 1998 up to and including December 31, 2001. NOTE 18 - SHARES TO BE ISSUED Shares to be issued at April 30, 1995 represent the remainder of the consideration payable on the acquisition of a portfolio of oil and gas assets in the US from North American Gas Investment Trust PLC, made during the year to April 30, 1995 and consideration payable in repayment of a development loan from North American Gas Investment Trust PLC.
$000 ---- Shares in respect of acquisition (issued on May 9, 1995) 1,780 Shares in respect of loan repayment (issued on November 27, 1995) 250 ----- 2,030 =====
Consideration given on May 9, 1995 and November 27, 1995 was made up of 18,426,500 and 5,000,000 ordinary shares of 1p each respectively issued at a premium. Aggregate increases in share capital and share premium were as follows:
$000 $000 ---- ---- Share capital issued on May 9, 1995 297 Share capital issued on November 27, 1995 80 ----- 377 Premium on shares issued on May 9, 1995 1,483 Premium on shares issued on November 27, 1995 170 ----- 1,653 ----- 2,030 =====
F-21 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 19 - SPECIAL RESERVE The special reserve of $4,300,000 at April 30, 1995 was set up as a result of a reduction of share capital and share premium account approved by the High Court on October 5, 1994 and was subject to restrictions imposed by the Court. These restrictions were to become inoperative when new consideration of an equivalent amount was received on shares issued after October 6, 1994. This occurred on May 9, 1995 and, accordingly, the reserve has been transferred to the accumulated profit and loss account. NOTE 20 - RECONCILIATION OF OPERATING LOSS TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
1996 1995 1994 $ 000 $ 000 $ 000 ------- ------- ------- Operating loss (3,462) (17,818) (1,121) Exceptional amounts written off - 14,881 - Profit on sale of investments (51) - - Depreciation, depletion and amortization of oil and gas interests 1,612 - 125 Depreciation of non-oil and gas interests 56 63 3 (Increase)/decrease in debtors (138) 114 601 (Decrease)/increase in creditors (3,416) 4,747 (1,205) ------- ------- ------ Net cash (outflow)/inflow from operating activities (5,399) 1,987 (1,597) ======= ======= ======
F-22 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 21 - ANALYSIS OF CHANGES IN FINANCING
NOTES OTHER BANK SHARE PAYABLE LOANS LOANS CAPITAL $ 000 $ 000 $ 000 $ 000 -------- ------- ------- ------- Balance at May 1, 1993 483 - 965 9,486 Issues of shares for non-cash consideration - - - 2,496 Proceeds from issue of shares - - - 6,031 Share issue cost - - - (512) Repayment of notes payable (483) - - - Exchange gain - - (15) - Bank borrowings - - 260 - ----- ------- ------- ------- Balance at April 30, 1994 - - 1,210 17,501 Issue of shares for non-cash consideration - - - 2,781 Shares to be issued for non-cash consideration - - - 2,030 Share issue costs - - - (317) Non-cash share capital reduction - - - (4,818) Repayment of bank borrowings - - (269) - Proceeds from development loans - 2,351 - - Loans in connection with Source acquisition - 625 - - ----- ------- ------- ------- Balance at April 30, 1995 - 2,976 941 17,177 Issue of shares for non-cash consideration - (1,000) - 1,142 Proceeds from issue of shares - - - 12,087 Share issue costs - - - (443) Non-cash transfer of special reserve - - - (4,300) Repayment of bank borrowings - - (904) - Repayment of development loans - (1,351) - - Repayment of other loans - (528) - - ----- ------- ------- ------- Balance at April 30, 1996 - 97 37 25,663 ===== ======= ======= =======
Other loans include development loans and other loans disclosed in notes 15 and 16. Share capital includes shares to be issued, share premium, merger reserve and special reserve. NOTE 22 - ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS
$ 000 ------- Balance at May 1, 1993 (375) Net cash inflow 181 ------- Balance at May 1, 1994 (194) Net cash inflow 213 ------- Balance at April 30, 1995 19 Net cash inflow 1,158 ------- Balance at April 30, 1996 1,177 =======
F-23 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Analysis of the balances of cash and cash equivalents as shown on the consolidated balance sheets:
1996 1995 1994 $ 000 $ 000 $ 000 ------- ------- ------- Cash and cash equivalents 1,177 64 288 Bank overdrafts - (45) (482) ------- ------- ------- 1,177 19 (194) ======= ======= =======
NOTE 23 - ACQUISITIONS. On January 25, 1995 the Group acquired Source Petroleum Inc. ("Source"), an oil and gas exploration and production company. The acquisition has been accounted for using the acquisition method of accounting. The following summarizes the fair value ascribed at the date of acquisition:
Net assets acquired: $ 000 ------- Tangible fixed assets 2,264 Debtors 340 Bank overdraft (28) Creditors (1,210) ------- 1,366 ======= Acquisition cost: Shares allotted 453 Cash 913 ------- 1,366 =======
The consideration for the acquisition was satisfied by the issue of 3,205,128 ordinary shares and cash of $800,000. $113,000 was expended in costs connected with the acquisition. The amounts attributed to the assets and liabilities of Source represent estimates of fair market values at the date of acquisition. These amounts were the same as the book values at acquisition, except that the net book value of tangible fixed assets was $1,871,000 with the fair value uplift being $393,000 and the net book value of creditors was $1,611,000 with the fair value attributed being $1,210,000. The effect of the acquisition on the Group's results for the year to April 30, 1995 was to increase the loss for the financial year by $20,000. Unaudited financial statements of Source for the five month period ended April 30, 1995 showed a loss for the period of $20,000. F-24 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 24 - EMPLOYEES
1996 1995 1994 $ 000 $ 000 $ 000 ----- ----- ----- Staff costs (including Executive Directors) Salaries and wages 661 443 215 Social security costs 82 16 6 Termination costs 178 - - Other pension costs 7 - - ----- ----- ----- 928 459 221 ===== ===== ===== 1996 1995 1994 $ 000 $ 000 $ 000 ----- ----- ----- Aggregate directors' emoluments (including pension contributions) were: as directors 46 9 7 for management services salaries 341 216 137 benefits-in-kind 4 - - pension contributions 7 - - fees to third parties 26 - - Payments to former directors in respect of termination of contracts 156 - - ----- ----- ----- 580 225 144 ===== ===== =====
The average number of persons employed by the Group, including Executive Directors, was as follows:
1996 1995 1994 $ 000 $ 000 $ 000 ----- ----- ----- Management and administration 8 9 5 Technical and operational 7 11 - ----- ----- ----- 15 20 5 ===== ===== =====
F-25 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 25 - DIRECTORS' AND RELATED PARTY TRANSACTIONS Transactions related with parties now known to be connected with Mr. O'Brien are dealt with in note 4. The following related party transactions occurred with North American Gas Investment Trust PLC (NAGIT) which on May 9, 1995 became a substantial shareholder of the Company: (i) July 29, 1994, the Group had entered into a loan agreement with NAGIT. The main terms of the interest free loan were: . a facility of $250,000 to be drawn down solely for the purpose of drilling the Valentine #14 well; . if the well was successful in improving commercially recoverable quantities of oil and gas, the capital drawn down together with a 100% premium would be payable to NAGIT from production at 30% of gross production revenues for the first 125 days, 50% of gross production thereafter to 365 days after which settlement of the remaining balance would be made in shares; . if the well was abandoned, NAGIT was entitled to repayment in shares to the lesser of 5,000,000 ordinary shares of 1p each and the number of ordinary shares of 1p each to the value of $250,000; . if drilling was suspended for more than 30 days due to lack of funds, NAGIT was entitled to repayment in shares to the value of $250,000. The full amount of the facility was drawn down. As Mr. O'Brien appeared to have fraudulently misrepresented that the Valentine #14 well was successful, on various dates between June 6, 1995 and July 19, 1995 $347,307 in aggregate was originally paid to NAGIT representing payments from production volumes. Subsequent to the discovery of the fraudulent misrepresentation concerning the Valentine #14 well, this amount was off-set against the $1,300,000 cash element of the purchase and sale agreement with NAGIT (see(ii) below). At April 30, 1995 $250,000 was included as shares to be issued in respect of this agreement. These shares were issued on November 27, 1995 as discussed in note 17. (ii) on January 25, 1995, NAGIT lent the Group $1,200,000 bearing interest at 7% per annum for assistance in the financing of the acquisition of Source Petroleum Inc and to provide additional working capital. At April 30, 1995, $1,200,000 was outstanding and included in development loans and this amount was repaid from the proceeds of the placing and open offer on May 9, 1995; (iii) on April 10, 1995, the Group entered into a purchase and sale agreement with NAGIT. The main terms of the agreement were: . the Group would purchase a portfolio of producing properties located in the US with an effective date of January 1, 1995; . consideration for the acquisition would comprise $1,300,000 in cash and the issue of 18,426,500 ordinary shares; F-26 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The 18,426,500 ordinary shares are included as shares to be issued at April 30, 1995 at $1,780,000. The 18,426,500 ordinary shares were issued to NAGIT on May 9, 1995. At April 30, 1995 $1,300,000 was included in other creditors. This was settled by the payment on various dates of an aggregate amount of $347,307 and a payment on November 1, 1995 of $906,000. NOTE 26 - SUBSEQUENT EVENTS On August 13, 1996 the Company announced that it had entered into a conditional agreement to effect a merger ("Merger") with LaTex Resources, Inc. ("LaTex"), a company listed on the NASDAQ. As a result of the Merger, the Company will issue to the LaTex shareholders shares of the Company which will equal approximately 72% of the Company's issued shares after the Merger. The Company's shareholders will own approximately 28% of the issued shares after the Merger. As a condition of the Merger, the Company will effect a share consolidation, with the result that each 40 shares that the Company's shareholders currently own will be converted into one share of the Company; the shares issued to the LaTex shareholders will be adjusted to take this consolidation into account. At the Company's request, The London Stock Exchange has suspended the listing of the Company's shares pending further details of the reorganization of the Company. Alliance's directors have reached agreement in principle with LaTex's lenders that LaTex's current facility will be amended with the principal effect that capital repayments will be suspended until 18 months following completion of the Merger. The directors consider that the amended facility will provide a sound financial base for the enlarged group. The Merger is conditional upon a suitable facility being finalized. On August 13, 1996, the Company also announced that it has agreed terms to stay its current litigation against Mr. John O'Brien, its former Chief Executive and other companies beneficially owned by Mr. O'Brien. Mr. O'Brien has also withdrawn a counterclaim made against the Company (see note 4). Other transactions occurred subsequent to April 30, 1996 as follows: (i) On May 13, 1996 the Group announced that one of its US subsidiaries ARNO Inc had reached agreement on the sale of its interest in four leases comprising the McPac field, Matagorda Island, offshore Texas to Louisiana Land and Exploration Company for a cash consideration of $525,000. The Group's interest in these blocks varied between 4.2% and 6.3% and its interest in the McPac platform was 6.3%. On May 30, 1996, the Group completed this transaction and the gross consideration was adjusted to reflect the impact of the effective date of January 1, 1996 and a gas overlift imbalance. This resulted in a net cash consideration of $432,000, which has been taken as a credit against the carrying cost of the Group's oil and gas assets in the year to April 30, 1997. (ii) On August 15, 1996 the Group disposed of its interest in 4 leases comprising the Provident City field, Lavaca County, onshore Texas to Shana Petroleum for a net cash consideration of $435,000. The Groups' working interest in these blocks varied between 17.7% and 42.4%. The proceeds of the sale have been taken as a credit against the carrying cost of the Group's oil and gas assets in the year to April 30, 1997. (iii) In August 1996 the Company transferred its interest in Geological Forecast Technology Ltd by transferring its 50 'A' shares to Geos Seismology Limited as part of a final settlement of an action brought by the latter. (iv) On October 3, 1996, the Group announced that one of its US subsidiaries ARNO Inc had reached agreement for the sale of its interests in three US oil and gas fields to BWAB Incorporated for a cash consideration of $1,425,000. The disposal covered the Group's interests in the Frost, Gilmer South and Mocane Laverne fields, which are located in Texas and Oklahoma and had combined remaining reserves of 25,920 barrels of oil and 1,720 million cubic feet of gas as at May 1, 1996, representing approximately 16% of the Group's total proved and probable reserves. The interests comprised 26 wells and the working interests in those wells varied between 5% and 28%. The proceeds of the sale have been taken as a credit against the carrying cost of the Group's oil and gas assets in the year to April 30, 1997. F-27 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 27 - LITIGATION AND CONTINGENCIES The Group is party to the following litigation: (i) the Group is seeking to recover $1,300,000 of unpaid drilling costs from Drexco Inc, with Drexco Inc and H Huizenga claiming unspecified damages in respect of conduct, and removal of Alliance Resources (USA) Inc as operator of the Valentine field. The Group has obtained legal advice and will vigorously prosecute its claim against Drexco Inc. The Group denies the counter claim and will vigorously defend the matter; (ii) the Group has received, on September 12, 1996, a writ from Best Royalties Plc claiming $186,368 and a declaration that they are entitled to a sum equal to 40% of Alliance (USA) Inc's net cash proceeds received from the Arrowhead well (and payment of the said sum), alternatively damages, plus interest thereon. The Group denies the claim and will vigorously defend this matter; (iii) Ernest M Closuit et al. have asserted a claim against the Group for alleged underpayment of amounts due for Closuit et al.'s interest in the Buller No. 2 well in the South Elton field and have further claimed an interest in past and future production from certain other wells in the field. Total claims amount to approximately $1,200,000. Discovery has just begun. The Group denies all allegations and claims and will vigorously defend this matter; (iv) the directors have not been notified and do not expect to be notified of any claims arising from the alleged fraudulent activities of Mr. O'Brien. NOTE 28 - CAPITAL COMMITMENTS The capital commitments in respect of drilling costs for the forthcoming year which are authorized but not contracted are as follows:
APRIL 30, 1994 APRIL 30, 1995 APRIL 30, 1996 $ 000 $ 000 $ 000 -------------- -------------- -------------- Capital commitments 6,037 5,300 - ====== ====== =====
NOTE 29 - SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Company's accounting policies conform with United Kingdom generally accepted accounting principles ("UK GAAP") which differ in certain respects from United States generally accepted accounting principles ("US GAAP"). Differences which have a significant effect on the consolidated profit after tax (net income) and shareholders' equity of the Group are set out below. (a) Ceiling tests A ceiling test has been carried out, in accordance with UK GAAP on an annual basis, to determine the maximum net book amount of expenditure within the cost pool of oil and gas assets which may be recognized. The ceiling test is based on the Company's best estimate of the future cash flows from the underlying properties. Under US GAAP, SEC regulations require ceiling tests to be computed at current prices discounted to present value at 10%. Under UK GAAP a ceiling test deficit should be written off to expense only if it indicated a permanent diminution in value. Under US GAAP any deficit should be charged immediately to the profit and loss account. F-28 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) (b) Goodwill Under UK GAAP goodwill arising on acquisitions has been set off directly against reserves. Under US GAAP, goodwill arising from acquisitions is capitalized and amortized over its estimated useful life. However, following irregularities mentioned above, US GAAP requires the balance to be written of in 1995. (c) Estimated proceeds of Alliance shares As set out in note 4, the Company has recognized an exceptional credit of $272,000 relating to the right to receive the proceeds of the sale of Alliance shares resulting from the settlement with Mr. O'Brien under UK GAAP. Under US GAAP, such proceeds are recognized only on receipt. (d) Statements of cash flows The Company has adopted United Kingdom Financial Reporting Standard No. 1 "Cash Flow Statements" ("FRS 1"). Its objectives and principles are similar to those set out in the US Statement of Financial Standards No. 95 "Statement of Cash Flows" ("SFAS 95"). The principal difference between the standards relates to classification. Under FRS 1, the Company presents its cash flows from (a) operating activities; (b) returns on investments and servicing of finance; (c) taxation; (d) investing activities; and (e) financing activities. SFAS 95 requires only three categories of cash flow activity: (a) operating; (b) investing; and (c) financing. Cash flows and taxation and returns on investments and servicing of finance shown under FRS 1 would, with the exception of dividends paid, be included as operating activities under SFAS 95. The payment of dividends would be included as a financing activity under SFAS 95. For purposes of reporting cash flows, all cash at bank and in hand and bank overdrafts repayable on demand are considered cash equivalents. F-29 ALLIANCE RESOURCES PLC AND SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) EFFECT ON PROFIT AFTER TAX OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP:
REFERENCE TO NOTE ABOVE YEAR ENDED APRIL 30 ---------- -------------------- 1996 1995 $000 $000 ------- -------- (Loss) after tax under UK GAAP (3,593) (18,213) Adjustments: Ceiling test a) - (2,428) Resulting adjustment to depletion of oil and gas interests 437 - Goodwill b) - (1,000) Estimated proceeds of Alliance shares c) (272) - ------- ---------- Approximate (loss) after tax, adjusted for US GAAP (3,428) (21,641) ======= ========== Approximate (loss) per Ordinary Share (primary), adjusted for US GAAP (cents) (1.1) (15.4) ======= ========== (Loss) per Ordinary Share, UK GAAP (cents) (1.1) (13.0) ======= ==========
EFFECT ON STOCKHOLDERS' EQUITY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP:
REFERENCE TO NOTE ABOVE YEAR ENDED APRIL 30 ---------- -------------------- 1996 1995 ------- -------- $ 000 $ 000 Stockholders' equity under UK GAAP 7,755 (1,438) Adjustments: Ceiling test a) (1,991) (2,428) Estimated proceeds of Alliance shares c) (272) - ------- -------- Approximate stockholders' equity in accordance with US GAAP 5,492 (3,866) ======= ========
F-30 ALLIANCE RESOURCES PLC SUPPLEMENTAL OIL AND GAS DATA - (UNAUDITED) The following supplemental information on oil and gas exploration and production activities of the group is presented in accordance with Statement of Financial Accounting Standards No. 69 "Disclosures about Oil and Gas Producing Activities" ("FAS 69"). ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES The Group's estimated proved developed and undeveloped reserves of oil and gas and changes thereto for the years 1994, 1995 and 1996 and proved developed reserves of oil and gas at each year end are set forth in the following table. Ryder Scott Company, an independent firm of petroleum engineers, carried out an evaluation of approximately 71% of the Group's proved reserves for the year ended April 30, 1996 and 100% of the Group's reserves as of April 30, 1995. The reserves estimated as of April 30, 1994 are based on an evaluation carried out by Metrovest, an independent firm of petroleum engineers, as of January 1, 1994, flexed for production to April 30, 1994. Proved reserves are reserves of crude oil, condensate, natural gas and natural gas liquids and are estimated quantities as of a specific date, which geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing economic and operating conditions. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of reserve quantities are subject to change over time as additional information becomes available.
1996 1995 1994 --------------- ----------------- --------------- OIL GAS OIL GAS OIL GAS ----- ------ ------- -------- ------ ------- Proved developed and undeveloped reserves: Beginning of year 468 3,058 1,475 47,673 1,220 5,919 Revisions of previous estimates 274 (72) (1,441) (47,607) - - Improved recovery 114 - - - - - Purchases of minerals in place - - 481 3,230 - - Sales of minerals in place (103) - - - - - Extensions and discoveries - - - - 282 41,909 Production (125) (602) (47) (238) (27) (153) ---- ----- ------ ------- ----- ------ End of year 628 2,384 468 3,058 1,475 47,675 ==== ===== ====== ======= ===== ====== Proved developed reserves: Beginning of year 303 2,083 232 314 356 127 ==== ===== ====== ======= ===== ====== End of year 628 2,384 303 2,083 232 314 ==== ===== ====== ======= ===== ======
Oil reserves, which include condensate and natural gas liquids, are stated in thousands of barrels and gas reserves are stated in millions of cubic feet. Subsequent to April 30, 1996, Alliance has sold substantial properties. See "Alliance-Recent Developments". The reserves attributable to those properties accounted for approximately 25% of Alliance's proved reserves at April 30, 1996. F-31 ALLIANCE RESOURCES PLC SUPPLEMENTAL OIL AND GAS DATA - (UNAUDITED) CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES The following table summarizes capitalized costs for oil and gas exploration and production activities and the related accumulated depreciation, depletion and amortization under UK GAAP.
1996 1995 -------- -------- ($000) ($000) At April 30 Unproved properties 118 398 Proved properties 25,186 23,984 ------- ------- Total before depreciation, depletion and amortization 25,304 24,382 Accumulated depreciation, depletion and amortization (18,197) (16,585) ------- ------- Net capitalized costs 7,107 7,797 ======= =======
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES The following table sets forth costs incurred in oil and gas property acquisition, exploration and development activities under UK GAAP.
1996 1995 1994 ------ ------ ------ $ 000 $ 000 $ 000 Property acquisitions unproved 118 - - proved 794 5,092 506 Exploration and appraisal - 20 - Development 745 3,120 3,500 ------ ------ ------ Total costs incurred 1,657 8,232 4,006 ====== ====== ======
F-32 ALLIANCE RESOURCES PLC SUPPLEMENTAL OIL AND GAS DATA - (UNAUDITED) RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES The following sets forth certain information with respect to the Company's results of operations from oil and gas producing activities for the years ended April 30, 1994, 1995 and 1996 under UK GAAP. All of the Company's oil and gas producing activities are located within the United States.
1996 1995 1994 $ 000 $ 000 $ 000 ------- -------- ----- Revenues 3,330 1,169 837 Production Costs (1,770) (756) (454) Gross production taxes (311) (94) (67) Depreciation depletion and amortization (1,612) - (125) Write-down of oil and gas properties - (14,881) - ======= ======== ===== Results of operations before income taxes (363) (14,562) 191 Income tax expense - - - ------- -------- ----- Results of operations (excluding corporate overhead and interest costs) (363) (14,562) 191 ======= ======== =====
STANDARD MEASURE OF DISCONTINUED FUTURE NET CASH FLOWS RELATING TO PROVED CRUDE OIL & GAS RESERVES QUANTITIES The standardized measure of discounted future net cash flows related to proved crude oil and natural gas reserves is calculated in accordance with the requirements of SFAS 69 and uses reserve definitions as prescribed by the Financial Accounting Standards Board. Estimated future cash flows from production are computed by applying year end prices for crude oil and natural gas and year-end exchange rates to year end quantities of estimated net proved reserves. Future price changes are limited to those provided by contractual arrangements in existence at the end of the reporting year. Future development and production costs are those estimated future expenditures necessary to develop and produce year end estimated proved reserves based on year-end price levels and assuming the continuance of year end economic conditions. Future production costs include estimated abandonment liabilities. Discounted future net cash flows are calculated using 10% mid-period discount factors. F-33 ALLIANCE RESOURCES PLC SUPPLEMENTAL OIL AND GAS DATA - (UNAUDITED) The information provided below does not represent management's estimate of the Company's expected future cash flows or value of proved reserves. Estimates of proved reserve quantities are imprecise and change over time as new information becomes available and in particular, probable and possible reserves, which may become proved reserves in 1997 or later, are excluded from the calculations. Also, assumptions have been required regarding the timing of future production and the timing and amount of future development and production costs. The calculations assume that economic conditions existing at the end of the reporting year will continue. Other different but equally valid assumptions might lead to significantly different final results. Although calculated in accordance with SFAS 69, the Company therefore cautions against the placing of unwarranted reliance on this information in view of the highly arbitrary nature of the assumptions on which it is based.
1996 1995 $ 000 $ 000 ------- ------- Future cash inflows 18,402 14,475 Future development and production costs (6,622) (6,909) ------- ------- Undiscounted future cash flows before income taxes 11,780 7,566 10% discount (2,883) (2,500) ------- ------- Standardized measure of discounted future net cash flows before income taxes 8,897 5,066 ======= =======
Alliance Resources Plc is a UK listed company which was not required to present standardized measure information. Consequently no such information is available as of April 30, 1994 and the information available as of April 30, 1996 and 1995 is only available on a before tax basis. The table above has been produced on the basis of all available information. F-34 ALLIANCE RESOURCES PLC SUPPLEMENTAL OIL AND GAS DATA - (UNAUDITED) CHANGES IN STANDARDIZED MEASURE DISCOUNTED FUTURE NET CASH FLOWS
$ 000 ------- Present value at May 1, 1995 5,066 ------- Sales of crude oil & natural gas produced, net of production costs (1,249) Net changes in prices and production costs 1,382 Development costs incurred 734 Changes in future development costs 3 Revisions of previous quantity estimates 3,346 Sales of minerals in place (917) Accretion of discount 532 Net change for the year 3,831 ------- Present value at April 30, 1996 8,897 =======
F-35 EX-99.4 4 UNAUDITED INTERIM STATEMENTS EXHIBIT 99.4 ALLIANCE RESOURCES PLC UNAUDITED INTERIM STATEMENT FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 CONSOLIDATED PROFIT AND LOSS ACCOUNT
SIX MONTHS SIX MONTHS ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER 31 APRIL 30, 1996 1995 1996 UNAUDITED UNAUDITED AUDITED ------------ ----------- ----------- $ 000 $ 000 $ 000 REVENUES 1,998 1,551 3,686 ------- ------- ------- COSTS AND EXPENSES: Exceptional costs arising from irregularities (120) (499) (589) Other operating costs (2,952) (3,672) (6,559) ------- ------- ------- (3,072) (4,171) (7,148) ------- ------- ------- OPERATING LOSS (1,074) (2,620) (3,462) Other income and deductions: Interest (net) 31 232 229 Exceptional amounts written off investments - - (201) Foreign exchange 56 - (159) NET LOSS (987) (2,388) (3,593) LOSS PER SHARE (CENTS) (0.3) (0.8) (1.1)
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
SIX MONTHS SIX MONTHS ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, APRIL 30, 1996 1995 1996 UNAUDITED UNAUDITED AUDITED ------------ ------------ ----------- $ 000 $ 000 $ 000 Loss for the financial period (987) (2,388) (3,593) Foreign exchange translation 35 (31) - ----- ------- ---------- Total recognized gains and losses for the period (952) (2,419) (3,593) ----- ------- ----------
F-36 ALLIANCE RESOURCES PLC UNAUDITED INTERIM STATEMENT FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 CONSOLIDATED BALANCE SHEET
AS AT AS AT OCTOBER 31, 1996 APRIL 30, 1996 UNAUDITED AUDITED $ 000 $ 000 -------- -------- ASSETS Current assets Cash and cash equivalents 2,515 1,177 Receivables 1,911 1,357 -------- -------- Total current assets 4,426 2,534 Net property, plant and equipment 4,368 7,311 -------- -------- Total assets 8,794 9,845 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities 1,903 1,998 Long term debt, excluding current installments 88 92 -------- -------- Total liabilities 1,991 2,090 ======== ======== Stockholders' equity Ordinary shares 5,105 5,105 Share premiums 20,157 20,157 Merge reserve 401 401 Retained earnings (18,860) (17,908) -------- -------- Total stockholders' equity 6,803 7,755 -------- -------- 8,794 9,845 ======== ========
F-37 ALLIANCE RESOURCES PLC UNAUDITED INTERIM STATEMENT FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHS ENDED YEAR ENDED ENDED SIX MONTHS ENDED APRIL 30, OCTOBER 31, 1996 OCTOBER 31, 1995 1996 UNAUDITED UNAUDITED AUDITED ----------------- ----------------- ----------- US $000S US $000S US $000S NET CASH (OUTFLOW) FROM OPERATING ACTIVITIES (529) (4,766) (5,399) ----- ------ ------ RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 35 232 236 Interest paid (4) (31) (28) ----- ------ ------ NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 31 201 208 ----- ------ ------ INVESTING ACTIVITIES Payments to acquire tangible fixed assets (114) (1,500) (3,270) Payments to acquire investments - - (59) Payments associated with Merger expenses (246) - - Receipts from sale of investments - - 77 Receipts from sales of tangible fixed assets 2,227 696 740 ----- ------ ------ NET CASH INFLOW / (OUTFLOW) FROM INVESTING ACTIVITIES 1,867 (804) (2,512) ----- ------ ------ NET CASH / INFLOW (OUTFLOW) BEFORE FINANCING 1,369 (5,369) (7,703) ----- ------ ------ FINANCING Proceeds from issue of shares - 12,087 12,087 Share issue costs - (439) (443) (Decrease) in bank borrowings (27) (941) (904) (Repayment) of development loans - (1,351) (1,351) (Repayment) of other loans (4) (525) (528) ----- ------ ------ NET CASH (OUTFLOW) / INFLOW FROM FINANCING (31) 8,831 8,861 ----- ------ ------ INCREASE IN CASH AND CASH EQUIVALENTS 1,338 3,462 1,158 ===== ====== ======
NOTES 1. The comparative figures for the financial year ended April 30, 1996 are not the Group's statutory accounts for that year. Those accounts have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified but included a statement regarding the adequacy of the Group's accounting records pending completion of the investigations into the activities of Mr. O'Brien, the former Chief Executive. 2. The interim financial information for the six months ended October 31, 1996 is unaudited and has been prepared in accordance with the accounting policies adopted in the statutory financial statements for the year ended April 30, 1996. The interim results reflect all adjustments which are, in the opinion of the directors, necessary for a fair presentation of the results for the interim periods presented and should be read in conjunction with the Consolidated Financial Statements presented elsewhere in this Proxy Statement. The interim results have been prepared in accordance with UK GAAP which differ in certain significant respects from US GAAP (see below). F-38 ALLIANCE RESOURCES PLC UNAUDITED INTERIM STATEMENT FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 3. The comparative figures for the six months ended October 31, 1995 have been extracted from the unaudited interim financial information dated on February 28, 1996. 4. During the six months to October 31, 1996, the Group completed its review of non-core assets and disposed of the non-operated properties owned by the wholly-owned subsidiary ARNO Inc. After depletion, the gross profit attributable to the properties disposed of in the period to October 31, 1996 was insignificant. 5. The exceptional costs arising from irregularities of $120,000 charged in the six month period ended October 31, 1996 relate largely to legal fees incurred in connection with the earlier proceedings against Mr. O'Brien and the subsequent settlement announced on August 13, 1996. 6. Included in debtors of $1,911,000 is an amount of $650,000 relating to professional fees incurred to date on the LaTex merger. It should be noted that this is an interim accounting treatment only and that on completion of the proposed transaction, the expenses relating to the merger itself will be capitalized as part of the cost of acquisition and the expenses relating to the issue of shares will be offset against the share premium account in accordance with the requirements of companies legislation. 7. Loss per share is based on the loss for the six months ended October 31, 1996 and on the weighted average of 324,152,633 ordinary shares of 1p each in issue during the period. 8. The directors do not propose to recommend the payment of an interim dividend. SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. The Company's accounting policies conform with United Kingdom generally accepted accounting principles ("UK GAAP") which differ in certain respects from United States generally accepted accounting principles ("US GAAP"). Differences which have a significant effect on the consolidated profit after tax (net income) and shareholders' equity of the Group are set out below. (a) Ceiling tests A ceiling test has been carried out, in accordance with UK GAAP on an annual basis, to determine the maximum net book amount of expenditure within the cost pool of oil and gas assets which may be recognized. The ceiling test is based on the Company's best estimate of the future cash flows from the underlying properties. Under US GAAP, SEC regulations require ceiling tests to be computed at current prices discounted to present value at 10%. Under UK GAAP a ceiling test deficit should be written off to expense only if it indicated a permanent diminution in value. Under US GAAP any deficit should be charged immediately to the profit and loss account. (b) Goodwill Under UK GAAP goodwill arising on acquisitions has been set off directly against reserves. Under US GAAP, goodwill arising from acquisitions is capitalized and amortized over its estimated useful life. However, following irregularities mentioned above, US GAAP requires the balance to be written off in 1995. (c) Estimated proceeds of Alliance shares As set out in note 4, the Company has recognized an exceptional credit of $272,000 relating to the right to receive the proceeds of the sale of Alliance shares resulting from the settlement with Mr. O'Brien under UK GAAP. Under US GAAP, such proceeds are recognized only on receipt. F-39 ALLIANCE RESOURCES PLC UNAUDITED INTERIM STATEMENT FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 (d) Statements of cash flows The Company has adopted United Kingdom Financial Reporting Standard No. 1 "Cash Flow Statements" ("FRS 1"). Its objectives and principles are similar to those set out in the US Statement of Financial Standards No. 95 "Statement of Cash Flows" ("SFAS 95"). The principal difference between the standards relates to classification. Under FRS 1, the Company presents its cash flows from (a) operating activities; (b) returns on investments and servicing of finance; (c) taxation; (d) investing activities; and (e) financing activities. SFAS 95 requires only three categories of cash flow activity: (a) operating; (b) investing; and (c) financing. Cash flows and taxation and returns on investments and servicing of finance shown under FRS 1 would, with the exception of dividends paid, be included as operating activities under SFAS 95. The payment of dividends would be included as a financing activity under SFAS 95. For purposes of reporting cash flows, all cash at bank and in hand and bank overdrafts repayable on demand are considered cash equivalents. EFFECT OF PROFIT AFTER TAX OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM GAAP AND UNITED STATES GAAP:
REFERENCE TO NOTE ABOVE SIX MONTHS ENDED OCTOBER 31 ------------ ----------------------------- 1996 1995 ---- ---- $000 $000 (Loss) after tax under UK GAAP (987) (2,388) Adjustment to depletion consequent upon ceiling test adjustment a) 308 270 ----- ------- Approximate (loss) after tax adjusted for US GAAP (679) (2,118) ===== ======= Approximate (loss) per Ordinary Share (primary) adjusted for US GAAP (cents) (0.2) (0.7) (Loss) per Ordinary Share, UK GAAP (cents) (0.3) (0.8)
EFFECT ON STOCKHOLDERS' EQUITY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM GAAP AND UNITED STATES GAAP:
REFERENCE TO NOTE ABOVE AS AT OCTOBER ------------ ----------------------------- 1996 1995 ---- ---- $000 $000 Stockholders' equity under UK GAAP 6,803 8,933 Ceiling test and consequent depletion adjustment a) (1,683) (2,158) Estimated proceeds of Alliance shares c) (295) - ------- ------- Approximate stockholders' equity in accordance with US GAAP 4,825 6,775 ======= =======
F-40 EX-99.5 5 AUDITED HISTORICAL FINANCIAL STATEMENTS EXHIBIT 99.5 INDEPENDENT AUDITORS' REPORT ---------------------------- Board of Directors LaTex Resources, Inc. Tulsa, Oklahoma We have audited the accompanying consolidated balance sheets of LaTex Resources, Inc. and subsidiaries (the "Company") as of July 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended July 31, 1996, 1995, and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at July 31, 1996 and 1995 and the results of the Company's operations and its cash flows for the years ended July 31, 1996, 1995, and 1994, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred a significant net loss for the year ended July 31, 1996 and has working capital deficiencies and consolidated tangible net worth deficiencies. As discussed in Notes 1 and 5 to the consolidated financial statements, the Company was not in compliance with certain financial covenants of its credit agreement with its primary lender at July 31, 1996. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and do not include any adjustments to the classification of assets and liabilities that might result should the Company be unable to continue as a going concern. F-1 As discussed in Note 16, the consolidated financial statements as of and for the year ended July 31, 1995 have been restated to correct the accounting for the acquisition of Germany Oil Company. /s/ Briscoe & Burke BRISCOE & BURKE Certified Public Accountants November 6, 1996 except as to information presented in Notes 1 and 5, for which the date is November 30, 1996 Tulsa, Oklahoma F-2 LaTex RESOURCES, INC. Consolidated Balance Sheets July 31, 1996 and 1995
ASSETS 1996 1995 ------------ ------------- (Restated) Current assets: Cash $ 19,337 $ 314,229 Accounts receivable - net of allowance for doubtful accounts of $0 in 1996 and $135,000 in 1995 3,324,309 2,836,596 Accounts and notes receivable - other (Note 3) 515,820 696,688 Inventories 175,493 90,976 Other current assets 27,587 84,791 Assets held for sale 164,792 144,990 ------------ ------------ Total current assets 4,227,338 4,168,270 ------------ ------------ Property and equipment, at cost Oil and gas properties (using successful efforts method) 41,264,573 39,638,656 Exploration prospects in progress - 3,363,000 Other depreciable assets 854,259 954,415 ------------ ------------ 42,118,832 43,956,071 Accumulated depreciation and depletion 10,173,524 6,247,190 ------------ ------------ Net property and equipment 31,945,308 37,708,881 ------------ ------------ Other assets: Notes receivable, net of current portion (Note 3) 757,500 - Deposits and other assets 130,734 137,559 Accounts and notes receivable - related parties (Note 3) 392,297 590,605 Investments in and advances to affiliates (Note 3) - 3,647,480 Intangible assets, net of amortization 1,512,899 1,670,384 ------------ ------------ Total other assets 2,793,430 6,046,028 ------------ ------------ TOTAL ASSETS $ 38,966,076 $ 47,923,179 ============ ============ LIABILITIES and STOCKHOLDERS' EQUITY 1996 1995 ------------ ------------ (Restated) Current liabilities: Accounts payable $ 9,057,707 $ 4,544,406 Accounts payable - other 132,000 2,959,284 Accrued expenses payable 607,055 139,113 Current portion of long-term debt (Note 5) 22,235,867 3,644,723 ------------ ------------ Total current liabilities 32,032,629 11,287,526 ------------ ------------ Long-term debt, net of current portion (Note 5) - 20,634,809 Other liabilities (Note 11) 615,000 - ------------ ------------ Total liabilities 32,647,629 31,922,335 ------------ ------------ Stockholders' equity Preferred stock - par value $0.01; 5,000,000 shares authorized: Series A convertible preferred stock ($10 liquidation preference), 449,828 and 441,018 issued and outstanding, at July 31, 1996 4,498 4,410 and 1995 respectively (Note 10) Series B convertible preferred stock ($10 liquidation preference), 480,025 and 381,100 issued and outstanding, at July 31, 1996 and 1995 respectively (Note 10) 4,800 3,811 Common stock - par value $.01, 50,000,000 authorized; issued and outstanding 19,123,995 18,880,195, at July 31, 1996 and 1995 respectively 191,240 188,802 Additional paid-in capital 18,355,134 17,149,383 Treasury stock 1,008,500 and 958,000 shares, respectively (489,365) (399,106) Accumulated deficit (11,747,860) (946,456) ------------ ------------ Total stockholders' equity 6,318,447 16,000,844 ------------ ------------ Commitments and contingencies (Note 11) TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 38,966,076 $ 47,923,179 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 LaTex RESOURCES, INC. Consolidated Statements of Operations Years Ended July 31, 1996, 1995, and 1994
1996 1995 1994 ------------ ----------- ----------- (Restated) Revenues: Oil and gas revenue (Note 15) $ 11,979,982 $ 8,585,453 $ 8,703,100 Crude oil and gas marketing 540,156 1,223,188 2,780,543 Lease operations and management fees 1,011,025 634,038 601,723 ------------ ----------- ----------- Total operating income 13,531,163 10,442,679 12,085,366 ------------ ----------- ----------- Operating expenses: Lease operating expense 6,608,089 5,264,858 4,840,638 Cost of crude oil and gas marketing 133,455 743,610 2,216,294 Dry hole costs and abandonments (Note 6) 3,586,037 104,179 112,772 General and administrative 2,893,146 2,736,267 2,496,567 Depreciation, depletion, and amortization 4,705,912 2,710,574 2,213,823 ------------ ----------- ----------- Total operating expense 17,926,639 11,559,488 11,880,094 ------------ ----------- ----------- Net operating income (loss) (4,395,476) (1,116,809) 205,272 Other income (expense): Equity in losses and write-offs of investments in affiliates (4,184,881) (298,839) (439,916) Gain on sale of assets 2,365,807 127,926 392,592 Interest expense (Note 15) (2,556,856) (1,291,064) (598,335) Interest income 351,005 122,540 17,046 ------------ ----------- ----------- Net loss from continuing operations before income taxes (8,420,401) (2,456,246) (423,341) Income tax expense - 35,096 - ------------ ----------- ----------- Net loss from continuing operations (8,420,401) (2,491,342) (423,341) Loss on disposal of subsidiary, net of income taxes (Note 1) (1,810,382) - - ------------ ----------- ----------- Net loss (10,230,783) (2,491,342) (423,341) Preferred stock dividends 570,621 132,800 - ------------ ----------- ----------- Net loss for common shareholders $(10,801,404) $(2,624,142) $ (423,341) ============ =========== =========== Loss per share from continuing operations $ (.50) $ (.15) $ (.02) ============ =========== =========== Loss per share for common shareholders $ (.60) $ (.15) $ (.02) ============ =========== =========== Weighted average number of shares outstanding 18,011,826 17,661,428 17,434,159 ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 LaTex RESOURCES, INC. Consolidated Statements of Stockholders' Equity Years Ended July 31, 1996, 1995, and 1994
Common Stock Additional Preferred -------------------------- Paid-in Retained Stock Shares Par Value Capital Earnings ------------ ------------ ------------ ------------ ------------- Balance July 31, 1993 $ - 16,345,195 $ 163,452 $ 6,226,613 $ 2,101,027 Issued for acquisition of stock of Wexford Technology, Inc. (Note 6) - 100,000 1,000 330,350 - Issued pursuant to private placement (Note 1) - 2,000,000 20,000 1,995,843 - Issued for consulting services - 35,000 350 139,650 - Net loss - - - - (423,341) ------------ ------------ ------------ ------------ ------------ Balance July 31, 1994 - 18,480,195 184,802 8,692,456 1,677,686 Issued for debt - 150,000 1,500 96,938 - Issued for acquisition of Germany Oil Company (Note 1) 8,088 250,000 2,500 8,227,322 - Purchase of Treasury Stock - - - - - Issued for dividends 133 - - 132,667 (132,800) Net loss (Restated) - - - - (2,491,342) ------------ ------------ ------------ ------------ ------------ Balance July 31, 1995 (Restated) 8,221 18,880,195 188,802 17,149,383 (946,456) ------------ ------------ ------------ ------------ ------------ Issued for services - 100,000 1,000 77,125 - Issued for debt of affiliate - 143,800 1,438 59,082 - Issued for legal settlement (Note 11) 500 - - 499,500 - Purchase of Treasury Stock - - - - - Issued for dividends 577 - - 570,044 (570,621) Net loss - - - - (10,230,783) ------------ ------------ ------------ ------------ ------------ Balance July 31, 1996 $ 9,298 $ 19,123,995 $ 191,240 $ 18,355,134 $(11,747,860) ============ ============ ============ ============ ============ Total Treasury Stockholders' Stock Equity ------------- -------------- Balance July 31, 1993 $ (275,000) $ 8,216,092 Issued for acquisition of stock of Wexford Technology, Inc. (Note 6) - 331,350 Issued pursuant to private placement (Note 1) Issued for consulting services - 2,015,843 Net loss - 140,000 - (423,341) ------------ ------------ Balance July 31, 1994 (275,000) 10,279,944 Issued for debt - 98,438 Issued for acquisition of Germany Oil Company (Note 1) - 8,237,910 Purchase of Treasury Stock (124,106) (124,106) Issued for dividends - - Net loss (Restated) - (2,491,342) ------------ ------------ Balance July 31, 1995 (Restated) (399,106) 16,000,844 ------------ ------------ Issued for services - 78,125 Issued for debt of affiliate - 60,520 Issued for legal settlement (Note 11) - 500,000 Purchase of Treasury Stock (90,259) (90,259) Issued for dividends - - Net loss - (10,230,783) ------------ ------------ Balance July 31, 1996 $ (489,365) $ 6,318,447 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 LaTex RESOURCES, INC. Consolidated Statements of Cash Flows Years Ended July 31, 1996, 1995, and 1994
1996 1995 1994 ------------ ------------ ------------ (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(10,230,783) $ (2,491,342) $ (423,341) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, amortization, and depletion 4,705,912 2,710,574 2,213,823 Gain on sale of assets (2,365,807) (127,926) (392,592) Equity in losses and write-offs of investments in affilates 4,184,881 298,839 439,916 Dry hole costs and abandonments 3,586,037 104,179 112,772 Interest income (150,467) (64,231) - Loss on disposal of subsidiary 1,810,382 - - Changes in assets and liabilities, net of effects from acquisition: Accounts receivable (17,248) 1,073,004 787,602 Accounts receivable - related party 198,288 (76,591) 82,208 Accrued expenses payable 467,942 (34,017) (363,271) Accounts payable 596,038 390,146 (1,518,425) Other assets 44,227 (170,979) (127,334) Other liabilities 615,000 - - Inventories (84,517) 130,967 139,643 ------------ ------------ ------------ Net cash provided by operating activities 3,359,885 1,742,623 951,001 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investments - - 136,218 Proceeds from sale of property and equipment 3,984,491 357,445 736,200 Purchases of property and equipment (3,774,264) (4,815,409) (4,257,229) Increase in accounts and notes receivable-other (2,300,000) - - Decrease in accounts and notes receivable-other 1,032,500 - - Reorganization cost - - (66,558) Acquisition of Germany Oil Company, net of cash acquired - (10,592,292) - Advances to unconsolidated affiliates and notes receivable (326,394) (1,575,820) (99,703) Purchases of Treasury stock (90,259) (124,106) - ------------ ------------ ------------ Net cash used for investing activities $ (1,473,926) $(16,750,182) $ (3,551,072) ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 LaTex RESOURCES, INC. Consolidated Statements of Cash Flows Years Ended July 31, 1996, 1995, and 1994
1996 1995 1994 ----------- ----------- ----------- (Restated) CASH FLOWS FROM FINANCING ACTIVITIES: Deferred loan costs $ (137,186) $(1,483,143) $ (15,344) Proceeds from notes payable 6,233,192 26,837,059 2,585,000 Payments on notes payable (8,276,857) (10,100,527) (3,060,000) Proceeds from notes payable - shareholder - - 490,000 Payments on notes payable - shareholder - (140,000) (350,000) Proceeds from the issuance of common stock - - 2,015,843 ----------- ----------- ----------- Net cash provided by (used for) by financing activities (2,180,851) 15,113,389 1,665,499 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (294,892) 105,830 (934,572) Cash and cash equivalents beginning of year 314,229 208,399 1,142,971 ----------- ----------- ----------- Cash and cash equivalents end of year $ 19,337 $ 314,229 $ 208,399 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 2,403,158 $ 1,307,264 $ 598,335 Income taxes 5,275 7,739 200,648 =========== =========== =========== Supplemental schedules of noncash investing and financing activities: Note receivable in exchange for property $ - $ - $ 1,342,506 Common stock issued to acquire stock of Wexford Technology, Inc. - - 331,350 Common stock issued for services 78,125 98,438 140,000 Common stock issued to acquire Germany Oil Company - 144,530 - Preferred stock issued to acquire Germany Oil Company - 8,093,380 - Preferred stock issued for legal settlement 500,000 - - Common stock issued to pay off debt of unconsolidated affiliate 60,520 - -
The accompanying notes are an integral part of these consolidated financial statements. F-7 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 1. ORGANIZATION, FINANCIAL CONDITION AND BUSINESS COMBINATIONS Organization - LaTex Resources, Inc. (the Company) is an oil and gas ------------ company engaged in the acquisition of and enhancements to producing oil and gas properties. The Company's principal oil and gas production operations are conducted in Oklahoma, Texas, Louisiana, Mississippi and Alabama. The Company, until the fourth quarter of fiscal 1996, was also involved in the exploration and development of oil and gas prospects located in Tunisia and Kazakhstan, C. I. S. Financial Condition - The Company's aggressive policy of oil and gas ------------------- property acquisitions, unsuccessful foreign oil and gas exploration and unsuccessful investments in their unconsolidated affiliates, along with substantial operating losses for the current and preceding two years, has resulted in a working capital deficit and non-compliance with certain loan covenants at July 31, 1996. (See Note 5) The items of non-compliance have not been waived by the lender for the year ended July 31, 1996 and the Company was operating under a "forbearance" agreement. The "forbearance period" was from July 26, 1996 to November 29, 1996. The Company is currently seeking an extension of the forbearance agreement until such time as the proposed Alliance Resources Plc merger (See Note 17) can be consummated. The Company's financial statements for the year ended July 31, 1996 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $10,230,783 for the year ended July 31, 1996 and as of July 31, 1996 has an accumulated deficit of $11,747,860 and a deficit working capital of $27,805,291. Management plans to reduce the working capital deficit include curtailment of the development of its undeveleloped properties, strategic sales of certain of its oil and gas properties and the aggressive reduction of administrative and such other costs that have been determined to be non essential. Management plans also include consideration of alliances or other partnership arrangements or potential merger opportunities. The Company has retained investment banking counsel to advise it on the possible sale of equity securities as well as to introduce and assist in the evaluation of potential merger and partnering opportunities. Management expects that these efforts will result in the introduction of other parties with interests and resources which may be compatible with that of the Company (See Note 17). There can be no assurance that the Company will be able to successfully execute the foregoing plans. F-8 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 1. ORGANIZATION, FINANCIAL CONDITION AND BUSINESS COMBINATIONS (continued) Disposition of Panda Resources, Inc. and Its Wholly Owned Subsidiary -------------------------------------------------------------------- Richfield Natural Gas, Inc., July 1993 -------------------------------------- In July 1993 the Company sold its wholly owned subsidiary, Panda Resources, Inc., and Panda's wholly owned subsidiary, Richfield Natural Gas, Inc. Final post closing adjustments were in dispute until December 1995 when a settlement agreement by the various parties resulted in a judgment against LaTex Resources, Inc. in the amount of $1,810,382. This amount is reflected in the 1996 consolidated financial statement as a loss on disposal of discontinued subsidiaries. Proceeds from Private Placement ------------------------------- On January 26, 1994, pursuant to a private placement, the Company issued 2,000,000 newly issued shares of common stock. Proceeds from this offering were as follows: Gross proceeds $ 2,200,061 Less: Commissions 165,000 Legal fees 10,000 Other expenses 9,218 ------------ Net proceeds $ 2,015,843 ============
Acquisition of Germany Oil Company ---------------------------------- Effective March 31, 1995 through a series of transactions, the Company acquired all of the issued and outstanding stock of Germany Oil Company ("Germany") in exchange for 250,000 and 11,800 of the Company's common and Series A Convertible Preferred Stock, respectively. The ratio of the number of shares received by the stockholders of Germany was determined through arms length negotiations between the Chairman of the Board and President of the Company and the President of Germany. The Company also issued 370,000 shares of the Series B Convertible Preferred Stock and $8,900,000 in cash to retire a volumetric production payment and acquire all of the related contract rights mortgages, vendor liens and security interests. In addition, the Company paid $1,742,294 in cash, issued 427,038 shares of its Series A Convertible Preferred Stock and $87,998 in notes payable to acquire and retire certain indebtedness of Germany. The transaction was accounted for as a purchase. The fair value of assets and liabilities of Germany at date of acquisition follows: Current assets $ 773,088 Current liabilities (4,309,479) Oil and gas properties 22,504,593 ------------- $ 18,968,202 =============
The consolidated statements of operations include the results of operations of Germany Oil Company since the acquisition date. The following is a statement of pro forma revenues, loss before income taxes, net loss, and net loss per share for the years ended July 31, 1995 and 1994 based upon the assumption that Germany Oil Company was acquired at the beginning of each of the periods:
1995 1994 ---- ---- (in thousands except per share data Revenues $ 16,358 $ 19,957 ========= ========= Loss before income tax $ (3,307) $ (1,795) ========= ========= Net loss $ (3,382) $ (1,795) ========= ========= Net loss per share $ .19) $ (.10) ========= =========
F-9 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 2. SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements is as follows. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. Inventories ----------- Included in inventories at July 31, 1996 and 1995 are crude oil inventories at market value of $175,493 and $90,976, respectively. Accounting Estimates -------------------- The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial Instruments --------------------- The fair value of current assets and current liabilities are assumed to be equal to their reported carrying amounts due to the short maturities of these financial instruments. Due to the Company's financial position, it is not practicable to estimate the fair value of the Company's long-term debt; additional information pertinent to its value is provided in Note 5 to the consolidated financial statements. The Company is required, by agreement with its primary lender (Bank of America), to participate in various hedging programs, executed by Bank of America, to protect against fluctuations in oil gas prices and interest rates. See Note 15 for discussion of the fair market value of these contracts. The carrying value of all other financial instruments approximates fair value. F-10 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 2. SUMMARY OF ACCOUNTING POLICIES (continued) Concentrations of Credit Risk ----------------------------- Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with high quality financial institutions and limits the amount of exposure to any one institution. In the case of default of any one financial institution, no cash investments exist that are not covered by the FDIC. The Company's revenues are derived principally from uncollateralized sales to customers in the oil and gas industry. The concentration of credit risk in a single industry affects the Company's overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. The Company has not experienced significant credit losses on such receivables. The Company performs periodic evaluations of its customers' financial condition and generally does not require collateral. Revenue Recognition ------------------- The Company recognizes oil and gas revenue in the month of production. Crude oil and gas marketing revenue is recognized in the month of delivery. Property, Equipment, Depreciation and Depletion ----------------------------------------------- The Company uses the successful efforts method to account for costs in the acquisition and exploration of oil and natural gas reserves. Costs to acquire mineral interests in proved reserves, and to drill and equip development wells are capitalized. Geological and geophysical costs and costs to drill exploratory wells which do not find proved reserves are expensed. Undeveloped oil and gas properties which are individually significant are periodically assessed for impairment of value and a loss is recognized at the time of impairment by providing an impairment allowance. The remaining unproved oil and gas properties are aggregated and an overall impairment allowance is provided based on Company experience. Depletion and depreciation are calculated on the units of production method based upon current estimates of oil and gas reserves provided by management. Upon sale, retirement or abandonment of proved and unproved properties the cost and related accumulated depreciation and depletion are eliminated from the respective accounts and the resulting gain or loss is included in current earnings. Non oil and gas property and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of non oil and gas assets. Expenditures which significantly increase values or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts and the resulting gain or loss is included in current earnings. Intangible Assets ----------------- Intangible assets consist primarily of debt issuance costs. Debt issuance costs are amortized over the term of the related debt. F-11 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 2. SUMMARY OF ACCOUNTING POLICIES (continued) Income Taxes ------------ Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Gas Balancing ------------- The Company follows the sales method of accounting for gas imbalances. A liability is recorded only if the Company's excess takes of natural gas volumes exceed its estimated remaining recoverable reserves. No receivables are recorded for those wells when the Company has taken less than its ownership share of gas production. Earnings Per Common Share ------------------------- Earnings per common share is computed based upon the weighted average common shares outstanding. Outstanding stock options and warrants of LaTex Resources are excluded from the weighted average shares outstanding since their effect on the earnings per share calculation is immaterial or antidilutive. FASB Accounting Standards ------------------------- The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 119 (SFAS 119), Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. This Statement generally requires disclosures about amounts, nature, and terms of derivative financial instruments. The Company has adopted SFAS 119 for the fiscal year ended July 31, 1996. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. This Statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Company intends to adopt SFAS 121 for the fiscal year ending July 31, 1997. The Company expects the adoption of SFAS 121 will not have a material effect on its financial statements. F-12 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 2. SUMMARY OF ACCOUNTING POLICIES (continued) The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation. This Statement establishes financial accounting and reporting standards for stock-based employee compensation plans. This Statement defines a fair value based method of accounting for an employee stock option or similar equity instrument plan. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This Statement is effective for transactions entered into in fiscal years that begin after December 15, 1995. The Company intends to adopt the disclosure requirements of SFAS 123 for the fiscal year ending July 31, 1997. Reclassification ---------------- Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform with the 1996 presentation. 3. ACCOUNTS AND NOTES RECEIVABLE AND INVESTMENTS IN AND ADVANCES TO AFFILIATES
Accounts and Notes Receivable - Related Parties ----------------------------------------------- 1996 1995 ----------- ---------- (Restated) Accounts receivable - officers, directors and employees $ 100,481 $ 354,261 Note receivable - officers, directors, shareholders and employees (See Note 12) 291,816 236,344 ---------- ---------- Total $ 392,297 $ 590,605 ========== ========== Accounts and Notes Receivable - Other ------------------------------------- 1996 1995 ---------- ---------- (Restated) Oakland Petroleum Operating Company, Inc. $1,267,500 $ - Panda Resources, Inc. - 584,172 Other accounts receivable from third parties 5,820 112,516 ---------- ---------- Less current maturities 515,820 696,688 ---------- ---------- Total $ 757,500 $ - ========== ==========
F-13 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 3. ACCOUNTS AND NOTES RECEIVABLE AND INVESTMENTS IN AND ADVANCES TO AFFILIATES The non-interest bearing note receivable from Oakland Petroleum Operating, Inc. (Oakland) represents the balance due to the Company for a loan entered into with the Company's primary lender for a joint purchase of property. The original amount was approximately $2,300,000 of which $1,267,500 was still outstanding at July 31, 1996. The note receivable is offset by a comparable amount included in the Company's long-term debt. Oakland pays all principal and interest payments directly to the Company's primary lender. The Company has a collateral interest in the Oakland properties. Interest income has been imputed at the Company's borrowing rate with its primary lender. Investments in and Advances to Affiliates ----------------------------------------- Investments in and advances to affiliates includes the following:
1996 1995 ----------- ----------- (Restated) Wexford Technology, Inc. $ - $ 1,987,898 Imperial Petroleum, Inc. - 1,640,609 Others - 18,973 ----------- ----------- Total $ - $ 3,647,480 =========== ===========
See Note 6 - WRITE OFFS. 4. INCOME TAXES The provisions for income taxes are as follows:
1996 1995 1994 -------- -------- -------- (Restated) (in thousands) Current: State $ - $ 35 $ - ======== ======== ========
F-14 LATEX RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 4. INCOME TAXES (continued) Income taxes differed from the amounts computed by applying the U.S. federal tax rate of 34% as a result of the following:
1996 1995 1994 --------- ---------- --------- (Restated) (in thousands) Computed "expected" tax benefit $(3,478) $ (835) $ (144) State income taxes net of federal benefit (1) 12 - Increase in valuation allowance for deferred tax assets 3,844 294 93 Equity in net losses of affiliates - 102 72 Excess statutory depletion (152) 237 3 Other (213) 225 (24) ------- -------- --------- Actual income tax expense $ - $ 35 $ - ======== ======== ========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
1996 1995 1994 -------- ---------- -------- (Restated) (in thousands) Deferred tax liabilities: Property, plant and equipment $ 1,574 $1,390 $ 401 ------- ------ ------- Total deferred tax liabilities 1,574 1,390 401 ------- ------ ------- Deferred tax assets: Net operating losses 4,300 1,521 350 Investment write-downs 917 - - Percentage depletion carryforward 392 240 133 Accrued expenses not deductible until paid 180 - - Other 5 5 - ------- ------ ------- Total deferred tax assets 5,794 1,766 483 ------- ------ ------- Valuation allowance (4,220) (376) (82) ------- ------ ------- Net deferred tax assets 1,574 1,390 401 ------- ------ ------- Net deferred tax asset (liability) $ - $ - $ - ======= ======= =======
F-15 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 4. INCOME TAXES (continued) A valuation allowance is required when it is more likely than not that all or a portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon future profitability. Accordingly, a valuation allowance has been established to reduce the deferred tax assets to a level which, more likely than not, will be realized. The Company has net operating loss (NOL) carryforward to offset its earnings of approximately $11,390,000. Additionally, approximately $10,490,000 of NOL carryforwards are available to offset the future separate company earnings of Germany. If not previously utilized, the net operating losses will expire in varying amounts from 2006 to 2011. 5. NOTES PAYABLE
1996 1995 ------------ ------------ (Restated) Bank note (A) $ 22,206,707 $ 24,210,000 Other 29,160 69,532 ------------ ------------ Total 22,235,867 24,279,532 Less - current maturities 22,235,867 3,644,723 ------------ ------------ Long-term debt, net $ - $ 20,634,809 ============ ============
(A) Note payable dated April 18, 1995, for $23,000,000 with option of an additional $2,000,000 for six months for approved workovers, recompletions and development drilling of specified reserves. Principal due monthly of $365,000 including Oakland Petroleum Co. payment of $42,500 monthly. Interest due monthly at the higher of a Base Rate (the higher of the Bank of America Reference Rate and the Federal Fund Rate plus .5% per annum) plus 1% per annum and the London Interbank Offered Rate plus 2%. The current rate at July 31, 1996 was 7.469%. Matures March 30, 2000. Amounts outstanding are secured by mortgages which cover certain of the Company's oil and gas properties. The Company's existing debt agreements contain certain covenants, including maintaining a positive current ratio of 1.0, excluding current portion of long-term debt, maintaining a minimum tangible net worth of $10,000,000, maintaining a minimum cash or cash equivalents balance of $500,000, maintaining working capital of at least $500,000, the negative covenant related to permitted investments, and the covenant relating to default on other indebtedness in excess of $50,000. F-16 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 5. NOTES PAYABLE (continued) The Company was not in compliance with the current ratio, cash equivalent, minimum tangible net worth, and working capital covenants at July 31, 1995. The items of non-compliance were subsequently waived by the lender for the year ended July 31, 1995 and through January 31, 1996. The Company was not in compliance with the above noted covenants at July 31, 1996 and was operating under a "forbearance" agreement discussed in Note 1 to the financial statements. The "forbearance" agreement expired on November 29, 1996 and the bank has not extended the agreement. The debt agreement contains various acceleration provisions of the due date in the event of non-compliance. Accordingly, the entire unpaid balance has been classified as a current liability at July 31, 1996. 6. WRITE OFFS Investments ----------- During the fourth quarter of fiscal 1996, the Company wrote off its investments in Wexford Technology, Incorporated (Wexford) and Imperial Petroleum, Inc. (Imperial). The Company has not been able to obtain reliable current financial information, accordingly, summarized financial information is not presented. The Company acquired 32.3% of Wexford through a series of transactions culminating in May 1994. During the fourth quarter of fiscal 1996, the Company recorded a charge to earnings of $2,372,452 to write off its investment. Wexford is presently in default on its bridge debt and has received numerous written demands for payment and correspondence threatening litigation. Included in the write off was $1,462,765 in notes receivable. The Company owns 12% of the common stock of Imperial and certain officers, directors and employees of the Company own 28.8%. During the fourth quarter of fiscal 1996, the Company recorded a charge to earnings of $1,812,429 to write off this investment. Imperial is currently in default on its bank debt. Included in the write off of the Company's investment was $722,603 in notes receivable. Wexford and Imperial are both development stage enterprises that are seeking capital infusion to complete their facilities and achieve commercial operations. Neither Wexford nor Imperial have been able to raise additional debt or equity capital. Further, there can be no assurance, assuming Wexford and Imperial successfully raise additional funds or enter into a business alliance, that they will achieve commercial operations or positive cash flow. The Company is not a guarantor of any debt incurred by Wexford or Imperial. Exploration Prospects --------------------- During the fourth quarter of fiscal year 1996, the Company recorded a charge to earnings of $955,496 to write off costs incurred in connection with a venture in Kazakhstan C.I.S. Subsequent to July 31, 1996, the Company received written notice that the Company may be in breach of its agreements related to the venture. The Company believes it is in substantial compliance with the operating agreement governing the project. In addition, the Company has been notified that Uzenmunaigaz, the regional production association for the Middle Caspian Basin, may seek to further alter the terms of a contract in a manner which the Company believes would be detrimental to the project's viability. F-17 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 6. WRITE OFFS (continued) During fiscal 1993 the Company, through a subsidiary, acquired an interest in a permit granted by the Republic of Tunisia for the exploration and production of oil and gas from a 4,936 square kilometer (1,220,000 acres) area located in north-central Tunisia. Initial seismic acquisition activities began in 1994. The first exploratory well was spudded in fiscal 1995. This well was drilled and temporarily abandoned prior to reaching the objective depth. In fiscal 1996, the operator of the project, in response to a request from the Tunisian government, permanently plugged the well and restored the well site. The Company has insufficient capital to continue the project and, due to the limited time remaining on the exploration permit, decided to abandon the project and write off its investment of $2,491,299. 7. SAVINGS AND PROFIT SHARING PLAN The Company maintains an employee savings and profit sharing plan (the Plan) which covers substantially all of its employees. The Plan is comprised of a 401(k) savings portion and a noncontributory defined contribution portion. Employees are qualified to participate after approximately one year of service. Participation in the 401(k) plan is voluntary, and the Company matches contributions up to four percent of the employees' salary at a rate of 33 1/3 percent of the employee's contribution. Employees are allowed to contribute the maximum amount allowed by the Internal Revenue Code each year, subject to nondiscrimination rules. The noncontributory defined contribution portion of the Plan allows the Company to share annual profits with employees. Annual payments to the Plan are elective. Management elected to make no contributions to the Plan for 1996, 1995, or 1994. The Company is under no obligation to make contributions to the Plan in the future. 8. STOCK OPTIONS Stock Option Plan ----------------- The 1993 Incentive Stock Plan (the "Plan") was effective December 8, 1993. The Plan is administered by a Compensation Committee consisting of not less than three members of the Board of Directors and a special committee appointed by the Board of Directors, as necessary. The aggregate number of shares of the Company's Common Stock issuable under the Plan is 2,000,000. Such stock will be made available from the Company's authorized but unissued Common Stock or from Stock held as Treasury Stock. F-18 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 8. STOCK OPTIONS (continued) Options and Appreciation Rights ------------------------------- This Plan authorizes the Committee to grant to key employees options to purchase the Company's Common Stock which may be in the form of incentive stock options ("ISO's"), or in the form of non-statutory options ("Non- Statutory Options"). The term of each option shall be for such period as the Committee determines but no longer than ten years from the date of grant or five years to an individual who is a 10% stockholder of the Company. The aggregate fair market value exercisable by an individual optionee during any calendar year under all stock option plans of the Company may not exceed $100,000. The exercise price per share for the Common Stock covered by any Options shall be determined by the Committee and, provided that in the case of an ISO and the per share exercise price shall be not less than the fair market value (or in the case of an ISO granted to an individual who at the time is a 10% Stockholder, 110% of the fair market value) of one share of Common Stock. Options to purchase 1,690,000 shares of common stock were granted under the Plan. Stock option activity during the periods indicated is as follows: Weighted Average Number of Exercise Shares Price ------------ ------------ Balance at July 31, 1993 - $ - Granted 619,000 0.875 ------- Balance at July 31, 1994 619,000 0.875 Forfeited (12,000) 0.875 ------------ Balance at July 31, 1995 607,000 0.875 Granted 1,448,000 0.448 Forfeited (365,000) 0.764 ------------ Balance at July 31, 1996 1,690,000 $ 0.533 ============ At July 31, 1996, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $0.4375 to $0.875 and 3.77 years, respectively. (See Note 17) Restricted Stock Awards ----------------------- The Plan authorizes the Committee to grant restricted Common Stock ("Restricted Stock") to key employees. The Committee may designate a restriction period with respect to such shares of not less than one year but not more than five years (the "Restriction Period") during which an employee will not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded to him, provided that within such limitations, the Committee may provide for the lapse of such restrictions installments where deemed appropriate. Upon termination of employment during the Restriction Period for any reason, all shares of Restricted Stock with respect to which restrictions have not yet expired will be forfeited by the employee and returned to the Company. The Plan also authorizes the Committee to award tax gross-up rights which entitle the grantee to cash payments from the Company at such time as income and/or excise tax liabilities arise with respect to grants under the Plan. Tax gross-up rights may be granted coincident with or after the date of grant of the related Option or Restricted Stock awards. No restricted shares have been issued at July 31, 1996. (See Note 17) 9. WARRANTS As of July 31, 1996, the Company, in connection with the sale of previously unissued common stock, has 2,700,000 Warrants outstanding. The sale included 2,587,500 of the Warrants which were detachable from the Stock/Warrant Units upon issuance and trade separately from the Units and Common Stock. Unless exercised, the 2,587,500 Warrants automatically expire on November 19, 1997. Pursuant to the terms of the Warrants, the Board of Directors of the Company may reduce the exercise price, $4.25, of the Warrants and may also extend the period during which the Warrants may be exercised. The Warrants may be redeemed by the Company at a price of $0.01 per Warrant with 30 days prior written notice by the Company. F-19 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 9. WARRANTS (continued) In addition, the Company issued Warrants to the underwriter of the offering for $.01 per Warrant (underwriter Warrants) to purchase up to 112,500 units for $4.44 per unit. These Warrants are exercisable, in part or whole, until November 16, 1997. The Company also has agreed to register, at its sole cost and expense, all or a portion of the underwriter Warrants and/or the shares issuable, upon the exercise of the Warrants during the period November 10, 1993 to November 16, 1997. The Company issued 1,080,000 Warrants in connection with private placements of its common stock. The Company during 1995 issued 536,000 Warrants to a related party (See Note 12), of which, 100,000 were exercised. At July 31, 1996, the range of exercise prices of outstanding Warrants was $.75 to $4.44. These Warrants expire at various dates from January 1997 to October 2001. It is the intent that the Warrants will be converted into Alliance Resources Plc (See Note 17) Warrants at a ratio of .8806 for 1. Stock Warrant activity during the periods indicated is as follows:
Date Number of Convertible Stock Price Issued Warrants Shares at Issuance ------ --------- ----------- ----------- Balance at July 31, 1993 3,700,000 2,518,750 Issued 1/26/94 80,000 80,000 $1.813 --------- ----------- Balance at July 31, 1994 3,780,000 2,598,750 Issued 6/12/95 500,000 500,000 0.469 Exercised (100,000) (100,000) --------- ----------- Balance at July 31, 1995 4,180,000 2,998,750 Issued 11/30/95 36,000 36,000 0.469 --------- ----------- Balance at July 31, 1996 4,216,000 3,034,750 ========= =========
10. PREFERRED STOCK The Board of Directors has the authority to issue 5,000,000 shares of Preferred Stock, in one or more series, and to fix the rights, preferences, qualifications, privileges, limitations or restrictions of each such series without any further vote or action by the shareholders, including the dividend rights, dividend rate, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or the designations of such series. The Company's Series A Convertible Preferred Stock (i) pays annual dividends at the rate of $0.20 per share payable quarterly in cash (or, if payment of cash dividends is prohibited by the Company's senior lender, payable in additional shares of Series A Convertible Preferred Stock), (ii) has no voting rights except as otherwise required under Delaware law, (iii) has a liquidation preference over shares of the Company's common stock of $10.00 per share plus accrued and unpaid dividends, (iv) is redeemable at the option of the Company at a redemption price of $10.00 per share plus accrued and unpaid dividends, (v) is convertible by the holder into shares of the Company's common stock at a conversion price of $3.33 per share, and (vi) has piggyback registration rights in the event the Company seeks to make a registered public offering of its common stock. The aggregate liquidation preference of the Series A Convertible Preferred Stock at July 31, 1996 and 1995 is $4,498,280 and $4,410,180, respectively. The Series B Convertible Preferred Stock (i) pays annual dividends at the rate of $1.20 per share payable quarterly in cash (or, if payment of cash dividends is prohibited by the Company's senior lender, payable in additional shares of Series B Convertible Preferred Stock), (ii) has no voting rights except as otherwise required under Delaware law, (iii) has a liquidation preference over shares of the Company's Series A Convertible Preferred Stock and the Company's common stock of $10.00 per share plus accrued and unpaid dividends, (iv) is redeemable at the option of the Company at a redemption price of $10.00 per share plus accrued and unpaid dividends, and (v) is convertible by the holder into shares of the Company's common stock at an initial conversion price of $1.50 per share, subject to adjustment from time to time to prevent dilution. By separate agreement, the Company has granted certain demand registration rights and piggyback registration rights in the event the Company seeks to make a registered public offering of its common stock. The aggregate liquidation preference of the Series B Convertible Preferred Stock at July 31, 1996 and 1995 is $4,800,250 and $3,811,000. Preferred stock, by class, is as follows:
Class A Class B ------- ------- Balance July 31, 1993 - - ------- ------- Balance July 31, 1994 - - ------- ------- Issued for acquisition of Germany Oil Company 438,838 370,000 Issued for dividends 2,180 11,100 ------- ------- Balance July 31, 1995 441,018 381,100 Issued for legal settlement - 50,000 Issued for dividends 8,810 48,925 ------- ------- Balance July 31, 1996 449,828 480,025 ======= =======
F-20 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 11. LITIGATION, COMMITMENTS AND CONTINGENCIES Litigation ---------- On October 7, 1994, Northern Natural Gas Company ("Northern") filed a lawsuit against the Company alleging that the Company had breached two firm transportation Service Agreements dated December 1, 1990, between Northern and Panda Resources, Inc. ("Panda"), a former wholly-owned subsidiary of the Company. On June 6, 1996, Northern and the Company entered into a Settlement Agreement pursuant to which (a) the Company issued to Northern 50,000 shares of the Company's Series B Senior Convertible Preferred Stock which are convertible (subject to adjustment) into 333,333 shares of the Company's common stock, and (b) the Company agreed to pay Northern $465,000 in installments of $50,000 by June 21, 1996, $150,000 by May 1, 1997, $125,000 by May 1, 1998, and $140,000 May 1, 1999. An agreed judgment was entered in the case, but Northern has agreed not to seek to enforce the judgment unless the Company defaults in its payment obligations. Once the required payments have been made, Northern has agreed to execute a release of the judgment. These amounts have been reflected in the Company's consolidated financial statements at July 31, 1996. On November 17, 1994, Associated Storage Corporation ("Associated") filed a lawsuit against the Company alleging that the Company had breached a July 21, 1993 agreement between Associated and the Company. Associated seeks actual damages in the amount of $150,000, prejudgment interest, court costs, and attorneys' fees. Associated has filed a motion for summary adjuration which was denied by the court. The Company has asked Associated to submit to mediation. In connection with the sale of Panda, the Company became a party in disputes between Torch Energy Marketing, Inc. ("Torch"), NUEVO Liquids, Inc ("NUEVO") and Panda. On December 7, 1995, the Company entered into a Settlement Agreement (the "Settlement") to settle all matters related to the sale of its former wholly owned subsidiaries, Panda and Richfield Natural Gas, Inc. Pursuant to the Settlement, the Company agreed to pay to the plaintiffs (a) $20,000 on December 7, 1995, and an additional $30,000 over the course of 90 days following execution of the Settlement, and (b) to pay $50,000 within one year of the Settlement, an additional $50,000 within two years of the Settlement, and an additional $150,000 within three years of the Settlement, together with interest in the amount of $36,000. The Company has accrued the costs associated with this settlement agreement and has made all required payments under the agreement. To secure its obligation under the Settlement, the Company stipulated in an agreed judgment that it would be liable in the amount of $1,000,000 (less any amounts paid pursuant to the Settlement) upon the Company's default of its obligations under the Settlement. In addition, the Company agreed to assume and indemnify the plaintiffs against all obligations and amounts owed under a May 2, 1989 agreement between Panda and Northern relating to the transportation of natural gas through a facility located in Dewey County, Oklahoma. Pursuant to this indemnification, the Company has been asked to indemnify one of the plaintiffs with respect to claims brought against it by Northern in a lawsuit filed March 7, 1996, as more fully discussed below. On March 7, 1996, Northern Natural Gas Company ("Northern") filed a lawsuit against Torch Energy Advisors, Inc. ("Torch") for alleged breach of a May 2, 1989 agreement (the "Dewey County Contract") between Torch, Panda and Northern relating to the transportation of natural gas through a facility located in Dewey County, Oklahoma. The Company has assumed the defense of this matter pursuant to the indemnification agreement entered into as part of the December 7, 1995, settlement among Torch, Panda and the Company discussed above. Northern contends that Panda failed to transport the required volumes and that the deficiency resulted in a requirement that Panda pay a total of $973,000, representing the percentage of the costs of constructing the facilities calculated under the contract formula. Northern sued Torch under a written guaranty agreement and has claimed, in addition, that Torch denuded the assets of Panda and is therefore liable for the debts of Panda. The Company maintains that, if litigation is unsuccessfull to the Company, Northern would only be entitled to the amount of the contractually required volumes. Germany Oil Company is a named defendant in three wrongful death actions involving an accident which occurred at a heater-treatment unit on the Blowhorn Creek Millerella Oil Unit lease in Lamar County, Alabama. Each plaintiff seeks damages in the amount of $25 million. The three matters are in the initial stages of discovery and have been referred to Germany Oil Company's insurance carrier. Germany has an approximate 10% ownership interest of the property. Management believes that liability insurance coverage is adequate to cover any potential loss. F-21 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 11. LITIGATION, COMMITMENTS AND CONTINGENCIES (continued) Contingencies ------------- In addition to the foregoing litigation, the Company is named defendant in lawsuits, is a party in governmental proceedings, and is subject to claims of third parties from time to time arising in the ordinary course of business. While the outcome of lawsuits or other proceedings and claims against the Company cannot be predicted with certainty, management does not expect these additional matters to have a material adverse effect on the financial position of the Company. Commitments ----------- The Company leases office space and certain property and equipment under various lease agreements. As of July 31, 1996, future lease commitments were approximately as follows: Year Ending July 31, ----------- 1997 $ 168,000 1998 142,000 ------------ Total minimum payments $ 310,000 ============ F-22 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 12. RELATED PARTY TRANSACTIONS In regard to the modification and cancellation of the non-compete agreements with the two previous majority shareholders of Panda, Mr. Jeffrey T. Wilson, an officer and director of the Company, assumed the notes receivable due the Company by two former shareholders in the amount of $339,650 plus accrued interest. The Board has voted to forgive $380,624, representing the total notes and accrued interest, due from Mr. Wilson. The Board has also voted to forgive $58,138 due to the Company from Mr. Malcolm W. Henley, an officer and director of the Company. Since January 1993 the Company has leased a condominium located in Tulsa, Oklahoma owned by Jeffrey T. Wilson. Under terms of the oral lease agreement, the Company pays Mr. Wilson approximately $1,100 per month. At July 31, 1996, the Company owed Mr. Wilson approximately $8,000 for unpaid rent. The Company has entered into an agreement to sell its interests in its wholly owned subsidiaries, LaTex Resources International, Inc. and Phoenix Metals, Inc., and its investments in Wexford Technology, Inc. and Imperial Petroleum, Inc. (See Note 17). Mr. Wilson is a major stockholder of Imperial Petroleum, Inc. The Company was previously a party to an agreement with Wood Roberts, Inc. ("WRI"), a company controlled by John R. Martinson, a Director of the Company, pursuant to which WRI acted as a financial advisor to the Company. Under the agreement, the Company paid WRI a monthly fee of $4,000 and agreed to pay WRI a success fee in connection with any merger or acquisition involving a party introduced to the Company by WRI, and any financing facility arranged by WRI. Through July 31, 1996, the Company paid WRI cash retainer and success fees of $55,000. In addition, the Company has issued to WRI six year common stock purchase warrants to purchase 536,000 shares at $.75 per share, of which WRI has exercised and purchased 100,000 shares (See Note 8). As of March 4, 1996, the financial advisor agreement between the Company and WRI was terminated by agreement of the parties. By separate agreement, the Company agreed to pay Wood Roberts, LLC. a fee of $240,000 upon completion of the proposed merger with Alliance Resources Plc and a fee equal to 0.5% of the amount of any credit facility obtained by the Company from a bank or other financial institution introduced to the Company by Wood Roberts in order to refinance its indebtedness to Bank of America. The Company from time to time, has made loans to certain officers, directors and stockholders. The loans are evidenced by demand notes payable due on or before December 31, 1996, bearing interest at various rates. 13. BUSINESS SEGMENTS The Company's operations involve oil and gas exploration, production and lease operations. Additionally, crude oil and crude oil by-products are marketed through a wholly owned subsidiary. Intersegment sales are made at prices prevailing in the industry at the time of sale. The following table sets forth information with respect to the industry segments of the Company.
1996 1995 1994 ---------- --------- --------- (Restated) (in thousands) Revenues: Oil and gas production and lease operations $12,991 $ 9,220 $ 9,305 Marketing 540 1,223 2,780 ------- ------- ------- Total revenues 13,531 10,443 12,085 Intersegment 3,658 3,023 2,884 ------- ------- ------- $17,189 $13,466 $14,969 ======= ======= ======= Operating income (loss): Oil and gas production and lease operations $(4,477) $(1,440) $ (187) Marketing 78 231 317 Other 4 93 75 ------- ------- ------- Net operating income (loss) $(4,395) $(1,116) $ 205 ======= ======= =======
The Company sold 16% of its consolidated oil and gas revenue to Enron Reserve Acquisition Corporation for the year ended July 31, 1996. The Company had no other purchasers in excess of 10% of consolidated oil and gas revenue. F-23 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 13. BUSINESS SEGMENTS (continued)
1996 1995 1994 -------- -------- -------- (Restated) (In thousands) Identifiable assets: Oil and gas production $31,830 $37,371 $12,677 Marketing 429 606 620 Other 6,707 9,946 7,962 ------- ------- ------- $38,966 $47,923 $21,259 ======= ======= ======= Depreciation, depletion, and amortization: Oil and gas production $ 4,210 $ 2,403 $ 1,984 Marketing 3 5 7 Other 493 303 223 ------- ------- ------- $ 4,706 $ 2,711 $ 2,214 ======= ======= ======= Capital expenditures: Oil and gas production $ 3,759 $ 4,759 $ 4,205 Marketing - - - Other 15 56 52 ------- ------- ------- $ 3,774 $ 4,815 $ 4,257 ======= ======= =======
14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES Results of Operations from Oil and Gas Producing Activities ----------------------------------------------------------- The following sets forth certain information with respect to the Company's results of operations from oil and gas producing activities for the years ended July 31, 1996, 1995 and 1994. All of the Company's oil and gas producing activities are located within the United States. The dry hole costs include $2,491,299 related to the Tunisia project. F-24 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (continued)
1996 1995 1994 ---------- ---------- ---------- (Restated) (In thousands) Revenues $ 11,980 $ 8,585 $ 8,703 Production costs 5,737 4,693 4,312 Gross production taxes 871 572 529 Dry hole costs and abandonments 3,586 104 113 Depreciation and depletion 4,210 2,403 1,984 ---------- ---------- ---------- Results of operations before income taxes (2,424) 813 1,765 Income tax expense - - 671 ---------- ---------- ---------- Results of operations (excluding corporate overhead and interest costs) $ (2,424) $ 813 $ 1,094 ========== ========== ==========
Capitalized Costs and Costs Incurred Relating to Oil and Gas Producing Activities ---------------------------------------------------------------------------------
1996 1995 1994 ---------- ---------- ---------- (Restated) (In thousands) Proven properties $ 40,316 $ 38,690 $ 16,208 Unproven properties 949 4,312 - ---------- ---------- ---------- Total capitalized costs 41,265 43,002 16,208 Less - accumulated depreciation and depletion 9,435 5,631 3,555 ---------- ---------- ---------- Net capitalized costs $ 31,830 $ 37,371 $ 12,653 ========== ========== ========== Costs incurred during the year: Property acquisition costs $ - $ - $ - Exploration costs 2,631 104 113 Development costs 1,480 763 787 Purchase of minerals in place 2,800 22,613 1,740
F-25 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (continued) Estimated Quantities of Proved Oil and Gas Reserves (Unaudited) --------------------------------------------------------------- The estimates of proved oil and gas reserves utilized in the preparation of the consolidated financial statements were prepared by independent petroleum engineers at July 31, 1996. Such estimates are in accordance with guidelines established by the Securities and Exchange Commission and the Financial Accounting Standards Board, which require that reserve reports be prepared under existing economic and operating conditions with no provision for price and cost escalations except by contractual arrangements. The Company's reserves are located onshore in the United States. The Company emphasizes that reserve estimates are inherently imprecise. Accordingly, the estimates are expected to change as more current information becomes available. In addition, a portion of the Company's proved reserves are undeveloped, which increases the imprecision inherent in estimating reserves which may ultimately be produced. Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The following is an analysis of the Company's proved oil and gas reserves.
Oil (MBbls) Gas (MMcf) ----------- ---------- Proved reserves at July 31, 1993 2,455.3 9,391 Revisions of previous estimates 423.3 346 Extensions, discoveries and other additions 2,075.9 2,215 Production (335.3) (2,107) Purchases of reserves-in-place 112.4 1,924 Sales of reserves-in-place (211.7) (836) ----------- ---------- Proved reserves at July 31, 1994 4,519.9 10,933 Revisions of previous estimates (1,686.8) (1,793) Extensions, discoveries and other additions - - Production (359.0) (2,612) Purchases of reserves-in-place 1,562.3 21,202 Sales of reserves-in-place - - ----------- ---------- Proved reserves at July 31, 1995 (Restated) 4,036.4 27,730
F-26 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (continued)
Oil (MBbls) Gas (MMcf) ----------- ---------- Revisions of previous estimates 2,566.8 3,888 Extensions, discoveries and other additions - - Production (405.0) (3,481) Purchases of reserves-in-place 248.7 2,190 Sales of reserves-in-place (93.9) (2,155) ----------- ---------- Proved reserves at July 31, 1996 6,353.0 28,172 =========== ========== Oil (MBbls) Gas (MMcf) ----------- ---------- Proved developed reserves at July 31, 1993 2,217.0 8,858 July 31, 1994 3,843.0 9,495 July 31, 1995 (Restated) 4,036.4 27,730 July 31, 1996 4,952.9 27,757
Subsequent to year end, the Company has entered into letters of intent with two parties to sell oil and gas properties for approximately $1,500,000. The Company chose not to include those properties in its reserve appraisal at July 31, 1996. Standardized Measure of Discounted Future Net Cash Flows Relating to Proved --------------------------------------------------------------------------- Oil and Gas Reserves (Unaudited) -------------------------------- The "Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement under SFAS No. 69. The Standardized Measure does not purport to present the fair market value of proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure. Under the Standardized Measure, future cash inflows were estimated by applying year-end prices, adjusted for fixed and determinable escalations, to the estimated future production of year-end proved reserves. Future cash inflows were reduced by the estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over the Company's tax basis in the associated proved oil and gas properties. Tax credits and permanent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were discounted using a 10% annual discount rate to arrive at the Standardized Measure. F-27 LaTex RESOURCES, INC. Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 14. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (continued)
Year Ended ------------------------------------------- July 31, 1994 July 31, 1995 July 31, 1996 ------------- ------------- ------------- (Restated) (In thousands) Future cash inflows $ 87,093 $ 99,585 $ 181,566 Future costs - future production and development costs 49,490 43,794 79,763 ------------- ------------- ------------- Future net cash inflows before income tax expense 37,603 55,791 101,803 Future income tax expense 9,151 8,705 25,486 ------------- ------------- ------------- Future net cash flows 28,452 47,086 76,317 10% annual discount for estimated timing of cash flows 14,175 22,130 35,869 ------------- ------------- ------------- Standardarized Measure of discounted future net cash flows $ 14,277 $ 24,956 $ 40,448 ============= ============= =============
Changes in Standardized Measure of Discounted Future Net Cash Flows ------------------------------------------------------------------- Relating to Proved Oil and Gas Reserves (Unaudited) --------------------------------------------------- The following is an analysis of the changes in the Standardized Measure during the periods presented:
Year Ended ------------------------------------------- July 31, 1994 July 31, 1995 July 31, 1996 ------------- ------------- ------------- (Restated) (In thousands) Standardized Measure - beginning of year $ 9,993 $ 14,277 $ 24,956 Increases (Decreases) Sales, net of production costs (3,799) (3,800) (5,779) Net change in sales prices, net of production costs 2,600 (9,108) 20,712 Discoveries and extensions, net of related future development production costs 4,762 - - Changes in estimated future development costs (1,521) 1,182 (2,889) Revisions of previous quantity estimates 225 (4,260) 11,260 Accretion of discount - 1,428 2,181 Net change in income taxes - 236 (8,944) Purchases of reserves-in-place 2,459 20,700 2,093 Sales of reserves-in-place (974) - (3,142) Timing of production of reserves and other 532 4,301 - ------------- ------------- ------------- Standardized Measure - end of year $ 14,277 $ 24,956 $ 40,448 ============= ============= =============
F-28 Note to Consolidated Financial Statements July 31, 1996, 1995, and 1994 15. HEDGING Oil and Gas - The Company is required, by agreement with its primary lender ----------- (Bank of America), to participate in a price protection program, executed by Bank of America, for a majority of its gas sales for a 36 month period until March 31, 1998. Oil is hedged at a floor of $16.50/Bbl and a ceiling of $19.82/Bbl based on projected monthly production. Gas is hedged at $1.806/MMBtu based on projected monthly production. The production rates were calculated by Bank of America from reserve report data and are fixed by Bank of America. The monthly hedge amount is calculated by Bank of America from published market rates. The current hedging agreement does not allow for full benefit from prices above the ceiling amount. The hedging gains or losses for the years ended July 31, 1996 and 1995 are as follows:
1996 1995 ---------- ---------- (Restated) Oil $ (200,447) $ (4,397) Gas (1,275,206) 161,698 ----------- --------- Net hedging income (loss) $(1,475,653) $ 157,301 =========== =========
The hedging gains and losses are included in oil and gas revenue for the years indicated. Interest - The Company is required, by agreement with its primary lender -------- (Bank of America), to participate in an interest rate protection program, executed by Bank of America, until February 29, 2000, for its debt to its primary lender. Interest is hedged to achieve a fixed rate of 7.49% based on a fixed amortization schedule determined at loan origination. The hedging losses for the year ended July 31, 1996 and 1995 are $504,303 and $80,151, respectively, and are included in interest expense for the years indicated. The off-balance sheet liability for all future hedging commitments based on current year end prices and rates are as follows: Oil $ 669,405 Gas 1,688,202 Interest 1,291,680 ----------- Net liability $ 3,649,287 ===========
F-29 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 16. RESTATEMENT OF PRIOR YEAR Effective March 31, 1995 the Company acquired Germany Oil Company ("Germany") in a purchase transaction. The net assets acquired consisted primarily of oil and gas properties. In connection with the transaction the Company failed to allocate the purchase price to all assets acquired as required by generally accepted accounting principles. During fiscal 1996 the Company, based on the reports of independent petroleum engineers, reallocated the adjusted purchase price as of the date of acquisition. Accordingly, the previously reported 1995 amounts have been restated as follows:
Statement of Asset Liability Operations Increase (Increase) (Increase) (Decrease) Decrease Decrease ----------- ----------- ----------- Oil and gas properties $ 7,859,993 $ - $ - Goodwill (9,929,199) - - Deferred loan cost 871,270 - - Accounts payable 1,197,936 Goodwill amortization (220,650) - 220,650 Depletion expense (49,283) - 49,283 Amortization expense 58,085 - (58,085) ----------- ----------- ----------- Total $(1,409,784) $ 1,197,936 $ 211,848 =========== =========== =========== As a result of the restatement, loss per share decreased by $0.01 per share.
17. SUBSEQUENT EVENTS Proposed Merger With Alliance Resources Plc - As a result of the demands ------------------------------------------- placed upon the Company by its primary lender, the Company's continuing working capital deficit, its deteriorating financial condition and the inability of the Company to raise additional debt or equity capital, management of the Company, in the forth quarter of fiscal 1996, determined to seek an equity infusion through a strategic merger with a suitable merger candidate. Management's primary objective in seeking a merger partner was to solve the working capital deficit of the Company through an equity infusion while minimizing dilution to the shareholders. Although the Company considered several potential transactions. Alliance Resources Plc ("Alliance") emerged as the candidate most likely to meet the objectives of the Company. The Company has entered into an Agreement and Plan of Merger ("Alliance Merger Agreement") dated August 12, 1996 with Alliance Resources Plc, a company organized under the laws of the United Kingdom ("Alliance"), Pursuant to which the Company will merge ("Alliance Merger") with a wholly- owned U.S. subsidiary of Alliance. F-30 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 17. SUBSEQUENT EVENTS (continued) Under the terms of the Alliance Merger Agreement and after giving effect to a 1 for 40 reverse stock split to be completed by Alliance, the holders of the Company's common stock will receive 0.8806 ordinary shares of Alliance for each share of such common stock, the holders of the Company's Series A Convertible Preferred Stock will receive 2.6445 ordinary shares of Alliance for each share of such Series A Convertible Preferred Stock, and the holders of the Company's Series B Senior Convertible Preferred Stock will receive 5.8709 ordinary shares of Alliance for each share of such Series B Senior Convertible Preferred Stock. Following the Alliance Merger, the holders of the Company's common and preferred stock will own, as a group, approximately 72% of the issued and outstanding ordinary shares of Alliance and the Company will become a wholly-owned subsidiary of Alliance. Holders of outstanding warrants to purchase shares of the Company's common stock will receive from Alliance replacement warrants to purchase shares of Alliance ordinary shares on substantially the same terms. It is anticipated that the merger will provide the Company with sufficient capital resources to eliminate its existing working capital deficit, refinance the Company's senior debt and eliminate the hedging agreements, and provide development capital for exploration of the Company's oil and gas properties. In addition, the Company believes that the combination of the two companies provides strategic benefits to the Company important to its long-term growth and the enhancement of shareholder value. Although Alliance's domestic oil and gas operations are significantly smaller than the Company's, the Company believes that the merger will enhance the overall financial strength of the Company and provide a stable platform from which future growth can be achieved. The strategic objectives of the combined Company will be to continue a policy of structured and stable growth in the domestic U.S. oil and gas sector while implementing projects in Western Europe, the Middle East and the former Soviet Union. Under the terms of the Alliance Merger Agreement, the Company is required to dispose of its interests in its unconsolidated affiliates, Wexford Technology, Inc. ("Wexford") and Imperial Petroleum, Inc. ("Imperial"), and its interests in its wholly-owned subsidiaries LaTex Resources International, Inc. ("LaTex Resources International") and Phoenix Metals, Inc. ("Phoenix Metals"). Effective July 31, 1996, the Company has written off its $1,812,429 investment in Imperial, its $2,372,452 investment in Wexford, and its $955,496 Investment in LaTex Resources International. The Company has entered into a Purchase Agreement with Imperial pursuant to which the Company will sell its interests in Wexford, Imperial, LaTex Resources International and Phoenix Metals to Imperial for 100,000 shares of the Company's common stock. Imperial is controlled by the Company's President and largest stockholder, Jeffrey T. Wilson. Prior to the completion of the sale, the Company intends to obtain an opinion from an independent investment banking firm as to the fairness of the transaction to the Company's stockholders. F-31 Notes to Consolidated Financial Statements July 31, 1996, 1995, and 1994 17. SUBSEQUENT EVENTS(continued) Effective October 21, 1996, each holder of options granted under the Company's 1993 Incentive Stock Plan agreed to terminate all options held and receive grants of restricted common stock of the Company. 1,690,000 options were canceled and 1,690,000 shares of restricted common stock were granted. The terms of the Restricted Shares provide that a holder may not sell, transfer, or otherwise dispose of any Restricted Shares as long as the Company has the right to a forfeiture of the Shares. The terms of the Restricted Stock provide that in the event that a holder's employment with the Company shall terminate for any reason other than death or total disability prior to the earlier of (a) February 1, 1997, or (b) a change in control occurs with respect to the Company, the holder shall immediately forfeit any right to the shares of Restricted Stock for which the restrictions have not otherwise lapsed. Compensation expense of $528,125, reflecting the market value of the Company's publicly traded stock on the date of grant, was recorded on that date. It is the intent that the holders of the restricted stock will convert their shares to Alliance ordinary shares on substantially the same basis as the Company's common stockholders. The Company did not grant any tax gross-up rights in connection with the issuance of the restricted stock. Disposition of Oil and Gas Properties - Subsequent to year end, the ------------------------------------- Company has entered into letters of intent with two parties to sell oil and gas properties for approximately $1,500,000. The Company chose not to include those properties in its reserve appraisal at July 31, 1996. The Company does not expect the transaction to have a significant impact on the results of operations. F-32 EX-99.6 6 UNAUDITED INTERIM STATEMENTS EXHIBIT 99.6 LATEX RESOURCES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
JANUARY 31, 1997 JULY 31, 1996 ASSETS (UNAUDITED) (AUDITED) ------ ---------------- ------------- Current assets: Cash...................... $ 27,670 $ 19,337 Accounts receivable-net... 2,680,488 3,324,309 Accounts and notes receiv- able-other............... 3,884 515,820 Inventories............... 175,493 175,493 Other current assets...... 58,245 27,587 Assets held for resale.... 164,792 164,792 ----------- ----------- Total current assets.... $ 3,110,572 $ 4,227,338 ----------- ----------- Property, plant, and equip- ment: Oil and gas properties--at cost..................... $35,379,541 $41,264,573 Other depreciable assets.. 855,513 854,259 ----------- ----------- $36,235,054 $42,118,832 Less accumulated deprecia- tion and depletion....... 8,826,463 10,173,524 ----------- ----------- Net property, plant and equipment................ $27,408,591 $31,945,308 ----------- ----------- Other assets: Notes receivable-net of current portion.......... $ -- $ 757,500 Deposits and other assets. 123,839 130,734 Accounts and notes receiv- able-related parties..... -- 392,297 Intangible assets, net of amortization............. 1,357,592 1,512,899 ----------- ----------- Total other assets...... 1,481,431 2,793,430 ----------- ----------- Total assets................ $32,000,594 $38,966,076 =========== ===========
See accompanying notes to consolidated condensed financial statements. 1 LATEX RESOURCES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS(CONTINUED)
JANUARY 31, 1997 JULY 31, 1996 LIABILITIES AND STOCKHOLDERS EQUITY (UNAUDITED) (AUDITED) ----------------------------------- ---------------- ------------- Current liabilities: Accounts payable.................................. $ 10,018,608 $ 9,057,707 Accounts payable-other............................ 880,424 132,000 Accrued expenses payable.......................... 523,584 607,055 Current portion long-term debt.................... $ 18,758,909 22,235,867 ------------ ------------ Total current liabilities....................... 30,181,525 32,032,629 ------------ ------------ Other liabilities................................... $ 565,000 $ 615,000 ------------ ------------ Total liabilities............................... $ 30,746,525 $ 32,647,629 ------------ ------------ Stockholders' equity: Preferred stock--par value $0.01; 5,000,000 shares authorized: Series A convertible preferred stock ($10.00 liquidation preference), 454,290 and 449,828 issued and outstanding at January 31, 1997 and July 31, 1996, respectively.................... $ 4,543 $ 4,498 Series B convertible preferred stock ($10.00 liquidation preference), 509,259 and 480,025 issued and outstanding at January 31, 1997 and July 31, 1996, respectively.................... 5,093 4,800 Common stock--par value $.01; 50,000,000 shares authorized; 20,813,995 and 19,123,995 issued and outstanding at January 31, 1997 and July 31, 1996, respectively............................... 208,140 191,240 Additional paid-in capital........................ 19,202,981 18,355,134 Accumulated deficit............................... (17,677,323) (11,747,860) Treasury stock 1,008,500 common shares at cost.... (489,365) (489,365) ------------ ------------ Total stockholders' equity...................... $ 1,254,069 $ 6,318,447 ------------ ------------ Total liabilities and stockholders' equity.......... $ 32,000,594 $ 38,966,076 ============ ============
See accompanying notes to consolidated condensed financial statements. 2 LATEX RESOURCES, INC. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED JANUARY 31, 1997 JANUARY 31, 1996 JANUARY 31, 1997 JANUARY 31, 1996 (UNAUDITED) (RESTATED, UNAUDITED) (UNAUDITED) (RESTATED, UNAUDITED) ---------------- --------------------- ---------------- --------------------- Revenue: Oil and gas sales..... $ 1,180,445 $2,848,059 $ 3,558,146 $ 5,882,811 Crude oil and gas marketing............ 42,228 114,737 132,455 303,580 Lease operations and management fees...... 205,385 166,346 455,274 402,079 ------------ ---------- ------------ ------------ Total operating income............. $ 1,428,058 $3,129,142 $ 4,145,875 $ 6,588,470 Operating expenses: Lease operating expense.............. $ 1,091,733 $1,909,659 $ 2,557,281 $ 3,471,175 Cost of crude oil & gas marketing........ 5,605 31,491 22,876 115,674 General & administrative expense.............. 802,691 798,105 2,697,435 1,545,968 Depreciation, depletion and amortization......... 862,406 1,351,353 3,469,957 2,599,332 Dry hole costs and abandonments......... (5,672) 27,775 16,441 101,068 ------------ ---------- ------------ ------------ Total operating expenses $ 2,756,763 $4,118,383 $ 8,763,990 $ 7,833,217 ------------ ---------- ------------ ------------ Net operating loss...... $ (1,328,705) $ (989,241) $ (4,618,115) $ (1,244,747) Other income: Equity in losses and writeoffs of investments in affiliates........... $ (16,746) $ (30,500) $ (16,746) $ (72,000) Gain on sale of assets............... 38,487 1,292,279 106,520 1,292,279 Interest Income....... 1,688 4,842 33,622 43,495 Interest Expense...... (497,966) (568,843) (1,097,784) (1,149,510) ------------ ---------- ------------ ------------ Net loss................ $ (1,803,242) $ (291,463) $ (5,592,503) $ (1,130,483) Preferred stock dividends.............. $ 170,710 $ 139,760 $ 336,960 $ 275,990 ------------ ---------- ------------ ------------ Net loss for common shareholders........... $ (1,973,952) $ (431,223) $ (5,929,463) $ (1,406,473) ============ ========== ============ ============ Loss per share for common shareholders.... $ (0.09) $ (0.02) $ (0.29) $ (0.08) ============ ========== ============ ============ Weighted average number of shares outstanding.. 20,813,995 18,022,195 20,069,940 17,986,325 ============ ========== ============ ============
See accompanying notes to consolidated condensed financial statements. 3 LATEX RESOURCES, INC. CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JANUARY 31, 1997
PREFERRED STOCK ADDITIONAL TOTAL ----------------- COMMON PAID-IN ACCUMULATED TREASURY STOCKHOLDERS CLASS A CLASS B STOCK CAPITAL DEFICIT STOCK EQUITY -------- -------- ------- ---------- ----------- -------- ------------ Balance July 31, 1996... $ 4,498 4,800 191,240 18,355,134 (11,747,860) (489,365) 6,318,447 Issued 4,462 shares of Class A and 29,234 shares of Class B in lieu of cash dividends. 45 293 -- 336,622 (336,960) -- -- Issued 1,690,000 shares for employee bonus..... -- -- 16,900 511,225 -- -- 528,125 Net loss................ -- -- -- -- (5,592,503) -- (5,592,503) -------- ------- ------- ---------- ----------- -------- ---------- Balance January 31, 1997................... $ 4,543 5,093 208,140 19,202,981 (17,677,323) (489,365) 1,254,069 ======== ======= ======= ========== =========== ======== ==========
See accompanying notes to consolidated condensed financial statements. 4 LATEX RESOURCES, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SIX MONTHS ENDED JANUARY 31, 1997 JANUARY 31, 1996 (UNAUDITED) (UNAUDITED) (RESTATED) ---------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................. $ (5,592,503) $ (1,130,483) Adjustments to reconcile net loss to net cash provided by (used in) oper- ating activities: -- -- Depreciation, amortization and depletion......................... 3,469,957 2,599,332 Gain on sale of assets............. (106,520) (1,292,279) Equity in losses and writeoffs of investments in affiliates......... 16,746 72,000 Dryhole costs and abandonments..... 16,441 101,068 Employee bonus..................... 528,125 -- Forgiveness of debt................ 384,744 -- Changes in assets and liabilities: Accounts receivable.............. 643,821 (84,604) Accounts and notes receivable- related parties................. (7,257) Inventories...................... -- (129,446) Other assets..................... (23,763) 1,160 Prepaid expenses................. -- (97,235) Accrued expenses payable......... (83,471) (87,916) Accounts payable................. 1,709,325 (52,135) Other liabilities................ (50,000) -- ------------ ------------ Net cash provided by (used in) operating activities.................. 905,645 (100,538) ------------ ------------ Cash flows from investing activities: Proceeds from sale of property and equipment........................... 1,573,625 2,885,320 Purchases of property and equipment.. (261,479) (2,297,023) Collections on notes receivable...... 1,267,500 -- ------------ ------------ Net cash provided by (used for) investing activities.................. 2,579,646 588,297 ------------ ------------
See accompanying notes to consolidated condensed financial statements 5 LATEX RESOURCES, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS(CONTINUED)
SIX MONTHS ENDED SIX MONTHS ENDED JANUARY 31, 1997 JANUARY 31, 1996 (UNAUDITED) (UNAUDITED) (RESTATED) ---------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Payments on notes payable............ (3,476,958) (801,988) ----------- ---------- Net cash used for financing activities.......................... (3,476,958) (801,988) ----------- ---------- Net increase (decrease) in cash and cash equivalents.................... 8,333 (314,229) Cash and cash equivalents beginning of period........................... $ 19,337 $ 314,229 ----------- ---------- Cash and cash equivalents end of period.............................. $ 27,670 $ -- =========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for interest............................ $ 1,097,784 $1,149,510 =========== ==========
See accompanying notes to consolidated condensed financial statements. 6 LATEX RESOURCES, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM REPORTING The interim consolidated condensed financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Due to the seasonal nature of the business, the results of operations for the six months ended January 31, 1997 are not necessarily indicative of the results that may be expected for the year ended July 31, 1997. For further information refer to the consolidated fianancial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended July 31, 1996. RECLASSIFICATION Certain amounts in the January 1996 consolidated condensed financial statements have been reclassified to conform with the January 1997 presentation. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 Effective August 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recognized for long-lived assets when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Fair values are based on discounted future cash flows or information provided by sales and purchases of similar assets. Under SFAS No. 121. the Company now evaluates impairment of production assets on a well by well basis rather than using a total company basis for its proved properties. As a result, the Company recognized a pre-tax impairment loss of $1.4 million in the three months ended October 31, 1996. Such a loss is included in depreciation, depletion and amortization expense. RESTATEMENT OF PRIOR YEAR Effective March 31, 1995 the Company acquired Germany Oil Company ("Germany") in a purchase transaction. The net assets acquired consisted primarily of oil and gas properties. In connection with the transaction the Company failed to allocate the purchase price to all assets acquired as required by generally accepted accounting principles. During fiscal 1996 the Company, based on the reports of independent petroleum engineers, reallocated the adjusted purchase price as of the date of acquisition. Accordingly, the previously reported 1995 amounts have been restated as follows:
STATEMENT OF ASSET LIABILITY OPERATIONS INCREASE (INCREASE) (INCREASE) (DECREASE) DECREASE DECREASE ----------- ---------- ------------ Oil and gas properties..................... $ 7,859,993 $ -- $ -- Goodwill................................... (9,929,199) -- -- Deferred loan cost......................... 871,270 -- -- Accounts payable........................... -- 1,197,936 -- Goodwill amortization...................... (220,650) -- 220,650 Depletion expense.......................... (49,283) -- 49,283 Amortization expense....................... 58,085 -- (58,085) ----------- ---------- -------- Total.................................... $(1,409,784) $1,197,936 $211,848 =========== ========== ========
7 EX-99.7 7 UNAUDITED PRO FORMA FINANCIAL STATEMENTS EXHIBIT 99.7 UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF ALLIANCE The following unaudited condensed pro forma combined balance sheet and unaudited condensed pro forma combined statement of income for Alliance (collectively, the "unaudited pro forma financial statements") have been prepared to illustrate the estimated effect of the proposed combination of Alliance and LaTex pursuant to the Merger and the acquisition of the Bank of America Overriding Royalty Interest and are based upon the assumptions set forth below and in the notes to such statements. The respective historical consolidated financial statements of Alliance and LaTex are included elsewhere in this Proxy Statement. The merger will be treated as a purchase and, as a result of the LaTex shareholders owning approximately 73% of the combined company prior to issuance of New Alliance Shares, Bank Notes and Bank Warrants to the Bank, LaTex will be treated as having acquired Alliance. Accordingly, in the unaudited pro forma financial statements, it is the assets and liabilities of Alliance that are recorded at fair value while the assets of LaTex are recorded at historical cost. The unaudited pro forma financial statements include the unaudited condensed pro forma combined balance sheet at October 31, 1996, giving effect to the Merger and the purchase of the Bank of America Overriding Royalty Interest as if these were consummated on that date. Also presented is the unaudited condensed pro forma combined statement of income for the year ended April 30, 1996 and the unaudited condensed pro forma combined statement of income for the six months ended October 31, 1996 after giving effect to the Merger and the purchase of the Bank of America Overriding Royalty Interest as if these were consummated on May 1, 1995. The unaudited pro forma financial statements are prepared in accordance with US GAAP. The financial statements of Alliance have been prepared in accordance with UK GAAP and the financial statements of LaTex have been prepared in accordance with US GAAP. Included are relevant adjustments to the Alliance financial statements to state these in accordance with US GAAP. The unaudited pro forma financial statements and accompanying notes, which are an integral part of such statements, should be read in conjunction with the respective historical financial statements, including the notes thereto, and other financial information of Alliance and LaTex included elsewhere in this Proxy Statement. The unaudited pro forma financial statements are provided for illustrative purposes only and do not purport to represent what the financial position or results of operations of Alliance and LaTex would actually have been if the Merger and the purchase of the Bank of America Overriding Royalty Interest had in fact occurred on the dates indicated or to project the financial position or results of operations for any future date or period. 1 CONDENSED PRO FORMA COMBINED BALANCE SHEET AS OF OCTOBER 31, 1996 (UNAUDITED)
ALLIANCE LATEX UK US GAAP ALLIANCE US PRO FORMA PRO HISTORICAL GAAP ADJUSTMENTS GAAP ADJUSTMENTS FORMA ----------- --------- ------------ ------------ ------------------ --------- $000 $000 $000 $000 $000 $000 Assets: Current assets: Cash and cash equivalents 20 2,515 - 2,515 - 2,535 Receivables: Trade 3,209 673 - 673 - 3,882 Other 513 554 (a) (295) 259 - 772 Prepaid expenses - 684 - 684 - 684 Inventory 175 - - - - 175 Other current assets 22 - - - - 22 Assets held for sale 165 - - - 165 -------- -------- ----------- ------- ------ -------- Total current assets 4,104 4,426 (295) 4,131 - 8,235 -------- -------- ----------- ------- -------- -------- Net property, plant and equipment 29,549 4,368 (b) (1,683) 2,685 (c) 6,228 42,262 (h) 3,800 Other assets: Notes receivable, net of current 630 - - - - 630 portion Deposits and other assets 124 - - - - 124 Accounts and notes receivable - related parties 2 - - - - 2 Intangible assets net of amortization 1,408 - - - - 1,408 -------- ----------- ------ -------- ------ -------- Total assets 35,817 8,794 (1,978) 6,816 10,028 52,661 ======== =========== ====== ======== ======== ======== Liabilities and stockholders' equity Current liabilities: Bank loans and overdrafts - 10 - 10 - 10 Trade accounts payable 9,991 1,043 - 1,043 - 11,034 Accrued expenses 593 383 - 383 (d) 2,300 3,276 Current portion of long term debt 21,127 6 - 6 (g) (21,127) 6 Other 434 461 - 461 - 895 -------- -------- ----------- ------- -------- -------- Total current liabilities 32,145 1,903 - 1,903 (18,827) 15,221 Long-term debt, excluding current installments - 88 - 88 (g) 21,127 22,653 (h) 1,438 Other liabilities 615 - - - - 615 -------- -------- ----------- ------- -------- -------- Total liabilities 32,760 1,991 - 1,991 3,738 38,489 -------- -------- ----------- ------- -------- -------- Stockholders' equity: Ordinary shares, (Pounds)0.01 par value; issued 324,152,633 (Alliance) - 5,105 - 5,105 (e) (5,105) - Common stock, $0.01 par value (LaTex) 208 - - - (f) (208) - Ordinary shares, (Pounds)0.40 par value issued 31,052,603 shares issued - - - - (e) 5,105 20,404 (d) 104 (f) 14,299 (h) 896 Series A convertible preferred stock 4 - - - (f) (4) - Series B convertible preferred stock 5 - - - (f) (5) - Additional paid in capital 19,032 - - - (c) 6,228 9,471 (d) (2,404) (e) (280) (f) (14,571) (h) 1,466 Treasury stock (489) - - - (f) 489 - Share premium - 20,157 - 20,157 (e) (20,157) - Merger reserve - 401 - 401 (c) (401) - Accumulated deficit (15,703) (18,860) (a) (295) (20,838) (e) 20,838 (15,703) -------- -------- ------- --------- ------ (b) (1,683) Total stockholders' equity 3,057 6,803 (1,978) 4,825 6,290 14,172 -------- -------- ----------- ------- -------- -------- Total liabilities and stockholders' equity 35,817 8,794 (1,978) 6,816 10,028 52,661 ======== ========= ========== ======== ======= ========
2 3 CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME YEAR ENDED APRIL 30, 1996 (UNAUDITED)
LATEX HISTORICAL YEAR ENDED ALLIANCE US JULY 31, UK GAAP ALLIANCE US PRO FORMA PRO 1996 GAAP ADJUSTMENTS GAAP ADJUSTMENTS FORMA ---------- ---------- --------------- ----------- ------------ ------------ $000 $000 $000 $000 $000 $000 Revenues: Oil and natural gas sales and other operating revenues 13,531 3,686 - 3,686 (f) 587 17,804 ------- ------- ----------- ------ -------- ------ Costs and expenses: Exceptional amounts written off oil and gas interests - - - - - Exceptional costs arising from irregularities - (589) (a) (272) (861) - (861) Direct operating expenses (6,608) (2,262) - (2,262) - (8,870) Dry hole costs and abandonments (3,586) - - - - (3,586) Selling, general and administrative expenses (3,027) (2,629) - (2,629) - (5,656) Depreciation, depletion and amortization (4,706) (1,668) (b) 437 (1,231) (c)(1,113) (7,637) ------- ------- ------ ------- ------- (f) (587) ------- Operating (loss) (4,396) (3,462) 165 (3,297) (1,113) (8,806) Other income and deductions Interest (net) (2,205) 229 - 229 - (1,976) Profit on sale of fixed assets 2,366 - - - - 2,366 Equity losses and asset write-offs of joint ventures and affiliates (4,185) (201) - (201) - (4,386) Foreign exchange losses - (159) - (159) - (159) ------- ------- ----------- ------ ------- -------- Net (loss) from continuing operations (8,420) (3,593) 165 (3,428) (1,113) (12,961) ======= ======= =========== ======= ======= ======== Loss per share from continuing operations (cents) (d) (45.3) (d) (43.2) (42.0) Weighted average number of shares outstanding (d) 7,929,391 (d) 7,929,391 30,878,178 ========= ========== ==========
4 CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME SIX MONTHS ENDED OCTOBER 31, 1996 (UNAUDITED)
ALLIANCE LATEX UK US GAAP ALLIANCE US PRO FORMA PRO HISTORICAL GAAP ADJUSTMENTS GAAP ADJUSTMENTS FORMA ---------- ------ ------------ ----- ------------ ------ $000 $000 $000 $000 $000 $000 Revenues: Oil and natural gas sales and other operating revenues 4,690 1,998 - 1,998 (f) 274 6,962 ----- ------- ------- ----- ----- ----- Costs and expenses: Exceptional amounts written off oil and gas interests (1,548) - - - - (1,548) Exceptional costs arising from irregularities - (120) - (120) - (120) Direct operating expenses (2,697) (816) - (816) - (3,513) Dry hole costs and abandonments (3,608) - - - - (3,608) Selling, general and administrative expenses (2,711) (1,315) - (1,315) - (4,026) Depreciation, depletion and amortization (1,871) (821) (b) 308 (513) (c) (596) (3,254) -------- ------- ---- ------- -------- (f) (274) ----- Operating (loss) (7,745) (1,074) 308 (766) (596) (9,107) Other income and deductions Interest (net) (1,512) 31 - 31 - (1,481) Profit on sale of fixed assets 614 - - - (e) (542) 72 Equity losses and asset write-offs of joint ventures and affiliates (4,096) - - - - (4,096) Foreign exchange gains - 56 - 56 - 56 -------- ------- ----- ------- ------ -------- Net (loss) from continuing operations (12,739) (987) 308 (679) (1,138) (14,556) ======== ==== ===== ======= ====== ======== Loss per share from continuing operations (cents) (d) (12.2) (d) (8.4) (46.9) Weighted average number of shares outstanding (d) 8,103,816 (d) 8,103,816 31,052,603 ========= ========= ==========
5 NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS The unaudited pro forma financial statements include the following adjustments: CONDENSED PRO FORMA COMBINED BALANCE SHEET Alliance US GAAP adjustments: (a) To eliminate from 'other receivables' an amount recognized as a receivable, under UK GAAP, relating to the right to receive the proceeds of the sale of Alliance shares resulting from the settlement with Mr. O'Brien. Under US GAAP, such proceeds are recognized only on receipt. (b) To adjust the oil and gas properties as at October 31, 1996 to reflect the cumulative effect of the ceiling test write down made in the year ended April 30, 1995 under US GAAP. Under US GAAP ceiling tests are computed at current prices discounted to present value at 10%; under UK GAAP, a ceiling test is based on the company's best estimate of the future cash flows from the underlying properties. Pro forma adjustments: (c) To record the Alliance oil and gas properties at their fair values under US GAAP. The purchase price has been derived from Alliance's market capitalization at the date of the announcement of the merger based on a price of 2 pence per share and 324,152,640 shares in issue. This has been converted to U.S. dollars at a rate of US$1.5511:(Pounds)1. The costs of the acquisition have also been included to arrive at a total consideration of $11,053,000 which has been allocated as follows: $000 ------ Fixed assets 8,913 Cash 2,515 Other net current assets and liabilities (281) Debt (94) ------ 11,053 ====== (d) To record an accrual for the expenses of the merger and the share issue (including the restructuring fee payable to Bank of America of $200,000 which is to be settled by the issue of 156,250 shares). (e) To eliminate the existing capital and reserves of Alliance (other than the par value of the Ordinary shares) from the condensed pro forma combined balance sheet. (f) To record the par value of the New Alliance shares to be issued as a consequence of the Merger and their exchange for the whole of the issued share capital of LaTex. This represents 21,448,787 shares of 40p each at an exchange rate of $1.6667:(Pounds)1. (g) To record the revised maturity of LaTex's bank borrowing following the renegotiation referred to under "Alliance-Financing" in this Proxy Statement. 6 (h) To record the issue of 1,343,750 shares of 40p each, Loan notes convertible into up to 1,078,125 New Alliance Shares and 1,210,938 warrants to acquire shares at an option price of (Pound)1.00 per share to Bank of America in exchange for the Overriding Royalty Interest. CONDENSED PRO FORMA COMBINED STATEMENTS OF INCOME Alliance US GAAP adjustments: (a) To eliminate income recognized under UK GAAP, relating to the right to receive proceeds from the sale of Alliance shares resulting from the settlement with Mr. O'Brien. Under US GAAP, such proceeds are recognized only on receipt. (b) To adjust the depreciation, depletion and amortization charge to reflect the ceiling test write down adjustment made in the condensed pro forma combined balance sheet described above. Pro forma adjustments: (c) To adjust the depreciation, depletion and amortization charge to reflect the adjustments made to Alliance's oil and gas properties restated at their fair value under US GAAP using LaTex accounting policies. LaTex uses the successful efforts method of accounting for oil and gas properties whereas Alliance uses the full cost method. (d) The weighted average number of shares outstanding and the loss per share have been calculated after giving retroactive effect to the proposed 40:1 reverse stock split. (e) To reflect the sale of oil and gas properties by Alliance under LaTex's accounting policies. Alliance uses the full cost method under which (generally) the proceeds of the sale of oil and gas properties reduces the carrying value of the full cost pool. Under the successful efforts method used by LaTex the profit or loss on disposal of each property is recognized in the income statement at the time of sale. (f) To reflect the acquisition of the Overriding Royalty Interest. 7 -----END PRIVACY-ENHANCED MESSAGE-----