SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 1995 [FEE REQUIRED]
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 2-67096
TRI-VALLEY CORPORATION
------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 84-061743
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification Number)
230 South Montclair Street, Suite 101, Bakersfield, California 93309
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(Address of Principal Executive Offices)
Registrant's Telephone Number Including Area Code: (805) 837-9300
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
-------------------- -----------------------------------------
Common Electronic Bulletin Board Nasdaq
$0.01 Par Value Common Stock
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes X No
-----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K contained in this Form, and no disclosure will be contained
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, if
applicable, or any amendment to this Form 10-K.
X
---
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the Court. Yes No
As of July 31, 1996, 8,027,248 common shares were outstanding (14,102,473
issued and outstanding as of midnight December 26, 1996), and the aggregate
market value of the common shares of Tri-Valley Corporation held by
non-affiliates was approximately $1,406,250.
Documents incorporated by reference: None
The total number of pages in this Form 10-K are 63.
The Index of Exhibits included in this Form 10-K is located at page 59.
<PAGE>
PART I
------
ITEM 1. BUSINESS
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Tri-Valley Corporation (formerly Tri-Valley Oil & Gas Corporation), a Delaware
corporation, hereinafter referred to as "Company," "Registrant", "Parent" or
"Tri-Valley", has been engaged in the business of exploring, acquiring,
developing and dealing in prospective and producing petroleum and mineral
properties and interests therein. Precious metal activity has been carried on
directly by the Parent and oil and gas activities through its wholly owned
subsidiary, Tri-Valley Oil & Gas Company ("TVOG").
TVOG was organized as a California corporation in 1963. TVOG, the subsidiary,
effects exploration relationships with various major oil companies such as
Phillips Petroleum Company (Houston Regional Office), Occidental USA and
Texaco USA with whom it has co-ventured on a 50-50 basis to use their
proprietary data to generate exploration plays in the Sacramento Valley. This
relationship involves a TVOG submittal procedure wherein the major company has
a short period to accept or reject plays generated by TVOG in the area of
mutual interest ("AMI"). If it accepts, it joins up to 50% under the terms of
the agreement involved. TVOG is operator for these co-ventures.
Historically an oil and gas exploration and production company, emphasizing
the Sacramento Valley natural gas province, the Company added precious metals
exploration in fiscal 1987. The precious metal properties are located in
interior Alaska, known as the Richardson, Alaska property. Precious metal
activity has been an exploratory activity since inception. In February 1991,
Tri-Valley signed an agreement with the Moscow based Central Research
Institute of Geological Prospecting for Base and Precious Metals ("TsNIGRI")
to demonstrate their proprietary technology for evaluating large areas of
covered sub-Arctic terrain for precious metals on Tri-Valley's then 64 square
mile lode gold claim block at Richardson, Alaska. Based on the results of this
study, Tri-Valley management believes it to be prudent for the Company to
continue to develop the precious metals segment of the Company. At present,
this is only a prognostic resource and not a proven reserve.
----------------------------
CHAPTER 11 PROCEEDINGS
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CURRENT YEAR DEVELOPMENTS
On January 30, 1996, Tri-Valley Corporation ("TVC") and its wholly owned
subsidiary, Tri-Valley Oil & Gas Co. ("TVOG") filed voluntary petitions in the
United States Bankruptcy Court (the "Bankruptcy Court") for the Eastern
District of California sitting in Fresno seeking to reorganize under Chapter
11 of the Federal Bankruptcy Code (the "Code"). The Chapter 11 cases of TVC
and TVOG were substantially consolidated under TVC, and TVC continues to file
consolidated tax and SEC reports.
<PAGE>
ITEM 1. BUSINESS (Continued)
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CHAPTER 11 PROCEEDINGS (Continued)
- ------------------------
CURRENT YEAR DEVELOPMENTS (Continued)
On November 1, 1996, the Company and its wholly owned subsidiary was dismissed
from Chapter 11, having paid its secured and unsecured creditors 100 cents on
the dollar.
CHAPTER 11 REORGANIZATION
- ---------------------------
In March, April and September 1995, the Company arranged borrowings of
$100,000, $400,000 and $120,000, respectively, totaling $620,000 from Frank
Agar, an individual of Midland Texas. Terms of the loans were on a six month
note with a 30 day call paying 10% annual interest and collateralized by all
of TVOG's producing gas properties in the Sacramento Valley of California.
The purpose of the loans was to consolidate increasingly short term
obligations and provide short term operating capital, enabling the Company to
accommodate two years of heavy losses due to production declines and gas
prices plunging to unforeseen 20 year lows.
At the time of the loans, the Company's management anticipated hooking up a
major discovery, and drilling an offset well to accelerate production
revenues. With this enhancement and some third party collateral, it appeared
that take out financing from a conventional institution could be arranged.
Permit delays and freezing of credit lines due to a merger between banks
eliminated that approach. As the six month financing period ended, the board
of directors met with the secured lender and worked out a 90 day standstill in
order to sell the reserves and preserve the stockholder equity above the
lender's interest.
Three substantial offers from capable parties were received. The lead offer
exceeded the loan principal by approximately $1 million and the Company
proceeded toward acceptance. One day before the close, the offerer abruptly
terminated citing several unacceptable conditions. The Company believed none
of the conditions were items that affected the economic value of the deal and
none that could not be handled in the closing and post closing stages.
The Company immediately contacted its other two backup buyers. One could not
arrange financing before the foreclosure date. The other pulled out one day
before the foreclosure citing a "wait and see" position. On the day of the
foreclosure deadline, discussions with the secured lender promised to "work
something out", but were not attended by any forbearance in writing. The
Company obviously could not negotiate without such written forbearance and was
advised its only alternative was to file for protection under Chapter 11 of
the Federal Bankruptcy Code.
<PAGE>
ITEM 1. BUSINESS (Continued)
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CHAPTER 11 REORGANIZATION (Continued)
- ---------------------------
The initial intent of management upon opting for Chapter 11 was to protect the
Company's reserves and to submit a plan of reorganization which would, in the
best case scenario, allow for the payment of all Company obligations at 100
cents on the dollar. As a plan was being developed, management was introduced
to an investment group who agreed to pay off several of the Company's major
obligations, including the note to Frank Agar, and in return, the investors
would receive notes which could be, and, subsequent to year end, were
converted into newly issued restricted shares of Tri-Valley Corporation common
stock. This infusion of new capital and increased revenue from operations
enabled the Company to seek and obtain dismissal of the bankruptcy. Although
a reorganization plan was never filed, the Company's management was able to
meet its initial goals of protecting its reserves and paying all obligations
at 100 cents on the dollar.
OPERATIONS DURING CHAPTER 11 REORGANIZATION
- -----------------------------------------------
At July 31, 1996, the Company records showed total balance sheet assets of
$3,953,040 and liabilities of $2,549,208 for a net worth of $1,403,832. None
of the new capital raised, nor debts extinguished, are reflected in this
statement, since all that occurred subsequent to the July 31, 1996 fiscal year
end. The Company had an offer to purchase its off balance sheet reserves of
approximately $2.1 million for a total of $3,503,800 net value as of July 31,
1996 (consummation of this offer never occurred). The Company's management
believes that completion of its two main oil and gas drilling projects could
greatly increase that figure. Completion of these projects is dependent on
securing the requisite capital which the Company feels will be possible in the
next 120 days.
Company liabilities include the secured lenders, a number of unsecured
creditors and dozens of executory contracts that are primarily oil and gas
mineral leases, mineral claims, and leases or purchase contracts on office
space, equipment and real property.
ITEM 2. PROPERTIES
- ----------------------
The Company's headquarters and administrative offices are located at 230 South
Montclair Street, Suite 101, Bakersfield, California 93309. The Company
leases approximately 2,500 square feet of office space at that location for a
monthly rental of $1,350.
<PAGE>
ITEM 2. PROPERTIES (Continued)
- ----------------------
The principal properties of the Company consist of proven and unproven oil and
gas and precious metal properties, maps and geologic records related to
prospective oil and gas and precious metal properties, office and other
equipment. The oil and gas properties in which the Company holds interests
are primarily located in the area of central California known as the
Sacramento Valley. The Company contracts for the drilling of all its wells
and does not own any drilling equipment, bulk storage facilities,
transportation pipelines or refineries. The precious metal properties are
located in interior Alaska. They are comprised of leased claims on State
lands, leased patented claims, direct claims of the Company on State open
lands requiring annual assessment work and, in the case of State of Alaska
lands, an annual per claim fee. All fees are current, however, the Company
reduced its claim block, in Alaska, subsequent to November 30, 1995, to
concentrate on the most advanced targets.
During 1995, the Company borrowed a total of $620,000 from Frank Agar to
consolidate short-term obligations and provide short-term operating capital.
The loan is secured by all of TVOG's producing gas properties in the
Sacramento Valley of California. For full description see Item 1. "Business -
Chapter 11 Reorganization."
For the years ended July 31, 1992 through 1996, the Company retained the
services of an independent engineer for the purposes of estimating the
Company's net share of proved developed oil and gas reserves on all the
Company's properties.
For this year, the Company retained independent engineering of its reserves by
Cecil Engineering, a long established consulting engineering firm which does
SEC reserve calculations. The Company does not include any undeveloped
reserves in these reserve studies and, accordingly, only proved developed
reserves are reported herein. Price is a material factor in the stated
reserves of the Company. Higher prices generally permit longer recovery,
hence larger reserves at higher values. Conversely, lower prices generally
limit recovery, hence smaller reserves in that event. In the latter part of FY
95, gas prices plunged temporarily to 20 year lows that drastically downsized
Tri-Valley reserve values at July 31, 1995. The Company believes its July 31,
1995 reserve report, which was required under SEC Regulations to use this
price aberration in its calculations, is not representative of the current
values of its reserves, especially since the gas price has risen substantially
since July 1995 and a substantive new well has been put in production. This
was corroborated by the fact that Tri-Valley received several offers from
ready, willing and able buyers as much as 2.5 times the $835,771 represented
in the independent engineer's report for July 31, 1995.
<PAGE>
ITEM 2. PROPERTIES (Continued)
- ----------------------
The estimated future net recoverable oil and gas reserves from proved
developed properties as of July 31, 1996, 1995, 1994, 1993, and 1992, were as
follows:
<TABLE>
<CAPTION>
BBL MCF
----- ---------
<C> <C> <S> <C>
1996 Condensate 442 Natural Gas 1,934,339
1995 Condensate 367 Natural Gas 1,888,231
1994 Condensate 378 Natural Gas 2,233,805
1993 Condensate 253 Natural Gas 2,048,846
1992 Condensate 1,069 Natural Gas 2,816,986
</TABLE>
The process of estimating oil and gas reserve quantities is inherently
imprecise. Ascribing monetary values to those reserves, therefore, yields
imprecise estimated data at best.
Using year-end oil and gas prices and current levels of lease operating
expenses, the estimated present value of the future net revenue to be derived
from the Company's proved developed oil and gas reserves, discounted at 10%,
was $1,126,910, $835,771, $1,577,027, $1,343,270, and $2,027,700, at July 31,
1996, 1995, 1994, 1993, and 1992, respectively. Reference is made to the
supplemental information of the consolidated financial statements for further
information on oil and gas reserves and estimated values.
Registrant did not file estimates of total proved net oil or gas reserves
with, or included in reports to, any other Federal authority or agency since
the beginning of the last fiscal year, except for estimates filed with the
U.S. Bankruptcy Court. As yet, few reserve estimates are available for the
Company's precious metal properties as they were all acquired as geologic
plays with minimal testing and assay to date. TVC does not project any ore
reserve tons of its Richardson, Alaska property. However, TVC has recovered
over 3,000 raw ounces of gold from a 30,000 ton bulk sampling of one 5-acre
area. From trenching, core and TVC drilling, bulk sampling and assaying, the
Company has reason to believe that larger commercially recoverable reserves
may be exposed by its subsequent programs. The future recovery of raw ounces
on a per ton basis is purely speculative at this time.
<PAGE>
ITEM 2. PROPERTIES (Continued)
- ----------------------
The following table sets forth the net quantities of natural gas and crude oil
produced by Registrant during the last five fiscal years:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Natural Gas (MCF) 272,532 247,414 264,109 366,486 495,215
Crude Oil (BBL) 210 107 87 314 759
</TABLE>
The following table sets forth the average sales price and average production
(lifting) cost per unit of oil and gas produced by registrant during the last
five fiscal years:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Natural gas (per MCF) $2.00 $1.35 $1.80 $1.95 $2.07
Production costs
(per MCF) .10 .20 .20 .20 .10
----- ----- ----- ----- -----
Net Profit per MCF $1.90 $1.15 $1.60 $1.75 $1.97
===== ===== ===== ===== =====
</TABLE>
As of July 31, 1996, the Company had the following gross and net position in
wells and developed acreage:
Wells Acres
------------ ----------------
Gross Net Gross Net
------ --------- ------- ------
13 3.576 2785.00 740.40
(1) "Gross" acres represent the total acres in which the Company has a
working interest; "net" acres represent the aggregate of the working interests
of the Company in the gross acres.
(2) "Gross" wells represent the total number of producing wells in which
the Company has a working interest or overriding royalty. "Net" wells
represent the number of gross producing wells multiplied by the percentages of
the working interests or royalty interests therein by the Company.
<PAGE>
ITEM 2. PROPERTIES (Continued)
- ----------------------
The following table sets forth the number of productive and dry exploratory
and development wells drilled by the Company during fiscal years ending July
31, 1996, 1995, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Exploratory
- -----------
Producing 1.0 2.0 1.0 1.0 -0-
Dry -0- -0- -0- -0- 1.0
---- ---- ---- ---- ----
Total 1.0 2.0 1.0 1.0 1.0
==== ==== ==== ==== ====
Development
- -----------
Producing -0- -0- -0- 1.0 -0-
Dry -0- -0- -0- 1.0 -0-
---- ---- ---- ---- ----
Total -0- -0- -0- 2.0 -0-
==== ==== ==== ==== ====
</TABLE>
The above table, regarding net wells, recognizes only those wells in which the
Company holds an overriding royalty interest or an earned working interest.
Working interests to be earned at payout have not been included. Tri-Valley
changed its farmout terms in 1987 to allow for the Company to participate in
the completion of promoted prospects and thereby retain a larger working
interest in wells.
The Company deals with both industry and sophisticated individual partners on
its oil, gas and precious metals projects.
The Company continually screens geologically prospective acreage as to its
availability for leasing. Oil and gas and precious metals prospects developed
by the Company's own staff and by other sources are regularly evaluated.
The following table sets forth information regarding undeveloped acreage in
which the Company had an interest on December 31, 1996.
State Gross Acres Net Acres
----- ------------- ---------
California oil and gas 2,785.00 740.40
Alaska minerals 24,000.00 23,300.00
Some of the Company's undeveloped acreage is held pursuant to leases from
landowners. Such leases have varying dates of execution and generally expire
one to five years after the date of the lease.
<PAGE>
ITEM 2. PROPERTIES (Continued)
- ----------------------
The Company is obligated to pay varying annual delay rentals to the lessors on
such properties in order to prevent the leases from expiring. Mineral
properties claimed on open State land requires minimum annual assessment work
of $100 worth per State of Alaska claim. The Company had no Federal claims,
1,678 State of Alaska claims, and 10 prospecting sites, totaling 66,281 net
acres as of July 31, 1995. Subsequent to November 30, 1995, the Company
reduced its claim block to 606 claims and prospecting sites totaling over
24,000 acres (over 37.5 square miles) to concentrate on the most advanced
targets. Expenditures on the Richardson, Alaska acreage have already carried
forward annual assessment requirements more than four years on all Alaska
claims.
ITEM 3. LEGAL PROCEEDINGS
- ------------------------------
On January 30, 1996, Tri-Valley and its wholly owned subsidiary, Tri-Valley
Oil & Gas Co. filed voluntary petitions in the United States Bankruptcy Court
for the Eastern District of California sitting in Fresno seeking to reorganize
under Chapter 11 of the Federal Bankruptcy Code. Citing improved cash flow
due to new capital and increased production, the Company moved for and was
granted dismissal from any further Chapter 11 proceedings.
Since the petition date, the Company continued in possession of its properties
and, as debtors in possession, were authorized to operate and manage their
respective businesses and enter into all transactions (including obtaining
services, supplies and inventories) that each could have entered into in the
ordinary course of their business had their been no bankruptcy. Although each
debtor was authorized to operate its business as a debtor in possession, it
could not engage in transactions outside the ordinary course of business
without first complying with the notice and hearing provisions of the
Bankruptcy Code and obtaining Bankruptcy Court approval where necessary.
An official unsecured creditor's committee (the "Creditors' Committee") was
appointed by the Office of the United States Trustee pursuant to Section 1102
of the Bankruptcy Code. The Creditors' Committee had the right to review and
object to certain business transactions and was expected to participate in the
negotiation of any plan of reorganization. The Company was required to pay
certain expenses of the Creditors' Committee, including counsel fees, to the
extent allowed by the Bankruptcy Court. No expenses were incurred as the
committee never met or retained counsel.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (Continued)
- ------------------------------
However, an official Committee of Equity Security Holders ("OCESH") was formed
under the auspices of the United States Trustee ("UST") who comprised it in a
manner which gave a minority of dissident shareholders both quorum and a
majority. The OCESH retained counsel and filed numerous motions of
opposition and delay in an effort to promote the agenda of the dissidents. At
the dismissal, the Company was required to escrow $60,000 against possible
legal fees. As of the report date, approximately $27,000 had been billed to
the Company by OCESH's counsel.
The following lawsuits were settled prior to the dismissal of the Company from
Chapter 11 proceedings, and, to the best of management's knowledge, there are
no other material pending legal proceedings.
The lawsuit between the Company and Carl Mitchell for payment of advance
royalties allegedly due the Estate of John R. Mitchell on the Richardson,
Alaska property as well as a reimbursement of certain expenses allegedly
incurred for the benefit of the Richardson property. The Company settled this
claim in full for $80,000 during the fiscal year 1996 which is the amount
management believed it owed.
During fiscal 1996, a lawsuit between the Company and Helen L O'Brien, former
TVC\TVOG vice president and secretary-treasurer, concerning her claim for
additional compensation from the Employee Overriding Royalty Program was
settled. The settlement amount is not material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the fourth quarter of fiscal 1992, the Company submitted its Proxy
Statement and the Notice of Annual Meeting of Shareholders dated May 2, 1992
to all shareholders of record on March 16, 1992. The Proxy Statement
contained three items for the shareholders' vote at the fiscal 1992 meeting
held on May 2, 1992.
Management cast a minimum of 3,790,067 votes on all items and was pleased to
declare that all three items on the agenda were approved. The final number of
votes cast for each item on the agenda are as follows:
1. Re-elect management slate of directors:
3,927,764 shares for, out of 5,565,445 shares voting
(71% of votes cast)
2. Re-appoint Brown Armstrong Randall & Reyes, Accountancy Corporation
as independent accountants:
5,326,101 shares for, out of 5,565,445 shares voting
(96% of votes cast)
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------------------
(Continued)
3. Authorize management to transact other business at the meeting:
4,917,644 shares for, out of 5,565,445 shares voting
(88% of votes cast)
It was moved, seconded and carried that the actions of the board of directors
and executive actions of the president since the last meeting be ratified.
No matters were submitted to a vote in fiscal years 1993, 1994, 1995, and
1996.
<PAGE>
PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND
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RELATED SECURITY HOLDER MATTERS
- ----------------------------------
Shares of Tri-Valley Corporation stock have been traded in the
over-the-counter market. The following table shows the high and low bid and
asked prices of Tri-Valley stock for the quarterly periods indicated as
reported by the OTC Stock Journal:
<TABLE>
<CAPTION>
Bid Prices Asked Prices
----------- ------------
High Low High Low
----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
First Quarter $ .1563 $ .05 $ .1875 $ .15
Second Quarter $ .15 $ .03 $ .16 $ .14
Third Quarter $ .3125 $ .105 $ .50 $ .14
Fourth Quarter $ .4375 $ .13 $ .50 $ .438
</TABLE>
As of July 31, 1996, the Company estimates 800 shareholders in 39 states and 4
foreign countries of record of Tri-Valley Corporation common stock.
The Company historically has paid no dividends, and at this time does not plan
to pay any dividends in the immediate future. While in bankruptcy, the Company
was prohibited from making cash dividend payments under its debtor in
possession financing. This no longer applies as the Company was dismissed from
Chapter 11 proceedings.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------------
The following table summarizes selected financial data for the Company and
should be read in connection with the Consolidated Financial Statements,
related notes and other financial information appearing elsewhere in this
report.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 879,247 $ 432,377 $ 663,960 $753,126 $1,130,998
Income (loss) before
extraordinary item $(317,358) $(306,844) $(294,016) $ 9,291 $ 239,139
Net income (loss) $(317,358) $(306,844) $(294,016) $ 14,091 $ 382,139
Net income (loss)
per common share $ (.04) $ (.04) $ (.04) $ - $ .06
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
At year-end:
Total assets $3,949,375 $3,825,053 $3,852,315 $4,190,116 $3,914,461
Shareholders' equity $1,400,167 $1,713,625 $1,931,849 $2,003,365 $1,859,689
Long-term debt, excluding
current portion $ 916,757 $ 35,787 $ 37,755 $ 92,238 $ 49,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------------
CONDITION
- ---------
Entering its 34th year of business, the Company is primarily involved in
exploration and production of natural gas and gold. Fiscal 1996 saw
Tri-Valley suffer from severe cash flow constraints attributable to
significant operating losses stemming from a short-term plunge in gas prices
to 20 year lows and declined production from depleting zones.
On January 30, 1996, Tri-Valley Corporation and its wholly owned subsidiary,
Tri-Valley Oil & Gas Co. filed voluntary petitions under Chapter 11 of the
Federal Bankruptcy Code seeking to reorganize under the Code. The reasons are
detailed in Part I, Item I of the Form 10-K. (The Company successfully used
the bankruptcy to buy time to raise new capital and, after paying all
creditors in full, was dismissed 10 months later on November 1, 1996). The
Company has experienced significant operating losses in the last three years
stemming from production decline and a temporary plunge in gas prices to 20
year lows and the costs of the Chapter 11. Both production and price have
since increased and management expects that significant liquidity concerns
will be substantially resolved with the dismissal from Chapter 11. A
substantial capital formation program is under way to enhance the financial
strength of the Company. In the long term, the Company's viability will be
dependent on its ability to achieve successful future operations.
Although all claims have been settled since dismissal of the bankruptcy on
November 1, 1996, the consolidated financial statements do not reflect any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence nor do the
consolidated financial statements reflect adjustments required by "fresh
start" reporting. The consolidated financial statements do not reflect the
amount of creditors' claims filed, the ultimate settlement of liabilities and
contingencies which may be allowed in Chapter 11 reorganization cases or the
effect of any changes, including changes in the Company's operations, which
may result from a plan of reorganization or dismissal.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------------
CONDITION (Continued)
- ---------
RESULTS OF OPERATIONS
- -----------------------
Tri-Valley's natural gas discoveries and production raised it into the top 10%
of 193 California dry gas operators. Among U.S. petroleum companies ranked
annually by the Oil & Gas Journal, Tri-Valley rose to 195th place giving it a
total gain over the past eight years of 199 places.
At the same time, Tri-Valley experienced a dislocation in cash flow when some
seemingly assured prospect sales failed to materialize due to abrupt shifts of
domestic exploration budgets to foreign venues even as the Company invested
heavily in preparing its projects for sale. Thus, anticipated revenue failed
to materialize to reimburse forward investment in major projects and
significant operating capital was temporarily locked up in unsold inventory.
This was dealt with broadly, including reducing overhead, reducing project
activity, drawing on unsecured and secured credit lines, and redoubled efforts
to market inventory.
During fiscal 1995, Tri-Valley fully extinguished its bank credit line which
peaked at $225,000 and eliminated numerous other short-term obligations by
consolidation into a financing secured by its producing properties. This is
the first secured financing in over 15 years.
After 13 consecutive profitable quarters, revenues plunged during 1994 due to
production decline and a steep drop in natural gas prices ultimately to 20
year lows in 1995. As a producing zone depletes it is operated until it is no
longer profitable before plugging it and opening a new zone for new flush
production. Unless the Company has alternate revenue to offset such declines
it creates losses and due to the combination of production and price declines
the losses were severe.
Adding to the frustration is the fact that in November 1994, Tri-Valley
completed the most significant California on shore dry gas discovery of the
year with over 147 net feet of pay in the Webb Tract No. 1 (which was not
hooked-up until January 2, 1997 due to pipeline delays). Thus, the Company and
its partners have been denied substantial revenue during this period. The only
positive aspect is that gas prices were very low during shut in and have
currently rebounded. The Company expects to increase its production revenue
15% to 35% from this well.
In August 1995, Tri-Valley completed another very substantial well with 113
net feet of pay. This well was hooked up and at the end of 1995 was selling
about 3 million cubic feet of gas per day from one zone and the revenue was
beginning to restore the Company's basic cash flow needs.
Legal expenses related to Chapter 11 increased G&A expenses disproportionately
and the Company took a number of write-offs to keep the balance sheet clean
and conservative. This resulted in another loss and a decline in net worth.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------------
CONDITION (Continued)
- ---------
RESULTS OF OPERATIONS (Continued)
- -----------------------
However, subsequent to the fiscal year ending July 31, 1996, and prior to
December 31, 1996, Tri-Valley's capital formation program has generated
$3,000,000 in new money from the sale of unregistered stock and participation
in projects. As a result, Tri-Valley was dismissed from Chapter 11 in the
strongest financial position in its corporate history. The Company expects to
change its fiscal year to December 31 in order to reflect this strength on its
audited financial statements.
The Company's hydrocarbon reserves at July 31, 1996 were valued by independent
engineers at a net present value of $1,126,910 including the SEC mandatory 10%
discount rate up from the July 31, 1995 value of $835,771. This value does not
appear on the balance sheet because accounting rules require discovered
reserves to be carried on the balance sheet at cost of obtaining them rather
than the actual future net revenue from producing them. Since Tri-Valley
arranges to be carried in the test wells on prospects, it incurs very little
cost and, therefore, very little value of discovered reserves appears on the
balance sheet despite the fact that reserves are a most important value of the
Company, especially from an industry point of view. Also not on the balance
sheet is significant value resulting from more than $1,500,000 in outside
investment by third parties into exploration on the properties adjacent to the
Company's Richardson, Alaska, property. Such exploration is, in the Company's
opinion, a great value to the Company because it helps the Company further
define its exploration activities, and, as such, the Company benefits greatly
from the third party's expertise and effort. These values, in management's
opinion, constitute a significant part of the value of the Company even though
it is presently unrecognized, and unrecognizable, on the balance sheet.
Over $485,000 of Tri-Valley capital is invested in the North Tracy Triad Play
composed of three separate prospects with an aggregate reserve target of over
500 billion cubic feet of natural gas. This play is generated off of Phillips
Petroleum Company and Tri-Valley proprietary data and drilling the test well
is dependent on Tri-Valley securing other working interest partners.
Normally, major companies and large independents would be the candidates but
there has been a massive shift of exploration budgets from U.S. on-shore to
overseas just as Tri-Valley brought the first prospect to drillable status.
This has denied the Company timely return of capital from sale of the play.
Management believes the play offers the chance of exceptional upside to the
Company and is dedicated to getting it sold and drilled. In late December
1996, the Company completed a very complicated land permitting and financing
package to enable a test well to be drilled in January 1997 on a different
structure in the area.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------------
CONDITION (Continued)
- ---------
RESULTS OF OPERATIONS (Continued)
- -----------------------
Similarly, Tri-Valley has invested $1,680,000 (the equivalent of less than
4,800 ounces of gold at today's price) in its Richardson, Alaska lode gold
exploration project. A substantial part of this is represented by contract
payments of 300,000 shares of Tri-Valley preferred stock, convertible
one-for-one into common, to TsNIGRI, the Moscow based Central Research
Institute of Geological Prospecting for Base and Precious Metals. TsNIGRI has
performed over 1,000 line miles of ground traverses for geological,
geochemical, biochemical, hydrochemical sampling and geophysical profiles
throughout 225 square miles of Tri-Valley's claim block and surroundings.
Over 5,000 samples have been run through a variety of laboratory analysis
including over 1,000 samples assayed by Bondar-Clegg, an industry accepted
assay house. Physical gold has been found at 60 locations wide spread over a
20 mile swath on the claims and TsNIGRI has increased their forecast to over 2
million ounces of recoverable gold. At present, this is only a prognostic
resource and not a proven reserve. Since 1993, Tri-Valley has spent time
-----------------------
assimilating this vast amount of new data to define more specific targets for
field confirmation in the future. In June, TsNIGRI converted its preferred
stock into 300,000 shares of restricted common shares in support of Tri-Valley
management.
Management believes that the Company possesses a superior mineral property
which could reward the shareholders dramatically from discovery success with
little downside exposure at present. As part of the dismissal from Chapter 11,
the Company was able to purchase 10% working interest in a portion of its core
claims from Trio Petroleum for $120,000 down and a note for $125,000 at 7%
interest all due and payable February 4, 1997. The Company paid the note,
principal and accrued interest in full on December 31, 1996.
IN NATURAL GAS
- ----------------
After very strong predictions of political and supply/demand factors
supporting firming of prices for natural gas, the price actually declined due
to unseasonably warm winters that left storage stocks high. In the spring and
summer of 1995, the west coast gas prices plummeted to 20 year lows. This,
coupled with declines in production from existing zones, created severe
revenue/expense imbalances for the Company.
Prices began a recovery in the fall of 1995 with spot prices surging for
record highs in late 1996. This has helped to maintain revenue in the face of
production decline. The Company expects to permit and drill the
Martins-Severin No. 6 and the Webb Tract Nos. 2 and 3 in fiscal 1997 as well
as the Pimentel No. 1 test on its Tracy Play.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------------
CONDITION (Continued)
- ---------
IN GOLD
- --------
The gold price has remained relatively stable as a physical use commodity and
does not seem to function significantly as a financial instrument to the
extent it did formerly. For instance, international crises do not affect the
price substantially. For some years, physical consumption demand has exceeded
the newly mined supplies but selling forward by producers and sales into the
physical market from central bank hoards has capped any great price increase.
The Company has proposed a core and reverse circulation drilling program for
the three most advanced targets on its Richardson, Alaska lode gold
exploration project. The Company was actively seeking investment to fund the
program prior to the filing of Chapter 11 petitions. The purpose was to drill
prove reserves at the John Mitchell Lode at the Democrat Dike and drill infer
geologic resources at the Banner/Buckeye and Buck/Shamrock anomalies. Since
dismissal from Chapter 11 on November 1, 1996, the Company has received
expressions of interest and preliminary offers from several mining companies
to joint venture the further exploration and development of the property. The
Company is interviewing mining and mineral processing engineers with a view
toward completing the processing of approximately 100,000 tons of partially
crushed, partially processed ore from the John Mitchell lode.
COMPARISON OF FISCAL YEARS ENDED JULY 31, 1996 AND 1995
- ----------------------------------------------------------------
REVENUES
Revenues from the sale of oil and gas more than doubled in fiscal year 1996
from $376,154 to $872,386. The increase was from substantial natural gas
production and natural gas price increases as well as $73,884 in one time
accruals from prior production. Production increased from a new well, the
Martins-Severin No. 5, and gas prices strengthened to propel revenues
considerably higher. The Company expects prices to remain firm well into 1997.
COSTS AND EXPENSES
Costs of the Chapter 11 and new financing drove G&A expenses to $764,799 in
fiscal year 1996 versus $498,421 in fiscal year 1995. All other categories
also increased as the Company wrote off non-productive leases and charged more
to operating expense and depreciation, depletion and amortization due to
increased production. The total expenses in fiscal year 1996 reached
$1,195,005 for a loss of $317,358 versus $737,621 and $306,844, respectively,
for the same period in fiscal year 1995.
Total assets increased slightly to $3,949,375 in fiscal year 1996, up $124,322
from $3,825,053 in fiscal year 1995. However, stockholder equity suffered from
the loss and declined to $1,400,167 in fiscal year 1996, down $313,458 from
$1,713,625 in fiscal year 1995.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------------
CONDITION (Continued)
- ---------
COMPARISON OF FISCAL YEARS ENDED JULY 31, 1996 AND 1995 (Continued)
- ----------------------------------------------------------------
COSTS AND EXPENSES (Continued)
The Company anticipates increased revenues for fiscal year 1997 along with
increased expenses as it makes an extraordinary effort to complete several
projects which it expects to fund from operations and new project capital from
the sale of equity.
COMPARISON OF FISCAL YEARS ENDED JULY 31, 1995 AND 1994
- ----------------------------------------------------------------
REVENUES
As productive zones depleted and natural gas prices plunged, Company revenues
declined by 35% from $663,960 at July 31, 1994 to $432,377 at July 31, 1995.
Costs and expenses were reduced similarly and a net loss of $306,844 was
recorded in fiscal 1995, slightly more than the $294,016 loss reported in
fiscal 1994.
General and administrative costs declined about 7% from $536,086 in fiscal
1994 to $498,421 in fiscal 1995. Costs of oil and gas leases increased 35%
from $75,257 in fiscal 1994 to $116,285 in fiscal 1995.
Financing the revenue decline largely through borrowing increased interest
expense by $24,558 to $65,438 for fiscal 1995 versus $40,880 for fiscal 1994.
During fiscal 1995, the Company arranged its first loan secured by its
reserves. There being no local institutions making reserve based loans, the
financing was arranged through a west Texas oilman from his personal
resources. The interest rate was 10%. The six month term was extended for 90
days through January 30, 1996. Several plans to sell Company reserves and/or
raise additional investor capital to pay-off the loan failed. The Company
filed voluntary petitions to reorganize under Chapter 11 of the Code on
January 30, 1996. See further descriptions in Part I, Item I of the Form
10-K.
The above loss contributed to a further decline in the total assets from
$3,852,315 in fiscal 1994 to $3,825,053 in fiscal 1995. Stockholder equity
declined more sharply from $1,931,849 in fiscal 1994 to $1,713,625 in fiscal
1995.
While natural gas prices remained relatively firm, production revenue declined
from depleting zones by $142,163 from $476,365 in fiscal 1994 to $376,154 in
fiscal 1995, a drop of 22%.
COSTS AND EXPENSES
Costs and expenses soared 32% to $956,376 in fiscal 1994 largely due to the
Company writing down $252,119 in non-productive oil and gas leases and
California Mining Claims impacted by the East Mojave Desert National Park Act.
G&A rose slightly due to activities on site at the Company's gold exploration
project at Richardson, Alaska.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------------
CONDITION (Continued)
- ---------
COMPARISON OF FISCAL YEARS ENDED JULY 31, 1995 AND 1994 (Continued)
- ----------------------------------------------------------------
COSTS AND EXPENSES (Continued)
Overall, this contributed to a net loss of $294,016, the bulk of which was for
write-off of California mining claims.
COMPARISON OF FISCAL YEARS ENDED JULY 31, 1994 AND 1993
- ----------------------------------------------------------------
REVENUES
Revenues declined mainly from production declines. However large write-offs of
$252,119 in fiscal 1994 exacerbated the situation creating a loss of $294,016
in fiscal 1994 versus a net profit of $14,091 in fiscal 1993.
While natural gas prices remained relatively firm, production declined from
depleting zones by $154,542 from $630,907 in fiscal 1993 to $476,365 in fiscal
1994, a drop of 25%. Overall revenue declined from $753,126 in fiscal 1993 to
$663,960 in fiscal 1994, a drop of $89,166 or about 12%.
After five consecutive years of asset and net asset gain, the losses
contributed to a drop from $4,190,116 of gross assets in fiscal 1993 to
$3,852,315 in fiscal 1994. Stockholder equity declined from $2,003,365 in
fiscal 1993 to $1,931,849 in fiscal 1994.
COST AND EXPENSES
Fiscal 1994 saw G&A expenses increase over fiscal 1993 as management strove to
bring projects to completion or at least produce revenue. This included
additional gold sample efforts at Richardson, Alaska to reclaim saleable gold
as well as useful data. Frequent equipment breakdown denied sufficient volume
to be processed to produce either. G&A rose from $513,660 in fiscal 1993 to
$536,086 in fiscal 1994, an increase of 4%. Interest expense remained about
the same.
ITEM 8. FINANCIAL STATEMENTS
----------------------------
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Tri-Valley Corporation
Bakersfield, California
We have audited the accompanying consolidated balance sheets of Tri-Valley
Corporation as of July 31, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended July 31, 1996. 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 audits 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 financial statements referred to above present fairly in
all material respects, the consolidated financial position of Tri-Valley
Corporation at July 31, 1996 and 1995, and the results of its consolidated
operations and its cash flows for each of the three years in the period ended
July 31, 1996 in conformity with generally accepted accounting principles.
BROWN ARMSTRONG RANDALL & REYES
ACCOUNTANCY CORPORATION
Bakersfield, California
December 3, 1996, except for Note 15,
which is dated January 9, 1997
<PAGE>
The accompanying notes are an integral part of these financial statements.
TRI-VALLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31,
---------
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 258,924 $ 228,704
Accounts receivable, trade (Note 6) 277,586 295,340
Prepaid expenses 2,029 10,841
----------- -----------
Total Current Assets 538,539 534,885
----------- -----------
PROPERTY AND EQUIPMENT, NET
(Notes 1 and 2) 3,085,825 2,915,070
----------- -----------
OTHER ASSETS
Deposits 61,000 100,241
Investments in partnerships (Note 1) (7,152) (7,152)
Goodwill (net of accumulated amortization
of $162,690 at July 31, 1996 and $151,844
at July 31, 1995 (Note 1) 271,163 282,009
----------- -----------
Total Other Assets 325,011 375,098
----------- -----------
TOTAL ASSETS $3,949,375 $3,825,053
=========== ===========
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 31,
---------
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes and contracts payable (Note 3) $ 77,992 $ 556,279
Trade accounts payable 226,057 125,370
Amounts payable to joint venture participants 505,690 419,169
Advances from joint venture participants 483,412 627,811
Due to related parties 204,392 137,300
Accrued expenses and other liabilities 134,908 209,712
------------ ------------
Total Current Liabilities 1,632,451 2,075,641
------------ ------------
LONG-TERM PORTION OF NOTES AND
CONTRACTS PAYABLE
Notes payable 16,757 35,787
Convertible notes payable 900,000 -
------------ ------------
Total Long-Term Portion of Notes and
Contracts Payable 916,757 35,787
------------ ------------
COMMITMENTS (Note 9)
SHAREHOLDERS' EQUITY
Convertible preferred stock, $1.00 par value:
5,000,000 shares authorized; 300,000
shares subscribed - 300,000
Common stock, $.01 par value:
25,000,000 shares authorized;
8,027,248 and 7,337,248 issued and
outstanding at July 31, 1996 and 1995,
respectively 80,272 73,372
Less: Common stock in treasury, at cost,
156,925 shares (28,639) (28,639)
Stock options outstanding - 191,100
Capital in excess of par value 3,772,753 3,284,653
Accumulated deficit (2,424,219) (2,106,861)
------------ ------------
Total Shareholders' Equity 1,400,167 1,713,625
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,949,375 $ 3,825,053
============ ============
</TABLE>
<PAGE>
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Sale of oil and gas $ 872,386 $ 376,154 $ 538,415
Sale of oil and gas prospects - 25,519 38,224
Precious metals revenue - 9,338 81,078
Interest income 6,861 8,257 6,243
Other - 13,109 -
----------- ----------- -----------
879,247 432,377 663,960
----------- ----------- -----------
COST AND EXPENSES
Leases sold, relinquished and impaired 27,593 9,048 252,119
Oil and gas leases 259,673 116,285 75,257
General and administrative 764,799 498,421 536,086
Depreciation, depletion and amortization 53,453 48,429 52,034
Interest 89,487 65,438 40,880
----------- ----------- -----------
1,195,005 737,621 956,376
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (315,758) (305,244) (292,416)
TAX PROVISION (Note 5) 1,600 1,600 1,600
----------- ----------- -----------
NET LOSS $ (317,358) $ (306,844) $ (294,016)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (.04) $ (.04) $ (.04)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 7,452,248 7,071,126 6,911,130
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital
in
Par Excess of Accumulated Treasury Preferred Options
Shares Value Par Value Deficit Stock Stock Outstanding
--------- ------- ---------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993 6,500,277 $65,003 $2,959,263 $ (1,506,001) $ (6,000) $ 300,000 $ 191,100
Issuance of common stock to investors 660,007 6,600 238,539 - - - -
Treasury stock (acquired) - - - - (30,139) - -
Treasury stock sold - - - - 7,500 - -
Net loss - - - (294,016) - - -
--------- ------- ---------- ------------- ---------- ----------- -------------
Balance at July 31, 1994 7,160,284 71,603 3,197,802 (1,800,017) (28,639) 300,000 191,100
Issuance of common stock to officers,
directors and employees 141,564 1,415 69,505 - - - -
Issuance of common stock to investors 35,400 354 17,346 - - - -
Net loss - - - (306,844) - - -
--------- ------- ---------- ------------- ---------- ----------- -------------
Balance at July 31, 1995 7,337,248 73,372 3,284,653 (2,106,861) (28,639) 300,000 191,100
Issuance of common stock to investors 390,000 3,900 191,100 - - - (191,100)
Transfer of preferred stock to common 300,000 3,000 297,000 - - (300,000) -
Net loss - - - (317,358) - - -
--------- ------- ---------- ------------- ---------- ----------- -------------
Balance at July 31, 1996 8,027,248 $80,272 $3,772,753 $ (2,424,219) $ (28,639) $ - $ -
========= ======= ========== ============= ========== =========== =============
Stock
Shareholders'
Equity
---------------
<S> <C>
Balance at July 31, 1993 $ 2,003,365
Issuance of common stock to investors 245,139
Treasury stock (acquired) (30,139)
Treasury stock sold 7,500
Net loss (294,016)
---------------
Balance at July 31, 1994 1,931,849
Issuance of common stock to officers,
directors and employees 70,920
Issuance of common stock to investors 17,700
Net loss (306,844)
---------------
Balance at July 31, 1995 1,713,625
Issuance of common stock to investors 3,900
Transfer of preferred stock to common -
Net loss (317,358)
---------------
Balance at July 31, 1996 $ 1,400,167
===============
</TABLE>
<PAGE>
The accompanying notes are an integral part of these financial statements.
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (317,358) $(306,844) $(294,016)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, depletion and amortization 53,453 48,429 52,034
(Increase) decrease in accounts receivable 17,784 177,827 53,152
Decrease (increase) in prepaid expenses 8,812 (8,322) 7,830
Decrease (increase) in deposits 39,241 10,260 4,740
Increase (decrease) in trade accounts payable 100,687 (67,639) 6,249
Increase (decrease) in amounts payable to joint
venture participants and related parties 86,521 (402,020) (116,733)
(Decrease) increase in advances from joint
venture participants (144,399) 371,489 (123,444)
(Decrease) increase in accrued expenses and
other liabilities (7,742) (38,336) 105,401
(Decrease) increase in income taxes payable - - (15,400)
Impairment, dry hole and other disposals of
property and equipment 27,593 137,667 257,226
----------- ---------- ----------
Net Cash Used by Operating Activities (135,408) (77,489) (62,961)
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (240,955) (293,373) (387,113)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 1,038,000 540,810 5,000
Principal payments on long-term debt (635,317) (213,342) (127,358)
Proceeds from issuance of common stock 3,900 1,769 6,600
Purchase of treasury stock - - (30,139)
Proceeds from issuance of treasury stock - - 7,500
Additional paid in capital - 86,851 238,539
----------- ---------- ----------
Net Cash Provided by Financing Activities 406,583 416,088 100,142
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 30,220 45,226 (349,932)
CASH AT BEGINNING OF YEAR 228,704 183,478 533,410
----------- ---------- ----------
CASH AT END OF YEAR $ 258,924 $ 228,704 $ 183,478
=========== ========== ==========
</TABLE>
<PAGE>
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994
------- ------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest Paid $89,487 $65,438 $ 40,880
======= ======= =========
Income Taxes Paid $ 1,600 $ 1,600 $ 1,600
======= ======= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES
Unrestricted common stock exchanged for restricted
common stock used to acquire property and
retire a note payable:
Retirement of note payable $ - $ - $ 15,000
Treasury shares acquired - - (30,139)
Treasury shares issued - - 7,500
</TABLE>
<PAGE>
TRI-VALLEY CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
This summary of significant accounting policies of Tri-Valley Corporation is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial statements.
Business Combinations
- ----------------------
The information contained in the financial statements and accompanying notes
is that of Tri-Valley Corporation with which the subsidiary company
(Tri-Valley Oil & Gas Co.) has been consolidated.
Chapter 11 Reorganization
- ---------------------------
On January 30, 1996, Tri-Valley Corporation ("TVC") and its wholly owned
subsidiary, Tri-Valley Oil & Gas Co. ("TVOG"), filed voluntary petitions in
the United States Bankruptcy Court (the "Bankruptcy Court") for the Eastern
District of California sitting in Fresno seeking to reorganize under Chapter
11 of the Federal Bankruptcy Code (the "Code"). The Chapter 11 cases of TVC
and TVOG were substantially consolidated under TVC, and TVC continues to file
consolidated tax and SEC reports.
During the process of developing a Plan, management was able to infuse the
Company with capital from new investors and increased production. The
Company, citing the influx of capital, filed a motion to be dismissed from
bankruptcy. On November 1, 1996, the court granted the motion and dismissed
the case. Prior to this dismissal, the Company operated as a
debtor-in-possession under Chapter 11 of the Federal Bankruptcy Code. During
this period, all Company obligations were subject to compromise. These
financial statements, however, do not reflect any adjustment or disclosure
since no plan of reorganization was actually filed and/or confirmed by the
Bankruptcy Court, and all major obligations which were subject to compromise
were, subsequent to year end, paid 100 cents on the dollar.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Chapter 11 Reorganization (Continued)
- ---------------------------
After the filing of the Chapter 11 case, the Company was authorized to
operate their business as debtors-in-possession. Pursuant to the Code,
transactions outside the ordinary course of business required the approval,
after notice and hearing, of the Bankruptcy Court and liabilities arising
prior to the filing of the petitions under Chapter 11 of the Code could not be
paid without prior approval of the Bankruptcy Court. Debtor-in-possession
status was terminated upon the court's dismissal of the case on November 1,
1996.
Pursuant to the orders of the Bankruptcy Court, the Official Equity Security
Holders Committee of TVC and the Creditors Committee have been appointed by
the U.S. Trustee with authority to obtain counsel and other professionals
whose fees have been paid by the Debtor. Reorganization related professional
fees are being recorded as they are incurred with total costs amounting to
approximately $114,000. As of the report date, approximately $27,000 remained
unpaid.
As discussed herein, the Company has experienced significant operating losses
in the last three fiscal years. However, due to the subsequent debt to equity
conversions, the Company has reduced its debt considerably and all claims have
been paid 100 cents on the dollar. These financial statements, appropriately,
do not disclose liabilities which may be subject to compromise as no debt
forgiveness resulted from the Chapter 11 proceedings. Fresh Start accounting
is also not considered necessary as no formal plan was ever submitted to the
court.
Transfers of assets, including cash payments, prior to the commencement of the
Chapter 11 cases could have been revised by the Bankruptcy Court if they were
determined to constitute preferential transfers or fraudulent conveyances
under certain sections of the Code. Upon the reversal of a transaction, the
assets returned would be part of the bankruptcy estate of the Debtor and would
be subject to the claims of the Debtor's creditors. If any assets are
returned to the Debtor, the entity from which the assets are recovered would
have an unsecured claim against the debtor in the amount of the value of the
assets transferred by the Debtor to such entity. The court determined all
pre-petition transfers were appropriate and in the normal course of business,
and thus, no transactions were reversed by the court prior to entering
bankruptcy.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
History and Business Activity
- --------------------------------
Historically an oil and gas exploration and production company, emphasizing
the Sacramento Valley natural gas province, the Company added precious metals
exploration in fiscal 1987. The Company conducts its oil and gas business
primarily through its 33 year old wholly owned oil and gas subsidiary,
Tri-Valley Oil & Gas Company ("TVOG"). TVOG is engaged in the exploration,
acquisition and production of oil and gas properties. At present, the
precious metals exploration activities are conducted directly by the parent,
Tri-Valley Corporation ("TVC"). TVC has traditionally sought acquisition or
merger opportunities within and outside of petroleum and mineral industries.
Basis of Accounting
- ---------------------
The Company prepares its financial statements using the accrual basis of
accounting in conformity with generally accepted accounting principles
consistently applied. Oil and gas and mining activities are recorded using
the successful efforts method of accounting. See discussion below.
Substantially all of the Company's exploration, development and production
activities are conducted jointly with others and, accordingly, the financial
statements reflect only the Company's proportionate interest in such
activities.
Cash Equivalent and Short-Term Investments
- ----------------------------------------------
Cash equivalents consist of highly liquid debt instruments such as
certificates of deposit, commercial paper, and money market accounts purchased
with an original maturity date of three months or less.
Goodwill
- --------
The consolidated financial statements include the net assets purchased of
Tri-Valley Corporation's wholly owned subsidiary. Net assets are carried at
their fair market value at the acquisition date. The excess of acquisition
costs over the fair value of assets acquired is included in and has been
allocated to goodwill. Goodwill of $433,853 is being amortized on a
straight-line basis over 40 years. The carrying amount of goodwill is
evaluated periodically. Factors used in the evaluation include anticipated
cash flows from operating and non-operating mineral properties, as the
goodwill originally attached to extractive industry properties. Tri-Valley
Corporation has not established an allowance for the impairment of goodwill
which may be realized should the Company be acquired or merged with another
organization.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Drilling Agreements/Joint Ventures
- ------------------------------------
Tri-Valley frequently participates in drilling agreements whereby it acts as
operator of drilling and producing activities. As operator, TVOG is
contingently liable for the activities of these ventures. The Company owns a
carried interest and/or overriding royalty interest in such ventures, earning
a working interest at payout.
Receivables from and amounts payable to these related parties (as well as
other related parties) have been segregated in the accompanying financial
statements. Transactions with these parties are within the ordinary course of
business.
Oil and Gas Property and Equipment (Successful Efforts)
- --------------------------------------------------------------
The Company accounts for its oil and gas exploration and development costs on
the successful efforts method. Under this method, costs to acquire mineral
interests in oil and gas properties, to drill and complete exploratory wells
that find proved reserves and to drill and complete development wells are
capitalized. Exploratory dry-hole costs, geological and geophysical costs and
costs of carrying and retaining unproved properties are expensed when
incurred. Depletion, depreciation and amortization of oil and gas producing
properties are computed on an aggregate basis using the units-of-production
method.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and/or Long-Lived Assets to be Disposed
of." This statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. It establishes guidelines for determining
recoverability based on future net cash flows from the use of the asset and
for the measurement of the impairment loss. Impairment loss under SFAS No. 121
is calculated as the difference between the carrying amount of the asset and
its fair value. Any impairment loss is recorded in the current period in which
the recognition criteria are first applied and met. Under the successful
efforts method of accounting for oil and gas operations, the Company
periodically assessed its proved properties for impairments by comparing the
aggregate net book carrying amount of all proved properties with their
aggregate future net cash flows. The new statement requires that the
impairment review be performed on the lowest level of asset groupings for
which there are identifiable cash flows. In the case of the Company, this
results in a property by property impairment review.
The Company adopted SFAS No. 121 in the first quarter of 1996. Impairment loss
on the oil and gas properties is calculated as the difference between the
asset book carrying amounts and future undiscounted net cash flow projections,
giving consideration to recent prices, pricing trends and estimated reserve
quantities. These projections represent the Company's best estimate of fair
value based on the information available.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Oil and Gas Property and Equipment (Successful Efforts) (Continued)
- --------------------------------------------------------------
Upon the sale of oil and gas reserves in place, costs less accumulated
amortization of such property are removed from the accounts and resulting gain
or loss on sale is reflected in operations. Upon abandonment of properties,
the reserves are deemed fully depleted and any unamortized costs are recorded
in the statement of operations under leases sold, relinquished and impaired.
Mineral Property
- -----------------
All costs related to mineral properties with development potential, including
mineral claim acquisition costs and exploration and development expenditures
are deferred until the related mineral claims are abandoned, sold or achieve
commercial production. At that time, the costs will be either amortized
against income from future mining operations or written off. Grassroots
exploration costs are charged to expense as incurred.
The amount shown for mineral properties and development represents costs to
date and does not necessarily reflect present or future values. The full
recovery of the above mentioned deferred cost depends on a combination of
different factors, including (i) future metal prices (ii) the results of
future exploration, and discovery and development of ore reserves and (iii) to
the extent necessary, the procurement of additional capital and financing to
carry out future activities. The carrying amount of mineral properties,
proved and unproved, is evaluated at least annually and reduced if these
properties are impaired.
Capitalization of Interest
- ----------------------------
Interest cost is capitalized on construction and development programs until
placed into operation.
Properties and Equipment
- --------------------------
Properties and equipment are depreciated using the straight-line method over
the following estimated useful lives:
Office furniture and fixtures 3 - 7 years
Building 40 years
Leasehold improvements are amortized over the life of the lease (3 years).
Maintenance and repairs, which neither materially add to the value of the
property nor appreciably prolong its life, are charged to expense as incurred.
Gains or losses on dispositions of property and equipment other than oil and
gas are reflected in operations.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Concentration of Credit Risk
- -------------------------------
The Company sells oil, gas and natural gas liquids to various oil and gas
purchasers primarily in the northern California region. Credit is extended
based on an evaluation of the customer's financial condition, and generally
collateral is not required. Transactions with major customers are discussed
in detail in Note 6.
The Company places its temporary cash investments with high credit quality
financial institutions and limits the amount of credit exposure to any one
financial institution.
Derivative Financial Instruments and Fair Value Disclosure (SFAS 119)
- -----------------------------------------------------------------------------
In October 1994, the Financial Accounting Standards Board issued SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments." The provisions of SFAS 119 are effective for financial
statements issued for years ending after December 15, 1994, for entities whose
total assets exceed $150 million. For those entities whose total assets are
less than $150 million at December 15, 1994, the provisions of SFAS 119 are
effective for years ended after December 15, 1995. SFAS 119 requires
disclosures about derivative financial instruments and other financial
instruments with similar characteristics. The provisions of this statement
should not have a significant effect on the Company's financial position since
the Company does not have any derivative financial instrument investments.
Fair Values of Financial Instruments
- ----------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
For the purpose of this statement, the carrying amounts of the Company's
instruments approximate their fair market values.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Income Taxes
- -------------
On January 1, 1994, the Company began accounting for income taxes in
accordance with SFAS No. 109 which became effective for the year ended July
31, 1994. There was no material affect on the financial statements upon
adoption. Pursuant to SFAS No. 109, income taxes are provided based on the
liability method of accounting. The provision for income taxes is based on
pretax financial accounting income. Deferred tax assets and liabilities are
recognized for future expected tax consequences of temporary differences
between income tax and financial reporting, and principally, relate to
differences in the tax bases of assets and liabilities and their reported
amounts, using enacted tax rates in effect for the year in which differences
are expected to reverse. If it is more likely than not that some portion or
all of a deferred tax asset will not be realized, a valuation allowance is
recognized.
Net Income (Loss) Per Common Share
- ---------------------------------------
The calculation of net income/loss per common share is based on the weighted
average number of common stock shares outstanding during each period. The
effect of convertible preferred stock on the net income/loss per share ratio
is considered anti-dilutive and was not included in the computation of
earnings per common share for any of the years presented.
Reclassification
- ----------------
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
Use of Estimates in the Preparation of Financial Statements
- -------------------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities and disclosures at the
date of the financial statements as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
<PAGE>
NOTE 2 - PROPERTY AND EQUIPMENT
------------------------
Oil and gas properties, and equipment and fixtures consist of the following:
<TABLE>
<CAPTION>
July 31,
---------
1996 1995
---------- ----------
<S> <C> <C>
Oil and Gas - California
- -----------------------------------------------------
Proved properties, net of accumulated
depletion of $233,259 at July 31, 1996
and $196,741 at July 31, 1995 $ 276,846 $ 248,631
Unproved properties, net of valuation
provision at July 31, 1996 and 1995 695,861 646,692
---------- ----------
Total Oil and Gas Properties 972,707 895,323
---------- ----------
A summary of other property and equipment follows:
- -----------------------------------------------------
Mining prospects 2,057,732 1,958,273
Land 11,281 11,281
Building net of accumulated depreciation
of $4,512 at July 31, 1996 and $3,384 at
July 31, 1995 40,612 41,740
Office equipment and leasehold
improvements net of accumulated
depreciation of $86,203 at July 31,
1996 and $81,241 at July 31, 1995 3,493 8,453
---------- ----------
Total Other Property and Equipment 2,113,118 2,019,747
---------- ----------
PROPERTY AND EQUIPMENT (NET) $3,085,825 $2,915,070
========== ==========
</TABLE>
<PAGE>
NOTE 3 - NOTES AND CONTRACTS PAYABLE
------------------------------
Long-term debt at July 31, 1996 and 1995 is summarized below:
<TABLE>
<CAPTION>
July 31,
---------
1996 1995
------ -------
<S> <C> <C> <C>
Note payable to Estate of John R. Mitchell
dated April 1, 1991, interest at 12.00%,
July 31, 1996 and 1995, unsecured;
monthly payments of $1,000 plus
interest at 12.00% on the unpaid
principal. $ - $ 9,000
Note payable to National Bank of Alaska dated
August 27, 1992; secured by property; payable
in monthly installments of $539 including
interest. Interest rate at 12.00%, July 31,
1996 and 1995. 23,225 27,255
Note payable to Bandera Land Company dated
December 4, 1992; unsecured; interest at
10.00%, July 31, 1996 and 1995; interest only
payable on outstanding balance. 17,950 17,950
Note payable to Edgar Moss dated -February 1,
1994; unsecured; no stated interest. 11,000 -
Note payable to Edgar Moss dated February 22,
1995; unsecured; interest at 7.20%, monthly
interest payable with principal balance due
August 22, 1995. Balance plus interest remain
outstanding at December 3, 1995, the audit
report date. 16,000 16,000
Note payable to Laurence B. Flood dated
September 16, 1995; unsecured; interest
at 10.00%, monthly interest payable
in cash or Tri-Valley Corporation
unregistered common stock at $.30 per
share, principal balance due September 16,
1999. 7,000 -
</TABLE>
<PAGE>
NOTE 3 - NOTES AND CONTRACTS PAYABLE (Continued)
------------------------------
<TABLE>
<CAPTION>
July 31,
---------
1996 1995
-------- --------
<S> <C> <C>
Note payable to Laurence B. Flood dated
July 19, 1995; unsecured; interest at 10.00%,
monthly interest payable in cash or Tri-
Valley Corporation unregistered common
stock at $.30 per share, principal balance
due July 19, 1999. 15,000 15,000
Note payable to Frank Agar dated April 20,
1995; secured by properties; interest at
10.00%; quarterly interest payable with
principal balance due October 18, 1995. - 100,000
Note payable to Frank Agar dated May 5,
1995; secured by properties; interest at
10.00%; quarterly interest payable with
principal balance due November 1, 1995. - 400,000
Note payable to Imperial Premium Finance,
Inc., dated June 9, 1996; secured by
contractual policy; interest at 12.00%;
payable in monthly installments of
$680 including interest. 4,574 6,861
Note payable to Mayal Inwald, dated
May 4, 1996; unsecured; interest at
10.00%; interest only on outstanding
balance with principal due May 4,
1998. Convertible to common stock.(*) 150,000 -
Note payable to Behrooz Sanafraz, dated
July 19, 1996; secured by property;
convertible to common stock, interest
at 10.00%; monthly interest payable
with principal due July 19, 1998.(*) 750,000 -
-------- --------
994,749 592,066
Less current portion 77,992 556,279
-------- --------
Long-Term Portion of Notes and Contracts
Payable $916,757 $ 35,787
======== ========
</TABLE>
(*) As of the report date, this note payable had been converted to common
stock, and, therefore, is no longer a corporate liability (see Note 11).
<PAGE>
NOTE 3 - NOTES AND CONTRACTS PAYABLE (Continued)
------------------------------
Maturities of long-term debt for the five years succeeding July 31, 1996 are
as follows:
<TABLE>
<CAPTION>
July 31,
- -----------------
<S> <C>
1997 $ 77,992
1998 906,468
1999 6,468
2000 3,821
Thereafter -
--------
$994,749
========
</TABLE>
The Company borrowed $100,000, $400,000, and $120,000 on April 20, May 4, and
September 25, 1995, respectively, from Frank Agar. While in bankruptcy, the
Company managed to reassign these claims to Behrooz Sarafraz, an investment
consultant, who spearheaded a group of investors that agreed to pay off the
Company's outstanding loans to Agar, assume the claim, and eventually convert
the claim to common stock. The reassigned claim of $750,000, which includes
the original Agar principal of $620,000, $20,000 in legal fees, $46,653 in
unpaid accrued interest, and other consulting fees, still existed on the
balance sheet date at July 31, 1996. However, subsequent to year end, the note
was converted to 1,875,000 shares of common stock with a $.01 par value.
NOTE 4 - RELATED PARTY TRANSACTIONS
----------------------------
The following were known to the Company to be beneficial owners of 5% or more
of the Company's outstanding common stock at July 31, 1996:
<TABLE>
<CAPTION>
Ownership
Shares Percentage
------- -----------
<S> <C> <C>
Edgar L. Moss 482,857 6.0%
F. Lynn Blystone 431,998 5.8%
Victor Millar 400,000 5.0%
</TABLE>
Tri-Valley is a general partner and operator of the Tri-Valley Oil & Gas
exploration Programs 1971-1 and Martins-Severin Partnerships. Income derived
from these activities follows:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Partnership income, net of
expenses $286,500 $147,005 $234,027
======== ======== ========
</TABLE>
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
----------------------------
On December 4, 1992, the Company entered into an agreement to borrow $15,000
from Bandera Land Company which is owned by F. Lynn Blystone and other members
of the Blystone Family. Interest at 10.0% is payable on the outstanding
balance with no stated due date. The balance outstanding at July 31, 1996 and
1995, was $17,950, respectively.
On July 19, 1995, the Company entered into an agreement to borrow $15,000 from
Laurence B. Flood, a shareholder of the Company. Interest at 10% is payable
every two months in cash or Tri-Valley Corporation unregistered common stock
at $.30 per share at the sole discretion of the Company. The note matures on
July 19, 1999. Other terms of the agreement involve the following:
Principal amount convertible into TVC unregistered common stock at $.30
per share at any time.
Options on 15,000 shares of TVC unregistered shares at $.50 per share
exercisable through July 19, 1999.
TVC may force exercise of said options if the market quotes a bid price
of $1.00 per share or higher for at least twenty consecutive trading days.
On February 25, 1995, the Company's Board of Directors authorized F. Lynn
Blystone to receive 100,000 shares of Tri-Valley Corporation common stock at
$.50 per share and to reduce F. Lynn Blystone's deferred compensation payable
account by the commensurate dollar amount.
Due to related parties of $204,392 and $137,300 at July 31, 1996 and 1995,
respectively, consist of payroll payable to F. Lynn Blystone and other
employees of the Company.
NOTE 5 - INCOME TAXES
-------------
At July 31, 1995, the Company had available net operating loss carryforwards
for financial statement and federal income tax purposes of approximately
$1,850,000. These loss carryforwards expire between 1998 and 2011.
The Company has reported income tax losses of approximately $1,900,000 in
prior years. In general, income tax losses are carried forward to future years
to reduce future income taxes.
A valuation allowance of approximately $700,000 has been provided to offset
the benefit of approximately $700,000 from the remaining $1,850,000 loss
carryforwards. This valuation allowance is necessary because at July 31, 1996,
the available benefits are more likely than not to expire before they can be
used. There was not a material change in the tax benefit or the valuation
allowance from 1995 to 1996.
<PAGE>
NOTE 5 - INCOME TAXES (Continued)
-------------
In general, Section 382 of the Internal Revenue Code includes provisions which
severely limits the amount of net operating loss carryforwards and other tax
attributes that may be used annually in the event that a greater than 50%
ownership change (as defined) takes place in any three year period. As of July
31, 1996, the Company ad not experienced such a change for purposes of Section
382.
In the past, the Company has been unable to utilize all of the statutory
percentage depletion available for Federal income tax purposes. At July 31,
1996, approximately $620,000 of unused statutory percentage depletion is
available to reduce taxable income in future periods. There is no expiration
date for this carryover.
NOTE 6 - MAJOR CUSTOMER
---------------
Oil and Gas
- -------------
The Company received in excess of 10% of its revenue from various sources (oil
and gas sales and mineral royalties) as follows:
<TABLE>
<CAPTION>
Company
-------
A B C D Other
------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Year Ended:
July 31, 1994 * 350,249 78,929 * *
July 31, 1995 * 213,284 65,693 52,190 *
July 31, 1996 153,862 403,366 * * 109,810
</TABLE>
* Not a major source during the year.
Revenues are received from Company B under contractual agreement and
management does not anticipate a termination of this relationship. Accounts
receivable at July 31, 1996, 1995, and 1994 were $24,033, $9,524, and $56,635,
respectively.
All oil and gas sales have occurred in the northern California gas market.
Precious Metals
- ----------------
The Company received all of its precious metals revenue from the following
sources:
<TABLE>
<CAPTION>
Year Ended: Company A Company B
--------- ---------
<C> <S> <C> <C>
July 31, 1994 * 81,078
July 31, 1995 9,338 *
July 31, 1996 * *
</TABLE>
*Not a major source during the year.
<PAGE>
NOTE 7 - EMPLOYEE OVERRIDING ROYALTY PAYABLE
--------------------------------------
From time to time the Company negotiates an overriding royalty for the benefit
of its employees on plays it sells to third parties. The override is
effective only on producing properties. Distribution was originally determined
by the Tri-Valley CEO, but in 1992 and 1993, the compensation committee of the
Board of Directors of the Company determined shares of specific officers and
the CEO determined the rest. Subsequent to July 31, 1990, the Company and the
Company's employees participated in one of the major gas discoveries in the
Sacramento Valley in some years. From an old farmout, TVOG retained a 2% ORRI
and the employees retained a 1.5% ORRI.
Further gas discoveries in 1990, 1991, 1993 and 1995 temporarily increased the
employee override revenue. As industry conditions limited the amount of
interest the Company could keep in its deals, the employee override became a
less effective bonus program and management terminated it on new leases. An
employee/officer of the Company instituted legal proceedings to claim an
additional share of undistributed employer overriding royalty from the period
September 1991 to August 1992. This case was settled prior to the bankruptcy
filing for an amount immaterial to the Company (see Note 9).
The financial statements at July 31, 1995, included a liability for unpaid
employee overriding royalty of $77,884. This liability was eliminated in the
second quarter of fiscal year 1996, when the case was settled for a diminimus
amount. The program was terminated on January 1, 1996, with an effective date
of December 1, 1995 which resulted in addition to income of $73,884 in the
second quarter ending January 31, 1996.
NOTE 8 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
--------------------------------------------------------
The Company's operations are classified into two principal industry segments.
Following is a summary of segmented information for 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Oil and Precious
Gas Metals Total
---------- -------- ----------
<S> <C> <C> <C> <C>
Year Ended July 31, 1996
Total Revenues $ 879,247 $ - $ 879,247
========== = ======== ==========
Income Before Taxes $(315,758) $ - $(315,758)
Income Taxes 1,600 - 1,600
---------- -------- ----------
Net Income $(317,358) $ - $(317,358)
========== = ======== ==========
</TABLE>
<PAGE>
NOTE 8 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
--------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
Oil and Precious
Gas Metals Total
----------- ----------- -----------
<S> <C> <C> <C>
Property, Plant and
Equipment Additions, Net
of Deletions $ (305,288) $ 429,615 $ 124,322
=========== =========== ===========
Depreciation, Depletion and
Amortization $ 53,453 $ - $ 53,453
=========== =========== ===========
Total Assets $1,839,750 $2,109,625 $3,949,375
=========== =========== ===========
Year Ended July 31, 1995
Total Revenues $ 423,039 $ 9,338 $ 432,377
=========== =========== ===========
Income (Loss) Before Taxes $ (314,582) $ 9,338 $ (305,244)
Income Taxes 1,600 - 1,600
----------- ----------- -----------
Net Income (Loss) $ (316,182) $ 9,338 $ (306,844)
=========== =========== ===========
Property, Plant and
Equipment Additions, Net $ (97,914) $ 191,663 $ 93,749
=========== =========== ===========
Depreciation, Depletion and
Amortization $ 48,429 $ - $ 48,429
=========== =========== ===========
Total Assets $2,145,038 $1,680,015 $3,825,053
=========== =========== ===========
Year Ended July 31, 1994
Total Revenues $ 582,882 $ 81,078 $ 663,960
=========== =========== ===========
Income (Loss) Before Taxes $ (373,494) $ 81,078 $ (292,416)
Income Taxes 1,600 - 1,600
----------- ----------- -----------
Net Income (Loss) $ (375,094) $ 81,078 $ (294,016)
=========== =========== ===========
Property, Plant and
Equipment Additions, Net $ (93,310) $ (8,653) $ (101,963)
=========== =========== ===========
Depreciation, Depletion and
Amortization $ 52,034 $ - $ 52,034
=========== =========== ===========
Total Assets $2,363,963 $1,488,352 $3,852,315
=========== =========== ===========
</TABLE>
<PAGE>
NOTE 9 - COMMITMENTS
-----------
On May 2, 1992, the Board of Directors approved the following compensatory
stock option plans for directors, officers and employees:
Outside directors - awarded purchase options for up to 30,000 shares
each at $.50 per share and an additional 40,000 shares each at $.55 per share,
with an expiration date of September 14, 1995. The expiration date was
extended to September 14, 1997, by the Board of Directors.
Officer - awarded purchase options for up to 100,000 shares at $.50 per
share.
On August 29, 1992, the Board of Directors of Tri-Valley Corporation awarded
to Blystone, an employee, the option to purchase 100,000 shares of Tri-Valley
Corporation stock at $.50 per share with such option price increasing to $.60
per share on any outstanding options effective September 14, 1992, and to $.75
per share on any outstanding options on September 14, 1994. Any stock
purchases through this option will be unregistered common stock and subject to
Rule 144. The option will be effective only while Blystone is employed by
Tri-Valley and shall terminate in any event, September 14, 1997.
Pursuant to corporate resolutions, the Board of Directors granted the
president authority to sell the following unregistered stock of Tri-Valley
Corporation for not less than the amount indicated. All resolutions were
approved in prior years. As of July 31, 1996, the following shares remained
under authority to sell:
<TABLE>
<CAPTION>
Shares Minimum Shares
Authority Approved Price Remaining
- ------------ --------- ------- ---------
<S> <C> <C> <C> <C>
I 1,000,000 $ .35 47,311
II 1,000,000 $ .55 -
III 1,000,000 $ .50 -
IV 1,000,000 $ .50 140,823
V 1,000,000 $ .25 1,000,000
</TABLE>
The Company conducts its operations from leased facilities. The lease, which
is for one year, is classified as an operating lease and expires on July 1,
1996, with two one year options to renew.
The following is a schedule, by years, of future minimum rental payments
required under this lease as of July 31, 1996:
July 31, 1997 $ 14,850
-------------
Total minimum payments required $ 14,850
=============
<PAGE>
NOTE 9 - COMMITMENTS (Continued)
-----------
In February 1991, Tri-Valley signed an agreement with the Moscow based Central
Research Institute of Geological Prospecting for Base and Precious Metals
("TsNIGRI"). The agreement called for TsNIGRI to demonstrate their
proprietary technology for evaluating large areas of covered sub-arctic
terrain for precious metals on Tri-Valley's then 64 square mile lode gold
claim block at Richardson, Alaska.
The agreements called for Tri-Valley to pay the Institute in convertible
preferred stock of Tri-Valley Corporation. TsNIGRI has earned, and Tri-Valley
has paid, 200,000 shares for FY 92/93 work and paid another 100,000 shares for
FY 93/94 work upon receiving the report of most recent activity.
The Company was paying TsNIGRI $1,500 per month as compensation for not
converting the preferred stock into common stock. On June 7, 1996, TsNIGRI
converted its preferred stock to common and, accordingly, the Company has
discontinued the payments.
Litigation
- ----------
Unless otherwise noted, since the filing by the Company of the Chapter 11
petitions, prosecutions of all pre-petition claims against the Company were
stayed by the automatic stay imposed by the Code. Management, during the
bankruptcy proceedings, was able to come to terms with all parties who, prior
to the filing of the petition, had a claim against the Company. In general,
the following lawsuits sought damages that, at the current standing, have been
resolved through settlement. Management does not know of any other pending or
threatening litigation which exists at this time.
The lawsuit pending between the Company and Carl Mitchell for payment of
advance royalties allegedly due the Estate of John R. Mitchell on the
Richardson, Alaska property as well as a reimbursement of certain expenses
allegedly incurred for the benefit of the Richardson property was settled for
$80,000. No other claim exists at the report date in relation to this subject.
Subsequent to December 31, 1995, a lawsuit between the Company and Helen L.
O'Brien, former TVC\TVOG vice president and secretary-treasurer concerning her
claim for additional compensation from the Employee Overriding Royalty Program
was settled (see Note 7). The settlement amount is not material to the
Company.
NOTE 10 - COMMON STOCK
-------------
On April 21, 1995, the Company's Board resolved that common stock of
Tri-Valley Corporation be increased from 15,000,000 shares authorized to
25,000,000 shares. Shares may be issued with approval of the Company's Board
of Directors.
<PAGE>
NOTE 11 - SUBSEQUENT EVENTS - CHAPTER 11 DISMISSAL
---------------------------------------------
During the Company's attempt to develop a reorganization plan, management
became acquainted with an investment consultant. The consultant was able to
spearhead a group of investors in an attempt to contribute enough capital so
that the Company could pay off all of its outstanding obligations at 100 cents
on the dollar. Before July 31, 1996, the new investors had contributed
$900,000. The first $150,000 was approved by the court on April 25, 1996, and
was secured by a note with a stated interest rate of 10%, interest only for
two years, with the outstanding balance due and payable at the end of two
years. The remaining $750,000 was specifically used to pay off the Agar
loan, plus outstanding interest and legal fees for $686,653. The balance was
a finder's fee. The $750,000 was secured with a note with a stated interest
rate of 10%, interest only for two years, with the outstanding balance due and
payable at the end of two years. Both of the above loans could be converted
and, subsequent to year end, were converted in their entirety to Tri-Valley
Corporation common stock. The lenders converted the debt by using an exchange
rate of one unit for each dollar due and payable. Each unit consisted of 2.5
shares of Tri-Valley common stock plus four warrants. The warrants are
transferable and consist of two "A" warrants exercisable at $0.50 each; one
"B" warrant exercisable at $1 each; and one "C" warrant exercisable at $1.50
each. The warrants are required to be exercised within one year from the
issue, or they become void.
The new capital received from the investor group, having been used to pay off
the Agar loan and other outstanding obligations, coupled with the potential
for increased production revenue from the completion of drilling projects,
enabled the Company to be dismissed from Bankruptcy Court without filing a
plan of reorganization. On November 1, 1996, the court granted a motion to
dismiss the Company from the Chapter 11 proceedings.
NOTE 12 - SUBSEQUENT EVENTS - STOCK ISSUANCES
---------------------------------------
In addition to the debt to equity conversions mentioned in Note 11, subsequent
to year end, additional money was raised. Amounts of $330,000 and $130,000,
also secured by notes, were raised and converted using the same exchange
formula as the initial $900,000 of new investment.
Also, subsequent to year end, the Company was able to sell an additional
2,080,000 shares of restricted common stock at $0.25 per share and 798,000
shares of restricted common stock at $0.45 per share. This issuance of stock
brought in approximately $879,100 of new capital which, along with the
$460,000 and $900,000 mentioned previously, was used to pay off the Company's
secured and unsecured creditors at 100 cents on the dollar and to complete
drilling projects.
<PAGE>
NOTE 13 - SUBSEQUENT EVENTS - ACQUISITION
----------------------------------
On January 2, 1997, Tri-Valley Corporation executed a letter of intent to
acquire all of the wireless communication assets of five partnerships
controlled by Northeast Telecom, Inc.
Tri-Valley has conducted several months of on-site and financial due diligence
on the assets and business potential. The assets consist of 28 federal
communications commission licenses for multi-channel spectrum for specialized
mobile radios ("SMR"), low power television ("LPTV"), and multi-point
distribution service ("MDS"), tower and office buildings in prime markets of
New York state and Vermont. Details of the acquisition had not been finalized
as of the report date.
<PAGE>
TRI-VALLEY CORPORATION
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
The following estimates of proved oil and gas reserves, both developed and
undeveloped, represent interests owned by the Company located solely in the
United States. Proved reserves represent estimated quantities of crude oil
and natural gas which geological and engineering data demonstrate to be
reasonably certain to be recoverable in the future from known reservoirs under
existing economic and operating conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells, with existing equipment and operating methods. Proved undeveloped oil
and gas reserves are reserves that are expected to be recovered from new wells
on undrilled acreage, or from existing wells for which relatively major
expenditures are required for completion.
Disclosures of oil and gas reserves which follow are based on estimates
prepared by independent engineering consultants for the three years ended July
31, 1996. Such analyses are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. These
estimates do not include probable or possible reserves.
These estimates are furnished and calculated in accordance with requirements
of the Financial Accounting Standards Board and the Securities and Exchange
Commission ("SEC"). Because of unpredictable variances in expenses and capital
forecasts, crude oil and natural gas price changes, largely influenced and
controlled by U.S. and foreign government actions, and the fact that the bases
for such estimates vary significantly, management believes the usefulness of
these projections is limited. Estimates of future net cash flows presented do
not represent management's assessment of future profitability or future cash
flows to the Company. Management's investment and operating decisions are
based upon reserve estimates that include proved reserves prescribed by the
SEC as well as probable reserves, and upon different price and cost
assumptions from those used here.
It should be recognized that applying current costs and prices and a 10
percent standard discount rate does not convey absolute value. The discounted
amounts arrived at are only one measure of the value of proved reserves.
<PAGE>
Capitalized costs relating to oil and gas producing activities and related
accumulated depletion, depreciation and amortization at July 31 are as follow:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Aggregate capitalized costs:
Proved properties $ 510,106 $ 445,372 $ 454,397
Unproved properties 695,861 646,692 722,416
Accumulated depletion,
depreciation and amortization (233,259) (196,741) (178,007)
---------- ---------- ----------
Net capitalized costs $ 972,708 $ 895,323 $ 998,806
========== ========== ==========
</TABLE>
The following sets forth costs incurred for oil and gas property acquisition,
exploration and development activities, whether capitalized or expensed,
during 1996:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Acquisition of producing
properties and productive
and non-productive acreage $112,703 $45,748 $34,855
Exploration (275) 29,693
Development - - -
-------- -------- -------
$112,703 $45,473 $64,548
======== ======== =======
</TABLE>
Results of operations from oil and gas producing activities
- -------------------------------------------------------------------
The results of operations from oil and gas producing activities are as
follows:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Sales to unaffiliated parties $ 872,386 $ 376,154 $ 538,415
Production costs (259,673) (116,285) (75,257)
Depletion, depreciation and
amortization (42,607) (37,582) (41,189)
---------- ---------- ----------
570,106 222,287 421,969
Income tax expenses (193,837) (58,438) (118,761)
---------- ---------- ----------
Results of operations from
activities before extraordinary
items (excluding blending
operations, corporate overhead
and interest costs) $ 376,269 $ 163,849 $ 303,208
========== ========== ==========
</TABLE>
<PAGE>
Changes in estimated reserve quantities
- -------------------------------------------
The net interest in estimated quantities of proved developed and undeveloped
reserves of crude oil and natural gas at July 31, 1996, 1995, and 1994 and
changes in such quantities during each of the years then ended, were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Oil Gas Oil Gas Oil Gas
(BBL) (MCF) (BBL) (MCF) (BBL) (MCF)
----- ---------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves:
Beginning of year 367 1,888,231 378 2,233,805 253 2,048,846
Revisions of previous
estimates (97) (206,836) 96 (301,552) 212 111,296
Extensions, discoveries
and other additions 382 525,475 - 203,392 - 337,772
Production (210) (272,531) (107) (247,414) (87) (264,109)
----- ---------- ----- ---------- ----- ----------
End of year 442 1,934,339 367 1,888,231 378 2,233,805
===== ========== ===== ========== ===== ==========
Proved developed reserves:
Beginning of year 367 1,888,231 378 2,233,805 253 2,048,814
===== ========== ===== ========== ===== ==========
End of year 442 1,934,339 367 1,888,231 378 2,233,805
===== ========== ===== ========== ===== ==========
</TABLE>
Standardized measure of discounted future net cash flows relating to proved
- ------------------------------------------------------------------------------
oil and gas reserves
- ----------------------
A standardized measure of discounted future net cash flows is presented below
for the three years ended July 31, 1996.
The future net cash inflows are developed as follows:
(1) Estimates are made of quantities of proved reserves and the future
periods during which they are expected to be produced based on year-end
economic conditions.
(2) The estimated future production of proved reserves is priced on the
basis of year-end prices.*
(3) The resulting future gross revenue streams are reduced by estimated
future costs to develop and to produce proved reserves, based on year end cost
estimates.
(4) The resulting future net revenue streams are reduced to present value
amounts by applying a ten percent discount.
* In July 1995, when Tri-Valley's reserves were calculated, west coast dry
gas prices dipped briefly to a 20 year low.
<PAGE>
Standardized measure of discounted future net cash flows relating to proved
- ------------------------------------------------------------------------------
oil and gas reserves (Continued)
- ---------------------
Disclosure of principal components of the standardized measure of discounted
future net cash flows provides information concerning the factors involved in
making the calculation. In addition, the disclosure of both undiscounted and
discounted net cash flows provides a measure of comparing proved oil and gas
reserves both with and without an estimate of production timing. The
standardized measure of discounted future net cash flows relating to proved
reserves reflects income taxes.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Future cash in flows $2,989,560 $2,097,633 $ 4,120,625
Future production and
development costs (608,480) (713,275) (1,007,555)
Future income tax expenses (674,158) (84,761) (468,662)
----------- ----------- ------------
Future net cash flows 1,706,922 1,299,597 2,644,408
10% annual discount for
estimated timing of cash
flows 580,012 463,826 1,067,381
----------- ----------- ------------
Standardized measure of
discounted future net
cash flow $1,126,910 $ 835,771 $ 1,577,027
=========== =========== ============
</TABLE>
Changes in standardized measure of discounted future net cash flow from proved
- ------------------------------------------------------------------------------
reserve quantities
- -------------------
This statement discloses the sources of changes in the standardized measure
from year to year. The amount reported as "Net changes in prices and
production costs" represents the present value of changes in prices and
production costs multiplied by estimates of proved reserves as of the
beginning of the year. The "accretion of discount" was computed by
multiplying the ten percent discount factor by the standardized measure as of
the beginning of the year. The "Sales of oil and gas produced, net of
production costs" is expressed in actual dollar amounts. "Revisions of
previous quantity estimates" is expressed at year-end prices. The "Net change
in income taxes" is computed as the change in present value of future income
taxes.
<PAGE>
Changes in standardized measure of discounted future net cash flow from proved
- ------------------------------------------------------------------------------
reserve quantities (Continued)
- -------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Standardized measure -
beginning of year $ 835,771 $1,577,027 $1,343,270
----------- ----------- -----------
Sales of oil and gas produced,
net of production costs (612,715) (217,916) (365,519)
Revisions of estimates of reserves
provided in prior years:
Net changes in prices and
production costs 985,846 (779,545) 207,674
Revisions of previous quantity
estimates (390,920) (343,769) (222,590)
Extensions, discoveries and improved
recovery 993,148 231,867 675,544
Accretion of discount (94,823) (15,794) 200,492
Net change in income taxes (589,397) 383,901 (261,844)
----------- ----------- -----------
Net increase (decrease) 291,139 (741,256) 233,757
----------- ----------- -----------
Standardized measure - end of year $1,126,910 $ 835,771 $1,577,027
=========== =========== ===========
</TABLE>
<PAGE>
PART III
--------
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
- -------------------------------------------------------
DISCLOSURE
- ----------
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------------
The following information, as of July 31, 1996, is furnished with respect to
each director:
<TABLE>
<CAPTION>
Year First
Elected as Position With
Name of Director Age Director(1) Term Expires * Company
- -------------------- --- ----------- -------------- -----------------------
<S> <C> <C> <C> <C>
F. Lynn Blystone 60 1984 August 19 President,
Chief Executive Officer
and Acting CFO
Dennis P. Lockhart 49 1982 August 19 None
Terrance L. Stringer 55 1982 August 19 None
Milton J. Carlson 66 1985 August 19 None
Earl H. Beistline 80 1992 August 19 None
Loren J. Miller 51 1992 August 19 None
</TABLE>
* Term as director continues until his successor is duly elected upon
annual shareholders meeting or duly appointed during the interim.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
- ------------------------------------------------------------------
The following is a list of Tri-Valley executive officers, their ages and their
positions and offices, as of July 31, 1995:
Name Age Position and Date Elected to Position
- ---------- --- ---------------------------------------------
F. Lynn Blystone 60 President and Chief Executive Officer,
Tri-Valley
Corporation and Tri-Valley Oil & Gas Company
(October 9, 1981)
<PAGE>
TRI-VALLEY CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
JULY 1995
F. LYNN BLYSTONE - 60 President and Chief Executive Officer 1974
- ------------------
Tri-Valley Corporation, and its wholly
owned subsidiary, Tri-Valley Oil & Gas
Co., Bakersfield, California
Mr. Blystone became president of Tri-Valley Corporation in October 1981, and
was nominally vice president from July to October 1981. His background
includes institution management, venture capital and various management
functions for a mainline pipeline contractor including the Trans Alaska
Pipe-line Project. He has founded, run and sold companies in several fields
including Learjet charter, commercial construction, municipal finance and land
development. He is also president of a family corporation, Bandera Land
Company, Inc., with real estate interests in Kern, Riverside and Orange
Counties California. A graduate of Whittier College, California, he did
graduate work at George Williams College, Illinois in organization management.
He gives full time to Tri-Valley.
DENNIS P. LOCKHART - 49 President 1982
- --------------------
Heller International Group, Inc.
Chicago, Illinois
After service as a corporate banking officer of Citibank since 1971, most
recently as vice president in the Central and South America Group responsible
for debt-to-equity conversions, Mr. Lockhart has become president of Heller
International, an old line firm now owned by Fuji Bank Group. Heller provides
financing in 20 countries. While with Citibank, Mr. Lockhart served the
bank's international operations in Jedda and Riyahd, Saudi Arabia; Athens,
Greece; Beirut, Lebanon; and as executive vice president of Iranian's Bank of
Tehran, Iran. He then served as vice president and regional executive for
corporate banking in the seven southeastern states and Puerto Rico for
Citicorp (USA), Inc. A graduate of Stanford University, he has an M.A. from
John Hopkins University.
<PAGE>
TERRANCE L. STRINGER - 55 Executive Vice President 1982
- ----------------------
Huntway Refining Company
Wilmington, California
Mr. Stringer is responsible for refinery supply, planning and intermediate
product marketing of Huntway, a NYSE limited partnership with three refineries
in the United States. Prior to that, he was vice president of supply and
marketing of Golden West Refinery in Santa Fe Springs, California. He was
formerly president of several subsidiaries of Tosco Corporation including TPFC
which purchases, balances and trades gas supplies for the Avon Refinery,
Toscogen, Inc. which provides co-generation services, Teorco a heavy oil
producer, and was general manager oil, gas and minerals for Tosco Corporation.
Prior to that he spent 9 years with Standard Oil of California (now Chevron)
in finance, supply and trading including 3 years in the London Crude trading
office. He holds a B.Sc. in chemical engineering from the University of
Illinois and a M.B.A. from UCLA.
MILTON J. CARLSON - 66 Investor, Kalispell, Montana 1985
- -------------------
Mr. Carlson is a principal in Earthsong Corporation which, in part, consults
on environmental matters and performs environmental audits for government
agencies and public and private concerns. Until its merger with another firm,
Mr. Carlson formerly was vice president and corporate secretary of Union Sugar
Company, a $100 million unit of Sara Lee Corporation. He was involved in
representing industrial end users of energy through the California
Manufacturers Association as the former chairman of the CMA steering committee
of the standing energy and environmental committees. Mr. Carlson was also the
energy and environmental representative with Sara Lee energy advisory group
and monitored related matters before the California Public Utilities
Commission and Energy Commission as well as serving as the legislative
representative in Sacramento and Washington, D.C. Mr. Carlson attended the
University of Colorado at Boulder and the University of Denver.
EARL H. BEISTLINE, LLD. - 80 Mining Consultant 1992
- --------------------------
Fairbanks, Alaska
Dr. Beistline is chairman of the Alaska State Minerals Commission and Dean
Emeritus of the School of Mineral Industry of the University of Alaska. Born
in Juneau, he has achieved a special position in Alaska during its transition
from territorial status into statehood. He has numerous honors from local,
state and federal governments, academia, professional and civic organizations
and the mineral industry. An active miner in the Central-Circle Mining
District, Dr. Beistline also serves as a director of one of the state's
primary companies, Usibelli Coal Mines, Inc. He holds a Bachelor of Mining
Engineering, Engineer of Mines and Honorary Doctor of Law degree from the
University of Alaska.
<PAGE>
LOREN J. MILLER, CPA - 51 Controller 1992
- -----------------------
Petro America, Inc.
Long Beach, California
Mr. Miller has served in a treasury and chief financial officer capacity as
vice president successively of Hershey Oil Corporation, Mock Resources, Inc.,
and McMullen Oil Company. Prior to that he was vice president and general
manager of Tosco Production Finance Corporation and formerly a senior auditor
with Touche Ross & Co. He is experienced in exploration, production, product
trading, refining and distribution as well as corporate finance. He holds a
B.S. in accounting and an M.B.A. in finance from the University of Southern
California.
STAFF
-----
CRAIG M. LYNCH, ESQ. - 38 Outside Counsel, Petroleum
- -----------------------
Mr. Lynch is a corporation and business litigation attorney experienced in
petroleum, minerals, real estate and contract law. He has served Tri-Valley
on numerous matters since 1989. Mr. Lynch holds a B.A. in history and a J.D.
in law from Loyola - Marymount University. He is a member of the State Bar of
California.
MICHAEL J. MORRISON, ESQ. - Outside Counsel, Securities/Corporate
- ----------------------------
Mr. Morrison specializes in federal and state securities law with a practice
that includes mineral and telecommunications. He serves on the boards of
numerous private and public companies. He holds a Bachelor of Science in
Engineering Management from the U.S. Air Force Academy and a J.D. from
McGeorge School of Law, University of the Pacific. He is a decorated combat
pilot with licenses for commercial and multi-engine and instrument ratings. He
is licensed to practice in California, Nevada, District of Columbia, U.S. Tax
Court, U.S. Customs Court, and U.S. Court of International Trade. He is
licensed by the NASD.
<PAGE>
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
- ------------------------------------------------------
The following table and the accompanying notes show the remuneration paid by
Tri-Valley Company during its last fiscal year to all officers and directors.
No officer or director received contingent remuneration during fiscal year
1995.
<TABLE>
<CAPTION>
Capacities
Name of Individual or in which Cash
Persons in Group Served Compensation Other Benefits
- ------------------------ ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Executive Officer
(1 person) (1) $ 101,633 $ 100,000 (2)
Directors (5 persons) 4,400 3,360
</TABLE>
(1) Mr. F. Lynn Blystone, President and Chief Executive Officer (TVC).
(2) At July 31, 1992, F. Lynn Blystone was employed under terms of an
employment contract which provided, among other conditions, rights to
severance pay up to $100,000 in the event of the sale of the Company. In such
event he could, under the terms and conditions of his contract, be eligible
for severance pay if he were terminated within twelve months of such sale, or
if authority subsequent to sale were reduced, be eligible for severance pay if
he resigned. This agreement was approved by the Board of Directors and
ratified by the shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- ---------------------------------------------------------------
AND MANAGEMENT
- ---------------
(a) Set forth below is certain information concerning persons who are
known by Tri-Valley Corporation to own beneficially more than 5% of the
Company's voting shares on July 31, 1995:
<TABLE>
<CAPTION>
Number
of
Name & Address of Shares Percent
Title of Class Beneficial Owners Owned of Class
- ---------------------------- ----------------- ------- ---------
<S> <C> <C> <C>
Common stock, $.01 par value Edgar L. Moss 482,857 6.0%
Common stock, $.01 par value F. Lynn Blystone 431,998 5.8%
Common stock, $.01 par value Victor Millar 400,000 5.0%
</TABLE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- ---------------------------------------------------------------
AND MANAGEMENT (Continued)
- ---------------
(b) The following table sets forth, as of July 31, 1996 information
concerning the beneficial ownership of equity securities by all directors and
officers of the Company as a group:
<TABLE>
<CAPTION>
Common Stock
Name of Beneficial Owner $.01 Par Value Percent of Class
- ---------------------------- -------------- -----------------
<S> <C> <C>
All directors and officers
as a group (6 persons) 568,955 6.54%
</TABLE>
(c) The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------------
(a) None.
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND
- ------------------------------------------------------------
REPORTS ON FORM 8-K
- ----------------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C> <C>
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------
The following consolidated financial statements of Tri-
Valley Corporation are included in Part II, Item 8:
Report of independent auditors 21
Balance sheets - July 31, 1996 and July 31, 1995 22-23
Statements of operations - years ended July 31, 1996,
1995 and 1994 24
Statements of changes in shareholders' equity -- years
ended July 31, 1996, 1995 and 1994 25
Statements of cash flows -- years ended July 31, 1996,
1995 and 1994 26-27
Notes to financial statements 28-46
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
-------------------------------
The financial statement schedules of the Company filed herewith are
listed below. Schedules not included have been omitted because they are not
applicable or the required information as shown in the consolidated financial
statements and notes thereto.
Schedule V - Property, Plant & Equipment
Schedule VI - Accumulated Depreciation, Depletion & Amortization
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND
- ------------------------------------------------------------
REPORTS ON FORM 8-K (Continued)
- ----------------------
3. EXHIBITS
--------
Not applicable.
(b) REPORTS ON FORM 8-K
----------------------
Frank M. Agar, resigned as president of Tri-Valley Oil & Gas Company
effective September 28, 1995.
Helen L. O'Brien, vice president, secretary and treasurer was terminated
effective December 4, 1995.
J. Bruce Carruthers II, director, resigned January 26, 1996.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tri-Valley Corporation
Bakersfield, California
The audits referred to in our report to Tri-Valley Corporation dated December
3, 1996 which is contained in Item 8 of this Form 10-K, included the audit of
the financial statement schedules contained herein.
In our opinion, such financial statements present fairly the information set
forth therein.
BROWN ARMSTRONG RANDALL & REYES
ACCOUNTANCY CORPORATION
Bakersfield, California
December 3, 1996
<PAGE>
TRI-VALLEY CORPORATION
SCHEDULE V - PROPERTY, PLANT & EQUIPMENT
YEARS ENDED JULY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Productive Productive Non Productive
Leasehold Oil & Gas Oil & Gas Oil & Gas Mining
Land Building Equipment Improvements Leases Leases Prospects Totals
------- --------- ---------- ------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
July 31, 1992 $ - $ - $ 92,293 $ 5,748 $ 440,552 $ 590,745 $1,074,404 $2,203,742
Additions at Cost 11,281 45,124 5,553 - 23,780 247,658 435,314 768,710
Deletions at Cost - - 1,210 - 19,171 12,901 12,712 45,994
------- --------- ---------- ------------- ----------- --------------- ---------- ----------
Balance at
July 31, 1993 11,281 45,124 96,636 5,748 445,161 825,502 1,497,006 2,926,458
Additions at Cost - - 539 - 9,236 60,087 317,251 387,113
Deletions at Cost - - - - - 163,173 94,052 257,225
------- --------- ---------- ------------- ----------- --------------- ---------- ----------
Balances at
July 31, 1994 11,281 45,124 97,175 5,748 454,397 722,416 1,720,205 3,056,346
Additions at Cost - - 5,193 - - 50,111 238,068 293,372
Deletions at Cost - - 18,422 - 9,025 125,835 - 153,282
------- --------- ---------- ------------- ----------- --------------- ---------- ----------
Balances at
July 31, 1995 11,281 45,124 83,946 5,748 445,372 646,692 1,958,273 3,196,436
Additions at Cost - - - - 64,733 141,496 99,459 305,688
Deletions at Cost - - - - - 92,327 - 92,327
------- --------- ---------- ------------- ----------- --------------- ---------- ----------
Balances at
July 31, 1996 $11,281 $ 45,124 $ 83,946 $ 5,748 $ 510,105 $ 695,861 $2,057,732 $3,409,797
======= ========= ========== ============= =========== =============== ========== ==========
</TABLE>
<PAGE>
TRI-VALLEY CORPORATION
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION & AMORTIZATION
YEARS ENDED JULY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Accumulated
-----------
Depreciation Depletion Amortization Totals
------------- ---------- ------------- --------
<S> <C> <C> <C> <C>
Balances at July 31, 1993 $ 64,516 $ 147,945 $ 5,748 $218,209
Additions at Cost 11,126 30,062 - 41,188
Retirements at Cost - - - -
------------- ---------- ------------- --------
Balances at July 31, 1994 75,642 178,007 5,748 259,397
Additions at Cost 11,129 26,454 - 37,583
Retirements at Cost 7,894 7,720 - 15,614
------------- ---------- ------------- --------
Balances at July 31, 1995 78,877 196,741 5,748 281,366
Additions at Cost 6,090 36,518 - 42,608
------------- ---------- ------------- --------
Balances at July 31, 1996 $ 84,967 $ 233,259 $ 5,748 $323,974
============= ========== ============= ========
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
January 16, 1997 By:
F. Lynn Blystone
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates included:
January 16, 1997 By:
Dennis P. Lockhart
Director
January 16, 1997 By:
Terrance L. Stringer
Director
January 16, 1997 By:
Milton J. Carlson
Director
January 16, 1997 By:
Earl H. Beistline
Director
January 16, 1997 By:
Loren Miller
Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 258,924
<SECURITIES> 0
<RECEIVABLES> 277,586
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 538,539
<PP&E> 3,085,825
<DEPRECIATION> 53,453
<TOTAL-ASSETS> 3,949,375
<CURRENT-LIABILITIES> 1,632,451
<BONDS> 0
0
0
<COMMON> 80,272
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,949,375
<SALES> 872,386
<TOTAL-REVENUES> 879,247
<CGS> 259,673
<TOTAL-COSTS> 287,266
<OTHER-EXPENSES> 818,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,487
<INCOME-PRETAX> 315,758
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