U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended March 31, 1998
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from _________________to________________
Commission file number: 0-10006
AMERICAN RIVERS OIL COMPANY
--------------------------------------------
(Name of small business issuer in its charter)
Wyoming 84-0839926
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 East 9th Avenue, Suite 106, Denver, CO 80203
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 832-1117
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12 (g) of the Act:
Common Stock, $.01 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months, and (2)
has been subject to such filing requirements 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-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for fiscal year ended March 31, 1998 were $657,976.
The aggregate market value of the voting Common Stock held by non-affiliates
based on the last sale price in the over the counter market as quoted on the OTC
Bulletin Board as of June 26, 1998 was $296,177. The number of shares
outstanding of the issuer's Common Stock as of March 31, 1998 was 3,615,770. The
number of shares outstanding of the issuer's Class B Common Stock as of March
31, 1998 was 7,267,820.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
<PAGE>
PART I
The Company believes that this report contains certain forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
including, without limitation, all statements regarding the Company's expected
future financial position, results of operations, business strategy, plans or
objectives of management. In addition, such forward looking statements include,
without limitation, statements containing words such as "believes,"
"anticipates," "estimates," "expects," "may" and words of similar import, or
statements of management's opinion. Although the Company believes that the
expectations reflected in such forward looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct, and actual results may differ materially from those
described or implied in such forward looking statements. Factors that could
cause the Company's actual results to differ from the expectations reflected in
forward-looking statements include the risks of operating in a competitive
environment, the market for the Company's products, the market for the Company's
properties, changes in interest and inflation rates, and the ability to develop
the Company's reserves.
Item 1. Business
--------
The Company
- -----------
American Rivers Oil Company (the "Company") was originally incorporated under
the laws of the State of Colorado on February 2, 1981 as Metro Cable
Corporation. On March 31, 1992, the Company reincorporated in the State of
Wyoming and changed its name to Metro Capital Corporation ("Metro"). In December
1995, Metro, upon approval of its shareholders, completed a transaction with
Karlton Terry Oil Company and its affiliates ("KTOC") whereby KTOC exchanged
certain oil and gas properties for 7,717,820 shares of newly created Class B
Common Stock which represented 80% of the then issued and outstanding voting
securities of Metro (the "Transaction" or the "Metro/KTOC Transaction"). The
only class of securities of Metro issued and outstanding prior to the
Transaction was Common Stock. Metro and KTOC previously were not affiliated.
Upon completion of the Transaction, the Company's name was changed to American
Rivers Oil Company. Management of KTOC succeeded to the board of directors and
serve as officers operating the oil and gas properties previously owned by KTOC.
Prior to the Transaction, Metro had been principally engaged in petroleum
operations, real estate development and seeking business opportunities.
Prior to and in connection with the Transaction described above, Metro
transferred to Bishop Capital Corporation ("Bishop") (formerly Bishop Cable
Communications Corporation), a wholly-owned subsidiary, all of the Company's
assets except for $700,000 cash and its working interest in an insignificant oil
property. These transferred assets, together with Bishop's previously owned
assets, and were operated autonomously by the prior management of Metro who
became officers and directors of Bishop pursuant to the terms of separate
five-year Operating and Voting Agreements. Since the Company did not exercise
control over Bishop's operations, the investment was accounted for by the equity
method prior to the distribution of the outstanding stock of Bishop to the
Company's shareholders in June 1997. The terms of the Metro/KTOC Transaction
also provided that the shares of Bishop owned by the Company would be
distributed to the Company's common shareholders within 36 months of the
Transaction date and that the holders of the Company's Class B Common stock
would not participate in the distribution. On November 8, 1996, the Company's
Board of Directors authorized a spin-off distribution of Bishop's Common Stock
as a partial liquidating dividend to the Company's common shareholders of record
on November 18, 1996 on the basis of one share of Bishop Common Stock for four
shares of the Company's Common Stock. The distribution occurred on June 20,
1997.
At March 31, 1998, the Company had two full-time employees.
2
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Operating Strategy
- ------------------
Subsequent to March 31, 1998, the Company has sold a significant portion of its
producing properties to meet its current obligations. The Company's operating
objective is to increase value through pursuing merger or acquisition
opportunities with a substantial, stable company. The Company is currently
negotiating with a candidate; however, no definitive agreement with respect to
any acquisition has been reached. Accordingly, the Company cannot predict
whether any agreement may be reached, the timing of the contemplated transaction
or the results of the transaction if any agreement is reached.
Markets
- -------
The three principal products currently produced and marketed by the Company are
crude oil, natural gas and natural gas liquids. The Company does not currently
use commodity futures contracts or price swaps in the marketing of its natural
gas and crude oil.
Crude oil produced from the Company's properties is generally sold by truck or
pipeline to unaffiliated third-party purchasers at the prevailing field price
(the "posted price"). Currently, the three primary purchasers of the Company's
crude oil are Farm Bureau, Total Petroleum and American Refining Company.
Together these three purchasers account for more than 80% of the Company's
annual crude oil sales. The market for the Company's crude oil is competitive.
The Company does not believe that the loss of one of its primary purchasers
would have a material adverse effect on the Company's business because other
arrangements could be made to market the Company's crude oil products. The
Company does not anticipate problems in selling future oil production since
purchases are made based on then-current market conditions and pricing. However,
oil prices are subject to volatility due to several factors beyond the Company's
control including political turmoil, domestic and foreign production levels,
OPEC's ability to adhere to production quotas and possible governmental control
or regulation.
The Company sells its natural gas production at the wellhead to various pipeline
purchasers or natural gas marketing companies. The wellhead contracts have
various terms and conditions, including contract duration. Under each wellhead
contract the purchaser is generally responsible for gathering, transporting,
processing and selling the natural gas and natural gas liquids and the Company
receives a net price at the wellhead.
Competition
- -----------
The oil and natural gas industry is intensely competitive. The Company
encounters strong competition from other independent oil companies in acquiring
economically desirable prospects as well as in marketing production therefrom
and obtaining external financing. The Company competes with a substantial number
of other companies having larger technical staffs and greater financial and
operational resources.
The Company's business is affected not only by such competition, but also by
general economic developments, governmental regulations and other factors that
affect its ability to market its oil and natural gas production. The prices of
oil and natural gas realized by the Company are highly volatile. The price of
oil is generally dependent on world supply and demand, while the price the
Company receives for its natural gas is tied to the specific markets in which
such gas is sold. Declines in crude oil prices or natural gas prices adversely
3
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impact the Company's activities. The Company's financial position and resources
may also adversely affect the Company's competitive position. Lack of available
funds or financing alternatives will prevent the Company from executing its
operating strategy and from deriving the expected benefits therefrom. For
further information concerning the Company's financial position, see Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Regulation
- ----------
All aspects of the oil and gas industry are extensively regulated by federal,
state and local governments in all areas in which the Company has operations.
Regulations govern such things as drilling permits, production rates,
environmental protection and pollution control, royalty rates and taxation
rates. These regulations may substantially increase the cost of doing business
and sometimes prevent or delay the start or continuation of any given
exploration or development project.
Regulations are subject to future changes by legislative and administrative
action and by judicial decisions, which may adversely affect the petroleum
industry. In the past few years legislation has been adopted that increases the
authority granted to the Colorado Oil and Gas Conservation Commission to issue
regulations pertaining to surface damages, health and safety matters and
environmental issues. Additionally, certain municipalities have either proposed
or adopted regulations that affect oil and gas operations within their city
limits. At the present time, it is impossible to predict what effect current and
future proposals or changes in existing laws or regulations will have on the
Company's operations, estimates of oil and natural gas reserves, or future
revenues.
The Company believes that its operations comply with all applicable legislation
and regulations in all material respects, and that the existence of such
regulations has had no more restrictive effect on the Company's method of
operations than other similar companies in the industry. Although the Company
does not believe its business operations presently impair environmental quality,
compliance with federal, state and local regulations which have been enacted or
adopted regulating the discharge of materials into the environment could have an
adverse effect upon the capital expenditures, earnings and competitive position
of the Company, the extent of which the Company now is unable to assess. Since
inception, the Company has not made any material capital expenditures for
environmental control facilities and is not currently aware of any need to make
any such expenditures in the future.
Regulation of Production. In most areas in which the Company may conduct
activities in the United States, there may be statutory provisions regulating
the production of oil and natural gas, and under which state administrative
agencies may promulgate rules in connection with the operation of both oil and
gas, and/or establish allowable rates of production. For wells in which the
Company owns an interest, such rules may restrict the oil and gas production
rate to below the rate such wells could produce in the absence of such
regulations.
Environmental Regulations. Operations of the Company are subject to numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. In drilling river prospects,
the reservoir and the bottom hole locations of the well bores are deep enough
and far enough under the river (a 4" to 9" diameter hole at depths between 1,500
and 8,000 feet deep) that they will have no effect on the river or the river
bottom. The Company's surface location will be no closer to the river than the
vertical wells which have heretofore been drilled, and therefore the Company has
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no increased liability, regulation, or obligation over vertical wells which have
locations near rivers. These laws and regulations may require the acquisition of
a permit before drilling commences, prohibit drilling activities on certain
lands lying within wilderness areas or where pollution arises, and/or impose
substantial liabilities for pollution or in offshore waters or submerged lands.
Future regulations may impose additional restrictions on the Company's
activities. It is impossible to predict if, or in what form, the regulations
will be adopted and hence their potential impact upon the Company's operations.
State Regulation. State regulatory authorities have established rules and
regulations requiring permits for drilling operations, drilling bonds and/or
reports concerning operations.
Operations of Bishop
- --------------------
As previously discussed, Bishop was operated autonomously by the previous
management of the Company pursuant to the terms of separate five-year Operating
and Voting Agreements which terminated upon the distribution of Bishop's Common
Stock on June 20, 1997.
Item 2. Properties
----------
The Company's principal reserves and producing properties are oil and gas
properties located in Colorado, Kentucky, and West Virginia. All of the
producing properties in Colorado are pledged as collateral for a line of credit
from a bank and all of the Colorado properties were sold in June 1998.
Reserves
- --------
Information regarding the Company's proved and proved developed oil and gas
reserves and the standardized measure of discounted future net cash flows and
changes therein is included in Note 14 of Notes to Consolidated Financial
Statements.
Since April 1, 1996, the Company has not filed any oil or natural gas reserve
estimates or included any such estimates in reports to any Federal authority or
agency, other than the Securities and Exchange Commission.
Production
- ----------
The following table sets forth information with respect to the Company's oil and
gas production, average sales prices and average production costs for the two
years ended March 31, 1998:
1998 1997
-------- --------
Quantities Produced and Sold
Oil (barrels (Bbls)) 17,039 16,236
Natural Gas (Mcf) 197,864 192,837
Average Sales Prices
Oil (per Bbl) $ 17.05 $ 21.53
Natural Gas (per Mcf) $ 1.84 $ 2.11
Average Production Cost per BOE (1) $ 8.17 $ 8.15
- -----------
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(1) Production units were converted to common units of measure using a
conversion ratio of six Mcf of natural gas equals one barrel of oil
equivalent (BOE). Production costs exclude depreciation and depletion
associated with oil and gas properties.
Productive Wells
- ----------------
The following summarizes the Company's total gross and net productive wells at
March 31, 1998 all of which are in the United States:
Productive Wells (1)
--------------------------
Gross (2) Net (3)
--------- -------
Oil 30 8.9
Gas 52 19.13
-- -----
Totals 82 28.03
-- -----
(1) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(2) A gross well is a well in which a working interest is owned. The
number of gross wells is the total number of wells in which a working
interest is owned.
(3) A net well is deemed to exist when the sum of fractional ownership
working interests in gross wells equals one. The number of net wells
is the sum of the fractional working interests owned in gross wells
expressed as whole numbers and fractions thereof.
Developed and Undeveloped Acreage
- ---------------------------------
At March 31, 1998, the Company held acreage as set forth below. All of the
developed acreage in Colorado is subject to a lien securing a line of credit
from a bank and a portion of the undeveloped acreage in Kentucky is subject to a
production payment.
Developed Acreage (1) Undeveloped Acreage (2)
--------------------- -----------------------
Gross (3) Net (4) Gross (3) Net (4)
--------- ------- --------- -------
Colorado 3,280.0 525.0 3,480.0 1,475.0
Indiana 0.0 0.0 424.0 424.0
Kentucky 100.0 21.9 1,996.0 1,669.7
West Virginia 153.0 76.5 1,692.0 846.0
------- ----- ------- -------
Totals 3,533.0 623.4 7,592.0 4,414.7
======= ===== ======= =======
(1) Developed acres are those acres which are spaced or assigned to productive
wells.
(2) Undeveloped acres are considered to be those acres on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether such
acreage contains proved reserves. It should not be confused with undrilled
acreage held for production under the terms of a lease.
(3) A gross acre is an acre in which a working interest is owned. The number of
gross acres is the total number of acres in which a working interest is
owned.
(4) A net acre is deemed to exist when the sum of the fractional ownership
working interests in gross acres equals one. The number of net acres is the
sum of the fractional working interest owned in gross acres expressed as
whole numbers and fractions thereof.
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Drilling Activity
- -----------------
The Company's drilling activity for the years ended March 31, 1998 and 1997 are
set forth below:
1998 1997
-------------- -----------------
Gross Net Gross Net
----- --- ----- ---
Exploratory Wells:
Productive 0 0.00 0 0.00
Dry 0 0.00 1 .1788
- ---- - ------
0 0.00 1 .1788
= ==== = ======
Development Wells:
Productive 0 0.00 0 0.00
Dry 1 0.75 0 0.00
- ---- - ------
1 0.75 0 0.00
= ==== = ======
Present Activities
- ------------------
The Company is considering selling some of its properties to reduce its bank
debt. Oil and gas prices are extremely depressed, and the Company is considering
merger possibilities with other business entities having more sustained cash
flow with less price volatility relating to its product. Subsequent to March 31,
1998 the Company sold a significant portion of its producing properties and used
the proceeds to retire debt. See Item I, Business, Operating Strategy, above.
Item 3. Legal Proceedings
-----------------
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended March 31, 1998.
PART II
-------
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
---------------------------------------------------------------------
Common Stock
- ------------
Until December 1997 the Company's common stock was traded on the Nasdaq Stock
Market, SmallCap. Since December 1997 the Company's common stock is traded in
the over-the-counter market and is quoted on the OTC Bulletin Board under the
symbol "AROC." The following table shows the high and low bids for the common
stock of the Company for the periods indicated as furnished by Nasdaq. The
quotations represent prices between dealers and do not include retail mark-up,
markdown, or commission and may not reflect actual transactions.
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QUARTER ENDED HIGH BID LOW BID
------------- -------- -------
03/31/95 $1.12 $ .75
06/30/95 1.19 .75
09/30/95 2.38 1.00
12/31/95 2.38 1.50
03/31/96 1.75 1.25
06/30/96 1.63 1.13
09/30/96 1.88 1.38
12/31/96 1.88 1.13
03/31/97 1.56 .94
06/30/97 1.50 .56
09/30/97 .81 .44
12/31/97 .69 .11
03/31/98 .25 .05
As of March 31, 1998 there were approximately 2,010 holders of record of the
Company's Common Stock.
Class B Common Stock
- --------------------
The Class B Common Stock, which is not traded in any public trading market, was
issued in connection with the Transaction described in Item 1 and has all of the
rights of currently issued and outstanding shares of the Company's Common Stock
except that the Class B Common Stock was not entitled to participate in the June
20, 1997 distribution of shares of Bishop Capital Corporation. A portion of the
Class B Common Stock is convertible on a one-for-one share basis into the
Company's Common Stock commencing June 1998 with all of the Class B Common Stock
being convertible into Common Stock commencing in December 1998.
As of March 31, 1998, there were 20 holders of record of the Company's Class B
Common Stock.
Dividends
- ---------
The Company has paid no dividends on its Common Stock or Class B Common Stock
and does not intend to pay cash dividends in the foreseeable future. Payment of
cash dividends, if any, in the future will be determined by the Company's Board
of Directors in light of the Company's earnings, financial condition and other
relevant considerations. At March 31, 1998 the Company was not permitted to pay
dividends pursuant to the bank credit agreement.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------
The audited consolidated statements of operations and cash flows for the years
ended March 31, 1998 and 1997 include the operations of the unconsolidated
operations of Bishop Capital Corporation using the equity method of accounting
until it was distributed on June 20, 1997. The following discussion and analysis
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto.
8
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Results of Operations
- ---------------------
The Company's revenues were $658,000, a decrease of $105,000 for the fiscal year
ended March 31, 1998 from $763,000 in fiscal 1997. The Company's net loss for
fiscal 1998 increased by $2,014,000 to $2,950,000 from a net loss of $936,000
for fiscal 1997. As further described below, of the Company's $2,950,000 loss in
1998, $2,567,000 is represented by a charge for impairment to the Company's
proved reserves, and $95,000 represents the Company's equity in the loss
incurred by Bishop Capital Corporation, the Company's subsidiary that was
spun-off on June 20, 1997. All losses incurred by Bishop during 1998 were funded
from Bishop's operations and not from the Company. The Company sold its interest
in a producing property in Louisiana, the Lake Hatch prospect, and realized a
gain of $92,000. The Company also recognized deferred tax benefits in the amount
of $232,000; principally arising from the impairment loss. As further described
below, of the Company's loss from operations in fiscal 1998, approximately
$50,000 consists of isolated expenses associated with the filing of registration
statement relative to the resale of 1,733,815 of the Company's issued
outstanding common shares which has not become effective. The Company, along
with the entire industry, sustained a significant decrease in the price of crude
oil in the range of $4.00 per barrel while operating expenses remained
relatively constant. Such revenue or expense changes are not fully within the
control of management and the Company's ability to realize revenues is subject
to many contingencies, such as fluctuations in oil and gas prices, regulatory
changes and other events beyond the Company's control. Accordingly investors are
urged to be cautious in considering the forward-looking statements contained in
this paragraph and elsewhere herein.
Fiscal 1998 Compared to Fiscal 1997
The Company's oil and gas sales decreased by $102,000 in fiscal 1998 due to a
decrease in the price of crude oil and natural gas. The decreased pricing
contributed approximately $127,000 of the change which was offset by increased
production of $25,000 resulting in a net change of $102,000 for the fiscal year.
The production costs remained relatively constant, increasing $14,000 in fiscal
1998 compared to 1997.
General and administrative expenses decreased approximately $117,000 in fiscal
1998 compared to 1997 principally because of fiscal 1997 professional fees
associated with merger negotiations with Opon Development Company and other
professional fees, which were not present in 1998.
In fiscal 1998, the Company conducted a comprehensive review of its reserves as
a result of the unsuccessful drilling results of the Kentucky well and in
connection with the fiscal year end. The results of the reevaluation of the
Company's reserves, on a BOE equivalent basis, resulted in a 94% reduction of
proved developed and undeveloped reserves, of which 16% was attributable to the
Lake Hatch property sale. Upon completion of the reevaluation, the Company
recorded an impairment loss of $2,567,440 to reflect the fair value of the oil
and gas properties at March 31, 1998.
Depletion increased by approximately $212,600 in fiscal 1998 compared to 1997.
The increase principally arises from the change in the estimated recoverable
reserves as discussed in the preceding paragraph.
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Equity in the loss of Bishop Capital Corporation decreased by approximately
$429,000 in fiscal 1998 from fiscal 1997 because the Company did not have an
equity interest in Bishop after June 20, 1997.
The gain on the sale of oil and gas properties increased by $92,000 as no
properties were sold in fiscal 1997.
Deferred tax benefits totaling $232,000 increased by approximately $213,000
arising from the impairment loss recorded in fiscal 1998 while 1997 deferred tax
benefits amounted to $19,000.
The production volumes and average sales prices for the years ended March 31,
1998 and 1997 were as follows:
1998 1997
---- ----
Oil production (Bbls) 17,039 16,236
Average sales price (per Bbl) $ 17.05 $ 21.53
Natural gas production (mcf) 197,864 192,837
Average sales price (per mcf) $ 1.84 $ 2.11
Production volumes were relatively constant while prices declined. The average
sales price of crude oil decreased 21% per barrel and gas decreased 13% per MCF.
Financial Condition
- -------------------
At March 31, 1998, the Company's working capital amounted to $30,000. The
Company entered into an agreement to sell certain of its properties to reduce
its bank debt realizing proceeds of approximately $900,000 in June 1998. The
Company is currently negotiating a merger which is integral to the Company's
ability to continue operations.
The following summary table reflects comparative cash flows for the Company for
the two years ended March 31, 1998:
1998 1997
---- ----
Net cash used in operating activities $(228,900) $(444,300)
Net cash provided by (used in) investing
activities 355,500 (262,400)
Net cash provided by (used in) financing
activities (242,800) 842,700
Net cash used in operating activities increased in fiscal 1998 compared to
fiscal 1997 due to decreased costs and expenses associated with the Opon merger
negotiations and a general decrease in other general and administrative
expenses.
Net cash provided by investing activities of $335,500 in fiscal 1998 principally
resulted from the sale of the Lake Hatch property which generated $424,000. Net
cash used in investing activities of $109,800 in fiscal 1998 resulted primarily
from the drilling of a dry development well. In addition, the Company borrowed
$53,500 from a major Class B Common shareholder. The Company repaid $43,500 of
the borrowing to the major Class B Common shareholder.
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The Company raised $680,000 in two private placements of Common Stock in fiscal
1997. Proceeds of those sales were used to retire debt, purchase
Denver-Julesburg ("D-J") wells, drill the Lake Hatch #7 well and to bring the
Sparkle #1 well into production.
Impact of Inflation
The Company cannot determine the precise effects of inflation. However, the
impact of general price inflation has not had a material adverse effect on the
results of the Company's operations.
Item 7. Financial Statements
--------------------
Information with respect to this item appears on page F-1 of this report. Such
information is incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosure
--------------------
None.
Part III
--------
Item 9. Directors and Executive Officers of the Registrant
--------------------------------------------------
a. Identification of Directors and Executive Officers
The following are the directors and executive officers of the Company at
March 31, 1998:
Name Age Office
---- --- ------
Karlton Terry 44 Chairman of the Board, President
and Chief Executive Officer
Denis Bell 63 Director
Richard E. Westerberg 45 Director
Michael Humphries 41 Director
Karlton Terry. Mr. Terry is a graduate of the University of Colorado with
postgraduate work at Brown University and has 17 years experience in the oil and
gas business. He began his career as a landman for Samuel Gary Oil Producer, and
formed and was president of Leed Petroleum Corporation, which was subsequently
sold to Burma Oil of England. After the sale of Leed, he was president of
Karlton Terry Oil Company for twelve years.
Denis Bell. Mr. Bell is executive chairman and a founding shareholder of
Rackwood Colliery Company Limited, a coal producing company in the United
Kingdom. He was appointed a director of Rackwood Colliery Company Limited in
1993. His experience in mining, particularly open cast mining, commenced in 1968
when he established his own company to operate a number of open cast sites and
11
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two small underground mines. This company was sold to Mining Investment
Corporation Limited, where he remained a director until 1979. Since then he has
been involved as an Executive Director of a number of private and public mineral
companies, including NSM PLC (from which he resigned in 1989), Anglo United PLC
(from which he resigned in 1991) and Denis Bell Inc. and its subsidiaries. Mr.
Bell, through Haddon, Inc., of which he owns 100%, has owned oil and gas
properties in the United States since 1983.
Richard E. Westerberg. Mr. Westerberg, has extensive experience in the oil
and gas business and served as the Executive Vice-President of Cody Energy, Inc.
a privately held oil and gas company located in the Denver area from 1993 to
1996. From 1996 to September 1997 he pursued private investment activities. From
October 1997 to February 1998 Mr. Westerberg served as President of the Company.
Mr. Westerberg resigned as President of the Company when the drop in oil prices
reduced the Company's revenues. Mr. Westerberg is currently pursuing private
investing activities. He is a Certified Petroleum Engineer and holds a degree
from the Colorado School of Mines.
Michael E. Humphries. Mr. Humphries has spent 16 years working in the
international oil and gas arena. Having begun his career at Britoil Plc., he has
extensive experience of structuring and financing international upstream
transactions, particularly in countries of high political risk. His career
includes periods at Samuel Montagu & Co., NatWest Markets and the highly
regarded consulting firm of Petroleum Finance. In his present role as a Senior
Vice President at Rothschild Natural Resources LLC ("RNR") based in Washington
DC, he has responsibility for Rothschild's oil and gas activities in North
America. RNR is the specialist natural resources group within the Corporate
Finance Department of N.M. Rothschild & Sons, one of the oldest surviving
independent merchant banks in the world. RNR's activities encompass cross-border
mergers and acquisitions, project finance advisory, general corporate finance
activity, and privatization advice.
The directors of the Company are elected to hold office until the next annual
meeting of shareholders or until a successor has been elected and qualified.
Officers of the Company are elected annually by the Board of Directors and hold
office until their successors are duly elected and qualified.
No arrangement or understanding exists between any of the above officers and
directors pursuant to which any one of those persons were selected to such
office or position. None of the directors hold directorships in other companies
except as noted above.
b. Identification of Certain Significant Employees
Not applicable
c. Family Relationships
Not applicable
d. Involvement in Certain Legal Proceedings
Not applicable
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e. Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of the
outstanding Common Stock of the Company to file reports of ownership and changes
in ownership with the SEC and Nasdaq. Based solely on its review of the copies
of such reports received by it, or written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that during fiscal 1998, its executive officers, directors and greater
than ten percent stockholders complied with all applicable filing requirements.
Item 10. Executive Compensation
----------------------
a. Summary Compensation Table
The following table sets forth the compensation received by the Chief
Executive Officer for the years ended March 31, 1998, 1997 and 1996. No other
executive officer had total annual salary and bonus exceeding $100,000 for the
year ended March 31, 1998.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
--------------------------------------- ------------------------
Name and Principal Other Annual Restricted Options
Position Year Salary Bonus Compensation Stock Award ($) SARS (#)
- -------- ---- ------ ----- ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Karlton Terry 1998 $118,749 $ -- $ -- $ -- --
President, Chief 1997 $125,000 -- -- -- --
Executive Officer 1996 $ 52,083
and Director (1)
</TABLE>
(1) Karlton Terry became Chief Executive Officer on December 8, 1995.
The columns for "Long-Term Incentive Plan Payouts" and "All Other Compensation"
were omitted from the Summary Compensation Table since there was no information
reportable for the years ended March 31, 1998, 1997 and 1996.
b. Option/SAR Grants Table
There were no individual grants of options or stock appreciation rights
("SARs") granted to the Chief Executive Officer during the year ended March 31,
1998.
c. Aggregated Option Exercise and Fiscal Year-End Option Value Table
There were no exercises of stock options by the Chief Executive Officer in
fiscal 1998. (See footnotes (1) and (2) under Item 10(a)). The following table
shows the number of shares covered by both exercisable and non-exercisable stock
options as of March 31, 1998 and their values at such date. There are no SARs
outstanding at March 31, 1998.
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)(1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Robert E. Thrailkill 120,000 -- -- --
13
<PAGE>
(1) On March 31, 1998, the last reported bid price of the Common Stock as
quoted on the Nasdaq Bulletin Board was $.13 per share. Value is
calculated on the basis of the difference between the option price and
$.13 multiplied by the number of shares of Common Stock granted at
that option price. The exercise prices for the various options granted
are $1.65 (25,000 options), $.68 (50,000 options) and $1.38 (45,000
options). At March 31, 1998, the last reported bid price was lower
than the exercise prices of $1.65 (25,000 options), $.68 (50,000
options) and $1.38 (45,000 options); therefore, no value is ascribed
to those options in the above table.
d. Compensation of Directors
All directors are reimbursed for their travel expenses in connection with
meetings. There are no other arrangements whereby any of the Company's directors
received compensation for services as a director during fiscal 1998 in addition
to or in lieu of the amounts stated above.
e. Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
In December 1995, the Company entered into an Executive Employment
Agreement (the "Agreement") with Karlton Terry, the Company's President. The
Agreement is for a three-year term and is renewable from year to year thereafter
unless terminated prior by either party. In efforts to reduce overhead, in
October 1997 the Agreement was modified to be effective January 1, 1998 for a
three-year term unless terminated prior by either party. The modified Agreement
called for an annual salary reduction from $125,000 per year to $100,000 per
year and removed Mr. Terry's company car and club membership as compensation.
Also in October 1997, to be effective January 1, 1998, the Company initiated
Employment Agreements between Richard E. Westerberg as company President and
Jubal S. Terry as Vice-President/Secretary for 1-year terms at salaries of
$50,000 each per year. Both Mr. Westerberg and Jubal Terry resigned their
positions effective February 28, 1998 with the Company agreeing to buy out each
contract for $20,000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
a. Security Ownership of Certain Beneficial Owners
The following table shows, as of March 31, 1998, those persons known by the
Company to be the beneficial owners of more than 5% of the Company's Common
Stock or Class B Common Stock:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
-------------- ---------------- --------- --------
<S> <C> <C> <C>
Class B Common Stock Karlton Terry 5,228,022 (1) 71.9%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Jubal Terry 1,034,353 (2) 14.2%
700 East 9th Avenue, Suite 106
Denver, CO 80203
14
<PAGE>
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
-------------- ---------------- --------- --------
Class B Common Stock Karlton Terry Oil Company 3,749,565 51.6%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Common Stock Consult & Assist 550,000 (3) 15.2%
P.O. Box 9856
Rancho Santa Fe, CA 92067
Common Stock LMU & Company 480,000 (4) 13.3%
1200 17th Street, Suite 1000
Denver, CO 80202
Common Stock Robert E. Thrailkill 375,180 (5) 10.4%
716 College View Dr.
Riverton, WY 82501
Common Stock Haddon, Inc. 375,000 (6) 10.4%
c/o Coal Contractors
Gowen Mine
Fern Glen, PA 18241-2145
Common Stock Francarep, Inc. 275,000 (7) 7.6%
50 Av. des Champs-Elysees
75008 Paris, France
</TABLE>
(1) Includes 1,228,457 shares owned directly, 250,000 shares owned by a
non-profit organization directed by Karlton Terry, and 3,749,565
shares owned indirectly through Karlton Terry Oil Company, of which
Karlton Terry owns 87.5%.
(2) Does not include any indirect ownership of shares through Karlton
Terry Oil Company, of which Jubal Terry owns 12.5%.
(3) All shares are beneficially owned by Georg Ligenbrink and includes
currently exercisable options to acquire 275,000 shares of Common
Stock at $1.10 per share.
(4) Includes currently exercisable options to acquire 400,000 shares of
Common Stock at $1.00 per share.
(5) Includes currently exercisable options to acquire 120,000 shares of
Common Stock. (6) Haddon, Inc. is wholly-owned by Denis Bell, a
director of the Company. (7) All shares are beneficially owned by
Georges Babinet.
b. Security Ownership of Management
The following table shows, as of March 31, 1998, management's ownership of
the Company's Common Stock and Class B Common Stock:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
-------------- ------------------- --------- --------
<S> <C> <C> <C>
Class B Common Stock Karlton Terry 5,228,022 (1) 71.9%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Denis Bell 192,945 (3) 2.7%
700 East 9th Avenue, Suite 106
Denver, CO 80203
15
<PAGE>
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
-------------- ------------------- --------- --------
Class B Common Stock All officers and directors
as a group (three persons) 6,459,320 88.9%
Common Stock Denis Bell 375,000 (3) 9.4%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Common Stock All officers and directors
as a group (three persons) 375,000 9.4%
</TABLE>
(1) Includes 1,478,457 shares owned directly and 3,749,565 shares owned
indirectly through Karlton Terry Oil Company, of which Karlton Terry
owns 87.5%.
(2) Does not include any indirect ownership of shares through Karlton
Terry Oil Company, of which Jubal Terry owns 12.5%.
(3) All shares are owned indirectly through Haddon, Inc., of which Mr.
Bell owns 100%.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
a. Certain Relationships
Not applicable
b. Indebtedness of Management
No officer or director of the Company has been indebted to the Company
directly or indirectly during fiscal year 1998 in an amount exceeding $60,000.
c. Transactions with Parent of Issuer
Not applicable
d. Transactions with Promoters
Not applicable
PART IV
-------
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
3.1 Articles of Incorporation and Bylaws (incorporated by reference
to Exhibits 2.1 and 2.2 of the Registrant's Form S-18
Registration Statement, Registration No. 2-72736-1 filed June 11,
1981). (1)
16
<PAGE>
3.2 Articles of Incorporation and Bylaws for Metro Capital
Corporation (formerly Metro Cable Corporation) reincorporated in
Wyoming from Colorado effective March 31, 1992 (incorporated by
reference to Exhibit 3.2 to Registrant's Form 10-K for the year
ended March 31, 1992, File No. 0-10006). (1)
3.3 Amendment to the Articles of Incorporation of American Rivers Oil
Company (formerly Metro Capital Corporation) modifying the voting
rights of the Class B Common Stock (incorporated by reference to
Form 8-K dated August 9, 1996, File No. 0-10006). (1)
10.4 1987 Stock Bonus Plan dated December 17, 1987 (incorporated by
reference to Exhibit 10.4 to Registrant's Form 10-K for the year
ended March 31, 1989, File No. 0-10006)(1)
10.5 Asset Purchase Agreement, dated October 19, 1995 among the
Registrant, Karlton Terry Oil Company, Karlton Terry and Jubal
Terry (incorporated by reference to Form 8-K dated December 8,
1995, File No. 0-10006). (1)
10.6 Operating Agreement dated November 30, 1995 among the Registrant,
Karlton Terry Oil Company, Bishop Cable Communications
Corporation, Karlton Terry and Jubal Terry (incorporated by
reference to Form 8-K dated December 8, 1995, File No. 0-10006).
(1)
10.7 Management Agreement dated November 30, 1995 among the
Registrant, Bishop Cable Communications Corporation and Robert E.
Thrailkill (incorporated by reference to Form 8-K dated December
8, 1995, File No. 0-10006). (1)
10.8 Voting Agreement dated November 30, 1995 among the Registrant,
Bishop Cable Communications Corporation, Karlton Terry Oil
Company, Karlton Terry and Jubal Terry (incorporated by reference
to Form 8-K dated December 8, 1995, File No. 0-10006). (1)
10.9 Executive Employment Agreement dated December 1, 1995, between
the Registrant and Karlton Terry (incorporated by reference to
Exhibit 10.9 to Registrant's Form 10-KSB for the year ended March
31, 1996, File No. 0-10006). (1)
10.10 1995 Stock Option and Stock Compensation Plan as adopted on
December 8, 1995 (incorporated by reference to Exhibit 10.10 to
Registrant's Form 10-KSB for the year ended March 31, 1996, File
No. 0-10006). (1)
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to Registrant's Form 10-KSB for the year ended March
31, 1996, File No. 0-10006). (1)
27 Financial Data Schedule (submitted only in electronic format).
(1) Not filed herewith. In accordance with Rule 12B-32 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
reference is made to a document previously filed with the
Commission.
17
<PAGE>
b. Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN RIVERS OIL COMPANY
(Registrant)
Date: June 29, 1998 By: /s/ Karlton Terry
----------------------------------------
Karlton Terry
President
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 date indicated.
Date: June 29, 1998 /s/ Karlton Terry
---------------------------------------
Karlton Terry
Chairman of the Board of Directors
(Principal Executive Officer)
Date: June 29, 1998 /s/ Richard E. Westerberg
---------------------------------------
Richard E. Westerberg
Director
Date: June 29, 1998 /s/ Denis Bell
---------------------------------------
Denis Bell
Director
Date: June 29, 1998 /s/ Michael Humphries
---------------------------------------
Michael Humphries
Director
19
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report................................................F-2
Consolidated Balance Sheet - March 31, 1998.................................F-3
Consolidated Statements of Operations -
For the Years Ended March 31, 1998 and 1997.............................F-4
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended March 31, 1998 and 1997.............................F-5
Consolidated Statements of Cash Flows -
For the Years Ended March 31, 1998 and 1997.............................F-6
Notes to Consolidated Financial Statements..................................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
American Rivers Oil Company
Denver, Colorado
We have audited the accompanying consolidated balance sheet of American Rivers
Oil Company and subsidiaries as of March 31, 1998, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended March 31, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Rivers Oil Company and
subsidiaries as of March 31, 1998, and the results of their operations and their
cash flows for the years ended March 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $2,949,903 for the year ended
March 31, 1998. This factor, among others discussed in Note 3 to the financial
statements, raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 23, 1998
F-2
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
ASSETS
------
CURRENT ASSETS:
Cash and equivalents $ 80
Oil and gas sales receivable 80,877
Oil and gas properties held for sale 695,153
Prepaid expenses and other 12,722
-----------
Total current assets 788,832
OIL AND GAS PROPERTIES, at cost, using successful
efforts method:
Proved properties 336,191
Less accumulated depreciation and depletion (198,880)
-----------
Net oil and gas properties 137,311
-----------
OTHER ASSETS 4,332
-----------
TOTAL ASSETS $ 930,475
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable, bank $ 540,000
Current maturities of long-term debt 7,000
Accounts payable and accrued expenses 156,458
Payable to related parties 55,319
-----------
Total current liabilities 758,777
LONG-TERM DEBT, less current maturities 68,846
COMMITMENTS AND CONTINGENCIES (NOTES 3 AND 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.50 par value; 5,000,000
shares authorized; no shares issued --
Common stock, $.01 par value; 20,000,000
shares authorized; 4,713,004 shares issued 47,130
Class B common stock, $.01 par value; 8,000,000
shares authorized; 7,267,820 shares issued
and outstanding 72,678
Additional paid-in capital 6,193,893
Accumulated deficit (4,481,107)
Less treasury stock, at cost, 1,101,234 common shares (1,729,742)
-----------
Total stockholders' equity 102,852
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 930,475
===========
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
MARCH 31,
--------------------------
1998 1997
----------- -----------
REVENUE:
Oil and gas sales $ 655,398 $ 757,270
Operator fees 2,578 6,000
----------- -----------
Total revenue 657,976 763,270
EXPENSES:
Oil and gas production costs 408,594 394,364
Exploration costs 5,124 78,946
General and administrative 475,381 559,021
Depreciation and depletion 296,804 84,171
Impairment of oil and gas properties 2,567,440 --
----------- -----------
Total expenses 3,753,343 1,116,502
----------- -----------
LOSS FROM OPERATIONS (3,095,367) (353,232)
OTHER INCOME (EXPENSE):
Gain on sale of oil and gas properties 92,451 --
Equity in loss of Bishop Capital Corporation (95,263) (524,300)
Interest expense (83,724) (78,246)
----------- -----------
LOSS BEFORE INCOME TAXES (3,181,903) (955,778)
DEFERRED INCOME TAX BENEFIT 232,000 19,400
----------- -----------
NET LOSS $(2,949,903) $ (936,378)
=========== ===========
NET LOSS PER SHARE:
Common stock $ (.29) $ (.21)
=========== ===========
Class B common stock $ (.26) $ (.04)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common stock 3,614,000 3,157,000
=========== ===========
Class B common stock 7,268,000 7,268,000
=========== ===========
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
Common Stock Class B Common Stock
------------------------ -------------------------
Shares Amount Shares Amount
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES, April 1, 1996 3,953,004 $ 39,530 7,267,820 $ 72,678
Issuance of common stock for cash in
private placement, net 680,000 6,800 -- --
Issuance of common stock for Bishop
Capital services 70,000 700 -- --
Issuance of common stock for
acquisition of oil and gas properties 10,000 100 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
BALANCES, March 31, 1997 4,713,004 47,130 7,267,820 72,678
Consummation of spin-off of Bishop -- -- -- --
Capital Corporation
Issuance of treasury stock for services -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
BALANCES, March 31, 1998 4,713,004 $ 47,130 7,267,820 $ 72,678
=========== =========== =========== ===========
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
(Continued)
Additional Treasury Stock
Paid-in -------------------------- Accumulated
Capital Shares Amount Deficit Total
----------- ----------- ----------- ----------- -----------
BALANCES, April 1, 1996 $ 7,071,356 1,101,234 $(1,736,062) $ (594,826) $ 4,852,676
Issuance of common stock for cash in
private placement, net 630,426 -- -- -- 637,226
Issuance of common stock for Bishop
Capital services 79,271 -- -- -- 79,971
Issuance of common stock for
acquisition of oil and gas properties 16,150 -- -- -- 16,250
Net loss -- -- -- (936,378) (936,378)
----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1997 7,797,203 1,101,234 (1,736,062) (1,531,204) 4,649,745
Consummation of spin-off of Bishop (1,595,190) -- -- -- (1,595,190)
Capital Corporation
Issuance of treasury stock for services (8,120) (4,000) 6,320 -- (1,800)
Net loss -- -- -- (2,949,903) (2,949,903)
----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1998 $ 6,193,893 1,097,234 $(1,729,742) $(4,481,107) $ 102,852
=========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
MARCH 31,
-----------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(2,949,903) $ (936,378)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation, depletion and amortization 296,804 84,171
Impairment of oil and gas properties 2,567,440 --
Amortization of debt issuance costs 9,100 12,740
Equity in loss of Bishop Capital Corporation 95,263 524,300
Gain on sale of oil and gas properties (92,451) --
Deferred income tax benefit (232,000) (19,400)
Issuance of treasury stock for services 1,800 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Oil and gas sales receivable 33,290 (56,369)
Prepaid expenses and other (6,874) 4,312
Increase (decrease) in:
Payable to Class B shareholder 9,989 (47,693)
Payable to Bishop Capital Corporation -- (23,579)
Payable to related party (6,106) --
Accounts payable and accrued expenses 44,760 13,559
----------- -----------
Net cash used in operating activities (228,888) (444,337)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (109,893) (286,384)
Proceeds from sale of property and equipment 445,379 23,965
----------- -----------
Net cash provided by (used in) investing activities 335,486 (262,419)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 22,525 413,966
Principal payments on borrowings (258,510) (134,522)
Payments for debt issuance costs -- (21,840)
Proceeds from private placement of common stock -- 680,000
Private placement offering costs (6,800) (94,856)
----------- -----------
Net cash provided by (used in) financing activities (242,785) 842,748
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (136,187) 135,992
CASH AND EQUIVALENTS, beginning of year 136,267 275
----------- -----------
CASH AND EQUIVALENTS, end of year $ 80 $ 136,267
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 78,460 $ 61,294
=========== ===========
Cash paid for income taxes $ -- $ 1,754
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Debt incurred for acquisition of oil and gas properties $ 61,425 $ 477,886
Issuance of common stock for oil and gas properties -- 16,250
Consummation of spin-off of Bishop Capital Corporation 1,595,190 --
See accompanying notes to these consolidated financial statements.
F-6
</TABLE>
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
----------------------
General - In October 1995, Metro Capital Corporation (Metro) and Karlton
Terry Oil Company (KTOC) entered into an Asset Purchase Agreement whereby
KTOC agreed to exchange certain oil and gas properties (the "Contributed
Properties") for a total of 7,717,820 shares of Class B common stock of
Metro, which represented 80% of the issued and outstanding voting
securities of Metro. On November 29, 1995, the shareholders of Metro
approved this transaction and the closing occurred on December 8, 1995. The
shareholders also approved changing the name of the Company from Metro to
American Rivers Oil Company ("AROC" or the "Company"). At the closing date,
additional working interests in the KTOC oil and gas properties (the
"Option Properties") were acquired for cash, a portion of the Class B
common shares issued in the transaction, and other consideration.
The consolidated financial statements included herein give effect to these
transactions by recording KTOC's Contributed Properties at their historical
carrying value since the KTOC owners continue to exercise control of the
Contributed Properties through their majority voting interest. Metro's
assets, except for $700,000 cash and an insignificant oil property, were
transferred at their historical carrying value to a wholly-owned
subsidiary, Bishop Capital Corporation, formerly Bishop Cable
Communications Corporation (Bishop), where they are being operated
autonomously by the prior management of Metro pursuant to the terms of a
five-year operating agreement. The Option Properties acquired were recorded
based on the cash and the fair value of securities and other consideration
issued.
In November 1996, the Company's Board of Directors agreed to a pro rata
distribution of 100% of the outstanding capital stock of Bishop. The
Company's common stockholders of record on November 18, 1996 were entitled
to the distribution of shares which occurred on June 20, 1997. The Class B
common stockholders did not participate in the distribution. The
accompanying financial statements include the Company's interest in the
operating results of Bishop, accounted for under the equity method, through
June 20, 1997.
2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------------------
Nature of Operations - The Company is primarily engaged in the exploration,
development, and production of oil and natural gas in the continental
United States. Most of the Company's properties are located in Colorado and
along the Ohio River in West Virginia, Kentucky, and Indiana.
Principles of Consolidation - The accompanying financial statements include
the accounts of the Company and its wholly-owned subsidiaries, except for
Bishop which was accounted for under the equity method due to the absence
of control discussed in Note 1. All material intercompany transactions and
accounts have been eliminated in consolidation.
Cash and Equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
F-7
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Oil and Gas Producing Activities - The Company follows the "successful
efforts" method of accounting for its oil and gas properties. Under this
method of accounting, all property acquisition costs and costs of
exploratory and development wells are capitalized when incurred, pending
determination of whether the well has found proved reserves. If an
exploratory well has not found proved reserves, the costs of drilling the
well are charged to expense. The costs of development wells are capitalized
whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Depreciation and depletion
of capitalized costs for producing oil and gas properties is provided using
the units-of-production method based upon proved reserves for each field.
Management estimates that the salvage value of lease and well equipment
will approximately offset the future liability for plugging and abandonment
of the related wells.
Gains and losses are generally recognized upon the sale of interests in
proved oil and gas properties based on the portion of the property sold.
For sales of partial interests in unproved properties, the Company treats
the proceeds as a recovery of costs with no gain recognized until all costs
have been recovered.
Impairment of Long-Lived Assets - The Company assesses impairment whenever
events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. When an assessment for impairment
of proved oil and gas properties is performed, the Company is required to
compare the net carrying value of proved oil and gas properties on a
field-by-field basis (the lowest level at which cash flows can be
determined on a consistent basis) to the related estimates of undiscounted
future net cash flows for such properties. If the net carrying value
exceeds the net cash flows, then impairment is recognized to reduce the
carrying value to the estimated fair value.
During the year ended March 31, 1998, the Company determined that certain
oil and gas properties were impaired and accordingly, an impairment charge
of $2,567,440 was recognized to reduce the properties to the estimated fair
value.
Assets held for sale were also evaluated for impairment as of March 31,
1998. However, no impairment provision was necessary since the estimated
fair value was in excess of the carrying value.
Income Taxes - Income taxes are provided for in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires an asset and liability approach in the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the
tax bases of the Company's assets and liabilities.
Revenue Recognition - Revenue from oil and gas sales is recorded on an
accrual basis as sales are made and deliveries occur.
Earnings Per Share - Net loss per common share is presented in accordance
with the provisions of Statement of Financial Accounting Standards No. 128
Earnings Per Share (FAS 128). FAS 128 replaces the presentation of primary
F-8
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and fully diluted earnings per share (EPS), with a presentation of basic
EPS and diluted EPS. Under FAS 128, basic EPS excludes dilution for
potential common shares and is computed by dividing income or loss
applicable to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock and resulted in the
issuance of common stock. Basic and diluted EPS are the same in 1998 and
1997 as all potential common shares were antidulitive.
The computation of net loss per share is based on the rights of each class
of common stock. The Class B common stock was not entitled to participate
in any distribution of shares or assets of Bishop. Accordingly, through
June 20, 1997, the common shares were allocated 100% of the subsidiary's
loss and a pro rata percentage of the remaining consolidated loss based on
the ratio of common shares outstanding to total common and Class B shares
outstanding. The Class B common shares were allocated the remaining pro
rata percentage of the loss.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The actual
results could differ from those estimates.
The Company's financial statements are based on a number of significant
estimates including the allowance for doubtful accounts, determination of
the estimated fair value of impaired oil and gas properties, assumptions
affecting the estimated fair value of stock-based compensation, and oil and
gas reserve quantities which are the basis for the calculation of
depreciation, depletion, and impairment of oil and gas properties.
Management emphasizes that reserve estimates are inherently imprecise and
that estimates are expected to change as future information becomes
available.
Stock-Based Compensation - The Company accounts for stock-based
compensation for employees using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of
the quoted market price of the Company's common stock at the measurement
date (generally, the date of grant) over the amount an employee must pay to
acquire the stock.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). FAS
123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments to
employees based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity instruments with
non-employees for goods or services must be accounted for by the fair value
method. The Company has elected not to adopt the fair value accounting
prescribed by FAS 123 for employees, but is subject to the related
disclosure requirements.
Reclassifications - Certain reclassifications have been made to the 1997
financial statements to conform to the presentation in 1998. The
reclassifications had no effect on the 1997 net loss.
F-9
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CONTINUING OPERATIONS:
----------------------
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. For the
years ended March 31, 1998 and 1997, the Company incurred net losses of
$2,949,903 and $936,378, respectively. The Company's operating activities
have utilized cash in each of the past two years, and the Company has
incurred an accumulated deficit of approximately $4.5 million through March
31, 1998. The ability of the Company to continue as a going concern is
dependent upon the Company's ability to achieve profitable operations and
to raise sufficient capital to meet working capital requirements.
Subsequent to year-end, the Company sold certain oil and gas properties
generating proceeds of approximately $900,000 which was primarily used to
pay off bank debt. The Company is currently negotiating a merger which is
integral to the Company's ability to continue operations. The success of
this merger cannot be assured. In the event the merger is completed, there
would be a change in control of the Company.
4. INVESTMENT IN BISHOP:
---------------------
As discussed in Note 1, prior to its spin-off in June 1997, Bishop was
being operated autonomously by the prior management of Metro pursuant to
the terms of separate Operating, Management, and Voting Agreements. Since
the Company did not exercise control over the wholly-owned subsidiary's
operations, the investment was accounted for by the equity method.
Following is a summary of condensed operating results pertaining to Bishop
prior to the spin-off.
PERIOD FROM
APRIL 1, 1997
THROUGH YEAR ENDED
JUNE 20, MARCH 31,
1997 1997
--------- ---------
Revenue $ 82,132 $ 90,411
Costs and expenses (213,445) (657,753)
Gain on sale of marketable securities -- 62,005
Other income (expense) 36,050 (18,963)
--------- ---------
Net loss $ (95,263) $(524,300)
========= =========
Company's equity in Bishop's loss $ (95,263) $(524,300)
========= =========
F-10
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As discussed in Note 1, on June 20, 1997, 885,481 shares of Bishop were
distributed pro rata to the Company's common stockholders (excluding
holders of Class B common stock) and the remaining 3,614,519 shares of
Bishop owned by AROC were canceled.
5. INCOME TAXES:
-------------
In addition to the entities which are consolidated for financial reporting
purposes, the Company prepared a consolidated income tax return with Bishop
Capital Corporation through the June 20, 1997 spin-off.
A reconciliation of income taxes at the statutory rate to the income tax
benefit reported in the accompanying financial statements is as follows:
YEARS ENDED MARCH 31,
--------------------------
1998 1997
----------- -----------
Computed income tax benefit at
the statutory rate $ 1,080,000 $ 325,000
State income taxes and other 95,000 30,000
Change in valuation allowance (943,000) (335,600)
----------- -----------
Total $ 232,000 $ 19,400
=========== ===========
Deferred tax assets as of March 31, 1998 are comprised of the following:
Net operating loss carryforwards $ 500,000
Oil and gas properties 400,000
-----------
Total 900,000
Less valuation allowance (900,000)
-----------
Net deferred tax asset $ --
===========
At March 31, 1998, the Company has net operating loss carryforwards for
income tax purposes of approximately $1,500,000 which expire primarily in
2009 through 2013. Due to the spin-off discussed in Note 1, the Company has
not recognized deferred tax assets related to net operating losses
attributable to Bishop.
6. NOTE PAYABLE AND LONG-TERM DEBT:
--------------------------------
Note Payable - At March 31, 1998, the Company has a line-of-credit with a
bank which provides for interest at the prime rate plus 1% (9.5% at March
31, 1998). Borrowings under the line-of-credit are collateralized by
F-11
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
collateralized by producing oil and gas properties and two directors have
personally guaranteed the Company's obligations. At March 31, 1998,
outstanding borrowings and the maximum commitment under the line-of-credit
amounted to $540,000. The Company repaid outstanding borrowings in June
1998 when the line-of-credit expired.
The line-of-credit contained various covenants that limited or prohibited
the Company from incurring additional debt, selling assets, paying
dividends, and merging with another entity.
Long-Term Debt - At March 31, 1998, long-term debt consists of a production
payment obligation that was incurred in connection with the purchase of the
Option Properties discussed in Note 1. As part of the consideration for the
Option Properties, the Company agreed to assign a portion of the oil and
gas sales proceeds from one of the properties acquired until a total of
$130,000 is paid to the seller. The Company recorded this non-recourse
obligation at the present value of the expected cash flows from the
property of $77,184, based on a discount factor of 11.5%. The estimated
maturities of the discounted obligation are approximately $7,000 per year.
7. COMMON STOCK:
-------------
In connection with the Asset Purchase Agreement, the Company agreed to
grant an option (the"Option") to Bishop to acquire 800,000 shares of common
stock to be distributed pro rata to the holders of the Company's common
stock. The Option will be exercisable for a period of 120 days at an
exercise price of $.10 per share commencing December 1998 in the event that
one of the following events has not occurred by such time: (a) the Company
has a minimum of $16.5 million of proved and probable reserves as set forth
in an independent petroleum engineer's report prepared in accordance with
SEC pricing and cost assumptions; or, (b) the average bid price for the
common stock shall have been at least $4.00 for two periods of 20
consecutive trading days; or (c) cash flow (gross revenues from oil and gas
production less expenses directly charged against such production) for the
Company shall have been greater than $2,000,000 for any fiscal year. The
Option will be distributed to the Company's common shareholders, if at all,
in December 1998.
In December 1995, the Company commenced a private placement of a minimum of
500,000 shares and a maximum of 1,800,000 shares of the Company's common
stock for $1.00 per share. In February 1996, the Company issued 537,500
shares and an additional 405,000 shares were issued during the year ended
March 31, 1997. In November 1996, the Company completed a second private
placement of 275,000 units for $1.00 per share. Each unit consisted of one
share of common stock and one option. The options are exercisable at $1.00
per share and expire 2 years from the date the associated shares are
registered.
Outstanding shares of Class B common stock are convertible into shares of
common stock on a one-for-one share basis commencing in December 1998.
F-12
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS:
---------------------------
In addition to the working interests in the oil and gas properties included
in the accompanying financial statements, KTOC also owns royalty interests
in some of the properties and has rights to reversionary interests.
Revenues related to these interests are excluded from the accompanying
financial statements since they were retained by KTOC.
During the year ended March 31, 1998, the Company acquired producing oil
and gas properties from KTOC for an aggregate purchase price of
approximately $60,000.
9. COMMITMENTS AND CONTINGENCIES:
------------------------------
Leases - The Company leases its office facilities from a major stockholder
under a lease agreement that requires monthly payments of $1,382 until
October 1998. Total rent expense under all operating leases for the years
ended March 31, 1998 and 1997 amounted to $16,600 and $16,711,
respectively.
Employment Agreements - In October 1997, the Company entered into one-year
employment agreements with two officers which provided for annual payments
of $50,000 each. In the event of a termination by the Company without
cause, the Company was required to pay the officers' salary for one year.
In February 1998, two officers resigned from the Company, terminating the
remainder of the agreements in exchange for severance payments of $20,000
each. At March 31, 1998, the Company is obligated under an employment
agreement with one officer which provides for annual payments totaling
$100,000.
Contingency - In connection with the private placement discussed in Note 7,
the Company sold 275,000 units to an entity that has asserted that it was
harmed by its inability to sell some or all of its shares of the Company's
common stock in 1997 because such shares were not registered for resale.
The entity has claimed that the Company agreed to register the shares of
common stock but failed to do so. The entity has not specified an amount of
damages and no litigation has been filed. Due to the preliminary nature of
this matter, the Company is not able to assess the likelihood of an
unfavorable outcome.
10. STOCK OPTIONS:
--------------
1995 Stock Option and Stock Compensation Plan - In December 1995, the
Company adopted the 1995 Stock Option and Stock Compensation Plan (the
"1995 Plan") reserving 750,000 shares of the Company's common stock for
issuance to employees and officers (whether or not they are employees) and
consultants. The exercise price of all options will be determined by the
administrators of the 1995 Plan. The exercise period of any option will not
exceed five years from the date of grant of the option.
F-13
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of stock options granted under the 1995 Plan for
the years ended March 31, 1998 and 1997:
1998 1997
------------------ --------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- ----- --------- -----
Outstanding, beginning of year 505,000 $ 1.15 400,000 $ 1.00
Granted to:
Consultants -- -- 60,000 2.00
Bishop officer -- -- 45,000 1.38
------- --------
Outstanding, end of year 505,000 1.15 505,000 1.15
======= ========
At March 31, 1998, all outstanding options were vested. If not previously
exercised, options outstanding at March 31, 1998, will expire as follows:
Year Ending March 31,
Exercise Price -------------------------------------
Per Share 1999 2000 2001 Total
--------- ------- ------- ------- -------
$ 1.00 -- -- 400,000 400,000
1.38 45,000 -- -- 45,000
2.00 -- 60,000 -- 60,000
------- ------- ------- -------
45,000 60,000 400,000 505,000
======= ======= ======= =======
Other Plans - The Company adopted in prior years two other stock option
plans under which options have been or may be granted to officers,
employees, and non-employee members of the Board of Directors. Under these
two plans, options granted may be either incentive stock options or
nonqualified stock options and are granted at not less than the fair market
value of the stock at the time of grant. One of the plans expired in
F-14
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1992, but options for 45,000 shares are still outstanding at March
31, 1998. In November 1995, the stockholders of the Company approved an
increase in the number of shares reserved for issuance under the other plan
to 500,000 shares. The following is a summary of activity under these plans
for the years ended March 31, 1998 and 1997:
1998 1997
------------------- -------------------
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- ----- --------- -----
Outstanding, beginning of year 175,000 $ 1.09 240,000 $ 1.19
Expired -- -- (65,000) 1.46
-------- -------
Outstanding, end of year 175,000 1.09 175,000 1.09
======== =======
All of the options were exercisable at March 31, 1998. If not previously
exercised, options outstanding at March 31, 1998, will expire as follows:
Number Exercise
Year Ending March 31, of Shares Price
--------------------- --------- -----
2000 50,000 $ .68
2001 25,000 1.65
2002 45,000 1.31
2005 30,000 .62
2006 25,000 1.50
-------
Total 175,000 1.09
=======
Other Options - As discussed in Note 7, Bishop has an option to acquire
800,000 shares of common stock, and options for 275,000 shares were granted
in connection with a private placement completed in November 1996.
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
which are granted to employees. Accordingly, no compensation cost has been
recognized for grants of options to employees since the exercise prices
were not less than the fair value of the Company's common stock on the
F-15
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
grant dates. Had compensation cost been determined based on the fair value
at the grant dates consistent with the method of FAS 123, the Company's net
loss and loss per share would have been changed to the pro forma amounts
indicated below for the year ended March 31, 1997:
Net loss applicable to common stockholders:
As reported $ (936,378)
Pro forma (963,378)
Net loss per common share:
As reported $ (.21)
Pro forma (.21)
For 1998, there were no options granted. Accordingly, pro forma information
is not presented. For 1997, there was no pro forma impact on net loss per
share of Class B common stock.
The weighted average fair value of options granted in 1997 amount to $.60
per share of common stock. The fair value of each employee option granted
in 1997 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
Expected volatility 75%
Risk-free interest rate 6.2%
Expected dividends --
Expected terms (in years) 2.0
1987 Stock Bonus Plan - In December 1987, the Company adopted the 1987
Stock Bonus Plan and reserved 250,000 shares (200,000 of which may be
allocated to officers and/or directors) for allocation to employees. As of
March 31, 1998, 225,160 shares have been awarded under this plan.
Employee Stock Ownership Plan - During the year ended March 31, 1992, the
Company adopted an Employee Stock Ownership Plan (the ESOP) and reserved
250,000 shares for issuance under the ESOP. The ESOP provides for the
establishment of a trust to hold ESOP assets which will primarily consist
of common stock of the Company. The ESOP will be funded by the Company
through annual contributions to the trust in amounts which are determined
by the Board of Directors in its sole discretion and which will be
allocated to each participant's account in proportion to the ratio that
each participant's compensation for the fiscal years bears to the total
compensation of all participants for the fiscal year. No contributions were
made to the ESOP for the years ended March 31, 1998 and 1997.
F-16
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS:
----------------------
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their
financial statements. Accordingly, at March 31, 1998, management's best
estimate is that the carrying amount of cash, receivables, notes payable,
accounts payable and accrued expenses approximates fair value due to the
short maturity of these instruments. Management estimates that the fair
value of the non-recourse production payment obligation (included in
long-term debt) is approximately $2,000 compared to the carrying value of
$75,846.
12. SIGNIFICANT CONCENTRATIONS:
---------------------------
Substantially all of the Company's sales and accounts receivable result
from crude oil and natural gas sales to a limited number of companies in
the oil and gas industry. This concentration of customers and joint
interest owners may impact the Company's overall credit risk, either
positively or negatively, since these entities may be similarly affected by
changes in economic or other conditions. In determining whether or not to
require collateral from a customer or joint interest owner, the Company
analyzes the entity's net worth, cash flows, earnings, and credit ratings.
Receivables are generally not collateralized; however, receivables from
joint interest owners are subject to collection under operating agreements
which generally provide lien rights. Historical credit losses incurred on
trade receivables by the Company have been insignificant.
13. SUBSEQUENT EVENTS:
------------------
During fiscal 1998, the Company began exploring the sale of the Company's
Colorado oil and gas properties in order to provide liquidity and to repay
short-term bank debt. On June 4, 1998, the Company entered into an
agreement to sell these properties for $900,000, subject to post-closing
adjustments. These properties are reflected in the accompanying balance
sheet as oil and gas properties held for sale, and are recorded at their
carrying value of $695,153 (net of accumulated depreciation and depletion
of $177,507). For the year ended March 31, 1998, these properties generated
the following operating results:
Oil and gas sales $ 476,000
Production costs (284,000)
Depreciation and depletion (114,000)
---------
$ 78,000
=========
Proceeds from this sale were used to pay off the Company's $540,000 bank
debt. In addition, $150,000 of the proceeds were advanced to a related
party in exchange for a 3-month note receivable bearing interest at 15% per
annum.
F-17
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUPPLEMENTAL OIL AND GAS DISCLOSURES:
-------------------------------------
Costs Incurred in Oil and Gas Producing Activities - The following is a
summary of costs incurred in oil and gas producing activities for the years
ended March 31, 1998 and 1997:
1998 1997
-------- --------
Property acquisition costs $ 61,000 $633,000
Development costs 110,000 166,000
Exploration costs 5,000 79,000
-------- --------
Total $176,000 $878,000
======== ========
Results of Operations from Oil and Gas Producing Activities - Results of
operations from oil and gas producing activities (excluding operator fees,
gain on drilling arrangements, general and administrative expense, and
interest expense) for the years ended March 31, 1998 and 1997 are presented
below.
1998 1997
----------- -----------
Oil and gas sales $ 655,000 $ 757,000
Gain on sale of oil and gas properties 92,000 --
Production costs (409,000) (394,000)
Exploration costs (5,000) (79,000)
Depletion and depreciation (296,000) (84,000)
Impairment of oil and gas properties (2,567,000) --
Imputed income tax benefit (provision) 232,000 (74,000)
----------- -----------
Results of operations from oil and gas
producing activities $(2,298,000) $ 126,000
=========== ===========
Oil and Gas Reserve Quantities (Unaudited) - Proved oil and gas reserves
are the estimated quantities of crude oil, natural gas, and natural gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed oil and gas
reserves are those reserves expected to be recovered through existing wells
with existing equipment and operating methods. The reserve data is based on
studies prepared by the Company's independent petroleum engineer. Reserve
estimates require substantial judgment on the part of petroleum engineers
resulting in imprecise determinations, particularly with respect to new
discoveries. Accordingly, it is expected that the estimates of reserves
will change as future production and development information becomes
available. All proved reserves of oil and gas are located in the United
States. The following tables present estimates of the Company's net proved
oil and gas reserves, and changes therein for the years ended March 31,
1998 and 1997.
F-18
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in Net Quantities of Proved Reserves (Unaudited)
--------------------------------------------------------
1998 1997
----------------------- ------------------------
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Proved reserves, beginning of year 1,361,000 4,542,000 1,293,000 3,448,000
Purchase of minerals in place 2,000 33,000 42,000 875,000
Sales of minerals in place (93,000) (160,000) -- --
Revisions of previous estimates (1,188,000) (3,069,000) 42,000 412,000
Production (17,000) (198,000) (16,000) (193,000)
---------- ---------- ---------- ----------
Proved reserves, end of year 65,000 1,148,000 1,361,000 4,542,000
========== ========== ========== ==========
Proved developed reserves,
beginning of year 368,000 3,250,000 152,000 1,198,000
========== ========== ========== ==========
Proved developed reserves,
end of year 65,000 1,148,000 368,000 3,250,000
========== ========== ========== ==========
</TABLE>
At March 31, 1998, oil and gas reserves include 57,000 barrels of oil and
1,083,000 mcf of gas related to the Company's Colorado oil and gas
properties that were sold in June 1998.
During 1998, the Company drilled an unsuccessful development well which
resulted in engineering revisions which eliminated approximately 1,000,000
barrels and 1,300,000 mcf of proved undeveloped oil and gas reserves. Other
revisions in 1998 resulted from lower oil and gas prices which reduced the
economic life of the Company's properties.
Standardized Measure of Discounted Future Net Cash Flows (Unaudited) -
Statement of Financial Accounting Standards No. 69 prescribes guidelines
for computing a standardized measure of future net cash flows and changes
therein relating to estimated proved reserves. The Company has followed
these guidelines which are briefly discussed below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. Estimated future income taxes are
computed using current statutory income tax rates including consideration
for estimated future statutory depletion and tax credits. The resulting
future net cash flows are reduced to present value amounts by applying a
10% annual discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations for actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations
since these estimates are the basis for the valuation process.
F-19
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary sets forth the Company's future net cash flows
relating to proved oil and gas reserves as of March 31, 1998 and 1997 based
on the standardized measure prescribed in Statement of Financial Accounting
Standards No. 69.
1998
--------------------------------------------
Colorado Other Total 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Future cash inflows $ 2,830,000 $ 269,000 $ 3,099,000 $ 34,386,000
Future production costs (1,811,000) (207,000) (2,018,000) (11,036,000)
Future development costs -- -- -- (1,382,000)
Future income tax expense -- -- -- (6,980,000)
------------ ------------ ------------ ------------
Future net cash flows 1,019,000 62,000 1,081,000 14,988,000
10% annual discount for estimated
timing of cash flow (368,000) (5,000) (373,000) (7,194,000)
------------ ------------ ------------ ------------
Standardized measure of discounted
future net cash flows $ 651,000 $ 57,000 $ 708,000 $ 7,794,000
============ ============ ============ ============
</TABLE>
As discussed in Note 13, the Colorado oil and gas properties were sold in
June 1998.
Changes in Standardized Measure (Unaudited) - The following are the
principal sources of change in the standardized measure of discounted
future net cash flows for the years ended March 31, 1998 and 1997:
1998 1997
----------- -----------
Standardized measure, beginning of year $ 7,794,000 $ 7,639,000
Sale of oil and gas produced, net of
production costs (247,000) (363,000)
Acquisition of reserves in place 57,000 509,000
Sale of minerals in place (479,000) --
Net changes in prices and production costs (6,815,000) (1,433,000)
Net changes in estimated development costs 1,320,000 (59,000)
Revisions of previous quantity estimates (5,331,000) 224,000
Accretion of discount 779,000 764,000
Changes in income taxes, net 3,630,000 513,000
----------- -----------
Standardized measure, end of year $ 708,000 $ 7,794,000
=========== ===========
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 80
<SECURITIES> 0
<RECEIVABLES> 80,877
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 788,832
<PP&E> 336,191
<DEPRECIATION> 198,880
<TOTAL-ASSETS> 930,425
<CURRENT-LIABILITIES> 758,777
<BONDS> 0
0
0
<COMMON> 119,808
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 930,475
<SALES> 657,976
<TOTAL-REVENUES> 657,976
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 95,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,724
<INCOME-PRETAX> (3,181,903)
<INCOME-TAX> (232,000)
<INCOME-CONTINUING> (2,949,903)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,949,903)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
