<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QA
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
XX SECURITIES EXCHANGE OF 1934
----
For the quarterly period ended July 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----
For the transition period from ____________ to ______________
Commission file number : 333-19013
Alliance Resources Plc
(Exact name of registrant as specified in its charter)
England and Wales 73-1405081
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 491-1100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
As of July 2, 1998, there were 31,209,408 shares of the Registrant's single
class of common stock issued and outstanding. This Form 10-Q/A amends and
restates in its entirety Form 10-Q for the period ended, as previously filed by
the Registrant.
<PAGE>
ALLIANCE RESOURCES PLC. AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JULY 31, 1997
<TABLE>
<S> <C> <C> <C>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements. Page
Consolidated Condensed Balance Sheets as of
July 31, 1997 and April 30, 1997 2
Consolidated Condensed Statements of Operations
for the three months ended July 31, 1997 and 1996 4
Consolidated Condensed Statement of Stockholders'
Equity for the three months ended July 31, 1997 and the
year ended April 30, 1997 5
Consolidated Condensed Statements of Cash Flows
for the three months ended January 31, 1997 and 1996 6
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
PART II-OTHER INFORMATION 17
Item 1. Legal Proceedings
The information called for by Item 2. Changes in Securities,
Item 3. Default Upon Senior Securities, Item 4. Submission of Matters
to a Vote of Security Holders, Item 5. Other Information has been
omitted as either inapplicable or because the answer thereto is
negative.
Item 6. Exhibit and Reports on Form 8-K
SIGNATURES 19
</TABLE>
Page 1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE RESOURCES PLC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, 1997 APRIL 30, 1997
(UNAUDITED) (UNAUDITED)
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,706,299 $ 72,948
Accounts receivable - trade 2,081,075 2,119,406
Other current assets 148,180 54,176
------------ ------------
Total current assets 3,935,554 2,246,530
------------ ------------
Property, plant, and equipment, at cost:
Oil and gas properties (using full cost method) 48,147,860 36,107,310
Other depreciable assets 1,189,477 855,512
------------ ------------
49,337,337 36,962,822
Less accumulated depreciation and depletion (16,483,552) (10,254,970)
------------ ------------
Net property, plant and equipment 32,853,785 26,707,852
------------ ------------
Other assets:
Deposits and other assets 268,653 282,920
Deferred loan costs, less accumulated amortization 2,419,512 1,620,185
------------ ------------
Total other assets 2,688,165 1,903,105
------------ ------------
TOTAL ASSETS $ 39,477,504 $ 30,857,487
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
ALLIANCE RESOURCES PLC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
JULY 31, 1997 APRIL 30, 1997
(UNAUDITED) (UNAUDITED)
------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,923,848 $ 11,428,872
Accrued expenses payable 438,624 437,736
Current portion long-term debt -- --
------------ ------------
Total current liabilities 11,362,472 11,866,608
Other Liabilities: 632,000 810,783
Long-term debt, excluding current installments 20,181,082 18,095,497
Convertible subordinated unsecured loan notes 1,550,700 --
------------ ------------
Total liabilities 33,726,254 30,772,888
------------ ------------
Stockholders' equity:
Common stock-par value 40 pence; 46,000,000 shares authorized
representing:
LaTex Series A convertible preferred stock 1,180,110
issued and outstanding at April 30, 1997;
aggregate liquidiation preference $4,570,510 -- 766,599
LaTex Series B convertible preferred stock
3,239,708 issued and outstanding at
April 30, 1997; aggregate liquidiation
preference $5,245,370 -- 2,104,515
Common stock issued and outstanding;
31,052,603 and 17,982,068 at July
31, 1997 and April 30, 1997, respectively 20,013,082 11,681,150
Additional paid-in capital 5,812,602 5,149,146
Accumulated deficit (20,074,434) (19,127,446)
Treasury stock 1,008,500 common shares at cost at
April 30, 1997 -- (489,365)
------------ ------------
Total stockholders' equity (deficit) 5,751,250 84,599
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,477,504 $ 30,857,487
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
ALLIANCE RESOURCES PLC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
July 31, 1997 July 31, 1996
(Unaudited) (Restated, Unaudited)
--------------- ---------------------
<S> <C> <C>
Revenue:
Oil and gas revenue $ 2,727,336 $ 2,813,170
Crude oil and gas marketing -- 119,158
------------ ------------
Total operating income 2,727,336 2,932,328
------------ ------------
Operating expenses:
Lease operating expense 1,173,644 1,091,170
Cost of crude oil and gas marketing -- 7,555
Depreciation, depletion, and amortization 652,489 756,878
Dry hole costs and abandonments -- 3,446,795
Loss on commodity derivatives 268,571 --
General and administrative expense 1,265,849 682,582
------------ ------------
Total operating expenses 3,360,553 5,984,980
------------ ------------
Net operating loss (633,217) (3,052,652)
Other income (expense):
Equity in losses and write offs of investments
in affiliates -- (4,096,381)
Gain on sale of assets 18,331 --
Interest expense (682,073) (981,434)
Interest income 20,609 308,885
Miscellaneous income (expense) 325,153 (1,810,382)
------------ ------------
Net loss from continuing operations before income taxes (951,197) (9,631,964)
Income tax expense -- --
------------ ------------
Net loss (951,197) (9,631,964)
Preferred stock dividends -- (151,005)
------------ ------------
Net loss for common shareholders $ (951,197) $ (9,782,969)
============ ============
Loss per share for common shareholders $ (0.03) $ (0.63)
============ ============
Weighted average number of shares outstanding 31,052,603 15,495,566
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JULY 31, 1997
<TABLE>
<CAPTION>
Common Stock Retained
------------------------- Additional Earnings Total
Preferred Number of Par Paid-In (Accumulated Treasury Stockholders'
Stock Shares Value Capital Deficit) Stock Equity
============ ============ ============ ============ ============= ============= ==============
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1997 $ 2,871,114 17,982,068 $ 11,681,150 $ 5,149,146 $(19,127,446) $ (489,365) $ 84,599
Exchange of Preference Stock (2,871,114) 4,419,818 2,871,114 -- -- -- --
Cancellation of treasury stock -- (953,099) (619,132) 129,767 -- 489,365 --
Issued for LaTex acquisition -- 8,103,816 5,105,550 (1,066,211) -- -- 4,039,339
Acquisition of overriding royalty -- 1,343,750 872,900 1,498,400 -- -- 2,371,300
Issued for services -- 156,250 101,500 101,500 -- -- 203,000
Foreign exchange -- -- -- -- 4,209 -- 4,209
Net loss current period -- -- -- -- (951,197) -- (951,197)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance July 31, 1997 $ -- 31,052,603 $ 20,013,082 $ 5,812,602 $(20,074,434) $ -- $ 5,751,250
============ ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
ALLIANCE RESOURCES PLC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
July 31, 1997 July 31, 1996
(Unaudited) (Restated, Unaudited)
----------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (951,197) $(9,631,964)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 652,489 756,878
Amortization of deferred loan costs 140,847 48,250
Gain on Sale of Assets (18,331) --
Write-offs of investments in affiliates -- 4,096,381
Cessation of overseas exploration -- 3,446,795
Interest income -- (150,467)
Miscellaneous Expense -- 1,810,382
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable 544,454 419,733
Due from related parties -- 198,288
Accounts payable (1,631,751) (856,370)
Accrued expenses payable 888 561,715
Other assets 168,205 (84,616)
Other liabilities (1,578,180) 615,000
Inventories -- 64,091
----------- -----------
Net cash (used in) provided by operating activities (2,672,576) 1,294,096
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (638,835) (220,918)
Proceeds from sale of property and equipment 2,803,501 1,061,186
Effect of LaTex Acquisition 192,819 --
Decrease in accounts and notes receivable -- 212,500
Advances to unconsolidated affiliates and notes receivable -- (326,394)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,357,485 726,374
----------- -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
ALLIANCE RESOURCES PLC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
July 31, 1997 July 31, 1996
(Unaudited) (Restated, Unaudited)
--------------- --------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred loan and reorganization costs $ (21,218) $ (137,186)
Payments on notes payable -- (2,041,961)
Proceeds from notes payable 1,969,660 178,014
----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,948,442 (2,001,133)
----------- -----------
Net increase in cash and cash equivalents 1,633,351 19,337
Cash and cash equivalents at beginning of period $ 72,948 $ --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,706,299 $ 19,337
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 221,239 $ 909,765
Income taxes -- 4,250
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services and bonus $ 203,000 $ 78,125
Preferred stock issued for litigation support -- 500,000
Common stock issued to pay debt of
unconsolidated affiliate -- 60,520
Issuance of convertible loan notes 150,000 --
Ordinary shares due in settlement of advisory fees, 150,000 --
as of July 31, 1997
Common stock issued on acquisition of LaTex 4,039,339 --
Common stock issued for overriding royalty 2,371,300 --
Convertible loan notes issued for overriding royalty 1,400,700 --
</TABLE>
See accompanying notes to consolidatd condensed financial statements.
7
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
Alliance Resources PLC (the "Company" or "Alliance") is organized as a public
limited company under the laws of England and Wales. Alliance is a London-
based holding company of a group whose principal activities are the exploration,
development, and production of oil and gas and the acquisition of producing oil
and gas properties. Alliance was incorporated and registered under the laws of
England and Wales on August 20, 1990. Alliance's corporate headquarters are at
Kingsbury House, 15-17 King Street, London SW1Y 6QU, England, but its operations
office is located at 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135.
Interim Reporting
- -----------------
The interim consolidated condensed financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. All such adjustments are of a
normal recurring nature. Due to the seasonal nature of the business, the
results of operations for the three months ended July 31, 1997, are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1998. For further information, refer to Form 20-F for the year ended
April 30, 1997 (which was filed in its final form with the Securities Exchange
Commission on June 18, 1998).
B. SIGNIFICANT EVENTS
On May 1, 1997, Alliance, completed its acquisition of LaTex, whereby a newly
formed wholly-owned subsidiary of Alliance merged with and into LaTex with LaTex
being the surviving corporation for accounting purposes. In consideration the
shareholders and warrant holders of LaTex received an aggregate of 21,448,787
shares of Alliance, par value (Pounds)0.40 per share (the "New Alliance Shares")
and warrants to purchase an additional 1,927,908 New Alliance Shares.
As a result, after giving effect to a 40-to-1 reverse stock split of the
Alliance ordinary shares, each shareholder of LaTex on May 1, 1997, received
0.85981 of a New Alliance Share for each of the LaTex's common stock, 2.58201
New Alliance Shares for each share of the LaTex's Series A preferred stock then
held, 6.17632 New Alliance Shares for each share of LaTex's Series B preferred
stock then held, and a warrant to purchase 0.85981 of a New Alliance Share for
each share of LaTex's Common Stock subject to warrants.
8
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The purchase price has been arrived at as follows:
Value of 8,103,816 Alliance shares outstanding $4,039,339
Acquisition costs 871,000
----------
$4,910,339
----------
The value of the Alliance shares outstanding has been arrived at by using the
share price of LaTex at the time of announcement of the acquisition adjusted by
the exchange ratio.
Transaction costs incurred by Alliance reduced the fair value of Alliance's
monetary assets and liabilities at the date of the acquisition.
The fair value of the assets and liabilities of the acquired business at the
effective date of acquisition is as follows:
Cash $ 1,460,555
Other current assets 480,045
Other assets 202,253
Oil and gas assets 5,268,929
Other fixed assets 253,386
Debt (85,420)
Other liabilities and provisions (2,669,409)
----------------
$ 4,910,339
----------------
In connection with the acquisition, Alliance issued to Bank of America 156,250
Alliance Shares and convertible subordinated unsecured loan notes of (Pounds)
93,519 convertible into 115,456 Alliance Shares to settle fees of $200,000 and
$150,000 payable upon restructuring of LaTex's bank debt.
Under the terms of the Alliance Merger Agreement effective May 1, 1997, LaTex
disposed of its interest in its unconsolidated affiliates, Wexford and Imperial,
and its interest in its wholly-owned subsidiaries LaTex Resources International,
Inc. and Phoenix Metals, Inc.
Alliance has also issued 1,343,750 Alliance Shares, convertible subordinated
unsecured loan notes of (Pounds) 873,281 convertible into 1,078, 125 Alliance
Shares and 1,210,938 warrants to Bank of America in exchange for an overriding
royalty interest in most of LaTex's properties held by Bank of America.
9
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The purchase price was allocated to oil and gas properties and has been arrived
at as follows:
Value of 1,343,750 ordinary shares and warrants issued $ 2,371,300
Value of convertible subordinated unsecured loan note issued 1,400,700
-----------
$ 3,772,000
-----------
The consolidated statements of operations include the results of operations of
Alliance since the effective date of the Merger. The following is a statement
of pro forma revenues, loss before income taxes, net loss, and net loss per
share for the quarter ended July 31, 1996 based on the assumption that Alliance
was acquired at the beginning of this period:
Quarter ended
July 31, 1996
-------------
Revenues $ 4,533,090
Loss before income tax $(10,055,426)
Net loss $(10,055,426)
Net loss per share $ (0.64)
The relevant portion of the above pro forma figures covering Alliance was
derived from the published interim results of Alliance for the six months to
October 31, 1996. As Alliance did not publish results for the quarter ended
July 31, 1996, the relevant Alliance portion of the above pro-forma figures has
been based on the six month interim results (adjusted to US GAAP) and allocated
to the quarter pro rata to the relevant sales volumes.
Because for corporate law purposes (but not financial accounting purposes)
Alliance is the surviving corporation, all references to the "Company" both
prior and subsequent to May 1, 1997 refer to Alliance and its subsidiaries
unless otherwise indicated. Unless the context requires otherwise, all
references to "LaTex" include LaTex Resources, Inc., and its consolidated
subsidiaries.
For financial, reserve, and associated information concerning Alliance prior to
the Merger, reference should be made to the Company's Registration Statement on
Form F-4 (which was filed in its final form with the Securities Exchange
Commission on April 9, 1997 and which contains information regarding Alliance
through January 31, 1997).
C. ACCOUNTING POLICY CHANGE
During the nine months ended April 30, 1997, the company changed its method of
accounting for oil and gas exploration and development activities from the
"successful efforts" method to the "full cost" method. The financial statements
for all prior periods have been restated to apply the new method retroactively.
The effects of the accounting
10
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
change on the nine months ended April 30, 1997 and the year ended July 31, 1996
are as follows:
1997 1996
----------- -----------
Increase (decrease) in:
Net loss $(2,373,358) $1,099,593
=========== ==========
Loss per common share $ (0.14) $ 0.07
=========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
The following is a discussion of the results of operations of the Company
for the three months ended July 31, 1997. As stated above for financial
reporting purposes, all financial data (and, consequently, all oil and gas
reserve information and all information associated with financial or reserve
information) prior to the Merger have been restated to reflect LaTex as the
predecessor company to Alliance. Therefore, the results for the three months
ended July 31, 1997 represent the activities of the enlarged group (Alliance and
LaTex groups combined) while the results for the three months ended July 31,
1996 represent the activities of the LaTex group alone. This discussion should
be read in conjunction with the Company's unaudited Consolidated Condensed
Financial Statements above.
11
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The factors which most significantly affect the Company's results of operations
are (i) the sales prices of crude oil and natural gas, (ii) the level of total
sales volumes, (iii) the level of lease operating expenses, and (iv) the level
of and interest rates on borrowings. Total sales volumes and the level of
borrowings are significantly impacted by the degree of success the Company
experiences in its efforts to acquire oil and gas properties and its ability to
maintain or increase production from its existing oil and gas properties through
its development activities. The following table reflects certain historical
operating data for the periods presented.
Three Months Ended July 31
---------------------------
1996 1997
------ -----
Net Sales Volumes:
Oil (Mbbls) 74 102
Natural Gas (Mmcf) 577 454
Oil Equivalent (MBOE) 170 180
Average Sales Prices:
Oil (per Bbl) $20.90 (1) $16.32 (2)
Natural Gas (per Mcf) $ 2.17 (1) $ 2.21 (2)
Operating Expenses per
BOE of Net Sales:
Lease operating $ 5.41 $ 5.66
Severance tax $ 1.01 $ 0.87
Depreciation, depletion, and amortization $ 4.45 $ 3.62
General and administrative $ 4.01 $ 7.03
(1) After giving effect to the impact of the Company's commodity price hedging
arrangements with the Bank. Without such hedging arrangements, the average
sales prices for the quarter ended July 31, 1996 would have been $22.04/bbl
for oil and $2.60/mcf for gas.
(2) On May 15, 1997, the commodity price hedging agreements were terminated
with the Bank through a buyout, the cost of which was financed by a
drawdown under the terms of the Alliance Credit Agreement. Hence, the
table reflects actual realized prices for the three months ended July 31,
1997.
Average sales prices received by the Company for oil and gas have
historically fluctuated significantly from period to period. Fluctuations in
oil prices during these periods reflect market uncertainties as well as concerns
related to the global supply and demand for crude oil. Average gas prices
received by the Company fluctuate generally with changes in the spot market for
gas. Relatively modest changes in either oil or gas significantly impact the
Company's results of operations and cash flow and could significantly impact the
Company's borrowing capacity.
12
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Months Ended July 31, 1997 compared to the Three Months Ended July 31,
- ----------------------------------------------------------------------------
1996
- ----
Total revenues from the Company's operations for the quarter ended July 31,
1997 were $2,727,336 compared to $2,932,328 for the quarter ended July 31, 1996.
Revenues decreased marginally over the comparable period a year earlier due
principally to lower realized oil prices, net of the impact of the commodity
price hedges, and the absence of marketing margins in the revenue category.
Although sales volumes for the quarter ended July 31, 1997 were adversely
affected by a decline in sales volumes from the LaTex properties, the inclusion
of Alliance's sales volumes and the favorable impact of the remedial work
program designed to restore production on the LaTex properties more than
compensated for this decline. In addition, revenues for the quarter ended July
31, 1997 benefited from the removal of the commodity price hedges.
The Company concentrated its efforts immediately after the acquisition of
LaTex on increasing production from eleven existing producing fields operated by
LaTex in the states of Alabama, Mississippi, Oklahoma, Texas, and Louisiana.
Workover operations on these fields commenced in early May 1997 and were
comprised mainly of returning shut-in wells to production. Gross production
from these eleven fields was increased from an average of 244 barrels of oil
equivalent per day ("boepd") in April 1997 to an average of 865 boepd by the
first half of August 1997. Most of the production increase came from remedial
workover operations in the South Carlton field in Alabama. Gross production
from this field alone increased from an average of 89 boepd in April 1997 to an
average of 575 boepd in September 1997.
Total operating expenses decreased to $3,360,553 for the quarter ended July
31, 1997 compared to $5,984,980 for the same period in 1996. This decrease was
primarily due to write-offs of $3,446,795 in relation to the Company's
Kazakhstan and Tunisia operations which were taken in the 1996 period. Lease
operating expenses were relatively unchanged at $1,173,644 for the three month
period ending July 31, 1997 compared to $1,091,170 for the same period in 1996.
Although lease operating expenses were flat compared to the previous period, the
quarter ended July 31, 1997 was impacted by the remedial work program mentioned
above and the inclusion of the Alliance properties offset by lower operating
costs due to the sale of non-operated, non-strategic wells. Depreciation,
depletion and amortization decreased to $652,489 from $756,878 a year earlier as
a result of lower volumes partially offset by a slightly higher cost base.
General and administrative expenses increased from $682,355 during the quarter
ended July 31, 1996 to $1,265,849 for the quarter ended July 31, 1997. The
increase is a result of the inclusion of the Alliance overhead as well as non-
capitalized merger-related costs.
In addition to the decrease in the net operating loss to $633,217 for the
quarter ended July 31, 1997 from $3,052,652 for the same period in 1996, there
was also a significant decrease in other income/expense. This decrease was due
to the write-offs in the 1996 period of $4,096,381 covering investments in
Wexford Technology, Inc. and
13
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Imperial Petroleum, Inc., and miscellaneous expense of $1,810,382 in connection
with litigation arising out of LaTex's sale in July 1993 of Latex's Panda
subsidiary.
In summary, due to the above factors, the net loss for the common
shareholders for the quarter ended July 31, 1997 decreased to $951,197 ($0.04
per share) compared to a net loss of $9,782,969 ($0.63 per share) for the same
period in 1996.
Capital Resources and Liquidity
- -------------------------------
The Company's capital requirements relate primarily to the development of
its oil and gas properties and undeveloped leasehold acreage, exploration
activities, and the servicing of the Company's debt. In general, because the
Company's oil and gas reserves are depleted by production, the success of its
business strategy is dependent upon a continuous exploration and development
program and the acquisition of additional reserves.
Cash Flows and Liquidity. At July 31, 1997, Alliance has current assets of
------------------------
$3.936 million and current liabilities of $11.362 million, which resulted in a
net current deficit of $7.426 million. Since the Merger, the net current
deficit has been reduced from $9.620 million at year ended April 30, 1997 to its
current position of $7.426 million. The $2.194 million improvement is primarily
due to the addition of Alliance's cash balances and a reduction in accounts
payable. The reduction in accounts payable in the quarter ended July 31, 1997
to $10.924 million from $11.429 million previously masks a much larger
improvement as this reduction occurred despite the additional $2.505 million of
current liabilities which were absorbed from Alliance in the Merger.
For the quarter ended July 31, 1997, net cash used in the Company's
operating activities was $2.673 million compared to cash provided of $1.294
million for the quarter ended July 31, 1996. This deterioration is
substantially due to the allocation of funds to improve the working capital
deficit of the Company.
Investing activities of the Company generated $2.357 million in net cash
flow for the quarter ended July 31, 1997 compared to $0.726 million for the
quarter ended July 31, 1996. The improvement was principally due to property
sales of $2.804 million and the acquisition of cash balances of $1.461 million
from Alliance arising from the Merger. Financing activities provided $1.948
million for the quarter ended July 31, 1997 compared to a use of $2.001 million
for the quarter ended July 31, 1996. The improvement was due to the drawdown of
additional funds under the Alliance Credit Agreement and the abatement of
scheduled principal payments until October 31, 1998.
Overall, cash and cash equivalents improved by $1.633 million in the
quarter ended July 31, 1997 compared to $0.019 million in the 1996 period.
14
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Capital Expenditures. The timing of most of the Company's capital
--------------------
expenditures is discretionary. Currently, there are no material long-term
commitments associated with the Company's capital expenditure plans.
Consequently, the Company has a significant degree of flexibility to adjust the
level of such expenditures as circumstances warrant. The Company primarily uses
internally generated cash flow and proceeds from the sale of oil and gas
properties to fund capital expenditures, other than significant acquisitions,
and to fund its working capital deficit. If the Company's internally generated
cash flows should be insufficient to meet its banking or other obligations, the
Company may reduce the level of discretionary capital expenditures or increase
the sale of non-strategic oil and gas properties in order to meet such
obligations. The level of the Company's capital expenditures will vary in
future periods depending on energy market conditions and other related economic
factors. As a result, the Company will continue its current policy of funding
capital expenditures with internally generated cash flow and the proceeds from
oil and gas property divestitures.
Financing Arrangements. Under the Alliance Credit Agreement, principal
----------------------
payments are suspended until October 31, 1998. However, cash flows generated by
Alliance and its subsidiaries in excess of amounts provided for in the business
plan that formed the basis of negotiation with the Bank will be used to reduce
outstanding principal indebtedness. The maturity date of the existing line of
credit remains at March 31, 2000.
Substantially all of the existing security for the outstanding indebtedness
under the LaTex Credit Agreement, being the mortgages of all of LaTex's
producing oil and gas properties and pledges of stock of the existing Borrowers
and ENPRO, remains in place. As additional security, the Bank has received
mortgages on substantially all of Alliance's producing oil and gas properties
and pledges of the stock of Alliance's subsidiaries.
Under the Alliance Credit Agreement, the borrowing base will be equal to
the outstanding indebtedness under the LaTex Credit Agreement as of the date of
the Merger. The borrowing base is to be redetermined annually as of December 31
and June 30 of each year.
Borrowings under the Alliance Credit Agreement maintained from time to time
as a "Base Rate Loan" bear interest, payable monthly, at a fluctuating rate
equal to the higher of (i) the rate of interest announced from time to time by
the Bank as its "reference rate" plus 1% or (ii) the "Federal Funds Rate" (as
defined in the Alliance Credit Agreement) plus 1 1/4%. Borrowings under the
Alliance Credit Agreement maintained from time to time as a "LIBO Rate Loan"
bear interest, payable on the last day of each applicable interest period (as
defined in the Alliance Credit Agreement), at a fluctuating rate equal to the
LIBO Rate (Reserve Adjusted) (as defined in the Alliance Credit Agreement) plus
2%. As of July 31, 1997, all advances to Alliance under the Alliance
15
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Credit Agreement were maintained as LIBO Rate Loans that bore interest at the
annual rate of 7.5%.
As a condition to the Bank making the loans under the LaTex Credit
Agreement, LaTex's subsidiary, LaTex Petroleum, entered into hedging agreements
with the Bank designed to enable LaTex to (a) obtain agreed upon net realized
prices for LaTex's oil and gas production (the "Oil and Gas Hedging Agreements")
and (b) protect LaTex against fluctuations in interest rates with respect to the
principal amounts of all loans under the LaTex Credit Agreement. Under the
Alliance Credit Agreement, the Bank has made available to Alliance the amount of
$2,500,000 to reduce or terminate the Oil and Gas Hedging Agreements.
At July 31, 1997, the outstanding balance under the Alliance Credit
Agreement was $20.181 million. The outstanding loan balance has increased
$2.086 million since the Company's April 30, 1997 year-end as a result of the
following items which have been added to the outstanding loan balance: $0.116
million of loan interest; $0.732 million related to unpaid product hedge
payments as of April 30, 1997 (the hedge liability was provided for in the April
30, 1997 financial statements and has subsequently been reclassified to the bank
debt). Other additions to the outstanding loan balance covered the cost of the
buyout of the commodity price hedges (noted above) of $1.128 million on May 15,
1997 and an advance by the Bank to pay Merger-related legal costs to the Bank's
attorneys of $0.110 million.
In connection with the Merger and the Alliance Credit Agreement, the
Company, effective May 1, 1997 acquired an overriding royalty interest in all of
LaTex's existing producing oil and gas properties, other than those located in
the State of Oklahoma, the Perkins Field in Louisiana, and certain other minor
value properties located in other states, from an affiliate of the Bank in
exchange for 1,343,750 New Alliance Shares, convertible loan notes and warrants.
Seasonality. The results of operations of the Company are somewhat
-----------
seasonal due to fluctuations in the price for crude oil and natural gas.
Recently, crude oil prices have been generally higher in the third calendar
quarter, and natural gas prices have been generally higher in the first calendar
quarter. Due to these seasonal fluctuations, results of operations for
individual quarterly periods may not be indicative of results which may be
realized on an annual basis.
Inflation and Prices. In recent years, inflation has not had a significant
--------------------
impact on the operations or financial condition of the Company. The generally
downward pressure on oil and gas prices during most of such periods has been
accompanied by a corresponding downward pressure on costs incurred to acquire,
develop, and operate oil and gas properties as well as the costs of drilling and
completing wells on properties.
16
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Prices obtained for oil and gas production depend upon numerous factors
that are beyond the control of the Company including the extent of domestic and
foreign production, imports of foreign oil, market demand, domestic and world-
wide economic and political conditions, and government regulations and tax laws.
Prices for oil and gas have fluctuated significantly from 1995 through 1997.
The following table sets forth the average price received by the Company for
each of the last three years and the effects of the various hedging arrangement
noted above.
<TABLE>
<CAPTION>
Three Months Oil Oil Gas Gas
Ended July 31 (excluding the (including the (excluding the (including the
- ------------- effects of hedging effects of hedging effects of hedging effects of hedging
transactions) transactions) transactions) transactions)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $16.32 $16.32 $2.21 $2.21
1996 $22.04 $20.90 $2.60 $2.17
1995 $12.34 $12.30 $1.50 $1.66
</TABLE>
On October 23, 1997, the Company entered into new commodity price hedge
agreements to protect against price declines which may be associated with the
volatile environment of oil and natural gas spot pricing. Unlike the previous
hedging agreements entered into by LaTex, the new commodity price hedge
agreements, while protecting against oil and natural gas price declines, also
provide the Company with exposure to price increases beyond certain agreed price
levels. The commodity price hedges were executed through the purchase of put
options by the Company, and the associated cost was funded by additional
drawdowns under the Alliance Credit Agreement.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
Contingencies
- -------------
In addition to the litigation set forth in the Company's Registration Statement
on Form F-4, the Company is a named defendant in lawsuits, is a party in
governmental proceedings, and is subject to claims of third parties from time to
time arising in the ordinary course of business. While the outcome to lawsuits
or other proceedings and claims against the Company cannot be predicted with
certainty, management does not expect these additional matters to have a
material adverse effect on the financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
17
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(a) Exhibits
SEC
Exhibit
No. Description of Exhibits
------- -----------------------
(27) Financial Data Schedule
-----------------------
*27.1 Financial Data Schedule of Alliance Resources PLC
*Filed Herewith.
(b) Reports on Form 8-K
-------------------
Form 8-K filed on June 13, 1997 reporting completion of the
merger of Alliance Resources PLC with Latex Resources, Inc.
18
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alliance Resources PLC
/s/ H.B.K. Williams
-------------------
H.B.K Williams, Finance Director
Date: July 2, 1998
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1997
<PERIOD-START> MAY-01-1997 MAY-01-1996
<PERIOD-END> JUL-31-1997 JUL-31-1996
<CASH> 1,706,299 72,948
<SECURITIES> 0 0
<RECEIVABLES> 2,081,075 2,119,406
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,935,554 2,246,530
<PP&E> 49,337,337 36,962,822
<DEPRECIATION> (16,483,552) (10,254,970)
<TOTAL-ASSETS> 39,477,504 30,857,487
<CURRENT-LIABILITIES> 11,362,472 11,866,608
<BONDS> 0 0
0 0
0 2,871,114
<COMMON> 20,013,082 11,681,150
<OTHER-SE> (14,261,832) (13,978,300)
<TOTAL-LIABILITY-AND-EQUITY> 39,477,504 30,857,487
<SALES> 2,727,336 2,932,328
<TOTAL-REVENUES> 2,727,336 2,932,328
<CGS> 3,360,553 5,984,980
<TOTAL-COSTS> 3,360,553 5,984,980
<OTHER-EXPENSES> (364,093) (5,597,878)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 682,073 981,434
<INCOME-PRETAX> (951,197) (9,631,964)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (951,197) (9,782,969)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (951,197) (9,782,969)
<EPS-PRIMARY> (0.04) (0.63)
<EPS-DILUTED> (0.04) (0.63)
</TABLE>
