<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
AMENDMENT NO. 1
(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, 1998
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 X No
----- -----
As of October 9, 1998, there were 31,209,408 shares of the Registrant's
single class of common stock issued and outstanding.
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JULY 31, 1998
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Page
Consolidated Condensed Balance Sheets as of
July 31, 1998 and April 30, 1998 2
Consolidated Condensed Statements of Operations
for the three months ended July 31, 1998 and 1997 4
Consolidated Condensed Statement of Stockholders'
Equity for the three months ended July 31, 1998 5
Consolidated Condensed Statements of Cash Flows
for the three months ended January 31, 1998 and 1997 6
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
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 16
SIGNATURES 17
</TABLE>
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JULY 31, 1998 APRIL 30, 1998
(UNAUDITED) (AUDITED)
=============== ================
<S> <C> <C>
ASSETS
Current assets:
Cash $ 262,048 $ 408,439
Accounts receivable - trade 1,784,593 2,132,654
Other current assets 11,940 73,977
--------------- ----------------
Total current assets 2,058,581 2,615,070
--------------- ----------------
Property, plant, and equipment, at cost:
Oil and gas properties (using full cost method) 42,858,264 43,200,388
Other depreciable assets 1,039,636 1,029,118
--------------- ----------------
43,897,900 44,229,506
Less accumulated depreciation and depletion (14,930,756) (14,421,400)
--------------- ----------------
Net property, plant and equipment 28,967,144 29,808,106
--------------- ----------------
Other assets:
Other assets 144,989 144,989
Deferred acquisition costs 3,062,916 970,305
Deferred loan costs, less accumulated amortization 966,326 1,221,650
--------------- ----------------
Total other assets 4,174,231 2,336,944
--------------- ----------------
TOTAL ASSETS $ 35,199,956 $ 34,760,120
=============== ================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS, CONTINUED
JULY 31, 1998 APRIL 30, 1998
(UNAUDITED) (AUDITED)
--------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,926,597 $ 8,972,704
Accrued expenses payable 933,516 847,190
Current portion long-term debt 5,250,000 2,275,000
--------------- ----------------
Total current liabilities 15,110,113 12,094,894
Long-term Liabilities:
Long-term debt 17,316,762 18,791,762
Other liabilities 3,568 139,626
Convertible subordinated unsecured loan notes 1,550,700 1,550,700
--------------- ----------------
Total liabilities 33,981,143 32,576,982
--------------- ----------------
Stockholders' equity:
Common stock-par value 40 pence;
46,000,000 shares authorized representing:
Common stock issued and outstanding;
31,209,408 at July 31, 1998
and April 30, 1998, respectively 20,114,634 20,114,634
Additional paid-in capital 5,911,050 5,911,050
--------------- ----------------
Accumulated deficit (24,806,871) (23,842,546)
--------------- ----------------
Total stockholders' equity 1,218,813 2,183,138
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,199,956 $ 34,760,120
=============== ================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Three
Months Ended Months Ended
July 31, 1998 July 31, 1997
(Unaudited) (Unaudited)
------------------ ----------------
<S> <C> <C>
Revenue:
Oil and gas revenue $ 1,917,966 $ 2,727,336
Total operating income 1,917,966 2,727,336
------------------ ----------------
Operating expenses:
Lease operating expense 969,355 1,173,644
Depreciation, depletion, and amortization 509,355 652,489
Loss on commodity derivatives - 268,571
General and administrative expense 848,422 1,265,849
------------------ ----------------
Total operating expenses 2,327,132 3,360,553
Net operating loss (409,166) (633,217)
Other income (expense):
(Loss)\gain on sale of assets (9,184) 18,331
Interest expense (668,450) (682,073)
Interest income 5,259 20,609
Miscellaneous income (expense) 132,394 325,153
------------------ ----------------
Net loss from continuing operations before income taxes (949,147) (951,197)
Income tax expense - -
------------------ ----------------
Net income (loss) (949,147) (951,197)
Preferred stock dividends - -
------------------ ----------------
Net loss for common shareholders $ (949,147) $ (951,197)
================== ================
Loss per share for common shareholders $ (0.03) $ (0.03)
================== ================
Weighted average number of shares outstanding 31,209,408 31,052,603
================== ================
</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, 1998
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional Retained Earnings Total
Number of Par Paid-In (Accumulated Stockholders'
Shares Value Capital Deficit) Equity
============ ============= ============ =================== ===============
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1998 31,209,408 $ 20,114,634 $ 5,911,050 $ (23,842,546) $ 2,183,138
Foreign exchange - - - (15,178) $ (15,178)
Net loss current period - - - (949,147) $ (949,147)
----------- ------------ ----------- --------------- -------------
Balance July 31, 1998 31,209,408 $ 20,114,634 $ 5,911,050 $ (24,806,871) $ 1,218,813
=========== ============ =========== =============== =============
</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, 1998 July 31, 1997
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (949,147) $ (951,197)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 509,355 652,489
Amortization of deferred loan costs 255,324 140,847
(Loss)\gain on sale of assets 9,184 (18,331)
Changes in assets and liabilities, net of effects
from acquisition:
Accounts receivable 348,061 544,454
Accounts payable (1,074,397) (1,631,751)
Accrued expenses payable 86,326 888
Other assets 62,037 168,205
Other liabilities (136,058) (1,578,180)
----------- -----------
Net cash (used in) provided by operating activities (889,315) (2,672,576)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (266,233) (638,835)
Proceeds from sale of property and equipment 379,809 2,803,501
Effect of LaTex Acquisition - 192,819
Deferred acquisition costs (870,652) -
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (757,076) 2,357,485
----------- -----------
</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, 1998 July 31, 1997
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred loan and reorganization costs $ - $ (21,218)
Proceeds from notes payable 1,500,000 1,969,660
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,500,000 1,948,442
------------ -----------
Net increase in cash and cash equivalents (146,391) 1,633,351
Cash and cash equivalents at beginning of period 408,439 72,948
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 262,048 1,706,299
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 400,554 221,239
Income taxes - -
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services and bonus - 203,000
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, 1998, are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1999.
B. SIGNIFICANT EVENTS
On July 13, 1998, Alliance mailed a Proxy Statement to its U.S. shareholders
notifying them of a proposed acquisition of Difco Limited ("Difco"), in exchange
for at least 7,020,825 and as many as 28,083,300 ordinary shares of the Company,
the acquisition by Difco of certain oil and gas interests in the East Irish Sea
(the "U.K. Interests") from Burlington Resources (Irish Sea) Limited for a cash
consideration of approximately $34.0 million (collectively, the "Acquisitions").
The Acquisitions were originally expected to be funded by the issuance of senior
notes and related matters. Additional information relating to the Acquisitions
can be obtained by reviewing the proxy statement mentioned earlier
On July 30, 1998 the Company announced that the issue of $100 million of Senior
Subordinated Notes due in 2008 (the "Notes") as part of the financing
arrangements for the acquisition of the East Irish Sea Interests and related
acquisition of Difco Limited had not been raised on acceptable terms and the
Company was in discussions with Difco Limited in connection with the
Acquisitions and was considering alternative methods of financing.
8
<PAGE>
Alliance Resources PLC
Notes to Consolidated Condensed Financial Statements
As of October 13, 1998 the Company continues in its attempts to complete the
Acquisition and has notified the shareholders of recent developments with a
revised proxy statement mailed on October 7, 1998.
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, 1998.
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.
<TABLE>
<CAPTION>
Three Months Ended July 31
-----------------------------
1997 1998
---- ----
<S> <C> <C>
Net Sales Volumes:
Oil (Mbbls) 102 66
Natural Gas (Mmcf) 454 430
Oil Equivalent (MBOE) 180 139
Average Sales Prices:
Oil (per Bbl) $16.32(1) $18.22(2)
Natural Gas (per Mcf) $ 2.21(1) $ 1.67(2)
Operating Expenses per
BOE of Net Sales:
Lease operating $ 5.66 $ 6.41
Severance tax $ 0.87 $ 0.54
Depreciation, depletion, and amortization $ 3.62 $ 3.65
General and administrative $ 7.03 $ 6.08
</TABLE>
(1) 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.
9
<PAGE>
Alliance Resources PLC
Notes to Consolidated Condensed Financial Statements
(2) After giving effect to the impact of the Company's commodity price hedging
arrangements. Without any hedging arrangements, the average sales prices
for the quarter ended July 31, 1998 would have been $12.35\bbl for oil and
$1.67\mcf for gas.
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.
Three Months Ended July 31, 1998 compared to the Three Months Ended July 31,
1997
Total revenues from the Company's operations for the quarter ended July 31,
1998 were $1,917,966 compared to $2,727,336 for the quarter ended July 31, 1997.
Revenues decreased significantly over the comparable period a year earlier due
principally to lower oil sales volumes and realized gas prices, property
disposals and the depletion of producing reserves. Sales volumes for the
quarter ended July 31, 1998 were adversely affected by the Company's decision to
curtail oil sales in the South Carlton field in Alabama due to low posted oil
prices and property disposals completed in the last quarter of 1997 contributed
to the reduction in gas volumes.
Net sales volumes decreased 23% from the same period in 1997. According to
the independent reservoir engineering appraisal, net sales volumes should have
declined by approximately 10% due to natural depletion. The remainder of the
volume decrease is attributable to mechanical downtime and voluntary curtailment
due to the pricing environment. Production from the South Carlton field
increased 14% over the comparable period, although sales declined 62% due to the
low posted oil price environment. Gas production declines are in line with the
reservoir engineering forecasts. However, due to the successful efforts in the
Bacon and Balls Branch fields, gas sales actually increased while production
remained constant.
Total operating expenses decreased to $2,327,132 for the quarter ended July
31, 1998 compared to $3,360,553 for the same period in 1997. This decrease was
primarily due to remedial workover costs and expenses associated with sold non-
operated, non-strategic wells incurred in the 1997 period. Lease operating
expenses were significantly lower at $969,355 for the three month period ending
July 31, 1998 compared to $1,173,644 for the same period in 1997. The quarter
ended July 31, 1997 was impacted by the remedial work program mentioned above
and the sold non-operated, non-strategic wells. Depreciation, depletion and
amortization decreased to $509,355 from $652,489 a year earlier primarily as a
result of lower volumes. General and administrative expenses decreased from
$1,265,849 during the quarter ended July 31, 1997 to $848,422 for the
10
<PAGE>
Alliance Resources PLC
Notes to Consolidated Condensed Financial Statements
quarter ended July 31, 1998. The decrease is a result of continuing efforts by
management to reduce corporate overhead expenses although the 1997 period was
adversely affected by some costs associated with the LaTex/Alliance merger.
A net operating loss of $409,166 was realized for the quarter ended July
31, 1998 compared to a net operating loss of $633,217 for the same period in
1997
In summary, due to the above factors, the net loss for the common
shareholders for the quarter ended July 31, 1998 decreased to $949,147 ($0.03
per share) compared to a net loss of $951,197 ($0.03 per share) for the same
period in 1997.
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, 1998, Alliance has current assets of
$2.059 million and current liabilities of $15.110 million, which resulted in a
net current deficit of $13.051 million. Since April 30, 1998, the net current
deficit has increased from $9.480 million to its current position of $13.051
million. The $3.571 million increase is primarily due to a transfer of a
portion of the credit facility from long term debt to current liabilities. The
accounts payable at July 31, 1998 were virtually unchanged at $8.927 million
compared to $8.973 at April 30, 1998.
For the quarter ended July 31, 1998, net cash used in the Company's
operating activities was $.889 million compared to cash used of $2.673 million
for the quarter ended July 31, 1997. This improvement is substantially due to
the allocation of funds to improve the working capital deficit of the Company in
the quarter ended July 31, 1998.
Investing activities of the Company used $.757 million in net cash
flow for the quarter ended July 31, 1998 compared to $2.357 million generated
for the quarter ended July 31, 1997. The deterioration was principally due to
property sales of $2.424 million less than the 1997 period and the increase in
deferred acquisition costs of .871 million. Financing activities provided $1.500
million for the quarter ended July 31, 1998 compared to cash provided of $1.948
million for the quarter ended July 31, 1997.
Overall, cash and cash equivalents decreased by $.146 million in the
quarter ended July 31, 1998 compared to an increase of $1.633 million in the
1997 period.
11
<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, 1998, all advances to Alliance under the Alliance
12
<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%.
At July 31, 1998, the outstanding balance under the Alliance Credit
Agreement was $22.567 million. The outstanding loan balance has increased
$1.500 million since April 30, 1998 as a result of advances by the Bank to pay
Difco Acquisition-related costs.
Financial Condition. Management had planned to consummate the acquisition
of a 20 per cent interest in certain undeveloped oil and gas properties in the
East Irish Sea and Liverpool Bay areas ("the East Irish Sea Interests") which
would have involved a satisfactory refinancing of the Group's borrowings. On
July 30, 1998 the Board announced that financing for that transaction had not
been raised and that resolutions to approve the acquisition were not put to
shareholders.
Management's plans in the event that the acquisition and refinancing did
not proceed, were to seek other transactions of a similar nature, restructure
the existing credit facility or seek alternative forms of financing and to take
such steps as were necessary to allow the Group to meet its obligations as they
fell due. It was envisioned that such steps might have included the continued
reduction of the Group's overheads, deferral of elements of the recompletion
program and realization of oil and gas properties.
Since July 30, 1998, management has reduced the Group's overheads through
selective redundancies and has held discussions with Bank of America regarding
the existing credit facility but has primarily been evolving alternative
financing plans to allow the acquisition of part of the East Irish Sea
Interests. Such a plan has been formulated and it is anticipated that proposals
will be put to shareholders on or before October 31, 1998. This will also
include a restructuring of the existing credit facility. Management believe that
the satisfactory completion of this transaction will provide the Group with
financing which will allow it to meet its obligations as they fall due.
Management is mindful of the Group's financial condition should this
transaction not be consummated. The existing credit facility with Bank of
America requires monthly repayments of $325,000 to commence on October 31, 1998
with the balance remaining outstanding on March 31, 2000 being repayable in full
on that date. The Group's operating cash flow will not be sufficient to meet its
obligations under the existing credit facility and given the passage of time and
the concentration of management's efforts on achieving the acquisition outlined
above, it may not be possible to take the necessary steps, which might include
property dispositions, to allow the Group to meet its obligations in a timely
manner.
However, the pursuit by management of an alternative structure to acquire
the East Irish Sea Interests has been undertaken with the full support of Bank
of America, including the deferral of any property disposals pending final
resolution of the acquisition of part of the East Irish Sea Interests. Bank of
America has indicated to management that,
13
<PAGE>
Alliance Resources PLC
Notes to Consolidated Condensed Financial Statements
in the event that the proposed transaction is not consummated, it will work with
the Group to achieve a mutually satisfactory refinancing. There is, however, no
guarantee that a successful refinancing will be achieved in a timely manner if
at all.
The Directors believe that there is reasonable assurance that the Group
will remain a going concern even if the proposed transaction is not consummated.
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.
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 1998.
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.
14
<PAGE>
Alliance Resources PLC
Notes to Consolidated Condensed Financial Statements
<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>
1998 $12.35 $18.22 $1.67 $1.67
1997 $16.32 $16.32 $2.21 $2.21
1996 $22.04 $20.90 $2.60 $2.17
</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.
15
<PAGE>
Alliance Resources PLC
Notes to Consolidated Condensed Financial Statements
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Contingencies
In addition to the litigation set forth in the Company's Annual Report on Form
10-K for the year ended April 30, 1998, 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
(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
None
16
<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: October 13, 1998
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-1998
<PERIOD-START> MAY-01-1998 MAY-01-1997
<PERIOD-END> JUL-31-1998 JUL-31-1997
<CASH> 262,048 1,706,299
<SECURITIES> 0 0
<RECEIVABLES> 1,784,593 2,081,075
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,058,581 3,935,554
<PP&E> 43,897,900 49,337,337
<DEPRECIATION> (14,930,756) (16,483,552)
<TOTAL-ASSETS> 35,199,956 39,477,504
<CURRENT-LIABILITIES> 15,110,113 11,362,472
<BONDS> 0 0
0 0
0 0
<COMMON> 20,114,634 20,013,082
<OTHER-SE> (18,895,821) (14,261,832)
<TOTAL-LIABILITY-AND-EQUITY> 35,199,956 39,477,504
<SALES> 1,917,966 2,727,336
<TOTAL-REVENUES> 1,917,966 2,727,336
<CGS> 969,355 1,173,644
<TOTAL-COSTS> 2,327,132 3,360,553
<OTHER-EXPENSES> (128,469) (364,093)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 668,450 682,073
<INCOME-PRETAX> (949,147) (951,197)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (949,147) (951,197)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (949,147) (951,197)
<EPS-PRIMARY> (0.03) (0.03)
<EPS-DILUTED> (0.03) (0.03)
</TABLE>
