<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
XX SECURITIES EXCHANGE OF 1934
----
For the quarterly period ended October 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)
(918) 491-1100
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report.)
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 OCTOBER 31, 1997
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements Page
Consolidated Condensed Balance Sheets as of
October 31, 1997 and April 30, 1997 2
Consolidated Condensed Statements of Operations
for the three months and six months ended October 4
31, 1997 and 1996
Consolidated Condensed Statement of Stockholders'
Equity for the six months ended October 31, 1997 5
Consolidated Condensed Statements of Cash Flows
for the six months ended October 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 18
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
20
SIGNATURES
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, 1997 APRIL 30, 1997
(UNAUDITED) (UNAUDITED)
---------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,376,080 $ 72,948
Accounts receivable - trade 2,651,767 2,119,406
Other current assets 280,109 54,176
------------ ------------
Total current assets 5,307,956 2,246,530
------------ ------------
Property, plant, and equipment, at cost:
Oil and gas properties (using full cost method) 46,700,341 36,107,310
Other depreciable assets 1,197,180 855,512
------------ ------------
47,897,521 36,962,822
Less accumulated depreciation and depletion (17,251,691) (10,254,970)
------------ ------------
Net property, plant and equipment 30,645,830 26,707,852
------------ ------------
Other assets:
Deposits and other assets 146,791 282,920
Deferred loan costs, less accumulated amortization 1,802,758 1,620,185
------------ ------------
Total other assets 1,949,549 1,903,105
------------ ------------
TOTAL ASSETS $ 37,903,335 $ 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>
OCTOBER 31, 1997 APRIL 30, 1997
(UNAUDITED) (UNAUDITED)
---------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,021,547 $ 11,428,872
Accrued expenses payable 446,488 437,736
Current portion long-term debt 325,000 -
------------ ------------
Total current liabilities 10,793,035 11,866,608
Other liabilities 710,208 810,783
Long-term debt, excluding current installments 20,241,762 18,095,497
Convertible subordinated unsecured loan notes 1,550,700 -
------------ ------------
Total liabilities 33,295,705 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 liquidation
preference $4,570,510 - 766,599
LaTex Series B convertible preferred stock
3,239,708 issued and outstanding at
April 30, 1997; aggregate liquidation
preference $5,245,370 - 2,104,515
Common stock issued and outstanding;
31,152,603 and 17,982,068 at October
31, 1997 and April 30, 1997, respectively 20,077,486 11,681,150
Additional paid-in capital 5,898,198 5,149,146
Accumulated deficit (21,368,054) (19,127,446)
Treasury stock 1,008,500 common shares at cost at
April 30, 1997 - (489,365)
------------ ------------
Total stockholders' equity (deficit) 4,607,630 84,599
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,903,335 $ 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 Six
Months Ended Six Months Ended
Three October 31, Months Ended October 31,
Months Ended 1996 October 31, 1996
October 31, 1997 (Restated, 1997 (Restated,
(Unaudited) Unaudited) (Unaudited) Unaudited)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Oil and gas revenue $ 3,248,700 $ 2,377,701 $ 5,976,036 $ 5,190,871
Crude oil and gas marketing - 90,227 - 209,385
-------------------------------------------------------------
Total operating income 3,248,700 2,467,928 5,976,036 5,400,256
-------------------------------------------------------------
Operating expenses:
Lease operating expense 1,491,276 1,215,659 2,664,920 2,306,829
Cost of crude oil and gas marketing - 17,271 - 24,826
Depreciation, depletion, and amortization 777,907 699,656 1,430,396 1,456,534
Dry hole costs and abandonments - - - 3,446,795
Loss on commodity deriviatives 859,429 - 1,128,000
General and administrative expense 909,860 1,894,744 2,175,709 2,577,326
-------------------------------------------------------------
Total operating expenses 4,038,472 3,827,330 7,399,025 9,812,310
-------------------------------------------------------------
Net operating loss (789,772) (1,359,402) (1,422,989) (4,412,054)
Other income (expense):
Equity in losses and write offs of investments
in affiliates - - - (4,096,381)
Gain on sale of assets 165 - 18,496 -
Interest expense (609,127) (732,151) (1,291,200) (1,713,585)
Interest income 15,110 32,934 35,719 341,819
Miscellaneous income (expense) 79,051 - 404,204 (1,810,382)
-------------------------------------------------------------
Net loss from continuing operations before income taxes (1,304,573) (2,058,619) (2,255,770) (11,690,583)
Income tax expense - - - -
-------------------------------------------------------------
Net loss (1,304,573) (2,058,619) (2,255,770) (11,690,583)
Preferred stock dividends - (166,250) - (317,255)
-------------------------------------------------------------
Net loss for common shareholders $ (1,304,573) $ (2,224,869) $ (2,255,770) $(12,007,838)
=============================================================
Loss per share for common shareholders $ (0.04) $ (0.13) $ (0.07) $ (0.75)
=============================================================
Weighted average number of shares outstanding 31,137,386 16,616,740 31,094,994 16,056,202
=============================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED OCTOBER 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 -- 256,250 165,904 187,096 -- -- 353,000
Foreign exchange -- -- -- -- 15,162 -- 15,162
Net loss current period -- -- -- -- (2,255,770) -- (2,255,770)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Balance October 31, 1997 $ -- 31,152,603 $ 20,077,486 $ 5,898,198 $(21,368,054) $ -- $ 4,607,630
============ =========== ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
October 31, 1997 October 31, 1996
(Unaudited) (Restated, Unaudited)
---------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,255,770) $(11,690,583)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation, amortization, and depletion 1,430,396 1,456,534
Amortization of Deferred Loan Costs 281,694 179,583
Gain on sale of assets (18,496) --
Equity in losses and write offs of investments in affiliates -- 4,096,381
Dry hole costs and abandonments -- 3,446,795
Employee bonus -- 528,125
Forgiveness of debt -- 385,391
Interest income -- (150,467)
Miscellaneous expense -- 1,810,382
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable (26,237) 535,300
Accounts receivable - related party -- 202,790
Accounts payable (1,613,144) 378,875
Accrued expenses payable 8,752 547,444
Other current assets (246,563) --
Deposits and other assets 1,264,129 (69,747)
Other liabilities (1,349,972) 615,000
Inventories -- 64,091
------------ ------------
Net cash (used in) provided by operating activities (2,525,211) 2,335,894
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,289,926) (365,002)
Proceeds from sale of property and equipment 4,998,501 1,144,811
Effect of LaTex acquisition 192,819 --
Decrease in accounts and notes receivable -- 340,000
Advances to unconsolidated affiliates and notes receivable -- (326,394)
------------ ------------
Net cash provided by investing activities 2,901,394 793,415
------------ ------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
ALLIANCE RESOURCES PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
October 31, 1997 October 31, 1996
(Unaudited) (Restated, Unaudited)
------------------ ---------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred loan and reorganization costs $ (428,391) $ (137,186)
Payments on notes payable -- (3,150,416)
Proceeds from notes payable 2,355,340 178,014
----------- -----------
Net cash provided by (used for) financing activities 1,926,949 (3,109,588)
----------- -----------
Net increase in cash and cash equivalents 2,303,132 19,721
Cash and cash equivalents at beginning of period $ 72,948 $ --
----------- -----------
Cash and cash equivalents at end of period $ 2,376,080 $ 19,721
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 730,850 $ 1,480,520
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 settlement -- 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, as of October 31, 1997 150,000 --
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 six months ended October 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 share 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
1,087,125 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 $ 8,002,842
Loss before income tax $(12,369,583)
Net loss $(12,369,583)
Net loss per share $ (0.66)
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.
On September 15, 1997, Alliance issued 100,000 new Alliance shares in
settlement of financial advisor fees and on November 5, 1997, Alliance issued
115,456 convertible loan notes to the bank in settlement of arrangement fees of
$150,000 noted above which may, under certain circumstances, be converted into
new Alliance shares.
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).
10
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
C. ACCOUNTING POLICY CHANGE
During the nine months ended April 30, 1997, LaTex, in order to conform its
accounting policies to that of Alliance, changed its method of accounting for
oil and gas exploration and development activities from the "successful efforts"
method to the "full cost" method (as described above). The financial statements
for the LaTex entities for all prior periods have been restated to apply the new
method retroactively. The effects of the accounting change on the nine months
ended April 30, 1997 and the years ended July 31, 1996 and 1995 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 and six months ended October 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 and six
months ended October 31, 1997 represent the activities of the enlarged group
(Alliance and LaTex groups combined) while the results for the three months
ended October 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.
Six Months Ended October 31
---------------------------
1996 1997
------ -----
Net Sales Volumes:
Oil (Mbbls) 160 218
Natural Gas (Mmcf) 1,196 988
Oil Equivalent (MBOE) 359 382
Average Sales Prices:
Oil (per Bbl) $18.03 (1) $16.63 (2)
Natural Gas (per Mcf) $ 1.85 (1) $ 2.38 (2)
Operating Expenses per
BOE of Net Sales:
Lease operating $ 5.54 $ 5.97
Severance tax $ 0.95 $ 1.00
Depreciation, depletion, and amortization $13.65 $ 3.74
General and administrative $ 7.17 $ 5.69
(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 six months ended October 31, 1996 would have been
$20.26/bbl for oil and $2.26/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 October
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
12
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
significantly impact the Company's results of operations and cash flow and could
significantly impact the Company's borrowing capacity.
Three Months Ended October 31, 1997 compared to the Three Months Ended
----------------------------------------------------------------------
October 31, 1996
----------------
Total revenues from the Company's operations for the quarter ended October
31, 1997 were $3,248,700 compared to $2,467,928 for the quarter ended October
31, 1996. Revenues increased over the comparable period a year earlier due
principally to the beneficial effect of higher realized oil and gas prices (net
of the impact of the commodity price hedges), and higher barrel of oil
equivalent volumes, offset partially by the absence of marketing margins in the
revenue category. The revenues in the 1997 period benefited from the lack of
commodity price hedges and allowed the Company full exposure to market prices.
Revenues in the 1996 period were adversely effected by the LaTex hedge program
which effectively capped pricing at below market levels. Although sales volumes
for the quarter ended October 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.
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 increased to $4,038,472 for the quarter ended
October 31, 1997 compared to $3,827,330 for the same period in 1996. This
increase was primarily due to the buy-out of the existing commodity price hedge
($1,128,000) on May 15, 1997. Lease operating expenses were relatively
unchanged at $1,491,276 for the three-month period ended October 31, 1997
compared to $1,215,659 for the same period in 1996. The quarter ended October
31, 1997 was impacted by the remedial work program mentioned above and the
inclusion of the Alliance properties partially offset by lower operating costs
due to the sale of non-operated, non-strategic wells. Depreciation, depletion
and amortization increased to $777,907 from $699,656 a year earlier as a result
of higher sales volumes in the 1997 period. General and administrative expenses
decreased from $1,894,744 during the quarter ended October 31, 1996 to $909,860
for the quarter ended October 31, 1997 primarily due to the employee stock award
in the 1996 period noted above.
13
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In addition to the decrease in the net operating loss to $789,772 for the
quarter ended October 31, 1997 from $1,359,402 for the same period in 1996,
there was also an improvement in other income/expense due to the lower interest
charge in the 1997 period.
In summary, due to the above factors, the net loss for the common
shareholders for the quarter ended October 31, 1997 decreased to $1,304,573
($0.04 per share) compared to a net loss of $2,224,869 ($0.12 per share) for the
same period in 1996.
Six Months Ended October 31, 1997 compared to the Six Months Ended
------------------------------------------------------------------
October 31, 1996
----------------
Total revenues from the Company's operations for the six months ended
October 31, 1997 were $5,976,036 compared to $5,400,256 for the six months ended
October 31, 1996. Revenues increased over the comparable period a year earlier
due principally to the beneficial effect of higher realized gas prices (net of
the impact of the commodity price hedge) and higher oil volumes, offset
partially by the absence of marketing margins in the revenue category. The
revenues in the 1997 period benefited from the lack of commodity price hedges
and allowed the Company full exposure to higher market prices. Revenues in the
1996 period were adversely affected by the LaTex hedge program which effectively
capped pricing at below market levels. Although sales volumes for the six
months ended October 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.
The Company continued concentrating its efforts to increase production from
its existing producing fields. Gross production from company-operated fields
was increased from an average of 160 barrels of oil equivalent per day ("boepd")
in April 1997 to an average of 2300 boepd by October 1997.
Total operating expenses decreased to $7,399,025 for the six months ended
October 31, 1997 compared to $9,812,310 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
offset by the buy-out of the existing commodity price hedge ($1,128,000). Lease
operating expenses increased to $2,664,920 for the six month
period ended October 31, 1997 compared to $2,306,829 for the same period in
1996. The six months ended October 31, 1997 was impacted by the remedial work
program mentioned above and the inclusion of the Alliance properties partially
offset by lower operating costs due to the sale of non-operated costs due to the
sale of non-operated, non-strategic wells. Depreciation, depletion, and
amortization decreased to $1,430,396 from $1,456,534 a year earlier. General and
administrative expenses decreased from $2,577,326 during the six months ended
October 31, 1996
14
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
primarily due to the employee stock award in the 1996 period noted above
partially offset by the inclusion of the Alliance overhead as well as non-
capitalized merger-related cost.
In addition to the decrease in the net operating loss to $1,422,989 for the
six months ended October 31, 1997 from $4,412,054 for the same period in 1996,
there was also a significant improvement in other income/expense. This
improvement was due to the write-offs in the 1996 period of $4,096,381 covering
investments in Wexford Technology, Inc. and Imperial Petroleum, Inc. and
miscellaneous expenses of $1,810,382 in connection with litigation arising out
of the 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 six months ended October 31, 1997 decreased to $2,255,770
($0.07 per share) compared to a net loss of $12,007,838 ($0.74 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 October 31, 1997, Alliance has current assets
------------------------
of $5.308 million and current liabilities of $10.793 million, which resulted in
a net current deficit of $5.485 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 $5.485 million. The $4.135 million improvement was
primarily due to the increase in cash balances and a reduction in accounts
payable. The current portion of long-term debt amounted to $0.325 million at
October 31, 1997 compared to $0 at April 30, 1997.
For the six months ended October 31, 1997, net cash used in the Company's
operating activities was $2.525 million compared to cash provided of $2.336
million for the six months ended October 31, 1996. This deterioration in cash
from operating activities is substantially due to the allocation of funds to
improve the working capital deficit of the Company.
Investing activities of the Company generated $2.901 million in net cash
flow for the six months ended October 31, 1997 compared to $0.793 million for
the six months ended October 31, 1996. The improvement was principally due to
property sales of $4.999 million and the acquisition of cash balances of $1.461
million from Alliance arising from the Merger. Financing activities provided
$1.927 million for the six months
15
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ended October 31, 1997 compared to a use of $3.110 million for the six months
ended October 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 $2.303 million in the six
months ended October 31, 1997 compared to $0.020 million in the 1996 period.
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 on which date the first scheduled
repayment of $325,000 is due. 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
16
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 at
October 31, 1997, advances to Alliance under the Alliance Credit Agreement were
maintained as LIBO Rate Loans that bore interest at the annual rate of 7.625%.
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 October 31, 1997, the outstanding balance under the Alliance Credit
Agreement was $20.567 million of which $0.325 million in included as the current
portion on the balance sheet. The outstanding loan balance has increased $2.472
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 drawdowns in respect of
the cost of the buyout of the commodity price hedges (noted above) of $1.128
million on May 15, 1997, merger-related legal costs of the Bank's attorneys of
$0.110 million, and the $0.386 million cost of new commodity price hedges
purchased on October 23, 1997 for the twelve months ended October 31, 1998.
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
17
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 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>
Six Months Ended Oil Oil Gas Gas
October 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 $16.63 $16.63 $2.38 $2.38
1996 $20.26 $18.03 $2.26 $1.85
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
volatility in oil and natural gas spot prices. Unlike the previous hedging
agreements entered into by LaTex, the new commodity price hedge agreements,
while protecting the downside, also provide the Company with exposure to price
increases beyond certain agreed price levels. The commodity price hedges have
been achieved through the purchase of put options (floors) by the Company, and
the associated premia cost was funded by additional drawdowns under the Alliance
Credit Agreement. The commodity price hedges cover the year to October 31, 1998
and cover in excess of 90% of Alliance's current monthly sales volumes. The
floors currently equate to approximately $18.50/bbl Nymex WTI contract and
$2.20/mmbtu Nymex Natural Gas contract.
PART II OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
-----------------
18
<PAGE>
ALLIANCE RESOURCES PLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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
--------------------------------
(a) Exhibits
SEC
Exhibit
No. Description of Exhibits
------- -----------------------
(27) Financial Data Schedule
-----------------------
*27.1 Financial Data Schedule of Alliance Resources PLC
*Filed Herewith.
19
<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
20
<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> AUG-01-1997 AUG-01-1996
<PERIOD-END> OCT-31-1997 OCT-31-1996
<CASH> 2,376,080 72,948
<SECURITIES> 0 0
<RECEIVABLES> 2,651,767 2,119,406
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,307,956 2,246,530
<PP&E> 47,897,521 36,962,822
<DEPRECIATION> (17,251,691) (10,254,970)
<TOTAL-ASSETS> 37,903,335 30,857,487
<CURRENT-LIABILITIES> 10,793,035 11,866,608
<BONDS> 0 0
0 0
0 2,871,114
<COMMON> 20,077,486 11,681,150
<OTHER-SE> (15,469,856) (13,978,300)
<TOTAL-LIABILITY-AND-EQUITY> 37,903,335 30,857,487
<SALES> 3,248,700 2,377,701
<TOTAL-REVENUES> 3,248,700 2,467,928
<CGS> 1,491,276 1,215,659
<TOTAL-COSTS> 4,038,472 4,038,472
<OTHER-EXPENSES> (94,326) (32,934)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 609,127 732,151
<INCOME-PRETAX> (1,304,573) (2,058,619)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,304,573) (2,058,619)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,304,573) (2,224,869)
<EPS-PRIMARY> (0.04) (0.12)
<EPS-DILUTED> (0.04) (0.12)
</TABLE>
