<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
SCHEDULE 14D-1
Tender Offer Statement
Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
Alliance Resources PLC
(Name of Subject Company)
American Rivers Oil Company
(Bidder)
Ordinary Shares of (Pounds)0.01 Each
(Title of Class of Securities)
01877N 10 7
(CUSIP Number of Class of Securities)
Karlton Terry
American Rivers Oil Company
700 East Ninth Avenue, Suite 106
Denver, Colorado 80203
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Bidder)
Copy to:
W. Alan Kailer, Esq.
Jenkens & Gilchrist
A Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
(214) 855-4500
_____________________
Calculation of Filing Fee:*
_______________________________________________________________________________
Transaction Valuation** Amount of Filing Fee***
$4,648,256 $930
_______________________________________________________________________________
* Filing Fee paid with previous filing.
** For purposes of calculating the fee only. The filing fee was calculated
to Section 14d-1 of the Securities Exchange Act of 1934, as amended, and
Rule 0-11 thereunder, on the basis of 53,684,336 Ordinary Shares.
*** 1/50 of one percent of the value of the securities to be acquired.
<PAGE>
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<CAPTION>
<S> <C>
Amount Previously Paid: $ 1,300
--------------------------
Form or Registration No.: 333-85237
---------------------------
Filing Party: American Rivers Oil Company
---------------------------
Date Filed: August 13, 1999
---------------------------
</TABLE>
2
<PAGE>
(1) Names of Reporting Persons: American Rivers Oil Company
--------------------------------------------
S.S. or I.R.S. Identification No. of Above Person: 84-0839926
---------------------
(2) Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [_] (b) [_]
(3) SEC Use Only ___________________________________________________________
(4) Source of Funds (See Instructions) OO
-------------------------------------
(5) Check Box If Disclosure of Legal Proceedings Is Required
Pursuant to Items 2(e) or 2(f) [_]
(6) Citizenship or Place of Organization Delaware
----------------------------------
(7) Aggregate Amount Beneficially Owned
by Each Reporting Person 0 ordinary shares
------------------------------
(8) Check Box if the Aggregate Amount in Row (7)
Excludes Certain Shares (See Instructions) [_]
(9) Percent of Class Represented by Amount in Row (7) 0%
---------------------
(10) Type of Reporting Person (See Instructions) CO
----------------------------
3
<PAGE>
This Amendment No. 1 to the Schedule 14D-1 (the "Amendment") is being filed
on behalf of American Rivers to supplement certain information sent to the
shareholders related to the Exchange Offer. The item numbers and responses
thereto below are in accordance with the requirements of Schedule 14D-1 of the
Securities Exchange Act of 1934, as amended.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(3) Letter to Shareholders with American Rivers Oil Company 10-KSB Financials
4
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: November 8, 1999 AMERICAN RIVERS OIL COMPANY
By: /s/ Karlton Terry
-----------------------------------
Name: Karlton Terry
Title President
5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
(a)(3) Letter to Shareholders with American Rivers Oil Company 10-KSB
Financials
6
<PAGE>
EXHIBIT (a)(3)
ALLIANCE RESOURCES PLC AMERICAN RIVERS OIL COMPANY
October 30, 1999
To shareholders of Alliance Resources PLC and American Rivers Oil Company:
On October 21, 1999, we sent you information concerning a proposed change
of American Rivers' state of incorporation from Wyoming to Delaware by merging
into the subsidiary of a new Delaware holding company and an offer by that new
Delaware holding company to acquire all of the shares of Alliance Resources PLC.
That information included a copy of American Rivers' Annual Report on Form 10-
KSB for the fiscal year ended March 31, 1999. American Rivers' financial
statements were inadvertently omitted from the Form 10-KSB that we sent to you.
Therefore, we have enclosed with this letter the financial statements for
American Rivers.
The Board of Directors of American Rivers has unanimously recommended that
the American Rivers shareholders vote in favor of the reincorporation. Because
the offer for Alliance Resources PLC will be made by the new Delaware company,
the American Rivers shareholders are not being asked to vote on the offer
itself. The directors of American Rivers, who directly or indirectly control
approximately 53.5% of the outstanding shares of the company, have indicated
that they intend to vote for the approval of the reincorporation. Therefore,
approval of the reincorporation is assured and we are not asking American Rivers
shareholders for a proxy.
American Rivers has called a special meeting of the shareholders to vote on
the reincorporation. The record date for voting at the meeting is October 12,
1999. The meeting will be held November 18, 1999.
The Board of Directors of Alliance has unanimously recommended that all
Alliance shareholders accept the offer as each of the Board members intend to do
in respect of their holdings of Alliance shares, which total 389,484 Alliance
ordinary shares representing 0.82% of the outstanding ordinary shares of
Alliance.
Alliance shareholders who wish to accept the offer should ensure that they
return their completed Form of Acceptance that we sent in the October 21 mailing
as soon as possible and in any event so as to be received by no later than 3:00
p.m. on November 19, 1999.
The document we sent to you on October 21 contains more complete
information about the reincorporation of American Rivers and the offer for the
Alliance shares. You should read that entire document carefully, including the
Annual Reports on Form 10-K for both Alliance and American Rivers, with the
enclosed American Rivers financial statements.
Sincerely, Sincerely,
JOHN A. KEENAN, KARLTON TERRY,
Chairman and Managing Director President and Chief Executive Officer
Alliance Resources PLC American Rivers Oil Company
<PAGE>
American Rivers Oil Company
and Subsidiaries
Consolidated Financial Statements
For the Years Ended
March 31, 1999 and 1998
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report.................................................F-2
Consolidated Balance Sheet - March 31, 1999..................................F-3
Consolidated Statements of Operations -
For the Years Ended March 31, 1999 and 1998................................F-4
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended March 31, 1999 and 1998................................F-5
Consolidated Statements of Cash Flows -
For the Years Ended March 31, 1999 and 1998................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
American Rivers Oil Company
Denver, Colorado
We have audited the accompanying consolidated balance sheet of American Rivers
Oil Company and subsidiaries as of March 31, 1999, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended March 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Rivers Oil
Company and subsidiaries as of March 31, 1999, and the results of their
operations and their cash flows for the years ended March 31, 1999 and 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has incurred an accumulated deficit of $4.6
million, recurring net losses and negative cash flows from operating activities
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 13, 1999
F-2
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
------
CURRENT ASSETS:
Cash and equivalents $ 2,974
Oil and gas properties held for sale 93,376
Prepaid expenses and other 1,077
----------
Total current assets 97,427
OTHER ASSETS 3,527
----------
TOTAL ASSETS $ 100,954
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 75,824
Accounts payable and accrued expenses 37,747
----------
Total current liabilities 113,571
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT:
Preferred stock, $.50 par value; 5,000,000 shares authorized;
no shares issued --
Common stock, $.01 par value; 20,000,000 shares authorized;
4,713,004 shares issued 47,130
Class B common stock, $.01 par value; 8,000,000 shares
authorized; 7,267,820 shares issued and outstanding 72,678
Additional paid-in capital 6,193,893
Related party note receivable, net of origination fee of
$12,500, and allowance for doubtful accounts of $150,000 --
Accumulated deficit (4,595,513)
Less treasury stock, at cost, 1,147,234 common shares (1,730,805)
----------
Total stockholders' deficit (12,617)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 100,954
==========
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
MARCH 31,
1999 1998
---------- -----------
REVENUE:
Oil and gas sales $ 17,968 $ 655,398
Operator fees -- 2,578
---------- -----------
Total revenue 17,968 657,976
EXPENSES:
Oil and gas production costs 37,706 408,594
Exploration costs 5,303 5,124
General and administrative 386,466 475,381
Depreciation and depletion 9,210 296,804
Impairment of oil and gas properties -- 2,567,440
---------- -----------
Total expenses 438,685 3,753,343
---------- -----------
LOSS FROM OPERATIONS (420,717) (3,095,367)
OTHER INCOME (EXPENSE):
Gain on sale of oil and gas properties 292,838 92,451
Equity in loss of Bishop Capital Corporation -- (95,263)
Interest (expense) (3,056) (83,724)
Interest income 16,529 --
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (114,406) (3,181,903)
DEFERRED INCOME TAX BENEFIT -- 232,000
---------- -----------
NET INCOME (LOSS) $ (114,406) $(2,949,903)
========== ===========
NET INCOME (LOSS) PER SHARE:
Common stock $ -- $(.29)
========== ===========
Class B common stock $ -- $(.26)
========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common stock 3,606,000 3,614,000
========== ===========
Class B common stock 7,268,000 7,268,000
========== ===========
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional
Common Stock Class B Common Stock Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BALANCES, April 1, 1997 4,713,004 $ 47,130 7,267,820 $ 72,678 $ 7,797,203
Consummation of spin-off of Bishop -- -- -- -- (1,595,190)
Capital Corporation
Issuance of treasury stock for services -- -- -- -- (8,120)
Net loss -- -- -- -- --
----------- ----------- --------- ----------- -----------
BALANCES, March 31, 1998 4,713,004 47,130 7,267,820 72,678 6,193,893
Purchase of treasury stock -- -- -- -- --
Net income -- -- -- -- --
----------- ----------- --------- ----------- -----------
BALANCES, March 31, 1999 4,713,004 $ 47,130 7,267,820 $ 72,678 $ 6,193,893
=========== =========== ========= =========== ===========
(Table continues below)
Treasury Stock Accumulated
Shares Amount Deficit Total
---------- ---------- ---------- ----------
BALANCES, April 1, 1997 1,101,234 $(1,736,062) $(1,531,204) $ 4,649,745
Consummation of spin-off of Bishop -- -- -- (1,595,190)
Capital Corporation
Issuance of treasury stock for services (4,000) 6,320 -- (1,800)
Net loss -- -- (2,949,903) (2,949,903)
---------- ---------- ---------- ----------
BALANCES, March 31, 1998 1,097,234 (1,729,742) (4,481,107) 102,852
Purchase of treasury stock 50,000 (1,063) -- (1,063)
Net income -- -- (114,406) (114,406)
---------- ---------- ---------- ----------
BALANCES, March 31, 1999 1,147,234 $(1,730,805) $(4,595,513) $ (12,617)
========= =========== ========== ==========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(114,406) $(2,949,903)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and depletion 9,210 296,804
Bad debt expense 150,000 --
Impairment of oil and gas properties -- 2,567,440
Amortization of debt issuance costs -- 9,100
Equity in loss of Bishop Capital Corporation -- 95,263
Gain on sale of oil and gas properties (292,838) (92,451)
Deferred income tax benefit -- (232,000)
Issuance of treasury stock for services -- 1,800
Changes in operating assets and liabilities:
(Increase) decrease in:
Oil and gas sales receivable 80,877 33,290
Prepaid expenses and other 11,608 (6,874)
Increase (decrease) in:
Payable to Class B shareholder -- 9,989
Payable to related party (55,319) (6,106)
Accounts payable and accrued expenses (118,733) 44,760
--------- ----------
Net cash used in operating activities (329,601) (228,888)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (22,787) (109,893)
Proceeds from sale of property and equipment 506,345 445,379
Advances under related party note receivable (150,000) --
--------- ----------
Net cash provided by investing activities 333,558 335,486
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 22,525
Principal payments on borrowings -- (258,510)
Purchase of treasury stock (1,063) --
Private placement offering costs -- (6,800)
--------- ----------
Net cash used in financing activities (1,063) (242,785)
--------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,894 (136,187)
CASH AND EQUIVALENTS, beginning of year 80 136,267
--------- ----------
CASH AND EQUIVALENTS, end of year $ 2,974 $ 80
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 3,035 $ 78,460
========= ==========
Cash paid for income taxes $ -- $ --
========= ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Debt incurred for acquisition of oil and gas properties $ -- $ 61,425
Consummation of spin-off of Bishop Capital Corporation -- 1,595,190
Repayment of borrowings from proceeds from sale of oil and gas
properties 540,000 --
</TABLE>
See accompanying notes to these consolidated financial statements.
F-6
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
General - In October 1995, Metro Capital Corporation (Metro) and Karlton
Terry Oil Company (KTOC) entered into an Asset Purchase Agreement whereby
KTOC agreed to exchange certain oil and gas properties (the "Contributed
Properties") for a total of 7,717,820 shares of Class B common stock of
Metro, which represented 80% of the issued and outstanding voting
securities of Metro. On November 29, 1995, the shareholders of Metro
approved this transaction and the closing occurred on December 8, 1995. The
shareholders also approved changing the name of the Company from Metro to
American Rivers Oil Company ("AROC" or the "Company"). At the closing date,
additional working interests in the KTOC oil and gas properties (the
"Option Properties") were acquired for cash, a portion of the Class B
common shares issued in the transaction, and other consideration.
The consolidated financial statements included herein give effect to these
transactions by recording KTOC's Contributed Properties at their historical
carrying value since the KTOC owners continue to exercise control of the
Contributed Properties through their majority voting interest. Metro's
assets, except for $700,000 cash and an insignificant oil property, were
transferred at their historical carrying value to a wholly-owned
subsidiary, Bishop Capital Corporation, formerly Bishop Cable
Communications Corporation (Bishop), where they were being operated
autonomously by the prior management of Metro pursuant to the terms of a
five-year operating agreement. The Option Properties acquired were recorded
based on the cash and the fair value of securities and other consideration
issued.
In November 1996, the Company's Board of Directors agreed to a pro rata
distribution of 100% of the outstanding capital stock of Bishop. The
Company's common stockholders of record on November 18, 1996 were entitled
to the distribution of shares which occurred on June 20, 1997. The Class B
common stockholders did not participate in the distribution. The
accompanying financial statements include the Company's interest in the
operating results of Bishop, accounted for under the equity method, through
June 20, 1997.
2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - The Company has been primarily engaged in the
exploration, development, and production of oil and natural gas in the
continental United States. Most of the Company's properties were located in
Colorado and along the Ohio River in West Virginia, Kentucky, and Indiana.
During 1998 and 1999, substantially all properties were sold. Management of
the Company is currently negotiating a merger whereby there would likely be
a change of control.
Principles of Consolidation - The accompanying financial statements include
the accounts of the Company and its wholly-owned subsidiaries, except for
Bishop which was accounted for under the equity method due to the absence
of control discussed in Note 1. All material intercompany transactions and
accounts have been eliminated in consolidation.
Cash and Equivalents - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
F-7
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Oil and Gas Producing Activities - The Company follows the "successful
efforts" method of accounting for its oil and gas properties. Under this
method of accounting, all property acquisition costs and costs of
exploratory and development wells are capitalized when incurred, pending
determination of whether the well has found proved reserves. If an
exploratory well has not found proved reserves, the costs of drilling the
well are charged to expense. The costs of development wells are capitalized
whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Depreciation and depletion
of capitalized costs for producing oil and gas properties is provided using
the units-of-production method based upon proved reserves for each field.
Management estimates that the salvage value of lease and well equipment
will approximately offset the future liability for plugging and abandonment
of the related wells.
Gains and losses are generally recognized upon the sale of interests in
proved oil and gas properties based on the portion of the property sold.
Impairment of Long-Lived Assets - The Company assesses impairment whenever
events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. When an assessment for impairment
of proved oil and gas properties is performed, the Company is required to
compare the net carrying value of proved oil and gas properties on a field-
by-field basis (the lowest level at which cash flows can be determined on a
consistent basis) to the related estimates of undiscounted future net cash
flows for such properties. If the net carrying value exceeds the net cash
flows, then impairment is recognized to reduce the carrying value to the
estimated fair value.
During the year ended March 31, 1998, the Company determined that certain
oil and gas properties were impaired and accordingly, an impairment charge
of $2,567,440 was recognized to reduce the properties to the estimated fair
value.
Assets held for sale were evaluated for impairment as of March 31, 1999.
However, no impairment provision was necessary since the estimated fair
value was in excess of the carrying value.
Income Taxes - Income taxes are provided for in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. SFAS No. 109 requires an asset and liability approach in the
recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and
the tax bases of the Company's assets and liabilities.
Revenue Recognition - Revenue from oil and gas sales is recorded on an
accrual basis as sales are made and deliveries occur.
F-8
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings Per Share - Earnings per share is presented in accordance with the
provisions of SFAS No. 128 Earnings Per Share. SFAS No. 128 replaces the
presentation of primary and fully diluted earnings per share (EPS), with a
presentation of basic EPS and diluted EPS. Under SFAS No. 128, basic EPS
excludes dilution for potential common shares and is computed by dividing
income or loss applicable to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock and
resulted in the issuance of common stock. Basic and diluted EPS are the
same in 1999 and 1998 as all potential common shares were antidulitive.
The computation of net loss per share is based on the rights of each class
of common stock. The Class B common stock was not entitled to participate
in any distribution of shares or assets of Bishop. Accordingly, through
June 20, 1997, the common shares were allocated 100% of the subsidiary's
loss and a pro rata percentage of the remaining consolidated loss based on
the ratio of common shares outstanding to total common and Class B shares
outstanding. The Class B common shares were allocated the remaining pro
rata percentage of the loss.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The actual
results could differ from those estimates.
The Company's financial statements are based on a number of significant
estimates including the realization of the note receivable from a related
party, determination of the estimated fair value of oil and gas properties
held for sale, assumptions affecting the estimated fair value of stock-
based compensation, and oil and gas reserve quantities which were the basis
for the calculation of depreciation, depletion, and impairment of oil and
gas properties. Management emphasizes that reserve estimates are inherently
imprecise and that estimates are expected to change as future information
becomes available.
Stock-Based Compensation - The Company accounts for stock-based
compensation for employees using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of
the quoted market price of the Company's common stock at the measurement
date (generally, the date of grant) over the amount an employee must pay to
acquire the stock.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value. Companies that do not adopt
the fair value accounting rules must disclose the impact of adopting the
new method in the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted for
by the fair value method. The Company has elected not to adopt the fair
value accounting prescribed by SFAS No. 123 for employees, but is subject
to the related disclosure requirements.
F-9
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CONTINUING OPERATIONS:
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. For the
years ended March 31, 1999 and 1998, the Company has incurred net losses of
$114,406 and $2,949,903, respectively. The Company's operating activities
have utilized cash in each of the past two years, and the Company has
incurred an accumulated deficit of approximately $4.6 million through March
31, 1999. The ability of the Company to continue as a going concern is
dependent upon the Company's ability to achieve profitable operations and
to raise sufficient capital to meet working capital requirements. The
Company is currently negotiating a merger which is integral to the
Company's ability to continue operations. The success of this merger cannot
be assured. In the event the merger is completed, there would likely be a
change in control of the Company.
4. INVESTMENT IN BISHOP:
As discussed in Note 1, prior to its spin-off in June 1997, Bishop was
being operated autonomously by the prior management of Metro pursuant to
the terms of separate Operating, Management, and Voting Agreements. Since
the Company did not exercise control over the wholly-owned subsidiary's
operations, the investment was accounted for by the equity method.
Following is a summary of condensed operating results pertaining to Bishop
prior to the spin-off.
Period From
April 1, 1997
Through
June 20, 1997
-------------
Revenue $ 82,132
Costs and expenses (213,445)
Gain on sale of marketable securities --
Other income (expense) 36,050
---------
Net loss $ (95,263)
=========
Company's equity in Bishop's loss $ (95,263)
=========
As discussed in Note 1, on June 20, 1997, 885,481 shares of Bishop were
distributed pro rata to the Company's common stockholders (excluding
holders of Class B common stock) and the remaining 3,614,519 shares of
Bishop owned by AROC were canceled.
F-10
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES:
In addition to the entities which are consolidated for financial reporting
purposes, the Company prepared a consolidated income tax return with Bishop
Capital Corporation through the June 20, 1997 spin-off.
A reconciliation of income taxes at the statutory rate to the income tax
benefit reported in the accompanying financial statements is as follows:
Years Ended March 31,
-----------------------
1999 1998
--------- ----------
Computed income tax benefit
at the statutory rate $ 39,000 $1,080,000
State income taxes and other 6,000 95,000
Allowance for bad debts (58,000) --
Tax depletion in excess of book
depletion and other 63,000 --
Change in valuation allowance (50,000) (943,000)
--------- ----------
Total $ -- $ 232,000
========= ==========
Deferred tax assets and liabilities as of March 31, 1999 are comprised of
the following:
Asset:
Net operating loss carryforwards $ 990,000
Oil and gas properties 250,000
-----------
1,240,000
Liability:
Allowance for bad debts (40,000)
Less valuation allowance (1,200,000)
-----------
Net deferred tax asset $ --
===========
At March 31, 1999, the Company has net operating loss carryforwards for
income tax purposes of approximately $2,600,000 which expire primarily in
2009 through 2013. Due to the spin-off discussed in Note 1, the Company has
not recognized deferred tax assets related to net operating losses
attributable to Bishop.
6. LONG-TERM DEBT:
At March 31, 1999, long-term debt consists of a production payment
obligation that was incurred in connection with the purchase of the Option
Properties discussed in Note 1. As part of the consideration for the Option
Properties, the Company agreed to assign a portion of the oil and gas sales
proceeds from one of the properties acquired until a total of $130,000 is
paid to the seller. The Company recorded this non-recourse obligation at
the present value of the expected cash flows from the property of $77,184,
based on a discount factor of 11.5%. The Company plans to sell the property
to which this obligation relates during the year ending March 31, 2000.
Accordingly, the entire balance of $75,824 is classified as a current
liability in the accompanying balance sheet.
F-11
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMON STOCK:
In connection with the Asset Purchase Agreement, the Company agreed to
grant an option (the"Option") to Bishop to acquire 800,000 shares of common
stock to be distributed pro rata to the holders of the Company's common
stock. The Option will be exercisable for a period of 120 days at an
exercise price of $.10 per share commencing December 1998 in the event that
one of the following events has not occurred by such time: (a) the Company
has a minimum of $16.5 million of proved and probable reserves as set forth
in an independent petroleum engineer's report prepared in accordance with
SEC pricing and cost assumptions; or, (b) the average bid price for the
common stock shall have been at least $4.00 for two periods of 20
consecutive trading days; or (c) cash flow (gross revenues from oil and gas
production less expenses directly charged against such production) for the
Company shall have been greater than $2,000,000 for any fiscal year. The
Company did not comply with any of these conditions and the option was
required to be distributed in December 1998.
However, since fair value of the Company's common stock was substantially
less than the $.10 per share exercise price, management decided to forego
the administrative cost of distributing this option to the common
stockholders. Accordingly, this option expired in April 1999.
In December 1995, the Company commenced a private placement of a minimum of
500,000 shares and a maximum of 1,800,000 shares of the Company's common
stock for $1.00 per share. In February 1996, the Company issued 537,500
shares and an additional 405,000 shares were issued during the year ended
March 31, 1997. In November 1996, the Company completed a second private
placement of 275,000 units for $1.00 per share. Each unit consisted of one
share of common stock and one option. The options are exercisable at $1.00
per share and expire 2 years from the date the associated shares are
registered. These shares have not been registered as of March 31, 1999.
Outstanding shares of Class B common stock are convertible into shares of
common stock on a one-for-one share basis commencing in December 1998.
8. RELATED PARTY TRANSACTIONS:
At March 31, 1999, the Company has a note receivable of $150,000 due from
an entity in which a director of the Company has a significant ownership
interest. The note was amended on March 31, 1999 to extend the payment
terms and the maker agreed to pay a fee of $12,500 which is being amortized
over the extended term of the loan. The terms of the note, as amended,
provide for the payment of interest on a current basis at 15% with the
entire balance due in September 1999. The note is guaranteed by another
entity controlled by the director. This receivable arose as a result of
merger discussions with an entity owned by this director. However, the
merger discussions did not result in a definitive agreement. Management
believes that the receivable is fully collectible; however, management has
fully reserved the note in the accompanying balance sheet, due to the
uncertainties of collection.
F-12
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to the working interests in the oil and gas properties included
in the accompanying financial statements, KTOC also owns royalty interests
in some of the properties and has rights to reversionary interests.
Revenues related to these interests are excluded from the accompanying
financial statements since they were retained by KTOC.
9. COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its office facilities from a major stockholder
under a lease agreement that required monthly payments of $1,382 until
October 1998 and continued to lease this space on a month-to-month basis
thereafter. Total rent expense under all operating leases for the years
ended March 31, 1999 and 1998 amounted to $14,900 and$ $16,600,
respectively.
Employment Agreements - In October 1997, the Company entered into one-year
employment agreements with two officers which provided for annual payments
of $50,000 each. In the event of a termination by the Company without
cause, the Company was required to pay the officers' salary for one year.
In February 1998, two officers resigned from the Company, terminating the
remainder of the agreements in exchange for severance payments of $20,000
each.
Contingency - In connection with the private placement discussed in Note 7,
the Company sold 275,000 units to an entity that has asserted that it was
harmed by its inability to sell some or all of its shares of the Company's
common stock in 1997 because such shares were not registered for resale.
The entity has claimed that the Company agreed to register the shares of
common stock but failed to do so. In February 1999, the entity filed suit
in U.S. District Court against the Company and its President alleging
material, intentional and negligent misrepresentations. The entity is
seeking damages of $275,000 plus interest. Due to the preliminary nature of
this matter, the Company is not able to assess the likelihood of an
unfavorable outcome.
10. STOCK OPTIONS:
1995 Stock Option and Stock Compensation Plan - In December 1995, the
Company adopted the 1995 Stock Option and Stock Compensation Plan (the
"1995 Plan") reserving 750,000 shares of the Company's common stock for
issuance to employees and officers (whether or not they are employees) and
consultants. The exercise price of all options will be determined by the
administrators of the 1995 Plan. The exercise period of any option will not
exceed five years from the date of grant of the option.
F-13
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of stock options granted under the 1995 Plan for
the years ended March 31, 1999 and 1998:
1999 1998
-------------------- -------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
---------- -------- --------- --------
Outstanding, beginning of year 505,000 $1.15 505,000 $1.15
Expired (45,000) 1.38 -- --
------- ---------
Outstanding, end of year 460,000 $ 1.13 505,000 $ 1.15
======= =========
At March 31, 1999, all outstanding options were vested. If not previously
exercised, options outstanding at March 31, 1999, will expire as follows:
Year Ending March 31,
Exercise Price ---------------------
Per Share 2000 2001 Total
--------- ------ ------- -------
$1.00 - 400,000 400,000
2.00 60,000 - 60,000
------ ------- -------
60,000 400,000 460,000
====== ======= =======
Other Plans - In prior years, the Company adopted two other stock option
plans under which options have been or may be granted to officers,
employees, and non-employee members of the Board of Directors. Under these
two plans, options granted may be either incentive stock options or
nonqualified stock options and are granted at not less than the fair market
value of the stock at the time of grant. One of the plans expired in
January 1992. In November 1995, the stockholders of the Company approved an
increase in the number of shares reserved for issuance under the other plan
to 500,000 shares. No options were granted, expired, canceled, or exercised
during the years ended March 31, 1999 and 1998 At March 31, 1999, options
for 175,000 shares were outstanding at a weighted average exercise price of
$1.09 per share.
F-14
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All of these options were exercisable at March 31, 1999. If not previously
exercised, options outstanding at March 31, 1999, will expire as follows:
Number Exercise
Year Ending March 31, of Shares Price
--------------------- --------- --------
2000 50,000 $ .68
2001 25,000 1.65
2002 45,000 1.31
2005 30,000 .62
2006 25,000 1.50
---------
Total 175,000 1.09
=========
Other Options - As discussed in Note 7 and options for 275,000 shares were
granted in connection with the private placement completed in November
1996.
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
which are granted to employees. For 1999 and 1998, there were no options
granted and accordingly, pro forma information is not presented.
1987 Stock Bonus Plan - In December 1987, the Company adopted the 1987
Stock Bonus Plan and reserved 250,000 shares (200,000 of which may be
allocated to officers and/or directors) for allocation to employees. As of
March 31, 1999, 225,160 shares have been awarded under this plan.
Employee Stock Ownership Plan - During the year ended March 31, 1992, the
Company adopted an Employee Stock Ownership Plan (the ESOP) and reserved
250,000 shares for issuance under the ESOP. The ESOP provides for the
establishment of a trust to hold ESOP assets which will primarily consist
of common stock of the Company. The ESOP will be funded by the Company
through annual contributions to the trust in amounts which are determined
by the Board of Directors in its sole discretion and which will be
allocated to each participant's account in proportion to the ratio that
each participant's compensation for the fiscal year bears to the total
compensation of all participants for the fiscal year. No contributions were
made to the ESOP for the years ended March 31, 1999 and 1998.
11. FINANCIAL INSTRUMENTS:
SFAS No. 107 requires all entities to disclose the fair value of certain
financial instruments in their financial statements. Accordingly, at March
31, 1999, management's best estimate is that the carrying amount of cash,
receivables, notes payable, accounts payable and accrued expenses
approximates fair value due to the short maturity of these instruments.
Management estimates that the fair value of the non-recourse production
payment obligation (included in long-term debt) is less than $ 1,000
compared to the carrying value of $75,824.
F-15
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. SUPPLEMENTAL OIL AND GAS DISCLOSURES:
Costs Incurred in Oil and Gas Producing Activities - The following is a
summary of costs incurred in oil and gas producing activities for the years
ended March 31, 1999 and 1998:
1999 1998
------- --------
Property acquisition costs $ -- $ 61,000
Development costs -- 110,000
Exploration costs 5,000 5,000
------- --------
Total $ 5,000 $176,000
======= ========
Results of Operations from Oil and Gas Producing Activities - Results of
operations from oil and gas producing activities (excluding operator fees,
general and administrative expense, and interest expense) for the years
ended March 31, 1999 and 1998 are presented below.
1999 1998
---------- ------------
Oil and gas sales $ 18,000 $ 655,000
Gain on sale of oil and gas properties 293,000 92,000
Production costs (38,000) (409,000)
Exploration costs (5,000) (5,000)
Depletion and depreciation (9,000) (296,000)
Impairment of oil and gas properties -- (2,567,000)
Imputed income tax benefit -- 232,000
---------- ------------
Results of operations from oil and gas
producing activities $ 259,000 $ (2,298,000)
========== ============
Oil and Gas Reserve Quantities (Unaudited) - Proved oil and gas reserves
are the estimated quantities of crude oil, natural gas, and natural gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed oil and gas
reserves are those reserves expected to be recovered through existing wells
with existing equipment and operating methods. The reserve data is based on
studies prepared by the Company's independent petroleum engineer. All
proved reserves of oil and gas at March 31, 1998 are located in the United
States. There were no proved oil and gas reserves at March 31, 1999. The
following tables present estimates of the Company's net proved oil and gas
reserves, and changes therein for the years ended March 31, 1999 and 1998.
F-16
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in Net Quantities of Proved Reserves (Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Proved reserves, beginning of year 65,000 1,148,000 1,361,000 4,542,000
Purchase of minerals in place -- -- 2,000 33,000
Sales of minerals in place (57,000) (1,135,000) (93,000) (160,000)
Revisions of previous estimates (8,000) -- (1,188,000) (3,069,000)
Production -- (13,000) (17,000) (198,000)
-------- --------- --------- ---------
Proved reserves, end of year -- -- 65,000 1,148,000
======== ========== ========= =========
Proved developed reserves,
beginning of year 65,000 1,148,000 368,000 3,250,000
======== ========== ========= =========
Proved developed reserves,
end of year -- -- 65,000 1,148,000
======== ========== ========= =========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows (Unaudited) - SFAS
No. 69 prescribes guidelines for computing a standardized measure of future
net cash flows and changes therein relating to estimated proved reserves.
The Company has followed these guidelines which are briefly discussed
below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. Estimated future income taxes are
computed using current statutory income tax rates including consideration
for estimated future statutory depletion and tax credits. The resulting
future net cash flows are reduced to present value amounts by applying a
10% annual discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations for actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations
since these estimates are the basis for the valuation process.
F-17
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary sets forth the Company's future net cash flows
relating to proved oil and gas reserves as of March 31, 1999 and 1998 based
on the standardized measure prescribed in Statement of Financial Accounting
Standards No. 69.
1999 1998
---- ----
Future cash inflows $ -- $ 3,099,000
Future production costs -- (2,018,000)
Future development costs -- --
Future income tax expense -- --
---- -----------
Future net cash flows -- 1,081,000
10% annual discount for estimated timing
of cash flow -- (373,000)
---- -----------
Standardized measure of discounted future
net cash flows $ -- $ 708,000
===== ===========
Changes in Standardized Measure (Unaudited) - The following are the
principal sources of change in the standardized measure of discounted
future net cash flows for the years ended March 31, 1999 and 1998:
1999 1998
---------- ------------
Standardized measure, beginning of year $ 708,000 $ 7,794,000
Sale of oil and gas produced,
net of production costs 20,000 (247,000)
Acquisition of reserves in place -- 57,000
Sale of minerals in place (675,000) (479,000)
Net changes in prices and production costs -- (6,815,000)
Net changes in estimated development costs -- 1,320,000
Revisions of previous quantity estimates (53,000) (5,331,000)
Accretion of discount -- 779,000
Changes in income taxes, net -- 3,630,000
--------- -----------
Standardized measure, end of year $ -- $ 708,000
========= ===========
F-18
