SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DECEMBER 8, 1995
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(Date of Report)
AMERICAN RIVERS OIL COMPANY
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(Exact Name of Registrant as specified in its charter)
WYOMING
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(State or other jurisdiction of incorporation)
0- 10006 84-0839926
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(Commission File Number) (IRS Employer Identification Number)
700 EAST NINTH AVENUE, SUITE 106, DENVER, CO. 80203
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(Address of principal executive offices including zip code)
(303) 832-1117
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(Registrant's telephone number including area code)
METRO CAPITAL CORPORATION
716 COLLEGE VIEW DRIVE, RIVERTON, WYOMING 82501
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(Former name or former address, if changed since last report)
AMERICAN RIVERS OIL COMPANY
ITEM 1. CHANGES IN CONTROL OF THE REGISTRANT.; AND
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ASSET PURCHASE AGREEMENT
Pursuant to an Asset Purchase Agreement dated October 19,
1995 among the Company, Karlton Terry Oil Company ("KTOC"),
Karlton Terry and Jubal Terry (the "Shareholders"), the Company
acquired certain assets (the "Assets") of KTOC and the
Shareholders in exchange for 7,717,820 "restricted" shares of
Class B Common Stock, $.01 par value, of the Company (the "Class
B Common Stock"), referred to herein as the Transaction.
Included in the Assets were assets acquired through option
agreements with third parties. The 7,717,820 shares of the Class
B Common Stock represented 80% of the aggregate issued and
outstanding shares of both classes of the Company's Common Stock
immediately after the closing (the "Closing"). KTOC and the
Shareholders are referred to herein collectively as the Sellers.
As a result of the Transaction, KTOC and the Shareholders own in
the aggregate 6,714,875 shares or 87% of the Class B Common Stock
which was issued pursuant to the Transaction. The Closing of the
Transaction took place in escrow on November 30, 1995 and the
escrow was released on December 8, 1995, the effective date of
the Transaction. In connection with the Transaction, the Company
changed its name to American Rivers Oil Company.
The Assets acquired by the Company pursuant to the
Transaction consist of various oil and gas leases covering
developed and undeveloped acreage underlying large rivers through
several oil fields in the United States (the "River Leases").
The River Leases are expected to be developed with horizontal and
diagonal wells. Besides the River Leases, the Company acquired
certain producing oil and gas properties. Karlton and Jubal
Terry and certain of their affiliates will retain overriding
royalty interests burdening the working interests transferred to
the Company, ranging from 1.7% to 7.5%. Because an overriding
royalty interest bears no share of the costs of developing an oil
and gas property, it may be advantageous for the holder of the
interest to conduct drilling and other operations even if they
may not be economic for the Working Interest owner. Therefore,
the existence of these overriding royalty interests creates
potential conflicts of interest between the Company and these
persons.
The Board of Directors of the Company valued the Assets
based upon, among other things, the financial statements with
respect to the Assets, the reserve reports with respect to the
Assets and other information regarding the Assets.
2
In connection with the Transaction, the Company transferred
to Bishop Capital Corporation, formerly Bishop Cable
Communications Corporation, its wholly-owned Wyoming subsidiary
(the "Subsidiary"), all of the Company's assets (the "Excluded
Assets") except for $700,000 and its working interest in, and its
operating agreement with respect to, the property owned by the
Company known as Twenty Mile Hill. The Company intends to
distribute the shares of the Subsidiary to the holders of the
Company's Common Stock as soon as practicable on a non-taxable
basis. In any event, and regardless of tax consequences, the
Company intends such distribution to occur not later than 36
months from the Closing.
The Class B Common Stock possesses all of the rights of the
Company's Common Stock, except that: (i) the Class B Common Stock
will not be entitled to participate in any distribution of shares
or assets of the Subsidiary; and (ii) each share of Class B
Common Stock will be entitled to 1.6 votes on all issues
presented for vote by the shareholders. The Class B Common Stock
is convertible on a one-for-one share basis into the Company's
Common Stock commencing 36 months from the Closing. Commencing
30 months from the Closing, the Class B Common Stock will be
convertible on a one-for-one share basis, provided that the
number of shares so converted until the date 36 months after the
Closing will be limited to that number of shares of Common Stock
that may be sold by an affiliate pursuant to the volume
limitation provisions of Rule 144 promulgated under the
Securities Act of 1933, as amended. Subsequent to the Closing,
450,000 shares of Class B Common Stock are to be converted into
450,000 shares of Common Stock to acquire certain option
properties which were part of the assets acquired under the
Agreement. The 450,000 shares of Common Stock are subject to
certain registration rights commencing six months from the date
of conversion. As a result of the Transaction, up to 7,717,820
shares of the Company's Common Stock may be issued to holders of
the Company's Class B Common Stock.
In connection with the Transaction, the Company amended its
Articles of Incorporation to: (i) change its name to American
Rivers Oil Company; (ii) authorize 8,000,000 shares of Class B
Common Stock, $.01 par value; (iii) increase the number of its
authorized shares of Common Stock, $.01 par value from 6,000,000
to 20,000,000 shares; and (iv) increase the number of its
authorized shares of $.50 par value Preferred Stock from
3,000,000 to 5,000,000 shares. The Company also increased the
aggregate number of shares of the Company's Common Stock reserved
for issuance under its 1992 Stock Option Plan (the "1992 Plan")
from 150,000 to 500,000 shares. The Transaction and the
foregoing changes to the Company's capital structure and its 1992
Plan were approved by the Company's shareholders at a meeting
held on November 27 and 29, 1995.
In connection with the Agreement, the Company granted an
option (the "Option") to the Subsidiary to acquire 800,000 shares
of Common Stock (the "Option Shares") to be distributed PRO RATA to
3
the holders of the Common Stock. The Option will be
exercisable for a period of 120 days at an exercise price of $.10
per share commencing 36 months from the Closing 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 twenty
consecutive trading days; or (c) cash flow (gross revenues from
oil and gas production less expenses directly charged against
such production) for the Company shall have been greater than
$2,000,000 for any fiscal year. The Option will be distributed
to the shareholders, if at all, 36 months from the Closing. The
Company is obligated to register the Option Shares with the SEC.
Until the date two years after the date of the Agreement, or
such longer period as provided in the Agreement (collectively the
"Restriction Period"), the Sellers have agreed to maintain their
ownership of at least 39% of the issued and outstanding shares
(the "Restricted Shares") of the Class B Common Stock received by
Sellers, which shares bear a legend evidencing such obligations
and restrictions. Sellers will be allowed to transfer such
Restricted Shares free and clear of such restriction during the
Restriction Period only if they substitute stock or other assets
subject to such legend or other similar restriction as may be
reasonably requested by the management of the Subsidiary and
having a value not less than the lesser of the value of the
Restricted Securities or $4,000,000. Each share of Restricted
Securities will be deemed to have a value of 75% of the market
value of a share of the Common Stock, as defined in the
Agreement.
Under the Agreement, the Company, KTOC and the Subsidiary
entered into a five-year operating agreement (the "Operating
Agreement") pursuant to which the Subsidiary will be operated
autonomously by the current management of the Company as set
forth in a Management Agreement described below entered into with
Robert E. Thrailkill, and employment agreements entered into with
John A. Alsko and Robert J. Thrailkill who are the officers and
directors of the Subsidiary. Any determination by the Board of
Directors of the Subsidiary with respect to the business,
operations and assets of the Subsidiary will be final, conclusive
and binding and will not be subject to any modification
whatsoever by the Board of Directors or management of the Company
for any reason; provided, however, that in no event will any
member of the Board of Directors or any other officer of the
Company be required to breach his or her fiduciary duty to the
Company or its shareholders.
Pursuant to the Management Agreement entered into among the
Company, the Subsidiary and Robert E. Thrailkill, Mr. Thrailkill
will serve as the Subsidiary's President, Chairman of the Board
of Directors and Chief Executive Officer for a term of five
years. Mr. Thrailkill will receive a salary of no less than
$145,000 per
4
year, subject to certain increases. The compensation payable to
Mr. Thrailkill will be self-funded by the Subsidiary and not the
Company. The Management Agreement may not be terminated by the
Company in any event but may be terminated by the Subsidiary in
the event of the death or disability of Mr. Thrailkill or for
"Cause" as defined in the agreement and may be terminated by
Mr. Thrailkill for "Good Reason" as defined in the agreement or for
impaired health. If Mr. Thrailkill's employment is terminated by
the Company or the Subsidiary in breach of the agreement or by
Mr. Thrailkill for Good Reason, the Company and the Subsidiary will
pay Mr. Thrailkill his full salary through the date of termination
and a lump sum equal to his annual salary multiplied by the greater
of the number of years (including partial years) remaining under
the agreement or the number three. The Management Agreement supersedes
the Executive Employment Agreement effective January 1, 1993 between
Mr. Thrailkill and the Company.
In connection with the Transaction, Karlton Terry has been
elected President and Jubal Terry has been elected Chief
Operations Officer, Executive Vice President and Secretary-
Treasurer of the Company. The new Board of Directors of the
Company consists of Karlton Terry, Jubal Terry and Denis Bell.
The Company intends to enter into three-year employment
agreements with Karlton Terry and Jubal Terry providing for
salaries of $125,000 and $75,000, respectively, and such other
terms and conditions to be negotiated. In addition, the
Subsidiary has entered into three-year employment agreements with
John A. Alsko and Robert J. Thrailkill providing for salaries of
$50,000 and $36,000, respectively.
The Company, the Subsidiary and the Sellers also entered
into a five-year Voting Agreement under which the Company and the
Sellers appointed Robert E. Thrailkill as attorney and proxy to
vote in his sole and absolute discretion, all of the shares of
all classes of the Common Stock of the Company and/or the
Subsidiary owned by them with respect to any matter brought
before the shareholders of the Company and/or the Subsidiary
relating to or involving exclusively the Subsidiary (including,
without limitation, the election of directors, and other matters
listed in the Operating Agreement).
Prior to the negotiation and execution of the Agreement,
there existed no relationship between the Company and the Sellers
or any of the assets acquired.
OTHER MATTERS
The Company has agreed to issue 100,000 shares of Common
Stock to counsel for the Company for legal services rendered in
connection with the Transaction. The Company also has agreed to
issue 100,000 shares of Common Stock to a non-affiliated third
party for property acquisition services rendered in connection
with the Transaction.
5
In connection with the Agreement, the Company has agreed to
grant various registration rights with respect to certain
securities outstanding or to be issued. As soon as practicable,
the Company will register on Form S-8 (or such other form as is
appropriate) 866,500 shares of Common Stock as follows: (i) the
200,000 shares to be issued as described in the above paragraph;
(ii) 82,500 shares previously issued as bonus shares; (iii)
70,000 shares reserved under the Company's 1987 Stock Bonus
Plan; and (iv) 514,000 shares underlying options. Commencing
six months from the Closing, an additional 63,000 shares of
Common Stock underlying outstanding options will be subject to
demand registration rights and 63,000 shares of Common Stock
underlying outstanding options will be subject to "piggy-back"
registration rights.
ITEM 5. OTHER EVENTS
The Company currently is conducting a private placement of
1.8 million shares of the Company's Common Stock at $1.00 per
share. Proceeds from the private placement will be used to
purchase production, repay outstanding bank debt and fund
development of the Company's properties, including general and
administrative expenses. The Company intends to register all of
the Common Stock issued in the private placement with the SEC six
months after the close of the private placement. There can be no
assurance that such offering will be successful.
The Company also has issued to non-affiliated third parties
options to acquire up to 400,000 shares of Common Stock at $1.00
per share in lieu of cash for future services to be performed on
behalf of the Company, which shares are subject to registration
on Form S-8 as set forth above.
The Company knows of no arrangement the operation of which
may at a subsequent date result in a change in control of the Company.
6
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Audited and Unaudited Financial Statements of the KTOC
Contributed Properties and the KTOC Option Properties
(b) Pro Forma Financial Statements.
(c) Exhibits.
10.1 Asset Purchase Agreement dated October 19, 1995
among the Registrant, Karlton Terry Oil Company,
Karlton Terry and Jubal Terry.
10.2 Operating Agreement dated November 30, 1995 among
the Registrant, Karlton Terry Oil Company, Bishop
Cable Communications Corporation, Karlton Terry
and Jubal Terry.
10.3 Management Agreement dated November 30, 1995
among the Registrant, Bishop Cable Communications
Corporation and Robert E. Thrailkill.
10.4 Voting Agreement dated November 30, 1995 among
the Registrant, Bishop Cable Communications
Corporation, Karlton Terry Oil Company, Karlton
Terry and Jubal Terry.
7
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.
AMERICAN RIVERS OIL COMPANY
Date: December 18, 1995 By: /s/ Karlton Terry
------------------------------------
Karlton Terry, President
8
KTOC CONTRIBUTED PROPERTIES
FINANCIAL STATEMENT
FOR THE YEAR ENDED
DECEMBER 31, 1994
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Karlton Terry Oil Company
Denver, Colorado
We have audited the accompanying statement of assets and liabilities of KTOC
Contributed Properties as of December 31, 1994 and the related statements of
direct revenues and expenses for the years ended December 31, 1994 and 1993.
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.
The accompanying financial statements were prepared on the basis described in
Note 1 and are not intended to be a complete presentation of Karlton Terry
Oil Company.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of KTOC Contributed
Properties as of December 31, 1994, and their direct revenues and expenses
for the years ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
September 12, 1995
F-1
KTOC CONTRIBUTED PROPERTIES
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Oil and gas sales receivable $ 32,400 $ 46,400
Accounts receivable, joint interest owners
(including amounts due from related parties
of $18,000 in 1995 and $19,100 in 1994) 42,000 43,000
-------- --------
Total current assets 74,400 89,400
OIL AND GAS PROPERTIES, at cost, using the
successful efforts method:
Proved properties 474,300 457,900
Less accumulated depreciation, depletion and
amortization (98,700) (72,500)
-------- --------
Net oil and gas properties 375,600 385,400
-------- --------
TOTAL ASSETS 450,000 474,800
-------- --------
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt 48,000 50,700
Accounts payable, trade 43,600 20,300
Oil and gas sales payable 38,500 27,800
-------- --------
Total current liabilities 130,100 98,800
LONG-TERM DEBT, less current maturities 111,000 149,400
-------- --------
TOTAL LIABILITIES 241,100 248,200
-------- --------
NET ASSETS $208,900 $226,600
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
KTOC CONTRIBUTED PROPERTIES
STATEMENTS OF DIRECT REVENUES AND EXPENSES
FOR THE
NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- --------------------
1995 1994 1994 1993
-------- --------- --------- ---------
(Unaudited)
REVENUE:
Oil and gas sales $ 83,200 $ 101,000 $ 146,400 $ 184,800
Operator fees 3,800 - 2,500 -
-------- --------- --------- ---------
Total revenue 87,000 101,000 148,900 184,800
EXPENSES:
Oil and gas production costs 40,400 38,300 53,400 55,100
Depreciation, depletion and amortization 26,100 29,500 32,200 40,300
-------- --------- --------- ---------
Total expenses 66,500 67,800 85,600 95,400
-------- --------- --------- ---------
20,500 33,200 63,300 89,400
OTHER INCOME (EXPENSE):
Gain on drilling arrangements - 138,200 138,200 -
Interest expense (15,100) (18,700) (19,700 (15,500
-------- --------- --------- ---------
Excess of direct revenues over
expenses $ 5,400 $ 152,700 $ 181,800 $ 73,900
-------- --------- --------- ---------
-------- --------- --------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying financial statements present the assets and liabilities
of certain oil and gas properties (the "Properties") which are currently
owned by Karlton Terry Oil Company and affiliated individuals (collectively
referred to herein as "KTOC") and their historical direct revenues and
expenses. Most of the properties are located in Louisiana and along the
Ohio River in West Virginia, Kentucky and Indiana and consist of both
developed and undeveloped acreage. As discussed in Note 6, the Properties
(along with additional interests in the properties which KTOC has rights to
acquire pursuant to option agreements) are subject to an agreement with
Metro Capital Corporation ("Metro") whereby, subject to approval by
Metro's shareholders, the Properties and the options will be sold to Metro
in exchange for 80% of the outstanding shares of Metro.
These financial statements present the properties to be acquired and
liabilities to be assumed, along with related operating receivables and
payables at their historical cost basis, and the direct revenues and
expenses of these properties on the accrual basis. They are not intended
to be a complete presentation of the financial position and results of
operations of KTOC.
UNAUDITED INFORMATION - The accompanying financial statements as of
September 30, 1995 and for the nine-month periods ended September 30, 1995
and 1994 are included herein without audit. In the opinion of management
of KTOC, these financial statements contain all adjustments (consisting
only of normal recurring items) necessary to present fairly the financial
position and the results of operations for the periods presented. The
results of operations for the nine months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. SIGNIFICANT ACCOUNTING POLICIES:
OIL AND GAS PRODUCING ACTIVITIES - KTOC 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 well. 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.
The net capitalized costs of proved oil and gas properties are limited to
the aggregate undiscounted future net revenues (the "ceiling") related to
such properties. If the net capitalized costs exceed the ceiling, the
excess will be recorded as a charge to operations.
F-4
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
Gains and losses are generally recognized upon the sale of interests in
proved oil and gas properties based on the portion of the property sold.
For sales of partial interests in unproved properties, KTOC treats the
proceeds as a recovery of costs with no gain recognized until all costs
have been recovered.
INCOME TAXES - No income tax provision is included in the accompanying
financial statements, since KTOC's shareholder has elected to be taxed
under Subchapter S of the Internal Revenue Code. Accordingly, KTOC's
taxable income or loss is required to be reported in the shareholder's
individual income tax return.
REVENUE RECOGNITION - Revenue from oil and gas sales is recorded on an
accrual basis as sales are made and deliveries occur.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - In March 1995, the
Financial Accounting Standards Board issued a new Statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995 and would change the
method of determining impairment of proved oil and gas properties.
Management has not performed a detailed analysis of the impact of this new
standard on the financial statements.
3. NOTE PAYABLE:
In April 1993, KTOC financed the acquisition of a producing oil and gas
property with a note payable to a bank with a principal balance of
$200,000 at December 31, 1994. The note provides for monthly payments
of $5,841 through April 1998 when the remaining balance is due. Interest
accrues at a variable rate which is equal to the bank's base rate plus 2%
(11% at December 31, 1994). Borrowings under the note are collateralized
by an oil and gas property located in Louisiana and an assignment of
production. Additionally, KTOC's president has personally guaranteed
KTOC's obligations under the note agreement.
The aggregate maturities of long-term debt at December 31, 1994, are as
follows:
YEARS ENDING
DECEMBER 31, AMOUNT
------------- ---------
1995 $ 50,700
1996 56,400
1997 62,900
1998 30,100
---------
$ 200,100
---------
---------
F-5
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
4. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS:
Substantially all of the KTOC's accounts receivable at December 31, 1994
result from crude oil and natural gas sales and/or joint interest billings
to companies in the oil and gas industry. This concentration of customers
and joint interest owners may impact KTOC's overall credit risk, either
positively or negatively, since these entities may be similarly affected
by changes in economic or other conditions. Receivables are generally not
collateralized except through operator liens. Historical credit losses
incurred on trade receivables by KTOC have been insignificant.
5. RELATED PARTY TRANSACTIONS:
In addition to the working interests in the oil and gas properties
included in the accompanying financial statements, KTOC also owns
royalty interests in some of the properties and has rights to reversionary
interests. These interests are excluded from the accompanying financial
statements since they are being retained by KTOC.
6. SUBSEQUENT EVENTS (UNAUDITED):
In October 1995, KTOC and certain affiliates entered into an agreement with
Metro Capital Corporation ("Metro") whereby Metro agreed to acquire certain
oil and gas properties (including the properties for which KTOC has an
option as discussed in the following paragraph) and assume certain
liabilities of KTOC. The Agreement provides for the issuance to KTOC and
certain affiliates of 80% of the issued and outstanding voting shares of
Metro.
In August and September 1995, KTOC entered into agreements with certain
joint interest owners, which provide KTOC with an option to acquire
additional working interests in the properties. Upon exercise of the
options, KTOC is required to pay $641,000 in cash, issue 1,062,946 Class B
Metro common shares (of which 450,000 shares are immediately convertible
to Metro common stock), and pay $130,000 in production payments.
On November 29, 1995, the shareholders of Metro approved the transaction
and the closing occurred on December 8, 1995.
F-6
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
7. 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 December 31, 1994 and 1993:
1994 1993
--------- ---------
Property acquisition costs $ - $ 487,300
Development costs 219,900 427,000
Exploration costs - 15,000
--------- ---------
Total $ 219,900 $ 929,300
--------- ---------
--------- ---------
F-7
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Karlton Terry Oil Company
Denver, Colorado
We have audited the accompanying Historical Summaries of Oil and Gas Revenues
and Direct Operating Expenses (the "Historical Summaries") of the Option
Properties (the "Properties") for the years ended December 31, 1994 and 1993.
The Historical Summaries are the responsibility of Karlton Terry Oil
Company's management. Our responsibility is to express an opinion on the
Historical Summaries 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 Historical Summaries are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Historical Summaries.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Historical Summaries. We believe that our audits
provides a reasonable basis for our opinion.
The Historical Summaries were prepared on the basis described in Note 1 and
are not intended to be a complete presentation of the Properties' revenues
and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the oil and gas revenues and direct operating expenses
described in Note 1 of the Properties, for the years ended December 31, 1994
and 1993 in conformity with generally accepted accounting principles.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
September 8, 1995
F-8
HISTORICAL SUMMARIES OF OIL AND GAS REVENUES AND
DIRECT OPERATING EXPENSES OF THE OPTION PROPERTIES
NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- --------------------
1995 1994 1994 1993
------- -------- -------- --------
(UNAUDITED)
Revenue -
Oil and gas sales $95,900 $135,800 $190,700 $233,800
Expenses -
Direct operating expenses 78,200 108,500 143,900 146,600
------- -------- -------- --------
Revenues in excess of direct operating expenses $17,70 $ 27,300 $ 46,800 $ 87,200
------- -------- -------- --------
------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE HISTORICAL SUMMARIES.
F-9
NOTES TO HISTORICAL SUMMARIES OF OIL AND GAS REVENUES AND
DIRECT OPERATING EXPENSES OF THE OPTION PROPERTIES
1. BASIS OF PRESENTATION:
The accompanying Historical Summaries have been prepared from accounting
records provided by KTOC and include only those revenues and direct
operating expenses attributable to the properties which are subject to
option agreements (the "Option Properties") between the current owners and
KTOC. The financial information for the nine-month periods ended September
30, 1995 and 1994 is unaudited but reflects, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the interests in the oil and gas revenues and direct
operating expenses for such periods. The oil and gas revenues and direct
operating expenses for such interim periods are not necessarily indicative
of results to be expected for the full year.
The accompanying Historical Summaries are included to provide historical
information on the revenues and direct operating expenses of the Option
Properties and may not be representative of future operations. A provision
for depreciation, depletion and amortization has not been included since the
purchaser's basis in the properties will be significantly different from the
basis of the current owners. General and administrative expenses have not
been included because the historical expenses incurred by the current owners
may not be comparable to amounts expected to be incurred by the purchaser.
The Historical Summaries also do not include Federal and state income taxes
or interest.
F-10
AMERICAN RIVERS OIL COMPANY
(FORMERLY METRO CAPITAL CORPORATION)
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
In October 1995, Metro Capital Corporation (Metro) and KTOC entered into an
Asset Purchase Agreement whereby KTOC agreed to exchange certain oil and gas
properties (the "Contributed Properties") for a combined total of 7,717,820
shares of common stock and Class B common stock of Metro, which represents
80% of the issued and outstanding voting securities of Metro. On November
29, 1995, the shareholders of Metro voted in favor of this transaction and
the closing occurred on December 8, 1995. In addition, the shareholders
voted in favor of changing the name of the Company from Metro to American
Rivers Oil Company (AROC). 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.
These pro forma financial statements give effect to these transactions by
recording KTOC's assets at their historical carrying value since the KTOC
owners continue to exercise control through their 80% voting interest.
Metro's assets are also reflected at their historical carrying value since
its assets, except for $700,000 cash and an insignificant oil property, were
transferred to a wholly-owned subsidiary (the "Subsidiary") where they are
being operated autonomously by the current management of Metro pursuant to
the terms of an Operating Agreement. The Option Properties will be recorded
based on the cash and the fair value of securities and other consideration
which was issued upon exercise of the options.
As a result of the Operating Agreement discussed in the preceding paragraph,
there is a lack of control over the operations of the Subsidiary.
Accordingly, the accompanying pro forma financial statements present the
combined results of AROC and the Subsidiary, as well as the separate results
of the Subsidiary and the results of AROC utilizing the equity method of
accounting for the Subsidiary.
The accompanying pro forma combined statement of operations combines the
statements of operations of Metro and KTOC for the years ended March 31, 1995
and December 31, 1994, respectively. The combined interim statement of
operations combines the statements of operations of Metro and KTOC for the
nine months ended September 30, 1995.
The pro forma combined statements of operations are presented as if the
acquisitions had occurred at the beginning of the periods presented. The pro
forma combined balance sheet is presented as if the acquisitions had occurred
as of September 30, 1995.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the transactions been consummated
at the beginning of the periods indicated. The pro forma combined financial
statements should be read in conjunction with the historical financial
statements and notes thereto of Metro and the KTOC Contributed Properties and
the historical summaries for the Option Properties, included elsewhere in
this document.
F-11
AMERICAN RIVERS OIL COMPANY
(FORMERLY METRO CAPITAL CORPORATION)
PRO FORMA BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1995
PRO FORMA
HISTORICAL ---------------------------------------
---------------------- PRO FORMA EQUITY
METRO KTOC ADJUSTMENTS COMBINED SUBSIDIARY METHOD
---------- -------- ----------- ----------- ------------ -----------
Current Assets $2,052,611 $ 74,400 $(641,000)(a) $ 1,411,611 $1,352,611 $ 59,000
(74,400)(i)
Oil and Gas Properties 1,286,941 474,300 641,000 (a) 4,480,887 1,067,051 3,413,836
612,946 (b)
675,000 (c)
150,000 (d)
50,000 (e)
77,200 (f)
513,500 (g)
Accumulated depreciation,
depletion and amortization (695,944) (98,700) - (794,644) (633,555) (161,089)
---------- -------- --------- ----------- ---------- -----------
Net oil and gas properties 590,997 375,600 2,719,646 3,686,243 433,496 3,252,747
Investment in Subsidiary - - - - - 1,780,954
Other assets, net 828,531 - - 828,531 828,531 -
---------- -------- --------- ----------- ---------- -----------
TOTAL ASSETS $3,472,139 $450,000 $2,004,246 $ 5,926,385 $2,614,638 $ 5,092,701
---------- -------- --------- ----------- ---------- -----------
---------- -------- --------- ----------- ---------- -----------
Current Liabilities $150,413 $130,100 ($82,100)(i) $ 198,413 $ 150,413 $ 48,000
Deferred Income Taxes - - 513,500 (g) 513,500 - 513,500
Long-Term Debt - 111,000 77,200 (f) 188,200 - 188,200
Stockholders' Equity:
Preferred Stock - - - - - -
Common Stock and Additional
Paid-in Capital 3,057,718 - 675,000 (c) 4,032,718 1,780,954 4,032,718
150,000 (d)
150,000 (e)
Class B Common Stock and
Additional Paid-in Capital - - 612,946 (b) 829,546 - 829,546
216,600 (i)
Unrealized Holding Gain 683,271 - - 683,271 683,271 -
Retained Earnings 1,316,799 - (100,000)(e) 1,216,799 - 1,216,799
Treasury Stock (1,736,062) - (1,736,062) - (1,736,062)
Net Assets - 208,900 (216,600)(h) - - -
7,700 (i)
---------- -------- --------- ----------- ---------- -----------
TOTAL LIABILITIES AND EQUITY $3,472,139 $450,000 $2,004,246 $ 5,926,385 $2,614,638 $ 5,092,701
---------- -------- --------- ----------- ---------- -----------
---------- -------- --------- ----------- ---------- -----------
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
F-12
AMERICAN RIVERS OIL COMPANY
(FORMERLY METRO CAPITAL CORPORATION)
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
PRO FORMA
HISTORICAL --------------------------------------
--------------------- PRO FORMA EQUITY
METRO KTOC ADJUSTMENTS COMBINED SUBSIDIARY METHOD
--------- -------- ----------- ---------- ---------- ---------
Revenues:
Oil and gas sales $ 74,452 $179,100 $ - $ 253,552 $ 44,377 $ 209,175
Well Overhead fees 2,966 3,800 6,766 - 6,766
--------- -------- -------- ---------- --------- ---------
Total revenue 77,418 182,900 - 260,318 44,377 215,941
--------- -------- -------- ---------- --------- ---------
Costs and expenses:
Oil and gas production costs 46,888 118,600 - 165,488 8,733 156,755
General and administrative 393,952 - 230,700 (j) 624,652 384,758 239,894
Depreciation, depletion and
amortization 117,403 26,100 92,800 (k) 236,303 114,071 122,232
--------- -------- -------- ---------- --------- ---------
Total costs and expenses 558,243 144,700 323,500 1,026,443 507,562 518,881
--------- -------- -------- ---------- --------- ---------
Income (loss) from operations (480,825) 38,200 (323,500) (766,125) (463,185) (302,940)
Other credits (charges):
Other income, net 130,454 - - 130,454 129,082 1,372
Equity in partnership losses (40,591) - - (40,591) (40,591) -
Equity in Subsidiay's losses - - - - - (236,094)
Interest expense - (15,100) (6,400)(l) (21,500) - (21,500)
--------- -------- -------- ---------- --------- ---------
Income (loss) before
income tax benefit (390,962) 23,100 (329,900) (697,762) (374,694) (559,162)
Income tax benefit - - 259,500 (m) 259,500 138,600 120,900
--------- -------- -------- ---------- --------- ---------
Net income (loss) $(390,962) $ 23,100 $ (70,400) $ (438,262) $(236,094) $(438,262)
--------- -------- -------- ---------- --------- ---------
--------- -------- -------- ---------- --------- ---------
Net Loss Per Common Share
Common stock $ (.24) $ (.12)
--------- ----------
--------- ----------
Class B common stock $ (.02)
----------
----------
Average Number of Shares Outstanding
Common stock 1,599,455 2,249,455
--------- ----------
--------- ----------
Class B common stock 7,267,820
----------
----------
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
F-13
AMERICAN RIVERS OIL COMPANY
(FORMERLY METRO CAPITAL CORPORATION)
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED MARCH 31, 1995
PRO FORMA
HISTORICAL -------------------------------------
------------------------- PRO FORMA EQUITY
METRO KTOC ADJUSTMENTS COMBINED SUBSIDIARY METHOD
----------- ---------- ----------- ---------- ---------- ----------
Revenues:
Oil and gas sales $ 115,988 $ 337,100 $ - $ 453,088 $ 68,176 $ 384,912
Well Overhead fees 4,941 2,500 - 7,441 - 7,441
----------- ---------- ---------- ---------- ---------- ----------
Total revenue 120,929 339,600 - 460,529 68,176 392,353
----------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Oil and gas production costs 73,369 197,300 - 270,669 9,549 261,120
General and administrative 488,254 - 307,600 (j) 795,854 475,163 320,691
Depreciation, depletion and
amortization 164,041 32,200 98,574 (k) 294,815 159,181 135,634
Abandoned leases 13,576 - - 13,576 8,891 4,685
----------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses 739,240 229,500 406,174 1,374,914 652,784 722,130
----------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations (618,311) 110,100 (406,174) (914,385) (584,608) (329,777)
Other credits (charges):
Other income, net 102,640 - - 102,640 102,496 144
Equity in partnership losses (41,282) - - (41,282) (41,282) -
Equity in Subsidiary's losses - - - - - (329,694)
Interest expense - (19,700) (8,500)(l) (28,200) - (28,200)
Gain on drilling arrangements - 138,200 - 138,200 - 138,200
----------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
tax benefit (556,953) 228,600 (414,674) (743,027) (523,394) (549,327)
Income tax benefit - - 274,900 (m) 274,900 193,700 81,200
----------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ (556,953) $ 228,600 $ (139,774) $ (468,127) $ (329,694) $ (468,127)
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
NET LOSS PER COMMON SHARE
Common stock ($.35) $(.16)
----------- ----------
----------- ----------
Class B common stock $(.01)
----------
----------
AVERAGE NUMBER OF SHARES OUTSTANDING
Common stock 1,599,455 2,249,455
----------- ----------
----------- ----------
Class B common stock 7,267,820
----------
----------
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
F-14
AMERICAN RIVERS OIL COMPANY
(FORMERLY METRO CAPITAL CORPORATION)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS:
(a) Entry to record cash payment for purchase of the Option Properties.
(b) Entry to record the issuance of 612,946 shares of Class B common stock
valued at $1.00 per share for purchase of the Option Properties.
(c) Entry to record the issuance of 450,000 shares of common stock valued at
$1.50 per share for purchase of the Option Properties.
(d) Entry to record the issuance of 100,000 shares of common stock valued at
$1.50 per share for commission relating to the purchase of the Option
Properties.
(e) Entry to record the issuance of 100,000 shares of common stock valued at
$1.50 per share for legal services, of which $50,000 was recorded as
property acquisition costs.
(f) Entry to record $130,000 production payment at net present value relating
to purchase of the Option Properties.
(g) Entry to record deferred income taxes relating to temporary differences
between the tax basis and financial reporting basis of the oil and gas
properties.
(h) Entry to record the issuance of 6,654,874 shares of Class B common stock
for certain oil and gas properties exchanged by KTOC.
(i) Entry to eliminate receivables and payables of KTOC which are not included
in the acquisition.
(j) Entry to increase general and administrative expenses for additional salary
costs as provided for in the Asset Purchase Agreement and anticipated
increases in other administrative expenses.
(k) Entry to record additional depreciation, depletion and amortization to give
effect to the increased carrying value of the oil and gas properties.
(l) Entry to record imputed interest on the production payments.
(m) Entry to record deferred tax benefit resulting from operating losses.
(n) The computation of net loss per share is based on the rights of each class
of common stock. The Class B common stock has all of the rights of the
common stock except that: (i) the Class B common stock is not entitled to
participate in any distribution of shares or assets of the wholly-owned
subsidiary into which certain assets were transferred from Metro prior to
the closing date and (ii) each share of Class B common stock will be
entitled to 1.6 votes on all issues presented for vote by the shareholders.
Accordingly, the common shares were allocated 100% of the subsidiary's loss
and a pro rata percentage of the remaining combined 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.
F-15
KARLTON TERRY OIL AND GAS INTERESTS
PRO FORMA COMBINED OIL AND GAS DISCLOSURES (UNAUDITED)
The accompanying reserve information relates to the oil and gas properties
which are currently owned by KTOC, as well as the properties for which KTOC
has an option to acquire additional interests.
OIL AND GAS RESERVE QUANTITIES - 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. However, reserve information
should not be construed as the current market value of the oil and gas
reserves or the costs that would be incurred to obtain equivalent reserves.
Reserve calculations involve the estimation of future net recoverable
reserves of oil and gas and the timing and amount of future net revenues to
be received therefrom. These estimates are based on numerous factors, many
of which are variable and uncertain. Accordingly, it is common for the
actual production and revenues to vary from earlier estimates.
The reserve data is based on studies which were prepared by one of the
working interest owners of the properties and reviewed by an independent
petroleum engineer. Reserve estimates require substantial judgment on the
part of petroleum engineers resulting in imprecise determinations,
particularly with respect to new discoveries. Since all of the producing
wells were drilled within the past few years, it is expected that the
estimates of reserves will change as future production and development
information becomes available. Additionally, due to short production
histories for certain properties, it was necessary to prepare a portion of
the reserve estimates using volumetric methods which are generally less
precise than performance based estimates. A portion of the proved
developed reserves are currently non-producing as certain wells require
recompletions in additional productive zones and the purchase of a salt
water disposal well.
All proved reserves of oil and gas are located in the United States. The
following tables present estimates of the net proved oil and gas reserves,
and changes therein for the years indicated.
CHANGES IN NET QUANTITIES OF PROVED RESERVES
1994 1993
--------------------- -----------------
OIL GAS OIL GAS
(BBLS) (MCF) (BBLS) (MCF)
--------- --------- ------- -------
Proved reserves, beginning of year 98,000 828,000 - -
Extensions, discoveries, and 1,109,000 1,600,000 - -
other additions
Purchase of minerals in place - - 115,000 898,000
Production (15,000) (60,000) (17,000) (70,000)
--------- --------- ------- -------
Proved reserves, end of year 1,192,000 2,368,000 98,000 828,000
--------- --------- ------- -------
--------- --------- ------- -------
Proved developed reserves, end of year 207,000 1,057,000 98,000 828,000
--------- --------- ------- -------
--------- --------- ------- -------
F-16
KARLTON TERRY OIL AND GAS INTERESTS
PRO FORMA COMBINED OIL AND GAS DISCLOSURES (UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - Statement of
Financial Accounting Standards No. 69 prescribes guidelines for computing a
standardized measure of future net cash flows and changes therein relating to
estimated proved reserves. These guidelines 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 KTOC'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.
The following summary sets forth KTOC's (including reserves for which KTOC
has options to acquire additional interests) future net cash flows relating
to proved oil and gas reserves as of December 31, 1994 based on the
standardized measure prescribed in Statement of Financial Accounting
Standards No. 69.
Future cash inflows $23,561,000
Future production costs (6,480,000)
Future development costs (1,382,000)
Future income tax expense (5,200,000)
-----------
Future net cash flows 10,499,000
10% annual discount for estimated timing of cash flow (5,207,000)
-----------
Standardized Measure of Discounted
Future Net Cash Flows $ 5,292,000
-----------
-----------
Changes in the Standardized Measure are not presented since KTOC did not have
reserve estimates prepared in the prior year.
F-17