Tri-Valley Corporation (NYSE Amex:TIV) announced today that it
has determined, with the concurrence of its Audit Committee of the
Board of Directors, that the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2010 and its Quarterly
Reports on Form 10-Q for the quarterly periods ended June 30, 2010,
September 30, 2010, March 31, 2011 and June 30, 2011, should no
longer be relied upon and need to be restated to correct (i) the
valuation of, and accounting for, the common stock and warrants
issued by Company in a registered direct offering (“RDO”) of
securities in April 2010, (ii) the accounting for incremental and
direct costs incurred to issue common stock in connection with the
Company’s April 2011 private placement and various at-the-market
offerings of common stock, and (iii) the accounting for the
acquisition of certain steam generator assets from the TVC OPUS
Drilling Program, L.P.
The restatements are not expected to impact the Company's
previously reported total assets, stockholders’ equity, cash, cash
equivalents or net changes in cash and cash equivalents as at and
for the year ended December 31, 2010, and as at and for the six
months ended June 30, 2011.
Re-Assessment of Valuation of, and Accounting for, RDO Common
Stock and Warrants
The Company performed a re-assessment of the valuation of common
stock and warrants issued in connection with its April 2010 RDO and
concluded that the values assigned to the common stock and warrants
issued were overstated by $6.5 million. The net proceeds from the
April 2010 RDO of $4.6 million ($5.0 million gross proceeds less
$0.4 million of stock issuance costs) should have been allocated to
the common stock and each series of warrants issued based upon
their relative values at the time of issuance. This $6.5 million
decrease in the recorded values of the common stock and warrants is
expected to result in a decrease of an equal amount in charges made
to the results of operations for the year ended December 31, 2010,
as part of the restatements.
The Company also performed a re-assessment of its accounting for
the Series A, B and C warrants issued in connection with its April
2010 RDO and concluded that the Series A and B Warrants were within
the scope of Accounting Standards Codification 815-40, “Derivatives
and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”),
formerly Emerging Issues Task Force Issue No. 07-05, “Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock.” In sum, because the Series A and B warrants
contained certain anti-dilution, protective pricing features, the
Series A and B warrants should have been accounted for as
derivative financial liabilities (and not as equity). As derivative
financial liabilities, the Series A and B warrants should have been
measured at fair value, with changes in fair value recognized as a
gain or loss for each reporting period thereafter. The Company is
expected to recognize $1.8 million of losses in the results of
operations for the year ended December 31, 2010 on these derivative
instruments as part of the restatements. The Series C warrants did
not have similar protective pricing features and were appropriately
accounted for in equity as originally reported.
All of the Series A and B warrants were either exercised or
exchanged (or contractually committed to be exchanged) prior to
December 31, 2010, and none of the Series A, B or C warrants are
currently outstanding.
Re-Assessment of Accounting for Stock Issuance Costs
The Company performed a re-assessment of its accounting for
stock issuance costs incurred in connection with its April 2011
private placement and various at-the-market offerings of common
stock during certain of the periods covered by the restatements.
The Company has preliminarily determined that $0.2 million and $0.6
million for the year ended December 31, 2010 and six months ended
June 30, 2011, respectively, of stock issuance costs were
incorrectly charged to the results of operations and should have
been recorded as a reduction in the proceeds received from the
sales of common stock (i.e. capital in excess of par value).
Re-Assessment of Accounting for Certain Asset Acquisitions from
OPUS
The Company performed an analysis of equipment in service on its
Claflin property, and determined that steam generators were
acquired from the TVC OPUS 1 Drilling Program, L.P. during the
periods covered by the restatements which had not been recognized
in the Company’s consolidated financial statements, resulting in an
overstatement of the accounts receivable from joint venture
partners and an understatement of property and equipment of $1.7
million in the Company’s consolidated balance sheet. The Company
does not expect any impact to the results of operations for the
year ended December 31, 2010 or six months ended June 30, 2011
related to this correction.
The Company will be restating its consolidated financial
statements included in the Form 10-K and the Form 10-Qs by filing
amendments as soon as reasonably practicable. The Company expects
to file such amendments before November 14, 2011.
The quantification of the effects of the restatements are
pending and subject to final determination but, based on the
Company’s preliminary assessments, should result in a combined
reduction in the Company’s previously reported net losses for the
year end December 31, 2010 and the six months ended June 30, 2011
of $5.5 million, and reductions in net losses per share of $0.13
and $0.01 for these periods then ended, respectively.
As noted above, the restatements are not expected to impact the
Company's previously reported total assets, stockholders’ equity,
cash, cash equivalents or net changes in cash and cash equivalents
as at and for the year ended December 31, 2010, and as at and for
the six months ended June 30, 2011. There should be no impact to
stockholders’ equity for the corrections discussed above because
the Company expects that the net reductions in the retained deficit
of $4.9 million and $5.5 million as at December 31, 2010 and June
30, 2011, respectively, as originally reported, will be offset by
equivalent reductions in the capital in excess of par value or
additional paid in capital – warrants, as part of the
restatements.
The above disclosures concerning the related impact of the
restatements are estimations only, subject to the Company’s
finalization of the restatements, and are subject to change.
In connection with the pending restatements, the Company’s Chief
Executive Officer and Interim Chief Financial Officer are
re-evaluating, with the participation of other members of
management, the effectiveness of the Company’s disclosure controls
and procedures and internal control over financial reporting. They
have preliminarily concluded that material weaknesses existed with
respect to the Company’s reporting of complex, non-routine
transactions, and the reconciliation of asset records, as of the
end of the periods covered by the restatements. Management is
working on a plan for the remediation of the underlying cause of
the restatements and for the implementation of appropriate policies
and controls to avoid errors or deficiencies in accounting
procedures and application going forward.
About Tri-Valley
Tri-Valley Corporation explores for and produces oil and natural
gas in California and has two exploration-stage gold properties in
Alaska. Tri-Valley is incorporated in Delaware and is publicly
traded on the NYSE Amex exchange under the symbol “TIV.”
Tri-Valley’s website, which includes all SEC filings, is
www.tri-valleycorp.com.
Special Note Regarding Forward-Looking Statements
All statements contained in this press release that refer to
future events or other non-historical matters are forward-looking
statements. These forward-looking statements include the statements
regarding the potential errors in previously issued financial
statements; the nature, magnitude and scope of potential errors;
and Tri-Valley’s investigation and analysis of such potential
errors. Although Tri-Valley does not make forward-looking
statements unless it believes it has a reasonable basis for doing
so, Tri-Valley cannot guarantee their accuracy. These statements
are only predictions based on management’s expectations as of the
date of this press release, and involve known and unknown risks,
uncertainties and other factors, including additional actions
resulting from Tri-Valley’s continuing internal review, as well as
the review by Tri-Valley’s independent auditors, and actions
resulting from discussions with or required by the Securities and
Exchange Commission and/or the NYSE Amex, along with other risks
and uncertainties discussed in our filings with the Securities and
Exchange Commission from time to time, including under “Part I,
Item 1A. Risk Factors” and “Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” contained in Tri-Valley’s Annual Report on Form 10-K
for the year ended December 31, 2010, and under “Part I, Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Part II, Item 1A. Risk Factors,”
contained in Tri-Valley’s Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 2011, respectively. Except as
required by law, Tri-Valley undertakes no obligation to update or
revise publicly any of the forward-looking statements after the
date of this press release to conform such statements to actual
results or to reflect events or circumstances occurring after the
date of this press release.
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