-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SomT8QAuTzKXFedVJX9uHYHs/Hu0EWPuEN17YOVjp6agvMyl5QKWbsK9g/gTLdny oRd9QbOqgDd9QjWyAmp/IA== 0000775057-97-000026.txt : 19971229 0000775057-97-000026.hdr.sgml : 19971229 ACCESSION NUMBER: 0000775057-97-000026 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971224 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALTEX INDUSTRIES INC CENTRAL INDEX KEY: 0000775057 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840989164 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 002-99807 FILM NUMBER: 97743823 BUSINESS ADDRESS: STREET 1: PO BOX 1057 STREET 2: 217 S RIDGE STREET CITY: BRECKENRIDGE STATE: CO ZIP: 80424-1057 BUSINESS PHONE: 9704536641 MAIL ADDRESS: STREET 1: P O BOX 1057 217 S RIDGE STREET STREET 2: P O BOX 1057 217 S RIDGE STREET CITY: BRECKENRIDGE STATE: CO ZIP: 80424-1067 10KSB 1 FORM 10KSB FOR ALTEX INDUSTRIES, INC. 09/30/97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-KSB [ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 1997 [ ] Transition report under Section 13 or 15(d) of the Securities Exchang Act of 1934 For the transition period from to . Commission file number 1-9030 ALTEX INDUSTRIES, INC. (Name of Small Business Issuer in Its Charter) Delaware 84-0989164 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) PO Box 1057 Breckenridge, CO 80424-1057 (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number, Including Area Code: (970) 453-6641 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.01 per share Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and if no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB. [ X ] Issuer's revenue for its most recent fiscal year: $1,369,000 Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as of December 4, 1997: $748,000 Number of shares outstanding of issuer's Common Stock as of December 4, 1997: 15,645,403 Transitional Small Business Disclosure Format: Yes No X DOCUMENTS INCORPORATED BY REFERENCE Part III: Proxy statement to be filed in connection with the Registrant's 1998 Annual Meeting of Shareholders Page 1 of 14 "SAFE HARBOUR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements that are not historical facts contained in this Form 10-KSB are forward-looking statements that involve risks and uncertainties that could cause actual results to differ from projected results. Factors that could cause actual results to differ materially include, among others: general economic conditions; the market price of oil and natural gas; the risks associated with exploration and production in the Rocky Mountain region; the Company's ability to find, acquire, market, develop, and produce new properties; operating hazards attendant to the oil and natural gas business; uncertainties in the estimation of proved reserves and in the projection of future rates of production and timing of development expenditures; the strength and financial resources of the Company's competitors; the Company's ability to find and retain skilled personnel; climatic conditions; availability and cost of material and equipment; delays in anticipated start-up dates; environmental risks; the results of financing efforts; and other uncertainties detailed elsewhere herein. PART I ITEM 1. DESCRIPTION OF BUSINESS. Altex Industries, Inc. (or the "Registrant" or the "Company," each of which terms, when used herein, refer to Altex Industries, Inc. and/or its subsidiaries) is a holding company with three full-time employees that was incorporated in Delaware in 1985. Through its operating subsidiaries, the Company currently owns interests, including working interests, in productive onshore oil and gas properties, buys and sells producing oil and gas properties, and, to a lesser extent, participates in the drilling of exploratory and development wells, and in recompletions of existing wells. The Company operates only one producing well and one field currently being abandoned. All other interests are in properties operated by others. A working interest owner in a property not operated by that interest owner must substantially rely on information regarding the property provided by the operator, even though there can be no assurance that such information is complete, accurate, or current. In addition, an owner of a working interest in a property is potentially responsible for 100% of all liabilities associated with that property, regardless of the size of the working interest actually owned. Through the operators of the properties in which it has an interest, the Company sells produced oil and gas to refiners, pipeline operators, and processing plants. If a refinery, pipeline, or processing plant that purchases the Company's production were taken out of service, the Company could be forced to halt production that is purchased by such refinery, pipeline, or plant. Approximately 48% of the Company's oil and gas sales result from production from one field for which there is only one available gas pipeline system (See Note 4 of Notes to Consolidated Financial Statements below.). If this pipeline system were taken out of service, production of both oil and gas from that field would be halted. Although many entities produce oil and gas, competitive factors play a material role in the Company's production operations only to the extent that such factors affect demand for and prices of oil and gas and demand for, supply of, and prices of oilfield services. The production of oil and gas is regulated by Federal, state, and local agencies, and the Company is also subject to Federal, state, and local laws and regulations relating to the environment. These laws and regulations generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation. The Company regularly assesses its exposure to environmental liability and to reclamation, restoration, and dismantlement expense ("RR&D"), which activities are governed by Federal, state, and local regulation. The Company does not believe that it currently has any material exposure to environmental liability or to RR&D, net of salvage value, although this cannot be assured. (See Management's Discussion and Analysis below.) ITEM 2. DESCRIPTION OF PROPERTY. WELLS AND ACREAGE: At December 4, 1997, the Company owned no undeveloped acreage, and, to the best knowledge of the Company, none of the wells in which the Company owns an interest is a multiple completion. However, certain wells in which the Company owns an interest do produce from multiple zones. At December 4, 1997, the Company owned working interests in 79 gross (16.3 net) productive oil wells (certain of which produce associated natural gas), no wells producing only natural gas, and 30,000 gross (6,500 net) developed acres. Substantially all of the Company's production is located in Colorado, Utah, and Wyoming. One well accounts for approximately 15% of the Company's oil and gas sales and for approximately 37% of the Company's estimated proved oil reserves. The Company has not reported to, or filed with, any other Federal authority or agency any estimates of total, proved net oil or gas reserves since the beginning of the last fiscal year. For additional information, see Note 7 of Notes to Consolidated Financial Statements below. Page 2 of 14 PRODUCTION Average Production Net Production Average Price Cost Per Equivalent Barrel ("BOE") Fiscal Year Oil Gas Oil Gas (Bbls) (Mcf) (Bbls) (Mcf) 1997 31,000 160,000 $ 19.68 $ 1.98 $ 8.29 1996 37,000 148,000 18.67 1.60 6.62 1995 36,000 161,000 18.33 1.42 7.16 =============== =============== =============== ============= ============= ============================
DRILLING ACTIVITY: The Company did not participate in the drilling of any wells during fiscal 1997 ("FY97"), fiscal 1996 ("FY96"), or fiscal 1995 ("FY95"). ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol "ALTX". Inter-dealer prices provided by the OTC Bulletin Board, which do not include retail mark-up, mark-down, or commission, and may not represent actual transactions, are listed in the table below. FY97 FY96 HIGH LOW HIGH LOW QUARTER BID BID BID BID ------- --- --- --- --- 1 $0.08 $0.05 $0.05 $0.05 2 0.06 0.06 0.05 0.04 3 0.06 0.06 0.05 0.03 4 0.06 0.06 0.05 0.03
At December 4, 1997, there were 5,627 holders of record of the Company's Common Stock, excluding entities whose stock is held by clearing agencies. The Company has not paid a dividend during the last two fiscal years. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION FINANCIAL CONDITION Cash balances increased principally because of proceeds from the sale of assets. Accounts receivable declined because sales in the fourth quarter of FY97 were lower than sales in the fourth quarter of FY96. Other receivables declined because refundable production taxes declined. During FY97 the Company sold two proved oil and gas properties for cash proceeds of $359,000 and, consequently, removed $230,000 and $175,000, respectively, from capitalized cost and associated accumulated depreciation, depletion, and amortization ("DD&A"). During FY97 the Company was advised that a portion of its payments to an electric utility constitute a capital credit receivable in the amount of $34,000, which the Company has shown as other assets. Accounts payable declined because invoices related to RR&D in the East Tisdale Field were outstanding at September 30, 1996 (see below). During FY97 the Company acquired 255,500 shares of its common stock for $18,000, subsequently retired such shares, and, therefore, reduced common stock by $2,000 and additional paid-in capital by $16,000. Also during FY97, the Company entered into a new employment agreement with its president pursuant to which the Company sold its president 1,376,249 shares of common stock in exchange for a note receivable of $83,000 (See Note 3 of Notes to Consolidated Financial Statements below.) and, therefore, increased common stock by $14,000 and additional paid-in capital by $69,000. In addition, the Company agreed to pay a $44,000 bonus due its president pursuant to his employment agreement in shares of common stock valued at their fair market value, rather than in cash (See Note 3 of Notes to Consolidated Financial Statements below.). Page 3 of 14 The Company is completing the restoration of the area that had contained its East Tisdale Field in Johnson County, Wyoming. Areas within the field had contained crude-oil contaminated soil that the Company removed and road-spread. The Company recognized $10,000 and $93,000 in RR&D related to the field in 1997 and 1996, respectively. The Company is discussing with regulatory authorities and with the landowner whether the Company will be required to perform further restoration. At most, the Company will be required to seed disturbed areas and to complete minor trash removal. Barring unforeseen events, the Company does not believe that the expense associated with final restoration activities will be material, although this cannot be assured. After its bonds with the state and the Bureau of Land Management are released, the Company does not believe it will have any further liability in connection with the field, although this cannot be assured. In Summer 1996 a representative of the US Fish and Wildlife Service advised the Company that a number of dead birds had been found in oil saturated pits in the East Tisdale Field and that, therefore, the Company was under investigation for possible violations of the Migratory Bird Treaty Act. In 1997 the Company was fined $5,000 for the bird deaths and advised that no further legal action was anticipated. The Company regularly assesses its exposure to both environmental liability and RR&D. The Company does not believe that it currently has any material exposure to environmental liability or to RR&D, net of salvage value, although this cannot be assured. Unless the Company's production of oil and gas increases as the result of acquisitions of producing oil and gas properties, successful drilling activities, or successful recompletions, the Company is likely to experience negative cash flow from operations in the future. Although the Company continually evaluates possible acquisitions of producing oil and gas properties, the market for such properties has become highly competitive, with properties trading at prices well above those implied by the Company's acquisition criteria. With the exception of the Company's intention to acquire producing oil and gas properties and cash flows that may result from such acquisitions, the Company knows of no trends, events, or uncertainties that have or are reasonably likely to have a material impact on the Company's short-term or long-term liquidity. Except for cash generated by the operation of the Company's producing oil and gas properties, asset sales, or interest income, the Com pany has no internal or external sources of liquidity other than its working capital. At December 4, 1997, the Company had no material commitments for capital expenditures. RESULTS OF OPERATIONS Oil sales declined 12% from $691,000 in FY96 to $610,000 in FY97, and gas sales increased 34% from $237,000 in FY96 to $317,000 in FY97. Oil sales declined because a 16% decline in oil production was partially offset by a 5% increase in realized oil prices. Gas sales increased because an 8% increase in production was accompanied by a 24% increase in realized gas prices. Included in interest income in FY97 and FY96, respectively, are $18,000 and $17,000 relating to a note receivable from the Company's President, pursuant to certain provisions of his employment agreement, which provisions are described in Note 3 of Notes to Consolidated Financial Statements below. Interest income increased because of higher invested cash balances. Other income, which consists of various miscellaneous items, increased principally because in FY97 the Company received refunds of $16,000 in over-withheld production taxes and because in FY97 the Company recognized a capital credit receivable of $34,000. Included in lease operating expense ("LOE") in FY97 is $65,000 in workover expense related to one well. Excluding this amount, LOE was essentially unchanged from FY96 to FY97. Included in general and administrative expense ("G&A") in FY97 and FY96, respectively, are (1) $18,000 and $17,000 relating to reimbursement of interest expense incurred by the Company's President, pursuant to certain provisions of his employment agreement, which provisions are described in Note 3 of Notes to Consolidated Financial Statements below, and (2) expense of $45,000 and $11,000 for bonuses due the Company's president pursuant to pursuant to certain provisions of his employment agreement, which provisions are described in Note 3 of Notes to Consolidated Financial Statements below. Excluding interest reimbursement and bonus expense, G&A was $360,000 in FY97 and $300,000 in FY96. The $60,000 increase in G&A resulted principally from the following: increased salary expense of $22,000; tax indemnification expense related to the president's 1995 and 1996 tax years of $12,000 (See Note 3 of Notes to Consolidated Financial Statements below); compensation and acquisition consultant expense of $6,000; additional director expense of $6,000; additional training, bonus, and payroll tax expense of $6,000; and fines of $5,000 (see above). In FY97 DD&A consisted of $33,000 in depletion expense, $8,000 in impairment expense, and $15,000 in depreciation expense. In FY96 DD&A consisted of $38,000 in depletion expense and $18,000 in depreciation expense. Both depletion and depreciation declined principally because the Company's basis in its depletable and depreciable assets declined. LIQUIDITY Operating Activities. During FY97, cash of $99,000 was provided by operations compared to $184,000 in FY96. Cash provided by operations declined principally due to the payment in FY97 of accrued RR&D and other liabilities. Page 4 of 14 Investing Activities. Cash provided by investing activities in FY97 was $340,000 compared to cash used in investing activities in FY96 of $7,000. In FY97 the Company received $359,000 in proceeds from the sale of assets compared to $1,000 in proceeds from the sale of assets in FY96. Oil and gas property development and other capital expenditures totaled $19,000 in FY97 compared to $8,000 in FY96. Financing Activities. Cash used in financing activities in FY97 and FY96 of $18,000 and $26,000, respectively, related to the acquisition of treasury stock. The Company's revenues and earnings are functions of the prices of oil, gas, and natural gas liquids and of the level of produc tion expense, all of which are highly variable and largely beyond the Company's control. In addition, because the quantity of oil and gas produced from existing wells declines over time, the Company's sales and net income will decline unless rising prices offset production declines or the Company increases its net production by investing in the drilling of new wells, in successful workovers, or in the acquisition of interests in producing oil or gas properties. With the exception of unanticipated variations in production levels, unanticipated RR&D, unanticipated environmental expense, and the possible effect of the recently constructed pipeline discussed below, the Company is not aware of any other trends, events, or uncertainties that have had or that are reasonably expected to have a material impact on the net sales or revenues or income from continuing operations. In 1997 a new pipeline began bringing Canadian crude oil into Casper, Wyoming. Although the increased supply of crude oil in the northern Rocky Mountain region did not have a material effect on the oil prices realized by the Company in FY97, the Company anticipates that realized prices will be materially lower in fiscal 1998 than they would have been had the pipeline not been constructed. ITEM 7. FINANCIAL STATEMENTS. The consolidated financial statements follow the signature page. ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of FY97. ITEM 10. EXECUTIVE COMPENSATION. Incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of FY97. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of FY97. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of FY97. ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K. (a) EXHIBITS 3(i) Articles of Incorporation - Incorporated herein by reference to Exhibit B to August 20, 1985 Proxy Statement 3(ii) Bylaws - Incorporated herein by reference to Exhibit C to August 20, 1985 Proxy Statement 10 Steven H. Cardin Employment Agreement - Incorporated herein by reference to Exhibit A to Form 10-K for fiscal year ended September 30, 1989 and by reference to the Exhibit to Form 10-QSB for the quarterly period ended March 31, 1997 21 List of subsidiaries 27 Financial Data Schedule - Submitted only in electronic format herewith, pursuant to Item 601(c) of Regulation S-B (b) REPORTS ON FORM 8-K. None. Page 5 of 14 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALTEX INDUSTRIES, INC. By: /s/ STEVEN H. CARDIN December 23, 1997 Steven H. Cardin, CEO Date In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ STEVEN H. CARDIN December 23, 1997 Steven H. Cardin, Director, Date Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer By: /s/ JEFFREY S. CHERNOW December 23, 1997 Jeffrey S. Chernow, Director Date Page 6 of 14 INDEPENDENT AUDITORS' REPORT THE STOCKHOLDERS AND BOARD OF DIRECTORS ALTEX INDUSTRIES, INC.: We have audited the accompanying consolidated balance sheet of Altex Industries, Inc. and subsidiaries as of September 30, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended September 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 posi tion of Altex Industries, Inc. and subsidiaries as of September 30, 1997, and the results of their operations and their cash flows for each of the years in the two-year period ended September 30, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Denver, Colorado October 31, 1997 Page 7 of 14 ALTEX INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,675,000 Accounts receivable 116,000 Other receivables 18,000 Other 4,000 Total current assets 1,813,000 PROPERTY AND EQUIPMENT, AT COST Proved oil and gas properties (successful efforts method) (Notes 6 and 7) 2,148,000 Other 71,000 2,219,000 Less accumulated depreciation, depletion, amortization, and valuation allowance (2,004,000) Net property and equipment 215,000 OTHER ASSETS 34,000 $ 2,062,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 24,000 Accrued production costs 34,000 Other accrued expenses 41,000 Total current liabilities 99,000 STOCKHOLDERS' EQUITY (Note 3) Preferred stock, $.01 par value. Authorized 5,000,000 shares, none issued -- Common stock, $.01 par value. Authorized 50,000,000 shares, 14,961,738 shares issued and outstanding 150,000 Additional paid-in capital 14,222,000 Common stock to be issued, 733,665 shares 44,000 Accumulated deficit (12,147,000) Note receivable from stockholder (306,000) 1,963,000 COMMITMENTS AND CONTINGENCIES (Notes 3, 5, and 6) $ 2,062,000
See accompanying notes to consolidated financial statements. Page 8 of 14 ALTEX INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1997 AND 1996 1997 1996 REVENUE Oil and gas sales $ 927,000 928,000 Interest (Note 3) 85,000 72,000 Gain (loss) on sale of assets 304,000 (1,000) Other income (expense) 53,000 (2,000) 1,369,000 997,000 COSTS AND EXPENSES Lease operating 375,000 313,000 Production taxes 103,000 95,000 General and administrative (Note 3) 423,000 328,000 Reclamation, restoration, and dismantlement (Note 6) 10,000 103,000 Depreciation, depletion, and amortization 57,000 56,000 968,000 895,000 NET EARNINGS $ 401,000 102,000 EARNINGS PER SHARE OF COMMON STOCK $0.03 $0.01 WEIGHTED AVERAGE SHARES OUTSTANDING 14,434,834 14,022,896
See accompanying notes to consolidated financial statements. Page 9 of 14 ALTEX INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1997 AND 1996 COMMON STOCK ADDITIONAL COMMON ACCUMULATED TREASURY NOTE TOTAL PAID-IN STOCK DEFICIT STOCK RECEIVABLE STOCKHOLDERS' CAPITAL TO BE FROM EQUITY SHARES AMOUNT ISSUED SHAREHOLDER ----------------------------------------------------------------------------------------- BALANCES AT SEPTEMBER 30, 1995 20,392,625 $204,000 14,771,000 -- (12,650,000) (642,000) (223,000) 1,460,000 Net earnings -- -- -- -- 102,000 -- -- 102,000 Acquisition of Treasury stock, 492,000 shares at $0.05 per share -- -- -- -- -- (26,000) -- (26,000) Retirement of Treasury stock (6,551,636) $(66,000) (602,000) -- -- 668,000 -- -- BALANCES AT SEPTEMBER 30, 1996 13,840,989 $138,000 14,169,000 -- (12,548,000) -- (223,000) 1,536,000 Net earnings -- -- -- -- 401,000 -- -- 401,000 Shares issued in exchange for note receivable (Note 3) 1,376,249 $ 14,000 69,000 -- -- -- (83,000) -- Common stock to be issued, 733,665 shares (Note 3) -- -- -- 44,000 -- -- -- 44,000 Acquisition of Treasury stock, 255,500 shares at $0.07 per share -- -- -- -- -- (18,000) -- (18,000) Retirement of Treasury stock (255,500) $ (2,000) (16,000) -- -- 18,000 -- -- BALANCES AT SEPTEMBER 30, 1997 14,961,738 $150,000 14,222,000 44,000 (12,147,000) -- (306,000) 1,963,000
See accompanying notes to consolidated financial statements. Page 10 of 14 ALTEX INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1997 AND 1996 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 401,000 102,000 Adjustments to reconcile net earnings to net cash provided by operating activities (Gain) loss on sale of assets (304,000) 1,000 Depreciation, depletion, and amortization 57,000 56,000 Compensation payable in common stock 44,000 - Decrease (increase) in accounts receivable 25,000 (3,000) Decrease in other receivables 5,000 6,000 Decrease (increase) in other current assets (2,000) 13,000 Increase in other assets (34,000) - Decrease in accounts payable (14,000) (2,000) Decrease in accrued production costs (8,000) (13,000) Increase (decrease) in accrued restoration, reclamation, and dismantlement (70,000) 25,000 Decrease in other accrued expenses (1,000) (1,000) Net cash provided by operating activities 99,000 184,000 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of assets 359,000 1,000 Oil and gas property development expenditures (5,000) (5,000) Other capital expenditures (14,000) (3,000) Net cash provided by (used in) investing activities 340,000 (7,000) CASH FLOWS USED IN FINANCING ACTIVITIES Acquisition of treasury stock (18,000) (26,000) ----------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 421,000 151,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,254,000 1,103,000 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,675,000 1,254,000
See accompanying notes to consolidated financial statements. Page 11 of 14 ALTEX INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Altex Industries, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT: The Company follows the successful efforts method of accounting for oil and gas operations, under which exploration costs, including geological and geophysical costs, annual delay rentals, and exploratory dry hole costs, are charged to expense as incurred. Costs to acquire unproved properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Capitalized costs relating to proved oil and gas properties are depleted on the units-of-production method based on estimated quantities of proved reserves. Upon the sale or retirement of property and equipment, the cost thereof and the accumulated depreciation, depletion, or valuation allowance are removed from the accounts, and the resulting gain or loss is credited or charged to operations. IMPAIRMENT OF LONG-LIVED ASSETS: The Company assesses long-lived assets for impairment when circumstances indicate that the carrying value of such assets may not be recoverable. This review compares the asset's carrying value with management's best estimate of the asset's expected future undiscounted cash flows without interest costs. If the expected future cash flows exceed the carrying value, no impairment is recognized. If the carrying value exceeds the expected future cash flows, an impairment equal to the excess of the carrying value over the estimated fair value of the asset is recognized. No such impairment may be restored in the future. The Company's proved oil and gas properties are assessed for impairment on an individual field basis. CASH EQUIVALENTS: For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. INCOME TAXES: The Company follows the asset and liability method of accounting for deferred income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between financial accounting and tax bases of assets and liabilities. EARNINGS PER SHARE: Earnings per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. NOTE 2 - INCOME TAXES. At September 30, 1997, the Company had net operating loss, depletion, and investment tax credit carryforwards for income tax purposes of $7,593,000, $758,000, and $56,000, respectively. If not utilized, the net operating losses will expire during the period from 1998 through 2009, and the investment tax credit carryforwards will expire during the period from 1998 to 2001. The approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets at September 30, 1997, computed in accordance with SFAS No. 109, is as follows: DEFERRED TAX ASSETS Net operating loss carryforward $ 2,658,000 Depletion carryforward 265,000 Investment tax credit carryforward 56,000 Tax basis of assets written off for financial statement purposes 688,000 TOTAL GROSS DEFERRED TAX ASSETS 3,667,000 Less valuation allowance (3,648,000) NET DEFERRED TAX ASSETS 19,000 DEFERRED TAX LIABILITIES Depletion, depreciation, amortization, and valuation allowance for income tax purposes in excess of amounts for financial statement purposes (19,000) NET DEFERRED TAX LIABILITY $ --
Income tax expense is different from amounts computed by applying the statutory Federal income tax rate for the following reasons: Page 12 of 14 ALTEX INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 1997 1996 ---- ---- TAX EXPENSE AT 34% OF NET EARNINGS $ 136,000 35,000 CHANGE IN VALUATION ALLOWANCE FOR NET DEFERRED TAX ASSETS (497,000) (472,000) EXPIRATION OF TAX CARRYFORWARDS 394,000 440,000 OTHER (33,000) (3,000) ---------------- --------------- INCOME TAX EXPENSE $ -- -- ================ ===============
NOTE 3 - RELATED PARTY TRANSACTIONS. Pursuant to an employment agreement with the Company, the Company's president has purchased from the Company 2,383,615 shares of the Company's common stock at a price of $.09375 per share and 1,376,249 shares at a price of $0.06 per share in non-cash transactions with the proceeds of a $306,000 loan from the Company. The loan, which is secured by the shares, is due at the end of the term of the employment agreement, and the president can pay the principal amount of the loan with shares of the Company's common stock. The agreement provides that the Company will reimburse the president for interest expense related to the loan, will indemnify him against additional tax due as a result of such reimbursement and indemnification, and also provides for termination and permanent disability benefits under certain circumstances. The Company recognized $18,000 and $17,000 of both interest income and general and administrative expense related to the loan in 1997 and 1996, respectively. In 1997 the Company also recognized $12,000 in indemnification expense. The employment agreement also provides that the Company's president will receive an annual bonus equal to no less than 10% of the Company's earnings before income tax. The Company has agreed to pay the $44,000 bonus for 1997 in shares of common stock to be issued at fair market value and has, accordingly, provided for the issuance of 733,665 shares of common stock at $0.06 per share. NOTE 4 - MAJOR CUSTOMERS. In 1997 and 1996 the Company had four customers who individually accounted for 10% or more of the Company's revenue and who, in aggregate, accounted for 90% and 87% of revenue in 1997 and 1996, respectively. In 1997 the four customers individually accounted for 53%, 13%, 13%, and 12% of revenue; and in 1996 the four customers individually accounted for 47%, 16%, 12%, and 12% of revenue. NOTE 5 - LEASES. The Company rents office space under a noncancellable operating lease that expires in April 1999. At September 30, 1997, required future payments under the lease are $20,000 for the year ending September 30, 1998, and $11,000 for the year ending September 30, 1999. The Company incurred rent expense of $19,000 and $18,000 in 1997 and 1996, respectively. NOTE 6 - RECLAMATION, RESTORATION, AND DISMANTLEMENT. The Company is completing the restoration of the area that had contained its East Tisdale Field in Johnson County, Wyoming. Areas within the field had contained crude-oil contaminated soil that the Company removed and road-spread. The Company recognized $10,000 and $93,000 in RR&D related to the field in 1997 and 1996, respectively. The Company is discussing with regulatory authorities and with the landowner whether the Company will be required to perform further restoration. At most, the Company will be required to seed disturbed areas and to complete minor trash removal. Barring unforeseen events, the Company does not believe that the expense associated with final restoration activities will be material, although this cannot be assured. After its bonds with the state and the Bureau of Land Management are released, the Company does not believe it will have any further liability in connection with the field, although this cannot be assured. NOTE 7 - SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED). The Company's operations are confined to the continental United States, and all of the Company's reserves are proved developed. Prices and costs in the tables below have been estimated using prices and costs in effect at the end of the years indicated. Prices are estimated net of estimated quality and transportation adjustments. Income tax expense is not reflected in the tables below because of the antici pated utilization of net operating loss carryforwards and tax credits. The estimation of reserves is complex and subjective, and reserve estimates tend to fluctuate in light of new production data. Page 13 of 14 ALTEX INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 I. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES SEPTEMBER 30, 1997 Proved Properties $ 2,148,000 Accumulated depreciation, depletion, amortization, and valuation allowance (1,948,000) Net capitalized cost $ 200,000
II. ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES OIL GAS (BBLS) (MCF) BALANCE AT SEPTEMBER 30, 1995 217,000 975,000 Revisions of previous estimates 120,000 305,000 Production (37,000) (148,000) BALANCE AT SEPTEMBER 30, 1996 300,000 1,132,000 Sales of minerals in place (54,000) (26,000) Revisions of previous estimates 4,000 377,000 Production (31,000) (160,000) BALANCE AT SEPTEMBER 30, 1997 219,000 1,323,000
III. PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE AT SEPTEMBER 30 1997 1996 ---- ---- Estimated future revenue $ 6,413,000 8,602,000 Estimated future expenditures (4,229,000) (5,143,000) Estimated future net revenue 2,184,000 3,459,000 10% annual discount of estimated future net revenue (842,000) (1,300,000) Present value of estimated future net revenue $ 1,342,000 2,159,000
IV. SUMMARY OF CHANGES IN PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE YEAR ENDED SEPTEMBER 30 1997 1996 ---- ---- Present value of estimated future net revenue, beginning of year $ 2,159,000 1,032,000 Sales, net of production costs (449,000) (520,000) Net change in prices and costs of future production (599,000) 707,000 Revisions of quantity estimates 201,000 855,000 Sales of minerals in place (158,000) -- Accretion of discount 216,000 103,000 Change in production rates and other (28,000) (18,000) Present value of estimated future net revenue, end of year $ 1,342,000 2,159,000
Page 14 of 14 Exhibit Index 21 List of Subsidiaries 27 Financial Data Schedule - Submitted only in electronic format herewith, pursuant to Item 601(c) of Regulation S-B EX-21 2 LIST OF SUBSIDIARIES FOR ALTEX INDUSTRIES, INC. Exhibit 21 - List of subsidiaries Altex Oil Corporation, a Utah corporation d.b.a. Altex Oil Corporation EX-27 3 FINANCIAL DATA SCHEDULE FOR FORM 10KSB, 09/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF OPERATIONS OF ALTEX INDUSTRIES, INC. FOR THE YEAR ENDED 09/30/97, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR SEP-30-1997 SEP-30-1997 1,675,000 0 134,000 0 0 1,813,000 2,219,000 2,004,000 2,062,000 99,000 0 0 0 150,000 1,813,000 2,062,000 927,000 1,369,000 0 968,000 0 0 0 401,000 0 401,000 0 0 0 401,000 0.03 0.03
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