-----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, BknYbESWl7nVIKtLLZd37OzjOV3ZlaLVURQG77sATOV5ofjlMtow3rdq2Z+OoCCN MmD5276FbMBEGulftRSNOA== 0000775057-00-000002.txt : 20000203 0000775057-00-000002.hdr.sgml : 20000203 ACCESSION NUMBER: 0000775057-00-000002 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 20000125 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/A SEC ACT: SEC FILE NUMBER: 001-09030 FILM NUMBER: 512596 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/A 1 FORM 10KSB-A FOR ALTEX INDUSTRIES, INC. 09/30/99 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-KSB/A [ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 1999 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange 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.) POB 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: $554,000 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 November 9, 1999: $729,000 Number of shares outstanding of issuer's Common Stock as of November 9, 1999: 15,717,491 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 2000 Annual Meeting of Shareholders Page 1 of 16 "SAFE HARBOR" 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 condi tions; 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 subsidiary) is a holding company with two full-time employees and one part-time employee that was incorpo rated in Delaware in 1985. Through its operating subsidiary, the Company currently owns interests, including working inter ests, 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 64% 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 sale 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 covered 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 November 9, 1999, 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 November 9, 1999, the Company owned working interests in 78 gross (15.8 net) productive oil wells (certain of which produce associated natural gas), no wells producing only natural gas, and 30,000 gross (6,400 net) developed acres. Substantially all of the Company's production is located in Colorado, Utah, and Wyoming. One well accounts for approximately 16% of the Company's oil and gas sales and for approximately 51% of the Company's estimated proved oil reserves. The Company has not reported to, or filed with, any other Federal authority or Page 2 of 16 agency any estimates of total, proved net oil or gas reserves since the beginning of the last fiscal year. For additional informa tion, see Note 7 of Notes to Consolidated Financial Statements below. PRODUCTION Average Production Net Production Average Price Cost Per Equivalent Barrel ("BOE") Fiscal Year Oil Gas Oil Gas (Bbls) (Mcf) (Bbls) (Mcf) 1999 17,000 121,000 $ 15.94 1.51 7.59 1998 23,000 205,000 13.65 1.73 6.23 1997 31,000 160,000 19.68 1.98 8.29 =============== =============== =============== ============= ============= ============================
DRILLING ACTIVITY: The Company participated in the drilling of one development well in fiscal 1998 ("FY98") and did not participate in the drilling of any wells during fiscal 1999 ("FY99") or fiscal 1997 ("FY97"). 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. FY99 FY98 --------------------------- --------------------------- Quarter High Bid Low Bid High Bid Low Bid - ------------- ------------- ------------ ------------- ------------ 1 $0.08 $0.04 $0.11 $0.06 2 0.07 0.04 0.11 0.10 3 0.07 0.05 0.33 0.10 4 0.09 0.05 0.34 0.11
At November 9, 1999, there were 4,700 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 declined principally because of net cash used in operating activities. Accounts receivable declined because sales in the fourth quarter of FY99 were lower than sales in the fourth quarter of FY98. During FY98 the Company sold its interests in two proved oil and gas properties for cash proceeds of $21,000 and expended $13,000 on oil and gas property acquisitions and development. During FY99 the Company expended $2,000 on oil and gas property development. The Company is completing the restoration of the area that had contained its East Tisdale Field in Johnson County, Wyoming. The Company recognized $20,000 in RR&D expense related to the field in 1998 and expended $16,000 on RR&D activities in the field in FY99. The Company has removed all equipment from the field and has recontoured and reseeded virtually all disturbed areas Page 3 of 16 in the field. Barring unforeseen events, the Company does not believe that the expense associated with any remaining restora tion activities will be material, although this cannot be assured. After its bonds with the state and the Bureau of Land Manage ment are released, the Company does not believe it will have any further liability in connection with the field, although this cannot be assured. During FY99 the Company acquired 53,000 shares of its common stock for $4,000 and subsequently retired those shares. During FY98 the Company acquired 236,000 shares of its common stock for $29,000 and subsequently retired those shares. During FY98 the Company issued 733,665 shares of its common stock to its president in lieu of cash as payment of his bonus for FY97. Also during FY98 the Company issued 155,544 shares of its common stock to each of its two non-executive directors in exchange for notes receivable from each in the amount of $26,500. 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. At November 9, 1999, nominal world oil prices were unusually high. At such oil price levels, all other things being equal, cash flow from operations is likely to be higher than it would have been at lower price levels. However, unless the Company's production of oil and gas increases as the result of acquisitions of producing oil and gas properties, successful drilling activi ties, or successful recompletions, the Company is likely to experience negative cash flow from operations in the near future. With the exception of capital expenditures related to production acquisitions or drilling or recompletion activities, none of which are currently planned, the cash flows that could result from such acquisitions or activities, and the current high level of oil prices, 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 Company has no internal or external sources of liquidity other than its working capital. At November 9, 1999, the Company had no material commitments for capital expenditures. RESULTS OF OPERATIONS Oil sales decreased 14% from $314,000 in FY98 to $271,000 in FY99, and gas sales decreased 48% from $354,000 in FY98 to $183,000 in FY99. Oil sales decreased because a 26% decrease in oil sold was partially offset by a 17% increase in realized oil prices. Gas sales decreased because a 41% decrease in gas sold was combined with a 13% decrease in realized gas prices. Included in interest income in FY98 and FY99, respectively, are $21,000 and $17,000 relating to notes receivable from shareholders. Excluding these amounts, interest income decreased from $89,000 in FY98 to $79,000 in FY99 because of lower invested cash balances and lower realized interest rates. Other income, which consists of various miscellaneous items, de creased from $12,000 in FY98 to $4,000 in FY99. Included in lease operating expense ("LOE") in FY98 and FY99, respectively, are $28,000 and $13,000 in repairs and mainte nance expense related to one well. Excluding these amounts, LOE declined from $252,000 in FY98 to $217,000 in FY99 because of reduced repairs and maintenance expense. Production taxes declined from $76,000 in FY98 to $52,000 in FY99 because of reduced sales. In FY98 depreciation, depletion, and amortization expense ("DD&A") consisted of $40,000 in depletion expense, $25,000 in impairment expense, and $6,000 in depreciation expense. In FY99 DD&A consisted of $17,000 in depletion expense, $43,000 in impairment expense, and $5,000 in depreciation expense. Net earnings decreased from $6,000 in FY98 to a net loss of $149,000 in FY99 because of reduced oil and gas sales. LIQUIDITY OPERATING ACTIVITIES. During FY99 $68,000 cash was used in operations as compared to FY98 when operations provided $80,000 in cash. Cash provided by operations decreased principally due to the decline in oil and gas operations. INVESTING ACTIVITIES. In FY99, when expenditures on oil and gas property development totaled $2,000, $2,000 cash was used in investing activities. In FY98, when the Company received $21,000 in proceeds from the sale of assets and expended $13,000 on oil and gas property acquisitions and development, investing activities provided $8,000 in cash. FINANCING ACTIVITIES. The Company expended $4,000 in FY99 and $29,000 in FY98 to acquire treasury stock. Such expendi tures constituted all cash involved in financing activities. 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. At November 9, 1999, nominal world oil prices were unusually high, and both the Company and the oil futures markets expect price levels to decline. Unless Page 4 of 16 prices remain at the current high levels, the Company is unlikely to experience material positive earnings unless it dramatically increases production levels. With the exception of unanticipated variations in production levels, unanticipated RR&D, unantic ipated environmental expense, and current high oil price levels, 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. YEAR 2000 ISSUES The so-called Year 2000 ("Y2K") Problem arose because many existing computer programs use only the last two digits to refer to a year and, therefore, cannot distinguish between a year that begins with "20" and one that begins with "19." If not corrected, many computer applications could fail or create erroneous results when references to the Year 2000 become necessary. RISKS AND STATE OF READINESS The Company has completed its assessment of its state of readiness, and the Company believes it faces three kinds of risks as a result of the Year 2000 Problem: (1) Will hardware and software related to oil and gas production facilities fail as a result of the Y2K Problem? (2) Will back-office hardware or software fail as a result of the Y2K Problem? (3) Will unresolved Y2K Problems at third parties on whom the Company is dependent cause material adverse consequences to the Company? Production Facilities. The Company operates only one producing well. The Company does not believe that any equipment associated with that well is susceptible to the Y2K Problem, but this cannot be assured. If critical production equipment is not Y2K ready, production could cease or hydrocarbon contamination of the production facility could occur. Back-Office Facilities. The Company's back-office operations depend upon the following hardware: three Intel-chip-based microcomputers and associated peripheral devices, one AT&T Partner Plus telephone system, one Hewlett Packard inkjet fax machine, and one Pitney Bowes postage meter. The Company has tested the microcomputers, the telephone system, fax machine, and postage meter and is confident that they are Y2K ready. The Company does not believe that any of its peripheral devices are subject to Y2K issues. All of the Company's software is off-the-shelf software provided by world-class vendors. The Company believes that all software critical to its back-office functions is currently Y2K ready. Third Parties. Virtually all of the Company's revenue consists of oil and gas sales and interest income. All cash flow from oil and gas sales results from remittances to the Company from operators or purchasers of oil and gas production in which the Company has an interest. Should any operator or purchaser of production in which the Company has an interest suffer system failures due to Y2K problems, either in their production or back-office systems, revenue flowing to the Company could be interrupted. Similarly, should any financial institution in which the Company deposits its cash suffer system failures due to Y2K problems, the Company's cash flow from interest income could be interrupted, and the Company's access to its cash could be delayed. Because the Company is not significant to any third party, the Company does not have leverage in dealing with potential problems. COSTS AND CONTINGENCY PLANS The Company does not believe that costs associated with achieving Y2K readiness will exceed $1,000, but this cannot be assured. The Company neither has nor plans to adopt formal contingency plans for unanticipated Y2K problems. ITEM 7. FINANCIAL STATEMENTS. The consolidated financial statements follow the signature page. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Page 5 of 16 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Mr. Steven H. Cardin, 49, has been Chairman of the Board of Directors and the President and Chief Executive Officer of the Company for over five years, and a Director since 1984. Mr. Jeffrey S. Chernow, 48, has been a Director since 1989 and a partner in the law firm of Kandel, Klitenic & Chernow for over five years. Mr. Stephen F. Fante, 44, has been a Director since 1989. Mr. Fante was Chairman of the Board of IMS, which provided computerized accounting systems to the oil and gas industry and was a reseller of microcomputer products to the Fortune 1000, from 1979 until March 1992. Subsequently, he was Chairman of the Board and President of Seca Graphics, Inc., which provided design and mapping services and software to the cable television and telecommunications industries. Messrs. Chernow's, Cardin's, and Fante's terms as Directors continue until the 1999, 2000, and 2001 Annual Meetings of Shareholders, respectively, and until their successors are duly elected and qualified. ITEM 10. EXECUTIVE COMPENSATION. Each Director who is not also an officer of the Company receives $500 per month for service as a Director. No additional fees are paid for service on Committees of the Board or for attendance at Board or Committee Meetings. The Company has a stock option plan, but no options are outstanding under the plan or otherwise. In 1998, the Company's two non-executive Directors each purchased 155,544 shares of the Company's Common Stock from the Company at a price of $0.17 per share in exchange for notes receivable from each of $26,000. The notes are non-recourse, secured by the respective shares, bear interest at the Applicable Federal Rate, and are due on September 30, 2002. The principal amount of the notes can be paid with shares of the Company's Common Stock. The Company will reimburse the Directors for interest expense related to the notes and will indemnify them against additional tax due as a result of such reimbursement and indemnification. Mr. Cardin has an Employment Agreement with the Company that was effective October 1, 1996, that has an initial term of five years, and that provides that Mr. Cardin is to receive a base salary of $150,000 per annum, escalating at no less than 5% per annum, and an annual bonus of no less than 10% of the Company's earnings before tax. Pursuant to the agreement, Mr. Cardin 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 exchange for a note receivable from him of $306,000. The note is non-recourse, secured by the shares, bears interest at the Applicable Federal Rate, and is due at the end of the term of the Employment Agreement. The principal amount of the note can be paid with shares of the Company's Common Stock. The Company will reimburse Mr. Cardin for interest expense related to the note and will indemnify him against additional tax due as a result of such reimbursement and indemnification. The Employment Agreement also provides that, in the event the Company terminates Mr. Cardin's employment by reason of his permanent disability, the Company shall (1) pay Mr. Cardin a total sum, payable in 24 equal monthly installments, equal to 50% of the base salary to which he would have been entitled had he performed his duties for the Company for a period of two years after his termination, less the amount of any disability insurance benefits he receives under policies maintained by the Company for his benefit, and (2) continue to provide Mr. Cardin with all fringe benefits provided to him at the time of his permanent disability for a period of two years following such permanent disability. The Employment Agreement also provides that, in the event the Company terminates Mr. Cardin's employment in breach of the agreement, or in the event that Mr. Cardin terminates his employment because his circumstances of employment shall have changed subsequent to a change in control, then the Company shall pay Mr. Cardin a lump sum payment equal to the sum of (1) twice Mr. Cardin's base salary during the 12-month period immediately preceding the termination of his employment, (2) the greater of (a) twice any annual bonus paid to or accrued with respect to Mr. Cardin by the Company during the fiscal year immediately preceding the fiscal year in which his employment shall have been terminated or (b) three times his base salary during the 12-month period immediately preceding the termination of his employment, and (3) any other compensation owed to Mr. Cardin at the time of his termination. The agreement also provides that the Company will indemnify Mr. Cardin against any special tax that may be imposed on him as a result of any such termination payment made by the Company pursuant to the agreement. Under the Employment Agreement, a change in control is deemed to occur (1) if there is a change of one-third of the Board of Directors under certain conditions, (2) if there is a sale of all or substantially all of the Company's assets, (3) upon certain mergers or consolidations, (4) under certain circumstances if another person (or persons) acquires 20% or more of the outstanding voting shares of the Company, or (5) if any person except Mr. Cardin shall own or control half of such outstanding voting shares. Page 6 of 16 The following table sets forth the dollar value of compensation earned by the Company's CEO, its only executive officer, during the last three fiscal years. Summary Compensation Table Annual Compensation Name and Principal Year Salary Bonus Other Annual Position ($) ($) Compensation (1) ($) ===================== ==== ======= ====== ===================== Steven H. Cardin, CEO 1999 165,000 -- 15,000 1998 158,000 1,000 20,000 1997 150,000 45,000 30,000 ===================== ==== ======= ====== =====================
(1) Pursuant to his Employment Agreement (See above): Mr. Cardin paid $18,000, $20,000, and $15,000 in interest to the Company in 1997, 1998, and 1999, respectively; the Company reimbursed him for those payments; and, in 1997, the Company paid him $12,000 in tax indemnification related to the 1995 and 1996 interest reimbursements he received from the Company.. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information concerning each person who, as of January 18, 2000, is known to the Company to be the beneficial owner of more than five percent of the Company's Common Stock, and information regarding Common Stock of the Company beneficially owned, as of January 18, 2000, by all Directors and executive officers and by all Directors and executive officers as a group. Name and Address of Beneficial Owner Shares of Common Percent Stock of Beneficially Owned Class ===================================================== ================== ======= Steven H. Cardin (1)(Director and Executive Officer) POB 1057 6,297,018 40.0% Breckenridge CO 80424-1057 - ----------------------------------------------------- ------------------ ------- Jeffrey S. Chernow (Director) POB 1057 Breckenridge CO 80424-1057 155,544 1.0% - ----------------------------------------------------- ------------------ ------- Stephen F. Fante (Director) POB 1057 Breckenridge CO 80424-1057 155,544 1.0% - ----------------------------------------------------- ------------------ ------- David L. Goldman 100 Federal St Boston MA 02110 1,212,500 7.7% - ----------------------------------------------------- ------------------ ------- All Directors and Executive Officers as a Group (3 Persons) 6,608,106 42.0% ===================================================== ================== =======
(1) Includes 1,004,146 shares held by the Cardin Family Limited Partnership, of which a corporation controlled by Mr. Cardin is the managing general partner, and 5,292,872 shares held individually by Mr. Cardin. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 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 - Incorporated herein by reference to Form 10-KSB for fiscal year ended September 30, 1997 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. On September 23, 1999, the Company filed a report on Form 8-K reporting a change in the Company's certifying accountant. 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 January 24, 2000 --------------------- ----------------- 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 15, 1999 -------------------------------- ----------------- Steven H. Cardin, Director, Date Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer By: /s/ JEFFREY S. CHERNOW December 15, 1999 ---------------------- ----------------- Director Date Page 7 of 16 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 subsidiary as of September 30, 1999, and the consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Com pany's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards re quire that we plan and perform the audit to obtain reasonable assurance about whether the financial state ments 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material re spects, the financial position of Altex Industries, Inc. and subsidiary as of September 30, 1999, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Higgins, Meritt & Burdick, P.C. Denver, Colorado November 2, 1999 Page 8 of 16 INDEPENDENT AUDITORS' REPORT THE STOCKHOLDERS AND BOARD OF DIRECTORS ALTEX INDUSTRIES, INC.: We have audited the consolidated statements of operations, stockholders' equity, and cash flows of Altex Industries, Inc. and subsidiary for the year ended September 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opin ion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards re quire that we plan and perform the audit to obtain reasonable assurance about whether the financial state ments 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material re spects, the results of operations and cash flows of Altex Industries, Inc. and subsidiary as of September 30, 1998, in conformity with generally accepted accounting principles. KPMG LLP Denver, Colorado November 3, 1998 Page 9 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,660,000 Accounts receivable 71,000 Other receivables 13,000 Other 2,000 Total current assets 1,746,000 PROPERTY AND EQUIPMENT, AT COST Proved oil and gas properties (successful efforts method) (Notes 6 and 7) 2,139,000 Other 71,000 2,210,000 Less accumulated depreciation, depletion, amortization, and valuation allowance (2,119,000) Net property and equipment 91,000 OTHER ASSETS 33,000 $ 1,870,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 16,000 Accrued production costs 28,000 Accrued reclamation, restoration, and dismantlement 4,000 Other accrued expenses 35,000 Total current liabilities 83,000 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, 15,717,491 shares issued and outstanding 157,000 Additional paid-in capital 14,279,000 Accumulated deficit (12,290,000) Notes receivable from stockholders (359,000) 1,787,000 COMMITMENTS AND CONTINGENCIES (Notes 3, 5, and 6) $ 1,870,000
See accompanying notes to consolidated financial statements. Page 10 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1999 AND 1998 1999 1998 REVENUE Oil and gas sales $ 454,000 668,000 Interest (Note 3) 96,000 110,000 Gain on sale of assets -- 18,000 Other income 4,000 12,000 554,000 808,000 COSTS AND EXPENSES Lease operating 230,000 280,000 Production taxes 52,000 76,000 General and administrative (Note 3) 355,000 355,000 Reclamation, restoration, and dismantlement (Note 6) 1,000 20,000 Depreciation, depletion, and amortization 65,000 71,000 703,000 802,000 NET EARNINGS (LOSS) $ (149,000) 6,000 EARNINGS (LOSS) PER SHARE OF COMMON STOCK (0.01) * WEIGHTED AVERAGE SHARES OUTSTANDING 15,733,181 15,597,688 - ------------------------------------ * Less than $0.01 per share
See accompanying notes to consolidated financial statements. Page 11 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY CONSOLODATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1999 AND 1998 COMMON STOCK ADDITIONAL COMMON ACCUMULATED TREASURY NOTE TOTAL SHARES AMOUNT PAID-IN STOCK DEFICIT STOCK RECEIVABLE STOCKHOLDERS' CAPITAL TO BE FROM EQUITY ISSUED SHAREHOLDER -------------------------------------------------------------------------------------------------- Balances at September 30, 1997 14,961,738 $150,000 14,222,000 44,000 (12,147,000) -- (306,000) 1,963,000 Net earnings -- -- -- -- 6,000 -- -- 6,000 Shares issued in exchange for note receivable (Note 3) 311,088 3,000 50,000 -- -- -- (53,000) -- Common stock issued, 733,665 shares (Note 3) 733,665 7,000 37,000 (44,000) -- -- -- -- Acquisition of Treasury stock, 236,000 shares at $0.12 per share -- -- -- -- -- (29,000) -- (29,000) Retirement of Treasury stock (236,000) (2,000) (27,000) -- -- 29,000 -- -- Balances at September 30, 1998 15,770,491 158,000 14,282,000 -- (12,141,000) -- (359,000) 1,940,000 Net loss -- -- -- -- (149,000) -- -- (149,000) Acquisition of Treasury stock, 53,000 shares at $0.8 per share -- -- -- -- -- (4,000) -- (4,000) Retirement of Treasury stock (53,000) (1,000) (3,000) -- -- 4,000 -- -- Balances at September 30, 1999 15,717,491 $157,000 14,279,000 -- (12,290,000) -- (359,000) 1,787,000
See accompanying notes to consolidated financial statements. Page 12 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1999 AND 1998 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ (149,000) 6,000 Adjustments to reconcile net earnings to net cash provided by operating activities Gain on sale of assets -- (18,000) Depreciation, depletion, and amortization 65,000 71,000 Decrease in accounts receivable 20,000 25,000 Decrease (increase) in other receivables 6,000 (1,000) Decrease in other current assets -- 2,000 Decrease in other assets 1,000 -- Increase (decrease) in accounts payable 2,000 (10,000) Increase (decrease) in accrued production costs 1,000 (7,000) Increase (decrease) in accrued restoration, reclamation, and dismantlement (16,000) 20,000 Increase (decrease) in other accrued expenses 2,000 (8,000) Net cash provided by (used in) operating activities (68,000) 80,000 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of assets -- 21,000 Oil and gas property acquisition expenditures -- (4,000) Oil and gas property development expenditures (2,000) (9,000) Other capital expenditures -- -- Net cash provided by (used in) investing activities (2,000) 8,000 CASH FLOWS USED IN FINANCING ACTIVITIES Acquisition of treasury stock (4,000) (29,000) ------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (74,000) 59,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,734,000 1,675,000 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,660,000 1,734,000
See accompanying notes to consolidated financial statements. Page 13 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998 NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. NATURE OF OPERATIONS: Altex Industries, Inc. and its wholly owned subsidiary, jointly referred to as "the Company," own interests, including working interests, in productive oil and gas properties located in Colorado, Utah, and Wyoming. YEAR 2000 CONSIDERATIONS: The Year 2000 ("Y2K") problem arose because many existing computer programs use only the last two digits to refer to a year and, therefore, cannot distinguish between a year that begins with "20" and a year that begins with "19." If not corrected, many computer applications could fail or create erroneous results when references to the Year 2000 become necessary. The Company has completed an assessment of its state of readiness and, although it believes that the Company's systems are Y2K compli ant, there can be no guarantee that significant third parties will timely render their systems Y2K compliant. Management is not able to determine the impact on the Company, if any, if significant third parties fail to provide for Y2K-compliant systems. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Altex Industries, Inc. and its wholly-owned subsidiary. 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-product ion method based on estimated quantities of proved reserves and estimated RR&D. 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. Actual RR&D expense in excess of estimated RR&D expense is 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. The Company recognized impair ments of $43,000 and $25,000 for the years ended September 30, 1999 and 1998, respectively. 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, 1999, the Company had net operating loss, depletion, and investment tax credit carryfor wards for income tax purposes of $4,479,000, $790,000, and $11,000, respectively. If not utilized, the net operating losses will expire during the period from 2000 through 2014, and the investment tax credit carryforwards will expire during the period from 2000 to 2001. The approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax assets at September 30, 1999, computed in accordance with SFAS No. 109, is as follows: Page 14 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998 DEFERRED TAX ASSETS Net operating loss carryforward $ 1,568,000 Depletion carryforward 276,000 Investment tax credit carryforward 11,000 Accrued reclamation, restoration, and dismantlement 1,000 Tax basis of assets written off for financial statement purposes 688,000 Depletion, depreciation, amortization, and valuation allowance for financial statement purposes in excess of amounts for income tax purposes 13,000 TOTAL GROSS DEFERRED TAX ASSETS 2,557,000 Less valuation allowance (2,557,000) NET DEFERRED TAX ASSET $ -- =======================
Based on the uncertainty of future realization, a valuation allowance equal to the net deferred tax asset has been provided. Accordingly, no tax benefit has been recorded. Income tax expense is different from amounts computed by applying the statutory Federal income tax rate for the following reasons: 1999 1998 TAX (BENEFIT) EXPENSE AT 34% OF NET EARNINGS (LOSS) $ (51,000) 2,000 CHANGE IN VALUATION ALLOWANCE FOR NET DEFERRED TAX ASSETS (712,000) (378,000) EXPIRATION OF TAX CARRYFORWARDS 745,000 386,000 OTHER 18,000 (10,000) ------------- --------------- INCOME TAX EXPENSE $ -- -- ============= ===============
NOTE 3 - RELATED PARTY TRANSACTIONS. Pursuant to an employment agreement with the Company, the Company's president has pur chased 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 exchange for a $306,000 note receivable. In 1998 the Company's two non-executive directors each pur chased 155,544 shares of the Company's common stock from the Company at a price of $0.17 per share in exchange for notes receiv able from each of $26,500. Each of the three notes is non-recourse, secured by the respective shares, due on September 30, 2002, and bears interest at the Applicable Federal Rate. The principal amount of the notes can be paid with shares of the Company's common stock. The Company will reimburse the president and the directors for interest expense related to the notes, and will indemnify them against additional tax due as a result of such reimbursement and indemnification. The Company recognized $17,000 and $21,000 of both interest income and general and administrative expense related to the notes in 1999 and 1998, respectively. The president's employment agreement also provides that he will receive an annual bonus equal to no less than 10% of the Company's earnings before income tax. The Company paid the president a cash bonus of $1,000 for FY98. NOTE 4 - MAJOR CUSTOMERS. In 1999 and 1998 the Company had, respectively, two and three customers who individually accounted for 10% or more of the Company's revenue and who, in aggregate, accounted for 80% and 89% of revenue in 1999 and 1998, respectively. In 1999 the two customers individually accounted for 64% and 16% of revenue; and in 1998 the three customers individually ac counted for 62%, 14%, and 13% of revenue. NOTE 5 - LEASES. The Company rents office space under a noncancellable operating lease that expires in April 2004. At September 30, 1999, required future payments under the lease are $21,000 for each of the years ending September 30, 2000 through September 30, 2003, and $12,000 for the year ended September 30, 2004. The Company incurred rent expense of $21,000 and $20,000 in 1999 and 1998, 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. The Company recognized $20,000 in RR&D expense related to the field in 1998 and expended $16,000 on RR&D activities in the field in FY99. The Company has removed all equipment from the field and has recon toured and reseeded virtually all disturbed areas in the field. Barring unforeseen events, the Company does not believe that the expense associated with any remaining 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. Page 15 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998 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 transporta tion adjustments. Income tax expense is not reflected in the tables below because of the anticipated 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. I. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES September 30, 1999 Proved properties $ 2,139,000 Accumulated depreciation, depletion, amortization, and valuation allowance (2,052,000) Net capitalized cost $ 87,000
II. ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES Oil in Barrels Gas in Mcfs BALANCE AT SEPTEMBER 30, 1997 219,000 1,323,000 Sales of minerals in place (1,000) (6,000) Revisions of previous estimates (95,000) 171,000 Production (23,000) (205,000) BALANCE AT SEPTEMBER 30, 1998 100,000 1,283,000 Revisions of previous estimates 59,000 (612,000) Production (17,000) (121,000) BALANCE AT SEPTEMBER 30, 1999 142,000 550,000
III. PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE At September 30 1999 1998 Estimated future revenue $ 4,329,000 3,324,000 Estimated future expenditures (2,708,000) (2,388,000) Estimated future net revenue 1,621,000 936,000 10% annual discount of estimated future net revenue (569,000) (281,000) Present value of estimated future net revenue $ 1,052,000 655,000
IV. SUMMARY OF CHANGES IN PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE Year ended September 30 1999 1998 Present value of estimated future net revenue, beginning of year $ 655,000 1,342,000 Sales, net of production costs (172,000) (312,000) Net change in prices and costs of future production 744,000 (414,000) Revisions of quantity estimates (194,000) (122,000) Sales of minerals in place -- (20,000) Accretion of discount 65,000 134,000 Change in production rates and other (46,000) 47,000 Present value of estimated future net revenue, end of year $ 1,052,000 655,000
Page 16 of 16 EXHIBIT INDEX 27 Financial Data Schedule - Submitted only in electronic format herewith, pursuant to Item 601(c) of Regulation S-B EX-27 2 FINANCIAL DATA SCHEDULE FOR FORM 10KSB, 09/30/99
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 09/30/99, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR SEP-30-1999 SEP-30-1999 1,660,000 0 84,000 0 0 1,746,000 2,210,000 2,119,000 1,870,000 83,000 0 0 0 157,000 1,630,000 1,787,000 454,000 554,000 0 703,000 0 0 0 (149,000) 0 (149,000) 0 0 0 (149,000) (0.01) (0.01)
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