-----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, PhGDkc31tAvmBxj0buhD6dcRxP0gCW8QR1p49JXJpyEqQxTJwdcWHhfWOV0+yeI5 nqqiHDC11LycDbjIXn+0wg== 0000775057-02-000005.txt : 20020413 0000775057-02-000005.hdr.sgml : 20020413 ACCESSION NUMBER: 0000775057-02-000005 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20020123 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: 1934 Act SEC FILE NUMBER: 001-09030 FILM NUMBER: 02515424 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 formtext0110ksba.txt 2001 FORM 10-KSB/A FOR ALTEX INDUSTRIES, INC. 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, 2001 [ ] 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: (303) 265-9312 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: $1,435,000 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 6, 2001: $750,000 Number of shares outstanding of issuer's Common stock as of December 6, 2001: 15,434,593 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 2001 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 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 subsidiary) is a holding company with one full-time employee and three part-time employees that was incorporated in Delaware in 1985. Through its operating subsidiary, 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 80% 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.) Page 2 of 16 Item 2. Description of Property. Wells and Acreage: At December 6, 2001, 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 6, 2001, the Company owned working interests in 46 gross (15.38 net) productive oil wells (certain of which produce associated natural gas), no wells producing only natural gas, and 19,000 gross (6,000 net) developed acres. Substantially all of the Company's production is located in Colorado, Utah, and Wyoming. One well accounts for approximately 14% of the Company's oil and gas sales and for approximately 8% 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 8 of Notes to Consolidated Financial Statements below. Production
Net Production Average Price Average Production Cost Per Equivalent Barrel ("BOE") -------------- -------------- ------------ ----------- ========================== Fiscal Year Oil Gas Oil Gas (Bbls) (Mcf) (Bbls) (Mcf) - ---------------- -------------- -------------- ------------ ----------- -------------------------- 2001 13,000 86,000 $27.62 $4.81 $ 14.41 - ---------------- -------------- -------------- ------------ ----------- -------------------------- 2000 18,000 106,000 27.22 2.65 8.43 - ---------------- -------------- -------------- ------------ ----------- -------------------------- 1999 17,000 121,000 15.94 1.51 7.59 ================ ============== ============== ============ =========== ==========================
Drilling Activity: The Company did not participate in the drilling of any wells during fiscal 1999 ("FY99") , fiscal 2000 ("FY00") or fiscal 2001 ("FY01"). 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. FY01 FY00 ------------------------ ------------------------ Quarter High Bid Low Bid High Bid Low Bid - -------------- ------------ ----------- ------------ ----------- 1 $0.10 $0.07 $0.07 $0.05 2 0.15 0.07 0.42 0.05 3 0.23 0.06 0.18 0.06 4 0.13 0.09 0.12 0.07 At December 6, 2001, there were approximately 4,600 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. Page 3 of 16 Item 6. Management's Discussion and Analysis or Plan of Operation FINANCIAL CONDITION Cash balances increased during FY01 because of proceeds from the sale of assets and because of net cash provided by operating activities. In the quarter ended December 31, 2000 ("Q1FY01"), the Company received $488,000 cash proceeds, net of expenses, from the sale of interests in producing oil and gas properties. As a result of the sale of assets, the Company removed $1,045,000 from proved oil and gas properties and from accumulated depreciation, depletion, amortization, and valuation allowance. The assets sold represented approximately 9% of the Company's proved, developed, producing reserves estimated as of September 30, 2000. In the quarter ended June 30, 2001 ("Q3FY01"), the Company received $33,000 cash proceeds from the sale of interests in undeveloped zones held by production from deeper zones in producing oil and gas properties in which the Company owns interests. In the quarter ended September 30, 2001 ("Q4FY01"), the Company received $5,000 cash proceeds, net of expenses, from the sale of interests in producing oil and gas properties. In a Form 8-K filed August 22, 2000, when oil and gas prices were significantly above current levels, the Company announced that its wholly-owned subsidiary, Altex Oil Corporation ("AOC"), was attempting to sell substantially all of its interests in producing oil and gas properties for cash, provided that certain target prices were realized. Given the current depressed levels of oil and gas prices, it appears highly unlikely that this strategy will meet with success, and there can be no assurance that any additional interests will actually be sold. Any sale will be subject to applicable legal and regulatory requirements. Accounts receivable decreased from September 30, 2000, to September 30, 2001, because sales in the fourth quarter of FY01 were lower than sales in the fourth quarter of FY00. Accrued production costs increased because of increased repair and maintenance expense. Included in other accrued expenses is $75,000 in bonus expense accrued pursuant to the Company's employment agreement with its president. (See Note 3 of Notes to Consolidated Financial Statements.) The Company is completing the restoration of the area that had contained its East Tisdale Field in Johnson County, Wyoming. The Company has removed all equipment from the field and has recontoured 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. 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 December 6, 2001, world oil prices and domestic natural gas prices were significantly depressed, compared to recent levels. Also, at December 6, 2001, prevailing interest rates were extremely low. At such price levels and interest rates, the Company is likely to experience negative cash flow from operations. 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 low level of prices and interest rates, 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, and interest income, the Company has no internal or external sources of liquidity other than its working capital. At December 6, 2001, the Company had no material commitments for capital expenditures. RESULTS OF OPERATIONS Interest income increased from $109,000 in FY00 to $128,000 in FY01 because of increased cash balances. During FY01 the company accrued $63,000 in bonus expense pursuant to the Company's employment agreement with its president. (See Note 3 of Notes to Consolidated Financial Statements.) Excluding this expense, general and administrative expense increased 7% from $362,000 in FY00 to $388,000 in FY01 because of increased salary and insurance expense. The Company plugged and abandoned three wells in FY00. Net earnings increased from $104,000 in FY00 to net earnings of $570,000 in FY01 because of the gain on sale of assets of $526,000 in FY01. Page 4 of 16 LIQUIDITY Operating Activities. In FY00 and FY01 cash provided by operations was $112,000 and $113,000, respectively. Investing Activities. In FY00 the Company expended $6,000 on other additions to property and equipment. In FY01 the Company received proceeds from the sale of assets of $526,000 and expended $6,000 on other additions to property and equipment. Financing Activities. In FY00 the Company expended $9,000 to acquire 156,166 shares 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 production 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 December 6, 2001, world oil prices and domestic natural gas prices were significantly depressed, compared to recent levels. Also, at December 6, 2001, prevailing interest rates were extremely low. At such price levels and interest rates, the Company is likely to record significant net losses. With the exception of unanticipated variations in production levels, unanticipated RR&D, unanticipated environmental expense, and current low oil and gas price levels and interest rates, 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 net sales or revenues or income from continuing operations. 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. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. Mr. Steven H. Cardin, 51, 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, 50 , has been a Director since 1989 and a partner in the law firm of Kandel, Klitenic, Cox, Betten & Chernow, LLP for over five years. Mr. Stephen F. Fante, 46, 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 their successors are duly elected and qualified. Item 10. Executive Compensation. Each Director who is not also an officer of the Company receives $750 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, 2006. 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. Page 5 of 16 Mr. Cardin has an Employment Agreement with the Company that was effective October 1, 2001, that has an initial term of five years, and that provides that Mr. Cardin is to receive a base salary of $191,000 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. 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 Position Year Salary Bonus Other Annual Compensation - -------------------------------- ------- ----------- ---------- ---------------- Steven H. Cardin, CEO 2001 $182,000 $63,000 $14,000 - -------------------------------- ------- ----------- ---------- ---------------- 2000 $173,000 $12,000 $14,000 - -------------------------------- ------- ----------- ---------- ---------------- 1999 $165,000 - $15,000 - -------------------------------- ------- ----------- ---------- ----------------
Pursuant to his Employment Agreement (See above), Mr. Cardin paid $15,000, $14,000, and $14,000 in interest to the Company in 1999, 2000, and 2001, respectively; and the Company reimbursed him for those payments. Page 6 of 16 Item 11. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth information concerning each person who, as of January 18, 2002, 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, 2002, 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 Stock Percent Beneficially Owned of Class - ---------------------------------------------------------------- ------------------------ ---------- Steven H. Cardin (Director and Executive Officer) POB 1057 Breckenridge CO 80424-1057 7,233,886 46.9% - ---------------------------------------------------------------- ------------------------ ---------- 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% - ---------------------------------------------------------------- ------------------------ ---------- All Directors and Executive Officers as a Group (3 Persons) 7,544,974 48.9% - ---------------------------------------------------------------- ------------------------ ----------
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 Summary of Employment Agreement between the Company and Steven H. Cardin, effective October 1, 2001 21 List of subsidiaries - Incorporated herein by reference to Form 10-KSB for fiscal year ended September 30, 1997 (b) Reports on Form 8-K. None. 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 22, 2002 ---------------------------- ------------------------- 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 26, 2001 --------------------------- ------------------------- Steven H. Cardin, Director, Date Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer By: /s/ STEPHEN F. FANTE December 26, 2001 --------------------------- ------------------------- 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, 2001, 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, 2001. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Altex Industries, Inc. and subsidiary as of September 30, 2001, and the results of their operations and their cash flows for each of the years in the two-year period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States of America. Higgins, Meritt & Burdick, P.C. Denver, Colorado November 7, 2001 (Except for Note 7, as to which the date is November 27, 2001) Page 8 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY Consolidated Balance Sheet September 30, 2001 Assets
Current assets Cash and cash equivalents $ 2,390,000 Accounts receivable 79,000 Other receivables 15,000 Other 17,000 ------------------ Total current assets 2,501,000 ------------------ Property and equipment, at cost Proved oil and gas properties (successful efforts method) (Notes 6 and 8) 1,094,000 Other 67,000 ------------------ 1,161,000 Less accumulated depreciation, depletion, amortization, and valuation allowance (1,090,000) ------------------ Net property and equipment 71,000 Other assets 50,000 ------------------ $ 2,622,000 ================== Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 10,000 Accrued production costs 48,000 Accrued reclamation, restoration, and dismantlement 1,000 Other accrued expenses 111,000 ------------------ Total current liabilities 170,000 ------------------ Stockholders's 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, 15,559,225 shares issued and outstanding 156,000 Additional paid-in capital 14,271,000 Accumulated deficit (11,616,000) Notes receivable from stockholders (359,000) ------------------ 2,452,000 Commitments and Contingencies (Notes 3, 5, and 6) ------------------ $ 2,622,000 ==================
See accompanying notes to consolidated financial statements. Page 9 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY Consolidated Statements of Operations Years ended September 30, 2001 and 2000
2001 2000 -------------------------- Revenue Oil and gas sales $ 772,000 771,000 Interest (Note 3) 128,000 109,000 Other income 9,000 3,000 Gain on sale of assets 526,000 - -------------------------- 1,435,000 883,000 -------------------------- Costs and expenses Lease operating 302,000 301,000 Production taxes 92,000 85,000 General and administrative (Note 3) 451,000 362,000 Exploration - 1,000 Reclamation, restoration, and dismantlement (Note 6) 2,000 16,000 Depreciation, depletion, and amortization 18,000 14,000 -------------------------- 865,000 779,000 -------------------------- Net earnings $ 570,000 104,000 ========================== Earnings per share of common stock $0.04 $0.01 ========================== Weighted average shares outstanding 15,560,493 15,593,050 ==========================
See accompanying notes to consolidated financial statements. Page 10 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years ended September 30, 2001 and 2000
Common Stock Additional Accumulated Treasury Note Total paid-in deficit stock receivable stockholders' capital from equity shareholder Shares Amount ------------------------------------------------------------------------------------------------ Balances at September 30, 1999 15,717,491 $157,000 14,279,000 (12,290,000) -- (359,000) 1,787,000 Net earnings -- -- -- 104,000 -- -- 104,000 Acquisition of Treasury stock, 156,000 shares at $0.06 per -- -- -- -- (9,000) -- (9,000) share Retirement of Treasury stock (156,166) (1,000) (8,000) -- 9,000 -- -- ------------------------------------------------------------------------------------------------ Balances at September 30, 2000 15,561,325 156,000 14,271,000 (12,186,000) -- (359,000) 1,882,000 Net earnings -- -- -- 570,000 -- -- 570,000 Acquisition of Treasury stock, 2,100 shares at $0.12 per -- -- -- -- -- -- -- share Retirement of Treasury stock (2,100) -- -- -- -- -- -- ------------------------------------------------------------------------------------------------ Balances at September 30, 2001 15,559,225 $156,000 14,271,000 (11,616,000) -- (359,000) 2,452,000 ================================================================================================
See accompanying notes to consolidated financial statements. Page 11 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended September 30, 2001 and 2000
2001 2000 ---------------------------- Cash flows from operating activities Net earnings $ 570,000 104,000 Adjustments to reconcile net earnings to net cash provided by operating activities Gain on sale of assets (526,000) - Depreciation, depletion, and amortization 18,000 14,000 (Increase) decrease in accounts receivable 22,000 (30,000) (Increase) decrease in other receivables 1,000 (3,000) Increase in other current assets (15,000) - (Increase) decrease in other assets (21,000) 4,000 Increase (decrease) in accounts payable (11,000) 5,000 Increase in accrued production costs 10,000 10,000 Decrease in accrued restoration, reclamation, and dismantlement - (3,000) Increase in other accrued expenses 65,000 11,000 ---------------------------- Net cash provided by operating activities 113,000 112,000 ---------------------------- Cash flows from investing activities Proceeds from sale of assets 526,000 - Other capital expenditures (6,000) (6,000) ---------------------------- Net cash provided by (used in) investing activities 520,000 (6,000) ---------------------------- Cash flows used in financing activities Acquisition of treasury stock - (9,000) ---------------------------- Net increase in cash and cash equivalents 633,000 97,000 ---------------------------- Cash and cash equivalents at beginning of year 1,757,000 1,660,000 ---------------------------- Cash and cash equivalents at end of year $ 2,390,000 1,757,000 ============================
See accompanying notes to consolidated financial statements. Page 12 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements September 30, 2001 and 2000 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. The Company's revenues are generated from sales of oil and gas production, sales of oil and gas properties, and interest income from cash deposits. The Company's operations are very susceptible to changes in oil and gas prices and to changes in interest rates. 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-production 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. Cash Equivalents and Fair Values of Financial Instruments: 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. The carrying amount reported on the balance sheet for cash and cash equivalents approximates its fair value. 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. Concentrations of credit risk: The Company sells the majority of its oil and gas production to two or three customers (Note 4). Although this concentration could affect the Company's overall exposure to credit risk, management believes the risk is minimal since the majority of its sales are ultimately to major companies within the industry. Although the Company maintains significant amounts of cash, management does not permit cash deposits to exceed federally insured limits with any one institution. Note 2 - Income Taxes. At September 30, 2001, the Company had net operating loss and depletion carryforwards for income tax purposes of $1,307,000 and $925,000, respectively. If not utilized, the net operating losses will expire during the period from 2002 through 2019. 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, 2001, computed in accordance with SFAS No. 109, is as follows: Page 13 of 16 ALTEX INDUSTRIES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements September 30, 2001 and 2000
Deferred Tax Assets Net operating loss carryforward $ 457,000 Depletion carryforward 324,000 Tax basis of assets written off for financial statement purposes 688,000 ------------------------ 1,469,000 Deferred Tax Liability Depletion, depreciation, amortization, and valuation allowance for income tax purposes in excess of amounts for financial statement purposes (8,000) ------------------------ Total Net Deferred Tax Assets 1,461,000 Less valuation allowance (1,461,000) ------------------------ 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:
2001 2000 --------------- ----------------- Tax expense at 34% of net earnings $ 200,000 35,000 Change in valuation allowance for net deferred tax assets (340,000) (756,000) Expiration of tax carryforwards 151,000 747,000 Other (11,000) (26,000) --------------- ----------------- 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 exchange for a $306,000 note receivable. The Company's two non-executive directors have 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 $26,500. Each of the three notes is non-recourse, secured by the respective shares, due on September 30, 2006, 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 of both interest income and general and administrative expense related to the notes in 2001 and 2000. 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. At September 30, 2001, the Company had accrued bonus expense of $75,000. Note 4 - Major Customers. In 2001 and 2000 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 94% and 88% of revenue in 2001 and 2000, respectively. In 2001 the two customers individually accounted for 80% and 14% of revenue, and in 2000 the three customers individually accounted for 58%, 17%, 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, 2001, required future payments under the lease are $21,000 for each of the years ending September 30, 2002, through September 30, 2003, and $12,000 for the year ended September 30, 2004. In 2001 and 2000 the Company incurred rent expense of $21,000. 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 has removed all equipment from the field and has recontoured 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 14 of 16 Note 7 - Subsequent Events. (1) On October 22, 2001, the Company agreed to purchase 1,087,500 shares of its common stock for $0.10 per share in a negotiated transaction. (2) On October 25, 2001, and November 13, 2001, the Company purchased 930,000 and 131,500 of the shares, respectively, for $0.10 cash per share. (3) On November 27, 2001, the Company retired the 1,061,500 shares. (4) On November 27, 2001, the Company issued 936,868 shares of common stock to the Company's president, valued at $0.08 per share, the average of the closing bid and asked on November 27, 2001, in lieu of cash, as payment of his accrued bonus, pursuant to the president's employment agreement with the Company. (5) Effective October 1, 2001, the Company entered into a new five year employment agreement with its president which provides for a base salary of $191,000 annually, plus escalations of not less than 5% annually. The agreement contains certain other provisions providing for certain payments to the president in the event of his disability or termination of his employment. Note 8 - 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 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, 2001 ------------------------ Proved properties $1,094,000 Accumulated depreciation, depletion, amortization, and valuation allowance (1,030,000) ------------------------ Net capitalized cost $64,000 ========================
II. Estimated Quantities of Proved Oil and Gas Reserves
Oil in Barrels Gas in Mcfs ------------------------- ----------------------- Balance at September 30, 1999 142,000 550,000 Revisions of previous estimates 30,000 356,000 Production (18,000) (106,000) ------------------------- ----------------------- Balance at September 30, 2000 154,000 800,000 Sales of minerals in place (20,000) (24,000) Revisions of previous estimates (73,000) (340,000) Production (13,000) (86,000) ---------------------------- ----------------------- Balance at September 30, 2001 48,000 350,000 ============================ ======================= III. Present Value of Estimated Future Net Revenue At September 30 2001 2000 ----------------------------------------------------- Estimated future revenue $1,665,000 7,170,000 Estimated future expenditures (968,000) (4,495,000) ----------------------------------------------------- Estimated future net revenue 697,000 2,675,000 10% annual discount of estimated future net revenue (253,000) (1,003,000) ----------------------------------------------------- Present value of estimated future net revenue $444,000 1,672,000 ===================================================== IV. Summary of Changes in Present Value of Estimated Future Net Revenue Year ended September 30 2001 2000 ----------------------------------------------------- Present value of estimated future net revenue, beginning of year $1,672,000 1,052,000 Sales, net of production costs (378,000) (385,000) Sales of mineral in place (295,000) - Net change in prices and costs of future production (221,000) 372,000 Revisions of quantity estimates (547,000) 520,000 Accretion of discount 167,000 105,000 Change in production rates and other 46,000 8,000 ----------------------------------------------------- Present value of estimated future net revenue, end of year $444,000 1,672,000 =====================================================
Page 15 of 16 Exhibit Index 10 Summary of Employment Agreement between the Company and Steven H. Cardin, effective October 1, 2001 Page 16 of 16 EX-10 3 exhibit10.txt ALTEX/STEVEN H. CARDIN EMPLOYMENT AGREEMENT Exhibit 10 Summary of Employment Agreement between the Company and Steven H. Cardin, effective October 1, 2001 Effective October 1, 2001, the Company entered into a new five-year employment agreement with its president, Mr. Steven H. Cardin. The Agreement provides that Mr. Cardin shall receive a base salary of $191,000 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 income tax payable either in cash, or, at Mr. Cardin's election, in shares of the Company's Common stock at then fair market value. Pursuant to three previous employment agreements with the Company, Mr. Cardin had purchased 3,759,864 shares of the Company's Common stock from the Company at fair market value in three separate non-cash transactions for three non-recourse notes receivable that were secured by the shares and that were subsequently consolidated into a single $306,000 non-recourse note receivable. The new employment agreement provides that the note will remain non-recourse and will remain secured by the 3,759,864 shares, and also that the note will continue to bear interest at the Applicable Federal Rate and will become due and payable at the end of the employment agreement. The agreement also continues to provide that Mr. Cardin can pay the principal amount of the loans with shares of the Company's common stock and that the Company will reimburse Mr. Cardin for interest expense related to the loans and will indemnify him against additional tax due as a result of such reimbursement and indemnification. Should Mr. Cardin default on the loans, the shares will revert to the Company. The 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 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 and (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 the employee shall own or control half of such outstanding voting shares. -----END PRIVACY-ENHANCED MESSAGE-----