UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission file number 0-8301
GOLDEN TRIANGLE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 25-1302097
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State or other jurisdiction of (IRS Employer
incorporation or organization) I. D. Number)
6314 Aspen Cove Court, Sugar Land, Texas 77479
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(281) 565-7300; fax (281) 565-7301
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class - Common Stock, $.001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to
this Form 10-K. [X]
The aggregate market value of common equity held by non-affiliates of the
registrant was $4,605,784 as of March 15, 1999, based on the average bid and
asked prices of the common stock, $.001 par value, of the registrant, ($8.00
per share) at the close of the market on that day.
The number of shares outstanding of the registrant's common stock as of March
15, 1999 was 607,285 shares.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . 11
Item 6. Selected Financial Data . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 13
Item 7a. Quantitative and Qualitative Disclosure About Market Risk 17
Item 8. Financial Statements and Supplementary Data . . . . 17
Item 9. Changes in and Disagreements with Accountants . . . . 18
PART III
Item 10. Directors and Executive Officers of the Company . . . 18
Item 11. Executive Compensation . . . . . . . . . . . 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . 20
Item 13. Certain Relationships and Related Transactions . . . 21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
8-K . . . . . . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . 23
Index to Consolidated Financial Statements . . . . . F-1
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Golden Triangle Industries, Inc. (the "Company" or "GTII") was incorporated
under the name Golden Triangle Royalty & Oil, Inc. on July 30, 1975 under
the laws of the State of Colorado. The Company was organized primarily to
acquire and hold royalties on oil and gas properties. During the past six
years the Company has diversified and expanded its business to include salt
water disposal and oil field service operations. It has also acquired and
holds a variety of other interests, primarily as a passive investor. See
Item 2 for a description of the Company's properties. During 1996 the
Company's name was changed to Golden Triangle Industries, Inc. to reflect
the expansion in the Company's core business from oil and gas royalties to
its broader base of activities.
In June 1997, the Company acquired a property in Texas (the "Altair
Property"), covering 2,738 acres which contained materials and facilities
readily convertible to use by the Company. This property is also suitably
located to support expansion of oil field services into a new geographic
area. During 1998, the Company expanded its operations at the Altair with
trucking and equipment services, oil reclamation plant, and sand and gravel
sales. See Item 2. Properties (b) Altair Property, for additional
information.
The following definitions are provided to clarify certain terms used in
this report:
Authority to Prospect ("ATP") - a concession granted by the State of
Queensland, Australia, which entitles its holder to an exclusive right to
explore for oil and natural gas in Queensland in the particular area
covered by the ATP. See Item 2(d), "Oil and Gas Properties - Australian
Properties" for additional information.
Gross Production - the total production of oil, gas, or natural gas liquids
from a property or group of properties for any specified period of time.
Net Royalty Acre - generally, a measurement of royalty or overriding
royalty and the equivalent of the full customary one-eighth royalty of the
gross production or revenue free and clear of exploration, drilling and
production costs from one acre of land. The number of net royalty acres
used in this report applies to figures as of December 31, 1998, and the
number will change as relinquishments take place on the ATPs, as an ATP
expires or is canceled, or any new areas are added.
Overriding Royalty Interest ("ORRI") - an interest carved out of the
lessee's leasehold or working interest. The amounts payable from ORRIs are
payments calculated as a percentage of either gross production or the gross
revenues of the working interest (based on the wellhead price) from a
concession or lease, usually free and clear of all exploration, drilling
and development, and production costs, except for any applicable taxes and
federal levies. In calculating the wellhead price, pipeline and trucking
costs have already been deducted from the refinery price. The overriding
royalties discussed herein are generally expressed as a percent of the
gross production.
Royalty - generally, a share of the production reserved by the grantor of
an oil or gas lease or concession. The royalty interest is customarily
free of cost or expense incident to exploration, development or production,
except for production or gathering taxes. The royalty is part of the
consideration for the grant of the lease or Authority to Prospect.
Working Interest ("WI") - all or a fractional part of the ownership rights
granted by a concession or lease. The owner(s) of a WI or a part thereof
pays the costs of operations and is entitled to the gross production, less
royalties retained by the grantor or lessor, and less ORRIs or other non
operating interests created and assigned from the working interest. The
owner of a WI may incur operating expenses in excess of income.
Carried Working Interest - a WI assigned to a third party (or third
parties)who has agreed to pay all of the costs of drilling, equipping, and
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operating the underlying lease until they have recouped all of their costs
or some other contractual amount from the revenues of the lease (referred
to as the time of payout) . At the time of payout, the interest is
reassigned back to the original owner who then shares pro rata in the
ongoing costs and revenues as a regular WI owner.
(b) Financial Information About Industry Segments
In the fiscal year ending December 31, 1998, the Company's revenues,
operating profits, and identifiable assets were attributable to its salt
water disposal and oil field service operations, acquisition and ownership
of interests in oil and gas leases, and rental of Company assets. (See
Items 6 and 8, "Selected Financial Data" and Note 12 to Consolidated
Financial Statements at Item 8.)
(c) Narrative Description of Business
General - Salt Water Disposal and Oil Field Services
Through several of its subsidiaries, GTII is engaged in the salt water
disposal business, with injection facilities located in the top gas
producing counties in Texas. The oil industry of the United States
produces more salt water than oil, and governmental regulations require any
salt water produced from oil or gas wells to be injected back into the
ground in another salt water bearing zone to protect all fresh water zones
from being contaminated. Producers separate the salt water from the
produced gas and oil and truck the salt water from locations at which it is
produced to GTII's disposal sites. There the water is collected in storage
tanks and then injected back into a suitable formation. A fee is charged
per barrel or per load for this service. The collection of accounts
receivable from oil and gas producers for the Company's salt water disposal
and oil field services represents a risk factor in this service business.
During 1998, approximately 44% of the Company's revenues attributable to
this line of business were billed to a single customer, TransTexas Gas
Corporation. Another 18% was billed to a second long-time customer, Med Loz
Trucking. The loss of either of these customers could have a material
adverse effect on the Company's business as a whole. Management does not
foresee the loss of these customers, but continues to take steps to expand
the business into other areas and gain additional customers to prepare for
this possibility. In addition, the Company has sold all of its reclaimed
oil to a single entity. These sales were 24% of total revenues.
Mechanical problems with a disposal well, surface owners not renewing a
lease, or a competitor installing a new disposal facility in the Company's
service area are other risk factors associated with salt water disposal
operations generally. GTII has not encountered any problems of this nature
in its operations to date and does not anticipate that any such
developments are likely to be encountered in connection with its operations
in the near future.
The continued profitability of the salt water disposal and oil field
service business is dependent upon stable or increased oil and gas prices
causing additional oil and gas production in the Company's service area.
This business is also subject to environmental considerations and must
comply with governmental regulations. See "Governmental Regulation" below.
During 1998 and the two prior fiscal years, the Company's salt water
disposal and oil field service business has contributed $2,139,843,
$2,003,993, and $2,239,670 or 68%, 81%, and 90% of total consolidated
revenues. During the same time period, oil and gas revenues have
contributed $258,725, $448,359, and $311,221 or 8%, 18%, and 13% of total
consolidated revenues. Sales of reclaimed oil contributed 24% of total
revenues in 1998.
See Item 2(a) Properties Attributable to Salt Water Disposal and Oil Field
Services for more complete information.
General - Oil and Gas
The majority of the Company's oil and gas properties are royalty interests
or ORRIs. Working interests account for less than 5% of the Company's
revenues from oil and gas properties.
The acquisition, exploration, development, production and sale of oil and
gas are subject to many factors that are outside the Company's control.
These factors include market prices; national and international economic
conditions; import and export quotas; availability of drilling rigs,
casing, pipe, and other equipment and supplies; availability of and
proximity to pipelines and other transportation facilities; the supply and
price of competitive fuels; and the regulation of prices, production,
transportation, and marketing by domestic and foreign governmental
authorities. Additionally, the Company generally has no control over
whether the owner or operator of leases to which its ORRI or working
interests are attributable will elect to explore for oil and gas on such
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properties, or to develop them following discoveries that may occur. Each
of these factors may affect the rate at which oil and gas are produced on
properties in which the Company has an interest or affect whether wells
will be drilled on such properties, and could otherwise materially affect
GTII's earnings from this line of business. Australian concessions,
discussed below, require that minimum prospecting expenditures be incurred
during their four year term. Some concessions from prior years have not
been developed and are not producing revenues. The Company does not serve
as the operator of properties under which it owns working interests.
However, it does bear the risk of fire, blowout or other catastrophe to
such properties in proportion to the fractional share owned in the
properties to the entire working interest of such properties. The
operators of these properties may carry insurance against some of these
risks but may not be fully insured due to prohibitive premium costs or
coverage being unavailable. Such risks are not borne by the Company on oil
and gas leases in which the Company owns an ORRI or royalty interest.
The sections which follow describe the impact of competition and
governmental regulation on the Company's salt water disposal and oil field
service and oil and gas properties lines of business, as well as the impact
of foreign currency regulation and foreign taxes on earnings from oil and
gas properties located outside the United States.
Competition
The oil and gas industry is highly competitive in all of its phases, with
competition for favorable producing royalties and overriding royalties
being
particularly intense. In the salt water disposal business, salt water
disposal wells operated by other companies, as well as oil and gas
producers adding their own injection wells, provides competition. An
awareness of these factors, causes the Company to seek to provide the best
possible services at competitive prices. There are no limitations on entry
into the business of providing oil field support services. As the Company
has moved in this direction, it has recognized this fact by providing its
services at competitive rates and constantly monitors the market for
adjustments in its pricing structure that might be required The Company
believes that price, geological and geophysical skill, and familiarity with
an area of operations are the primary competitive factors in the
identification, selection, and acquisition of desirable leases, both for
salt water disposal and oil and gas interests. When attempting to purchase
interests in such properties, the Company competes with independent
operators and occasionally major oil companies, a number of which have
substantially greater technical and financial resources than the Company.
Governmental Regulation
Oil and gas operations are subject to federal, state and local laws and
regulations governing waste, environmental quality, pollution control,
conservation and other measures regarding environmental and ecological
matters. The Company's salt water disposal business is operated under
permits from the Texas Railroad Commission and the Texas Natural Resource
Conservation Commission. Failure to comply with applicable regulations
could result in interruption or termination of the operations.
Additionally, upon
cessation of use, disposal wells must be plugged and the sites cleaned up
to applicable standards. It is impossible to predict the impact of
environmental legislation and regulations on the Company's operations and
earnings in the future. However, compliance could require the Company to
make capital expenditures and could adversely affect earnings.
The Company's operations could also be affected from time to time by other
federal, state and local laws and regulations and by political
developments. The domestic production and sale of oil and gas are subject
to federal regulation by the Department of Energy and the Federal Energy
Regulation Commission. Rates of production of oil and gas have for many
years been subject to federal and state conservation laws and regulations.
In addition, oil and gas operations are subject to extensive federal and
state regulations concerning exploration, development, production,
transportation and pricing, and even to interruption or termination by
governmental authorities. Removal of import duties on oil entering the
U.S. has had an adverse affect on the domestic oil industry.
In foreign countries, the Company may be subject to governmental
restrictions on production, pricing and export controls. Regulations
existing or imposed upon the Company or its properties at the time of their
acquisition may change to an unpredictable extent. The Company will have
little or no control over the change of regulations or imposition of new
regulations and restrictions, expropriation or nationalization by foreign
governments or the imposition of additional foreign taxes. Management
believes that these actions are unlikely to be undertaken by the
governments of Australia or Queensland, where the majority of the foreign
oil and gas properties from which the Company receives royalty income are
located.
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Foreign Currency
Due to the nature of the Company's activities in Australia, portions of the
Company's operating capital may at times be held in various foreign
currencies. The Company does not maintain a bank account in Australia.
However, the Company does have receivables from Australian oil production.
These receivables are accrued in U.S. dollars based on production. The
existence of revenues generated under a foreign currency subjects the
Company to a limited risk of currency fluctuation and changes in rates of
conversion for different currencies. Any fluctuations in the value of the
accrued receivables and actual receipts have been immaterial. The Company
does not engage or expect to engage in any hedging or other transactions
that are intended to manage risks relating to foreign currency
fluctuations. Additionally, revenues generated in foreign countries in
which the Company has or may acquire interests may be subject to
governmental regulations which restrict the free convertibility of such
funds, and all remittances of funds out of these countries might require
the approval of the applicable government's exchange control agency.
Presently, the Company experiences no difficulties with the free
convertibility of funds from Australia. In the Company's opinion, the
foreign exchange control laws currently in effect in Australia do not
unreasonably delay the remittance of funds generated in Australia to the
United States.
Foreign Taxes and United States Tax Credits
As a result of its royalty and working interests attributable to properties
outside the United States, the Company is subject to the imposition of
taxes by foreign governments upon the Company's income derived from such
foreign jurisdictions. These taxes are of various types, with differing
tax rates, and are subject to change. Generally, the Company's income from
a foreign jurisdiction will be taxed in the same manner as that for other
companies operating in the jurisdiction, but discriminatory taxation by a
particular jurisdiction may occur. The current corporate income tax rate
in Australia is 30% of net profits.
The Company's income is also subject to taxation under the United States
Internal Revenue Code of 1986, as amended (the "Code"). The Code provides
that a taxpayer may obtain a tax credit for certain taxes paid to a foreign
country or may take a deduction for such taxes. A tax credit is generally
more favorable than a deduction. However, the particular tax circumstances
create differing benefits in varying situations. The tax credit applicable
to particular foreign income arises when such income is included in the
Company's taxable income under the provisions of the Code. There are,
however, substantial restrictions and limitations on the amount of the tax
credit that can actually be claimed. See Note 6 of the Notes to
Consolidated Financial Statements at Item 8.
Employees
At March 15, 1999 the Company and its subsidiaries employed thirty-nine
individuals (including the executive officers).
(d) Financial Information About Foreign and Domestic Operations
See Note 12 to Consolidated Financial Statements at Item 8.
ITEM 2. PROPERTIES
(a) Properties Attributable to Salt Water Disposal and Oil Field Services
GTII currently owns seven salt water disposal facilities. Salt water is
produced along with oil and gas, and governmental regulations require the
salt water to be disposed of in an environmentally safe manner. The Company
is in the primary business of injecting the salt water back into the ground
into another salt water bearing zone to protect all fresh water zones from
being contaminated. The Company is paid a fee on a per barrel or per load
basis for this service by the oil and gas producers whose operations
produce the salt water that requires disposal.
GTII acquired its first salt water disposal property, OCR Investments, Inc.
(OCR), located in the Zapata/Laredo area of Texas, during 1993. During
1994, the Company acquired Transcon Energy Corporation (Transcon) which
owned and operated three disposal facilities in the same general area as
OCR. Transcon, like OCR, provides salt water disposal services for oil
field operations in an area of active drilling for deep gas.
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Because of the favorable results from its salt water disposal facilities in
1994, GTII continued expanding this business during 1995 by purchasing the
County Line Disposal facility, and opening a new disposal facility, OCR's
Chihuahua facility. During 1996 the Company acquired the Amando Disposal
Facility, granting the seller an option to repurchase it at any time within
five years, and during 1997, the seller, TransTexas Gas Corporation,
exercised its option. Upon exercise of the option, TransTexas paid cash of
$410,913, and agreed to make improvements, which the Company valued at
$269,000, to the Altair property (see (b) Altair property).
GTII acquired a new saltwater disposal facility near El Campo, Texas, during
1997. This new facility, named Transcon Spanish Camp, is located near
producing gas wells. This facility was placed into service during the first
quarter of 1998.
With the exception of Transcon Spanish Camp, all of GTII's disposal sites
are located in the Texas counties of Webb and Zapata. Based on reports
published annually by the Texas Railroad Commission, the Company understands
that Webb County produces more gas than any other Texas county, while Zapata
County varies in rank between second or third from year to year. As there
are few other facilities located in the two county area, GTII benefits from
limited competition. Based on reserve estimates published by the U.S.
Department of Energy, and publicly available information on the volume of
gas produced annually from the two county area, the Company believes that
production could continue at the present rate for twenty years or more,
provided the price of natural gas remains at a level that is sufficient to
support such production. In summary, the Company believes that gas
production, along with the associated salt water production in GTII's
service area, should be substantial for years to come. GTII's total
revenues from disposal fees as described above, and other oil field service
revenues (described in the following paragraph) totaled $2,139,843 during
1998.
In addition to salt water disposal services, the Company provides oil field
services such as heavy equipment rentals, trucking services, fresh water
supply, back filling drilling mud pits, sand blasting, and steam cleaning.
Additional information on the salt water disposal business is available at
"Narrative Description of Business" under "General - Salt Water Disposal and
Oil Field Services."
Subsequent to repurchasing the Amando disposal facility from the Company,
TransTexas sold a significant portion of its gas producing properties in the
Zapata area, including the Amando facility, to a purchaser that has
apparently elected to develop its own salt water disposal facilities. As a
result, the Company has seen some reduction in activities at some of its
facilities. The future impact on salt water disposal operations in this
area is not determinable at this time.
(b) Altair Property
During 1997, GTII acquired the Altair, a 2,738 acre property, located
approximately 45 minutes from Houston, Texas, for a purchase price of
$1,096,100. This property is located in an area of active oil and gas
production and sits along a trend line which has seen significant recent
exploratory drilling. Existing assets included approximately 90% of mineral
rights, fresh water supplies, a substantial quantity of stockpiled sand and
gravel, two usable buildings, and areas suitable for lay down yards for
drilling companies. The property also contains sand and gravel which are
available for excavation/mining and six plugged gas wells. The Company
plans to exploit the undeveloped sand and gravel reserves and to re-evaluate
the production potential of the gas wells. The prospects of leasing the
property for exploration of deeper zones indicated by geological trends
across the area is also expected to be examined.
Beginning in the last quarter of 1997, the Company earned revenues from this
property from rental of its buildings and lay-down areas, sales of fresh
water, and sales of sand and gravel. Because of its location, the Company
has also established and received revenues from an oil reclamation plant and
oil field service business based on the rental of heavy equipment for oil
field use. The oil reclamation plant, established in the last quarter of
1997, is designed to accept oil generated from saltwater disposal and other
off-grade or unwanted oil, run it through a blending process, and sell it to
oil refineries. This facility is presently the only one of its type in the
surrounding area.
GTII increased revenues during 1998 further with its new trucking and
equipment services based at the Altair. With the purchases of additional
trucks, trailers and bulldozers, the Company is providing the following
services to oil and gas operators: equipment moving, vacuum services, oil
transportation, drilling pad construction and leasing of equipment. GTII
also plans to construct a saltwater disposal facility on the property and is
considering other potential activities. During the last quarter of 1998
the Company signed a contract for the sale of sand and gravel from the
Altair. The contract will pay royalty payments of $0.80 per ton on sand
that is stockpiled and $0.50 per ton for sand that is mined. Every six
months the royalty payment will be adjusted if necessary to compensate GTII
if the average sales price of sand increases. GTII will be paid $0.70 per
ton for any gravel that is mined from the Altair. Management estimates
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that there are approximately 2 million tons of sand currently stockpiled
with an additional 8-12 million tons that can be mined. In addition, there
are approximately 5-8 million tons of gravel that can be mined. GTII began
receiving revenues from the sand and gravel contract subsequent to the year
end (first quarter of 1999).
(c) Apache Ranch
GTII owns the 13,500 acre Apache Ranch which adjoins the Mescalero Indian
Reservation and ski resort area near Ruidoso, New Mexico. To date, activity
related to this ranch property has included land sales (financed by the
Company) in 1995 and 1996, revenues from cattle grazing leases in the
1995-1998 period, and hunting permits in 1996. See Note 2 of Notes to
Consolidated Financial Statements at Item 8.
(d) Oil and Gas Properties
General
As of December 31, 1998, the Company owned royalty interests, ORRIs and
working interests attributable to oil and gas wells located in the United
States, Canada, and Australia. In the United States, the Company's
interests are located in the states of Arkansas, Colorado, Kansas, New
Mexico, Oklahoma, Texas, and Mississippi. The majority of the Company's oil
and gas interests are royalties or ORRIs. The Company also holds working
interests in the United States and in Australia.
Most of the U.S. leases under which the Company owns interests provide that
such leases will continue in existence as long as oil and gas are produced
on the related properties. The duration of the Australian concessions in
which the Company owns interests is discussed generally in the following
section.
Australian Properties
A significant portion of the Company's oil and gas properties consists of
ORRI under ATPs granted by the State of Queensland, Australia. The Company
currently has ORRI under eleven such ATPs. Each of these ATPs has an
initial term of four years. The area covered by an ATP is reduced by
relinquishment of approximately one-fourth of the area at the start of the
third year of its effectiveness and an additional one-fourth of the original
area at the start of the fourth year of its effectiveness. The area to be
relinquished is chosen by the holder of the ATP. An ATP does not require
that any specific work, such as drilling or geological or geophysical work,
be performed by the holder, but does require that the holder continuously
prospect and expend a specified minimum sum over the term of the ATP for
such prospecting efforts. Applications for renewal may be filed at the time
of expiration of an ATP.
The Company has ORRI in 1,923,716 net royalty acres under 23,791,200 gross
surface acres in Australia. Unlike working interests, ORRIs do not require
that the Company bear any portion of exploration or drilling expenses to
develop the property. In addition, the Company holds 117,300 net working
interest acres under 1,564,000 gross working interest acres.
Oil revenues from Australia during 1998 totaled $195,150 from ATP 267 and
ATP 299, before transportation costs to market of $86,811. No revenues were
generated by the other ten ATPs during 1998.
Reserves
The majority of the Company's reserves are attributable to properties in
which the Company owns ORRI and royalty interests. Data necessary for the
computation of reserve estimates for such properties is not available to the
Company without the incurrence of unreasonable effort and expense. If
estimates of proved reserves were available for such properties, the Company
believes that reserves attributable to ATP 299 in Australia would account
for the majority of the proved oil reserves attributable to these interests.
The working interest holders of the properties under which the Company holds
royalty interests and ORRIs have not supplied the Company with information
deemed necessary for meaningful reserve calculations. Most of the Company's
domestic royalty interests are small, and the Company is of the opinion that
obtaining information necessary for meaningful reserve calculations for
these interests would involve unreasonable effort or expense. Oil
production attributable to the Company's royalty and ORRIs provided
approximately 95% of the Company's income attributable to oil and gas
properties during the year ended December 31, 1998.
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Since the Company's working interests provide only a small percentage (5%)
of the Company's total income attributable to oil and gas properties, it was
determined that unreasonable effort and expense would be required to prepare
a reserve report on the properties to which these interests relate. See
"Supplementary Data for Reserves of Oil and Gas" under Item 8. Financial
Statements and Supplementary Data.
No estimates of total proved oil or gas reserves were filed by the Company
with, or included in reports to, any federal authority or agency other than
the Securities and Exchange Commission since the beginning of the Company's
last fiscal year.
Average Sales Price and Production Costs
The following table sets forth the average sales price per unit of oil and
gas production. Sales prices are based on market prices determined at the
point of delivery from the producing unit. Production or severance taxes
have not been deducted in determining the average sales price, but rather
are included as part of production costs. No sales prices of gas are shown
for Australia because the Company had no production of gas in Australia
during the relevant reporting periods. The average production (lifting)
costs per unit of production are not presented because the majority of the
Company's oil and gas revenues are attributable to royalties and ORRIs. The
nature of these interests does not require that the Company bear any portion
of the production or lifting costs. Additionally, the operators of the
leases under which the Company's working interests exist have not provided
the Company with information concerning production (lifting) costs. The
Company's working interests are small, the Company is not an operator of
wells or leases, and the Company is of the opinion that obtaining
information necessary for disclosure of production (lifting) costs would
involve unreasonable effort or expense.
United States Australia
Average Sales Price Average Sales Price
Fiscal Year Ended Oil Gas Oil
----------------- ------ ------ -------
December 31, 1998 $12.22 $ 1.82 $US15.23
December 31, 1997 $19.21 $ 1.82 $US20.55
December 31, 1996 $20.43 $ 1.91 $US21.72
WORKING INTERESTS - DOMESTIC
Productive Wells and Developed Acreage
The Company's assets and revenues attributable to its domestic working
interests are not material. The interests held are quite small and the
Company has determined that the costs incurred to obtain and analyze the
information normally required to be presented would be unreasonable. As a
result this information has been omitted.
Non-Productive Acreage
GTII holds a 30% interest in approximately 11,787 acres of long-term leases
located in the Overthrust Belt in Arizona. The primary prospect in this
lease play is the Cochise Overthrust Prospect. Along with other working
interest owners, GTII intends to farm out the interest to a third party, who
would assume the costs of drilling and developing the properties. Under
such arrangements, GTII et al would attempt to recover out-of-pocket
expenses while retaining an overriding royalty interest.
WORKING INTERESTS - AUSTRALIA
The table below sets forth the undeveloped acreage in Australia in which the
Company held WI as of December 31, 1998. Working interests are acquired by
the Company with the intention to farm out operations while retaining an
ORRI or carried working interest.
GTII's Net
Gross Working WI
Area Acres Interest Acres
---- --------- -------- ------
538 1,104,000 7.5% 82,800
554 460,000 7.5% 34,500
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Recent Developments - WI
Subsequent to the year end, the Company acquired a 20% working interest in
an entity seeking six concessions surrounding and in the immediate Cooper-
Eromanga Basin, one of the most prolific oil and gas producing areas in
Australia. These six concessions cover approximately 4,397,000 gross acres.
Santos Ltd., as well as other major oil and gas companies, are very active
in and around the Cooper-Eromanga Basin.
Subsequent to the year end, Dyad-Australia, Inc. entered into an agreement
with a major U.S. energy concern whereby significant exploratory work will
be funded on ATP 554P including new seismic acquisition and the drilling of
at least one exploratory well. The specific terms are subject to a
confidentiality agreement; however the exclusive right to market all
hydrocarbons from ATP 554 was assigned to that major U.S. energy concern.
GTII's ultimate economic interest in ATP 554 will depend on the level of
expenditures by the parties to the agreement and on the level and timing of
partial reimbursement of expenditures by Dyad and GTII. At present GTII
holds a 7.5% interest which is subject to an immediate reduction to 4.875%
as a result of the funding arrangement.
ROYALTY AND OVERRIDING ROYALTY INTERESTS - DOMESTIC AND CANADA
The Company owns royalty interests and ORRIs in oil and gas wells primarily
located in the states of Arkansas, Colorado, Kansas, New Mexico, Oklahoma,
Mississippi, and Texas. During 1996, the Company acquired ORRIs in four
producing wells in Texas and four producing wells in Mississippi. During
1997, the Company acquired ORRIs under two production units in Canada.
These production units consist of the consolidation of numerous leases and,
between the units, contain more than 200 wells. The Company had no ORRIs in
undeveloped acreage in the United States, as of December 31, 1998.
Also see (d) Oil and Gas Properties - General.
OVERRIDING ROYALTY INTERESTS - AUSTRALIA
The following table sets forth the ATP number of each Australian concession
in which the Company had an ORRI as of December 31, 1998 and upon which
productive wells had been drilled, the percentage interest of the Company
therein, the number of such wells, the gross acreage of each concession, and
the net royalty acres held in each concession.
GTII's Net
Area & Gross Royalty Royalty
No. of Wells Acres Interest Acres
- ------------------ ------- ---------- -------
267 - 21 oil wells 552,000 2.6064700% 115,102
299 - 65 oil wells 588,800 1.6364559% 77,084
The following table sets forth the undeveloped acreage in which the Company
had ORRIs in Australia as of December 31, 1998.
GTII's Net
Gross Royalty Royalty
Area Acres Interest Acres
---- ------- -------- --------
333* 92,000 0.200% 1,472
415 680,800 1.463% 79,681
538 1,104,000 0.623% 55,023
542 1,932,000 1.200% 185,472
543* 1,545,600 0.500% 61,824
550 552,000 0.500% 22,080
560* 846,400 0.800% 54,170
582 6,716,000 1.000% 537,280
615 9,181,600 1.000% 734,528
*Reserves have been discovered on these concessions, but production has not
begun due to transportation and marketing considerations. GTII looks
forward to increased revenues when these wells come on line.
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The total of the producing and non-producing acreage in Australia under
which GTII holds ORRI interests is 1,923,716 net royalty acres under
23,791,200 gross surface acres.
Recent Developments - ORRI
After record years in 1996 and 1997 with twenty-eight successful oil wells
completed on ATP 299, Santos, the operator controlling the prospect,
continued a successful drilling program in 1998 with the completion of
seven
more new oil wells. Following is a list of the new wells completed as
producers: Kooroopa North #2, Ipundu #13, Ipundu #14, Ipundu #15, Ipundu
North #11, Talgeberry #7, and Ipundu #4A.
There are now 65 wells in twelve different fields on ATP 299 from which GTII
receives revenues. GTII acquired additional interests in ATP 299 during
1997,
bringing GTII's ORRI in this ATP to 1.6364559291% of gross production, less
transportation costs. Each oil field has numerous undrilled locations,
indicating upside potential for the further development of ATP 299.
GTII also purchased additional interests in ATP 267 during 1997 bringing
GTII's total ORRI in ATP 267 to 2.60647% of gross production, less
transportation costs. There are currently 21 producing oil wells on this
concession from which GTII receives revenues.
In addition to the drilling success on ATP 299 during 1998, seismic surveys
were conducted on three concessions where GTII holds interests. A 50
kilometer seismic survey was completed on ATP 267, a 153 kilometer seismic
survey was completed on ATP 299, and a 176 kilometer seismic survey was
completed on ATP 543. Two unsuccessful wells were drilled, one on ATP 267
and one on ATP 415.
The Company understands that there have been less than 7,000 wells drilled
in
the entire country of Australia, which is basically the same size as the
continental United States. Current technology coupled with better
understanding of the geology has led to substantial discoveries both onshore
and offshore Australia.
(e) Office Facilities
The Company's corporate office was located at 8504 Sonoma Valley N.E.,
Albuquerque, New Mexico 87122 through a portion of 1998, and then moved to
its present location at 6314 Aspen Cove Court, Sugar Land, Texas 77479. The
office is leased from Kenneth Owens, Chairman of the Board and President.
In
addition, the Company has offices in Zapata, Texas and on the Altair
property. Rent in the amount of $10,000 was paid to Kenneth Owens in 1998
for these facilities. The Company also has an office at 104 Fossil Court,
Springtown, Texas 76082, which handles the stock transfer agent duties and
other duties for the Company. No rent payments were made in 1998 for these
facilities. The Company believes its office facilities are adequate for the
next year.
ITEM 3. LEGAL PROCEEDINGS
As of March 15, 1999, there were no material legal proceedings to which the
Company or any of its subsidiaries was a party or of which any of their
properties was the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
The only class of common equity security authorized by the Company's
Articles
of Incorporation, as amended, is the Company's Common Stock, $.001 par
value.
The Company's Common Stock trades on the NASDAQ SmallCap Market tier of the
NASDAQ Stock Market under the symbol "GTII". The range of high and low
sales
prices for each quarter during the last two fiscal years, as quoted in the
National Association of Securities Dealers' Automatic Quotation ("NASDAQ")
System, is set out in the table that follows. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and
may
not necessarily represent actual transactions.
Year Ended December 31, 1998 Year Ended December 31, 1997
High Low High Low
------- ------- ------- --------
1st Quarter $14.375 $7.2500 $10.283 $ 7.4375
2nd Quarter 13.125 7.5000 8.313 6.5625
3rd Quarter 11.000 5.5000 20.750 7.4375
4th Quarter 11.500 5.0625 23.250 11.7500
Note: The prices reported for the first two quarters of 1997 have been
adjusted to give retroactive effect of the Company's 1-for-3.5 reverse split
that was effective May 1997.
As of March 15, 1999, there were approximately 11,800 holders of record of
the Company's Common Stock, plus an undetermined number of stockholders who
hold their stock in street name.
Dividends - Common Stock
The Company has not paid cash dividends on its common stock and does not
anticipate the payment of cash dividends in the foreseeable future. Payment
of cash dividends is within the discretion of the Company's Board of
Directors and will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company. The
payment of stock dividends is also within the discretion of the Board of
Directors.
Dividends - Preferred Stock
Class A - An annual cash dividend of $0.30 per Class A preferred share is
paid on these shares.
Dividend Reinvestment and Stock Purchase Plan
GTII set up a Dividend Reinvestment and Stock Purchase Plan (the "Plan")
during 1996, to provide existing shareholders of the Company's common stock
with a convenient and economical method of investing cash dividends and
making cash investments in the Company's common stock without payment of
brokerage commissions in connection with purchases. Shareholders may choose
to invest funds in common stock through optional cash investments, with a
minimum purchase of $25.00 per month and a maximum purchase of $5,000 per
month. The optional cash payments may be made occasionally or at regular
intervals, as the shareholder desires. A $2.50 service fee is charged for
each optional cash investment. The Plan provides that the common shares
offered by the Company may be either shares newly issued by the Company or
shares purchased on the open market at the Company's option. The purchase
price for shares purchased on the open market is the average price paid for
such shares, and the purchase price for newly issued shares is 98% of the
average of the daily closing prices of the common shares reported on the
NASDAQ market on the five trading days prior to the purchase date.
IMPORTANT: The above is only a brief outline of the Plan. Complete details
of the Plan were mailed to all shareholders during 1996. Before enrolling,
shareholders should review the information received, or obtain complete
information on the Plan by requesting a copy of the Dividend Reinvestment
and
Stock Purchase Plan from the corporate office.
The Company has registered 1,000,000 shares of common stock under the
Securities Act for sale by GTII pursuant to the Plan, which may be used at
the Company's discretion. During 1998 shares for the Plan were purchased
both in the open market and from the registered Company stock. An average
of
76 stockholders per month purchased shares through the Plan during 1998.
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Preferred Stock
During 1996, shareholders authorized an amendment of the Articles of
Incorporation of the Company, under which 1,000,000 preferred shares are
authorized for issuance, with directors given the authority to subdivide the
stock and assign the various rights to each class. Directors created Class
A and Class B preferred shares and authorized a program whereby shareholders
could exchange their common stock for preferred stock at a rate of one share
of preferred received for each ten shares of common surrendered. The offer
expired on August 30, 1996. The program resulted in the exchange of
2,001,710 common shares for 11,856 Class A preferred shares, and 188,585
Class B preferred shares. As a result of the 1-for-3.5 reverse stock split
effective May 20, 1997, there were 3,371 preferred A shares and 53,903
preferred B shares issued and outstanding. Neither class of preferred stock
was registered. As a result, any transfers carry trading restrictions
associated with unregistered shares and there is no established market for
such shares.
Class A Convertible Preferred Stock - Class A preferred stock is a
convertible stock. The shareholder holding preferred stock has the same
voting rights as if all preferred shares held were common shares (1
preferred
share equals 10 common shares). These shares will be convertible back to
common shares in October 1999 or when gross revenues of the Company are $5
million or greater, whichever comes first. An annual cash dividend of $0.30
per share is paid on the Class A preferred shares. See Dividends -
Preferred
Stock.
Class B Non-Convertible Preferred Stock - Class B preferred stock was issued
as non-convertible with an annual cash dividend of $0.20 per share and a
stock dividend. The cash and stock dividends were paid in 1997. However,
during 1998, the Company's directors voted to eliminate the dividend
features
of its Class B preferred stock primarily due to the impact on earnings per
share. In conjunction with this decision, the directors also voted to allow
holders of the stock to convert up to 200 shares of their shares back into
common on a one for ten basis, the same basis that common was converted to
preferred in 1996. A shareholder still holding Class B preferred stock has
the same voting rights as if all preferred shares held were common shares (1
preferred share equals 10 common shares).
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Revenues $3,132,602 $2,481,715 $2,489,295 $2,676,204 $2,471,196
Net income $ 266,482 $ 438,784 $ 351,195 $ 683,169 $ 548,593
Net income
per share(1)
- basic $ .45 $ .46 $ .45 $ .62 $ 0.15
- diluted $ .43 $ .46 $ .45 $ .62 $ 0.15
Total assets $7,309,674 $6,796,852 $6,113,063 $5,927,676 $4,565,770
Long-term debt $ - $ - $ - $ 19,486 $ 5,991
(1) Net income per share has been restated to reflect the 1-for-2.5
reverse split in 1995, and the 1-for-3.5 reverse split in 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Management reported total assets of $7,309,674 at December 31, 1998, an
increase of $512,822 over December 31, 1997, and an increase of $1,196,611
over December 31, 1996. The increase in 1998 was a result of increased
receivables. Equipment additions during 1998 equaled depreciation and
consisted primarily of the purchase of trucks and trailers to further develop
the oil field services and rentals and oil reclamation facilities based out
of the Altair property. The increase in 1997 was primarily attributable to
the major land acquisition of the Altair property near Houston, Texas for
$1,096,100, during the second quarter. The categories of land, buildings,
and inventory increased because of this acquisition.
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During the period 1996-1998, the Company has been able to generate cash in
amounts that were adequate to meet its cash needs. The ratio of current
assets to current liabilities represents the Company's liquidity. The
liquidity ratio at December 31, 1998 was 6.06:1 compared with 7.34:1 at
December 31, 1997 and 8.31:1 at December 31, 1996. Current assets were up
when comparing 1998 to both 1997 and 1996. When comparing 1998 to 1997, the
primary increases in current assets were shown by the rise in cash balances
and accounts receivable generated from the Altair operations. When
comparing to 1996, one major increase was in inventory, which reflects raw
materials inventory acquired in connection with the Company's purchase of the
Altair property. Current liabilities increased when comparing 1998 to 1997
and 1996, because of short-term bank notes.
Cash flows provided by operating activities for 1998 decreased when comparing
to 1997 and 1996 primarily because of a significant increase in accounts
receivable during 1998 (previously discussed). The change in cash flows used
in investing activities between 1997 and 1998 was primarily attributable to
purchases of property, equipment and inventory (Altair) during 1997. Cash
flows provided by financing activities for 1997 increased over 1996 primarily
due to the sale of common stock through the Company's Dividend Reinvestment
and Stock Purchase Plan and to short term borrowings In lieu of cash
proceeds on a portion of the sales price of the Amando facility, the Company
received $174,000 in non-cash improvements to the Altair property. The
Company is to receive $95,000 in additional non-cash improvements subsequent
to December 31, 1998.
The Company's cash position was up when comparing December 31, 1998 to
December 31, 1997 because of a lull in expansion activities at the Altair at
the end of 1998, and because there was a large cash outlay in 1997 for the
purchase of the Altair property and equipment for services and rental and oil
reclamation.
It is important to note that the Company has no long-term bank debt and its
property and equipment are free from liens. The Company has no commitments
for capital expenditures as of December 31, 1998. GTII plans to continue its
policy of acquiring property and equipment primarily out of cash flows from
operations as it has during the past. However, the Company has established
a line of credit totaling $275,000 for short term acquisition needs expiring
in December 1999. The bank line of credit is at prime rate plus 2%,
currently 10.5%, is secured by accounts receivable, and requires interest to
be paid monthly. The Company borrowed $171,200 through this line of credit
during 1998 to meet cash flow requirements, and this balance was outstanding
at December 31, 1998. The Company has no plans to incur long term debt.
The Company's salt water disposal and oil field services business has a major
customer, TransTexas Gas Corporation, upon which the Company is relatively
reliant. TransTexas accounted for approximately 44% of the Company's
disposal and oil field service revenues during 1998. Receivable balances for
TransTexas at December 31, 1998 and 1997 were approximately 78% and 39% of
the total of receivables then outstanding. TransTexas has historically paid
bills from two to six months after incurrence. A second customer, Med Loz
Lease Service, Inc. was responsible for 18% of the Company's disposal and oil
field service revenues in 1998 and represents 4% of the accounts receivable
balances at December 31, 1998. The Company has not experienced any
significant problems ultimately collecting its receivables and believes that
these obligations will continue to be paid as they have in the past.
However, during the third quarter of 1998, management devoted substantial
time and effort to reconciling a policy problem within TransTexas regarding
its approval and payment of bills. It is believed that most, if not all,
questions have been resolved and that TransTexas will move to reduce its
outstanding balance due to the Company. It is expected that the volume of
activity and receivables from TransTexas will continue to be significant.
Should TransTexas become unable to pay its bills, the Company's earnings
would be adversely affected, as would the liquidity and overall financial
position of the Company.
Subject to the considerations discussed in the preceding paragraph, the
Company is not aware of any trends or demands that would be likely to reduce
its ability to generate cash sufficient to meet its needs in any material
way.
During 1997, the Amando disposal facility was sold to TransTexas Gas
Corporation for cash of $410,913 plus an arrangement whereby TransTexas would
make certain improvements to the Altair property. The Company estimated the
value of these services at a minimum of $269,000 which was added to the cash
in recognizing a total sales price of $679,913 for the Amando facility. Of
the $269,000, services valued at $174,000 were completed prior to December
31, 1997, leaving $95,000 for the drilling of a disposal well to be completed
after that date. This amount is included in accounts receivable-trade. The
improvements completed on the Altair include rebuilding two office/storage
facilities, clearing land, building new gates, and providing water tanks and
pumps. Additionally, in lieu of a portion of the work planned for the Altair
property, TransTexas has reworked a salt water disposal well at El Campo
(Transcon Spanish Camp).
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Because the location of the Altair property offers opportunities for
expansion of business related to salt water disposal and oil field services,
the Company spent approximately $300,000 in 1997 and approximately $400,000
in 1998 acquiring bulldozers, trucks, trailers and other pieces of heavy
equipment to be utilized in its oil field services and reclamation
activities. The Company also spent $44,500 during 1997 to increase its
existing interests in two producing Australian properties, ATP 299 and ATP
267.
The Company has made no firm commitments to acquire additional assets.
However, as acquisition opportunities relating to its business segments
become available, management expects to make additional acquisitions. No
budget has been established for such acquisitions and the rate or dollar
amount of acquisitions which may occur are unpredictable. It is anticipated
that all acquisitions will be funded out of cash flows from operations.
However, the Company, as mentioned above, has established a line of credit
totaling $250,000 that is available for temporary cash flows augmentation
whenever it becomes important to make acquisitions at particular times when
cash balances happen to be inadequate. Management has no plans or intention
to incur long term debt in order to finance such acquisitions.
During March 1998, the Company issued warrants to existing stockholders to
allow them to expand their holdings through the purchase of additional shares
of the Company's unissued common stock. Proceeds from the exercise of
warrants totaled $57,363. Additionally, proceeds from the Company's Dividend
Reinvestment and Stock Purchase Plan totaled $95,749 during 1998. These
proceeds were utilized in further development of resources and opportunities
available from the Altair property.
Results of Operations
Total operating revenues increased to $3,132,602 for the year ended December
31, 1998, an increase of $650,887 over the year ended December 31, 1997.
Proceeds received from the oil reclamation plant on the Altair property
caused this favorable impact on total revenues. The category of oil field
services, rentals and disposals declined when comparing 1998 to 1997 due
partially to the fall of oil prices. The decline of oil prices in 1998
caused oil companies to be less active and therefore require the Company's
oil field services less.
Management expects revenues to continue to increase from the Altair property
for several reasons. First, a contract was signed during 1998 for the sale
of sand and gravel from the property. Management estimates that there are
approximately 2 million tons of sand currently stockpiled with an additional
8-12 million tons that can be mined. In addition, there are approximately 5-
8 million tons of gravel that can be mined. GTII began receiving significant
revenues from the sand and gravel contract subsequent to the year end (first
quarter of 1999). Second, with the purchase of additional equipment during
1998, the Company's equipment and trucking services consisting of equipment
moving, vacuum truck services, oil transportation, pad construction and
leasing should provide increased revenues.
Oil and gas production revenues were down when comparing the year ended
December 31, 1998 to the two previous years because of much lower oil prices
during 1998 and a reduced exchange rate from Australia to the United States.
However, production volumes for the last three years have increased
significantly. Seven new successful oil wells were drilled on ATP 299
during 1998. These new wells, when added to the twenty-eight new wells
completed in 1997 and 1996, will continue to increase production volumes.
In addition to the increased oil sales, GTII also increased its interest in
both ATP 299 and ATP 267 during 1997. The operator of ATP 299 plans to
continue its aggressive drilling program.
Costs of revenues as a percentage of revenue has increased from 41% of
operating revenues in 1996 to 51% in 1998. This increase is directly related
to skim oil purchases at the Company's skim oil reclamation plant. Oil is
contained in residual amounts in salt water brought to the disposal
facilities. The Company skims oil from the salt water from its own
facilities as well as purchasing oil generated from non owned facilities.
Gross margin from oil reclamation is approximately $4 per barrel, excluding
transportation costs.
Operating expenses did not change materially between 1996 and 1997, but did
increase during 1998. The largest increase was in the category of personnel
costs. Personnel costs increased as additional employees were hired for the
expanding activities based out of the Altair property. Professional fees
(legal and accounting) also increased. Because of the higher operating
expenses, income from operations and net income were lower for the year ended
December 31, 1998 than in comparable periods of 1997 and 1996. Basic
earnings per common share showed no material change when comparing the last
three years.
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Quarterly Results
The following table presents selected unaudited operating results for the four
quarters in the two years ended December 31, 1998 and 1997. The information
has been prepared on the same basis as the audited financial statements and,
in the opinion of the Company, includes all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the information
for the periods presented.
1st 2nd 3rd 4th
-------- -------- --------- --------
Year ended December 31, 1998:
Net sales $995,271 $833,219 $ 714,848 $589,265
Gross profit 420,445 478,950 359,490 265,797
Income from operations 237,373 145,303 99,383 (61,450)
Net income $188,517 $100,545 $ 12,576 $112,473
Preferred stock dividends - - (1,012) -
-------- -------- --------- --------
Net income available to
common stockholders $188,517 $100,545 $ 11,564 $112,473
======== ======== ========= ========
Earnings per share
Basic $ 0.32 $ 0.17 $ 0.02 $ (0.06)
======== ======== ========= ========
Diluted $ 0.31 $ 0.16 $ 0.02 $ (0.06)
======== ======== ========= ========
Year ended December 31, 1997:
Net sales $762,913 $728,649 $ 480,470 $509,683
Gross profit 493,916 479,543 252,740 291,412
Income from operations 302,626 210,960 100,505 54,265
Net income $152,679 $215,612 $ 33,666 $ 36,827
Preferred stock dividends - - (184,614) -
-------- -------- --------- --------
Net income available to
common stockholders $152,679 $215,612 $(150,948) $ 36,827
======== ======== ========= ========
Earnings per share
Basic and diluted $ 0.27 $ 0.39 $ (0.26) $ 0.06
======== ======== ========= ========
Income Taxes
The Company anticipates that it will continue to generate taxable income
sufficient to realize deferred tax assets, based on historical performance.
See Note 6 to Consolidated Financial Statements for disclosure of book vs.
tax differences.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). This statement
standardized the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. The statement generally provides
for matching the timing of gain or loss recognition on the hedging instrument
with the recognition of (a) the changes in fair value of the hedged assets or
liabilities that are attributable to the hedged risk, or (b) the earnings
effect of the hedged transaction. The statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999, with earlier
application encouraged, and shall be applied retroactively to financial
statements of prior periods. Adoption of SFAS 133 is expected to have no
effect on the Company's financial statements.
Disclosure Regarding Forward-Looking Statements
This Form 10-K includes "forward-looking" statements within the meaning of
Section 27A of the Securities Act and the Company desires to take advantage
of the "safe harbor" provisions thereof. Therefore, the Company is including
this statement for the express purpose of availing itself of the protections
of such safe harbor provisions with respect to all of such forward-looking
statements. The forward-looking statements in this Form 10-K reflect the
Company's current views with respect to future events and financial
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performance. These forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ from those
anticipated. In the Form 10-K, the words "anticipates," "believes,
"expects," "intends," "future" and similar expressions identify
forward-looking statements. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances
that may arise after the date hereof. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by this section.
Year 2000 Compliance
The year 2000 poses certain issues for business and consumer computing,
particularly the functionality of software for two-digit storage of dates and
special meanings for certain dates such as 9/9/99. The year 2000 is also a
leap year, which may lead to incorrect calculations, functions or system
failure. The widespread use of computer programs that rely on these two-
digit date programs to perform computations and decision-making functions may
cause information technology systems to malfunction in and around the year
2000. Such malfunctions may lead to significant business delays in the U.S.
and internationally. The problem exists for many kinds of software,
including software for mainframes, PCs and embedded systems. Many normal
business activities will potentially be impacted because information
necessary to monitor and control various operations is controlled by
computers.
The Company has studied and tested its technologies systems impacted by the
Year 2000 transition. The Company believes that its systems are Year 2000
compliant. However, variability of hardware and software combinations may
lead to unforeseen problems. The Company does not believe that any problems
that arise with internal systems will be material or will require more than
minimal costs to overcome. The Company's major customer, TransTexas Gas
Corporation, is also a publicly traded entity and has indicated that testing
and remediation of its internal systems is in progress and is expected to be
completed prior to the end of 1999. The Company's vendors are various and
diverse and the bulk of the items purchased by the Company are widely
available. There are no problems which are expected to arise due to vendors'
failure to be Year 2000 compliant because auxiliary channels should be
available to the Company to acquire its supplies, parts and other needs from
other vendors should any particular vendor have a problem due to
noncompliance.
Due to the nature of the Company's business and its information and
accounting systems, costs to bring its systems into compliance have been
immaterial.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The carrying amounts reflected in the consolidated balance sheets for cash,
short-term investments, accounts receivable, accounts payable, and bank loans
approximate fair value due to the short maturities of these instruments. The
Company's receivables result primarily from oil field support services and
the Company does not require collateral for these receivables. A significant
portion of the service business is billed to a major customer who also
represents a significant portion of the outstanding receivables. The
Company's line of credit agreement provides for borrowings which bear
interest at rates which vary with the prime rate. The Company had borrowings
under this credit facility during 1998 and had an outstanding balance at
December 31, 1998. The Company believes that the effect, if any, of
reasonably possible near-term changes in interest rates on the Company's
financial position, results of operations, and cash flows should not be
material.
The Company does not enter into derivatives, hedging, or other financial
instruments for trading, speculative, or other purposes. Management does not
believe that there is any other material market, interest rate, or risk
exposure with respect to derivative or other financial instruments that would
require additional disclosure under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements on page F-1 immediately
following the signature page of this Form 10-K. Supplementary quarterly
financial information for the Company is included in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The Board of Directors of the Company (the "Board") presently consists of
five members. Each director is elected at the annual meeting of shareholders
to hold office until the next annual meeting of shareholders and until
his/her successor has been elected and qualified. Currently serving as
directors are: Kenneth Owens, Howard Siegel, Karen Lee, Glenn Gagnon, and
David McFarlane. Richard Levine resigned as a director during 1998. The
following table sets forth information concerning the persons currently
serving as directors of the Company.
Date First
Position With Elected
Name Age the Company as Director
- ------------------- --- --------------------- -----------
Kenneth Owens 61 Chairman of the Board 1994
and President
Howard B. Siegel 56 Director 1980
Karen Lee 39 Director 1989
Glenn Gagnon 34 Director 1997
David McFarlane 36 Director 1998
Executive Officers
Unless otherwise specified by the Board, all executive officers are elected
for a term of one year, commencing with the date of the first meeting of the
Board following the annual meeting of stockholders, and serve until their
successors are elected or appointed and qualified, or until their respective
death, resignation, removal or disqualification. All of the Company's
officers are executive officers. The following table sets forth certain
information with respect to the persons currently serving as executive
officers of the Company.
Date First
Position With Elected
Name Age the Company as Director
- ------------------- --- --------------------- -----------
Kenneth Owens 61 Chairman of the Board 1994
and President
Robert Early 43 Chief Financial Officer 1997
Shawna Gagnon 26 Secretary/Treasurer 1995
Family relationships between the Company's officers and directors include:
Kenneth Owens and Shawna Gagnon are father and daughter, and Glenn Gagnon and
Shawna Gagnon are husband and wife.
Kenneth Owens, Chairman of the Board and President, has expertise in various
areas of business. Beginning in 1961 he performed in a supervisory capacity
for several worldwide companies including Bechtel and Brown & Root. He has
been involved in a variety of projects including: (1) Alaskan oil and gas
pipeline; (2) ICBM projects; and (3) underground nuclear testing in Nevada.
He has also been active in real estate and agriculture, acquiring a major
ownership interest in ranch grazing land and cattle operations in Texas,
Arizona, and New Mexico covering hundreds of thousands of acres.
18
<PAGE>
<PAGE>
At the present time, he is active in both agricultural ventures and oil and
gas operations. He is also a consultant for surrounding businesses in south
Texas concerning the Railroad Commission of Texas and the Texas Natural
Resource Conservation Commission. He incorporated Transcon Energy
Corporation in Texas in 1988, and since that time he has incorporated several
other companies and holds positions in these companies as President and/or
CEO or Director. Most of these companies have become subsidiaries of GTII.
Any non-subsidiary entities of which Mr. Owens is a director are privately
held.
Robert Early, Chief Financial Officer, received his Bachelor of Business
Administration from Abilene Christian University in 1979, where he majored in
Accounting and minored in Agricultural Business. He received his Certified
Public Accountant certificate in Texas in 1981 and is a member of the Texas
and American Societies of Public Accounting. Mr. Early worked for an
independent oil Company for six years, then moved to a position as partner of
the firm Ashley, Early & Folwell, P.C. in 1987. In 1991 he became the sole
owner of the firm and changed the name to Robert Early & Company, P.C. Mr.
Early has been doing tax work since 1983 and auditing since 1987. Mr. Early
was previously the auditor for the Company through November 1997.
Shawna Owens, Secretary/Treasurer, attended Texas A&M University and has
experience in management, accounting and public relations with different law
firms. Ms. Owens worked in Washington, D. C. for Senator Pete Dominici of
New Mexico and also worked with the Sergeant of Arms for the U. S. Senate
Chambers. She is in charge of the day to day accounting and treasury
functions and was instrumental in centralizing GTII's accounting. Ms. Owens
also performs public relations duties for the Company. She has been employed
by the Company since August, 1995.
Howard B. Siegel, Director, received his Bachelor of Business Administration
Degree from the University of Oklahoma in 1966. He received a Doctor of
Jurisprudence Degree from St. Mary's University School of Law in 1969. Mr.
Siegel was formerly an attorney for Superior Oil Company, a major oil and gas
Company located in Houston. He previously served as Vice President, General
Counsel, and a member of the Board of Directors of Tenneco Inc. Federal
Credit Union. From July 1974 to August 1989, Mr. Siegel was employed as an
attorney with the law firm of Bracewell & Patterson in Houston, Texas, and
from that date until January, 1991 he was employed by Hurt, Richardson,
Garner, Todd & Cadenhead in Atlanta, Georgia. Mr. Siegel is currently a
practicing attorney in Houston, Texas. Mr. Siegel has served in an advisory
capacity to the Board of Directors of the Company since March 25, 1980.
Karen Lee, Director, graduated with high honors from Cisco Junior College.
She administers the operation of the Company's offices in Springtown, Texas,
does much of the research and writing for filing of Securities and Exchange
Commission documents, and performs transfer agent duties and stockholder
record keeping for the Company. She is a member of the Southwest Securities
Transfer Association, Inc. Ms. Lee been employed by the Company for the past
19 years.
Glenn Gagnon, Director, received a Bachelor of Science degree from Texas A&M
University in 1994. From 1990-1994 he was employed by Gold Gyms Inc. and was
responsible for marketing, sales and automation of new facilities. He has
been employed by GTII since 1994 and is now in charge of public relations for
the Company. He established the Dividend Reinvestment and Stock Purchase
Plan for the Company and is currently assisting with filing of Securities and
Exchange Commission documents.
David McFarlane, Director, received a B.S. degree in Optical Engineering from
the University of Rochester in 1985, a MS degree in Nuclear Engineering from
Texas A&M University in 1991, and a Ph.D. in Radiological Health Physics from
Texas A&M in 1995. From 1987 to 1995 he was a research assistant and
lecturer at Texas A&M. Since 1996 he has been employed by Bandag, Inc. in
Muscatine, Iowa as a research engineer. His responsibilities include
conducting research, managing research projects, and developing and managing
budgets. Mr. McFarlane was appointed director of GTII in August of 1998 to
serve until the next annual meeting of shareholders when he will be placed on
the ballot to be voted on by the shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information as to the Company's chief
executive officer for the past three fiscal years. There is no compensation
to other officers or employees that would require disclosure under this item.
19
<PAGE>
<PAGE>
Name and Salary Cash Bonus Cash
Principal Position Year Compensation Compensation
- ----------------------- ---- ------------- ------------
Kenneth Owens 1996 $ -0- $ -0-
Chairman and President 1997 5,000 -0-
1998 11,000 19,000
No other officers, directors, or employees recieved compensation that would
require disclosure herein.
Director Compensation
In 1996 the Board approved a $1,500 fee for each director to be paid as cash
or 500 shares of stock. The fee was paid in cash to five directors, and in
stock to one director. For 1997 director compensation, the Board approved a
$1,500 fee or 143 shares of stock for each director. The fee was paid in
cash to six directors. For 1998 director compensation, the Board approved a
$1,500 fee for each director. The fee was not paid prior to December 31,
1998.
Compensation Committee Report
The Board of Directors delegates responsibility for executive compensation to
the Compensation Committee which is presently comprised of three of the
directors on the Board. This committee reviews the salaries of each of the
officers of the Company, and recommends the directors' fees for the year.
The Committee recommended to the Board that Kenneth Owens, President,
receive a salary of $1,000 per month during 1998, and that directors' fees
for 1998 be set at $1,500 cash per director.
In September 1998, the Company filed an S-8 registration statement
registering 200,000 common shares for a Stock Compensation Plan recommended
by the committee and adopted by the Board. The Plan allows the directors to
issue common stock as compensation for services provided by employees,
officers, directors, agents, consultants, and advisors. The Plan will allow
these service providers to acquire proprietary interests in the Company in
exchange for their services. These interests would provide incentives for
high levels of service. No shares were issued under the Plan during 1998.
Performance Graph - Set forth below is a line graph comparing the yearly
percentage change in the cumulative total shareholder return on the
Corporation's Common Stock against the cumulative total return of the NASDAQ
Stock Market and the NASDAQ Non-Financial Stocks. The graph assumes that the
value of the investment in the Corporation's Common Stock and each index was
$100 at December 31, 1993. GTII's numbers reflect a 1-for-2.5 reverse stock
split in 1995, and a 1-for-3.5 reverse stock split in 1997.
Comparison of Five-Year Cumulative Total Return for Fiscal Years Ended
December 31
1993 1994 1995 1996 1997 1998
------ ----- ------ ------ ------ ------
GTII Stock 100.00 85.00 106.00 84.00 120.00 80.00
NASDAQ Stock 100.00 97.75 138.26 170.01 208.58 293.21
Non-Financial Stocks 100.00 96.16 134.03 162.84 191.05 279.82
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
common stock as of March 15, 1999 with respect to (1) each person known by
the Company to own beneficially more than 5% of the Company's common stock,
(2) each of the Company's directors, and (3) all directors and officers of
the Company as a group. The title of class is common stock, $.001 par value.
NOTE: Some of the following shareholders exchanged all or a portion of their
common shares for preferred shares in 1996 (see Part II, Item 5, Preferred
Stock). In accordance with the Preferred Stock Plans, the preferred shares
have the same voting rights as if they were common shares (1 preferred share
is equivalent to 10 common shares). Therefore, the shares are listed below
as common shares, with a footnote following to explain the breakdown of the
number of common and the number of preferred each person holds.
20
<PAGE>
<PAGE>
# of Shares
Name and Beneficially Percent of
Address of Stockholder Owned Class
------------------------- ------------ ----------
Kenneth Owens 417,722 (1) 35.72%
6314 Aspen Cove Court
Sugar Land, Texas 77479
Howard B. Siegel 200 0.02%
P. O. Box 940572
Houston, Texas 77094-1572
Karen Lee 2,332 0.20%
104 Fossil Court
Springtown, Texas 76082
Glenn Gagnon 8,965 (2) 0.77%
P. O. Box 17029
Sugar Land, Texas 77496
David McFarlane 8 0.00%
6500 49th St. S.
Muscatine, IA 52761
Shawna Gagnon 1,710 0.15%
P. O. Box 17029
Sugar Land, Texas 77496
Robert Early 15 0.00%
2208 Ivanhoe
Abilene, Texas 79605
All directors and officers as a 430,952 (3) 36.86%
group (7 persons)
Betty Polston 62,263 (4) 5.32%
526 Admiral Benbow
McQueeney, Texas 78123
(1) Common - 18,562; Preferred B - 39,916
(2) Common - 8,735; Preferred A - 23
(3) Common - 31,562; Preferred A - 23; Preferred B - 39,916
(4) Common - 2,003; Preferred B - 6,026
Note: The stockholders identified in this table have sole voting and
investment power with respect to the shares beneficially owned by them.
Changes in Control
No changes in control occurred during 1998, and management is not aware of
any present arrangements that would cause a change in control in the future.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 8, 1998, the Company loaned its President, Kenneth Owens, $50,000
at an interest rate of 1% per month to be repaid within 45 days. The loan
was repaid with interest within the 45 day time period. On September 8,
1998, the Company loaned Kenneth Owens $17,750 at an interest rate of 1% per
month to be repaid within 30 days. The loan was repaid with interest within
the 30 day time period.
21
<PAGE>
<PAGE>
During 1998, the Company relocated its corporate office to Sugar Land, Texas.
The Company had been leasing its offices in Albuquerque, New Mexico from its
President, and decided to continue this relationship in Sugar Land. The
Company's President agreed to purchase facilities which would serve
adequately as the Company's offices. The Company entered into a ten year
lease agreement with the President for office space. As part of this
agreement, the Company advanced $127,428 to him for acquisition costs. Of
this amount, $30,000 is to be repaid in early 1999 and the balance is to be
amortized over the ten-year lease period.
Several of the officers and directors of the Company have invested in the oil
and gas business, either directly or through entities in which they have an
interest. Certain of these interests could directly compete with the
interests of the Company. Although the Company is not aware of any present
conflicts of interest, such present or future activities on the part of the
officers and directors could directly compete with the interests of the
Company. If the Company should enter into future transactions with its
officers, directors or other related parties, the terms of any such
transaction will be as favorable to the Company as those which could be
obtained from an unrelated party in an arm's-length transaction.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report or
are incorporated by reference:
Financial Statements - The following information has been included in
response to Item 8 above.
- Report of Independent Certified Public Accountants
- Consolidated Balance Sheets
- Consolidated Statements of Operations
- Consolidated Statements of Changes in Shareholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
22
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GOLDEN TRIANGLE INDUSTRIES, INC.
Date: April 2, 1999 By: /s/ KENNETH OWENS
Kenneth Owens
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------------------- --------------------- -------------
/s/ KENNETH OWENS Chairman of the Board April 2, 1999
Kenneth Owens and President
/s/ ROBERT EARLY Chief Financial April 2, 1999
Robert Early Officer
/s/ HOWARD B. SIEGEL Director April 2, 1999
Howard B. Siegel
/s/ KAREN LEE Director April 2, 1999
Karen Lee
/s/ GLENN GAGNON Director April 2, 1999
Glenn Gagnon
/s/ DAVID MCFARLANE Director April 2, 1999
David McFarlane
22
<PAGE>
<PAGE>
Golden Triangle Industries, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Certified Public Accountants . . . . . . . . . F-2
Consolidated Balance sheets as of December 31, 1998 and 1997 . . . . . F-3
Consolidated Statements of Operations for the fiscal years ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the fiscal
years ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-8
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Golden Triangle Industries, Inc.
Sugar Land, Texas
We have audited the accompanying consolidated balance sheets of Golden
Triangle Industries, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Golden
Triangle Industries, Inc. at December 31, 1998 and 1997, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Houston, Texas
March 18, 1999
- -----------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Golden Triangle Industries, Inc.
Sugar Land, Texas
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Golden Triangle Industries,
Inc. and subsidiaries for the year ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and cash flows of Golden
Triangle Industries, Inc. and Subsidiaries for the year December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ ROBERT EARLY & COMPANY, P.C.
Abilene, Texas
March 16, 1997
F-1
<PAGE>
<PAGE>
GOLDEN TRIANGLE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
December 31
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 160,204 $ 95,648
Accounts receivable - trade 1,307,042 741,380
Accounts receivable - officers & employees 27,247 20,000
Accounts and notes receivable - other 33,977 87,805
Inventories 199,296 199,627
Investments - available for sale 47,694 83,579
Prepaid expenses 13,500 24,969
---------- ----------
Total Current Assets 1,788,960 1,253,008
---------- ----------
FIXED ASSETS
Oil and gas properties (full cost method), net 1,628,496 1,685,554
Property and equipment, net 3,342,789 3,295,569
---------- ----------
Total Fixed Assets 4,971,285 4,981,123
---------- ----------
OTHER ASSETS
Accounts & notes receivable - non current 305,588 275,129
Accounts receivable - officers - non current 185,209 79,091
Deferred income taxes 38,000 184,000
Other 20,632 24,501
---------- ----------
Total Other Assets 549,429 562,721
---------- ----------
TOTAL ASSETS $7,309,674 $6,796,852
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 50,535 $ 75,586
Accrued expenses 72,239 18,146
Borrowings under line of credit 171,200 76,000
---------- ----------
TOTAL CURRENT LIABILITIES 294,974 170,732
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.10 par (1,000,000 authorized)
Class A 337 337
Class B 5,294 5,390
Common stock, $.001 par (100,000,000 authorized) 605 580
Additional paid-in capital 7,514,575 7,350,571
Accumulated other comprehensive loss:
Unrealized loss on securities for sale (72,260) (31,437)
Accumulated deficit (433,851) (699,321)
---------- ----------
Net Stockholders' Equity 7,014,700 6,626,120
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,309,674 $6,796,852
========== ==========
[FN]
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
GOLDEN TRIANGLE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
1998 1997 1996
---------- ---------- ----------
REVENUES
Oil field services, rentals
and disposals $2,139,843 $2,003,993 $2,239,670
Oil and gas production 258,725 448,359 311,221
Rental income - - 242,066
Oil reclamation, sand and water sales 705,624 - -
Other income 26,613 26,582 7,715
Gain/(loss) on sale of assets 1,797 2,781 (311,377)
---------- ---------- ----------
Total Revenues 3,132,602 2,481,715 2,489,295
---------- ---------- ----------
COSTS OF REVENUES
Oil purchases 500,292 - -
Australian marketing costs 86,810 142,112 94,692
Production expenses and taxes 7,982 13,185 10,855
Contract services 71,103 47,902 50,926
Materials and supplies 229,807 166,182 271,567
Lease cost 195,344 123,698 134,378
Utilities 30,216 48,127 61,010
Depreciation, depletion & amortization 486,367 422,898 406,625
---------- ---------- ----------
Total Costs of Revenues 1,607,921 964,104 1,030,053
---------- ---------- ----------
GROSS PROFIT 1,524,681 1,517,611 1,459,242
SELLING AND ADMINISTRATIVE EXPENSES 1,104,075 849,255 804,989
---------- ---------- ----------
INCOME FROM OPERATIONS 420,606 668,356 654,253
OTHER INCOME/(EXPENSES)
Interest and dividend income 31,558 43,331 6,410
Gain/(loss) on sale of securities 62,436 19,764 7,297
Stock transfer fees 10,199 7,965 5,314
Interest expense (13,317) (518) (40,755)
---------- ---------- ----------
Total Other Income/(Expenses),net 90,876 70,542 (21,734)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 511,482 738,898 632,519
INCOME TAXES (245,000) (300,114) (281,324)
---------- ---------- ----------
NET INCOME $ 266,482 $ 438,784 $ 351,195
========== ========== ==========
Earnings per Common Share:
Basic $ 0.45 $ 0.46 $ 0.45
========== ========== ==========
Diluted $ 0.43 $ 0.46 $ 0.44
========== ========== ==========
Weighted Average Shares Outstanding:
Basic 591,392 552,896 779,694
========== ========== ==========
Diluted 625,102 552,896 793,490
========== ========== ==========
[FN]
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
<TABLE>
GOLDEN TRIANGLE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other
Preferred Stock Stock Additional Comprehen- Accumu-
Class A Class B Common Stock Sub- Paid In sive In- lated
Shares Amount Shares Amount Shares Amount scribed Capital come/(Loss) Deficit
------ ------ ------ ------ -------- ------ -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at 1/1/96 - $ - - $ - 1,095,285 $1,095 $195,321 $6,869,149 $ (47,480) $(1,304,686)
Issued for
subscriptions - - - - 30,457 30 (184,071) 184,041 - -
Conversion of common
to preferred 3,374 337 53,903 5,390 (571,917) (572) - (5,153) - -
Repurchased for cash - - - - (8,786) (9) - (80,123) - -
Issued for services - - - - 429 1 - 4,496 - -
Other - - - - 1,024 1 - 9,787 - -
Change in marketable
securities valuation
allowance - - - - - - - - (738) -
Net income - - - - - - - - - 351,195
------ ----- ------ ------ ------- ----- ------- --------- ---------- ----------
Balances at 12/31/96 3,374 337 53,903 5,390 546,492 546 11,250 6,982,197 (48,218) (953,491)
Repurchased for cash - - - - (14,871) (15) - (126,476) - -
Issued under Dividend
ReiNvestment & Stock
Purchase Plan - - - - 25,843 25 - 303,060 - -
Issued for property - - - - 3,398 3 - 30,103 - -
Issued for directors'
fees - - - - 286 1 - 2,533 - -
Issued as promotional
effort - - - - 491 1 - 4,502 - -
Issued for subscriptions - - - - 2,571 3 (11,250) 11,247 - -
Issued as stock dividends
on preferred stock - - - - 16,188 16 - 143,405 - (143,421)
Preferred stock dividends - - - - - - - - - (41,193)
Change in marketable
securities valuation
allowance - - - - - - - - 16,781 -
Net income - - - - - - - - - 438,784
------ ----- ------ ----- ------- ----- ------- --------- ---------- ----------
Balances at
12/31/97 3,374 337 53,903 5,390 580,398 580 - 7,350,571 (31,437) (699,321)
Issued under Dividend
Reinvestment & Stock
Purchase Plan - - - - 9,509 9 - 95,376 - -
Issued for property - - - - 1,000 1 - 10,999 - -
Issued for services - - - - 15 - - 185 - -
Issued for warrants
offering - - - - 4,856 5 - 57,358 - -
Exchange of preferred
for common - - (962) (96) 9,620 10 - 86 - -
Change in marketable
securities valuation
allowance - - - - - - - - (40,823) -
Preferred stock dividends - - - - - - - - - (1,012)
Net income - - - - - - - - - 266,482
------ ----- ------ ------ ------- ----- ------- ---------- ---------- ----------
Balances at 12/31/98 3,374 $ 337 52,941 $5,294 605,398 $ 605 $ - $7,514,575 $ (72,260) $ (433,851)
====== ===== ====== ====== ======= ===== ======= ========== ========== ==========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
GOLDEN TRIANGLE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase/(Decrease) in Cash and Cash Equivalents
Year Ended December 31
1998 1997 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 266,482 $ 438,784 $ 351,195
Adjustments to reconcile
net income to net cash provided by
operating activities:
Depreciation, depletion and
amortization 486,367 422,898 456,625
(Gain)/loss on sale of assets (64,233) (22,545) 304,084
Stock issued for services 185 2,534 4,497
Deferred income taxes 146,000 187,000 183,000
Accounts receivable (542,293) (198,930) 124,870
Inventories 331 373 -
Prepaid expenses and other 11,469 (42,647) 11,150
Restricted cash - 100,954 (100,374)
Accounts payable (26,051) 29,921 (54,429)
Accrued expenses 55,093 (50,241) 21,738
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 333,350 868,101 1,302,356
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (474,005) (1,644,154) (1,073,131)
Purchase of inventory on Altair - (200,000) -
Purchase of marketable securities (106,654) (56,971)
(54,347)
Loan payments received - 87,389 5,596
Investment in affiliates - - (6,250)
Proceeds from sale of securities 164,152 62,753 -
Proceeds from sale of assets 14,141 467,534 136,277
---------- ---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES (402,366) (1,283,449) (991,855)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing common stock 152,749 303,085 -
Purchase of outstanding shares - (121,989) (70,343)
Dividends on preferred shares (1,012) (41,193) -
Advances from/(to) related parties (184,675) (101,428) 441,000
Repayment from/(to) related parties 71,310 98,000 (443,970)
Proceeds from notes payable 171,200 176,000 -
Repayment of notes payable (76,000) (100,000) (24,922)
---------- ---------- ----------
NET CASH PROVIDED/(USED) BY FINANCING
ACTIVITIES 133,572 212,475 (98,235)
---------- ---------- ----------
NET INCREASE/(DECREASE) IN CASH 64,556 (202,873) 212,266
CASH - BEGINNING OF YEAR 95,648 298,521 86,255
---------- ---------- ----------
CASH - END OF YEAR $ 160,204 $ 95,648 $ 298,521
========== ========== ==========
[FN]
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<PAGE>
Year Ended December 31
1998 1997 1996
---------- ---------- ----------
Supplemental Disclosures
Cash payments for:
Interest $ 13,317 $ 518 $ 40,755
Income taxes(domestic & foreign) 47,356 92,229 91,857
Non-Cash Investing and Financing
Stock issued to related party for
50% interest in Zapata office - 30,106 -
Exchange of accounts receivable for note - - 275,223
Services and materials exchanged
for investment - - 14,941
Services provided as proceeds on
sale of Amando facility - 269,000 -
Dividends paid with common stock - 143,421 -
Purchase of trucks with common stock 11,000 - -
Preferred stock converted into
common stock 96 - -
[FN]
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
<PAGE>
GOLDEN TRIANGLE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
GENERAL INFORMATION
Golden Triangle Industries, Inc. (the Company) was incorporated under the name
Golden Triangle Royalty & Oil, Inc. on July 30, 1975 under the laws of the
State of Colorado. It is primarily engaged in the business of providing oil
field support services, including equipment rentals and disposition of oil
field salt water. Oil field services consist of heavy equipment work such as
bulldozing, dirt loading, water and waste hauling, and various other services.
Salt water is produced along with oil and gas and is required to be
re-injected back into underground formations or otherwise disposed of as a
regulated waste product. The Company had six disposal facilities in operation
at the end of 1998. The disposal business is generally located in an area
south of Laredo, Texas. During 1997, the Company acquired land near Houston,
Texas and has developed its significant oil field services/rentals business
associated with that property.
The Company also owns passive (primarily royalty) interests in oil and gas
production. The passive oil and gas interests consist of U.S. and Australian
properties. Australia provided approximately 75% of gross oil and gas revenues
during 1998. The bulk of the oil and gas asset base is located in Australia.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Golden Triangle Industries, Inc. and its subsidiaries. All
significant inter-Company balances and transactions have been eliminated. The
Company's subsidiaries at December 31, 1998 are Golden Triangle Coal & Mining,
Inc., Golden Triangle Oil & Minerals, Inc. of Australia, Houston Oil & Energy,
Inc., OCR Investments, Inc. (OCR), Transcon Energy Corporation (Transcon), Jim
Wells Salt Water Disposal, Inc. (Jim Wells), County Line Salt Water Disposal
Inc., and Apache Ranch, Inc. (wholly owned by Transcon). Golden Triangle Coal
& Mining, Inc., Houston Oil & Energy, Inc., and Golden Triangle Oil &
Minerals, Inc. of Australia are inactive. For purposes of these notes, these
entities are collectively referred to as "the Company" or "GTII".
MARKETABLE EQUITY SECURITIES. The Company's securities are classified as
available for sale. As such, they are reported at fair value with unrealized
gains and losses, net of related deferred income taxes, included in
shareholders' equity as an element of accumulated other comprehensive
income/(loss). Realized securities gains or losses are reported in current
year earnings. The cost of securities sold is based on the specific
identification method.
INVENTORIES. Inventories are stated at the lower of cost determined on a
first in/first out (FIFO) basis or market. The Company's inventory at
December 31, 1998 consisted of stockpiled sand and gravel and a small
inventory of reclaimed oil in tanks at the reclamation plant. These products
are considered raw materials and are carried at cost.
PROPERTY AND EQUIPMENT. The Company follows the full cost method of
accounting for oil and gas producing activities and, accordingly, capitalizes
all costs incurred in the acquisition of oil and gas properties. The
Company's oil and gas properties consist primarily of overriding royalty
interests which do not bear any costs of development or exploration. The
Company has not participated in the exploration and development of proved oil
and gas properties. Capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present value,"
discounted at a 10% interest rate of future net revenues from proved reserves,
based on current economic and operating conditions, plus the lower of cost or
fair market value of unproved properties. Costs in excess of the ceiling test
are adjusted against income. Sales or abandonments of properties are
accounted for as adjustments of overall capitalized costs with no gain or loss
recognized.
Costs are recorded in cost centers on a country-by-country basis. Amortization
of the limited amount of working interests owned is computed on a composite
unit-of-production method based on estimated proved reserves attributable to
the respective cost center. Amortization of royalty/overriding interests is
calculated as 22% of gross revenue. All costs associated with oil and gas
properties are currently included in the base for computation and
amortization. Such costs include only acquisition costs since there are no
exploration and development costs.
Depreciation of property and equipment other than oil and gas properties is
computed on the straight-line method over the estimated useful lives of the
assets. Useful lives are 10 years for tanks and ramps, 7 years for
equipment, and 5 years for electronic equipment. Depreciation totaled
$424,067, $320,834 and $291,347 for 1998,1997, and 1996, respectively.
F-8
<PAGE>
<PAGE>
Gains or losses on sales of property and equipment other than oil and gas
properties are recognized as part of operations. Expenditures for renewals
and improvements are capitalized, while expenditures for maintenance and
repairs are charged to operations as incurred.
INTANGIBLE ASSETS AND AMORTIZATION. Intangible assets consist of disposal
well leasehold, goodwill, and water rights. Goodwill and water rights are
being amortized on a 10 year straight line basis. Well leasehold is being
amortized on a 15 year straight line basis. The amortization expense for
these items is included with depreciation and depletion for presentation
purposes.
INCOME TAXES. Deferred tax liabilities and assets result from temporary
differences between the financial statement and income tax bases of assets
and liabilities. The Company records and adjusts any deferred tax asset
valuation based on judgments as to future realization of the deferred tax
benefits supported by demonstrated trends in the Company's operating
results.
EARNINGS PER SHARE. Accounting rules provide for the calculation of "Basic"
and "Diluted" earnings per share. Basic earnings per common share excludes
dilutive securities and is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per common share reflects the
potential dilution of securities that could share in the earnings of the
entity on an as if converted basis. This is done by dividing net income
available to common shareholders, as adjusted if necessary, by the weighted
average number of common shares outstanding plus potential dilutive
securities.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents for purposes of preparing its Statement of Cash Flows. The
Company had no cash equivalents at December 31, 1998.
CASH BALANCES. The Company maintains multiple bank accounts at several banks
through the various consolidated entities. Funds deposited at the banks are
insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 for
each unique combination of entity and bank. Cash balances exceeded federally
insured limits occasionally throughout the year.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Unless otherwise specified, the
Company
believes the book value of the financial instruments approximates their fair
value due to their short maturities.
CONCENTRATIONS OF CREDIT RISK. The Company provides its services and rentals
to the oil and gas industry and does not require collateral on receivable
balances which result primarily from oil field support services. Exposure to
credit risk is affected by conditions within the oil and gas industry.
Reductions in gas prices could significantly reduce the level of activity for
both salt water disposal and drilling support services revenues. The
Company's salt water disposal services are primarily located in the
Laredo/Zapata, Texas area, which is a significant gas producing area. Other
services and rentals are based out of the Altair property near Houston, Texas.
The Company provides a large portion of its services to one major customer as
discussed at Note 12. The Company has never experienced significant credit
losses.
ENVIRONMENTAL ISSUES. The Company's salt water disposal business is in a
regulated environmental industry and is operated under permits from the Texas
Railroad Commission and the Texas Natural Resource Conservation Commission.
Failure to comply with regulations could result in interruption or termination
of the operations. There are minor clean-up requirements in the normal course
of operations which are expensed as incurred. Additionally, upon cessation of
use, the disposal wells will require plugging and site cleanup. Costs of
voluntary termination and remediation have been estimated to not be material
and are expected to be recorded as incurred. There were no clean-up costs
accruals necessary at December 31, 1998.
LONG-TERM ASSETS. The Company applies SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets". Under SFAS 121, long lived assets and
certain intangibles are reported at the lower of the carrying amount or their
estimated recoverable amounts.
REVENUE RECOGNITION. The Company records sales and related profits for its
operations as services and rentals are provided to customers. Oil and gas
revenue is recorded in the period of production.
COMPREHENSIVE INCOME. In the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
F-9
<PAGE>
<PAGE>
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. During 1998, the Company
reported other comprehensive income/(loss) from unrealized losses on
marketable securities as follows for the years ended December 31, 1998, 1997,
and 1996:
1998 1997 1996
--------- -------- --------
Net income $266,482 $438,784 $351,195
Change in comprehensive income/(loss) (40,823) 16,781 (738)
--------- -------- --------
Comprehensive income $225,659 $455,565 $350,457
========= ======== ========
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). This statement standardized the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts,
requiring that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. The statement
generally provides for matching the timing of gain or loss recognition on the
hedging instrument with the recognition of (a) the changes in fair value of
the hedged assets or liabilities that are attributable to the hedged risk or,
(b) the earnings effect of the hedged transaction. The statement is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999,
with earlier application encouraged, and shall be applied retroactively to
financial statements of prior periods. Adoption of SFAS 133 is expected to
have no effect on the Company's financial statements.
STOCK TRANSFER FEES. During 1997, the Company resumed the responsibility of
being its own transfer agent. Fees earned are shown as other income.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities, the
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.
RECLASSIFICATIONS. Certain items included in prior years financial
statements have been reclassified to conform to current year presentation.
NOTE 2: ACCOUNTS AND NOTES RECEIVABLE
Accounts Receivable -- At December 31, 1998 and 1997, the Company has accrued
receivables for oil and gas production and receivables from extension of
credit to customers for salt water disposal and other services as presented
below. Collection of the accrued Australian production generally occurs
during the quarter following the quarter of production. Collection of accrued
domestic production generally occurs during the month following production.
The cost basis of the following receivables are believed to approximate their
fair values.
1998 1997
---------- ---------
Oil field services $1,233,845 $ 676,188
Domestic oil and gas production 4,369 4,369
Australian oil production 34,899 35,391
Oil reclamation sales 33,929 25,432
---------- ---------
Totals $1,307,042 $ 741,380
========== =========
The salt water disposal and oil field services businesses include three
customers that accounted for more that 10% of sales during 1998. These
customers are TransTexas Gas Corporation, Superior Crude Gathering, Inc.,
and Med Loz Trucking, Inc. See Note 12 for further discussion. In
addition, TransTexas' receivable balances were approximately 78% and 39% of
the Company's total accounts receivable balances at December 31, 1998 and
1997. No allowances for bad debts have been established because the Company
has not experienced any significant inability to collect its receivables.
F-10
<PAGE>
<PAGE>
Notes and Other Receivables -- The Company has notes receivable as described
below.
1998 1997
---------- ---------
Current portion:
Land sales $ 8,636 $ 8,636
Southwest Tire Processors, Inc. 6,910 36,000
Osage Environmental - 43,169
Accrued interest on these notes 18,431 -
---------- ---------
Total current portion 33,977 87,805
---------- ---------
Long-term portion:
Land sales 102,902 108,443
Southwest Tire Processors, Inc. 202,686 166,686
---------- ---------
Total long-term portion 305,588 275,129
---------- ---------
Total Notes Receivable $ 339,565 $ 362,934
========== =========
The sale of a 40 acre tract of the ranch land in 1995 and an 80 acre tract in
1996 resulted in notes receivable secured by warranty deeds to the tracts. The
1995 note bears interest at 10% per annum, is payable in monthly installments
of $500 including interest, and is due to pay off in July 2009. The 1996 note
bears interest at 8.6% per annum, requires quarterly installments of
approximately $2,000 including interest, and is due to pay off in July 2017.
These land note balances total $110,113 and $113,149 at December 31, 1998 and
1997, respectively.
In October 1996, the Company converted an account receivable from Southwest
Tire Processors, Inc. (SWTP) for unpaid rent on the tire shredder to a note.
This note bears interest at 1% per month and calls for monthly payments of
$3,000 plus interest and is carried on the books at $202,685 and $202,685 at
December 31, 1998 and 1997, respectively. It is secured by a lien against the
tire shredder and all of the auxiliary support equipment owned by SWTP. SWTP
has not made all of the payments required under this note during 1997 or 1998.
The Company has agreed to a reduction in the monthly payment and has,
essentially, removed the due date for the maturity of the note.
See Note 8 for a discussion of related party receivables.
NOTE 3: INVESTMENTS
The following table illustrates the current values, costs and unrealized
gains and losses for the securities held.
Market Unrealized
December 31, 1998 Cost Value Loss
-------- -------- ---------
Marketable equity securities
available for sale $131,660 $ 47,694 $ (83,966)
December 31, 1997
Marketable equity securities
available for sale $131,212 $ 83,579 $ (47,633)
The following is information regarding trading activity in securities. Cost
is determined by actual cost on a first-in first-out basis.
Proceeds Gains
from Sales and (Losses)
---------- -----------
1998 $ 164,152 $ 62,436
1997 62,753 5,957
NOTE 4: AMORTIZATION OF OIL AND GAS PROPERTIES
The following table presents costs of oil and gas properties at December 31,
1998 and 1997.
1998 1997
Proven $2,017,602 $2,017,602
Unproven 418,487 414,628
---------- ----------
2,436,089 2,432,230
Accumulated depletion (807,593) (746,676)
---------- ----------
Net Oil and Gas Properties $1,628,496 $1,685,554
========== ==========
F-11
<PAGE>
<PAGE>
Depletion charged against income on a per unit basis is presented below.
Working interest costs are amortized based on equivalent barrels of oil
produced. Costs of royalty interests are amortized using the percentage
method of depletion under which depletion has been recorded at 22% of gross
revenue.
1998 1997 1996
------- ------- ------
United States
Working interests ($/bbl.) $ 13.63 $ 15.53 $ 6.89
Royalty interests ($/$ revenue) .22 .22 .22
Australian royalties ($/$ revenue) .22 .22 .22
The Company has historically acquired Australian overriding royalties as
availability and negotiations provide opportunity. The Company is not in a
position to control development activities in these areas. Australian
concessions require that minimum prospecting expenditures be incurred during
their four year term. No estimate can be made as to when development may
begin on the non-producing properties. Some concessions from prior years have
not been developed and are not producing revenues. Since the Australian
properties, as well as some U.S. properties, have not been developed, they are
being amortized only to the extent producing properties have been depleted
below cost. These costs totaled $418,487 and $414,628 at December 31, 1998
and 1997.
NOTE 5: PROPERTY AND EQUIPMENT
1998 1997
---------- ----------
Equipment and vehicles $2,990,976 $2,600,031
Well leasehold and water rights 200,000 200,000
Buildings 312,606 312,606
Office furniture and equipment 101,431 78,758
Land 1,063,251 1,021,695
Accumulated depreciation and amortization (1,325,475) (917,521)
---------- ----------
Net Property and Equipment $3,342,789 $3,295,569
========== ==========
During June 1997, the Company purchased the Altair property, which consists of
2,738 acres of land near Houston, Texas. This land contained an existing
inventory of sand and gravel, some buildings, and other facilities. As part
of the agreement to sell the Amando facility, TransTexas agreed to make
significant repairs to the buildings on the Altair, among other services.
TransTexas also entered into an arrangement to lease certain acreage and other
assets on the Altair. This land had a purchase price of $1,096,100.
Improvements made to the property in conjunction with the Amando agreement
totaled $174,000. In addition to existing facilities on this property, the
Company has established an oil reclamation plant and has acquired various
pieces of heavy equipment (based at the Altair) which it uses to provide oil
field support services or leases for work in the oil field.
In June 1997, the Company's Amando salt water disposal facility was exchanged
to TransTexas Gas Corporation for cash and improvements to the Altair property
property discussed above.
The Company had granted 5% of the assets included in the Altair property
purchase to individuals in return for services provided in connection with
the purchase. These interests were purchased during 1998 by the Company for
$53,900.
NOTE 6: INCOME TAXES
The domestic and foreign source components of income before taxes are as
follows:
1998 1997 1996
-------- -------- --------
Domestic sources $446,076 $639,697 $556,340
Foreign sources 65,406 99,201 76,179
-------- -------- --------
$511,482 $738,898 $632,519
======== ======== ========
F-12
<PAGE>
<PAGE>
The provisions for income tax expense are as follows:
1998 1997 1996
-------- -------- --------
Current
Federal $ 53,000 $ 31,270 $ 14,856
State 13,000 10,948 42,446
Australian 33,000 70,896 41,022
-------- -------- --------
99,000 113,114 98,324
-------- -------- --------
Deferred
Federal 132,000 172,000 168,000
State 14,000 15,000 15,000
-------- -------- --------
146,000 187,000 183,000
-------- -------- --------
$245,000 $300,114 $281,324
======== ======== ========
The tax effects of temporary differences that give rise to deferred tax
assets and (liabilities) are as follows:
1998 1997
-------- --------
Fixed assets $(79,000) $ 47,000
Equity investments 130,000 120,000
Notes receivable (17,000) (17,000)
Tax credits 4,000 34,000
-------- --------
Net Deferred Tax Asset $ 38,000 $184,000
======== ========
Australian income taxes are based on 30% of distributable income from oil
production and 10% of interest earned. These taxes are withheld by the
Australian payer. For domestic tax purposes, the Company has the option of
deducting these foreign taxes or taking them as a credit, whichever provides
the Company with the most benefit.
The following table presents the significant differences between federal
income taxes based on book income before taxes and the Company's estimated
federal income tax expense.
1998 1997 1996
-------- -------- --------
Federal income taxes computed at
statutory rate $174,000 $251,226 $215,057
Foreign taxes, net of federal benefit 22,000 46,791 27,075
State taxes, net of federal benefit 8,000 7,226 28,014
Other 41,000 (5,129) 11,178
-------- -------- --------
Taxes on income $245,000 $300,114 $281,324
======== ======== ========
NOTE 7: LEASES
The Company's salt water disposal facilities are located on oil and gas
leases in conjunction with surface leases for the unloading facilities.
These costs are reported as a line item under costs of revenues in the
statement of operations. There are two noncancellable leases for salt water
disposal facilities. These have required payments of $12,000 in 1999. Each
of these leases has options for additional terms, which if exercised would
expand the amounts reportable as noncancellable commitments.
Lease cost for the Company's offices totaled $11,461, $12,343 and $14,400 for
1998, 1997 and 1996. These lease arrangements, essentially all with related
parties, did not require minimum lease payments or have fixed terms through
most of 1998. However, in October 1998 when the Company moved its corporate
office from Albuquerque, New Mexico to Sugar Land, Texas, the Company entered
into a lease agreement with its President to lease office space for a ten year
term. The following table sets out the minimum requirements for the next five
years:
Year Ended Amount
---------- --------
1999 $ 25,200
2000 25,200
2001 25,200
2002 25,200
2003 25,200
Thereafter 126,000
--------
Total minimum future rentals $252,000
========
F-13
<PAGE>
<PAGE>
NOTE 8: TRANSACTIONS WITH RELATED PARTIES
The Company has a loan outstanding to its President of $65,000. Management
believes this loan is valid and collectible.
The Company transferred certain small volume working and royalty interests to
a related party in exchange for future services valued at $21,600. This
receivable was amortized to contract services as the services were rendered.
The Company retained an option to repurchase any of these interests within a
three year period should it desire to do so. This option expired during 1998.
The Company leases its office facilities from its President as discussed at
Note 7.
During 1997, the Company loaned $98,000 to officers and directors of the
Company to finance their purchase of shares of Class B preferred stock from
two stockholders of the Company. These loans carried interest rates of 2%
per month and were repaid, with interest, during 1997.
During 1997, the Company had revenues from oil field services performed for
an affiliated entity, J Moss Investments, Inc. of $82,344 and sold J Moss a
bulldozer for $34,140. The Company also paid this entity to dispose of
certain hazardous materials which had accumulated at disposal sites at a
total cost of $40,010. The Company's President owns 40% of J Moss and the
remainder was owned by individuals who were previously significant
stockholders and directors of the Company. J Moss does not compete directly
with any of the Company's operations.
During 1998, the Company advanced $67,750 in two transactions to its President
for less than 90 days each. These amounts were repaid during the year. When
the Company relocated its corporate office to Sugar Land, Texas, it entered
into a ten-year lease agreement with the Company's President for office space.
As part of this agreement, the Company advanced $127,428 to the President for
acquisition costs. Of this amount, $30,000 is to be repaid in early 1999 and
the balance is to be amortized over the ten-year lease period.
NOTE 9: STOCK TRANSACTIONS
During 1997, stockholders authorized a 1 share for 3.5 shares reverse stock
split. All references to common stock and per share amounts in the
accompanying financial statements have been retroactively restated to reflect
the effect of the reverse split.
In August, 1996, the Company made an offer to exchange preferred shares for
common shares on a one for ten basis. The preferred shares offered consisted
of Class A and Class B. Common shares totaling 2,001,710 were exchanged for
11,586 Class A preferred shares and 188,585 Class B preferred shares. (These
share amounts have not been adjusted for the effect of the 1 for 3.5 reverse
split in 1997.)
Both classes of preferred stock retain the same number of voting rights as the
number of common shares given up (10 votes per preferred share). The Class A
preferred shares are entitled to a $.30 per share cash dividend to be paid on
an annual basis. They are also convertible back into common shares after the
earlier of 38 months or the Company's gross revenues being in excess of $5
million. The Class B preferred shares were entitled to a $.20 per share cash
dividend to be paid on an annual basis. In addition, a 30% common stock
dividend (i.e. 3 common shares per 10 shares of Class B preferred) was to be
paid in the first year after issuance and 40% in the second year. Class B
preferred shares were not convertible back to common shares. Dividends on
both classes of preferred stock are non-cumulative. During 1998, the Board of
Directors voted to eliminate the dividends on the Class B preferred stock and
to allow conversion of those shares back into common on a annually limited
basis. Under these new provisions, 962 Class B preferred shares were
exchanged for 9,620 common shares.
During June 1996, the Company adopted a Dividend Reinvestment and Stock
Purchase Plan. Under this plan existing stockholders are given the
opportunity to use dividends or cash payments to purchase the Company's stock
through the transfer agent. The minimum investment is $25 per month and the
maximum investment is $5,000 per month. The Company filed a registration
statement for 1,000,000 shares and has the option of issuing new shares or
acquiring shares in the open market to fill purchases under the plan. During
1998 and 1997, the Company issued 9,509 and 25,843 shares for total proceeds
of $95,385 and $303,085. At December 31, 1998 and 1997, 250,305 and 259,870
(after adjustment for the 1 for 3.5 reverse split in 1997) common shares were
reserved for potential issuance under this plan.
F-14
<PAGE>
<PAGE>
In December 1997, the Company acquired 50% of a house in Zapata, Texas from
a former director of the Company. This house functions as the business
office in Zapata. This was acquired for 3,398 shares of stock. The other
50% of the house belongs to the Company's President.
During 1997, the Company issued stock dividends of 16,188 shares of common
stock to holders of Class B preferred shares.
During 1998, the Company registered a warrants offering. This offering
offered shares to existing shareholders at a price determined based on the
registration date of the offering. This offering resulted in the issuance
of
4,856 common shares and proceeds to the Company of $57,363.
NOTE 10: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per common share (EPS) for the years ended December 31, 1998, 1997, and
1996.
1998 1997 1996
--------- --------- ---------
Numerator:
Net income $ 266,482 $ 438,784 $ 351,195
Less preferred stock dividends (1,012) (184,614) -
--------- --------- ---------
Numerator for basic EPS 265,470 254,170 351,195
Effect of dilutive sec. preferred
stock dividends 1,012 - -
--------- --------- ---------
Numerator for diluted EPS $ 266,482 $ 254,170 $ 351,195
========= ========= =========
Denominator:
Basic weighted average shares
outstanding 591,392 552,896 779,694
Convertible preferred shares (1) 33,710 - 13,796
--------- --------- ---------
Denominator for diluted EPS 625,102 552,896 793,490
========= ========= =========
Basic EPS $ 0.45 $ 0.46 $ 0.45
========= ========= =========
Diluted EPS 0.43 0.46 0.44
========= ========= =========
(1) The equivalent common shares of convertible preferred stock of 33,311
were not included in the computation of the 1997 denominator for diluted
earnings per share due to their being found to be anti-dilutive during that
year.
NOTE 11: SHORT-TERM BORROWINGS
Short-term borrowings had the following outstanding balances at December 31:
1998 1997
--------- ---------
Bank line of credit, interest payable monthly
at the Bank of New Mexico, Chase Manhattan prime
plus 2%, currently 10.5%, secured by accounts
receivable. Maturity is December 25, 1999.
Maximum amount $250,000 $ 171,200 $ 76,000
Bank line of credit, interest payable monthly
at the Bank of America, bank prime plus 2%,
currently 10.5%, secured by accounts
receivable. Maturity is December 1, 1999.
Maximum amount $25,000 - -
F-15
<PAGE>
<PAGE>
NOTE 12: SEGMENT AND GEOGRAPHICAL DATA AND MAJOR CUSTOMERS
OPERATING SEGMENTS:
1998 1997 1996
---------- ---------- ----------
Revenues:
Oil field rentals and services $2,139,843 $2,003,993 $2,239,670
Oil reclamation and other sales 705,624 - -
Oil and gas 258,725 448,359 311,221
Other 28,410 29,363 249,781
Operating profit:
Oil field rentals and services $ 353,019 $ 496,988 $ 635,831
Oil reclamation and other sales 31,331 - -
Oil and gas 28,419 187,324 132,431
Other 7,837 29,363 197,368
Long-lived asset:
Oil field services $3,058,178 $3,295,569 $2,501,852
Oil reclamation and other sales 284,610 - -
Oil and gas 1,628,497 1,685,554 1,733,751
Additions to property:
Oil field services $ 252,343 $1,593,612 $1,053,550
Oil reclamation and other sales 228,803 - -
Oil and gas 3,859 50,542 19,581
Depreciation, depletion and amortization:
Oil field services $ 378,513 $ 317,187 $ 330,969
Oil reclamation and other sales 46,937 - -
Oil and gas 60,917 105,711 73,243
Other - - 52,413
INTERNATIONAL: The Company operates in the United States, Australia, and
Canada. The following is a summary of information by area for 1998, 1997
and 1996.
1998 1997 1996
---------- ---------- ----------
Revenues:
United States $2,932,599 $2,115,215 $2,270,230
Australia 195,150 366,500 219,065
Canada 4,853 - -
---------- ---------- ----------
Totals $3,132,602 $2,481,715 $2,489,295
========== ========== ==========
Operating profit:
United States $ 352,729 $ 569,155 $ 578,074
Australia 65,407 99,201 76,179
Canada 2,472 - -
---------- ---------- ----------
420,606 668,356 654,253
Other income and expense 90,876 70,542 (21,734)
---------- ---------- ----------
Income before income taxes $ 511,482 $ 738,898 $ 632,519
========== ========== ==========
Identifiable assets:
United States $6,056,982 $5,603,047 $4,908,184
Australia 1,248,759 1,168,805 1,204,879
Canada 23,933 25,000 -
---------- ---------- ----------
$7,309,674 $6,796,852 $6,113,063
========== ========== ==========
MAJOR CUSTOMERS: As shown in Note 2, the Company extends credit to its
customers and operates with significant accounts receivable balances.
Approximately 78% of the receivables for disposal/services and rentals are
due from TransTexas Gas Corporation. This customer has historically paid
bills from two to six months after incurrence. This customer represents
approximately 44% of salt water disposal, oil field services, and rental
F-16
<PAGE>
<PAGE>
revenues during 1998. Another customer, Med Loz Trucking, Inc., is
responsible for approximately 18% of the Company's salt water disposal
business and 4% of its year end receivable balances. The Company currently
sells all of its reclaimed oil to a single entity, Superior Crude Gathering.
Sales to this entity amount to 24% of total revenues and 3% of ending accounts
receivable. It follows that the Company's results of operations are
significantly reliant on these customers' continued ability to operate. A
mitigating factor is that salt water produced from oil and gas wells is
required to be disposed of under existing regulations and only a limited
number of disposal facilities exist in the Company's primary operating area.
Also, other oil companies would be able to use the reclaimed oil.
NOTE 13: OIL AND GAS INFORATIONS (UNAUDITED)
Reserves of oil and gas - Royalty and Working Interests
The Company's domestic working interest properties are not material to the
Company's assets nor to its revenues. Domestic working interests generated
approximately 5% of the Company's total oil and gas revenues and represent
only an insignificant portion of the Company's capitalized oil and gas
properties. Since these properties and their revenues are not material,
Management has concluded that the Company would incur unreasonable cost and
effort in order to obtain reserve analysis as is required by accounting
disclosure rules for material oil and gas working interests. As a result of
this conclusion, some of the information normally presented for oil and gas
working interests by oil and gas producing entities has been omitted. Instead,
information has been presented which treats the Company's working interests
like royalties and ORRIs and they are included in the table below. No
information is presented for Australian working interests because the
Company's Australian working interests are non-producing. The Company is not
the operator on any of the oil and gas properties which it owns interests
under.
The quantities of proved reserves of oil and gas relating to royalty and
working interests are not presented because the necessary information is not
available to the Company or the Company's interests are not large enough to
economically obtain this information. The Company's share of oil and gas
produced from these interests is presented in the following schedule:
Working Interests Royalties and ORRIs
---------------- ---------------------------------
United States United States Australia Canada
Oil Gas Oil Gas Oil Oil
(bbls.) (mcf) (bbls.) (mcf) (bbls.) (bbls.)
------ ----- ------ ------ ------ ------
For the year ended:
December 31, 1998 217 804 2,776 10,495 13,599 391
December 31, 1997 566 2,158 2,571 12,616 17,485 -
December 31, 1996 535 4,157 3,217 9,059 10,255 -
Results of Operations for Producing Activities for the Year Ended December
31
1998 1997 1996
------------------------- ----------------- ----------------
United Canad- United United
States Australia ian States Australia States Australia
------ --------- ------ ------ --------- ------ ---------
Sales of
oil & gas $58,722 $195,150 $4,853 $81,859 $366,500 $92,156 $219,065
------- -------- ------ ------- -------- ------ --------
Production
costs
(including
taxes) 6,669 86,811 1,313 13,185 142,112 10,855 94,692
Acquisition
& explora-
tion costs 3,859 - - 5,985 44,557 19,581 -
Depletion 16,916 42,933 1,068 25,108 80,630 25,049 48,194
------- -------- ------ ------- -------- ------ --------
Total costs 27,444 129,744 2,381 44,278 267,299 55,485 142,886
------- -------- ------ ------- -------- ------ --------
Results of
operations
from pro-
ducing
activities
(excluding
corporate
overhead) $31,278 $ 65,406 $2,472 $37,581 $ 99,201 $36,671 $ 76,179
======= ======== ====== ======= ======== ====== ========
In addition to the acquisition and exploration costs presented above, the
Company spent $25,000 purchasing royalty interests in two Canadian producing
properties during 1998. However, no revenues were received during 1997 and
no information was available to estimate the production.
F-17
<PAGE>
<PAGE>
Capitalized Costs Relating to Oil and Gas Producing Activities
December 31, 1998
United
Canada States Australia Total
------- -------- --------- ---------
Unproved properties (not
being amortized) $ - $ 55,283 $ 363,204 $ 418,487
------- -------- ---------- ----------
Proved properties (being
amortized)
Evaluated proved properties - 250,057 - 250,057
Unevaluated proved properties 25,000 528,053 1,214,492 1,767,545
------- -------- ---------- ----------
Total proven properties 25,000 778,110 1,214,492 2,017,602
------- -------- ---------- ----------
Total Capitalized Costs 25,000 833,393 1,577,696 2,436,089
Accumulated Depletion (1,068) (354,701) (451,824) (807,593)
------- -------- ---------- ----------
Net Capitalized Costs $23,932 $478,692 $1,125,872 $1,628,496
======= ======== ========== ==========
December 31, 1997
United
Canada States Australia Total
------- -------- --------- ---------
Unproved properties (not
being amortized) $ - $ 51,424 $ 363,204 $ 414,628
------- -------- ---------- ----------
Proved properties (being
amortized)
Evaluated proved properties - 250,057 - 250,057
Unevaluated proved properties 25,000 528,053 1,214,492 1,767,545
------- -------- ---------- ----------
Total proven properties 25,000 778,110 1,214,492 2,017,602
------- -------- ---------- ----------
Total Capitalized Costs 25,000 829,534 1,577,696 2,432,230
Accumulated Depletion - (337,785) (408,891) (746,676)
------- -------- ---------- ----------
Net Capitalized Costs $25,000 $491,749 $1,168,805 $1,685,554
======= ======== ========== ==========
December 31, 1996
United
States Australia Total
-------- --------- ---------
Unproved properties (not
being amortized) $ 45,439 $ 363,204 $ 408,643
-------- ---------- ----------
Proved properties (being
amortized)
Evaluated proved properties 268,057 - 268,057
Unevaluated proved properties 528,053 1,169,935 1,697,988
-------- ---------- ----------
Total proven properties 796,110 1,169,935 1,966,045
-------- ---------- ----------
Total Capitalized Costs 841,549 1,533,139 2,374,688
Accumulated Depletion (312,677) (328,260) (640,937)
-------- ---------- ----------
Net Capitalized Costs $528,872 $1,204,879 $1,733,751
======== ========== ==========
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development
1998 1997 1996
------------------ ----------------- ------------------
United United United
States Australia States Australia States Australia
------ --------- ------ --------- -------- --------
Property
acquisition
costs
Proved $ - $ - $ - $ - $16,045 $ -
Unproved 3,859 - 5,985 44,557 3,536 -
Sales of
properties - - (18,000) - - -
Exploration
costs - - - - - -
Development
costs - - - - - -
------ -------- -------- ------- ------- --------
$3,859 $ - $(12,015) $44,557 $19,581 $ -
====== ======== ======== ======= ======= ========
In addition to the 1997 acquisition costs presented above, the Company spent
$25,000 purchasing royalty interests in two proved properties in Canada.
Property acquisition costs are negative in 1997 due to the sale of one lease.
The sales price is reported as a reduction in the cost pool in accordance with
full cost accounting rules described at Note 1 to the financial statements.
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summary financial information which has been
extracted from the consolidated financial statements of Golden Triangle
Industries, Inc. and subsidiarys for the periods ended December 31, 1998, 1997
and 1996. These summary schedules are qualified in their entirety by
reference to such financial statements and the notes thereto.
</LEGEND>
<CIK> 0000042284
<NAME> GOLDEN TRIANGLE INDUSTRIES INC
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 160204 95648 298521
<SECURITIES> 47694 83579 43756
<RECEIVABLES> 1368266 849185 613240
<ALLOWANCES> 0 0 0
<INVENTORY> 199296 199627 0
<CURRENT-ASSETS> 1788960 1253008 955517
<PP&E> 7104353 6645320 5547848
<DEPRECIATION> (2133068) (1664197) (1312245)
<TOTAL-ASSETS> 7309674 6796852 6113063
<CURRENT-LIABILITIES> 294974 170732 115052
<BONDS> 0 0 0
0 0 0
5631 5727 5727
<COMMON> 605 580 546
<OTHER-SE> 7303438 6790545 5991738
<TOTAL-LIABILITY-AND-EQUITY> 7309674 6796852 6113063
<SALES> 3104192 2452352 2792957
<TOTAL-REVENUES> 3132602 2481715 2489295
<CGS> 1607921 964104 1030053
<TOTAL-COSTS> 1607921 964104 1030053
<OTHER-EXPENSES> 1104075 849255 804989
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 13317 518 40755
<INCOME-PRETAX> 511482 738898 632519
<INCOME-TAX> 245000 300114 281324
<INCOME-CONTINUING> 266482 438784 351195
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 266482 438784 351195
<EPS-PRIMARY> .45 .46 .45
<EPS-DILUTED> .43 .46 .44
