U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
FORM 10-KSB
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended September 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from to .
Commission file number 1-9030
ALTEX INDUSTRIES, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 84-0989164
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
PO Box 1057 Breckenridge, CO 80424-1057
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (970) 453-6641
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $0.01 per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and if no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorpo rated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [ X ]
Issuer's revenue for its most recent fiscal year: $997,000
Aggregate market value of the voting stock held by non-affiliates computed by
reference to the average bid and asked prices of such stock on the NASDAQ
Bulletin Board as of December 16, 1996: $769,000
Number of shares outstanding of issuer's Common Stock as of December 16, 1996:
13,802,489
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Proxy statement to be filed in connection with the Registrant's 1997
Annual Meeting of Shareholders
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"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Statements that are not historical facts contained in this Form 10-KSB are
forward looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Factors that could cause actual
results to differ materially include, among others: general economic conditions,
the market price of oil and natural gas, the risks associated with exploration
and production in the Rocky Mountain region, the Company's ability to find,
acquire, market, develop, and produce new properties, operating hazards
attendant to the oil and natural gas business, uncertainties in the estimation
of proved reserves and in the projection of future rates of production and
timing of development expenditures, the strength and financial resources of the
Company's competitors, the Company's ability to find and retain skilled
personnel, climatic conditions, availability and cost of material and equipment,
delays in anticipated start-up dates, environmental risks, the results of
financing efforts and other uncertainties detailed elsewhere herein.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Altex Industries, Inc. (or the "Registrant" or the "Company," each of which
terms, when used herein, refer to Altex Industries, Inc. and/or its
subsidiaries) is a holding company with three full-time employees that was
incorporated in Delaware in 1985. Through its operating subsidiaries, the
Company currently owns interests, including working interests, in productive
onshore oil and gas properties, buys and sells producing oil and gas properties,
and, to a lesser extent, participates in the drilling of exploratory and
development wells, and in recompletions of existing wells.
The Company operates only one producing well and one field currently being
abandoned. All other interests are in properties operated by others. A working
interest owner in a property not operated by that interest owner must
substantially rely on information regarding the property provided by the
operator, even though there can be no assurance that such information is
complete, accurate, or current. In addition, an owner of a working interest in a
property is potentially responsible for 100% of all liabilities associated with
that property, regardless of the size of the working interest actually owned.
Through the operators of the properties in which it has an interest, the Company
sells produced oil and gas to refiners, pipeline operators, and processing
plants. If a refinery, pipeline, or processing plant that purchases the
Company's production were taken out of service, the Company could be forced to
halt production that is purchased by such refinery, pipeline, or plant.
Approximately 40% of the Company's oil and gas sales result from production in
one field for which there is only one available gas pipeline system (See Note 4
of Notes to Consolidated Financial Statements below.). If this pipeline system
were taken out of service, field production of both oil and gas would be halted.
Although many entities produce oil and gas, competitive factors play a material
role in the Company's production operations only to the extent that such factors
affect demand for and prices of oil and gas and demand for, supply of, and
prices of oilfield services. The production of oil and gas is regulated by
federal, state, and local agencies, and the Company is also subject to federal,
state, and local laws and regulations relating to the environment. These laws
and regulations generally provide for control of pollutants released into the
environment and require responsible parties to undertake remediation.
The Company periodically assesses its exposure to environmental liability and to
reclamation, restoration, and dismantlement expense ("RR&D"), which activities
are governed by Federal, state, and local regulation. The Company owns property
which contains oil-contaminated soil. Based on the Company's assessment of the
contamination and approved reclamation procedures, the Company estimates RR&D
for the property will be $153,000 and has recognized all such expense as of
September 30, 1996. (See Management's Discussion and Analysis below.)
ITEM 2. DESCRIPTION OF PROPERTY.
WELLS AND ACREAGE: At December 16, 1996, the Company owned no undeveloped
acreage, and, to the best knowledge of the Company, none of the wells in which
the Company owns an interest is a multiple completion. However, certain wells in
which the Company owns an interest do produce from multiple zones. At December
16, 1996, the Company owned working interests in 87 gross (20.2 net) productive
oil wells, 0 gross (.0 net) productive gas wells, and 27,000 gross (5,500 net)
developed acres. Substantially all of the Company's production is located in
Colorado, Utah, and Wyoming. Approximately 15% of the Company's oil and gas
sales are derived from one well, and approximately 10% of the Company's oil and
gas
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sales are derived from another well. The Company has not reported to, or filed
with, any other federal authority or agency any estimates of total proved net
oil or gas reserves since the beginning of the last fiscal year. For additional
information, see Note 7 of Notes to Consolidated Financial Statements below.
<TABLE>
<S> <C> <C> <C> <C> <C>
PRODUCTION
Net Production Average Price Average Production
Fiscal Oil Gas Oil Gas Cost Per Equivalent
Year (Bbls) (Mcf) (Bbls) (Mcf) Barrel ("BOE")
1996 37,000 148,000 $18.67 $1.60 $6.62
1995 36,000 161,000 18.33 1.42 7.16
1994 34,000 160,000 17.39 1.54 8.26
=============== =============== =============== ============= ============= ========================
</TABLE>
DRILLING ACTIVITY: The Company did not participate in the drilling of any
wells during fiscal 1996 ("FY96"), fiscal 1995 ("FY95"), or fiscal 1994
("FY94").
ITEM 3. LEGAL PROCEEDINGS.
In Summer 1996 a representative of the US Fish and Wildlife Service advised the
Company by telephone that a number of dead birds had been found in oil saturated
pits in the East Tisdale Field and that, therefore, the Company was under
investigation for possible violations of the Migratory Bird Treaty Act, which
imposes criminal penalties on a strict liability basis of up to $10,000 per bird
on any person, including a corporation, who, by any means or manner, kills any
migratory bird. To date the Company has not received any formal notice of such
investigation, and the Company cannot reasonably estimate what penalty, if any,
may be assessed against it for any violation of the Act. No other individual,
group, or regulatory authority has indicated any intention to bring a claim or
complaint in connection with the East Tisdale Field.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the NASDAQ Bulletin Board under the
symbol "ALTX". Inter-dealer prices for the Company's Common Stock, which do not
include retail mark-up, mark-down, or commission, and may not represent actual
transactions, are listed in the table below. Information for FY95 was provided
by the Company's market makers. Information for FY96 was provided by the NASDAQ
Bulletin Board. The Company did not sell any unregistered securities during
FY96.
<TABLE>
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FY96 FY95
HIGH LOW HIGH LOW
QUARTER BID BID BID BID
------- --- --- --- ---
1 $0.05 $0.05 $0.07 $0.05
2 0.05 0.04 0.05 0.05
3 0.05 0.03 0.05 0.05
4 0.05 0.03 0.05 0.05
</TABLE>
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At December 16, 1996, there were 5,694 holders of record of the Company's Common
Stock, excluding entities whose stock is held by clearing agencies. The Company
has not paid a dividend during the last two fiscal years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cash balances increased during FY96 because of increased cash flow from
operations. Other receivables decreased because the Company received
approximately $6,000 of unused advances related to an unsuccessful recompletion
it had participated in during FY94. Other assets decreased because the Company
wrote off $13,000 in expenditures associated with the evaluation of interests in
producing properties that might have been the subject of a transaction. The
Company also wrote off its $17,000 investment in, and $15,000 in accumulated
depreciation, depletion, and amortization ("DD&A") associated with, one well
that was plugged and abandoned. Accrued production costs declined because lease
operating expense declined. The Company acquired 492,000 shares of its common
stock for $26,000. Also during FY96, the Company retired 6,551,636 Treasury
shares and, in connection therewith, reduced common stock by $66,000 and
additional paid in capital by $602,000.
In 1983 the Company purchased a 100% working interest in federal and fee leases
that comprise the East Tisdale Field in Johnson County, Wyoming. The field was
developed in the early 1960s, and, over time, a considerable quantity of crude
oil had contaminated the soil in both the tank battery areas and the produced
water discharge systems. The field was characterized by low quality crude oil
and high lease operating expense.
In 1994 the Company shut the field in because it was only marginally profitable
and continued operation would have required considerable repair and maintenance
expense. At that time, the Company aggressively solicited purchase offers for
the field and began negotiations regarding reclamation methodologies and
requirements with the Bureau of Land Management ("BLM") and the Wyoming Oil and
Gas Conservation Commission ("WOGCC"), which have responsibility, respectively,
for the federal and fee leases, and later with the Wyoming Department of
Environmental Quality ("DEQ").
In 1995 and 1996, after no satisfactory purchase offers were forthcoming, the
Company plugged and abandoned all of the wells in the field. In Summer 1996, as
a result of negotiations with the BLM, the WOGCC, the DEQ, and two private
landowners, the Company agreed to excavate all oil-contaminated soil and to
road-apply the contaminated soil, subject to DEQ regulations, to sections of a
local road. As of December 16, 1996, to the best knowledge of the Company, all
oil-contaminated soil has been excavated and road-applied, and the Company
had commenced back-filling and recontouring excavated areas.
When disturbed areas are revegetated to the satisfaction of the BLM and the
WOGCC, and when the public utility has removed power poles and lines, the
Company's reclamation bonds pertaining to the field will be released by the BLM
and the WOGCC. After bond release, the Company does not believe it will have any
further liability in connection with the field, although this cannot be assured.
In 1994 the Company estimated that RR&D associated with the East Tisdale Field
could range from $60,000 to $160,000, net of salvage value, depending on the
extent of contamination and the reclamation methodology utilized, and,
accordingly, recognized $60,000 in RR&D related to the field. The Company
expended $15,000 in 1995 and $68,000 in 1996, and has accrued an additional
$70,000 in RR&D at September 30, 1996, for a total cost of $153,000, net of
salvage value. Barring unforeseen events, the Company does not believe that the
final cost of reclamation and restoration activities in the East Tisdale Field
will materially exceed this amount, although this cannot be assured.
In Summer 1996 a representative of the US Fish and Wildlife Service advised the
Company by telephone that a number of dead birds had been found in oil saturated
pits in the East Tisdale Field and that, therefore, the Company was under
investigation for possible violations of the Migratory Bird Treaty Act, which
imposes criminal penalties on a strict liability basis of up to $10,000 per bird
on any person, including a corporation, who, by any means or manner, kills any
migratory bird. To date the Company has not received any formal notice of such
investigation, and the Company cannot reasonably estimate what penalty, if any,
may be assessed against it for any violation of the Act. No other individual,
group, or regulatory authority has indicated any intention to bring a claim or
complaint in connection with the East Tisdale Field.
The Company regularly assesses its exposure to both environmental liability and
RR&D expense. With the exception of potential liability under the Migratory Bird
Treaty Act discussed above, the Company does not believe that it currently has
any material exposure to environmental liability, although this cannot be
assured. Nor does it believe that RR&D, net of
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salvage value, associated with the abandonment of any property other than the
East Tisdale Field will be material, although this cannot be assured.
Unless the Company's production of oil and gas increases as the result of
acquisitions of producing oil and gas properties, successful drilling
activities, or successful recompletions, the Company is likely to experience
negative cash flow from operations at some point in the future. Although the
Company continually evaluates possible acquisitions of producing oil and gas
properties, the market for such properties has become highly competitive, with
properties trading at prices well above those implied by the Company's
acquisition criteria.
With the exception of the Company's intention to acquire producing oil and gas
properties, cash flows that may result from such acquisitions, and penalties
that may be assessed under the Migratory Bird Treaty Act, the Company knows of
no trends, events, or uncertainties that have or are reasonably likely to have a
material impact on the Company's short-term or long-term liquidity. Except for
cash generated by the operation of the Company's producing oil and gas
properties, asset sales, or interest income, the Company has no internal or
external sources of liquidity other than its working capital. At December 16,
1996, the Company had no material commitments for capital expenditures.
Sales increased approximately 4% during FY96 because oil sales increased 5% and
gas sales increased 4%. Oil sales increased because of a 3% increase in oil
production and a 2% increase in effective average realized oil prices. Gas sales
increased because an 8% decrease in production was offset by a 13% increase in
average realized gas prices.
Included in interest income in both FY95 and FY96 is $17,000 relating to a note
receivable from the Company's President, pursuant to certain provisions of his
employment agreement, which provisions are described in Note 3 of Notes to
Consolidated Financial Statements below. Interest income increased during FY96
because of higher invested cash balances.
Included in lease operating expense ("LOE") in FY95 and FY96 are $17,000 and
$4,000, respectively, of expense associated with the East Tisdale Field.
Excluding this amount, LOE decreased from $333,000 in FY95 to $309,000 in FY96
principally because of decreased repairs and maintenance.
Included in general and administrative expenses ("G&A") in each of FY95 and FY96
is $17,000 relating to reimbursement of interest expense incurred by the
Company's President, pursuant to certain provisions of his employment agreement,
which provisions are described in Note 3 of Notes to Consolidated Financial
Statements below. Also included in G&A for FY95 and FY96 is accrued expense of
$9,000 and $11,000, respectively, for bonuses that were and will be paid to the
Company's President pursuant to his employment agreement. The Company rented and
occupied new office space during FY94 and terminated its lease on its old office
space during FY95. Included in G&A in FY95 is $15,000 of non-recurring rent,
moving, and lease termination expense. Excluding interest reimbursement, accrued
bonus, and expense related to the terminated office lease, G&A was $298,000 in
FY95 and $300,000 in FY96.
In FY95 the Company invested $10,000 in the unsuccessful recompletion of a well
in Wyoming. In FY96 the Company recognized $93,000 in RR&D associated with the
East Tisdale Field, and $8,000 in RR&D in connection with the plugging and
abandonment of a well in another field.
In FY95 DD&A consisted of $56,000 in depletion expense and $22,000 in
depreciation expense. In FY96 DD&A consisted of $38,000 in depletion expense and
$18,000 in depreciation expense. Depletion expense declined from FY95 to FY96
both because the projected rate of decline in the Company's reserves of oil and
gas decreased and because the Company's basis in its depletable assets declined
from FY95 to FY96. Depreciation expense decreased from FY95 to FY96 principally
because the Company's basis in its depreciable assets decreased.
Production of oil and gas from the Company's interests in wells in Wyoming
account for approximately 75% of the Company's oil and gas sales. Certain
parties have proposed to build a pipeline that will bring substantial quantities
of Canadian crude oil into Wyoming. The Company believes that the pipeline, if
constructed, will materially increase the supply of crude oil in Wyoming, which
may have a material adverse effect on Wyoming crude oil prices.
The Company's sales and net income are functions of the prices of oil, gas, and
natural gas liquids and of the level of production expense, all of which are
highly variable and largely beyond the Company's control. In addition, because
the quantity of oil and gas produced from existing wells declines over time,
the Company's sales and net income will decrease unless rising prices offset
production declines or the Company increases its net production by investing in
the drilling of new wells,
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in successful workovers, or in the acquisition of interests in producing oil or
gas properties. With the exception of unanticipated variations in production
levels, unanticipated RR&D expense, unanticipated environmental expense, and the
proposed pipeline discussed above, the Company is not aware of any other trends,
events, or uncertainties that have had or that are reasonably expected to have a
material impact on sales or revenue or income from continuing operations.
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements follow the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Incorporated by reference from the registrant's definitive proxy statement to be
filed with the Commission not later than 120 days after the end of FY96.
ITEM 10. EXECUTIVE COMPENSATION.
Incorporated by reference from the registrant's definitive proxy statement to be
filed with the Commission not later than 120 days after the end of FY96.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the registrant's definitive proxy statement to be
filed with the Commission not later than 120 days after the end of FY96.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from the registrant's definitive proxy statement to be
filed with the Commission not later than 120 days after the end of FY96.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
EXHIBITS:
2 Plan of Reorganization and Agreement of Merger - Incorporated herein by
reference to Exhibit A to August 20, 1985 Proxy Statement
3(i) Articles of Incorporation - Incorporated herein by reference to
Exhibit B to August 20, 1985 Proxy Statement
3(ii) Bylaws - Incorporated herein by reference to Exhibit C to August 20,
1985 Proxy Statement
10 Steven H. Cardin Employment Agreement - Incorporated herein by reference
to Exhibit A to Form 10-K for fiscal year ended September 30, 1989
21 List of subsidiaries - Incorporated herein by reference to Exhibit A to
Form 10-KSB for fiscal year ended September 30, 1995
27 Financial Data Schedule - Submitted only in electronic format herewith,
pursuant to Item 601(c) of Regulation S-B
REPORTS ON FORM 8-K:
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALTEX INDUSTRIES, INC.
By: /s/ STEVEN H. CARDIN December 17, 1996
Steven H. Cardin, CEO Date
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ STEVEN H. CARDIN December 17, 1996
Steven H. Cardin, Director, Date
Principal Executive Officer,
Principal Financial Officer, and
Principal Accounting Officer
By: /s/ JEFFREY S. CHERNOW December 17, 1996
Jeffrey S. Chernow, Director Date
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INDEPENDENT AUDITORS' REPORT
THE STOCKHOLDERS AND BOARD OF DIRECTORS
ALTEX INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheet of Altex Industries,
Inc. and subsidiaries as of September 30, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended September 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Altex Industries,
Inc. and subsidiaries as of September 30, 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
October 25, 1996
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<TABLE>
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,254,000
Accounts receivable 141,000
Other receivables 23,000
Other 2,000
Total current assets 1,420,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) (Notes 6 and 7) 2,373,000
Other 69,000
2,442,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,134,000)
Net property and equipment 308,000
$ 1,728,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 38,000
Accrued production costs 42,000
Accrued reclamation, restoration, and dismantlement (Note 6) 70,000
Other accrued expenses 42,000
Total current liabilities 192,000
STOCKHOLDERS' EQUITY (Note 3)
Preferred stock, $.01 par value. Authorized 5,000,000 shares, none issued --
Common stock, $.01 par value. Authorized 50,000,000 shares, 13,840,989 shares issued 138,000
Additional paid-in capital 14,169,000
Accumulated deficit (12,548,000)
Note receivable from stockholder (223,000)
1,536,000
COMMITMENTS AND CONTINGENCIES (Notes 3, 5, and 6)
$ 1,728,000
</TABLE>
See accompanying notes to consolidated financial statements.
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
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1996 1995
REVENUE
Oil and gas sales $ 928,000 889,000
Interest (Note 3) 72,000 69,000
Other (3,000) 5,000
997,000 963,000
COSTS AND EXPENSES
Lease operating 313,000 350,000
Production taxes 95,000 100,000
General and administrative (Note 3) 328,000 339,000
Exploration -- 10,000
Reclamation, restoration, and dismantlement (Note 6) 103,000 --
Depreciation, depletion, and amortization 56,000 78,000
895,000 877,000
NET EARNINGS $ 102,000 86,000
EARNINGS PER SHARE OF COMMON STOCK $0.01 $0.01
WEIGHTED AVERAGE SHARES OUTSTANDING 14,022,896 14,578,687
</TABLE>
See accompanying notes to consolidated financial statements.
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
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COMMON STOCK ADDITIONAL ACCUMULATED TREASURY NOTE TOTAL
SHARES AMOUNT PAID-IN DEFICIT STOCK RECEIVABLE STOCKHOLDERS'
CAPITAL FROM EQUITY
SHAREHOLDER
BALANCES AT SEPTEMBER 30, 1994 20,392,625 $204,000 14,771,000 (12,736,000) (602,000) (223,000) 1,414,000
Net earnings -- -- -- 86,000 -- -- 86,000
Acquisition of Treasury stock,
642,000 shares at $0.06 per share -- -- -- -- (40,000) -- (40,000)
BALANCES AT SEPTEMBER 30, 1995 20,392,625 $204,000 14,771,000 (12,650,000) (642,000) (223,000) 1,460,000
Net earnings -- -- -- 102,000 -- -- 102,000
Acquisition of Treasury stock,
492,000 shares at $0.05 per share -- -- -- -- (26,000) -- (26,000)
Retirement of Treasury stock,
6,551,636 shares (6,551,636) ($66,000) (602,000) -- 668,000 -- --
BALANCES AT SEPTEMBER 30, 1996 13,840,989 $138,000 14,169,000 (12,548,000) -- (223,000) 1,536,000
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 102,000 86,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Loss on sale of assets 1,000 1,000
Depreciation, depletion, and amortization 56,000 78,000
Increase in accounts receivable (3,000) (1,000)
Decrease in other receivables 6,000 22,000
(Increase) decrease in other current assets 13,000 (13,000)
Decrease in accounts payable (2,000) (10,000)
Decrease in accrued production costs (13,000) (22,000)
Increase (decrease) in accrued restoration, reclamation, and dismantlement 25,000 (15,000)
Increase (decrease) in other accrued expenses (1,000) 7,000
Net cash provided by operating activities 184,000 133,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 1,000 4,000
Oil and gas property development expenditures (5,000) --
Non-oil and gas property and equipment expenditures (3,000) (6,000)
Net cash used in investing activities (7,000) (2,000)
CASH FLOWS USED IN FINANCING ACTIVITIES
Acquisition of treasury stock (26,000) (40,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 151,000 91,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,103,000 1,012,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,254,000 1,103,000
</TABLE>
See accompanying notes to consolidated financial statements.
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Altex Industries, Inc. and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
PROPERTY AND EQUIPMENT: The Company follows the successful efforts method of
accounting for oil and gas operations, under which exploration costs, including
geological and geophysical costs, annual delay rentals, and exploratory dry hole
costs, are charged to expense as incurred. Costs to acquire unproved properties,
to drill and equip exploratory wells that find proved reserves, and to drill and
equip development wells are capitalized. Capitalized costs relating to proved
oil and gas properties are depleted on the units-of-production method based on
estimated quantities of proved reserves. Upon the sale or retirement of property
and equipment, the cost thereof and the accumulated depreciation, depletion, or
valuation allowance are removed from the accounts, and the resulting gain or
loss is credited or charged to operations.
IMPAIRMENT OF LONG-LIVED ASSETS: Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121) requires long-lived assets to be reviewed
for impairment when circumstances indicate that the carrying value of such
assets may not be recoverable. This review compares the asset's carrying value
with management's best estimate of the asset's expected future undiscounted cash
flows without interest costs. If the expected future cash flows exceed the
carrying value, no impairment is recognized. If the carrying value exceeds the
expected future cash flows, an impairment equal to the excess of the carrying
value over the estimated fair value of the asset is recognized. No such
impairment may be restored in the future. The Company's proved oil and gas
properties are assessed for impairment on an individual field basis. The Company
adopted SFAS 121 effective September 30, 1995, and was not required to record an
impairment of its assets.
CASH EQUIVALENTS: For purposes of the statement of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
INCOME TAXES: The Company follows the asset and liability method of accounting
for deferred income taxes, as set forth in Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The asset and
liability method requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between
financial accounting and tax bases of assets and liabilities.
EARNINGS PER SHARE: Earnings per share of common stock is based upon the
weighted average number of shares of common stock outstanding during the year.
NOTE 2 - INCOME TAXES. At September 30, 1996, the Company had net operating
loss, depletion, and investment tax credit carryforwards for income tax purposes
of $8,937,000, $645,000, and $118,000, respectively. If not utilized, the net
operating losses will expire during the period from 1997 through 2009, and the
investment tax credit carryforwards will expire during the period 1997-2001. The
approximate tax effect of each type of temporary difference and carryforward
that gives rise to a significant portion of deferred tax liabilities and
deferred tax assets at September 30, 1996, computed in accordance with SFAS No.
109, is as follows:
Page 13 of 16
<PAGE>
<TABLE>
<S> <C>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
DEFERRED TAX ASSETS
Net operating loss carryforward $ 3,128,000
Depletion carryforward 226,000
Investment tax credit carryforward 118,000
Accrued reclamation, restoration, and dismantlement 25,000
Tax basis of assets written off for financial statement purposes 688,000
TOTAL GROSS DEFERRED TAX ASSETS 4,185,000
Less valuation allowance (4,146,000)
NET DEFERRED TAX ASSETS 39,000
DEFERRED TAX LIABILITIES
Depletion, depreciation, amortization, and valuation allowance for income
tax purposes in excess of amounts for financial statement purposes (39,000)
NET DEFERRED TAX LIABILITY $ --
</TABLE>
Income tax expense is different from amounts computed by applying the statutory
Federal income tax rate for the following reasons:
<TABLE>
<S> <C> <C>
1996 1995
---- ----
TAX EXPENSE AT 34% OF NET EARNINGS $ 35,000 29,000
CHANGE IN VALUATION ALLOWANCE FOR NET DEFERRED TAX ASSETS (472,000) (296,000)
EXPIRATION OF TAX CARRYFORWARDS 440,000 276,000
OTHER (3,000) (9,000)
---------------- ---------------
INCOME TAX EXPENSE $ -- --
================ ===============
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS. Pursuant to an employment agreement with
the Company, the Company's president has purchased 2,383,615 shares of the
Company's common stock from the Company at a purchase price of $.09375 per share
in non-cash transactions with the proceeds from personal loans from the Company
in the amount of approximately $223,000. The loans, which are secured by the
shares, are due at the end of the term of the employment agreement, and the
president can pay the principal amount of the loans with shares of the
Company's common stock. The agreement provides that the Company will reimburse
the president for interest expense related to the personal loans, will
indemnify him against additional tax due as a result of such reimbursement and
indemnification, and also provides for termination and permanent disability
benefits under certain circumstances. The Company recognized $17,000 of both
interest income and general and administrative expense related to the personal
loans in each of 1996 and 1995.
NOTE 4 - MAJOR CUSTOMERS. In 1996 and 1995 the Company had four customers who
individually accounted for 10% or more of the Company's revenue and who, in
aggregate, accounted for 87% of revenue in both 1996 and 1995. In 1996 the four
customers individually accounted for 47%, 16%, 12%, and 12% of revenue, and in
1995 the four customers individually accounted for 53%, 13%, 11%, and 10% of
revenue.
NOTE 5 - LEASES. The Company rents office space under a noncancellable operating
lease that expires in April 1999. At September 30, 1996, required future
payments under the lease are $18,000 for each of the years ending
Page 14 of 16
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
September 30, 1997 and 1998, and $9,000 for the year ending September 30, 1999.
The Company incurred rent expense of $18,000 and $29,000 in 1996 and 1995,
respectively.
NOTE 6 - RECLAMATION, RESTORATION, AND DISMANTLEMENT. In 1983 the Company
purchased a 100% working interest in federal and fee leases that comprise the
East Tisdale Field in Johnson County, Wyoming. The field was developed in the
early 1960s, and, over time, a considerable quantity of crude oil had
contaminated the soil in both the tank battery areas and the produced water
discharge systems. The field was characterized by low quality crude oil and high
lease operating expense. In 1994 the Company shut the field in because it was
only marginally profitable and continued operation would have required
considerable repair and maintenance expense. At that time, the Company
aggressively solicited purchase offers for the field and began negotiations
regarding reclamation methodologies and requirements with the Bureau of Land
Management ("BLM") and the Wyoming Oil and Gas Conservation Commission
("WOGCC"), which have responsibility, respectively, for the federal and fee
leases, and later with the Wyoming Department of Environmental Quality ("DEQ").
In 1995 and 1996, after no satisfactory purchase offers were forthcoming, the
Company plugged and abandoned all of the wells in the field. In Summer 1996, as
a result of negotiations with the BLM, the WOGCC, the DEQ, and two private
landowners, the Company agreed to excavate all oil-contaminated soil and to
road-apply the contaminated soil, subject to DEQ regulations, to sections of a
local road. As of December 16, 1996, to the best knowledge of the Company, all
oil-contaminated soil has been excavated and road-applied, and the Company had
commenced back-filling and recontouring excavated areas. When disturbed areas
are revegetated to the satisfaction of the BLM and the WOGCC, and when the
public utility has removed power poles and lines, the Company's reclamation
bonds pertaining to the field will be released by the BLM and the WOGCC. After
bond release, the Company does not believe it will have any further liability in
connection with the field.
In 1994 the Company estimated that RR&D associated with the East Tisdale Field
could range from $60,000 to $160,000, net of salvage value, depending on the
extent of contamination and the reclamation methodology utilized, and,
accordingly, recognized $60,000 in RR&D related to the field. The Company
expended $15,000 in 1995 and $68,000 in 1996, and has accrued an additional
$70,000 in RR&D at September 30, 1996, for a total cost of $153,000, net of
salvage value. Barring unforeseen events, the Company does not believe that the
final cost of reclamation and restoration activities in the East Tisdale Field
will materially exceed this amount.
In Summer 1996 a representative of the US Fish and Wildlife Service advised the
Company by telephone that a number of dead birds had been found in oil saturated
pits in the East Tisdale Field and that, therefore, the Company was under
investigation for possible violations of the Migratory Bird Treaty Act, which
imposes criminal penalties on a strict liability basis of up to $10,000 per bird
on any person, including a corporation, who, by any means or manner, kills any
migratory bird. To date the Company has not received any formal notice of such
investigation, and the Company cannot reasonably estimate what penalty, if any,
may be assessed against it for any violation of the Act. No other individual,
group, or regulatory authority has indicated any intention to bring a claim or
complaint in connection with the East Tisdale Field.
NOTE 7 - SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED). The Company's operations are confined to the continental United
States, and all of the Company's reserves are proved developed. Prices and costs
in the tables below have been estimated using prices and costs in effect at the
end of the years indicated. Prices are estimated net of estimated quality and
transportation adjustments. Income tax expense is not reflected in the tables
below because of the anticipated utilization of net operating loss carryforwards
and tax
Page 15 of 16
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
credits. The estimation of reserves is complex and subjective, and reserve
estimates tend to fluctuate in light of new production data.
<TABLE>
<S> <C>
I. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
SEPTEMBER 30,
1996
Proved properties $ 2,373,000
Accumulated depreciation, depletion, amortization, and valuation allowance (2,081,000)
Net capitalized cost $ 292,000
</TABLE>
<TABLE>
<S> <C> <C>
II. ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
OIL GAS
(BBLS) (MCF)
BALANCE AT SEPTEMBER 30, 1994 212,000 1,025,000
Revisions of previous estimates 41,000 111,000
Production (36,000) (161,000)
BALANCE AT SEPTEMBER 30, 1995 217,000 975,000
Revisions of previous estimates 120,000 305,000
Production (37,000) (148,000)
BALANCE AT SEPTEMBER 30, 1996 300,000 1,132,000
</TABLE>
<TABLE>
<S> <C> <C>
III. PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
AT SEPTEMBER 30
1996 1995
---- ----
Estimated future revenue $ 8,602,000 4,610,000
Estimated future expenditures (5,143,000) (3,096,000)
Estimated future net revenue 3,459,000 1,514,000
10% annual discount of estimated future net revenue (1,300,000) (482,000)
Present value of estimated future net revenue $ 2,159,000 1,032,000
</TABLE>
<TABLE>
<S> <C> <C>
IV. SUMMARY OF CHANGES IN PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
YEAR ENDED SEPTEMBER 30
1996 1995
---- ----
Present value of estimated future net revenue, beginning of year $ 1,032,000 978,000
Sales, net of production costs (519,000) (439,000)
Net change in prices and costs of future production 707,000 184,000
Revisions of quantity estimates 855,000 191,000
Accretion of discount 103,000 98,000
Change in production rates and other (19,000) 20,000
Present value of estimated future net revenue, end of year $ 2,159,000 1,032,000
</TABLE>
Page 16 of 16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS OF ALTEX INDUSTRIES, INC. FOR THE YEAR ENDED 09/30/96, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,254,000
<SECURITIES> 0
<RECEIVABLES> 164,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,420,000
<PP&E> 2,442,000
<DEPRECIATION> 2,134,000
<TOTAL-ASSETS> 1,728,000
<CURRENT-LIABILITIES> 192,000
<BONDS> 0
0
0
<COMMON> 138,000
<OTHER-SE> 1,398,000
<TOTAL-LIABILITY-AND-EQUITY> 1,728,000
<SALES> 928,000
<TOTAL-REVENUES> 997,000
<CGS> 0
<TOTAL-COSTS> 895,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 102,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 102,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
