U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended September 30, 1995
[ ] 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:
Name of Each Exchange
Title of Each Class On Which Registered
Common Stock, par value $.01 per share OTC Bulletin Board
Securities registered under Section 12(g) of the Exchange Act: None
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: $963,000
Aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of October 20, 1995: $708,875
Number of shares outstanding of issuer's Common Stock as of October 20, 1995:
14,285,989
Transitional Small Business Disclosure Format: Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1 of 17
<PAGE>
PART I
Item 1. Description of Business.
Altex Industries, Inc. (or "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 April 1985. Through its operating subsidiaries, the Company produces oil and
gas, buys and sells producing oil and gas properties, and, to a lesser extent,
participates in the drilling of exploratory and developmental oil and gas wells.
The Company owns interests in productive onshore oil and gas properties and
sells oil and gas produced from those proper ties to refiners, pipeline
operators, and processing plants. The Company does not believe the loss of any
customer would have a material adverse effect, but, if a refinery, pipeline, or
processing plant that purchases the Company's production were taken out of
service, the Company could be forced to temporarily halt production that is
purchased by such refinery, pipeline, or plant.
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 market for producing oil and gas properties is
unstructured and highly competitive, with numerous entities participating in
auctions, sealed bid solicitations, and negotiated transactions.
The production of oil and gas is regulated by Federal and state agencies. The
Company periodically assesses its exposure to future reclamation, restoration,
and dismantlement expense, which activities are governed by Federal and state
environmental regulations. The Company owns property which contains
oil-contaminated soil. Based on the Company's preliminary assessment of the
contamination and feasible reclamation alternatives, the Company estimates
reclamation and restoration costs could range from $60,000 to $160,000.
Therefore, in 1994 the Company recognized $60,000 of reclamation, restoration,
and dismantlement expense. (See Management's Discussion and Analysis below.)
Item 2. Description of Property.
Wells and Acreage: At October 20, 1995, 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 October
20, 1995, the Company owned working interests in 98 gross (20.9 net) oil wells,
0 gross (.0 net) gas wells, and 32,000 gross (5,600 net) developed acres.
Production
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Production Average Price Average Production
Cost Per Equivalent
Barrel ("BOE")
Fiscal Oil Gas Oil Gas
Year (Bbls) (Mcf) (Bbls) (Mcf)
1995 36,000 161,000 $18.33 $1.42 $7.16
1994 34,000 160,000 17.39 1.54 8.26
1993 41,000 172,000 20.39 1.62 7.48
=============== =============== =============== ============= ============= ============================
</TABLE>
Drilling Activity: The Company did not participate in the drilling of any
wells during fiscal 1995 ("FY95"), fiscal 1994 ("FY94"), or fiscal 1993
("FY93").
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is listed on the OTC Bulletin Board under the symbol
"ALTX". Inter-dealer prices for the Company's Common Stock, as reported by the
Company's market makers, which do not include retail mark-up, mark-down or
commission, and may not represent actual transactions, are listed in the table
below.
FY95 FY94
Quarter High Low High Low
1 $0.07 $0.05 $0.09 $0.08
2 0.05 0.05 0.08 0.08
3 0.05 0.05 0.08 0.07
4 0.05 0.05 0.07 0.07
At October 20, 1995, there were 5,769 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 FY95 because of increased cash flow from
operations. Other receivables decreased because the Company received a refund of
$26,000 in prepaid expenses relating to an unsuccessful recompletion it had
participated in during FY94. Included in other assets at September 30, 1995, are
$13,000 in expenditures associated with the evaluation of interests in producing
properties that may be the subject of a transaction. During FY95 the Company
also acquired 624,000 shares of its common stock for $40,000.
In 1983 the Company purchased a 100% working interest in certain federal and fee
leases that comprise a field in Wyoming. Prior to the Company's purchase, the
field had been in operation, and management believes a considerable quantity of
oil contaminated the soil. Since the acquisition, occasional minor leaks and
spills have contributed to the contamination. The Company has discussed the
contamination 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. The Wyoming Department of Environmental Quality
("DEQ") has visited the field but has not contacted the Company regarding the
purpose of its visit. To date, no individual, group, or regulatory authority has
indicated any intention to bring a claim or complaint.
In 1991 the BLM asked the Company to determine whether the contamination could
affect groundwater. Based on drill tests, the Company determined that there was
no material lateral migration of spilled oil. Because of the nature of the oil
produced and the nature of the soil, management believes there has also been no
material vertical migration of spilled oil.
The Company has not performed detailed studies to determine the extent of
contamination but estimates soil surrounding the tank batteries and production
pits is contaminated to a depth of approximately four feet. During FY95 the
Company tested the soil for the presence of heavy metals and certain volatile
chemicals frequently associated with petroleum hydrocarbon contamination and
determined that such materials, if present, exist in quantities below the
detection limits inherent in normal testing procedures. These tests did not
constitute a material expense. The Company will incur the cost of detailed
studies if and when regulatory authorities require it to do so.
The Company estimates that the cost of plugging the wells and reclaiming and
restoring the field to pre-development condi tions will be approximately
$60,000, net of salvage value and, therefore, recognized $60,000 in reclamation,
restoration, and dismantlement expense related to the field in 1994. If the
Company is required either to remove the contaminated soil from the site or to
incinerate it, the Company estimates additional remediation costs could be
$100,000. At this time, the Company is uncertain as to what, if any, studies
will be required to determine the extent of contamination, and, if studies are
required, what the cost of such studies will be. Also at this time, the Company
cannot reasonably predict what reclamation activities may be required to restore
the field. However, based on the Company's preliminary assessment of the
contamination and feasible reclamation alternatives, management estimates such
reclamation and restoration costs could range from $60,000 to $160,000. As of
September 30, 1995, the Company had expended $15,000 on the plugging of three of
the ten wells in the field.
<PAGE>
The Company has submitted plans of abandonment to both the BLM and the WOGCC,
and the Company intends to continue dismantlement, reclamation, and restoration
procedures in the summer of 1996. The Company has proposed that the contaminated
soil be excavated and encapsulated in sealed pits at the site. The Company
estimates that the cost of reclaiming the field will be $60,000 if regulatory
authorities do not require other methods of remediation of the oil-saturated
soil.
The Company cannot estimate the probability that other remediation
procedures will be required, but regulatory authorities have indicated in
informal conversations that the Company's proposed method of remediation may be
adequate. If other remediation activities are required, the most likely means of
remediation will be either spreading the oil-contaminated soil on local dirt
roads or on-site incineration of the oil-contaminated soil. Based on preliminary
assessments, the Company does not believe that the cost of remediation utilizing
either of these methods will exceed $100,000.
Net cash provided by operating activities increased from FY94 to FY95
principally because net earnings increased. At current oil and gas prices,
unless the Company's production of oil and gas increases as the result of
acquisitions of producing oil and gas properties, successful drilling
activities, or successful recompletions, the Company is likely to experience
negative cash flow from operations in fiscal 1996. 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. Therefore, the Company has not consummated a significant acquisition
of interests in producing oil and gas properties since fiscal 1990. With the
exception of the Company's intention to acquire producing oil and gas
properties, cash flows that may result from such acquisitions, and possible
additional reclamation, restoration, and dismantlement expense, 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 October 20,
1995, the Company had no material commitments for capital expenditures.
Sales increased approximately 5% during FY95 because a 10% increase in oil sales
more than offset a 7% decrease in gas sales. Oil sales increased because of a 6%
increase in production and a 5% increase in effective average realized oil
prices. Gas sales decreased because a 1% increase in production was offset by an
8% decrease in average realized gas prices. Included in interest income in both
FY94 and FY95 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 FY95 both because of higher cash
balances and because of higher effective interest rates.
Included in lease operating expense ("LOE") in FY94 and FY95 are $57,000 and
$17,000, respectively, of expenses associated with a field that is now shut in
and that will be abandoned during fiscal 1996. Also included in LOE for FY94 is
$31,000 related to the repair of one well. Excluding these amounts, LOE
increased from $315,000 in FY94 to $333,000 in FY95 principally because of
increased repairs and maintenance.
Included in general and administrative expenses ("G&A") in each of FY94 and FY95
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 is accrued expense of $9,000 for
a bonus that 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
FY94 and FY95 are $10,000 and $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 $299,000 in FY94 and
$298,000 in FY95.
In FY94 the Company invested $50,000 in the unsuccessful recompletion of a well
in Texas, and in FY95 the Company invested $10,000 in the unsuccessful
recompletion of a well in Wyoming. In FY94 depreciation, depletion,
amortization, and valuation allowance ("DDA&V") consisted of $95,000 of
depletion expense, $15,000 of depreciation expense, and $12,000 of valuation
allowance. In FY95 DDA&V consisted of $56,000 in depletion expense and $22,000
in depreciation expense. Depletion expense declined from FY94 to FY95 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
FY94 to FY95. Depreciation expense increased from FY94 to FY95 because the
Company's basis in its depreciable assets increased principally during the
fourth quarter of FY94 as a result of investments in new computer equipment and
in leasehold improvements for its new offices.
<PAGE>
The Company's sales and net income are functions of the prices of oil, gas, and
natural gas liquids and of the level of pro duction expense, all of which are
highly variable and largely beyond the Company's control. In addition, because
the quan tity 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, in successful workovers, or in the acquisition of
interests in producing oil or gas properties. With the exception of
unanticipated variations in production levels and possible additional
reclamation, restoration, and dismantlement expense, 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.
Mr. Steven H. Cardin, 45, has been the Chairman of the Board of Directors and
the President and Chief Executive Officer of the Company for over five years,
and a Director since 1984. Mr. Jeffrey S. Chernow, 44, has been a Director since
1989; from January 1990 to April 1993 he was a partner in the law firm of
Kandel, Frank & Chernow; and he is currently a partner in the law firm of
Kandel, Klitenic & Chernow. Mr. Stephen F. Fante, 40, has been a Director since
1989. Mr. Fante was Chairman of the Board of IMS, which provided computerized
accounting systems to the oil and gas industry and was a reseller of
microcomputer products to the Fortune 1000, from 1979 until March 1992. He is
currently Chairman of the Board and President of Seca Graphics, Inc., which
provides design and mapping services and software to the cable
television/telecummunications industry. Messrs. Fante's, Chernow's, and Cardin's
terms as Directors expire at the Annual Meeting of Shareholders for 1995, 1996,
and 1994, respectively.
Item 10. Executive Compensation.
Each Director who is not also an officer of the Company receives $250 per month
for service as a Director. No additional fees are paid for service on Committees
of the Board or for attendance at Board or Committee Meetings. The Company has a
stock option plan, but no options are outstanding under the plan or otherwise.
Mr. Cardin has a five-year Employment Agreement with the Company that is
effective April 1, 1991, and that provides that Mr. Cardin is to receive a base
salary of $102,500 per annum, escalating at no less than 5% per annum, and an
annual bonus of no less than 10% of the Company's earnings before tax. In
connection with the Employment Agreement, Mr. Cardin has pur chased 2,383,615
shares of the Company's Common Stock from the Company at $.09375 per share in
non-cash transactions with the proceeds of non-recourse personal loans from the
Company. The loans are secured by the shares, bear interest at the Applicable
Federal Rate, and are due at the end of the term of his Employment Agreement.
Mr. Cardin can pay the principal amount of the loans with shares of the
Company's Common Stock. The Employment Agreement also provides that the Company
will reimburse Mr. Cardin for interest expense related to the loans and will
indemnify him against additional tax due as a result of such reimbursement and
indemnification. Should Mr. Cardin default on the loans, the shares will revert
to the Company.
The agreement also provides that, in the event the Company terminates Mr.
Cardin's employment by reason of his permanent disability, the Company shall (1)
pay Mr. Cardin a total sum, payable in 24 equal monthly installments, equal to
50% of the base salary to which he would have been entitled had he performed his
duties for the Company for a period of two years after his termination, less the
amount of any disability insurance benefits he receives under policies
maintained by the Company for his benefit, and (2) continue to provide Mr.
Cardin with all fringe benefits provided to him at the time of his permanent
disability for a period of two years following such permanent disability.
<PAGE>
The agreement also provides that, in the event the Company terminates Mr.
Cardin's employment in breach of the agreement, or in the event that Mr. Cardin
terminates his employment because his circumstances of employment shall have
changed subsequent to a change in control, then the Company shall pay Mr. Cardin
a lump sum payment equal to the sum of (1) twice Mr. Cardin's base salary during
the 12-month period immediately preceding the termination of his employment, (2)
the greater of (a) twice any annual bonus paid to or accrued with respect to Mr.
Cardin by the Company during the fiscal year immedi ately preceding the fiscal
year in which his employment shall have been terminated and (b) three times his
base salary during the 12-month period immediately preceding the termination of
his employment, and (3) any other compensation owed to Mr. Cardin at the time of
his termination. The agreement also provides that the Company will indemnify Mr.
Cardin against any special tax that may be imposed on him as a result of any
such termination payment made by the Company pursuant to the agreement.
Under the employment agreement, a change in control is deemed to occur (1) if
there is a change of one-third of the Board of Directors under certain
conditions, (2) if there is a sale of all or substantially all of the Company's
assets, (3) upon certain mergers or consolidations, (4) under certain
circumstances if another person (or persons) acquires 20% or more of the
outstanding voting shares of the Company, or (5) if any person except the
employee shall own or control half of such outstanding voting shares.
The following table sets forth the dollar value of compensation earned by the
Company's CEO, its only executive officer, during the last three fiscal years.
Summary Compensation Table
Annual Compensation
<TABLE>
<S> <C> <C> <C> <C> <C>
Name and Principal Year Salary Bonus Other Annual All Other
Position ($) ($) Compensation1 Compensation1
($) ($)
========================= ======== ==================== ==================== ==================== ====================
Steven H. Cardin 1995 127,000 9,000 -- 17,000
CEO
1994 120,000 -- -- 17,000
1993 115,000 23,000 9,000 17,000
========================= ======== ==================== ==================== ==================== ====================
</TABLE>
- ------------------------------------
1 Pursuant to his Employment Agreement (see above), Mr. Cardin paid $17,000 in
interest to the Company in 1993, 1994, and 1995. Also pursuant to his Employment
Agreement, the Company reimbursed him for those interest payments. "All Other
Compensation" consists of such reimbursement. As a result of the reimbursement,
Mr. Cardin incurred additional income taxes. Pursuant to his Employment
Agreement, the Company has indemnified Mr. Cardin against such additional taxes.
"Other Annual Compensation" consists of such indemnification.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following tables set forth information concerning each person who, as of
January 15, 1996, is known to the Company to be the beneficial owner of more
than five percent of the Company's Common Stock, and information regarding
Common Stock of the Company beneficially owned, as of January 15, 1996, by all
Directors and executive officers and by all Directors
and executive officers as a group.
<PAGE>
<TABLE>
<S> <C> <C>
Certain Beneficial Owners
Name and Address of Owner Beneficially Owned Percent of Class
========================================= ========================== ==========================
Steven H. Cardin1
PO Box 1057
Breckenridge CO 80424-1057 4,159,198 29.7%
David L. Goldman
100 Federal Street
Boston MA 02110 1,212,500 8.6%
========================================= ========================== ==========================
Management
Name of Owner Beneficially Owned Percent of Class
========================================= ========================== ==========================
Steven H. Cardin1 4,159,198 29.7%
All Directors and Executive
Officers as a Group (3 Persons) 4,159,198 29.7%
========================================= ========================== ==========================
</TABLE>
- ------------------------------------
1 Includes 1,002,083 shares held by the Cardin Family Limited Partnership,
of which a corporation controlled by Mr. Cardin is the managing general partner,
and 3,157,115 shares held individually by Mr. Cardin.
Item 12. Certain Relationships and Related Transactions.
None.
Item 13. Exhibits, List and Reports on Form 8-K.
Exhibits:
2 Plan of Reorganization and Agreement of Merger - Exhibit A to August 20, 1985
Proxy Statement, p. A-1 3(I) Articles of Incorporation - Exhibit B to August 20,
1985 Proxy Statement, p. B-1 3(ii) Bylaws - Exhibit C to August 20, 1985 Proxy
Statement, p. C-1 10 Steven H. Cardin Employment Agreement - Exhibit A to Form
10-K for fiscal year ended September 30, 1989, p.30
21 List of subsidiaries - Exhibit A to Form 10-KSB for fiscal year
ended September 30, 1995, p. 15
Reports on Form 8-K:
None.
<PAGE>
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: January 23, 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 November 14, 1995
Steven H. Cardin, Director, Date
Principal Executive Officer,
Principal Financial Officer, and
Principal Accounting Officer
By: /s/ STEPHEN F. FANTE November 14, 1995
Stephen F. Fante, Director Date
<PAGE>
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, 1995, 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, 1995. 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
misstate ment. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial state ments. 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, 1995, and the results of
their operations and their cash flows for each of the years in the two-year
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 6 to the consolidated financial statements, the Company
owns property which contains oil-contaminated soil. At this time, the Company
cannot reasonably predict what reclamation activities may be required to restore
the pro perty, or their costs. However, based on the Company's preliminary
assessment of the contamination and feasible reclama tion alternatives,
management estimates such reclamation and restoration costs could range from
$60,000 to $160,000, of which the Company has accrued $60,000. The ultimate
outcome of this matter is uncertain and cannot presently be determined.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," in the year ended September 30, 1995.
KPMG Peat Marwick LLP
Denver, Colorado
November 2, 1995
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1995
Assets
<TABLE>
<S> <C>
Current Assets
Cash and cash equivalents $ 1,103,000
Accounts receivable 138,000
Other receivables 29,000
Other 15,000
Total current assets 1,285,000
Property and equipment, at cost
Proved oil and gas properties (successful efforts method) (Notes 6 and 7) 2,385,000
Other 66,000
2,451,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,093,000)
Net property and equipment 358,000
$ 1,643,000
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 40,000
Accrued production costs 55,000
Accrued reclamation, restoration, and dismantlement (Note 6) 45,000
Other accrued expenses 43,000
Total current liabilities 183,000
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, 20,392,625 issued 204,000
Additional paid-in capital 14,771,000
Accumulated deficit (12,650,000)
Treasury stock, at cost, 6,059,636 shares (642,000)
Note receivable from stockholder (223,000)
1,460,000
Commitments and Contingencies (Notes 3, 5, and 6)
$ 1,643,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30, 1995 and 1994
<TABLE>
<S> <C> <C>
1995 1994
Revenue
Oil and gas sales $ 889,000 844,000
Interest (Note 3) 69,000 49,000
Other 5,000 6,000
963,000 899,000
Costs and expenses
Lease operating 350,000 403,000
Production taxes 100,000 98,000
General and administrative (Note 3) 339,000 326,000
Exploration 10,000 50,000
Reclamation, restoration, and dismantlement (Note 6) -- 60,000
Depreciation, depletion, amortization, and valuation allowance 78,000 122,000
877,000 1,059,000
Net earnings (loss) $ 86,000 (160,000)
Earnings (loss) per share of common stock
$0.01 $ (0.01)
Weighted average shares outstanding 14,578,687 15,188,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1995 and 1994
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Additional Accumulated Treasury Note Total
Shares Amount paid-in deficit stock receivable stockholders'
capital from equity
shareholder
Balances at September 30, 1993 20,392,625 $204,000 14,771,000 (12,576,000) (568,000) (223,000) 1,608,000
Net loss -- -- -- (160,000) -- -- (160,000)
Acquisition of Treasury stock,
420,000 shares at $0.08 per share -- -- -- -- (34,000) -- (34,000)
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,
624,000 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
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 1995 and 1994
<TABLE>
<S> <C> <C>
1995 1994
Cash flows from operating activities
Net earnings (loss) $ 86,000 (160,000)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Loss on sale of assets 1,000 1,000
Depreciation, depletion, amortization, and valuation allowance 78,000 122,000
(Increase) decrease in accounts receivable (1,000) 1,000
(Increase) decrease in other receivables 22,000 (25,000)
Increase in other current assets (13,000) (1,000)
Decrease in accounts payable (10,000) (8,000)
Increase (decrease) in accrued production costs (22,000) 25,000
Increase (decrease) in accrued restoration, reclamation, and dismantlement (15,000) 60,000
Increase (decrease) in other accrued expenses 7,000 (8,000)
Net cash provided by operating activities 133,000 7,000
Cash flows from investing activities
Proceeds from sale of assets 4,000 31,000
Oil and gas property development expenditures -- (17,000)
Non-oil and gas property and equipment expenditures (6,000) (44,000)
Net cash used in investing activities (2,000) (30,000)
Cash flows used in financing activities
Acquisition of treasury stock (40,000) (34,000)
Net increase (decrease) in cash and cash equivalents 91,000 (57,000)
Cash and cash equivalents at beginning of year 1,012,000 1,069,000
Cash and cash equivalents at end of year $ 1,103,000 1,012,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
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, un der 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), issued in March 1995, 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
elected to adopt SFAS 121 in the fourth quarter of fiscal 1995, and no
impairment provision was required.
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."
Earnings (Loss) Per Share: Earnings (loss) 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, 1995, the Company had net operating
loss, depletion, and investment tax credit carryforwards for income tax purposes
of $10,270,000, $520,000, and $180,000, respectively. If not utilized, the net
op erating losses will expire during the period from 1996 through 2009, and the
investment tax credit carryforwards will expire during the period 1996-2001. 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, 1995, computed in accordance with SFAS No.
109, is as follows:
<TABLE>
<S> <C>
Deferred Tax Assets
Net operating loss carryforward $ 3,595,000
Depletion carryforward 184,000
Investment tax credit carryforward 180,000
Accrued reclamation, restoration, and dismantlement 16,000
Tax basis of assets written off for financial statement purposes 688,000
Total Gross Deferred Tax Assets 4,663,000
Less valuation allowance (4,618,000)
Net Deferred Tax Assets 45,000
Deferred Tax Liabilities
Depletion, depreciation, amortization, and valuation allowance for income
tax purposes in excess of amounts for financial statement purposes (45,000)
Net Deferred Tax Liability $ --
</TABLE>
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
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 April 1, 1996, 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 in
demnify him against additional tax due as a result of such reimbursement and
indemnification, and also provides for ter mination 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 1995 and 1994.
Note 4 - Major Customers. In 1995 and 1994 the Company had four customers who
individually accounted for 10% or more of the Company's revenue and who, in
aggregate, accounted for 87% and 85% of revenue in 1995 and 1994, respec tively.
In 1995 the four customers individually accounted for 53%, 13%, 11%, and 10% of
revenue, and in 1994 the four customers individually accounted for 47%, 14%,
12%, and 12% of revenue.
Note 5 - Leases. The Company rents office space under a noncancellable operating
lease that expires in April 1999. At September 30, 1995, required future
payments under the lease are $18,000 for each of the years ending September 30,
1996, 1997, and 1998, and $9,000 for the year ending September 30, 1999. The
Company incurred rent expense of $29,000 and $24,000 in 1995 and 1994,
respectively.
Note 6 - Reclamation, Restoration, and Dismantlement. In 1983 the Company
purchased a 100% working interest in certain federal and fee leases that
comprise a field in Wyoming. Prior to the Company's purchase, the field had been
in operation, and management believes a considerable quantity of oil
contaminated the soil. Since the acquisition, occasional minor leaks and spills
have contributed to the contamination. The Company has discussed the
contamination 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. The Wyoming Department of Environmental Quality
("DEQ") has visited the field but has not contacted the Company regarding the
purpose of its visit. To date, no individual, group, or regulatory authority has
indicated any intention to bring a claim or complaint.
In 1991 the BLM asked the Company to determine whether the contamination could
affect groundwater. Based on drill tests, the Company determined that there was
no material lateral migration of spilled oil. Because of the nature of the oil
produced and the nature of the soil, management believes there has also been no
material vertical migration of spilled oil.
The Company has not performed detailed studies to determine the extent of
contamination but estimates soil surrounding the tank batteries and production
pits is contaminated to a depth of approximately four feet. During FY95 the
Company tested the soil for the presence of heavy metals and certain volatile
chemicals frequently associated with petroleum hydrocarbon contamination and
determined that such materials, if present, exist in quantities below the
detection limits inherent in normal testing procedures. These tests did not
constitute a material expense. The Company will incur the cost of detailed
studies if and when regulatory authorities require it to do so.
The Company estimates that the cost of plugging the wells and reclaiming and
restoring the field to pre-development condi tions will be approximately
$60,000, net of salvage value and, therefore, recognized $60,000 in reclamation,
restoration, and dismantlement expense related to the field in 1994. If the
Company is required either to remove the contaminated soil from the site or to
incinerate it, the Company estimates additional remediation costs could be
$100,000. At this time, the Company is uncertain as to what, if any, studies
will be required to determine the extent of contamination, and, if studies are
required, what the cost of such studies will be. Also at this time, the Company
cannot reasonably predict what reclamation activities may be required to restore
the field. However, based on the Company's preliminary assessment of the
contamination and feasible reclamation alternatives, management estimates such
reclamation and restoration costs could range from $60,000 to $160,000. As of
September 30, 1995, the Company had expended $15,000 on the plugging of three of
the ten wells in the field.
<PAGE>
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 used to
derive the estimates in the tables below are the estimated effective prices at
September 30, 1995 and 1994, net of estimated quality and transportation
adjustments. Costs used to derive the estimates in the tables below are average
historical costs. Income tax expense is not reflected in the tables below
because of the anticipated utilization of net operating loss carryforwards and
tax credits. The estimation of reserves is complex and subjective, and reserve
estimates tend to fluctuate in light of new production data.
<TABLE>
<S> <C>
I. Capitalized Costs Relating to Oil and Gas Producing Activities
September 30,
1995
Proved properties $ 2,385,000
Accumulated depreciation, depletion, amortization, and valuation allowance (2,058,000)
Net capitalized cost $ 327,000
</TABLE>
<TABLE>
<S> <C> <C>
II. Estimated Quantities of Proved Oil and Gas Reserves
OIL GAS
(Bbls) (Mcf)
Balance at September 30, 1993 294,000 860,000
Revisions of previous estimates (48,000) 325,000
Production (34,000) (160,000)
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
</TABLE>
<TABLE>
<S> <C> <C>
III. Present Value of Estimated Future Net Revenue
At September 30
1995 1994
Estimated future revenue $ 4,610,000 4,872,000
Estimated future expenditures (3,096,000) (3,460,000)
Estimated future net revenue 1,514,000 1,412,000
10% annual discount of estimated future net revenue (482,000) (434,000)
Present value of estimated future net revenue $ 1,032,000 978,000
</TABLE>
<TABLE>
<S> <C> <C>
IV. Summary of Changes in Present Value of Estimated Future Net Revenue
Year ended September 30
1995 1994
Present value of estimated future net revenue, beginning of year $ 978,000 1,606,000
Sales, net of production costs (439,000) (343,000)
Net change in prices and costs of future production 184,000 (435,000)
Revisions of quantity estimates 191,000 (58,000)
Accretion of discount 98,000 161,000
Change in production rates and other 20,000 47,000
Present value of estimated future net revenue, end of year $ 1,032,000 978,000
</TABLE>
EXHIBIT A
List of Subsidiaries
Altex Oil Corporation, a Utah corporation
Altex Minerals, Inc., a Colorado corporation
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1103000
<SECURITIES> 0
<RECEIVABLES> 167000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1285000
<PP&E> 2451000
<DEPRECIATION> 2093000
<TOTAL-ASSETS> 1643000
<CURRENT-LIABILITIES> 183000
<BONDS> 0
<COMMON> 204000
0
0
<OTHER-SE> 1256000
<TOTAL-LIABILITY-AND-EQUITY> 1643000
<SALES> 889000
<TOTAL-REVENUES> 963000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 877000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 86000
<INCOME-TAX> 0
<INCOME-CONTINUING> 86000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
