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, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchang
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 incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [ X ]
Issuer's revenue for its most recent fiscal year: $1,369,000
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked price of such
common equity as of December 4, 1997: $748,000
Number of shares outstanding of issuer's Common Stock as of December 4, 1997:
15,645,403
Transitional Small Business Disclosure Format: Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Proxy statement to be filed in connection with the Registrant's 1998
Annual Meeting of Shareholders
Page 1 of 14
<PAGE>
"SAFE HARBOUR" 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 48% of the Company's oil and gas sales result from production from
one field for which there is only one available gas pipeline system (See Note 4
of Notes to Consolidated Financial Statements below.). If this pipeline system
were
taken out of service, production of both oil and gas from that field would be
halted.
Although many entities produce oil and gas, competitive factors play a material
role in the Company's production operations only to the extent that such factors
affect demand for and prices of oil and gas and demand for, supply of, and
prices of oilfield services. The 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 regularly 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 does not
believe that it currently has any material exposure to environmental liability
or to RR&D, net of salvage value, although this cannot be assured. (See
Management's Discussion and Analysis below.)
ITEM 2. DESCRIPTION OF PROPERTY.
WELLS AND ACREAGE: At December 4, 1997, 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
4, 1997, the Company owned working interests in 79 gross (16.3 net) productive
oil wells (certain of which produce associated natural gas), no wells producing
only natural gas, and 30,000 gross (6,500 net) developed acres. Substantially
all of the Company's production is located in Colorado, Utah, and Wyoming. One
well accounts for approximately 15% of the Company's oil and gas sales and for
approximately 37% of the Company's estimated proved oil reserves. The Company
has not reported to, or filed with, any other Federal authority or agency any
estimates of total, proved net oil or gas reserves since the beginning of the
last fiscal year. For additional information, see Note 7 of Notes to
Consolidated Financial Statements below.
Page 2 of 14
<PAGE>
PRODUCTION
<TABLE>
<S> <C> <C> <C> <C> <C>
Average Production
Net Production Average Price Cost Per Equivalent
Barrel ("BOE")
Fiscal Year Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
1997 31,000 160,000 $ 19.68 $ 1.98 $ 8.29
1996 37,000 148,000 18.67 1.60 6.62
1995 36,000 161,000 18.33 1.42 7.16
=============== =============== =============== ============= ============= ============================
</TABLE>
DRILLING ACTIVITY: The Company did not participate in the drilling of any wells
during fiscal 1997 ("FY97"), fiscal 1996 ("FY96"), or fiscal 1995 ("FY95").
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
"ALTX". Inter-dealer prices provided by the OTC Bulletin Board, which do not
include retail mark-up, mark-down, or commission, and may not represent actual
transactions, are listed in the table below.
<TABLE>
<S> <C> <C> <C> <C>
FY97 FY96
HIGH LOW HIGH LOW
QUARTER BID BID BID BID
------- --- --- --- ---
1 $0.08 $0.05 $0.05 $0.05
2 0.06 0.06 0.05 0.04
3 0.06 0.06 0.05 0.03
4 0.06 0.06 0.05 0.03
</TABLE>
At December 4, 1997, there were 5,627 holders of record of the Company's Common
Stock, excluding entities whose stock is held by clearing agencies. The Company
has not paid a dividend during the last two fiscal years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FINANCIAL CONDITION
Cash balances increased principally because of proceeds from the sale of assets.
Accounts receivable declined because sales in the fourth quarter of FY97 were
lower than sales in the fourth quarter of FY96. Other receivables declined
because refundable production taxes declined. During FY97 the Company sold two
proved oil and gas properties for cash proceeds of $359,000 and, consequently,
removed $230,000 and $175,000, respectively, from capitalized cost and
associated accumulated depreciation, depletion, and amortization ("DD&A").
During FY97 the Company was advised that a portion of its payments to an
electric utility constitute a capital credit receivable in the amount of
$34,000, which the Company has shown as other assets. Accounts payable declined
because invoices related to RR&D in the East Tisdale Field were outstanding at
September 30, 1996 (see below). During FY97 the Company acquired 255,500 shares
of its common stock for $18,000, subsequently retired such shares, and,
therefore, reduced common stock by $2,000 and additional paid-in capital by
$16,000. Also during FY97, the Company entered into a new employment agreement
with its president pursuant to which the Company sold its president 1,376,249
shares of common stock in exchange for a note receivable of $83,000 (See Note 3
of Notes to Consolidated Financial Statements below.) and, therefore, increased
common stock by $14,000 and additional paid-in capital by $69,000. In addition,
the Company agreed to pay a $44,000 bonus due its president pursuant to his
employment agreement in shares of common stock valued at their fair market
value, rather than in cash (See Note 3 of Notes to Consolidated Financial
Statements below.).
Page 3 of 14
<PAGE>
The Company is completing the restoration of the area that had contained its
East Tisdale Field in Johnson County, Wyoming. Areas within the field had
contained crude-oil contaminated soil that the Company removed and road-spread.
The Company recognized $10,000 and $93,000 in RR&D related to the field in 1997
and 1996, respectively. The Company is discussing with regulatory authorities
and with the landowner whether the Company will be required to perform further
restoration. At most, the Company will be required to seed disturbed areas and
to complete minor trash removal. Barring unforeseen events, the Company does not
believe that the expense associated with final restoration activities will be
material, although this cannot be assured. After its bonds with the state and
the Bureau of Land Management are released, the Company does not believe it will
have any further liability in connection with the field, although this cannot be
assured.
In Summer 1996 a representative of the US Fish and Wildlife Service advised the
Company 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. In 1997 the Company was
fined $5,000 for the bird deaths and advised that no
further legal action was anticipated.
The Company regularly assesses its exposure to both environmental liability and
RR&D. The Company does not believe that it currently has any material exposure
to environmental liability or to RR&D, net of salvage value, although this
cannot be assured.
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 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 and cash flows that may result from such acquisitions, 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 Com pany has no
internal or external sources of liquidity other than its working capital. At
December 4, 1997, the Company had no material commitments for capital
expenditures.
RESULTS OF OPERATIONS
Oil sales declined 12% from $691,000 in FY96 to $610,000 in FY97, and gas sales
increased 34% from $237,000 in FY96 to $317,000 in FY97. Oil sales declined
because a 16% decline in oil production was partially offset by a 5% increase in
realized oil prices. Gas sales increased because an 8% increase in production
was accompanied by a 24% increase in realized gas prices. Included in interest
income in FY97 and FY96, respectively, are $18,000 and $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 because of
higher invested cash balances. Other income, which consists of various
miscellaneous items, increased principally because in FY97 the Company received
refunds of $16,000 in over-withheld production taxes and because in FY97 the
Company recognized a capital credit receivable of $34,000.
Included in lease operating expense ("LOE") in FY97 is $65,000 in workover
expense related to one well. Excluding this amount, LOE was essentially
unchanged from FY96 to FY97. Included in general and administrative expense
("G&A") in FY97 and FY96, respectively, are (1) $18,000 and $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, and (2)
expense of $45,000 and $11,000 for bonuses due the Company's president pursuant
to pursuant to certain provisions of his employment agreement, which provisions
are described in Note 3 of Notes to Consolidated Financial Statements below.
Excluding interest reimbursement and bonus expense, G&A was $360,000 in FY97 and
$300,000 in FY96. The $60,000 increase in G&A resulted principally from the
following: increased salary expense of $22,000; tax indemnification expense
related to the president's 1995 and 1996 tax years of $12,000 (See Note 3 of
Notes to Consolidated Financial Statements below); compensation and acquisition
consultant expense of $6,000; additional director expense of $6,000; additional
training, bonus, and payroll tax expense of $6,000; and fines of $5,000 (see
above). In FY97 DD&A consisted of $33,000 in depletion expense, $8,000 in
impairment expense, and $15,000 in depreciation expense. In FY96 DD&A consisted
of $38,000 in depletion expense and $18,000 in depreciation expense. Both
depletion and depreciation declined principally because the Company's basis in
its depletable and depreciable assets declined.
LIQUIDITY
Operating Activities. During FY97, cash of $99,000 was provided by operations
compared to $184,000 in FY96. Cash provided by operations declined principally
due to the payment in FY97 of accrued RR&D and other liabilities.
Page 4 of 14
<PAGE>
Investing Activities. Cash provided by investing activities in FY97 was $340,000
compared to cash used in investing activities in FY96 of $7,000. In FY97 the
Company received $359,000 in proceeds from the sale of assets compared to $1,000
in proceeds from the sale of assets in FY96. Oil and gas property development
and other capital expenditures totaled $19,000 in
FY97 compared to $8,000 in FY96.
Financing Activities. Cash used in financing activities in FY97 and FY96 of
$18,000 and $26,000, respectively, related to the acquisition of treasury stock.
The Company's revenues and earnings are functions of the prices of oil, gas, and
natural gas liquids and of the level of produc tion expense, all of which are
highly variable and largely beyond the Company's control. In addition, because
the quantity of oil and gas produced from existing wells declines over time, the
Company's sales and net income will decline unless rising prices offset
production declines or the Company increases its net production by investing in
the drilling of new wells, in successful workovers, or in the acquisition of
interests in producing oil or gas properties. With the exception of
unanticipated variations in production levels, unanticipated RR&D, unanticipated
environmental expense, and the possible effect of the recently constructed
pipeline discussed below, the Company is not aware of any other trends, events,
or uncertainties that have had or that are reasonably expected to have a
material impact on the net sales or revenues or income from continuing
operations.
In 1997 a new pipeline began bringing Canadian crude oil into Casper, Wyoming.
Although the increased supply of crude oil in the northern Rocky Mountain region
did not have a material effect on the oil prices realized by the Company in
FY97, the Company anticipates that realized prices will be materially lower in
fiscal 1998 than they would have been had the pipeline not been constructed.
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements follow the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENT 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 FY97.
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 FY97.
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 FY97.
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 FY97.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) EXHIBITS
3(i) Articles of Incorporation - Incorporated herein by reference to Exhibit
B to August 20, 1985 Proxy Statement
3(ii) Bylaws - Incorporated herein by reference to Exhibit C to August 20, 1985
Proxy Statement
10 Steven H. Cardin Employment Agreement - Incorporated herein by reference
to Exhibit A to Form 10-K for fiscal year ended September 30, 1989 and by
reference to the Exhibit to Form 10-QSB for the quarterly period ended
March 31, 1997
21 List of subsidiaries
27 Financial Data Schedule - Submitted only in electronic format herewith,
pursuant to Item 601(c) of Regulation S-B
(b) REPORTS ON FORM 8-K. None.
Page 5 of 14
<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: /s/ STEVEN H. CARDIN December 23, 1997
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 23, 1997
Steven H. Cardin, Director, Date
Principal Executive Officer,
Principal Financial Officer, and
Principal Accounting Officer
By: /s/ JEFFREY S. CHERNOW December 23, 1997
Jeffrey S. Chernow, Director Date
Page 6 of 14
<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, 1997, 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, 1997. 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 posi tion of Altex Industries,
Inc. and subsidiaries as of September 30, 1997, and the results of their
operations and their cash flows for each of the years in the two-year period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
October 31, 1997
Page 7 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,675,000
Accounts receivable 116,000
Other receivables 18,000
Other 4,000
Total current assets 1,813,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) (Notes 6 and 7) 2,148,000
Other 71,000
2,219,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,004,000)
Net property and equipment 215,000
OTHER ASSETS 34,000
$ 2,062,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,000
Accrued production costs 34,000
Other accrued expenses 41,000
Total current liabilities 99,000
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, 14,961,738 shares issued and outstanding 150,000
Additional paid-in capital 14,222,000
Common stock to be issued, 733,665 shares 44,000
Accumulated deficit (12,147,000)
Note receivable from stockholder (306,000)
1,963,000
COMMITMENTS AND CONTINGENCIES (Notes 3, 5, and 6)
$ 2,062,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 8 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
REVENUE
Oil and gas sales $ 927,000 928,000
Interest (Note 3) 85,000 72,000
Gain (loss) on sale of assets 304,000 (1,000)
Other income (expense) 53,000 (2,000)
1,369,000 997,000
COSTS AND EXPENSES
Lease operating 375,000 313,000
Production taxes 103,000 95,000
General and administrative (Note 3) 423,000 328,000
Reclamation, restoration, and dismantlement (Note 6) 10,000 103,000
Depreciation, depletion, and amortization 57,000 56,000
968,000 895,000
NET EARNINGS $ 401,000 102,000
EARNINGS PER SHARE OF COMMON STOCK $0.03 $0.01
WEIGHTED AVERAGE SHARES OUTSTANDING 14,434,834 14,022,896
</TABLE>
See accompanying notes to consolidated financial statements.
Page 9 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK ADDITIONAL COMMON ACCUMULATED TREASURY NOTE TOTAL
PAID-IN STOCK DEFICIT STOCK RECEIVABLE STOCKHOLDERS'
CAPITAL TO BE FROM EQUITY
SHARES AMOUNT ISSUED SHAREHOLDER
-----------------------------------------------------------------------------------------
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) $(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
Net earnings -- -- -- -- 401,000 -- -- 401,000
Shares issued in exchange for note
receivable (Note 3) 1,376,249 $ 14,000 69,000 -- -- -- (83,000) --
Common stock to be issued, 733,665
shares (Note 3) -- -- -- 44,000 -- -- -- 44,000
Acquisition of Treasury stock, 255,500
shares at $0.07 per share -- -- -- -- -- (18,000) -- (18,000)
Retirement of Treasury stock (255,500) $ (2,000) (16,000) -- -- 18,000 -- --
BALANCES AT SEPTEMBER 30, 1997 14,961,738 $150,000 14,222,000 44,000 (12,147,000) -- (306,000) 1,963,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 10 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 401,000 102,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
(Gain) loss on sale of assets (304,000) 1,000
Depreciation, depletion, and amortization 57,000 56,000
Compensation payable in common stock 44,000 -
Decrease (increase) in accounts receivable 25,000 (3,000)
Decrease in other receivables 5,000 6,000
Decrease (increase) in other current assets (2,000) 13,000
Increase in other assets (34,000) -
Decrease in accounts payable (14,000) (2,000)
Decrease in accrued production costs (8,000) (13,000)
Increase (decrease) in accrued restoration, reclamation, and dismantlement (70,000) 25,000
Decrease in other accrued expenses (1,000) (1,000)
Net cash provided by operating activities 99,000 184,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 359,000 1,000
Oil and gas property development expenditures (5,000) (5,000)
Other capital expenditures (14,000) (3,000)
Net cash provided by (used in) investing activities 340,000 (7,000)
CASH FLOWS USED IN FINANCING ACTIVITIES
Acquisition of treasury stock (18,000) (26,000)
-----------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 421,000 151,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,254,000 1,103,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,675,000 1,254,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 11 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
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.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT: The Company follows the successful efforts method of
accounting for oil and gas operations, under which exploration costs, including
geological and geophysical costs, annual delay rentals, and exploratory dry hole
costs, are charged to expense as incurred. Costs to acquire unproved properties,
to drill and equip exploratory wells that find proved reserves, and to drill and
equip development wells are capitalized. Capitalized costs relating to proved
oil and gas properties are depleted on the units-of-production method based on
estimated quantities of proved reserves. 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: The Company assesses long-lived assets for
impairment when circumstances indicate that the carrying value of such assets
may not be recoverable. This review compares the asset's carrying value with
management's best estimate of the asset's expected future undiscounted cash
flows without interest costs. If the expected future cash flows exceed the
carrying value, no impairment is recognized. If the carrying value exceeds the
expected future cash flows, an impairment equal to the excess of the carrying
value over the estimated fair value of the asset is recognized. No such
impairment may be restored in the future. The Company's proved oil and gas
properties are assessed for impairment on an individual field basis.
CASH EQUIVALENTS: For purposes of the statement of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
INCOME TAXES: The Company follows the asset and liability method of accounting
for deferred income taxes. The asset and liability method requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between financial accounting and tax bases
of assets and liabilities.
EARNINGS PER SHARE: Earnings per share of common stock is based upon the
weighted average number of shares of common stock outstanding during the year.
NOTE 2 - INCOME TAXES. At September 30, 1997, the Company had net operating
loss, depletion, and investment tax credit carryforwards for income tax purposes
of $7,593,000, $758,000, and $56,000, respectively. If not utilized, the net
operating losses will expire during the period from 1998 through 2009, and the
investment tax credit carryforwards will expire during the period from 1998 to
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, 1997, computed in
accordance with SFAS No. 109, is as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS
Net operating loss carryforward $ 2,658,000
Depletion carryforward 265,000
Investment tax credit carryforward 56,000
Tax basis of assets written off for financial statement purposes 688,000
TOTAL GROSS DEFERRED TAX ASSETS 3,667,000
Less valuation allowance (3,648,000)
NET DEFERRED TAX ASSETS 19,000
DEFERRED TAX LIABILITIES
Depletion, depreciation, amortization, and valuation allowance for income
tax purposes in excess of amounts for financial statement purposes (19,000)
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:
Page 12 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
---- ----
TAX EXPENSE AT 34% OF NET EARNINGS $ 136,000 35,000
CHANGE IN VALUATION ALLOWANCE FOR NET DEFERRED TAX ASSETS (497,000) (472,000)
EXPIRATION OF TAX CARRYFORWARDS 394,000 440,000
OTHER (33,000) (3,000)
---------------- ---------------
INCOME TAX EXPENSE $ -- --
================ ===============
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS. Pursuant to an employment agreement with
the Company, the Company's president has purchased from the Company 2,383,615
shares of the Company's common stock at a price of $.09375 per share and
1,376,249 shares at a price of $0.06 per share in non-cash transactions with the
proceeds of a $306,000 loan from the Company. The loan, which is secured by the
shares, is due at the end of the term of the employment agreement, and the
president can pay the principal amount of the loan with shares of the Company's
common stock. The agreement provides that the Company will reimburse the
president for interest expense related to the loan, 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 $18,000 and $17,000 of both interest
income and general and administrative expense related to the loan in 1997 and
1996, respectively. In 1997 the Company also recognized $12,000 in
indemnification expense. The employment agreement also provides that the
Company's president will receive an annual bonus equal to no less than 10% of
the Company's earnings before income tax. The Company has agreed to pay the
$44,000 bonus for 1997 in shares of common stock to be issued at fair market
value and has, accordingly, provided for the issuance of 733,665 shares of
common stock at $0.06 per share.
NOTE 4 - MAJOR CUSTOMERS. In 1997 and 1996 the Company had four customers who
individually accounted for 10% or more of the Company's revenue and who, in
aggregate, accounted for 90% and 87% of revenue in 1997 and 1996, respectively.
In 1997 the four customers individually accounted for 53%, 13%, 13%, and 12% of
revenue; and in 1996 the four customers individually accounted for 47%, 16%,
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, 1997, required future
payments under the lease are $20,000 for the year ending September 30, 1998, and
$11,000 for the year ending September 30, 1999. The Company incurred rent
expense of $19,000 and $18,000 in 1997 and 1996, respectively.
NOTE 6 - RECLAMATION, RESTORATION, AND DISMANTLEMENT. The Company is completing
the restoration of the area that had contained its East Tisdale Field in Johnson
County, Wyoming. Areas within the field had contained crude-oil contaminated
soil that the Company removed and road-spread. The Company recognized $10,000
and $93,000 in RR&D related to the field in 1997 and 1996, respectively. The
Company is discussing with regulatory authorities and with the landowner whether
the Company will be required to perform further restoration. At most, the
Company will be required to seed disturbed areas and to complete minor trash
removal. Barring unforeseen events, the Company does not believe that the
expense associated with final restoration activities will be material, although
this cannot be assured. After its bonds with the state and the Bureau of Land
Management are released, the Company does not believe it will have any further
liability in connection with the field, although this cannot be assured.
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 antici pated 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.
Page 13 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
I. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<S> <C>
SEPTEMBER 30,
1997
Proved Properties $ 2,148,000
Accumulated depreciation, depletion, amortization, and valuation allowance (1,948,000)
Net capitalized cost $ 200,000
</TABLE>
II. ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
<TABLE>
<S> <C> <C>
OIL GAS
(BBLS) (MCF)
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
Sales of minerals in place (54,000) (26,000)
Revisions of previous estimates 4,000 377,000
Production (31,000) (160,000)
BALANCE AT SEPTEMBER 30, 1997 219,000 1,323,000
</TABLE>
III. PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
<TABLE>
<S> <C> <C>
AT SEPTEMBER 30
1997 1996
---- ----
Estimated future revenue $ 6,413,000 8,602,000
Estimated future expenditures (4,229,000) (5,143,000)
Estimated future net revenue 2,184,000 3,459,000
10% annual discount of estimated future net revenue (842,000) (1,300,000)
Present value of estimated future net revenue $ 1,342,000 2,159,000
</TABLE>
IV. SUMMARY OF CHANGES IN PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
<TABLE>
<S> <C> <C>
YEAR ENDED SEPTEMBER 30
1997 1996
---- ----
Present value of estimated future net revenue, beginning of year $ 2,159,000 1,032,000
Sales, net of production costs (449,000) (520,000)
Net change in prices and costs of future production (599,000) 707,000
Revisions of quantity estimates 201,000 855,000
Sales of minerals in place (158,000) --
Accretion of discount 216,000 103,000
Change in production rates and other (28,000) (18,000)
Present value of estimated future net revenue, end of year $ 1,342,000 2,159,000
</TABLE>
Page 14 of 14
<PAGE>
Exhibit Index
21 List of Subsidiaries
27 Financial Data Schedule - Submitted only in electronic format herewith,
pursuant to Item 601(c) of Regulation S-B
<PAGE>
Exhibit 21 - List of subsidiaries
Altex Oil Corporation, a Utah corporation d.b.a. Altex Oil Corporation
<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 09/30/97, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,675,000
<SECURITIES> 0
<RECEIVABLES> 134,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,813,000
<PP&E> 2,219,000
<DEPRECIATION> 2,004,000
<TOTAL-ASSETS> 2,062,000
<CURRENT-LIABILITIES> 99,000
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 1,813,000
<TOTAL-LIABILITY-AND-EQUITY> 2,062,000
<SALES> 927,000
<TOTAL-REVENUES> 1,369,000
<CGS> 0
<TOTAL-COSTS> 968,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 401,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 401,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 401,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
