- --------------------------------------------------------------------------------
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, 1998
[ ] 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 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: $808,000
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 8, 1998: $593,000
Number of shares outstanding of issuer's Common Stock as of December 8, 1998:
15,735,491
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 1999
Annual Meeting of Shareholders
Page 1 of 14
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES
PROVATE 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 condi tions; availability and cost of material and
equipment; delays in anticipated start-up dates; environmental risks; the
results of financing efforts; and other uncertainties detailed elsewhere herein.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Altex Industries, Inc. (or the "Registrant" or the "Company," each of which
terms, when used herein, refer to Altex Industries, Inc. and/or its subsidiary)
is a holding company with two full-time employees and one part-time employee
that was incorpo rated in Delaware in 1985. Through its operating subsidiary,
the Company currently owns interests, including working inter ests, 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 62% of the Company's oil and gas sales result from production from
one field for which there is only one available gas pipeline system (See Note 4
of Notes to Consolidated Financial Statements below.). If this pipeline system
were taken out of service, production of both oil and gas from that field would
be halted.
Although many entities produce oil and gas, competitive factors play a material
role in the Company's production operations only to the extent that such factors
affect demand for and prices of oil and gas and demand for, supply of, and
prices of oilfield services. The sale of oil and gas is regulated by Federal,
state, and local agencies, and the Company is also subject to Federal, state,
and local laws and regulations relating to the environment. These laws and
regulations generally provide for control of pollutants released into the
environment and require responsible parties to undertake remediation. The
Company regularly assesses its exposure to environmental liability and to
reclamation, restoration, and dismantlement expense ("RR&D"), which activities
are covered by Federal, state, and local regulation. The Company does not
believe that it currently has any material exposure to environmental liability
or to RR&D, net of salvage value, although this cannot be assured. (See
Management's Discussion and Analysis below.)
ITEM 2. DESCRIPTION OF PROPERTY.
Wells and Acreage: At December 8, 1998, 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
8, 1998, the Company owned working interests in 78 gross (15.8 net) productive
oil wells (certain of which produce associated natural gas), no wells producing
only natural gas, and 30,000 gross (6,400 net) developed acres. Substantially
all of the Company's production is located in Colorado, Utah, and Wyoming. One
well accounts for approximately 17% of the Company's oil and gas sales and for
approximately 11% of the Company's estimated proved oil reserves. The Company
has not reported to, or filed with, any other Federal authority or
Page 2 of 14
<PAGE>
agency any estimates of total, proved net oil or gas reserves since the
beginning of the last fiscal year. For additional informa tion, see Note 7 of
Notes to Consolidated Financial Statements below.
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)
1998 23,000 205,000 $ 13.65 1.73 6.23
1997 31,000 160,000 19.68 1.98 8.29
1996 37,000 148,000 18.67 1.60 6.62
=============== =============== =============== ============= ============= ============================
</TABLE>
DRILLING ACTICITY: The Company participated in the drilling of one development
well in fiscal 1998 ("FY98") and did not participate in the drilling of any
wells during fiscal 1997 ("FY97") or fiscal 1996 ("FY96").
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
At the Company's Annual Meeting held on September 4, 1998, with no abstentions
and 189,457 broker non-votes for each, the following individuals were elected
directors: Stephen F. Fante, Votes for: 10,494,141; Votes withheld: 98,928.
Jeffrey S. Chernow. Votes for: 10,493,191; Votes withheld: 99,878. Steven H.
Cardin. Votes for: 10,494,241; Votes withheld: 98,821.
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>
FY98 FY97
--------------------------- ---------------------------
Quarter High Bid Low Bid High Bid Low Bid
- ------------- ------------- ------------ ------------- ------------
1 $0.11 $0.06 $0.08 $0.05
2 0.11 0.10 0.06 0.06
3 0.33 0.10 0.06 0.06
4 0.34 0.11 0.06 0.06
</TABLE>
At December 8, 1998, there were 5,561 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 net cash provided by operating
activities. Accounts receivable declined because sales in the fourth quarter of
FY98 were lower than sales in the fourth quarter of FY97. During FY98 the
Company sold its interests in two proved oil and gas properties for cash
proceeds of $21,000 and expended $13,000 on oil and gas property acquisitions
and development. The Company is completing the restoration of the area that had
contained its East
Page 3 of 14
<PAGE>
Tisdale Field in Johnson County, Wyoming, and recognized $20,000 and $10,000 in
RR&D expense related to the field in 1998 and 1997, respectively. The Company
has removed all equipment from, recontoured, and reseeded virtually all
disturbed areas in the field. Barring unforeseen events, the Company does not
believe that the expense associated with any remaining restoration activities
will be material, although this cannot be assured. After its bonds with the
state and the Bureau of Land Management are released, the Company does not
believe it will have any further liability in connection with the field,
although this cannot be assured. During FY98 the Company acquired 236,000 shares
of its common stock for $29,000 and subsequently retired those shares. During
FY98 the Company issued 733,665 shares of its common stock to its president in
lieu of cash as payment of his bonus for FY97. (See Note 3 of Notes to
Consolidated Financial Statements below for additional information regarding
transactions with related parties.) Also during FY98 the Company exchanged
155,544 shares of the Company's common stock to each of its two non-executive
directors for notes receivable from each in the amount of $26,500.
The Company regularly assesses its exposure to both environmental liability and
RR&D. The Company does not believe that it currently has any material exposure
to environmental liability or to RR&D, net of salvage value, although this
cannot be assured.
At December 8, 1998, nominal world oil prices had reached their lowest levels in
12 years, and inflation-adjusted world oil prices had reached their lowest
levels in 25 years. If oil prices remain at current levels, then, 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 near future. With the exception of capital expenditures
related to production acquisitions or drilling or recompletion activities, none
of which are currently planned, and the cash flows that could result from such
acquisitions or activities, and the current low level of oil prices, 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 8,
1998, the Company had no material commitments for capital expenditures.
RESULTS OF OPERATIONS
Oil sales declined 49% from $610,000 in FY97 to $314,000 in FY98, and gas sales
increased 12% from $317,000 in FY97 to $354,000 in FY98. Oil sales declined
because of a 26% decline in production and a 31% decrease in realized prices.
Oil production declined principally because during FY97 the Company sold
substantially all of its interests in two fields for a gain on sale of assets of
$304,000. Gas sales increased because a 28% increase in production was partially
offset by a 13% de crease in realized prices. Included in interest income in
FY98 and FY97, respectively, are $21,000 and $18,000 relating to notes
receivable from shareholders. Excluding these amounts, interest income increased
from $67,000 in FY97 to $89,000 in FY98 because of higher invested cash
balances. Other income, which consists of various miscellaneous items, decreased
principally because in FY97 the Company received refunds of $16,000 in
over-withheld production taxes and recognized a capital credit receivable of
$34,000.
Included in lease operating expense ("LOE") in FY97 and FY98, respectively, are
$68,000 and $28,000 in repairs and mainte nance expense related to one well.
Excluding these amounts and the LOE associated with the fields that were sold in
FY97, LOE declined from $265,000 in FY97 to $252,000 in FY98. Included in
general and administrative expense ("G&A") in FY98 and FY97, respectively, are
$21,000 and $18,000 in reimbursement of interest expense relating to notes
receivable from shareholders and expense of $1,000 and $44,000 for bonuses due
the Company's president. Excluding interest reimbursement and bonus expense, G&A
was $333,000 in FY98 and $361,000 in FY97. During FY97 the Company recognized
tax indemni fication expense related to the president's 1995 and 1996 tax years
of $12,000; compensation consultant expense of $5,000; and fines of $5,000
related to bird deaths at the Company's East Tisdale Field. Excluding these
items, G&A declined from $339,000 in FY97 to $333,000 in FY98. In FY97
depreciation, depletion, and amortization expense ("DD&A") consisted of $33,000
in depletion expense, $8,000 in impairment expense, and $15,000 in depreciation
expense. In FY98 DD&A consisted of $40,000 in depletion expense, $25,000 in
impairment expense, and $6,000 in depreciation expense.
LIQUIDITY
OPERATING ACTIVITIES. During FY98 cash of $80,000 was provided by operations
compared to $99,000 in FY97. Cash pro vided by operations declined principally
due to the decline in oil and gas operations.
INVESTING ACTIVITIES. Cash provided by investing activities was $8,000 in FY98
compared to $340,000 in FY97. In FY98 the Company received $21,000 in proceeds
from the sale of assets compared to $359,000 in proceeds from the sale of assets
in FY97. Oil and gas property development and other capital expenditures totaled
$13,000 in FY98 compared to $19,000 in FY97.
Page 4 of 14
<PAGE>
FINANCING ACTIVITIES. Cash used in financing activities in FY98 and FY97 of
$29,000 and $18,000, 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. At December 8, 1998, nominal world
oil prices had reached their lowest levels in 12 years, and inflation-adjusted
world oil prices had reached their lowest levels in 25 years. So long as current
oil price levels prevail, the Company is unlikely to experience positive
earnings unless it dramati cally increases production levels. With the exception
of unanticipated variations in production levels, unanticipated RR&D,
unanticipated environmental expense, and current low oil price levels, 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.
YEAR 2000 ISSUES
The so-called Year 2000 ("Y2K") Problem arose because many existing computer
programs use only the last two digits to refer to a year and, therefore, cannot
distinguish between a year that begins with "20" and one that begins with "19."
If not corrected, many computer applications could fail or create erroneous
results when references to the Year 2000 become necessary.
RISKS AND STATE OF READINESS
The Company has completed its assessment of its state of readiness, and the
Company believes it faces three kinds of risks as a result of the Year 2000
Problem: (1) Will hardware and software related to oil and gas production
facilities fail as a result of the Y2K Problem? (2) Will back-office hardware or
software fail as a result of the Y2K Problem? (3) Will unresolved Y2K Problems
at third parties on whom the Company is dependent cause material adverse
consequences to the Company?
Production Facilities. The Company operates only one producing well. The Company
does not believe that any equipment associated with that well is susceptible to
the Y2K Problem, but this cannot be assured. If critical production equipment is
not Y2K ready, production could cease or hydrocarbon contamination of the
production facility could occur.
Back-Office Facilities. The Company's back-office operations depend upon the
following hardware: three Intel-chip-based microcomputers and associated
peripheral devices, one AT&T Partner Plus telephone system, one Hewlett Packard
inkjet fax machine, and one Pitney Bowes postage meter. The Company has tested
the telephone system, fax machine, and postage meter and is confident that they
are Y2K ready. One computer is Y2K ready, a second has been modified to be Y2K
ready, and the third computer will be modified in the near future. The Company
does not believe that any of its peripheral devices are subject to Y2K issues.
All of the Company's software is off-the-shelf software provided by world-class
vendors. The Company believes that all software critical to its back-office
functions is currently Y2K ready.
Third Parties. The Company is inquiring of relevant third parties regarding
their state of readiness. Virtually all of the Com pany's revenue consists of
oil and gas sales and interest income. All cash flow from oil and gas sales
results from remittances to the Company from operators or purchasers of oil and
gas production in which the Company has an interest. Should any operator or
purchaser of production in which the Company has an interest suffer system
failures due to Y2K problems, either in their production or back-office systems,
revenue flowing to the Company could be interrupted. Similarly, should any
financial institution in which the Company deposits its cash suffer system
failures due to Y2K problems, the Company's cash flow from interest income could
be interrupted, and the Company's access to its cash could be delayed. Because
the Company is not significant to any third party, the Company would not have
leverage in dealing with potential problems.
COSTS AND CONTINGENCY PLANS
The Company does not believe that costs associated with achieving Y2K readiness
will exceed $1,000, but this cannot be assured. The Company neither has nor
plans to adopt formal contingency plans for unanticipated Y2K problems.
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.
Page 5 of 14
<PAGE>
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 FY98.
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 FY98.
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 FY98.
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 FY98.
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 - Incorporated herein by reference to Form 10-KSB
for fiscal year ended September 30, 1997
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.
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 15, 1998
--------------------- -----------------
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 15, 1998
-------------------------------- -----------------
Steven H. Cardin, Director, Date
Principal Executive Officer,
Principal Financial Officer, and
Principal Accounting Officer
By: /s/ JEFFREY S. CHERNOW December 15, 1998
---------------------- -----------------
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 subsidiary as of September 30, 1998, 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, 1998. 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 re spects, the financial position of Altex Industries,
Inc. and subsidiary as of September 30, 1998, and the results of their
operations and their cash flows for each of the years in the two-year period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
November 3, 1998
Page 7 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,734,000
Accounts receivable 91,000
Other receivables 19,000
Other 2,000
Total current assets 1,846,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) (Notes 6 and 7) 2,137,000
Other 71,000
2,208,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,054,000)
Net property and equipment 154,000
OTHER ASSETS 34,000
$ 2,034,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 14,000
Accrued production costs 27,000
Accrued reclamation, restoration, and dismantlement 20,000
Other accrued expenses 33,000
Total current liabilities 94,000
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, 15,770,491 shares issued and outstanding 158,000
Additional paid-in capital 14,282,000
Accumulated deficit (12,141,000)
Notes receivable from stockholders (359,000)
1,940,000
COMMITMENTS AND CONTINGENCIES (Notes 3, 5, and 6)
$ 2,034,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 8 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<S> <C> <C>
1998 1997
Revenue
Oil and gas sales $ 668,000 927,000
Interest (Note 3) 110,000 85,000
Gain on sale of assets 18,000 304,000
Other income 12,000 53,000
808,000 1,369,000
Costs and expenses
Lease operating 280,000 375,000
Production taxes 76,000 103,000
General and administrative (Note 3) 355,000 423,000
Reclamation, restoration, and dismantlement (Note 6) 20,000 10,000
Depreciation, depletion, and amortization 71,000 57,000
802,000 968,000
Net earnings $ 6,000 401,000
Earnings per share of common stock * $0.03
Weighted average shares outstanding 15,597,688 14,434,834
</TABLE>
* Less than $0.01 per share
See accompanying notes to consolidated financial statements.
Page 9 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<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, 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
1,376,249 14,000 69,000 -- -- -- (83,000) --
receivable (Note 3)
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
Net earnings -- -- -- -- 6,000 -- -- 6,000
Shares issued in exchange for note
311,088 3,000 50,000 -- -- -- (53,000) --
receivable (Note 3)
Common stock issued, 733,665
shares (Note 3) 733,665 7,000 37,000 (44,000) -- -- -- --
Acquisition of Treasury stock, 236,000
shares at $0.12 per share -- -- -- -- -- (29,000) -- (29,000)
Retirement of Treasury stock (236,000) (2,000) (27,000) -- -- 29,000 -- --
Balances at September 30, 1998 15,770,491 $158,000 14,282,000 -- (12,141,000) -- (359,000) 1,940,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 10 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<S> <C> <C>
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,000 401,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets (18,000) (304,000)
Depreciation, depletion, and amortization 71,000 57,000
Compensation payable in common stock -- 44,000
Decrease in accounts receivable 25,000 25,000
Decrease (increase) in other receivables (1,000) 5,000
Decrease (increase) in other current assets 2,000 (2,000)
Increase in other assets -- (34,000)
Decrease in accounts payable (10,000) (14,000)
Decrease in accrued production costs (7,000) (8,000)
Increase (decrease) in accrued restoration, reclamation, and dismantlement 20,000 (70,000)
Decrease in other accrued expenses (8,000) (1,000)
Net cash provided by operating activities 80,000 99,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 21,000 359,000
Oil and gas property acquisition expenditures (4,000) --
Oil and gas property development expenditures (9,000) (5,000)
Other capital expenditures -- (14,000)
Net cash provided by investing activities 8,000 340,000
CASH FLOWS USED IN FINANCING ACTIVITIES
Acquisition of treasury stock (29,000) (18,000)
--------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 59,000 421,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,675,000 1,254,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,734,000 1,675,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 11 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
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 subsidiary. All
intercompany balances and transactions have been eliminated in consolidation.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT: The Company follows the successful efforts method of
accounting for oil and gas operations, under which exploration costs, including
geological and geophysical costs, annual delay rentals, and exploratory dry hole
costs, are charged to expense as incurred. Costs to acquire unproved properties,
to drill and equip exploratory wells that find proved reserves, and to drill and
equip development wells are capitalized. Capitalized costs relating to proved
oil and gas properties are depleted on the units-of-production method based on
estimated quantities of proved reserves and estimated RR&D. Upon the sale or
retirement of property and equipment, the cost thereof and the accumulated
depreciation, depletion, or valuation allowance are removed from the accounts,
and the resulting gain or loss is credited or charged to operations. Actual RR&D
expense in excess of estimated RR&D expense is charged to operations.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company assesses long-lived assets for
impairment when circumstances indicate that the carrying value of such assets
may not be recoverable. This review compares the asset's carrying value with
management's best estimate of the asset's expected future undiscounted cash
flows without interest costs. If the expected future cash flows exceed the
carrying value, no impairment is recognized. If the carrying value exceeds the
expected future cash flows, an impairment equal to the excess of the carrying
value over the estimated fair value of the asset is recognized. No such impair
ment 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, 1998, the Company had net operating
loss, depletion, and investment tax credit carryforwards for income tax purposes
of $6,501,000, $787,000, and $28,000, respectively. If not utilized, the net
operating losses will expire during the period from 1999 through 2009, and the
investment tax credit carryforwards will expire during the period from 1999 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, 1998, computed in
accordance with SFAS No. 109, is as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS
Net operating loss carryforward $ 2,275,000
Depletion carryforward 275,000
Investment tax credit carryforward 28,000
Accrued reclamation, restoration, and dismantlement 7,000
Tax basis of assets written off for financial statement purposes 688,000
TOTAL GROSS DEFERRED TAX ASSETS 3,273,000
Less valuation allowance (3,269,000)
NET DEFERRED TAX ASSETS 4,000
DEFERRED TAX LIABILITIES
Depletion, depreciation, amortization, and valuation allowance for income tax purposes in excess of (4,000)
amounts for financial statement purposes
NET DEFERRED TAX LIABILITY $ --
================
</TABLE>
Page 12 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Based on the uncertainty of future realization, a valuation allowance equal to
the net deferred tax asset has been provided. Accordingly, no tax benefit has
been recorded.
Income tax expense is different from amounts computed by applying the statutory
Federal income tax rate for the following reasons:
<TABLE>
<S> <C> <C>
1998 1997
TAX EXPENSE AT 34% OF NET EARNINGS $ 2,000 136,000
CHANGE IN VALUATION ALLOWANCE FOR NET DEFERRED TAX ASSETS (378,000) (497,000)
EXPIRATION OF TAX CARRYFORWARDS 386,000 394,000
OTHER (10,000) (33,000)
----------------- ------------------
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 exchange for a $306,000 note
receivable. In 1998 the Company's two non-executive directors each purchased
155,544 shares of the Company's common stock from the Company at a price of
$0.17 per share in exchange for notes receivable from each of $26,000. Each of
the three notes are non-recourse, secured by the respective shares, and due on
September 30, 2002. The principal amount of the notes can be paid with shares of
the Company's common stock. The Company will reimburse the president and the
directors for interest expense related to the notes, and will indemnify them
against additional tax due as a result of such reimbursement and
indemnification. The Company recognized $21,000 and $18,000 of both interest
income and general and administrative expense related to the notes in 1998 and
1997, respectively. In 1997 the Company recognized $12,000 in indemnification
expense. The president's employment agreement also provides that he will receive
an annual bonus equal to no less than 10% of the Company's earnings before
income tax. In lieu of cash, the Company paid the president's bonus for 1997 by
issuing 733,665 shares of common stock to him during 1998.
NOTE 4 - MAJOR CUSTOMERS. In 1998 and 1997 the Company had, respectively, three
and four customers who individually accounted for 10% or more of the Company's
revenue and who, in aggregate, accounted for 89% and 91% of revenue in 1998 and
1997, respectively. In 1998 the three customers individually accounted for 62%,
14%, and 13% of revenue; and in 1997 the four customers individually accounted
for 53%, 13%, 13%, 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, 1998, required future
payments under the lease are $11,000 for the year ending September 30, 1999. The
Company incurred rent expense of $20,000 and $19,000 in 1998 and 1997,
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. The Company recognized $20,000 and $10,000 in RR&D expense
related to the field in 1998 and 1997, respectively. The Company has removed all
equipment from, recontoured, and reseeded virtually all disturbed areas in the
field. Barring unforeseen events, the Company does not believe that the expense
associated with any remaining restoration activities will be material, although
this cannot be assured. After its bonds with the state and the Bureau of Land
Management are released, the Company does not believe it will have any further
liability in connection with the field or others, 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 anticipated utilization of net operating loss carryforwards
and tax credits. The estimation of reserves is complex and subjec tive, and
reserve estimates tend to fluctuate in light of new production data.
Page 13 of 14
<PAGE>
ALTEX INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
I. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<S> <C>
September 30, 1998
Proved properties $ 2,137,000
Accumulated depreciation, depletion, amortization, and valuation allowance (1,992,000)
Net capitalized cost $ 145,000
</TABLE>
II. ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
<TABLE>
<S> <C> <C>
Oil in Barrels Gas in Mcfs
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
Sales of minerals in place (1,000) (6,000)
Revisions of previous estimates (95,000) 171,000
Production (23,000) (205,000)
BALANCE AT SEPTEMBER 30, 1998 100,000 1,283,000
</TABLE>
III. PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
<TABLE>
<S> <C> <C>
At September 30
1998 1997
Estimated future revenue $ 3,324,000 6,413,000
Estimated future expenditures (2,388,000) (4,229,000)
Estimated future net revenue 936,000 2,184,000
10% annual discount of estimated future net revenue (281,000) (842,000)
Present value of estimated future net revenue $ 655,000 1,342,000
</TABLE>
IV. SUMMARY OF CHANGES IN PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
<TABLE>
<S> <C> <C>
Year ended September 30
1998 1997
Present value of estimated future net revenue, beginning of year $ 1,342,000 2,159,000
Sales, net of production costs (312,000) (449,000)
Net change in prices and costs of future production (414,000) (599,000)
Revisions of quantity estimates (122,000) 201,000
Sales of minerals in place (20,000) (158,000)
Accretion of discount 134,000 216,000
Change in production rates and other 47,000 (28,000)
Present value of estimated future net revenue, end of year $ 655,000 1,342,000
</TABLE>
Page 14 of 14
<PAGE>
EXHIBIT INDEX
27 Financial Data Schedule - Submitted only in electronic format
herewith, pursuant to Item 601(c) of Regulation S-B
<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 09/30/98, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,734,000
<SECURITIES> 0
<RECEIVABLES> 110,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,846,000
<PP&E> 2,208,000
<DEPRECIATION> 2,054,000
<TOTAL-ASSETS> 2,034,000
<CURRENT-LIABILITIES> 94,000
<BONDS> 0
0
0
<COMMON> 158,000
<OTHER-SE> 1,782,000
<TOTAL-LIABILITY-AND-EQUITY> 2,034,000
<SALES> 668,000
<TOTAL-REVENUES> 808,000
<CGS> 0
<TOTAL-COSTS> 802,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
