PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
CONFIDENTIAL,FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
ALTEX INDUSTRIES, INC.
-----------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ALTEX INDUSTRIES, INC.
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(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
X No fee required
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pursuant to Exchange Act Rule 0-11(set forth the amount on which the
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Check box if any part of the fee is offset as provided by Exchange Act
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(4) Date Filed:
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ALTEX INDUSTRIES, INC.
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
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The 1998 Annual Meeting of Shareholders of Altex Industries, Inc. (the
"Company") will be held at the Pikesville Hilton Inn, 1726 Reisterstown Road,
Pikesville, Maryland 21208 on Friday, September 4, 1998, at 11:00 AM for the
following purposes:
o To elect one Class A, one Class B, and one Class C Director to the
Company's Board of Directors to serve, respectively, until the 2001, 1999,
and 2000 Annual Meetings of Shareholders, and until their successors are
duly elected and qualified.
o To act upon any other business that may properly come before the Meeting.
Only holders of Common Stock of record at the close of business on July 31,
1998, will be entitled to vote at the Meeting or any adjournment or postponement
thereof.
Holders of Common Stock of record at the close of business on July 31, 1998, are
encouraged either to attend the Meeting or to fill in, sign, and mail the
enclosed form of proxy promptly to: Proxy Department, American Stock Transfer
Company, 40 Wall Street, 46th Floor, New York, NY 10005.
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BY ORDER OF THE BOARD OF DIRECTORS
JOAN R. BREWSTER, SECRETARY
AUGUST 1, 1998
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PROXY STATEMENT DATED AUGUST 1, 1998
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This proxy statement and enclosed form of proxy are being mailed to shareholders
on or about August 14, 1998, in connection with the solicitation by Altex
Industries, Inc. (the "Company") of proxies for the 1998 Annual Meeting of
Shareholders and any adjournment or postponement thereof. Solicitation of
proxies will be principally by mail, but employees or agents of the Company may
solicit proxies personally, by telephone, or by special letter. The Company will
also make arrangements with brokerage houses and other custodians, nominees, and
fiduciaries to send proxies and proxy materials to their principals and will
reimburse them for their expenses in so doing. Expenses in connection with the
solicitation of proxies will be paid by the Company.
The Company's Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes, each class serving three-year terms on a
staggered basis. The Board of Directors is currently comprised of three members,
one belonging to each class. At this Meeting, one Class A, one Class B, and one
Class C Director will be elected to the Company's Board of Directors to serve,
respectively, until the 2001, 1999, and 2000 Annual Meetings of Shareholders,
and until their successors are duly elected and qualified. If any nominee should
become unavailable for election, which is not anticipated, the proxies will be
voted for a substitute nominee designated by the Board of Directors.
A Director is elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting. All shares of Common Stock
represented by properly executed proxies count toward a quorum and will be voted
at the Annual Meeting unless such proxies have been revoked. Each person giving
a proxy has the unrestricted power to revoke it prior to the time the proxy is
exercised. In the absence of instructions, the shares of Common Stock
represented by proxies will be voted for the election of management's nominees.
So far as the Board of Directors is aware, no other matter will be acted on at
the Meeting. If, however, any other matters properly come before the Meeting,
the person named in the enclosed proxy will vote in accordance with his
judgement.
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INDEPENDENT PUBLIC ACCOUNTANTS
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KPMG Peat Marwick has audited the Company's financial statements for the last
eight fiscal years, and management expects the Company to continue its
relationship with KPMG Peat Marwick. A representative of KPMG Peat Marwick has
been invited to be present at the Annual Meeting by telephone to respond to
questions and will have an opportunity to make a statement.
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ANNUAL REPORT AND SHAREHOLDER PROPOSALS
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The Company's Annual Report to shareholders for the fiscal year ended September
30, 1997, including financial statements, which Annual Report is not part of
this proxy solicitation material, is being mailed to shareholders with this
proxy solicitation. Proposals of shareholders intended to be presented at the
1999 Annual Meeting of Shareholders must be received by the Company no later
than April 3, 1999, to be considered for inclusion in the Company's proxy
statement relating to that Meeting.
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VOTING SECURITIES, PRINCIPAL HOLDERS, AND SECURITY OWNERSHIP OF MANAGEMENT
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Common Stock is the only class of voting securities of the Company. On July 31,
1998, the record date for shareholders entitled to vote at the 1998 Annual
Meeting of Shareholders, 15,825,491 shares of Common Stock were outstanding.
Each share is entitled to one vote.
The following tables set forth information concerning each person who, as of
July 20, 1998, 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 July 20, 1998, by all Directors,
nominees, and executive officers, and by Directors and executive officers as a
group.
Page 1 of Proxy Statement
CERTAIN BENEFICIAL OWNERS
NAME AND ADDRESS OF OWNER BENEFICIALLY OWNED PERCENT OF CLASS
==================================================================== ========================= ======================
Steven H. Cardin, POB 1057, Breckenridge CO 80424-1057 6,297,018 39.7%
David L. Goldman, 100 Federal St, Boston MA 02110 1,212,500 7.6%
MANAGEMENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
===================================================================== ========================= ======================
Steven H. Cardin, POB 1057, Breckenridge CO 80424-1057 6,297,018 39.7%
- --------------------------------------------------------------------- ------------------------- ----------------------
Jeffrey S. Chernow, POB 1057, Breckenridge CO 80424-1057 155,544 1.0%
- --------------------------------------------------------------------- ------------------------- ----------------------
Stephen F. Fante, POB 1057, Breckenridge CO 80424-1057 155,544 1.0%
===================================================================== ========================= ======================
All Directors and Executive Officers as a Group (3 Persons) 6,608,106 41.7%
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DIRECTORS AND EXECUTIVE OFFICERS
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NAME AGE POSITION SINCE
=================================== =========== ====================================== ===============================
Steven H. Cardin 47 Class C Director December 1984
President and CEO July 1985
Chairman of the Board September 1985
Jeffrey S. Chernow 47 Class B Director November 1989
Stephen F. Fante 42 Class A Director November 1989
=================================== =========== ====================================== ===============================
Mr. Cardin is an economist and was employed as such before joining the Company
by National Energy Research Associates and The Conference Board. Mr. Chernow is
a lawyer and served as Assistant Attorney General and Director of Enforcement,
Division of Securities, State of Maryland, for over five years. Mr. Fante is a
certified public accountant and was employed as a staff accountant by Price
Waterhouse & Co. for two years. Mr. Cardin has been with the Company for over
five years. Mr. Chernow has been a partner in the law firm of Kandel, Klitenic &
Chernow for over five years. 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. From May 1995 until March 1998, Mr. Fante was Chairman of the Board of
Directors of Seca Graphics, Inc., which provided design and mapping services and
software to the cable television and telecommunications industries. He is
currently a private investor. Messrs. Fante's, Chernow's, and Cardin's terms as
Directors continue until such time as their successors are elected and
qualified.
The Company's Board of Directors has two standing committees -- the Audit
Committee, which reviews the Company's accounting policies and makes
recommendations as to the selection of auditors, and the Compensation and Stock
Option Committee, which administers the Company's 1982 Stock Option Plan and
which, in consultation with independent experts on executive compensation,
determines the form and level of compensation of the Company's executive
officers. Both committees are comprised of Messrs. Chernow and Fante. During the
year ended September 30, 1997, the Board of Directors met four times, the
Compensation and Stock Option Committee met two times, and the Audit Committee
met two times.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
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Each Director who is not also an officer of the Company receives $500 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.
In June 1998 Messrs. Chernow and Fante each purchased 155,544 shares of the
Company's Common Stock at a price of $0.17
Page 2 of Proxy Statement
per share in non-cash transactions with the proceeds of two $26,000 non-recourse
loans from the Company. The loans, which are secured by the shares, bear
interest at the Applicable Federal Rate and are due on September 30, 2002.
Messrs. Chernow and Fante can pay the principal amount of the loans with shares
of the Company's Common Stock. The Company has also agreed to reimburse Messrs.
Chernow and Fante for interest expense related to the loans and will indemnify
them against additional tax due as a result of such reimbursement and
indemnification.
Mr. Cardin has an employment agreement with the Company that was effective
October 1, 1996, that has an initial term of five years, and that provides that
Mr. Cardin is to receive a base salary of $150,000 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. Pursuant to the agreement and its predecessors, Mr. Cardin
purchased 2,383,615 shares of the Company's Common Stock from the Company at a
price of $.09375 per share between 1988 and 1992, and 1,376,249 shares at a
price of $0.06 per share in 1996, in non-cash transactions with the proceeds of
$306,000 in non-recourse loans from the Company. The loans, which are secured by
the shares, bear interest at the Applicable Federal Rate and are due at the end
of the term of the agreement. Mr. Cardin can pay the principal amount of the
loans with shares of the Company's Common Stock. The agreement 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.
The agreement also provides that, in the event the Company terminates Mr.
Cardin's employment by reason of his permanent disability, the Company will (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.
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 immediately 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
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER ANNUAL COMPENSATION1
($) ($) ($)
=================================== ======== ================= ================= ====================================
Steven H. Cardin, CEO 1997 $ 150,000 $ 45,000 $ 30,000
1996 $ 133,000 $ 11,000 $ 17,000
1995 $ 127,000 $ 9,000 $ 17,000
=================================== ======== ================= ================= ====================================
Page 3 of Proxy Statement
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1Pursuant to his employment agreement (See above): Mr. Cardin paid
$17,000 in interest to the Company in 1995 and 1996, and $18,000 in 1997; the
Company reimbursed him for those payments; and, in 1997, the Company paid him
$12,000 in tax indemnification payments related to 1995 and 1996.
Page 4 of Proxy Statement
ALTEX
1997
ANNUAL
REPORT
Page 1 of Annual Report
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GENERAL NATURE AND SCOPE OF BUSINESS
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Altex Industries, Inc. is a holding company that, through its operating
subsidiaries, produces oil and gas and buys and sells producing oil and gas
properties.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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FINANCIAL CONDITION
Cash balances increased principally because of proceeds from the sale of assets.
Accounts receivable declined because sales in the fourth quarter of fiscal year
1997 ("FY97") were lower than sales in the fourth quarter of fiscal year 1996
("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 reclamation,
restoration, and dismantlement expense ("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.).
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 Company 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.
Page 2 of Annual Report
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 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.
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 production expense, all of which are
highly variable and largely beyond the Company's control. In addition, because
the quantity of oil and gas produced from existing wells declines over time, the
Company's sales and net income will 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.
Page 3 of Annual Report
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.
Page 4 of Annual Report
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INDEPENDENT AUDITORS' REPORT
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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 position 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 5 of Annual Report
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
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
See accompanying notes to consolidated financial statements.
Page 6 of Annual Report
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
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
See accompanying notes to consolidated financial statements.
Page 7 of Annual Report
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
COMMON STOCK ADDITIONAL COMMON ACCUMULATED TREASURY NOTE TOTAL
PAID-IN STOCK TO BE DEFICIT STOCK RECEIVABLE STOCKHOLDERS'
CAPITAL ISSUED FROM EQUITY
SHARES AMOUNT SHAREHOLDER
AMOUNT
--------------------------------------------------------------------------------------------
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
See accompanying notes to consolidated financial statements.
Page 8 of Annual Report
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
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 (70,000) 25,000
dismantlement
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
See accompanying notes to consolidated financial statements.
Page 9 of Annual Report
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:
Page 10 of Annual Report
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
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 $ --
Income tax expense is different from amounts computed by applying the statutory
Federal income tax rate for the following reasons:
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 $ -- --
================ ===============
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
Page 11 of Annual Report
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
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 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.
I. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
SEPTEMBER 30,
1997
Proved properties $ 2,148,000
Accumulated depreciation, depletion, amortization, and valuation allowance (1,948,000)
Net capitalized cost $ 200,000
II. ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
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
Page 12 of Annual Report
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
III. PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
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
IV. SUMMARY OF CHANGES IN PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE
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
Page 13 of Annual Report
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ALTEX INDUSTRIES, INC.
- --------------------------------------------------------------------------------
DIRECTORS
Steven H. Cardin, President, Altex Industries, Inc.
Jeffrey S. Chernow, Partner, Kandel, Klitenic & Chernow
Stephen F. Fante, Investor
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE
POB 1057, Breckenridge CO 80424-1057
FORM 10-K AVAILABILITY
A copy of the Company's annual report on Form 10-KSB may be obtained without
charge by each person solicited upon written request to Ms. Joan R. Brewster,
Secretary, Altex Industries, Inc., POB 1057, Breckenridge CO 80424-1057.
DIVIDENDS
The Company has not paid a dividend during the last two fiscal years.
PRICE RANGE OF SECURITIES
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, which do not include
retail mark-up, mark-down, or commission, and may not represent actual
transactions, are listed in the table below. Information was provided by the OTC
Bulletin Board.
FISCAL YEAR 1997 FISCAL YEAR 1996
QUARTER HIGH BID LOW BID HIGH BID LOW 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
NUMBER OF HOLDERS OF RECORD
At July 20, 1998, there were approximately 5,600 holders of record of the
Company's Common Stock.
LETTER FROM THE PRESIDENT JULY 20, 1998
To our Shareholders:
Because we are a very small Company with over 9,000 shareholders, we work hard
to keep the cost of Annual Meetings and Annual Reports to a minimum. Since
mailing multiple pieces to over 9,000 shareholders is very expensive, we try to
cut costs wherever we can. This year we have made the combined Notice of
Meeting, Proxy Statement, and Annual Report as short as possible, and we have
omitted the postage-paid reply envelopes for proxy cards because return postage
alone for 9,000 shareholders is almost $5,000. We apologize in advance for any
inconvenience this may cause, and we encourage you either to attend the Annual
Meeting or to complete, sign, and date your proxy, and mail it to:
Proxy Department
American Stock Transfer Company
40 Wall St 46th Floor
New York NY 10005
Since the third quarter of fiscal year 1996, when our stock reached a low of
$0.03 bid, it has steadily increased, touching $0.32 bid in July 1998 during a
rapid run-up that we cannot really explain. As I write, the stock is $0.125 bid
and $0.17 asked in a very thinly traded market. In other words, any attempt to
sell any significant amount of stock, say more than 5,000 shares, seems to
result in a considerable decline in the bid.
The Company has generally been modestly profitable since 1990, when the Gulf War
helped force oil prices to levels significantly higher than those prevailing
after the 1986 oil price collapse. Unfortunately, current world over-production,
combined with weakness in Far East demand, has weakened inflation-adjusted
energy prices to levels not seen since the early 1970s. Low prices have, of
course, reduced both the market value of our assets and the income they
generate. With some luck, however, we may be able to turn weakness in the oil
and gas production industry to our advantage by consummating one or more
production purchases. Although no deals are on the horizon right now, that is
our goal.
Very truly yours,
Steven H. Cardin
President
Page 14 of Annual Report
ALTEX INDUSTRIES, INC.
POB 1057 BRECKENRIDGE CO 80424-1057
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
A copy of the Notice of Annual Meeting and Proxy Statement has been received by
the undersigned. This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES. In his discretion, the
Proxy is authorized to vote upon such other business as may properly come before
the meeting or any adjournment thereof. The undersigned hereby appoints Steven
H. Cardin as Proxy of the undersigned, for and in the name(s) of the
undersigned, with power of substitution and revocation in him, to vote any and
all shares of Common Stock of said Company which the undersigned would be
entitled to vote, as fully as the undersigned could do if personally present at
the Annual Meeting of Shareholders of Altex Industries, Inc. to be held at the
Pikesville Hilton Inn, 1726 Reisterstown Road, Pikesville, Maryland 21208, on
Friday, September 4, 1998, at 11:00 AM and at any and all adjournments thereof,
hereby revoking any prior proxies to vote said shares, and authorizes and
instructs said Proxy to vote upon the following items of business in the manner
directed on the reverse side:
FOR WITHHOLD AUTHORITY NOMINEES
NOMINEES TO VOTE FOR NOMINEES Steven H. Cardin
(Class C Director)
1. Election of Jeffrey S. Chernow
Directors (Class B Director)
Stephen F. Fante
(Class A Director)
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEES:
- -----------------------------------------------------
Please complete, date, sign and return this proxy promptly to:
Proxy Department, American Stock Transfer & Trust Company,
40 Wall Street, 46th Floor, New York, NY 10005
- --------------------------------------------------------------------------------
Signature Date Signature if held jointly Date
Sign exactly as name(s) appear(s) hereon. When signing as attorney, executor,
administrator, trustee, guardian, officer signing for a corporation, or
authorized person for a partnership, give full title under signature.