Item 1. Business
(a) General Development of Business
Golden Triangle Royalty & Oil, Inc. (the "Company") was incorporated on July 30, 1975 under the laws of the State of Colorado. Later that year, the Company obtained approximately $300,000 through an initial public offering of 3,000,000 shares of its common stock, par value $.001 (the "Common Stock"). The Company was organized primarily to acquire and hold royalties on oil and gas properties. During the past four years the Company has diversified and expanded its operations to include the salt water disposal business, tire shredding/recycling, and ranch activities. See Item 2
Item 2. Description of Property
(a) Salt Water Disposal Properties
In the past four years GTII has acquired eight salt water disposal facilities, and subsequently sold one facility, and has achieved a dominant position in one of the premier gas producing areas in the United States. Salt water is produced along with oil and gas, and governmental regulations require the salt water to be disposed of in an environmentally safe manner. The Company is in the primary business of injecting the salt water back into the ground in another salt water bearing zone to protect all fresh water zones from being contaminated. The Company injects from 375,000 to 425,000 barrels of water per month and is paid a fee for this service by the oil and gas producers.
GTII acquired its first salt water disposal property, OCR Investments, Inc. (OCR), a company operating a salt water disposal facility at a profit in the Zapata-Laredo area of Texas, during 1993. During 1994 the Company continued increasing its revenues with the acquisition of a highly profitable company, Transcon Energy Corp. (Transcon) which had three disposal facilities in the same general area as OCR. Transcon, like OCR, provides salt water disposal services for oil field operations in an area of active drilling for deep gas, making the prospects for continued profitability excellent. Transcon also provides drilling rig services, including fresh water sales for drilling and poly pipe rentals and sales. The addition of Transcon's gross revenues to GTII during 1994 caused GTII to become profitable. Also during 1994, the Company acquired 50% of Jim Wells Salt Water Disposal Inc. (Jim Wells). This company operates a facility near Alice, Texas, which is northeast of the Transcon and OCR disposal area.
Because of the tremendous performance of its salt water disposal facilities in 1994, GTII continued expanding this business during 1995 by purchasing the remaining 50% of Jim Wells, plus purchasing 100% of another facility, County Line Disposal Plant. In addition to these purchases, OCR opened a new facility, Chihuahua. The Company installs new facilities in response to new gas discoveries and the location of competing facilities. For example, the new Chihuahua facility was installed in September 1995 to take water from a recently discovered 500 BCF gas field. During only its second month of operation, Chihuahua disposed of 71,729 barrels of water (revenues of about $28,000 for that month).
During 1996 the Company acquired the use of the Amando Disposal Facility for $750,000. This acquisition added significantly to the assets and revenues of the Company. The facility disposed of approximately 150,000 barrels of water per month during 1996, and generated about $50,000 to $60,000 per month is gross operating revenues for the Company.
Also during 1996 the Company sold its disposal facility in Jim Wells County because of disappointing results due to a lack of expected development in that service area and distance from the Company's main operating area.
All of GTII's seven disposal sites are located in Webb and Zapata counties. Webb County produces more gas than any other Texas county, while Zapata County ranks second or third. GTII's competition is limited, with few other facilities located in the area. The majority of the production in the area consists of gas from the lower Wilcox Lobo Trend. According to the U. S. Department of Energy, the trend is estimated to contain total reserves of 14,962 BCF. Considering that most of the significant Lobo fields are located in Webb and Zapata counties, and considering that all production from the counties (not just Lobo production) totals 650 BCF per year, it is conceivable that production from the Lobo could continue near the current rate for over twenty years, given adequate gas prices to stimulate additional drilling.
In summary, gas production, along with the associated salt water production in GTII's operating area, should be substantial for years to come. GTII's total revenues from disposal fees as described above, and other oil field services (described in the following paragraph) totalled $2,239,670 during 1996.
In addition to the salt water disposal services, the Company also provides oil field services including fresh water supply, sales and rental of poly pipe and pumps, back filling drilling mud pits, sand blasting, and steam cleaning. One of the Company's subsidiaries, Transcon, has access to water rights for fresh water from the Rio Grande River. The fresh water is sold to drilling rigs by laying polypropylene pipeline from the river to the drill sites, and by trucking the fresh water to other drill sites. Of course, revenues from this service can fluctuate depending on factors such as drought, when demand for the water would be greater, or over-supply when demand would be less.
Additional information on the salt water disposal business is available at "Narrative Description of Business - General - Salt Water Disposal and Rig Services.
(b) Tire Disposal/Recycling
During 1995 the Company purchased tire shredding equipment and leased it to Southwest Tire Processors Inc. (SWTP) which owns a tire disposal/recycling facility in Socorro, New Mexico that is reported to be the most efficient and modern type in the southwest. It is the only permitted tire disposal/recylcing facility in New Mexico and can accept tires from anywhere in the United States. Because of environmental and storage problems with used tires, SWTP is now capitalizing on the need to dispose of used tires. The equipment shreds the tires into 2" by 3" chunks, and is capable of shredding three ton tires into chunks in 10-15 minutes and averages 35 tons per hour. The material can then be sold for use in such things as asphalt for highways, mats, hoses, and tennis shoes.
The plant charges $135-$140 per ton for disposal and then sells the shredded material for $40-$60 per ton. SWTP has contracts with the State of New Mexico and the State of Arizona for tire disposal at $140.00 per ton, and has contracts with the Department of Defense to buy the shredded rubber for use on military bunkers. The company also sells the shredded rubber to a company that recycles rubber into new tires.
GTII's gross income from this business totalled $593,616 in 1995. The Company presently has a 12 1/2% interest in SWTP. After recovering its initial investment and a profit, GTII will have a 10% interest in the gross revenues of the operation. SWTP was awarded a contract with Maricopa County in Arizona during 1996 for disposal of tires that has an estimated overall value of $2 million to $5 million over a period of two years.
During 1996 the facility was expanded with the purchase of crummer equipment which further shreds the 2" by 3" chunks into pellet size, removing the steel and nylon fibers. This process increases the value of the rubber from $40-$60 per ton to $200-$600 per ton because its uses become even more versatile.
(c) Apache Ranch
During 1995 GTII acquired the remaining portion of the ranch land in New Mexico which it had purchased an interest in during 1994. The 13,500 acre Apache Ranch adjoins the Mescalero Indian Reservation near Ruidoso, New Mexico, and the ski resort area. This property offers many possible sources of revenue including sporting activities, camping, hunting, timber, real estate development, and livestock grazing, plus potential easement revenues as certain projects develop for the Mescaleros.
The land includes one of the largest herd of elk in the western United States, and is inhabited by a large variety of additional wildlife including deer, turkey, oryx, mountain lion and bear.
Apache Ranch began generating revenues in 1995 with the sale of two forty acre tracts of land, and a contract for a year's cattle grazing rights. In 1996 income was generated from grazing rights, hunting (elk permits), and the sale of an eighty acre tract of land. The eighty acres was sold to a group of investors who plan to develop a working dude ranch with activities to include trail rides, roundups, and everyday cattle work.
(d) Oil and Gas Properties
General
As of December 31, 1996, the Company owned royalty interests and ORRI's in oil and gas wells primarily located in the states of Arkansas, Colorado, Kansas, New Mexico, Oklahoma and Texas. The Company also has a few working interests further defined under Working Interests - Domestic. These domestic oil and gas interests generated $92,156 for the year ended December 31, 1996.
Most of the U.S. leases in which the Company owns interests provide that such leases will continue in existence as long as oil and gas are produced on the related properties. The duration of the Australian concessions in which the Company owns interests is discussed generally in the following section.
Australian Properties
A significant portion of the Company's oil and gas properties consist of ORRI under concessions that explore for oil and natural gas granted by the State of Queensland, Australia. Each of these concessions, called an Authority to Prospect ("ATP"), has a term of four years. The area covered by an ATP is reduced by relinquishment of approximately one-fourth of the area at the start of the third year of its effectiveness and an additional one-fourth of the original area at the start of the fourth year of its effectiveness. The area to be relinquished is chosen by the holder of the ATP. An ATP does not require that any specific work, such as drilling or geological or geophysical work, be performed by the holder, but does require that the holder continuously prospect and expend a specified minimum sum over the term of the ATP for such prospecting efforts. Applications for renewal may be filed at the time of expiration of an ATP.
The Company has ORRI in 1,425,164 net royalty acres under 19,761,600 gross surface acres in Australia. ORRI entail no expenditures by the Company for exploration or drilling expenses. In addition, the Company holds 2,758,620 net working acres under 16,357,600 gross working interest acres.
Oil revenues from Australia totalled $219,065 from ATP 267P and ATP 299P during 1996. Transportation costs to market the crude oil totalled $94,692.
Reserves
The majority of the Company's reserves are in overriding royalty and royalty interests on which data is not available for reserve estimates. If estimates of proved reserves were prepared for the Company's royalty and overriding royalty interests, the ORRI under ATP 299P in Australia would account for the majority of the Company's proved oil reserves attributable to these interests. The ATP 299P working interest holders have not supplied the Company with information deemed necessary for meaningful reserve calculations. Most of the Company's domestic royalty interests are small, and the Company is of the opinion that obtaining information necessary for meaningful reserve calculations would involve unreasonable effort or expense. Oil production attributable to the Company's royalty and overriding royalty interests provided approximately 95% of the Company's production income during the fiscal year ended December 31, 1996.
Since the Company's working interests provide such a small percentage (5%) of the Company's total oil and gas income, it was determined that unreasonable effort and expense would be required to prepare a reserve report on these interests. Therefore, the 1994 reserve estimates were rolled forward to 1995 and 1996 without additional analysis. See "Supplementary Data for Reserves of Oil and Gas" under Item 8. Financial Statements and Supplementary Data.
No estimates of total proved oil or gas reserves were filed by the Company with, or included in reports to, any federal authority or agency other than the Securities and Exchange Commission since the beginning of the Company's last fiscal year.
Average Sales Price and Production Costs
The following table sets forth the average sales price per unit of production. Sales prices are based on market prices determined at the point of delivery from the producing unit. Production or severance taxes have not been deducted in determining the average sales price, but rather are included as part of production costs. No sales prices of gas are shown for Australia because the Company had no production of gas in Australia during the relevant reporting periods. The average production (lifting) costs per unit of production are not presented because the majority of the Company's interests are royalties and overriding royalties, which entail no deductions for lifting costs. Additionally, the operators of the Company's working interests have not provided the Company with information concerning production (lifting) costs. The Company's working interests are small, and the Company is of the opinion that obtaining information necessary for disclosure of production (lifting) costs would involve unreasonable effort or expense.
United States Australia Average Sales Price Average Sales Price Fiscal Year Ended Oil Gas Oil December 31, 1996 $20.43 $ 1.91 $US21.72 December 31, 1995 $16.30 $ 1.29 $US18.09 December 31, 1994 $14.71 $ 1.34 $US18.30
WORKING INTERESTS - DOMESTIC
Productive Wells and Developed Acreage
There are now a total of four wells on the Baum Lease, with well numbers 2, 3 and 4 being completed as oil producers during 1996. In addition, one new oil well was completed on the Isenhower lease bringing the total number of producing wells on this lease to four. The Baum and Isenhower leases are located in Texas, and GTII holds a 5% carried working interest in these wells.
Non-Productive Acreage
GTII holds a 30% interest in approximately 11,787 acres of long-term leases located in the Overthrust Belt in Arizona. The primary prospect in this lease play, the Cochise Overthrust Prospect, has 3,500 feet of closure. A structure of this size would rank among the top oil and gas structures in the United States, if found productive. GTII etal. is planning to farm out the working interest to someone interested in the drilling of this giant structure with a view to recapture all out of pocket expenses and retain an override.
WORKING INTERESTS - AUSTRALIA
On October 1, 1995, Oil Seeps Inc. ("Oil Seeps") was awarded a 12,254,400 acre oil and gas concession - ATP 615. GTII owns 20% of Oil Seeps and participated with a group through Oil Seeps to apply for this concession. Subsequent to the end of 1996, a letter of intent was signed where GTII and its partners will retain an override and make a profit on the sale. GTII's part will be a 1% override and approximately $20,000 cash profit on the sale.
The table below sets forth the undeveloped acreage in Australia in which the Company held WI as of December 31, 1996. Working interests are acquired by the Company with a plan to farm out operations while retaining overriding royalty or carried working interests where feasible.
GTII's Net Gross Working WI Area Acres Interest Acres 538 3,275,200 7.5% 245,640 554 828,000 7.5% 62,100 615 12,254,400 20.0% 2,450,880
ROYALTY AND OVERRIDING ROYALTY INTERESTS - DOMESTIC
The Company owns royalty interests and ORRI's in oil and gas wells primarily located in the states of Arkansas, Colorado, Kansas, New Mexico, Oklahoma and Texas.
GTII added to these interests during 1996 by purchasing ORRI in four oil and gas producing wells in Starr County, Texas, two gas producing wells in Chickasaw County, Mississippi, and two gas producing wells in Monroe County, Mississippi. These wells are expected to have a 24 to 36 month payout.
Also see (d) Oil and Gas Properties - General.
OVERRIDING ROYALTY INTERESTS - AUSTRALIA
The following table sets forth the name of each Australian concession in which the Company had an ORRI as of December 31, 1996 and upon which productive wells had been drilled, the percentage interest of the Company therein, the number of such wells, the gross acreage of each concession, and the net royalty acres held in each concession.
		 GTII's Net 		 Area & Gross Royalty Royalty 	 	No. of Wells Acres Interest Acres 267 - 21 oil wells 736,000 0.46709% 27,502 299 - 45 oil wells 588,800 1.46307% 68,916
The following table sets forth the undeveloped acreage in which the Company had ORRI's in Australia as of December 31, 1996. The Company had no royalty or ORRI's in undeveloped acreage in the United States as of December 31, 1996. GTII's Net Gross Royalty Royalty Area Acres Interest Acres 333 92,000 0.200% 1,472 415 901,600 1.463% 105,523 538 3,275,200 0.623% 163,236 542 1,932,000 1.200% 185,472 543 1,545,600 0.500% 61,824 550 680,800 0.500% 27,232 560 1,048,800 0.800% 67,123 582 8,960,800 1.000% 716,864
The total of the producing and non-producing acreage in Australia under which GTII holds interests is 1,425,164 net royalty acres under 19,761,600 gross surface acres.
Present Activities - ORRI
The year 1996 was a record year for successful oil wells drilled on ATP299 in Australia. After the completion of the Tarbat #2 in 1995, which had an initial potential test of 2,700 barrels of oil per day, an aggressive drilling program during 1996 successfully discovered fifteen new oil wells on this concession. All fifteen wells were completed as producers, which will increase GTII's overriding royalty income from this concession. Following is a list of the new wells completed as producers and the field in which they are located:
Tarbat Field Tarbat #3, #4, #5, #6, #7, #8, #9, #10
Ipundu Field Ipundu #4, #5, Ipundu North #4, #5
Talgeberry Field Talgeberry #5, #6
Gimboola (new field) Gimboola West #1
There are now 45 wells in twelve different fields on ATP 299. GTII has a 1.463% of gross production interest in this lease, less transportation costs. Each oil field has numerous undrilled locations, causing a tremendous upside potential for the further development of ATP 299.
A successful gas well was drilled on ATP 543 during September, 1996. The well had an initial potential test of 6.2 MMCFPD. GTII holds a .5% overriding royalty interest in this concession.
Two other concessions under which GTII holds overriding royalty interests began drilling programs during 1996. ATP 550 reported the Jade No. 1 as a dry hole, and ATP 560 reported the McIver #1 and the Jampot #1 as dry holes. GTII looks forward to drilling activity continuing on these concessions.
A key note to understand is that there have been less than 7,000 wells drilled in the entire country of Australia, which is basically the same size as the continental United States. Current technology coupled with better understanding of the geology has led to substantial discoveries both onshore and offshore of Australian.
The Company's override position has primarily been focused on the Eromanga Basin. This basin has the very prolific Exxon-Santos producing block. The Exxon-Santos block produces approximately $700 million worth of oil and gas per year, and contains about one billion barrels equivalent estimated remaining proved and recoverable reserves. This huge production is the enticement that has attracted operators to the Eromanga Basin.
(e) Office Facilities
Until September 1, 1995, the Company's offices were located at 1301 Avenue M, Cisco, Texas. These offices were leased from U. S. Representatives for $975.00 per month. The Company's corporate office is now located at 8504 Sonoma Valley N.E., Albuquerque, New Mexico 87122, and is provided by Kenneth Owens, Chairman of the Board and President. In addition, the Company's subsidiaries, OCR and Transcon, have offices in Zapata, Texas, also provided by Mr. Owens. Rent in the amount of $9,600 was paid to Kenneth Owens in 1996 for these facilities. The Company also maintains an office at 104 Fossil Court, Springtown, Texas 76082, which handles the stock transfer agent duties for the Company, plus houses computers and other equipment used for maintaining the mailing lists, printing envelopes etc. Karen Lee, Director of the Company, is paid $300 per month for these facilities.
(f) Other Properties/Assets
The Company owns various portfolio securities. For a description thereof, see Note 4 to the Consolidated Financial Statements included herein under Item 8.
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Item 3.
Item 3. Legal Proceedings
As of March 18, 1997, there were no material legal proceedings to which the Company or any of its subsidiaries was a party or of which any of their properties was the subject.
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Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Common Stock
The only class of common equity security authorized by the Company's Articles of Incorporation, as amended, is the Company's Common Stock, $.001 par value. The Company's Common Stock trades on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market under the symbol "GTII". The range of high and low sales prices for each quarter during the last two fiscal years, as quoted in the National Association of Securities Dealers' Automatic Quotation ("NASDAQ") System, is set out in the table that follows. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
Year Ended December 31, 1996 Year Ended December 31, 1995 High Low High Low 1st Quarter 3 3/8 2 7/8 1st Quarter 1 1/8 7/8 2nd Quarter 3 1/16 2 3/16 2nd Quarter 15/16 1/2 3rd Quarter 2 5/8 2 1/16 3rd Quarter* 2 7/8 1 7/8 4th Quarter 3 1/16 2 5/16 4th Quarter* 3 1/16 2 11/16 *after 1-for-2.5 reverse split
As of March 18, 1997, there were approximately 11,419 holders of record of the Company's Common Stock, plus an undetermined number of stockholders who hold their stock in street name.
Dividend Reinvestment and Stock Purchase Plan
GTII set up a Dividend Reinvestment and Stock Purchase Plan (the "Plan") during 1996, to provide existing shareholders of the Company's common stock with a convenient and economic method of investing cash dividends and making cash investments in the Company's common stock without payment of brokerage commissions in connection with purchases.
Shareholders may choose to invest funds in common stock through optional cash investments, with a minimum purchase of $25.00 per month and a maximum purchase of $5,000 per month. The optional cash payments may be made occasionally or at regular intervals, as the shareholder desires.
The Plan provides that the common shares offered by the Company may be either newly issued shares acquired directly from the Company or shares purchased on the open market. The purchase price for shares purchased on the open market is the average price paid for such shares, and the purchase price for newly issued shares is 98% of the average of the daily closing prices of the common shares reported on the NASDAQ market on the five trading days prior to the purchase date.
IMPORTANT: The above is only a brief outline of the Plan. Complete details of the Plan were mailed to all shareholders during 1996. Before enrolling shareholders should review the information received, or obtain complete information on the Plan by requesting a copy of the Dividend Reinvestment and Stock Purchase Plan from the corporate office.
During 1996 shares for the Plan were purchased in the open market. However, the Company also registered 1,000,000 shares of common stock under the Securities Act for sale by GTII pursuant to the Plan, which may be used at the Company's discretion.
From August 1996 to December 1996, an average of 150 stockholders per month participated by purchasing an average of 8,000 shares per month through the Plan.
Preferred Stock
Shareholders authorized the issuance of 1,000,000 preferred shares during 1996 with directors given the authority to subdivide the stock and assign the various rights to each class. Directors created Class A and Class B preferred shares and authorized a program whereby shareholders could exchange their common stock for preferred stock at a rate of one share of preferred received for each ten shares of common surrendered. The offer expired on August 30, 1996. The program resulted in the exchange of 2,001,710 common shares for 11,856 preferred A shares, and 188,585 preferred B shares.
Class A Convertible Preferred Stock - Class A preferred stock is a convertible stock. The shareholder holding preferred stock has the same voting rights as if all preferred shares held were common shares (1 preferred shares equals 10 common shares). The preferred shares cannot be sold, but will be convertible back to common shares in 38 months or when gross revenues of the Company are $5 million or greater, whichever comes first. A cash dividend is paid on the Class A preferred shares - See Dividends - Preferred Stock.
Class B Non-Convertible Preferred Stock - Class B preferred stock is a non-convertible stock. A shareholder holding Class B preferred stock has the same voting rights as if all preferred shares held were common shares (1 preferred share equals 10 common shares). The Class B preferred shares cannot be sold since they are not registered, and they are not convertible back to common shares. A cash dividend and a stock dividend are paid on the Class B preferred shares See Dividends - Preferred Stock.
Dividends - Common Stock
The Company has not paid cash dividends on its common stock and does not anticipate the payment of cash dividends in the foreseeable future. Payment of future cash dividends will be within the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements and the operating and financial condition of the Company. The Company paid a 5% stock dividend to stockholders of record each year from 1983 through 1990. The payment of future stock dividends will be within the discretion of the Board of Directors.
Dividends - Preferred Stock
Class A - A cash dividend of 30 cents per Class A preferred share per year is paid on a semi-annual basis.
Class B - A cash dividend of 20 cents per Class B preferred share per year is paid on a semi-annual basis.
In addition, a 3% stock dividend is paid the first year on Class B preferred shares, and a 4% stock dividend is paid the second year on Class B preferred shares. For subsequent years, the annual dividend rate will increase above the 4% by 1% when the annual gross revenues increase by one million dollars, up to 6%, and will increase above 6% by 1% when the annual gross revenues increase by two million dollars. The increases in gross revenues will be calculated using the 1995 year end gross revenue number as the base number. The stock dividends will be paid in common shares which are not restricted and can be sold by the shareholder in the open market.
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Item 6.
Item 6. Selected Financial Data
Years Ended December 31 1996 1995 1994 1993 1992 Operating revenues $2,881,034 $2,676,204 $2,471,196 $1,776,810 $ 585,032
Income(loss) from oper- ations $ 594,342 $ 636,594 $ 548,593 $ 179,410 $(194,192)
Income(loss from oper- ations per share* $ .22 $ .16 $ .15 $ .06 $ (.08)
Total assets $6,552,697 $6,156,025 $4,984,665 $4,021,449 $2,891,343
Long-term debt $ - $ 19,486 $ 5,991 $ - $ -
*Per shares amounts have been restated to reflect the 1-for-20 reverse split in 1993 and the 1-for-2.5 reverse split in 1995.
NOTE: The Transcon acquisition was accounted for by the pooling of interests method. Columns for 1992-1994 have been adjusted to include the activities and assets of Transcon for those periods on a pooling basis.
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Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General Discussion - The fiscal year ended December 31, 1996 marked the Company's 21st year of operations and management is pleased to report that 1996 set new records in total revenues and total assets during this 21 year period. The south Texas operation continues to grow, yielding exceptional margins of profit as a result of a strong natural gas market during 1996. Disposal fees, fresh water sales and rig services were up for combined total revenues of $2,239,670 from our four operating subsidiaries. In addition to natural gas prices being strong, oil averaged $3.75 higher per barrel over the previous year. This increase in average price, coupled with drilling new wells in Australia, plus domestic drilling and acquisitions, caused oil and gas 1996 revenues to hit an all time high of $311,221.
Significant events that aided the Company's growth during the year were the $750,000 Amando Disposal Facility project, nineteen (19) wells drilled on the Company's overrides in Australia of which sixteen (16) were completed as producers, and five new producing wells on domestic leases in which the Company has carried working interests.
Overall, 1996 was a record year of growth, setting the stage for further growth for the future.
It is important to note the financial statements accompanying this report are consolidated with the Company's wholly owned subsidiaries, Transcon, OCR, Jim Wells, County Line, and Apache Ranch for all periods presented.
Assets - GTII reported total assets of $6,552,697 for 1996, an increase of $396,672 over the previous year ($6,156,025) and a $1,568,032 increase over 1994 ($4,984,665). This two year growth in assets is attributable to the acquisition of additional disposal operations, Apache Ranch and tire shredding equipment. It is important to note that the Company has no bank debt or debt against its properties. Total liabilities for 1996 were $393,093, of which only $58,677 was accounts payable and accrued expenses; the balance of $334,416 was accrued income taxes and deferred income taxes. Cash on hand increased 3.46 times over the previous year to $298,521, plus a cash bond of $100,000 is in place for Southwest Tire Processors, Inc. ("SWTP") (shown on the balance sheets under other assets as restricted cash). These factors place GTII in an extremely healthy financial position which is further evidenced by the liquidity ratio (current assets to current liabilities):
1996 1995 1994 6.35:1 5.92:1 9.52:1
Other significant changes in assets during the year included the increase in investments in common stock and production equipment. These include a 7% ownership in Signature Motorcars, Inc., 12.5% of SWTP, and a 20% interest in Oil Seeps, Inc. These investments total $417,930 which are in addition to the $43,756 under current assets for common stock acquired off the public market. Production equipment increased $428,654 through the addition of the Amando Disposal Facility to the south Texas operation.
Approximately half of the current assets are from accounts receivable from trade ($477,450) of which $417,655 is due to the south Texas operations. It is not uncommon for receivables to be high when providing services to energy companies. Management believes these receivables are good and collectible. It should be noted, however, that accounts receivable from trade has been reduced dramatically from 1995 due to substantial payments being received from SWTP. SWTP converted $275,224 of its debt pursuant to a lease agreement to a note. This amount is shown in the $396,751 of other assets under accounts and notes receivable - long term. The difference is a note for land sales from the Apache Ranch.
GTII's stockholders' equity was up $527,759 to $6,159,504 in 1996 from 1995 which further demonstrates the liquidity and financial soundness of GTII, as the total assets as of December 31, 1996 were $6,552,697. Stockholders' equity on December 31, 1996 was $2.25 per share compared to $1.47 per share for 1995 and $1.27 per share for 1994.
GTII plans to continue the policy of making acquisitions without incurring bank debt. The cash flow plus cash on hand is expected to exceed obligations planned for 1997.
Revenues - GTII set another record high in 1996, marking the sixth year in a row of increasing revenues over the previous year. As a point of interest, the 1991 revenues were $192,360. This dramatic increase in revenues is directly related to the acquisition of the disposal service companies of south Texas from Kenneth Owens etal. Disposal fees also set a record year and the prospects for 1997 look excellent, as natural gas prices have remained solid and the need for additional gas is still great, which has a direct effect on the production of gas in the fields where GTII's subsidiaries provide their services.
The only area where revenues declined was rental income from the tire shredding equipment. However, the Company did receive $242,066 in rental income, converted the balance of the lease to a note for $275,224, and received a 12.5% interest in the tire shredding operation. Management is very pleased with this arrangement and looks forward to a year of expansion as SWTP is awarded tire disposal contracts, plus gains the ability to crumb the shredded material on an economical basis.
The Company continues to play an active role in Australia as it has been securing additional overriding royalty interests in ATP 267 and ATP 299, plus has entered into a farmout arrangement with an energy company on ATP 615 of which GTII owns 20%. There have been 15 new wells added to ATP 299 which is a part of a plan by Santos to increase production from 1,500 barrels per day in July 1996 to 2,500 barrels per day by July 1997. GTII holds a 1.463% override under ATP 299 which covers approximately 588,800 acres. Revenues from GTII's Australian interests were $219,065 for 1996 and were $131,045 for 1995, marking a 67% increase in revenues.
Domestically, oil and gas production increased $12,381 over the previous year and is expected to continue to build as four new wells were drilled on leases under which GTII holds a carried working interest. Drilling programs are planned in 1997 on two of the leases in which GTII holds a carried working interest, located in Callahan County, Texas.
Costs of Revenues - These categories all increased as a result of either additional revenues being generated in Australia or through the addition of the Amando Disposal Facility being added to the south Texas operation. The Amando is directly responsible for the increase in additional costs relating to materials and supplies, lease costs and utilities. Gross profit for GTII after costs of revenues also set a record in 1996 reaching $2,257,606.
Operating Expenses - Most expense categories remained about the same except for depreciation, depletion and amortization and other expenses. Both of these categories had a significant increase. Depreciation, depletion and amortization increased due to increased oil and gas production and increase in equipment acquired during the year for the south Texas operation. The second area of increase, other expenses, covers a large area of expenses, including but not limited to, transfer agent fees, travel, maps, reports and office expense. Management will strive to seek methods to streamline costs incurred in these areas without hampering service to the shareholders, its clients in the south Texas operations or its corporate obligations to the investment community.
Net Income - Net income before taxes was $1,024,259 in 1996 compared to $1,139,029 in 1995 and $292,806 for 1994. Net income for 1996 was $594,342 compared to 1995 with a net income of $636,594. Per share data reports 22 cents for 1996 and 16 cents for 1995. The reason for the increase is due to a change in the weighted average shares as a result of certain shareholders converting common stock to preferred stock. See Notes to Financial Statements - General Information.
Management is very pleased with 1996 and is excited about the prospects for 1997 to further build revenues which complement the Company's operations.
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Item 8.
Item 8. Financial Statements and Supplementary Data
The following financial statement information for Golden Triangle Industries, Inc. and subsidiaries is set forth below.
- Report of Independent Certified Public Accountant - Consolidated Balance Sheets - Consolidated Statements of Operations - Consolidated Statements of Changes in Shareholders' Equity - Consolidated Statements of Cash Flows - Notes to Consolidated Financial Statements - Supplementary Data - Reserves of Oil and Gas
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors Golden Triangle Industries, Inc. Albuquerque, New Mexico
We have audited the accompanying consolidated balance sheets of Golden Triangle Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years ended December 31, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Golden Triangle Industries, Inc. and Subsidiaries at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years ended December 31, 1996, 1995 and 1994 in conformity with generally accepted accounting principles.
/s/ ROBERT EARLY & COMPANY, P.C. Robert Early & Company, P.C. Abilene, Texas
March 16, 1997 ==============================================================================
GOLDEN TRIANGLE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
December 31 1996 1995 ASSETS CURRENT ASSETS Cash $ 298,521 $ 86,255 Accounts receivable - trade 		 447,450 958,436 Accounts receivable - related parties 95,663 92,997 Accounts and notes receivable - other 70,127 3,888 Investments 43,756 5,427 Prepaid expenses - 61,150 Total Current Assets 955,517 1,208,153
PROPERTY AND EQUIPMENT Oil and gas properties (full cost method) Proven 2,384,940 2,368,896 Unproven 408,643 405,107 Production equipment 2,388,179 1,959,525 Office furniture and equipment 59,531 40,681 Well leasehold and water rights 200,000 259,872 Land 525,450 532,454 Accumulated depreciation, depletion and amortization (1,312,245) (1,099,991) Net Property and Equipment 4,654,498 4,466,544
OTHER ASSETS Restricted cash 100,954 580 Other investments 417,930 5,000 Accounts & notes receivable - long term 396,751 82,470 Goodwill (net of amortization) 27,047 29,824 Deferred federal tax assets - 363,454 Total Other Assets 942,682 481,328 TOTAL ASSETS $6,552,697 $6,156,025
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Accounts payable $ 46,665 $ 101,094 Accrued expenses 		 12,012 23,167 Accrued income taxes 		 67,732 21,743 Deferred income taxes - current 		 23,980 300,359 Note payable - current portion 	 - 5,436 TOTAL CURRENT LIABILITIES 150,389 451,799
Note payable (net of current portion) - 19,486 Deferred income taxes - non-current 242,704 52,895 TOTAL LIABILITIES 393,093 524,180
STOCKHOLDERS' EQUITY Preferred stock, $0.10 par (1,000,000 authorized) Class A (11,586 shares outstanding) 1,159 - Class B (188,585 shares outstanding) 18,858 - Common stock, $.001 par (100,000,000 authorized 1,937,857 and 3,832,967 shares outstanding) 1,938 3,833 Stock to be issued (9,000 and 115,600 shares) 11,250 195,320 Paid-in capital 7,104,506 6,938,200 Treasury stock (52,366 and 26,701 shares) (137,983) (71,780) Unrealized gain/(loss) on securities held for sale (5,753) (5,015) Accumulated deficit (834,371) (1,428,713) Net Stockholders' Equity 6,159,604 5,631,845 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,552,697 $6,156,025
The accompanying notes are an integral part of these financial statements.
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GOLDEN TRIANGLE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 1996 1995 1994 OPERATING REVENUES Disposal fees & service revenues $2,239,670 $1,789,864 $2,161,614 Oil and gas production 311,221 210,820 237,119 Rental income 242,066 593,818 - Other income 7,715 1,657 4,151 Gain on sale of assets 80,362 80,045 68,312 Total Operating Revenues 2,881,034 2,676,204 2,471,196
COSTS OF REVENUES Australian marketing costs 94,692 67,755 68,052 Production expenses and taxes 10,855 10,238 13,714 Contract services 50,926 68,498 227,534 Direct materials and supplies 271,567 167,305 170,562 Lease cost 134,378 80,738 66,299 Utilities 61,010 52,170 41,814 Total Costs of Revenues 623,428 446,704 587,975 GROSS PROFIT 2,257,606 2,229,500 1,883,221
OPERATING EXPENSES Depreciation, depletion and amortization 406,625 275,126 185,896 Personnel costs 243,676 288,112 222,092 Management fees - - 617,427 Directors' fees 6,750 5,000 20,000 Professional fees 69,218 68,366 69,544 Ranch operations - 53,339 - Advertising and promotion 158,341 130,798 189,990 Stockholder relations 20,798 29,358 53,117 Repairs and maintenance 82,149 87,349 47,051 Other expenses 160,950 97,750 129,138 Rent 22,219 22,375 18,618 Taxes 39,307 27,361 26,812 Bad debts 1,581 1,581 - Total Operating Expenses 1,211,614 1,086,515 1,579,685
INCOME FROM OPERATIONS 1,045,992 1,142,985 303,536
OTHER INCOME/(EXPENSES) Interest and dividend income 6,411 1,823 4,804 Equity in subsidiaries' income - (12,077) 4,262 Unrealized gains/(losses) on marketable securities - - (2,854) Gain/(loss) on sale of securities 7,297 (199) (31,014) Stock transfer fees 5,314 21,095 16,530 Interest expense (40,755) (14,598) (2,458) INCOME BEFORE INCOME TAXES 1,024,259 1,139,029 292,806 Australian income taxes 41,022 20,200 19,547 Current income tax expense 67,732 30,580 82,464 Deferred income tax expense 321,163 451,655 (357,798) NET INCOME $ 594,342 $ 636,594 $ 548,593 Weighted Average Shares Outstanding 2,728,930 3,880,521 3,627,416 INCOME PER SHARE $ 0.22 $ 0.16 $ 0.15
The accompanying notes are an integral part of these financial statements. ==============================================================================
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GOLDEN TRIANGLE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 594,342 $ 636,594 $ 548,593 Adjustments to reconcile net income to net cash pro- vided by operating activities: Depreciation, depletion and amortization 456,625 325,126 235,896 (Gain)/loss on sale of assets (87,659) (79,846) (37,298) Directors' stock compensation 4,500 - 8,000 Unrealized losses/(gains) on marketable securities - - 2,854 Equity in subsidiary's income - 12,076 (4,262) Deferred income taxes 321,163 451,596 (357,798) (Increase)/decrease in: Accounts receivable 124,870 (205,951) (250,845) Inventories - 13,422 (5,767) Prepaid expenses 11,150 - 5,480 Restricted cash (100,374) 4,576 12,728 Increase/(decrease) in: Trade accounts payable (54,429) 74,360 (15,466) Accrued expenses 34,834 8,229 27,666 Amounts due to/from related parties (2,666) (109,994) (338,446) NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES 1,302,356 1,130,188 (168,665)
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,073,131) (1,294,836) (626,220) Purchase of marketable securities (54,347) - (23,517) Loan payments received 5,596 223 - Cash from purchase of Jim Wells - 658 - Investment in unconsolidated subsidiary (6,250) (5,000) - Proceeds from sale of assets 136,277 40,850 160,603 NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES ( 991,855) (1,258,105) (489,134)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from: Issuing common stock - - 430,580 Short-swing profits - 15,000 - Purchase of treasury stock (70,343) (48,780) (3,500) Advances from related parties 441,000 181,000 - Repayment of advances from related parties (443,970) (181,000) - Proceeds from notes payable - 24,922 - Repayment of notes and lease payables (24,922) (13,205) - NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES (98,235) (22,063) 427,080
NET INCREASE/(DECREASE) IN CASH 212,266 (149,980) (230,719) CASH - BEGINNING OF YEAR 86,255 236,235 466,954 CASH - END OF YEAR $ 298,521 $ 86,255 $ 236,235
Supplemental Disclosures - Non-Cash Investing and Financing
Cash payments for: Interest $ 40,755 $ 14,598 $ 2,458 Income taxes 91,857 50,140 73,235 Treasury stock issued for: Directors' fees $4,500 $ - $ - Stock promotion 9,788 4,840 - Exchange of account receivable for note 275,223 - - Services and materials exchanged for investment 14,941 - - Stock to be issued for: Fixed assets - 175,321 - Acquisition of subsidiary - 20,000 - Stock issued for: Acquisition of subsidiary - - 503,875 Oil and gas properties - - 200,419 Exchange of tire shredder for equity interest 391,739 - -
The accompanying notes are an integral part of these financial statements.
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GOLDEN TRIANGLE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994
GENERAL INFORMATION
Golden Triangle Industries, Inc. and its subsidiaries (the Company) is engaged in the businesses of disposing of oil field salt water, providing fresh water and related services to drilling rigs, and ownership of passive (primarily royalty) interests in oil and gas production. The principal business is salt water disposal. Salt water is produced along with oil and gas and is required to be re-injected back into underground formations or otherwise disposed of as a regulated waste product. The Company has seven disposal facilities in operation at the end of 1996. The fresh water and related services portion includes laying supply lines to drilling sites and sales of fresh water for drilling purposes. Most of this business is generally located in an area south of Laredo, Texas.
The passive oil and gas interests consist of U.S. and Australian properties. Australia provided approximately 70% of gross oil and gas revenues during 1996. The bulk of the oil and gas asset base is located in Australia.
During 1995, the Company purchased a tire shredding machine and leased it to a tire disposal company in New Mexico. In October 1996, the equipment was transferred to the tire disposal company in exchange for a 12.5% equity interest.
During 1996, Golden Triangle Royalty & Oil, Inc., the parent company for this consolidated group, changed its name to Golden Triangle Industries, Inc. This was done to reflect the fact that the emphasis of the Company has moved away from oil and gas to other activities. The Company also authorized 1,000,000 shares of preferred stock.
In the period from June to August, 1996, the Company made an offer to exchange preferred shares for common shares on a one for ten basis. The preferred shares offered consisted of Class A preferred and Class B preferred. Common shares totaling 2,001,710 were exchanged for 11,586 Class A shares and 188,585 Class B shares.
Both preferred classes retain the same number of voting rights as the number of common shares given up (10 votes per preferred share). The Class A shares are entitled to a $.30 per share cash dividend to be paid on a semi-annual basis. They are also convertible back into common shares after the earlier of 38 months or the Company's gross revenues being in excess of $5 million. The Class B shares are entitled to a $.20 per share cash dividend to be paid on a semi-annual basis. In addition, a 3% common stock dividend (i.e. 3 common shares per 10 shares of Class B preferred) is to be paid in the first year after issuance and 4% in the second year. After the second year, the stock dividend will increase or remain flat based on the increase in gross revenues of the Company using 1995 as the base year. Class B shares are not convertible back to common shares.
The Company has been purchasing small quantities of its own stock on the market to be used for stock promotion, stock dividends, possible acquisitions, possible stock compensation, or other purposes which may arise.
During June 1996, the Company adopted a Dividend Reinvestment and Stock Purchase Plan. Under this plan existing stockholders are given the opportunity to use dividends or cash payments to purchase the Company's stock through the transfer agent. The minimum investment is $25 per month and the maximum investment is $5,000 per month. The Company has the option of issuing new shares or acquiring shares in the open market to fill purchases through the plan. Through December 31, 1996, the Company had not issued any new shares. From August 1996 through December 1996 an average of 150 stockholders per month participated by purchasing an average of 8,000 shares per month through the plan.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally accepted accounting principles and to general practices within the oil and gas industry for that portion of its business. Policies and practices which materially affect the determination of financial condition, changes in financial position, and results of operations are summarized as follows:
Principles of Consolidation. The consolidated financial statements include the accounts of Golden Triangle Industries, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company's subsidiaries at December 31, 1996 are Golden Triangle Coal & Mining, Inc., Golden Triangle Oil & Minerals, Inc. of Australia, Houston Oil & Energy, Inc., OCR Investments, Inc. (OCR), Transcon Energy Corporation (Transcon), Jim Wells Salt Water Disposal, Inc. (Jim Wells), County Line Salt Water Disposal Inc., and Apache Ranch, Inc. (wholly owned by Transcon). For purposes of these notes, these are collectively referred to as "the Company".
Investment in Unconsolidated Subsidiaries. Investments in unconsolidated subsidiaries in which the Company has an ownership interest of 20% to 50%, or otherwise exercises significant influence, are carried at cost, adjusted for the Company's proportionate share of the subsidiary's undistributed earnings and losses. Jim Wells was owned 50% through September 1995 and Oil Seeps, Inc. (20%) was the only investment of this type at December 31, 1995.
Investments in entities at less than 20% ownership are carried at cost.
Investment in Marketable Securities. During 1995, the Company implemented Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt & Equity Securities." Accordingly, marketable securities have been classified as available for sale. These investments are carried at the lower of cost or market at the balance sheet date. Unrealized gains and losses are determined by aggregating all marketable securities.
Property and Equipment. The Company follows the full cost method of accounting for oil and gas producing activities and, accordingly, capitalizes all costs incurred in the acquisition, exploration, and development of proved oil and gas properties, including the costs of abandoned properties, dry holes, geophysical costs, and annual rentals. Costs are recorded in cost centers on a country-by-country basis. In general, sales or other dispositions of oil and gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded.
Depletion and amortization for each cost center is computed on a composite unit-of-production method based on estimated proved reserves attributable to the respective cost center. All costs associated with oil and gas properties are currently included in the base for computation and amortization. Such costs include all acquisition, exploration and development costs. The Company's proved reserves related to working interests were estimated at December 1994 by a petroleum engineer who was not independent with respect to the Company. Those reserve estimates were rolled forward to December 1995 and 1996 without additional analysis. All of the Company's producing working interests are located within the United States. Depletion totalled $73,244 and $53,927 for 1996 and 1995, respectively.
Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Useful lives are 10 years for tanks and ramps, 7 years for equipment, and 5 years for electronic equipment. Depreciation totalled $291,347 and $204,532 for 1996 and 1995.
Gains or losses on sales of property and equipment other than oil and gas properties are recognized as part of operations. Expenditures for renewals and improvements are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred.
Intangible Assets and Amortization. Intangible assets consist of disposal well leasehold, goodwill, and water rights. Goodwill and water rights are being amortized on a 10 year straight line basis. Well leasehold is being amortized on a 15 year straight line basis. Expense for these items is included with depreciation and depletion for presentation purposes. Amortization of well leasehold and water rights is included with accumulated depreciation and depletion for balance sheet presentation.
Income Taxes. The Company files a consolidated Federal income tax return. Currently Texas does not accept consolidated reporting and the Company has elected to file separate returns in New Mexico only for the entities required to file there. As such, each entity may incur state tax liabilities based on its separate income or capital structure. Investment tax credits are accounted for by the flow-through method under which benefits are recognized in the year taxes are actually reduced. Foreign income taxes are deducted as an expense when incurred.
Common Stock Data. Per share data has been computed on the weighted average number of common stock shares outstanding each period. Due to a 1-for-2.5 reverse stock split during 1995, stock data for the prior years has been restated to present information on a consistent basis.
Cash Flows. The Company considers cash to be its only cash equivalent for purposes of preparing its Statements of Cash Flows.
Restricted Cash. The Company provided collateral in the form of a Certificate of Deposit in order for Southwest Tire Processors, Inc. to obtain bonding for a significant tire shredding contract. Accordingly, these funds are unavailable for operations or for any other purpose until such time as the bonding requirements have expired.
Environmental Issues. The Company's salt water disposal business is in a regulated environmental industry and is operated under permits from the Texas Natural Resource Conservation Commission, and the Texas Railroad Commission. Failure to comply with regulations could result in interruption or termination of the operations. Additionally, upon cessation of use, the wells will require plugging and site cleanup. Costs of voluntary termination and remediation have been estimated to not be material and are expected to be recorded as incurred.
New Accounting Pronouncements. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121) issued by the Financial Accounting Standards Board (FASB) is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes new guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. Adoption of this standard has not materially effected the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" (SFAS 123) issued by the FASB is effective for specific transactions entered into after December 15, 1995 while the disclosure requirements of SFAS 123 are effective for financial statements for fiscal years beginning no later than December 15, 1995. The new standard establishes a fair value method of accounting for stock-based compensation plans and for transactions in which an entity acquires goods or services from non-employees in exchange for equity instruments. Adoption of this standard has not materially effected the Company's financial position or results of operations.
Advertising Costs. All advertising costs are expensed as incurred except as discussed in Note 5.
Stock Transfer Fees. During 1993, the Company elected to be its own stock transfer agent. During 1996, the Company hired an outside transfer agent to administer its Dividend Reinvestment and Stock Purchase Plan (previously discussed). Fees earned while the Company served as its own transfer agent are shown as other income. Fees earned otherwise have been offset against direct costs.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the 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.
NOTE 2: ACQUISITION OF SUBSIDIARIES AND EQUITY METHOD INVESTEES
Effective August 1, 1994, the Company acquired 100% of the outstanding shares of Transcon in exchange for 4,148,148 shares of the Company's stock. This acquisition was accounted for in accordance with the pooling of interests method of reporting acquisitions and operations. Assets and liabilities of Transcon at the time of acquisition were included at book value rather than at fair value.
Effective November 1, 1994, GTII purchased one-half of the outstanding stock of Jim Wells (see additional discussion at Note 11) for $80,000. In October 1995, the Company purchased the other half in exchange for 16,000 shares of stock and it became wholly owned. This investment was accounted for in accordance with the equity method for investments.
During 1996, the Company sold the Jim Wells facility and related assets to a related party for $50,000, recognizing a loss on unamortized cost of $7,873. The corporate shell was retained and utilized in a restructuring of consolidated assets.
Oil Seeps, Inc. obtained a new authorization to prospect in Queensland, Australia during 1995. The Company invested $5,000 for a 20% ownership interest in this venture when it was applying for the prospect. During 1996, the Company contributed $6,250 for its share of costs required to retain the prospect.
During 1996, the Company acquired County Line SWD, Inc., a shell corporation with existing salt water disposal licenses in Texas, from officers of the Company for $1. Certain disposal facilities were then transferred to this entity as part of a restructuring of consolidated assets.
NOTE 3: ACCOUNTS RECEIVABLE
At December 31, 1996 and 1995, the Company has accrued receivables for oil and gas production and receivables for salt water disposal and other services as presented below. Collection of the accrued Australian production generally occurs during the quarter following the quarter of production. Collection of accrued domestic production generally occurs during the month following production. The cost basis of the following receivables are believed to approximate their fair values.
1996 1995 Australian oil production $ 23,060 $ 10,835 Domestic oil and gas production 6,735 6,421 Salt water disposal and rig services 417,655 519,184 Tire shredder lease - 421,996 TOTALS $447,450 $958,436
The salt water disposal and rig services receivables include one customer upon which the Company is relatively reliant. This customer's balances at 1996 and 1995 were approximately 74% and 77% of these totals. No allowances for bad debts have been established because the Company has not experienced any significant inability to collect its receivables. The tire shredder lease is entirely with one entity. Lease income from the tire shredder has declined significantly in 1996 because of the way the lease was structured. Also, the receivable balance at December 31, 1996 was converted to a note receivable of $275,224. Sale of two 40 acre tracts of the ranch land in 1995 and one 80 acre tract in 1996 resulted in notes receivable secured by warranty deeds to the tracts. The 1995 notes bear interest at 10% per annum and the 1996 note bears interest at 8.6% per annum. Land note balances total $159,134 and $82,776 at December 31, 1996 and 1995, respectively. The Company does not intend to parcel out the ranch, but may sell a few more small tracts.
NOTE 4: INVESTMENTS AND OTHER INVESTMENTS
The Company's investments in marketable securities have been entirely classified as "available-for-sale" rather than as "trading." This classification has occurred (in accordance with adoption of SFAS 115) because the Company expects to hold these investments for an undetermined period rather than for current trading. Having been so classified, these investments will continue to be carried at the lower of cost or market. However, unrealized gains and losses will not be shown in the results of operations, but will be adjusted against stockholders' equity. When the gains or losses are realized, stockholders' equity will be adjusted and the realized gains or losses will be reflected in the statement of operations.
The amounts shown on the balance sheet are at the lower of aggregate cost or market. The following table illustrates the current values, costs and unrealized gains and losses for the securities held. Note 2 includes a discussion of investments in subsidiaries.
December 31, 1996 December 31, 1995 Unrealized Unrealized Market Gain Market Gain Cost Value (Loss) Cost Value (Loss) Current Portfolio Black Giant $63,969 $ 950 $(63,019) $63,969 $ 1,898 $(62,071) Santos 22,113 20,719 (1,394) 5,244 3,162 (2,082) Camelot - - - 340 366 26 TOTALS $86,082 $21,669 $(64,413) $69,553 $ 5,426 $(64,127)
The following is information regarding trading activity in securities. Cost is determined by actual cost on a first-in first-out basis.
Proceeds Gains Unrealized from Sales and (Losses) Gains/(Losses) 1996 $ 299 $ (40) $ (738) 1995 505 (199) (5,015) 1994 57,353 (31,014) (2,854)
In addition to equity securities, the Company traded a limited number of futures contracts during the last quarter of 1996. Net earnings totalled $7,338, and $22,538 was invested in contracts at December 31, 1996.
Other Investments consists of a 20% ownership in Oil Seeps, Inc., a 12.5% interest in Southwest Tire Processors, Inc., and a 7% interest in Signature Motorcars, Inc. Oil Seeps is the owner of a significant Australian prospect discussed in Note 2. Southwest Tire Processors operates the tire processor which the Company had. The interest in Signature Motorcars, Inc. was acquired in exchange for transfer agent and other administrative services and assistance in mailings. The Signature stock must be held a minimum of two years under the agreement.
NOTE 5: PREPAID EXPENSES
In December 1993, the Company entered into an agreement with Wall Street Marketing Group, Inc. for three years of public relations services. These services were prepaid as part of a separate agreement for consulting services with Hunter Equities, Inc. The value of these services has been amortized over the three year period. A cost of $50,000 has been included in advertising and promotion each year in accordance with this amortization policy.
NOTE 6: OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION
The Company has historically acquired Australian overriding royalties as availability and negotiations provide opportunity. In addition, two working interests have been acquired. However, the Company is not in a position to control development activities in these areas. Australian concessions require that minimum prospecting expenditures be incurred during their four year term. No estimate can be made as to when development may begin on the non-producing properties. Some concessions from prior years have not been developed and are not producing revenues. However, because they were acquired from related parties for stock, the two producing concessions have no book value.
Royalty costs are amortized using the percentage method of depletion under which depletion has historically been recorded at 15% of gross revenue. The rate was increased to 19% in 1994 and 22% in 1995 (following percentage allowances under U.S. tax law). Since the costs described above, as well as some U.S. properties, have not been developed, they are being amortized only to the extent producing properties have been depleted below cost. These costs excluded from amortization totalled $408,643 at December 31, 1996.
The Company's investment ($69,019) in a prospect in Arizona which has remained undeveloped has been excluded from amortization and the ceiling test.
During 1996, the Company acquired a handful of royalty interests at auction for $16,445.
NOTE 7: AMORTIZATION OF OIL AND GAS PROPERTIES
The following presents the amortization (depletion) charged against income on a per unit basis. Working interests were amortized based on equivalent barrels of oil produced while royalty depletion, as discussed above, is calculated as a percentage of gross revenue.
1996 1995 1994 United States Working interests ($/bbl) $ 6.89 $ 8.04 $ 9.55 Royalty interests ($/$ revenue) .22 .22 .19 Australian royalties ($/$ revenue) .22 .22 .19
NOTE 8: INCOME TAXES
As of December 31, 1996 and 1995, the Company had accumulated deficits of $834,371 and $1,428,713. However, operating loss carry-forwards for tax purposes vary from these amounts due to differences in the tax treatment of various items. These loss carry-forwards, which should provide future benefits, expire as shown in the following table. Investment tax credits are reported using the flow-through method. Loss carry-forwards of $1,085,764 and $376,233 have been utilized in 1996 and 1995.
Amount of Op- Amount of Year of erating Loss Investment Expiration Carry-Forward Tax Credit 1997 $ - $ 1,606 1998 - 389 2000 - 3,604 2008 79,527 - $ 79,527 $ 5,599
The provision for income taxes is as follows:
1996 1995 1994 Current Australian $ 41,022 $ 20,200 $ 19,547 Federal 23,292 - 61,064 State 44,440 30,580 21,400 Total current expense 108,754 50,780 102,011
Deferred Federal 298,115 391,569 (364,962) State 23,048 60,086 7,164 Total deferred expense 321,163 451,655 (357,798) TOTAL INCOME TAXES $429,917 $502,435 $(255,787)
The $364,962 deferred benefit realized in 1994 arose from the elimination of a valuation allowance which had been maintained against GTII's net operating loss deferred tax asset. Accounting rules require the assessment of deferred tax assets and a determination as to the ability of the Company to realize benefits from those assets. A valuation allowance is charged against tax assets when a determination is made that realization is not probable. This was the case with GTII's tax asset prior to 1994. With the acquisition of Transcon and OCR, it became evident that these net operating losses could reasonably be expected to be utilized prior to expiration.
The tax effects of temporary differences that give rise to deferred tax liabilities and deferred tax assets are as follows:
1996 1995 Assets Liabilities Assets Liabilities Depreciation, depletion and amortization $ 20,952 $ - $ 71,623 $ - Cash basis taxes vs. accrual books - - - 278,581 Unrealized gains and losses on marketable securities - 23,980 - 21,777 Investments in subsidiaries - 220,618 - 273,487 Net operating losses carried forward 10,705 - 536,008 - Installment sale receivable - 58,238 - 31,235 Investment tax credits carried forward 4,495 - 7,649 - Totals $ 36,152 $302,836 $615,280 $605,080
Australian income taxes are based on 30% of distributable income from oil production and 10% of interest earned. These taxes are withheld by the Australian payer. For U.S. tax purposes, the Company has the option of deducting these foreign taxes or taking them as a credit, whichever provides the Company with the most benefit.
The following table presents the significant differences between federal income taxes based on book income before taxes and the Company's estimated federal income tax expense. 1996 1995 Estimated federal tax on book income $ 348,248 $ 387,270 Foreign taxes (13,947) (6,868) State taxes (14,432) (10,397) Depreciation, depletion and amortization 15,210 (29,860) Installment sales (22,916) (26,581) Non-deductible expenses 2,852 17,646 Cash basis adjustments - (210,285) Gain on sale of assets 43,531 - Alternative minimum tax 33,906 - Net operating loss carry-forward (369,160) (120,925) Estimated federal income tax $ 23,292 $ -
NOTE 9: LEASES
During January 1994, the Company became the lessee of graphics computer equipment and an envelope printer under a lease expiring July 1996 and February 1997 which qualified as capital leases. These assets were recorded at the present value of the minimum lease payments which is lower than the fair market value of the assets and are being amortized over their estimated productive life. Amortization has been included in depreciation expense.
During 1995, one lease was cancelled and the other one was converted to a purchase of equipment, as the Company moved its main office to Albuquerque, New Mexico. Loss on the cancelled lease was included in gain/loss on disposal of assets. The cost of the purchased equipment became part of office equipment.
Lease cost for the Company's offices totalled $14,400, $16,150 and $15,300 for 1996, 1995 and 1994. These lease arrangements do not require minimum lease payments or have fixed terms. Most of these costs were paid to related parties. The Company also leased a vehicle from a related party for $7,819 during 1996.
NOTE 10: FIXED ASSETS ADDITIONS AND DISPOSITIONS
During 1995, the Company significantly increased its fixed assets. A ranch which was being purchased as funds were available was completely paid for at a total cost of $349,458 (1995 investment was $230,500). Another contiguous ranch was purchased for $150,000 which brought the total managed acreage over 10,000. In the latter part of the year, two 40 acre tracts were sold for a total of $90,000 with the Company carrying the notes for $83,000.
Also during 1995 a tire shredder was purchased for $488,300 and leased to a tire disposal company in New Mexico. The Company agreed to issue stock in exchange for an existing salt water disposal facility and constructed an entirely new facility. Other operating assets were also acquired as needed.
During 1996, the buildup of fixed assets continued with the acquisition of the Amando disposal facility in May at $750,000, construction of a fresh water plant, and significant repairs and disposal well maintenance activities.
As discussed in Note 2, the Company sold off the Jim Wells disposal facility and its equipment. Also, the tire shredder was transferred to Southwest Tire Processors, Inc. in exchange for a 12.5% equity interest.
NOTE 11: TRANSACTIONS WITH RELATED PARTIES
During the years presented, the companies had many transactions with related parties. Most of these transactions were not significant individually or when aggregated by type of transaction. However, some transactions were significant.
During 1994, the Company lent $65,000 to officers and directors. At present, no payments have been made on this loan. However, management believes this loan is valid and collectible.
During 1995, the Company acquired the remaining one-half of Jim Wells (as discussed at Note 2) from related parties. Also, the Company acquired another salt water disposal facility and a piece of equipment from related parties. These assets were purchased under an agreement to issue specified numbers of shares of restricted stock. These transactions were valued at $20,000 for Jim Wells, and $175,321 for the disposal facility and equipment in exchange for the issuance of 115,600 shares of stock. Since the stock is restricted under Rule 144, the values assigned to the transactions were based on the lower of the estimated fair value of the assets received, cost of the assets in the hands of the related party, or one-half of the market price of the shares at the time of the agreement.
The purchase of the salt water disposal facility described above and the remaining one-half of Jim Wells removed the related parties from direct competition in the general area of the Company's salt water disposal operations. However, the related parties continue to own another salt water disposal facility in another area and are involved in other types of disposal operations.
Due to the significant demands for cash required to purchase the tire shredder, to complete the purchase of the two ranches in New Mexico, and to purchase the Amando facility, officers and directors of the Company made short-term loans to the Company totalling $181,000 during 1995 and $441,000 during 1996. These loans were repaid, with interest, before the end of the year of borrowing.
Also during 1995, the Company transferred certain small volume working and royalty interests to a related party in exchange for a reduction in future compensation of $21,600. This receivable is being amortized to contract services as the services are rendered. The Company retained an option to repurchase any of these interests within a three year period should it desire to do so. Other miscellaneous transactions resulted in an advance to officers of approximately $9,000 which are included in the related party receivables.
NOTE 12: FOREIGN OPERATIONS
The Company operates principally in the United States and Australia. The following is a summary of information by area for 1996, 1995 and 1994.
1996 1995 1994 Net sales to unaffiliated customers: United States $2,661,969 $2,545,159 $2,340,162 Australia 219,065 131,045 131,034 Operating revenues as reported in the accompanying financial statements $2,881,034 $2,676,204 $2,471,196
Income/(loss)from operations: United States $1,699,950 $1,779,226 $1,436,417 Australia 76,179 34,460 48,677 1,776,129 1,813,686 1,485,094 Other income and expense (29,030) (3,956) (10,730) General corporate expenses (722,840) (670,701) (1,181,558) Income/(loss) before income taxes as reported in the accompanying financial statements $1,024,259 $1,139,029 $ 292,806
Identifiable assets: United States $4,975,616 $4,732,421 $3,315,798 Australia 1,234,804 1,270,772 1,313,704 6,210,420 6,003,193 4,629,502 General corporate assets 342,277 152,832 355,153 Total assets as reported in the accompanying financial statements $6,552,697 $6,156,025 $4,984,655
NOTE 13: CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER
As shown in Note 3, the Company operated with significant accounts receivable balances. Only the receivable for the rent on the tire shredder has any form of collateral. This receivable is from a single entity and is secured solely by the right to remove the tire shredder or take over the operations. Additionally, approximately 74% of the receivables for salt water disposal and rig services are due from a single customer. This customer has historically paid bills from two to six months after incurrence. This customer represents approximately 56% of disposal and service revenues during 1996. As such, the Company's results of operations appear to be significantly reliant of this customer's continued ability to operate. A mitigating factor is that salt water produced from oil and gas wells is required to be disposed of under existing regulations and there exists only a limited number of disposal facilities in the area.
Saltwater disposal services are located in the Laredo-Zapata, Texas area, which is a significant gas producing area. However, reductions in gas prices could significantly reduce the level of activity for both production levels and drilling services revenues.
The Company maintains several bank accounts at several banks through the various consolidated entities. Funds deposited at the banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 for each unique combination of entity and bank. Cash balances exceeded federally insured limits occasionally throughout the year. At December 31, 1996, the Company had no uninsured cash balances.
NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure About Fair Value of Financial Standards." This standard requires disclosing fair values, to the extent practicable, for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial statements disclosed herein is not necessarily representative of the amounts that could be realized or settled, nor do the fair value amounts consider the tax consequences of realization or settlement. The following table summarizes financial instruments by individual balance sheet account:
Carrying Fair Amount Values Financial assets: Cash $ 298,521 $ 298,521 Receivables 575,573 575,583 Marketable securities & futures contracts 43,756 43,756 Restricted cash 100,954 100,954 Long-term receivables & other investments 434,408 538,800 Total Financial Assets $1,453,212 $1,557,614
Financial liabilities: Accounts payable & accrued expenses $ 58,677 $ 58,677
The fair values of financial instruments classified as current assets or liabilities approximate carrying value due to the short-term maturity of the instruments. Fair value of long-term receivables and other investments was based on discounted cash flows. The futures contracts are a leveraged investment vehicle and carry increased risks over those of other types of investments. Management has determined that its holdings are sufficiently protected to reduce this risk as low as possible.
The Company also owns a 12.5% interest in Southwest Tire Processors, Inc. (SWTP) in New Mexico and a 7% interest in Signature Motorcars, Inc. (SMC). SWTP is a privately held entity with no market for its stock. It is impracticable to estimate the fair value of this investment and it is carried at cost. SMC is a publicly traded entity as a bulletin board stock. Partially because of the development stage of this entity's operations, it is very thinly traded. The Company would have trouble moving its block of stock in the current market. Also, the Company's holding is restricted Rule 144 stock which must be held for two years from issuance before it can be sold on the market. Due to these factors, it is also impracticable to estimate the fair value of this investment even though a stock price is obtainable.
NOTE 15: SUBSEQUENT EVENTS
The Company's Oil Seeps, Inc. subsidiary has made arrangements to sell its Australian prospect to third parties for a profit to the Company.
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SUPPLEMENTARY DATA - RESERVES OF OIL AND GAS December 31, 1996, 1995 and 1994
Reserves of oil and gas - Working Interests (unaudited)
The following table identifies the Company's estimated quantities of proved developed reserves of crude oil (including condensate and natural gas liquids) and natural gas related to working interests, as estimated through 1994 by a non-independent petroleum engineer, Ken Kamon, who is the son of Robert and Effie Kamon, former President and Secretary of the Company. Amounts since 1994 were rolled forward without additional analysis by an engineer. The estimated proved oil and gas reserves included are located entirely within the United States.
Quantities of oil and gas reserves
1996 1995 1994 Oil Gas Oil Gas Oil Gas (bbls.) (mcf) (bbls.) (mcf) (bbls.) (mcf)
Beginning of year 3,392 23,314 5,090 30,416 3,680 36,073 Extensions, discov- eries and other additions - - - - - - Purchases/(sales) of reserves in place - - (1,566) (612) 1,684 - Revisions to previous estimates - - - - 277 144 Production (535) (4,157) (132) (6,490) (551) (5,801) End of year 2,857 19,157 3,392 23,314 5,090 30,416
Revisions to reserve estimates represent changes in previous estimates of proved reserves resulting from new information normally obtained from development drilling and production history or resulting from a change in economic factors. Reserve information has not been reported to any other federal agencies.
Reserves of oil and gas - Royalty Interests (unaudited)
The quantities of proved reserves of oil and gas relating to royalty interests are not presented because the necessary information is not available or the Company's interests are not large enough to economically obtain this information. The Company's share of oil and gas produced from these interests is presented in the following schedule:
United States Australia Oil Gas Oil Gas (bbls.) (mcf) (bbls.) (mcf) For the year ended: December 31, 1996 3,217 9,059 10,255 - December 31, 1995 3,056 8,670 6,855 - December 31, 1994 3,654 10,519 7,385 -
Results of Operations for Producing Activities for the Year Ended December 31
1996 1995 1994 United United United States Australia States Australia States Australia
Sales of oil and gas $92,156 $219,065 $69,709 $131,045 $ 84,179 $131,034 Production costs (includ- ing taxes) 10,854 91,996 10,238 66,734 13,488 46,935 Acquisition & exploration costs 19,581 2,696 - - 4,126 200,419 Depletion 25,049 48,194 15,336 28,030 7,476 24,896 55,484 142,886 25,574 94,764 25,090 272,250 Results of operations from producing activities (ex- cluding cor- porate overhead $36,672 $ 76,179 $44,135 $ 36,281 $ 59,089 $(141,216)
Capitalized Costs Relating to Oil and Gas Producing Activities
December 31, 1996 United States Australia Total Unproved properties (not being amortized) $ 45,439 $ 363,204 $ 408,643 Proved properties (being amortized Evaluated proved properties 268,057 - 268,057 Unevaluated proved properties 946,948 1,169,935 2,116,883 1,215,005 1,169,935 2,384,940 Total Capitalized Costs 1,260,444 1,533,139 2,793,583 Accumulated Depletion (312,677) (328,260) (640,937) Net Capitalized Costs $ 947,767 $1,204,879 $2,152,646
December 31, 1995 United States Australia Total Unproved properties (not being amortized) $ 41,903 $ 363,204 $ 405,107 Proved properties (being amortized) Evaluated proved properties 268,057 - 268,057 Unevaluated proved properties 930,904 1,169,935 2,100,839 1,198,961 1,169,935 2,368,896 Total Capitalized Costs 1,240,864 1,533,139 2,774,003 Accumulated Depletion (287,628) (280,066) (567,694) Net Capitalized Costs $ 953,236 $1,253,073 $2,206,309
December 31, 1994 United States Australia Total Unproved properties (not being amortized) $ 41,901 $ 468,515 $ 510,416 Proved properties (being amortized) Evaluated proved properties 289,657 - 289,657 Unevaluated proved properties 927,137 1,064,624 1,991,761 1,216,794 1,064,624 2,281,418 Total Capitalized Costs 1,258,695 1,533,139 2,791,834 Accumulated Depletion (262,531) (251,236) (513,767) Net Capitalized Costs $ 966,164 $1,281,903 $2,278,067
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
1996 1995 1994 United United United States Australia States Australia States Australia
Property acquisition costs Proved $16,045 $ - $ - $ - $156,960 $ - Unproved 3,536 - 3,767 - - 200,418 Exploration costs - - - - - - Development costs - - - - - - $19,581 $ - $ 3,767 $ - $156,960 $200,418
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Working Interest Oil and Gas Reserves (unaudited)
1996 1995 1994 Future cash inflows $103,032 $ 95,923 $127,454 Future production and development costs (42,491) (52,232) (73,119) Future income tax expense (see note) (20,584) - - Future net cash flows 39,957 43,691 54,335 10% annual discount for estimated timing of cash flows (18,407) (11,925) (13,433) Standardized measure of discounted future net cash flows $ 21,550 $ 31,766 $ 40,902
NOTE: Through 1995, the Company had net operating losses and investment tax credits which were expected to offset any forseeable future income taxes.
Changes in Standardized Measure of Discounted Future Net Cash Flow from Proved Working Interest Reserve Quantities (unaudited)
1996 1995 1994 Standardized measure - beginning $ 31,766 $ 40,902 $ 35,417 Sales, net of production costs (13,393) (6,511) (11,662) Sales of reserves in place - (6,715) - Extensions and discoveries, net of future costs - - - Revisions of quantity estimates - - 1,578 Purchase of reserves - - 9,137 Accretion of discount 3,177 4,090 3,542 Changes in sales prices, production costs and other - - 3,302 Other - - (412) Standardized measure - end $ 21,550 $ 31,766 $ 40,902
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Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Directors
The Board of Directors of the Company (the "Board") presently consists of eight members. The directors of the Company are divided into three classes designated as Class I, Class II, and Class III. The term of office of the initial Class I directors expires at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors expires at the second succeeding annual meeting of stockholders, and the term of office of the initial Class III directors expires at the third succeeding annual meeting of stockholders. The initial Class I, Class II, and Class III directors are those directors elected at the June 14, 1991 annual meeting. At each annual meeting after the June 14, 1991 annual meeting, directors to replace those of a Class whose terms expire at such meeting shall be elected to hold office until the third succeeding annual meeting. Currently serving as directors are: Ivan Webb, Karen Lee, and Betty Polston as Class I directors; John Vuksich and Richard A. Levine as Class II directors; and Howard Siegel, Kenneth Owens and Glenn Gagnon as Class III directors. David Polston resigned as a Class II director effective March 13, 1997. Richard A. Levine and Glenn Gagnon were appointed as directors during March of 1997 to be placed on the ballot for election at the next meeting of stockholders. The following table sets forth information concerning the persons currently serving as directors of the Company. Date First Position With Elected Name Age the Company as Director Kenneth Owens 59 Chairman of the 1994 Board and President Ivan Webb 46 Chief Financial 1993 Officer and Director Karen Lee 37 Director 1989 Betty Polston 63 Director 1995 David Polston 38 Director 1995 Howard B. Siegel 54 Director 1980 John M. Vuksich 45 Director 1995 Richard A. Levine 49 Appointed Director -- Glenn Gagnon 32 Appointed Director --
Executive Officers
Unless otherwise specified by the Board, all executive officers are elected for a term of one year, commencing with the date of the first meeting of the Board following the annual meeting of stockholders, and serve until their successors are elected or appointed and qualified, or until their respective death, resignation, removal or disqualification. All of the Company's officers are executive officers. The following table sets forth certain information with respect to the persons currently serving as executive officers of the Company. Date First Position With Elected Name Age the Company as Director Kenneth Owens 59 Chairman of the 1994 Board and President Ivan Webb 46 Chief Financial 1993 Officer and Director Shawna Owens 24 Secretary/Treasurer 1995
Family relationships between the Company's officers and directors include: Kenneth Owens and Shawna Owens are father and daughter.
Kenneth Owens, Chairman of the Board and President, has expertise in various areas of business. Beginning in 1961 he performed in a supervisory capacity for several worldwide companies including Becktel and Brown & Root. He has been involved in a variety of projects including: (1) Alaskan oil and gas pipeline; (2) ICBM projects; and (3) underground nuclear testing in Nevada. He has also been active in real estate and agriculture, acquiring a major interest in ranch grazing land and cattle operations in Texas, Arizona, and New Mexico covering hundreds of thousands of acres.
At the present time, he is active in both agricultural ventures and oil and gas operations. He is also consultant for surrounding businesses in south Texas concerning the Railroad Commission of Texas and the Texas Natural Resource Conservation Commission. He incorporated Transcon Energy Corp. in Texas in 1988, and since that time he has incorporated several other companies and holds positions in these companies as President and/or CEO or Director.
Ivan Webb, Chief Financial Officer and Director, is a petroleum landman. He received his Bachelor of Business Administration degree in Management from Tarleton State University (branch of Texas A & M) in 1978. In July, 1992, the Company acquired Houston Oil & Energy, Inc. (HOE). Mr. Webb was an officer and director of HOE for 11 years. He was instrumental in the preparation of four oil and gas public stock offerings in 1972, 1974, 1976 and 1981, being employed by each of these companies to seek oil and gas production plus manage the office operations. Mr. Webb has negotiated the acquisition of more than 200 producing oil and gas wells within the United States.
In addition to the domestic acquisitions, Mr. Webb has been active in leasing foreign oil and gas concessions, mostly in Australia. He has successfully leased over 12,000,000 acres in Queensland, Australia, and has negotiated lease terms with government officials for oil and gas exploration in Argentina, Guyana, and New Zealand. Over the past four years Mr. Webb has acted as an independent consultant and managed the drilling operations of sixteen oil and gas wells in central Texas, thirteen of which have been completed as producers.
Shawna Owens, Secretary/Treasurer, attended Texas A&M University and has experience in management, accounting and public relations with different law firms. Ms. Owens worked in Washington, D. C. for Senator Pete Dominici of New Mexico and also worked with the Sergeant of Arms for the U. S. Senate Chambers. She is in charge of bookkeeping and was instrumental in automating GTII's accounting. Ms. Owens also performs public relations duties for the Company. She has been employed by the Company since August, 1995.
Karen Lee, Director, graduated with high honors from Cisco Junior College. She administers the operation of the Company's offices in Springtown, Texas, performs many tasks in connection with the Company's public relations and broker relations programs, does much of the research and writing for filing of Securities and Exchange Commission documents, and performs transfer agent duties for the Company. Ms. Lee has been employed by the Company for the past 17 years.
Betty Polston, Director, received two Masters degrees and worked as a business/education consultant before moving to South Texas. For the past seven years she has been employed by OCR and Transcon, now subsidiaries of GTII, and has been instrumental in the development of their facilities. She is the office manager, plus is responsible for establishing and keeping current all leases and permits for the entire South Texas operation, which includes OCR, Transcon and Jim Wells. She manages the base field radio and office phone on a 24 hour seven day a week basis, helps coordinate field operations, and handles inquiries from clients, Railroad Commission inspectors, lease holders, suppliers, SEC auditors etc.
Howard B. Siegel, Director, received his Bachelor of Business Administration Degree from the University of Oklahoma in 1966. He received a Doctor of Jurisprudence Degree from St. Mary's University School of Law in 1969. Mr. Siegel was formerly an attorney for Superior Oil Company, a major oil and gas concern located in Houston. He previously served as Vice President, General Counsel, and a member of the Board of Directors of Tenneco Inc. Federal Credit Union. From July 1974 to August 1989, Mr. Siegel was employed as an attorney with the law firm of Bracewell & Patterson in Houston, Texas, and from that date until January, 1991 he was employed with Hurt, Richardson, Garner, Todd & Cadenhead in Atlanta, Georgia. Mr. Siegel is currently employed as an attorney with Eikenburg & Stiles in Houston, Texas. Mr. Siegel has served in an advisory capacity to the Board of Directors of the Company since March 25, 1980.
John M. Vuksich, Director, received a B.S. degree from the U. S. Military Academy at West Point, a M.S. degree from Stanford University, and another M.S. degree from the Naval War College. From 1987 to 1991 he was the System Element Manager/Operations Research Analyst for the Strategic Defense Initiative Organization in Washington, D. C. From August 1991 to July 1993 he was the Senior Cost Analyst for the Office of the Assistant Secretary of Defense where he conducted independent assessments for the Under Secretary of Defense for Acquisition of selected defense programs, and assessed all elements of the Strategic Defense Initiative. From September 1994 until February 1996, Mr. Vuksich served as the Science Advisor to the Governor of New Mexico.
Dr. Richard A. Levine, appointed Director, received three degrees from State University of New York at Buffalo - B.A., D.D.S., with honors, M.D., with honors. After residencies including the U.S. Army Institute of Surgical Research and Resident in General Surgery at Buffalo General Hospital, and appointments at several hospitals such as Chief of Plastic Surgery at Charleston Veteran's Administration Hospital and Attending Plastic Surgeon at Medical University of South Carolina, Dr. Levine settled in San Antonio. He has been self-employed in San Antonio for the past five years, and on the active staff of the Baptist Memorial Hospital System. He is Chairman of the Division of Plastic Surgery for the Baptist Memorial Hospital System, and is the Clinical Associate Professor - Department of Plastic Surgery at the University of Texas Health Science Center at San Antonio. Dr. Levine has had articles published in the "Journal of Plastic and Reconstructive Surgery" and has given numerous presentations on various subjects in his field.
Glenn Gagnon, appointed Director, received a Bachelor of Science degree from Texas A&M University in 1994. From 1990-1994 he was employed by Gold Gyms Inc. and was responsible for marketing, sales and automation of new facilities. He has been employed by GTII since 1994 and is now in charge of public relations for the Company. He established the Dividend Reinvestment and Stock Purchase Plan for the Company and is currently assisting with filing of Securities and Exchange Commission documents.
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Item 11.
Item 11. Executive Compensation
The following table sets forth certain information as to each of the Company's executive officers for the past three fiscal years.
Salary Cash Bonus Stock Name and Compensation Compensation Principal Position Year ($) ($) Kenneth Owens 1994 -0- -0- Chairman and President 1995 -0- -0- 1996 -0- -0-
Ivan Webb 1994 33,365 -0- Chief Financial 1995 38,926 -0- Officer 1996 17,037 -0-
Shawna Owens 1994 -0- -0- Secretary/Treasurer 1995 5,500 -0- 1996 13,410 5,500
Director Compensation
In 1994 each director, with the exception of Robert Kamon who volunteered to forego his fee, received $2,000 cash for services rendered in their capacities as directors; no stock was issued for directors' fees. In 1995, the Board approved a $1,500 fee for each director to be paid as cash or 500 shares of stock. The fee was paid in cash to six directors, and in stock to four directors. In 1996 the Board approved a $1,500 fee for each director to be paid as cash or 500 shares of stock. Subsequent to the year end, the fee had not yet been paid.
Compensation Committee Report
The Board of Directors delegates responsibility for executive compensation to the Compensation Committee which is presently comprised of two of the directors on the Board. This committee reviews the salaries of each of the officers of the Company, as well as recommends the directors' fees for the year. The Committee recommended to the Board that all salaries remain at the same level for all officers during 1996, that a bonus plan in place for two officers/employees be terminated, and that directors' fees for 1996 be $1,500 cash or 500 shares of stock. The Compensation Committee did not recommend incentive packages to the Board for the officers and employees during 1996.
Performance Graph - Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on the Corporation's Common Stock against the cumulative total return of the NASDAQ Stock Market and the NASDAQ Non-Financial Stocks. The graph assumes that the value of the investment in the Corporation's Common Stock and each index was $100 at December 31, 1992. GTII's numbers reflect a 1-for-20 reverse stock split in 1993, and a 1-for-2.5 reverse stock split in 1995.
Comparison of Five-Year Cumulative Total Return
December 31 1992 1993 1994 1995 1996 GTII Stock 100.00 67.50 51.47 72.88 57.75
NASDAQ Stock 100.00 114.80 112.21 158.68 195.19
Non-Financial Stocks 100.00 115.45 111.02 154.71 187.97
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Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the Company's common stock as of March 18, 1997 with respect to (1) each person known by the Company to own beneficially more than 5% of the Company's common stock, (ii) each of the Company's directors, and (iii) all directors and officers of the Company as a group. The title of class is common stock, $.001 par value.
NOTE: Some of the following shareholders have exchanged all or a portion of their common shares for preferred shares (see Part III, Item 5, Preferred Stock). In accordance with the Preferred Stock Plans, the preferred shares have the same voting rights as if they were common shares (1 preferred share is equivalent to 10 common shares). Therefore, the shares are listed below as common shares, with a footnote following to explain the breakdown of the number of common and the number of preferred each person holds.
# of Shares Name and Beneficially Percent of Address of Stockholder Owned Class
Kenneth Owens 1,314,543 (1) 33.18% P. O. Box 125 Magdalena, New Mexico 87825
Howard B. Siegel 500 00.01% 14760 Memorial Dr., Ste. 300-228 Houston, Texas 77079
Karen Lee 4,656 00.12% 104 Fossil Court Springtown, Texas 76082
Ivan Webb 5,300 00.13% P. O. Box 31 Cisco, Texas 76437
Betty Polston 282,458 (2) 07.13% P. O. Box 470 Zapata, Texas 78076
John Vuksich 10,500 (3) 00.27% 4322 Shadow Oak Lane Austin, Texas 78746-1267
Shawna Owens 2,000 (4) 00.05% P. O. Box 22010 Albuquerque, New Mexico 87154
Dr. Richard A. Levine 3,637 00.09% 8500 Village Drive, Ste. 102 San Antonio, Texas 78217
Glenn Gagnon 2,117 (5) 00.05% 8504 Sonoma Valley N.E. Albuquerque, New Mexico 87122
All directors and officers as a 1,625,711 (6) 41.03% group (9 persons)
David Polston 278,808 (7) 07.04% P. O. Box 470 Zapata, Texas 78076
Ken Kamon 252,595 (8) 06.38% P. O. Box 10589 Midland, Texas 79072
(1) Common - 13,493; Preferred B - 130,105 (2) Common - 14,558; Preferred B - 26,790 (3) Common - 500; Preferred B - 1,000 (4) Preferred B - 200 (5) Common - 317; Preferred B - 180 (6) Common - 42,961; Preferred B - 158,275 (7) Common - 28,808; Preferred B - 25,000 (8) Common 172,595; Preferred A - 6,500; Preferred B - 1,500
Note: The stockholders identified in this table have sole voting and investment power with respect to the shares beneficially owned by them.
Changes in Control
No changes in control occurred during 1996, and management is not aware of any present arrangements that would cause a change in control in the future.
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Item 13.
Item 13. Certain Relationships and Related Transactions
During 1996, GTII borrowed money to purchase the use of the Amando Disposal Facility, $313,000 of which was borrowed from directors of GTII, directors' family members, and security holders known to own more than 5% of the Company. Following is a table showing the related party who loaned the money to GTII, date of loan, amount of loan, interest rate, and the date GTII repaid the loan.
Amount of Date of Interest Date Name Loan Loan Rate Paid Off Kenneth Owens $120,000 04/23/96 25% 12/30/96 Betty Polston $100,000 04/23/96 25% 10/22/96 John Vuksich $ 15,000 04/23/96 25% 05/18/96 Ken Kamon $ 38,000 04/23/96 25% 05/18/96 Derald Polston $ 40,000 05/05/96 25% 10/22/96
GTII repaid all loans plus interest before the 1996 year end.
Several of the officers and directors of the Company have invested in the oil and gas business, either directly or through entities in which they have an interest. Certain of these interests could directly compete with the interests of the Company. Although the Company is not aware of any present conflicts of interest, such present or future activities on the part of the officers and directors could directly compete with the interests of the Company. If the Company should enter into future transactions with its officers, directors or other related parties, the terms of any such transaction will be as favorable to the Company as those which could be obtained from an unrelated party in an arm's-length transaction.
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PART IV
Item 14.
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a) The following documents are filed as a part of this report or are incorporated by reference:
Financial Statements - The following information has been included in response to Item 8 above.
- Report of Independent Certified Public Accountants - Consolidated Balance Sheets - Consolidated Statements of Operations - Consolidated Statements of Changes in Shareholders' Equity - Consolidated Statements of Cash Flows - Notes to Consolidated Financial Statements - Supplementary Data for Reserves of Oil and Gas
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GOLDEN TRIANGLE INDUSTRIES, INC.
By: /s/ KENNETH OWENS Kenneth Owens President
Date: March 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ KENNETH OWENS Chairman of the Board March 18, 1997 Kenneth Owens and President
/s/ IVAN WEBB Chief Financial March 18, 1997 Ivan Webb Officer, Principal Accounting Officer and Director
/s/ HOWARD B. SIEGEL Director March 18, 1997 Howard B. Siegel
/s/ KAREN LEE Director March 18, 1997 Karen Lee
/s/ BETTY POLSTON Director March 18, 1997 Betty Polston
/s/ JOHN VUKSICH Director March 18, 1997 John Vuksich
/s/ RICHARD A. LEVINE Director March 18, 1997 Richard A. Levine
/s/ GLENN GAGNON Director March 18, 1997 Glenn Gagnon