ALTEX INDUSTRIES INC

In FY19 the Company wrote down the carrying value of it oil and gas properties by recognizing an impairment provision of $24,000. Interest income increased from $30,000 in FY18 to $51,000 in FY19 because of higher realized interest rates on cash balances. Included in other income in FY19 was $63,000 in bonus payments for undeveloped acreage leased to third parties.

We have audited the accompanying consolidated balance sheets of Altex Industries, Inc. (“the Company”), as of September 30, 2019 and 2018 and the related consolidated statements of operations, changes in stockholder’s equity and cash flows for the years then ended and the related notes (collectively referred to as the “ financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the two years in the period ended September 30, 2019, in conformity with U.S. generally accepted accounting principles.

Revenue recognition: The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Substantially all of the Company’s revenue is from sales of oil and gas production, interest income, and, occasionally, bonus payments for mineral leases. Revenue from oil and gas production is recognized based on sales date as reported to the Company by the operators of oil and gas production facilities in which the company has an interest. Interest income is recognized when earned. The Company accounts for mineral lease bonus payments in accordance with the guidance set forth in ASC 932, Extractive Activities – Oil and Gas, and it classifies such income as other income. The Company recognizes revenue from mineral lease bonus payments when it has received both an executed agreement and the bonus payment, and the Company has no obligation to refund any portion of the payment. The Company classifies mineral lease bonus payments as other income because the leasing of mineral interests is not a principal business activity of the Company, and material amounts of mineral lease bonus payments do not occur with any regularity.

In February 2016, the FASB issued ASU 2016-2, Leases (Topic 842), which requires lessees to recognize a lease liability and right-of-use asset for all leases, including operating leases, with a term greater than 12 months on the balance sheet. The provision of ASU 2016-2 also modifies the definition of a lease and outlines the requirements for recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. The ASU 2016-2 is effective for annual periods beginning after December 15, 2018. The Company is currently in the process of reviewing this pronouncement to determine the impact on is financial statement as it relates to its operating lease as discussed in Note 5.

Note 5 - Leases. The Company rents office space under a short-term lease that the Company may cancel upon 30 days’ notice and the payment of a $4,000 termination fee. If the lease is not canceled, it will terminate on June 30, 2025. The Company incurred rent expense of $25,000 in 2019 and $25,000 in 2018. The landlord may increase annual rent no more than CPI.

Note 7 – Subsequent events. The Company has evaluated all transactions from September 30, 2019 through the financial statement issuance date for subsequent event disclosure consideration and noted no significant subsequent event that needs to be disclosed.