statements in correction of omissions or inaccuracies in the statements filed previously. We consider first the corporate and consolidated financial statements of Red Bank. The financial statements of Seatex, a subsidiary not consolidated, will be discussed separately. In the years 1940-42 Red Bank had no subsidiaries and only corporate statements were filed.

FINANCIAL STATEMENTS FOR THE YEAR 1940

The revised balance sheet for 1940 shows total assets of $195,213, current assets of $8,595 and current liabilities of $846,884. It indicates that of the latter amount $380,338 was owing to the Bennett interests. An explanatory note states that Bennett in June 1940 purchased, at a cost of $125,000, 101,480 shares of Red Bank stock and a note of the company for some $270,000 including accrued interest, and that Bennett in August, 1940 transferred the stock and note to Bennett Investment Corporation, controlled by Bennett.

Notes to the balance sheet also disclose transactions between Red Bank and the Bennett Oil Corporation, controlled by Bennett. On September 30, 1940, Bennett Oil Corporation sold to Red Bank for $36,000 certain oil and gas leases which Bennett had transferred to the corporation on the same date. Bennett Oil Corporation carried the leases at $9,657, the costs incurred by Bennett prior to the transfer. There were two producing wells on one of the leases and Red Bank drilled one oil well on each of the other two principal leases, one of which proved to be a commercial producer, the other producing in limited quantities. As of December 31, 1941, these three leases were sold to the Federal Oil Company, controlled by Bennett, at a small profit to Red Bank.

Also in September 1940, Bennett Oil Corporation sold Red Bank a nonproducing lease for $15,000. Bennett had acquired the lease in May for $5,250 and transferred it for that amount to the corporation in the same month. Red Bank sold the lease to the Federal Oil Company for $15,000 in December 1941. In another transaction in September 1940, Red Bank acquired from Bennett Oil Corporation for $25,000 an undivided one-half interest in certain leases upon which Bennett had an obligation to drill. Except for this obligation Bennett had no cost basis in the leases. Bennett and Bennett Oil Corporation drilled a well, which was abandoned as a dry hole in 1941, at which time Red Bank charged off its cost as a loss. Similarly in August 1940, Red Bank acquired from Bennett Oil Corporation for $8,000 half of an undivided interest in certain leases on which a well was being drilled. Bennett had acquired the full one-half interest for $16,000 and had transferred the one-quarter interest to Bennett Oil Corporation in May 1940. The well was completed as a dry hole and

plugged in September 1940 and Red Bank charged off its cost as a loss in that year.

The revised statement of profit and loss for the year 1940 reports a net loss of $137,344 as compared with the loss of $121,990 originally reported. The adjustments which produced the revised figure are set forth in a note to the statement.

FINANCIAL STATEMENTS FOR THE YEAR 1941

The revised balance sheet for 1941 shows total assets of $209,043 and current assets of $2,747. $119,844 of the total assets represents the cost of the Ortego lease which was purchased in December from Oil Incomes, Inc. In 1942 the purchase was rescinded since the company was not in a position to liquidate the liabilities assumed, negotiations with creditors for a recapitalization of the company having been unsuccessful. Current liabilities totalled $973,619, of which $368,792 was owing to the Bennett interests.

The revised financial statements disclose certain of the transactions of Red Bank with the Federal Oil Company, controlled by Bennett. In December 1941 Red Bank sold two leases to the Federal Oil Company for $32,000, which was applied on Red Bank's note held by Federal Oil. The lease was subject to an oil payment of $13,495, which Federal Oil assumed. Since Red Bank's cost was $37,739, a profit of $7,756 was made on the sale. However, this profit was offset by an expense item of $6,000 which resulted earlier in the year when it assumed the $15,000 oil payment obligation for a consideration of only $9,000.

In December 1941 Red Bank purchased from the Federal Oil Company for $12,500 a one-half interest in a lease which Federal had acquired on the same day for $1,200. Red Bank had held title at no cost to it to the other one-half interest. Immediately thereafter Red Bank sold the lease for $25,000, retaining a one-sixtyfourth overriding royalty.

A net loss of $112,905 is shown by the revised statement of profit and loss, as compared with $99,530 in the statement originally filed. The adjustments which produced the revised figure are set forth in a note to the statement.

FINANCIAL STATEMENTS FOR THE YEAR 1942

The revised balance sheet for 1942 shows total assets of $65,906, current assets of $1,584 and current liabilities of $884,057, of which $526,793 was owing to the Bennett interests. A note indicates that during the year Bennett Investment Corporation had acquired at a cost of $7,878 notes and judgments against Red Bank totalling $128,779 principal amount with accrued interest at the end of the

year of $28,877. The revised balance sheet shows that, apart from the amounts owing to the Bennett interests, there were judgments payable of $47,465 and notes payable, past due, of $135,745. The original financial statements filed did not indicate any judgments outstanding against the company or that any of the notes payable were past due.

The revised statement of profit and loss shows a net loss of $53,574 as against the $61,790 originally reported. The adjustments which produced the revised figure are set forth in a note to the statement.

CORPORATE AND CONSOLIDATED BALANCE SHEETS FOR 1943 and 1944

As explained above, in 1943 Red Bank acquired three subsidiaries. The corporate and consolidated balance sheets for the years 1943 and 1944 can conveniently be discussed together.

Accounts Receivable.-The original corporate balance sheet for Red Bank for 1943 included as current assets $13,520 of "Accounts Receivable Customers (Pipeline Companies)" and $130,940 of other accounts receivable. The revised balance sheet at the same date includes in current assets only $12,441 of accounts receivable. Two substantial items classified as noncurrent in the revised statement are "Indebtedness of Wholly-owned Subsidiaries" $71,100 and $49,496 receivable from the Bennett interests.

In the original consolidated balance sheet for Red Bank and two wholly-owned subsidiaries for 1943 a similar overstatement of current amounts receivable is apparent. In the revised statement the total of current receivables has been reduced from $221,928 to $126,176.

The original 1944 corporate and consolidated balance sheets also overstated the amount of current accounts receivable by material amounts.1 In the corporate statement the revised amount is shown as $10,666 as compared with $75,948 in the original; in the revised consolidated statement current accounts receivable have been reduced from $245,111 to $151,314.

Investments.-The status of Red Bank's investment in Seatex Oil Company was not clear in the statements originally filed since in some cases this investment was lumped together with the investment in Yuan Development Company under the heading of investments in other corporations. The revised statements clarified the matter, listing the investment in Seatex separately as an investment in a majority-owned subsidiary.

In the revised statements a reserve is provided to reduce the investment in Yuan Development Company to zero in view of the absence of evidence of value. The investment represents 54 shares of Yuan's

A consolidated balance sheet for 1944 was filed with the registration statement. A consolidated balance sheet was omitted from the 1944 annual report.

total capitalization of 2,000 shares. Red Bank acquired the 54 shares for $35,000 from Federal Oil Company in July 1943 in a transaction in which other assets also were acquired from Federal Oil Company. Notes to the revised statement give the details of the transactions and indicate that Bennett acquired the Yuan stock in 1938 and 1939 for a total cost of $33,591, transferring it at that figure to Federal Oil Company in June 1943. The statements originally filed did not disclose these transactions nor was a revaluation reserve provided.

Acquisition of Subsidiaries.-Notes to the revised financial statements disclose in some detail the transactions through which Red Bank in 1943 acquired three subsidiaries, Federal Steel Products Corp., Red Bank Refining Company, and Seatex Oil Company. A discussion of these transactions has been given above and will not be repeated here. The original financial statements filed failed to reveal the transactions with the Bennett interests connected with the acquisition of these subsidiaries and failed to indicate as such the obligations incurred to the Bennett interests in connection therewith.

Fixed Assets.-Red Bank's interest in its Mitchell producing royalties and oil payments was not accurately stated in the balance sheets originally filed. The royalties and payments were acquired by Red Bank in 1943 for $160,000. In April 1944 Red Bank sold one-half of its interest to Seatex for $85,000; Seatex financing its purchase with a bank loan. Under the contract of sale the total income from the royalty is to go first to Seatex until a total of $85,000, plus 5% on the unrecovered balance, has been received and then is to go to Red Bank until $75,000, plus 5% interest on the unrecovered balance, has been received; thereafter the two companies share the income equally. At September 30, 1946 the unrecovered balance of Seatex' cost was $46,930.

The revised statements further indicate that Red Bank's interest in the Ortego lease was not accurately stated in the balance sheets originally filed. The interest in the lease, which was reacquired by Red Bank in 1943, is subject to a liability not running directly against Red Bank. Proceeds of oil sales from the lease have been impounded and will not be received by Red Bank until this liability, which is in dispute, is settled. The known amount of liability is $77,777. An additional liability may run as high as approximately $22,000. The liability is being liquidated from .2766927 of the oil sales, which interest will revert to Red Bank when the obligation is satisfied. The amount of income accumulated toward the liability to September 30, 1946, was $28,020, and payments of $3,390 had been made.

Organization Expense.-In connection with the recapitalization of Red Bank in 1943, legal expenses of $7,126 were incurred. This amount was set up under the caption "Organization Expense" in the

balance sheets originally filed, without any provision for amortization. In the revised financial statements the item is being amortized.

Obligations Owing To and From Affiliates.-The balance sheets originally filed failed to state separately obligations owing to and from affiliates of Red Bank and its subsidiaries, as required by Rule 5-02 of Regulation S-X. The revised corporate balance sheet for 1943 shows receivables from the Bennett interests of $57,967 and indebtedness to the Bennett interests of $138,725; on a consolidated basis in 1943 receivables from the Bennett interests were $80,074 and indebtedness to the Bennett interests $138,725. In 1944 on a corporate basis receivables from the Bennett interests were $10,776 and indebtedness to the Bennett interests $77,179. On a consolidated basis in 1944 receivable from the Bennett interests were $14,991 and indebtedness to the Bennett interests $101,608.

In this connection it may be noted that in purchasing certain assets from the Federal Oil Company in 1943, as indicated above, for a total of $74,243, Red Bank assumed indebtedness to the Reserve Loan Life Insurance Company and others of $135,538, reducing its indebtedness to Federal Oil Company by $61,295.

Contingent Liabilities.-A contingency for which no provision was made in the original financial statements filed was the renegotiation of war contracts of Federal Steel Products Corp. Footnotes to the original balance sheets merely stated that no provision had been made for renegotiation. The testimony indicates that no real attempt was made to determine the possibility of renegotiation. These contracts were renegotiable and a provision of $75,500, the maximum amount of claim which had been asserted, has been included for 1943 in the revised consolidated financial statements, with an additional explanation that provisions for 1944 and 1945 are deemed unnecessary because of lower rates of profits in those years.

The balance sheets originally filed failed to indicate that Red Bank had guaranteed the payment of a $100,000 note of Federal Steel Products Corp., issued to San Andres Production Company in connection with the acquisition by Federal Steel of the Dedman plant in Houston. The transactions in which stock of Seatex Oil Company was. acquired included transfers of Red Bank common stock to persons certain of whom resold it. No registration statement under the Securities Act was in effect with respect to this stock. The possibility that Red Bank might be liable for damages to purchasers of such unregistered shares is set forth as a contingent liability in the revised balance sheets filed.

A note to the balance sheet filed as an amendment to the annual report for 1945 indicates that Bennett has agreed to reimburse Red Bank Oil Company in the amount of $7,750 for profits of the Bennett.