U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended June 30, 1997
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to .
Commission file number 1-9030
ALTEX INDUSTRIES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 84-0989164
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
PO Box 1057 Breckenridge CO 80424-1057
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(Address of Principal Executive Offices)
(970) 453-6641
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of issuer's Common Stock as of June 30, 1997:
15,076,738
Transitional Small Business Disclosure Format:
Yes No X
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Page 1 of 7
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
(UNAUDITED)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,331,000
Accounts receivable 108,000
Other receivables 16,000
Other 2,000
Total current assets 1,457,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) 2,308,000
Other 71,000
2,379,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,103,000)
Net property and equipment 276,000
$ 1,733,000
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,000
Accrued production costs 31,000
Accrued reclamation, restoration, and dismantlement 3,000
Other accrued expenses 39,000
Total current liabilities 94,000
STOCKHOLDER'S EQUITY
Preferred stock, $.01 par value. Authorized 5,000,000 shares, none issued --
Common stock, $.01 par value. Authorized 50,000,000 shares, issued 15,217,238 shares 152,000
Additional paid-in capital 14,237,000
Accumulated deficit (12,434,000)
Treasury stock, at cost, 140,500 shares at June 30, 1997 (10,000)
Note receivable from stockholder (306,000)
1,639,000
$ 1,733,000
</TABLE>
See accompanying notes to consolidated, condensed financial statements.
Page 2 of 7
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLODATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
REVENUE
Oil and gas sales $ 155,000 240,000 694,000 659,000
Interest income 21,000 18,000 62,000 53,000
Gain on sale of assets -- -- 55,000 --
Other income (expense) 17,000 (5,000) 13,000 9,000
193,000 253,000 824,000 721,000
COSTS AND EXPENSES
Lease operating 86,000 72,000 289,000 237,000
Production taxes 15,000 25,000 77,000 65,000
General and administrative 85,000 88,000 296,000 245,000
Reclamation, restoration, and dismantlement -- -- 10,000 8,000
Depreciation, depletion, and amortization 13,000 17,000 38,000 52,000
199,000 202,000 710,000 607,000
NET EARNINGS (LOSS) $ (6,000) 51,000 114,000 114,000
EARNINGS (LOSS) PER SHARE $ * * 0.01 0.01
WEIGHTED AVERAGE SHARES OUTSTANDING 15,110,276 13,983,473 14,239,100 14,073,901
*Less than $.01 per share
</TABLE>
See accompanying notes to consolidated, condensed financial statements.
Page 3 of 7
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
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Nine Months Ended
June 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 114,000 114,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets (55,000) --
Depreciation, depletion, and amortization 38,000 52,000
Decrease in accounts receivable 33,000 26,000
Decrease in other receivables 7,000 10,000
Decrease in other current assets -- 1,000
Decrease in accounts payable (17,000) (28,000)
Decrease in accrued production costs (11,000) (17,000)
Decrease in accrued reclamation, restoration, and dismantlement (67,000) (27,000)
Decrease in other accrued expenses (3,000) (3,000)
Net cash provided by operating activities 39,000 128,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 58,000 --
Expenditures for oil and gas property development (3,000) (3,000)
Other additions to property and equipment (7,000) (2,000)
Net cash provided by (used in) investing activities 48,000 (5,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury stock (10,000) (20,000)
Net cash used in financing activities (10,000) (20,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 77,000 103,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,254,000 1,103,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,331,000 1,206,000
</TABLE>
See accompanying notes to consolidated, condensed financial statements.
Page 4 of 7
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED, CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS. In the opinion of management, the accompanying
unaudited, consolidated, condensed financial state ments contain all adjustments
necessary to present fairly the financial position of the Company as of June 30,
1997, its cash flows for the nine months then ended, and its results of
operations for the three and nine months then ended. Such adjustments consisted
only of normal recurring items. Certain reclassifications have been made to the
financial statements for the three and nine months ended June 30, 1996, to
conform with the classifications used in the financial statements for the three
and nine months ended June 30, 1997. The results of operations for the periods
ended June 30 are not necessarily indicative of the results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted ac counting principles
have been condensed or omitted. The accounting policies followed by the Company
are set forth in Note 1 to the Company's consolidated financial statements
contained in the Company's 1996 Annual Report on Form 10-KSB, and it is suggest
ed that these consolidated, condensed financial statements be read in
conjunction therewith.
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements contained in this Form 10-QSB that are not historical facts are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Factors that could cause actual
results to differ materially include, among others: general economic conditions;
the market prices of oil and natural gas; the risks associated with exploration
and production of oil and natural gas; the Company's ability to find, acquire,
market, develop, and produce new properties; operating hazards attendant to the
oil and natural gas business; uncertainties in the estimation of proved reserves
and in the projection of future rates of production and timing of development
expenditures; the strength and financial resources of the Company's competitors;
the Company's ability to find and retain skilled personnel; climatic conditions;
availability and cost of material and equipment; delays in anticipated start-up
dates; environmental risks; the results of financing efforts; and other
uncertainties detailed elsewhere herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Cash and cash equivalents increased from September 30, 1996, to June 30, 1997,
because of net cash provided by operating activities and because of proceeds
from the sale of assets. Accounts receivable declined because of reduced sales.
Other receivables declined because the Company received refundable taxes it paid
during 1995. During the quarter ended March 31, 1997 ("Q2FY97"), the Company
sold its working interests in wells in a field in Colorado for cash proceeds of
$58,000 and, accordingly, removed the capitalized costs related to the field,
and the associated depreciation, depletion, and amortization ("DD&A"), from the
Company's balance sheets. Accrued reclamation, restoration, and dismantlement
expense declined because, during the nine months ended June 30, 1997, the
Company was invoiced for substantially all estimated expenses accrued at
September 30, 1996, in connection with the reclamation of the Company's East
Tisdale Field, discussed below. Net cash provided by operating activities
declined during the nine months ended June 30, 1997, as compared to the nine
months ended June 30, 1996, because of payments of expenses related to the
reclamation of the Company's East Tisdale Field and because the Company's net
earnings, exclusive of gain on sale of assets, declined.
The Company is in the process of reclaiming its East Tisdale Field, which
contained oil-contaminated soil. All wells have been plugged and abandoned, all
oil-contaminated soil has been excavated and road-spread, and all pits have been
backfilled. The Company does not believe that substantial work remains to
complete reclamation and restoration, but the Bureau of Land Management, the
Wyoming Oil and Gas Conservation Commission, the Wyoming Department of
Environmental Quality, and private landowners will likely inspect the field in
late Summer 1997 and may, at that time, ask the Company to perform additional
remediation. At this time, the Company cannot reasonably predict what additional
remediation measures, if any, the Company will be required to perform to
complete reclamation and restoration.
In Summer 1996 a representative of the US Fish and Wildlife Service advised the
Company by telephone that a number of dead birds had been found in oil-saturated
pits in the East Tisdale Field and that, therefore, the Company was under
investigation for possible violations of the Migratory Bird Treaty Act, which
imposes criminal penalties on a strict liability basis of up to $10,000 per bird
on any person, including a corporation, who, by any means or manner, kills any
migratory bird. During Q2FY97 the Company was assessed $5,000 in fines related
to the bird deaths and advised that no further action against it was
anticipated. No other individual, group, or regulatory authority has indicated
any intention to bring a claim or complaint in connection with the East Tisdale
Field.
The Company regularly assesses its exposure to both environmental liability and
reclamation, restoration, and dismantlement expense. The Company does not
believe that it currently has any material exposure to environmental liability,
although this cannot be assured.
Page 5 of 7
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The Company does not believe that reclamation, restoration, and dismantlement,
net of salvage value, associated with the abandonment of any property other than
the East Tisdale Field will be material, although this cannot be assured.
On March 31, 1997, the Company entered into a new five-year employment agreement
with its president, effective October 1, 1996. Pursuant to the agreement, on
March 31, 1997, the Company sold 1,376,249 shares of Common Stock to its
president at fair market value. Consideration for the shares was an $83,000
non-recourse note secured by the shares that bears interest at the Applicable
Federal Rate and that is due at the end of the employment agreement. Also during
the nine months ended June 30, 1997, the Company acquired 140,500 shares of its
Common Stock in negotiated transactions for $10,000.
Average realized oil and gas prices were at six-year highs during the six months
ended March 31, 1997. Unless the Company's production of oil and gas increases
as the result of acquisitions of producing oil and gas properties, successful
drilling activities, or successful recompletions, the Company is likely to
experience negative cash flow from operations at some point in the future.
Although the Company continually evaluates possible acquisitions of producing
oil and gas properties, the market for such properties has become highly
competitive, with properties trading at prices well above those implied by the
Company's acquisition criteria.
With the exception of the Company's intention to acquire producing oil and gas
properties, and cash flows that may result from such acquisitions, the Company
knows of no trends, events, or uncertainties that have or are reasonably likely
to have a material impact on the Company's short-term or long-term liquidity.
Except for cash generated by the operation of the Company's producing oil and
gas properties, asset sales, or interest income, the Company has no internal or
external sources of liquidity other than its working capital. At June 30, 1997,
the Company had no material commitments for capital expenditures.
Sales declined during the three months ended June 30, 1997 ("Q3FY97"), as
compared to the three months ended June 30, 1996 ("Q3FY96"), because oil
production declined 10% and average realized oil prices declined 12%. A 19%
decline in gas production during Q3FY97 as compared to Q3FY96 was offset by a
24% increase in average realized gas prices. Also included in sales for Q3FY97
were certain negative adjustments which, in the opinion of management, were not
material. Sales increased during the nine months ended June 30, 1997, as
compared to the nine months ended June 30, 1996, because a 9% decline in oil
production was offset by a 12% increase in averaged realized oil prices, and a
19% decline in gas production was offset by a 60% increase in average realized
gas prices. Interest income increased during the three and nine months ended
June 30, 1997, as compared to the three and nine months ended June 30, 1996,
because of higher cash balances and higher realized interest rates. During
Q2FY97 the Company sold its working interests in wells in a field in Colorado
for a gain of $55,000. Other income consists of a multitude of miscellaneous
items, including adjustments to sales, production taxes, and lease operating
expense in prior periods reported currently by operators of properties in which
the Company has an interest. For Q3FY97 such items included $17,000 in refunds
of previously collected production taxes, and for Q3FY96 such items included a
$7,000 negative adjustment to accrued refundable production taxes.
During the nine months ended June 30, 1997, the Company recognized approximately
$44,000 in expense associated with replacing a pump in a well in which it has a
100% working interest and in other maintenance and repair expense related to the
well. Excluding these items, lease operating expense would have been $77,000
during Q3FY97 and $245,000 during the nine months ended June 30, 1997.
Production taxes declined during Q3FY97 as compared to Q3FY96 because of
decreased sales and increased during the nine months ended June 30, 1997, as
compared to the nine months ended June 30, 1996, because of increased sales.
General and administrative expense for the nine months ended June 30, 1997,
increased as compared to the nine months ended June 30, 1996, because during
Q2FY97 the Company recognized the following items: accrued bonus expense due its
president under his employment agreement of $13,000; tax indemnification expense
related to the president's 1995 and 1996 tax years of $12,000, pursuant to the
president's employment agreement; increased salary expense pursuant to the
president's new employment agreement of $7,000 (see above); fines related to
bird deaths of $5,000 (see above); compensation and acquisition consultant
expense of $6,000; additional director expense of $3,000; additional legal
expense of $4,000; additional employee training, benefit, bonus, salary, and
payroll tax expense of $6,000; and additional state franchise tax expense of
$2,000. DD&A declined because the Company's basis in its depreciable and
depletable assets declined. Net earnings for Q3FY97 declined as compared to net
earnings for Q3FY96 because of decreased sales.
Production of oil and gas from the Company's interests in wells in Utah and
Wyoming accounts for substantially all of the Company's oil and gas sales.
Certain parties have built a pipeline that is bringing substantial quantities of
Canadian crude oil into Wyoming. The Company believes that the pipeline will
materially increase the supply of crude oil in Wyoming, which may have a
material adverse effect on Utah and Wyoming crude oil prices, and, thus, on the
level of oil and gas sales and net income the Company would otherwise have
experienced. In addition, there is a general consensus among analysts that, over
the next nine months, world supply of crude oil will materially exceed demand,
putting considerable downward pressure on crude oil prices. Similarly, there is
a general consensus among analysts that, over the next few years, supplies of
natural gas will increase considerably, putting downward pressure on natural gas
prices in the United States. Reductions in the prices of oil and natural gas may
have a material adverse impact on the level of the Company's oil and gas sales
and on net income.
Page 6 of 7
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The Company's sales and net income are functions of the prices of oil, gas, and
natural gas liquids and of the level of production expense, all of which are
highly variable and largely beyond the Company's control. In addition, because
the quantity of oil and gas produced from existing wells declines over time, the
Company's sales and net income will decline unless rising prices offset
production declines or the Company increases its net production by investing in
the drilling of new wells, in successful workovers, or in the acquisition of
interests in producing oil or gas properties. With the exception of
unanticipated variations in production levels, possible additional reclamation,
restoration, and dismantlement expense, unanticipated environmental expense, and
price declines resulting from a general decline from current levels or price
declines resulting from a material increase in the supply of crude oil in
Wyoming, the Company is not aware of any other trends, events, or uncertainties
that have had or that are reasonably expected to have a material impact on sales
or revenue or income from continuing operations.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule - Submitted only in electronic format herewith,
pursuant to Item 601(c) of Regulation S-B.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the under signed, thereunto duly
authorized.
ALTEX INDUSTRIES, INC.
Date: July 17, 1997 By: /s/ STEVEN H. CARDIN
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Steven H. Cardin
Chief Executive Officer and
Principal Financial Officer
Page 7 of 7
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
OF ALTEX INDUSTRIES, INC. FOR THE QUARTER ENDED 6/30/97, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,331,000
<SECURITIES> 0
<RECEIVABLES> 124,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,457,000
<PP&E> 2,379,000
<DEPRECIATION> 2,103,000
<TOTAL-ASSETS> 1,733,000
<CURRENT-LIABILITIES> 94,000
<BONDS> 0
0
0
<COMMON> 152,000
<OTHER-SE> 1,487,000
<TOTAL-LIABILITY-AND-EQUITY> 1,733,000
<SALES> 155,000
<TOTAL-REVENUES> 193,000
<CGS> 0
<TOTAL-COSTS> 199,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,000)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
