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 March 31, 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 April 30, 1997:
15,136,738
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
MARCH 31, 1997
(UNAUDITED)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,361,000
Accounts receivable 142,000
Other receivables 15,000
Other 2,000
Total current assets 1,520,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) 2,307,000
Other 64,000
2,371,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,090,000)
Net property and equipment 281,000
$ 1,801,000
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 42,000
Accrued production costs 71,000
Accrued reclamation, restoration, and dismantlement 3,000
Other accrued expenses 36,000
Total current liabilities 152,000
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STOCKHOLDERS' 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 (12,428,000)
Treasury stock, at cost, 78,500 shares at March 31, 1997 (6,000)
Note receivable from stockholder (306,000)
1,649,000
$ 1,801,000
</TABLE>
See accompanying notes to consolidated, condensed financial statements.
Page 2 of 7
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
1997 1996 1997 1996
REVENUE
Oil and gas sales $ 279,000 231,000 539,000 419,000
Interest income 20,000 18,000 41,000 35,000
Gain on sale of assets 55,000 -- 55,000 --
Other income (expense) 1,000 6,000 (4,000) 14,000
355,000 255,000 631,000 468,000
COSTS AND EXPENSES
Lease operating 125,000 81,000 203,000 165,000
Production taxes 31,000 23,000 62,000 40,000
General and administrative 133,000 76,000 211,000 157,000
Reclamation, restoration, and dismantlement -- -- 10,000 8,000
Depreciation, depletion, and amortization 12,000 18,000 25,000 35,000
301,000 198,000 511,000 405,000
NET EARNINGS $ 54,000 57,000 120,000 63,000
EARNINGS PER SHARE $ * * 0.01 *
WEIGHTED AVERAGE SHARES OUTSTANDING 13,780,447 14,011,989 13,803,512 14,118,869
*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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SIX MONTHS ENDED
MARCH 31
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 120,000 63,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets (55,000) --
Depreciation, depletion, and amortization 25,000 35,000
Decrease (increase) in accounts receivable (1,000) 10,000
Decrease in other receivables 8,000 7,000
Decrease in other current assets -- 1,000
Increase (decrease) in accounts payable 4,000 (21,000)
Increase (decrease) in accrued production costs 29,000 (11,000)
Decrease in accrued reclamation, restoration, and dismantlement (67,000) (27,000)
Decrease in other accrued expenses (6,000) (20,000)
Net cash provided by operating activities 57,000 37,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 58,000 --
Expenditures for oil and gas property development (2,000) (2,000)
Other additions to property and equipment -- (1,000)
Net cash provided by (used in) investing activities 56,000 (3,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury stock (6,000) (19,000)
Net cash used in financing activities (6,000) (19,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 107,000 15,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,254,000 1,103,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,361,000 1,118,000
</TABLE>
See accompanying notes to consolidated, condensed financial statements.
Page 4 of 7
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDOLIDATED, CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS. In the opinion of management, the accompanying
unaudited, consolidated, condensed financial statements contain all adjustments
necessary to present fairly the financial position of the Company as of March
31, 1997, its cash flows for the six months then ended, and its results of
operations for the three and six months then ended. Such adjustments consisted
only of normal recurring items. Certain reclassifications have been made to the
financial statements for the three and six months ended March 31, 1996, to
conform with the classifications used in the financial statements for the three
and six months ended March 31, 1997. The results of operations for the periods
ended March 31 are not necessarily indicative of the results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in ac cordance with generally accepted accounting 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
suggested that these consolidated, condensed financial statements be read in
conjunction there with.
"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 in the Rocky Mountain region, 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 March 31, 1997,
because of net cash provided by operating activities and because of proceeds
from the sale of assets . Other receivables decreased 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. Also during Q2FY97 the
Company retired certain office equipment that had been fully depreciated.
Accrued production costs increased during the six months ended March 31, 1997,
because during Q2FY97 the Company accrued $35,000 relating to the replacement of
a pump in a well in which the Company has a 100% working interest. Accrued
reclamation, restoration, and dismantlement expense decreased because, during
the six months ended March 31, 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 increased during the six months ended March 31,
1997, as compared to the six months ended March 31, 1996, because of increased
net earnings.
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
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
Page 5 of 7
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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. 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 six months ended March 31, 1997, the Company acquired 79,000 shares of its
Common Stock in negotiated transactions for $6,000.
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 pro perties 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 produc ing 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 April 30, 1997,
the Company had no material commitments for capital expenditures.
Sales increased during Q2FY97 as compared to the three months ended March 31,
1996 ("Q2FY96") because production increased 6% and effective average prices
increased 16%. Sales increased during the six months ended March 31, 1997, as
compared to the six months ended March 31, 1996, because a 1% decline in
production was offset by 30% increase in average effective prices. Interest
income increased during the three and six months ended March 31, 1997, as
compared to the three and six months ended March 31, 1996, because of higher
cash balances and higher 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
Q2FY96 such items included a positive adjustment of $4,000 to previously
recognized lease operating expenses, and, for the three months ended December
31, 1995, such items included positive adjustments of $11,000 to previously
recognized production taxes. For the six months ended March 31, 1997, such items
included a negative adjustment of $5,000 to previously accrued refundable
production taxes.
During Q2FY97 the Company recognized $35,000 in expense associated with
replacing a pump in a well in which it has a 100% working interest. Excluding
this item, lease operating expense increased from Q2FY96 to Q2FY97 and from the
six months ended March 31, 1996, to the six months ended March 31, 1997, because
of increased repairs and maintenance expense. Production taxes increased because
of increased sales. General and administrative expense for the three and six
months ending March 31, 1997, increased as compared to the three and six months
ended March 31, 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 decreased because the
Company's basis in its depreciable and depletable assets declined. Net earnings
for the six months ended March 31, 1997, increased as compared to the six months
ended March 31, 1996, because of gain on sale of assets.
Production of oil and gas from the Company's interests in wells in Utah and
Wyoming account for substantially all of the Company's oil and gas sales.
Certain parties have built a pipeline that, beginning April 1, 1997, is bringing
substantial quantities
Page 6 of 7
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of Canadian crude oil into Wyoming. Crude oil purchasers have indicated to the
Company that they intend to stop paying premiums to posted prices and to begin
charging for transportation after the pipeline opens. 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.
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 decrease unless rising prices offset
production declines or the Company increases its net production by investing in
the drilling of new wells, in successful work overs, 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 high 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 2. CHANGES IN SECURITIES.
(c) 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.
The Company issued the shares under Section 4(2) of the Securities Act of 1933
based on the fact that the shares were offered privately to one individual
investor who has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the investment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10. Summary of Employment Agreement between the Company and Steven H.
Cardin, effective October 1, 1996.
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: May 7, 1997 By: /s/ STEVEN H. CARDIN
Steven H. Cardin
Chief Executive Officer and
Principal Financial Officer
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EXHIBIT TO ALTEX INDUSTRIES, INC. FORM 10-QSB FOR PERIOD ENDING MARCH 31, 1997
SUMMARY OF EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND STEVEN H. CARDIN
EFFECTIVE OCTOBER 1, 1996
On March 31, 1997, but effective October 1, 1996, the Company entered into a new
five-year employment agreement with its president, Mr. Steven H. Cardin. The
Agreement provides that Mr. Cardin is to receive a base salary of $150,000 per
annum, escalating at no less than 5% per annum, and an annual bonus of no less
than 10% of the Company's earnings before tax. Pursuant to the agreement, on
March 31, 1997, the Company sold 1,376,249 shares of Common Stock to Mr. Cardin
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. In connection with his
employment by the Company, Mr. Cardin had previously acquired 2,383,615 shares
of the Company's Common Stock from the Company at $.09375 per share in two
separate non-cash transactions with the proceeds of two non-recourse personal
loans from the Company. The Agreement provides that these loans will also be due
at the end of the employment agreement and that these loans will remain secured
by the shares and bear interest at the Applicable Federal Rate. Mr. Cardin can
pay the principal amount of the loans with shares of the Company's Common Stock.
The employment agreement also provides that the Company will reimburse Mr.
Cardin for interest expense related to the loans and will indemnify him against
additional tax due as a result of such reimbursement and indemnification. Should
Mr. Cardin default on the loans, the shares will revert to the Company.
The agreement also provides that, in the event the Company terminates Mr.
Cardin's employment by reason of his permanent disability, the Company shall (1)
pay Mr. Cardin a total sum, payable in 24 equal monthly installments, equal to
50% of the base salary to which he would have been entitled had he performed his
duties for the Company for a period of two years after his termination, less the
amount of any disability insurance benefits he receives under policies
maintained by the Company for his benefit, and (2) continue to provide Mr.
Cardin with all fringe benefits provided to him at the time of his permanent
disability for a period of two years following such permanent disability.
The agreement also provides that, in the event the Company terminates Mr.
Cardin's employment in breach of the agreement, or in the event that Mr. Cardin
terminates his employment because his circumstances of employment shall have
changed subsequent to a change in control, then the Company shall pay Mr. Cardin
a lump sum payment equal to the sum of (1) twice Mr. Cardin's base salary during
the 12-month period immediately preceding the termination of his employment, (2)
the greater of (a) twice any annual bonus paid to or accrued with respect to Mr.
Cardin by the Company during the fiscal year immediately preceding the fiscal
year in which his employment shall have been terminated and (b) three times his
base salary during the 12-month period immediately preceding the termination of
his employment, and (3) any other compensation owed to Mr. Cardin at the time of
his termination. The agreement also provides that the Company will indemnify Mr.
Cardin against any special tax that may be imposed on him as a result of any
such termination payment made by the Company pursuant to the agreement.
Under the employment agreement, a change in control is deemed to occur (1) if
there is a change of one-third of the Board of Directors under certain
conditions, (2) if there is a sale of all or substantially all of the Company's
assets, (3) upon certain mergers or consolidations, (4) under certain
circumstances if another person (or persons) acquires 20% or more of the
outstanding voting shares of the Company, or (5) if any person except the
employee shall own or control half of such outstanding voting shares.
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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 3/31/97, 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> MAR-31-1997
<CASH> 1,361,000
<SECURITIES> 0
<RECEIVABLES> 157,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,520,000
<PP&E> 2,371,000
<DEPRECIATION> 2,090,000
<TOTAL-ASSETS> 1,801,000
<CURRENT-LIABILITIES> 152,000
<BONDS> 0
0
0
<COMMON> 152,000
<OTHER-SE> 1,497,000
<TOTAL-LIABILITY-AND-EQUITY> 1,801,000
<SALES> 279,000
<TOTAL-REVENUES> 355,000
<CGS> 0
<TOTAL-COSTS> 301,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 54,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
