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 December 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 February 12, 1998:
15,633,403
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
DECEMBER 31, 1997
(UNAUDITED)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,716,000
Accounts receivable 93,000
Other receivables 26,000
Other 2,000
Total current assets 1,837,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) 2,152,000
Other 71,000
2,223,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,011,000)
Net property and equipment 212,000
OTHER ASSETS 34,000
$ 2,083,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 14,000
Accrued production costs 34,000
Other accrued expenses 36,000
Total current liabilities 84,000
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 15,695,403 shares 157,000
Additional paid-in capital 14,259,000
Accumulated deficit (12,107,000)
Treasury stock, at cost, 62,000 shares at December 31, 1997 (4,000)
Note receivable from stockholder (306,000)
1,999,000
$ 2,083,000
</TABLE>
See accompanying notes to consolidated, condensed financial statements.
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ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED
DECEMBER 31
1997 1996
REVENUE
Oil and gas sales $ 192,000 261,000
Interest 27,000 20,000
Other 5,000 (5,000)
224,000 276,000
COSTS AND EXPENSES
Lease operating 59,000 78,000
Production taxes 22,000 31,000
General and administrative 96,000 78,000
Reclamation, restoration, and dismantlement - 10,000
Depreciation, depletion, and amortization 7,000 13,000
184,000 210,000
NET EARNINGS $ 40,000 66,000
EARNINGS PER SHARE $ * *
WEIGHTED AVERAGE SHARES OUTSTANDING 15,377,059 13,826,728
*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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THREE MONTHS ENDED
DECEMBER 31
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 40,000 66,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, depletion, and amortization 7,000 13,000
Decrease in accounts receivable 23,000 5,000
(Increase) decrease in other receivables (8,000) 2,000
Decrease in other current assets 2,000 -
Increase (decrease) in accounts payable (10,000) 33,000
Decrease in accrued production costs - (7,000)
Decrease in accrued reclamation, restoration, and dismantlement - (70,000)
Decrease in other accrued expenses (5,000) (12,000)
Net cash provided by operating activities 49,000 30,000
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for oil and gas property acquisitions (4,000) -
Expenditures for oil and gas property development - (2,000)
Net cash used in investing activities (4,000) (2,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury stock (4,000) (3,000)
Net cash used in financing activities (4,000) (3,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 41,000 25,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,675,000 1,254,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,716,000 1,279,000
</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 statements contain all adjustments
necessary to present fairly the financial position of the Company as of December
31, 1997, and its cash flows and results of operations for the three months then
ended. Such adjustments consis ted only of normal recurring items. Certain
reclassifications have been made to the financial statements for the three
months ended December 31, 1996, to conform with the classifications used in the
financial statements for the three months ended December 31, 1997. The results
of operations for the periods ended December 31 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 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 1997 Annual Report
on Form 10-KSB, and it is suggested that these consolidated, condensed financial
statements be read in conjunction therewith.
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
Statements that are not historical facts contained in this Form 10-QSB 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, and develop new properties and its ability to produce and market its
oil and gas reserves; 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.
FINANCIAL CONDITION
Cash and cash equivalents increased during the quarter ended December 31, 1997,
("Q1FY98") principally because of net cash provided by operating activities.
Accounts receivable decreased because of reduced sales. Other receivables
increased because of a $5,000 increase in production taxes receivable and a
$2,000 increase in interest receivable. During Q1FY98 the Company increased its
overriding royalty interest in a property in which it has an overriding royalty
interest for an investment of $4,000. During Q1FY98 the Company acquired 62,000
shares of its Common Stock for $4,000. Also during Q1FY98, the Company issued
733,665 shares of Common Stock to its president as payment of his bonus for the
year ended September 30, 1997.
The Company is completing the restoration of the area that had contained its
East Tisdale Field in Johnson County, Wyoming. Areas within the field had
contained crude-oil contaminated soil that the Company removed and road-spread.
The Company is discussing with regulatory authorities and with the landowner
whether the Company will be required to perform further restoration. The Company
expects to be required to seed disturbed areas and to complete minor trash
removal, but, barring unforeseen events, the Company does not believe that the
expense associated with final restoration activities will be material, although
this cannot be assured. After its bonds with the state and the Bureau of Land
Management are released, the Company does not believe it will have any further
liability in connection with the field, although this cannot be assured.
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The Company regularly assesses its exposure to both environmental liability and
reclamation, restoration, and dismantlement expense ("RR&D"). The Company does
not believe that it currently has any material exposure to environmental
liability or to RR&D, net of salvage value, although this cannot be assured.
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 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
February 6, 1998, the Company had no material commitments for capital
expenditures.
RESULTS OF OPERATIONS
Oil sales decreased from $193,000 to $120,000, and gas sales increased from
$68,000 to $72,000 from Q1FY98 to the quarter ended December 31, 1996,
("Q1FY97"). Oil sales decreased because a 28% decrease in production sold was
accompanied by a 14% decrease in effective price. The decrease in production
sold was attributable solely to the loss of production that resulted from the
Company's sale of a field effective September 30, 1997. The increase in gas
sales resulted from a 14% increase in gas sold that was partially offset by a 8%
decrease in effective gas price. Included in interest income in Q1FY97 and
Q1FY98, respectively, are $4,000 and $5,000 payable to the Company by its
president pursuant to his employment agreement with the Company. Excluding these
amounts, interest income increased from $16,000 in Q1FY97 to $22,000 in Q1FY98
because of higher cash balances. Other income consists of various 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 Q1FY97 such items included a negative
adjustment of $5,000 to estimated refundable production taxes, and for Q1FY98
such items included positive adjustments of $4,000 to refundable production
taxes.
Lease operating expense decreased from Q1FY97 to Q1FY98 because of reduced
repairs and maintenance expense and because of the absence of lease operating
expense associated with the field that the Company sold. Production taxes
decreased because of decreased sales. Included in general and administrative
expense ("G&A") in Q1FY97 is $4,000 in interest reimbursement expense payable to
the Company's president pursuant to his employment agreement, and included in
G&A in Q1FY98 is $5,000 in interest reimbursement expense and $4,000 in accrued
bonus expense payable to the Company's president pursuant to his employment
agreement. Excluding these items, G&A increased from $74,000 in Q1FY97 to
$87,000 in Q1FY98. This increase resulted from $7,000 in additional salary
expense, $2,000 in additional acquisition expense, $2,000 in additional
directors' fees, and $2,000 in additional legal expense. During Q1FY97 the
Company recognized $10,000 in RR&D associated with its East Tisdale Field,
discussed above. Depreciation, depletion, and amortization expense decreased
because the Company's basis in its depreciable and depletable assets declined.
Net earnings decreased because reduced expenses were more than offset by reduced
revenue.
At February 12,1998, as a result of excess world supply and of diminished world
demand resulting from the Asian financial crises, oil prices remained materially
below the high prices that had prevailed during fiscal 1997. Unless an attack on
Iraq results in significant reduction in Iraqi oil export capacity, or some
other material supply reduction, which appears unlikely, the Company anticipates
that prices, and therefore, earnings, will be depressed for the foreseeable
future.
LIQUIDITY
Operating Activities. During Q1FY98 cash of $49,000 was provided by operations
compared to $30,000 in Q1FY97. Cash provided by operations increased principally
due to the payment in Q1FY97 of accrued RR&D.
Page 6 of 7
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Investing Activities. Cash used in investing activities in was $4,000 in Q1FY98
and $2,000 in Q1FY97. Expenditures for oil and gas property acquisitions and
development was $4,000 in Q1FY98 and $2,000 in Q1FY97.
Financing Activities. Cash used in financing activities in Q1FY98 and Q1FY97 was
$4,000 and $3,000, respectively, related to the acquisition of treasury stock.
The Company's revenues and earnings 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, unanticipated RR&D, unanticipated
environmental expense, and the possible effect of the recently constructed
pipeline discussed below, 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 the net sales or revenues or income from continuing
operations.
In 1997 a new pipeline began bringing Canadian crude oil into Casper, Wyoming.
Although the increased supply of crude oil in the northern Rocky Mountain region
did not have a material effect on the oil prices realized by the Company in
fiscal 1997, the Company anticipates that realized prices will be materially
lower in fiscal 1998 than they would have been had the pipeline not been
constructed.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(c) Pursuant to his employment agreement, on November 7, 1997, the Company paid
its president a bonus for its fiscal year ended September 30, 1997, equal
to 10% of the Company's earnings before income taxes. The bonus was paid
in 733,665 shares of the Company's Common Stock. 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
27. Financial Data Schedule - Submitted only in electronic format,
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 undersigned, thereunto duly
authorized.
ALTEX INDUSTRIES, INC.
Date: February 12, 1998 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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EXHIBIT INDEX
27 Financial Data Schedule - Submitted only in electronic format, pursuant to
Item 601(c) of Regulation S-B
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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 12/31/97, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1,716,000
<SECURITIES> 0
<RECEIVABLES> 119,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,837,000
<PP&E> 2,223,000
<DEPRECIATION> 2,011,000
<TOTAL-ASSETS> 2,083,000
<CURRENT-LIABILITIES> 84,000
<BONDS> 0
0
0
<COMMON> 157,000
<OTHER-SE> 1,842,000
<TOTAL-LIABILITY-AND-EQUITY> 2,083,000
<SALES> 192,000
<TOTAL-REVENUES> 224,000
<CGS> 0
<TOTAL-COSTS> 184,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 40,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 40,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
