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, 1998
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 23, 1998:
15,554,403
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
MARCH 31, 1998
(UNAUDITED)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,746,000
Accounts receivable 113,000
Other receivables 18,000
Other 2,000
Total current assets 1,879,000
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 (2,019,000)
Net property and equipment 204,000
OTHER ASSETS 34,000
$ 2,117,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,000
Accrued production costs 27,000
Other accrued expenses 44,000
Total current liabilities 86,000
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 (12,075,000)
Treasury stock, at cost, 62,000 shares at March 31, 1998 (4,000)
Note receivable from stockholder (306,000)
2,031,000
$ 2,117,000
</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 SIX MONTHS ENDED
MARCH 31 MARCH 31
1998 1997 1998 1997
REVENUE
Oil and gas sales $ 191,000 279,000 383,000 539,000
Interest income 27,000 20,000 54,000 41,000
Gain on sale of assets -- 55,000 -- 55,000
Other income (expense) 2,000 1,000 7,000 (4,000)
220,000 355,000 444,000 631,000
COSTS AND EXPENSES
Lease operating 61,000 125,000 120,000 203,000
Production taxes 22,000 31,000 44,000 62,000
General and administrative 97,000 133,000 193,000 211,000
Reclamation, restoration, and dismantlement -- -- -- 10,000
Depreciation, depletion, and amortization 8,000 12,000 15,000 25,000
188,000 301,000 372,000 511,000
NET EARNINGS $ 32,000 54,000 72,000 120,000
EARNINGS PER SHARE $ * * * 0.01
WEIGHTED AVERAGE SHARES OUTSTANDING 15,633,403 13,780,447 15,503,823 13,803,512
*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
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 72,000 120,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets -- (55,000)
Depreciation, depletion, and amortization 15,000 25,000
Decrease (increase) in accounts receivable 3,000 (1,000)
Decrease in other receivables -- 8,000
Decrease in other current assets 2,000 --
Increase (decrease) in accounts payable (9,000) 4,000
Increase (decrease) in accrued production costs (7,000) 29,000
Decrease in accrued reclamation, restoration, and dismantlement -- (67,000)
Increase (decrease) in other accrued expenses 3,000 (6,000)
Net cash provided by operating activities 79,000 57,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets -- 58,000
Expenditures for oil and gas property acquisitions (4,000) --
Expenditures for oil and gas property development -- (2,000)
Net cash provided by (used in) investing activities (4,000) 56,000
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury stock (4,000) (6,000)
Net cash used in financing activities (4,000) (6,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 71,000 107,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,675,000 1,254,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,746,000 1,361,000
</TABLE>
See accompanying notes to consolidated, condensed financial statements.
Page 4 of 7
<PAGE>
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 March
31, 1998, and its cash flows and 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, 1997, to conform with the classifications
used in the financial statements for the three and six months ended March 31,
1998. The results of operations for the periods ended March 31 are not necessari
ly 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, con
densed 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 six months ended March 31, 1998,
principally because of net cash provided by operating activities. Other
receivables decreased primarily because the Company received $7,000 in
refundable production taxes. During the six months ended March 31, 1998, the
Company increased its overriding royalty interest in a property for an
investment of $4,000, acquired 62,000 shares of its Common Stock for $4,000, and
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.
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
Page 5 of 7
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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 capi tal. At April 23, 1998, the Company had no material commitments for
capital expenditures.
RESULTS OF OPERATIONS
Oil sales decreased from $155,000 for the quarter ended March 31, 1997
("Q2FY97") to $76,000 for the quarter ended March 31, 1998 ("Q2FY98"), and from
$347,000 for the six months ended March 31, 1997, to $196,000 for the six months
ended March 31, 1998. The decreases resulted from a 31% decrease in oil sold
during Q2FY98 as compared to Q2FY97 and a 29% decrease in oil sold during the
six months ended March 31, 1998, as compared to the six months ended March 31,
1997, combined with a 29% decrease in average realized oil price during Q2FY98
as compared to Q2FY97 and a 20% decrease in average realized oil price during
the six months ended March 31, 1998, as compared to the six months ended March
31, 1997. Approximately 75% of the decrease in oil sold for both the quarter and
the six months resulted from reduced production due to the Company's sale of
interests in producing oil properties during fiscal 1997. The remainder of the
decrease in production resulted from normal production declines. Gas sales
decreased from $124,000 for Q2FY97 to $115,000 for Q2FY98, and decreased from
$192,000 for the six months ended March 31, 1997, to $187,000 for the six months
ended March 31, 1998. The decrease in gas sales for the quarter resulted from a
40% increase in gas sold that was more than offset by a 34% decrease in average
realized gas price, and the decrease for the six months resulted from a 26%
increase in gas sold that was more than offset by a 23% decrease in average
realized gas price.
Included in interest income in Q2FY97 and Q2FY98, 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 Q2FY97 to $22,000 in Q2FY98 because of higher cash balances.
Included in interest income in the six months ended March 31, 1997 and 1998,
respectively, are $9,000 and $10,000 payable to the Company by its president
pursuant to his employment agreement with the Company. Excluding these amounts,
interest income increased from $32,000 to $44,000 in the six months ended March
31, 1997 and 1998, respectively, because of higher cash balances. During the six
months ended March 31, 1997, the Company sold certain interests in producing
properties for a gain of $55,000. 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 the six months ended March 31, 1997, such items
included a negative adjustment of $5,000 to estimated refundable production
taxes, and for the six months ended March 31, 1998, such items included positive
adjustments of $5,000 to production taxes.
Lease operating expense decreased from $125,000 in Q2FY97 to $61,000 in Q2FY98
and from $203,000 in the six months ended March 31, 1997, to $120,000 for the
six months March 31, 1998, because of reduced repairs and maintenance expense
and because of the absence of lease operating expense associated with the
interests the Company sold in fiscal 1997. Production taxes decreased because of
decreased sales. Included in general and administrative expense ("G&A") in
Q2FY97 and Q2FY98 are $4,000 and $5,000, respectively, in interest reimbursement
expense and $13,000 and $4,000, respectively, in accrued bonus expense payable
to the Company's president pursuant to his employment agreement. Also included
in G&A in Q2FY97 are $12,000 in tax indemnification expense paid to the
Company's president pursuant to his employment agreement, $5,000 in fines
related to bird deaths at the Company's East Tisdale Field, and $5,000 in
compensation consultant expense. Excluding these items, G&A decreased from
$94,000 in Q2FY97 to $88,000 in Q2FY98 because of reduced payroll and legal
expenses. Included in G&A in the six months ended March 31, 1997 and 1998, are
$9,000 and $10,000, respectively, in interest reimbursement expense and $13,000
and $8,000, respectively, in accrued bonus expense payable to the Company's
president pursuant to his employment agreement. Excluding these items and the
tax indemnification expense, fines, and compensation consultant expense
discussed above, G&A increased from $167,000 during the six months ended March
31, 1997, to $175,000 during six months ended March 31, 1998. During the three
months ended March 31, 1997 ("Q1FY97"), the Company recognized $10,000 in RR&D
associated with its East Tisdale Field, discussed above. Depreciation,
depletion, and amortization expense decreased because of the sale of producing
oil properties in 1997 and because the Company's basis in its remaining
depreciable and depletable assets declined. Net earnings decreased because the
reduction in revenue more than offset the reduction in expenses.
Page 6 of 7
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At April 23, 1998, as a result of excess world supply, oil prices remained
materially below the high prices that had prevailed during fiscal 1997. The
Company anticipates that oil prices, and therefore, earnings, will be depressed
for the foreseeable future.
LIQUIDITY
OPERATING ACTIVITIES. Cash provided by operating activities was $57,000 and
$79,000 during the six months ended March 31, 1997 and 1998, respectively. Cash
provided by operating activities increased principally due to the payment in
Q1FY97 of accrued RR&D.
INVESTING ACTIVITIES. During the six months ended March 31, 1997, investing
activities provided the Company with $56,000 cash, and during the six months
ended March 31, 1998, the Company used $4,000 cash in investing activities. The
Company expended $2,000 for oil and gas property development and $4,000 for oil
and gas property acquisitions during the six months ended March 31, 1997 and
1998, respectively. The Company realized $58,000 cash proceeds from the sale of
its interests in certain producing properties during the six months ended March
31, 1997.
FINANCING ACTIVITIES. The Company used $6,000 and $4,000 cash to acquire 78,500
and 62,000 treasury shares during the six months ended March 31, 1997 and 1998,
respectively.
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 Spring 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, realized prices have been, and the Company anticipates
that realized prices will continue to be, materially lower in fiscal 1998 than
they would have been had the pipeline not been constructed.
PART II - OTHER INFORMATION
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: MAY 4, 1998 By: /S/ STEVEN H. CARDIN
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
<PAGE>
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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 03/31/98, 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> MAR-30-1998
<CASH> 1,746,000
<SECURITIES> 0
<RECEIVABLES> 131,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,879,000
<PP&E> 2,223,000
<DEPRECIATION> 2,019,000
<TOTAL-ASSETS> 2,117,000
<CURRENT-LIABILITIES> 86,000
<BONDS> 0
0
0
<COMMON> 157,000
<OTHER-SE> 1,874,000
<TOTAL-LIABILITY-AND-EQUITY> 2,117,000
<SALES> 191,000
<TOTAL-REVENUES> 220,000
<CGS> 0
<TOTAL-COSTS> 188,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
