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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, 2002
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)
(303) 265-9312
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(Issuer's Telephone Number, Including Area Code)
Number of shares outstanding of issuer's Common Stock as of August 1, 2002:
15,200,750
Transitional Small Business Disclosure Format:
Yes __ No X
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Page 1 of 7
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 2002
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 2,146,000
Accounts receivable 53,000
Other receivables 5,000
Other 17,000
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Total current assets 2,221,000
Property and equipment, at cost
Proved oil and gas properties (successful efforts method) 1,079,000
Other 47,000
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1,126,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (1,068,000)
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Net property and equipment 58,000
Other assets 36,000
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$ 2,315,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,000
Accrued production costs 56,000
Other accrued expenses 33,000
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Total current liabilities 94,000
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Stockholders' equity
Preferred stock, $.01 par value. Authorized 5,000,000 shares, none issued -
Common stock, $.01 par value. Authorized 50,000,000 shares, issued 15,303,593 shares 153,000
Additional paid-in capital 14,228,000
Accumulated deficit (11,799,000)
Treasury stock, at cost, 25,000 shares at June 30, 2002 (2,000)
Notes receivable from stockholders (359,000)
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2,221,000
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$ 2,315,000
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See accompanying notes to consolidated, condensed financial statements.
Page 2 of 7
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
Three Months Ended Nine months Ended
June 30 June 30
2002 2001 2002 2001
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Revenue
Oil and gas sales $ 113,000 243,000 333,000 652,000
Interest income 16,000 29,000 56,000 100,000
Other income (expense) (2,000) (1,000) 4,000 (3,000)
Gain on sale of assets - 33,000 - 521,000
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127,000 304,000 393,000 1,270,000
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Costs and expenses
Lease operating 34,000 67,000 204,000 206,000
Production taxes 14,000 29,000 41,000 76,000
General and administrative 107,000 165,000 315,000 360,000
Reclamation, restoration, and dismantlement - - 4,000 -
Depreciation, depletion, amortization, and valuation allowance 4,000 3,000 12,000 9,000
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159,000 264,000 576,000 651,000
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Net earnings $ (32,000) 40,000 (183,000 619,000
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Earnings per share $ * * ($0.01) $0.04
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Weighted average shares outstanding $ 15,332,494 15,560,192 15,297,401 15,560,920
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*Less than $.01 per share
See accompanying notes to consolidated, condensed financial statements.
Page 3 of 7
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flow
(Unaudited)
Nine months Ended
June 30
2002 2001
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Cash flows from operating activities
Net earnings (loss) $ (183,000) 619,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets - (521,000)
Depreciation, depletion, amortization, and valuation allowance 12,000 9,000
(Increase) decrease in accounts receivable 26,000 (4,000)
Decrease in other receivables 10,000 1,000
Increase in other current assets - (16,000)
(Increase) decrease in other assets 14,000 (25,000)
Decrease in accounts payable (5,000) (13,000)
Increase (decrease) in accrued production costs 8,000 (20,000)
Decrease in accrued reclamation, restoration, and dismantlement (1,000) -
Increase (decrease) in other accrued expenses (3,000) 78,000
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Net cash provided by (used in) operating activities (122,000) 108,000
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Cash flows from investing activities
Proceeds from sale of assets - 521,000
Other additions to property and equipment - (7,000)
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Net cash provided by investing activities - 514,000
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Cash flows from financing activities
Acquisition of treasury stock (122,000) -
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Net cash used in financing activities (122,000) -
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Net increase in cash and cash equivalents (244,000) 622,000
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Cash and cash equivalents at beginning of period 2,390,000 1,757,000
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Cash and cash equivalents at end of period $ 2,146,000 2,379,000
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Supplemental disclosure of non-cash transactions recorded in the
accompanying financial statements
Decrease in other accrued expenses resulting from issuance of
common stock to company's president in payment of accrued bonus $ 75,000 -
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See accompanying notes to consolidated, condensed financial statements.
Page 4 of 7
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 June 30,
2002, and the cash flows and results of operations for the three and nine months
then ended. Such adjustments consisted only of normal recurring items. 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 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 2001
Annual Report on Form 10-KSB, and it is suggested that these consolidated,
condensed financial statements be read in conjunction therewith.
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"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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 and in the Company's filings with the Securities and
Exchange Commission.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FINANCIAL CONDITION
Cash balances decreased in the nine months ended June 30, 2002 from $2,390,000
to $2,146,000 because the Company used $122,000 cash to acquire 1,217,500 shares
of its Common Stock and because the Company used an additional $122,000 cash in
operating activities. Accounts receivable decreased from $79,000 to $53,000
because of reduced sales. During the nine months ended June 30, 2002, the
Company reduced proved oil and gas properties and accumulated depreciation,
depletion, amortization, and valuation allowance by $15,000 to reflect interests
in non-operated wells that had been plugged and abandoned. During the quarter
ended June 30, 2002, the Company retired obsolete office equipment and,
therefore, reduced other property and equipment and accumulated depreciation,
depletion, amortization and valuation allowance by $20,000. Other accrued
expenses decreased from $111,000 to $33,000 principally because the Company paid
an accrued bonus to its president of $75,000 by issuing 936,868 shares of its
Common Stock to him at the then fair market value of $0.08 per share.
In a Form 8-K filed August 22, 2000, the Company announced that its wholly-owned
subsidiary, Altex Oil Corporation ("AOC"), was attempting to sell substantially
all of its interests in producing oil and gas properties for cash, provided that
certain target prices were realized. It appears highly unlikely that this
strategy will meet with success, and there can be no assurance that any
additional interests will actually be sold. Any sale will be subject to
applicable legal and regulatory requirements. AOC does not currently intend to
sell its non-producing interests in the Tar Sands Triangle Area of Utah.
The Company is completing the restoration of the area that had contained its
East Tisdale Field in Johnson County, Wyoming. The Company has removed all
equipment from the field and has recontoured and reseeded virtually all
disturbed areas in the field. Barring unforeseen events, the Company does not
believe that the expense associated with any remaining 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.
Page 5 of 7
World oil prices and domestic natural gas and natural gas liquids prices
prevailing during the nine months ended June 30, 2002, were considerably lower
than price levels prevailing in the prior year. Also, during the nine months
ended June 30, 2002, interest rates were materially depressed relative to levels
prevailing for the last several decades. At such price and interest rate levels,
all other things being equal, cash flow from operations is likely to be
negative. Furthermore, unless the Company's production increases as the result
of acquisitions of producing properties, successful drilling activities, or
successful recompletions, at current price and interest rate levels, the Company
is likely to experience negative cash flow from operations in the foreseeable
future. With the exception of capital expenditures related to production
acquisitions or drilling or recompletion activities, none of which are currently
planned; the cash flows that could result from such acquisitions or activities;
the proceeds from possible additional asset sales; the fluctuating levels of
oil, natural gas, and natural gas liquids prices; and the current low level of
interest rates, 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 properties, asset sales, or interest income, the Company
has no internal or external sources of liquidity other than its working capital.
At August 1, 2002, the Company had no material commitments for capital
expenditures.
RESULTS OF OPERATIONS
Sales decreased 53% from $243,000 in the quarter ended June 30, 2001 ("Q3FY01"),
to $113,000 in the quarter ended June 30, 2002 ("Q3FY02"): A 5% increase in oil
sold was offset by a 32% decrease in the average realized price per barrel, and
a 4% decrease in gas sold was accompanied by a 73% decrease in the average
realized price per thousand cubic feet. Sales decreased 49% from $652,000 in the
nine months ended June 30, 2001, to $333,000 in the nine months ended June 30,
2002: A 1% increase in oil sold was offset by a 33% decrease in the average
realized price per barrel, and a 24% increase in gas sold was offset by a 69%
decrease in the average realized price per thousand cubic feet. Interest income
decreased 45% from $29,000 in Q3FY01 to $16,000 in Q3FY02 and 44% from $100,000
in the nine months ended June 30, 2001, to $56,000 in the nine months ended June
30, 2002, because of lower realized interest rates. In the quarter ended
December 31, 2000, the Company recognized a gain on sale of assets of $488,000
from the sale of interests in producing oil and gas properties. In Q3FY01 the
Company received $33,000 cash proceeds from the sale of interests in undeveloped
zones held by production from deeper zones in producing oil and gas properties
in which the Company owns interests. Lease operating expense decreased 49% from
$67,000 in Q3FY01 to $34,000 in Q3FY02 and 1% from $206,000 in the nine months
ended June 30, 2001, to $204,000 in the nine months ended June 30, 2002.
Production taxes decreased 52% from $29,000 in Q3FY01 to $14,000 in Q3FY02 and
46% from $76,000 in the nine months ended June 30, 2001, to $41,000 in the nine
months ended June 30, 2002, because of reduced sales. General and administrative
expense ("G&A") decreased 35% from $165,000 in Q3FY01 to $107,000 in Q3FY02 and
13% from $360,000 in the nine months ended June 30, 2001, to $315,000 in the
nine months ended June 30, 2002. Pursuant to his employment agreement, the
Company's president receives an annual bonus of no less than 10% of earnings
before income tax; accordingly, included in G&A in Q3FY01 and in other accrued
expense at June 30, 2001, is $69,000 of accrued bonus expense. Excluding this
amount, G&A increased 11% from $96,000 in Q3FY01 to $107,000 in Q3FY02 and 8%
from $291,000 in the nine months ended June 30, 2001, to $315,000 in the nine
months ended June 30, 2002. Net earnings decreased from $40,000 in Q3FY01 to a
net loss of $32,000 in Q3FY02 and from net earnings of $619,000 in the nine
months ended June 30, 2001, to a net loss of $183,000 in the nine months ended
June 30, 2002, because of lower sales, interest income, and gain on sale of
assets.
LIQUIDITY
Operating Activities. Net cash provided by operating activities decreased from
$108,000 in the nine months ended June 30, 2001, to $122,000 net cash used in
operating activities in the nine months ended June 30, 2002, because net
earnings exclusive of gain on sale of assets decreased from $98,000 in the nine
months ended June 30, 2001, to a net loss of $183,000 in the nine months ended
June 30, 2002.
Investing Activities. In the nine months ended June 30, 2001, the Company
expended $7,000 for other additions to property and equipment and received
$521,000 in proceeds from the sale of assets.
Financing Activities. In the nine months ended June 30, 2002, the Company
acquired 1,217,500 shares of its Common Stock for $122,000. As of June 30, 2002,
the Company had retired all but 25,000 of the shares acquired during the nine
months ended June 30, 2002. On May 8, 2002, the Board of Directors of the
Company authorized the Company to purchase no more than 250,000 shares of its
Common Stock, from time to time, on the open market and through negotiated
transactions, prior to December 31, 2002.
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 beyond the Company's control. In addition, because the
quantity of oil, gas, and natural gas liquids 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
Page 6 of 7
production by investing in the drilling of new wells, in successful workovers,or
in the acquisition of interests in producing properties. World oil prices and
domestic natural gas and natural gas liquids prices prevailing during the nine
months ended June 30, 2002, were considerably lower than price levels prevailing
in the prior year. Also, during the nine months ended June 30, 2002, interest
rates were materially depressed relative to levels prevailing for the last
several decades. At such price and interest rate levels, all other things being
equal, the Company is likely to experience net losses unless it increases
production levels. With the exception of unanticipated variations in production
levels, unanticipated RR&D, unanticipated environmental expense, price
fluctuations, and low interest rate levels, 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 net sales or revenues or income from
continuing operations.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99. Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter.
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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: August 8, 2002 By:/s/ STEVEN H. CARDIN
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Steven H. Cardin
Chief Executive Officer and
Principal Financial Officer
Page 7 of 7
Exhibit Index
99 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002