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, 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.)
POB 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 July 31, 1998:
15,825,491
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 SHEETS
JUNE 30, 1998
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,733,000
Accounts receivable 94,000
Other receivables 20,000
Other 2,000
Total current assets 1,849,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) 2,159,000
Other 71,000
2,230,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,026,000)
Net property and equipment 204,000
OTHER ASSETS 34,000
$ 2,087,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,000
Accrued production costs 21,000
Other accrued expenses 47,000
Total current liabilities 76,000
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 15,865,491 shares 159,000
Additional paid-in capital 14,300,000
Accumulated deficit (12,089,000)
Note receivable from stockholder (359,000)
2,011,000
$ 2,087,000
See accompanying notes to consolidated, condensed financial statements.
Page 2 of 7
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
REVENUE
Oil and gas sales $ 142,000 155,000 525,000 694,000
Interest income 28,000 21,000 82,000 62,000
Gain on sale of assets -- -- -- 55,000
Other income (expense) (2,000) 17,000 5,000 13,000
168,000 193,000 612,000 824,000
COSTS AND EXPENSES
Lease operating 74,000 86,000 194,000 289,000
Production taxes 16,000 15,000 60,000 77,000
General and administrative 85,000 85,000 278,000 296,000
Reclamation, restoration, and dismantlement -- -- -- 10,000
Depreciation, depletion, and amortization 7,000 13,000 22,000 38,000
182,000 199,000 554,000 710,000
NET EARNINGS (LOSS) $ (14,000) (6,000) 58,000 114,000
EARNINGS (LOSS) PER SHARE $ * * * 0.01
WEIGHTED AVERAGE SHARES OUTSTANDING 15,572,364 15,110,276 15,526,670 14,239,100
*Less than $.01 per share
See accompanying notes to consolidated, condensed financial statements.
Page 3 of 7
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 58,000 114,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets -- (55,000)
Depreciation, depletion, and amortization 22,000 38,000
Decrease in accounts receivable 22,000 33,000
(Increase) decrease in other receivables (2,000) 7,000
Decrease in other current assets 2,000 --
Decrease in accounts payable (16,000) (17,000)
Decrease in accrued production costs (13,000) (11,000)
Decrease in accrued reclamation, restoration, and dismantlement -- (67,000)
Increase (decrease) in other accrued expenses 6,000 (3,000)
Net cash provided by operating activities 79,000 39,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 1,000 58,000
Expenditures for oil and gas property acquisitions (4,000) --
Expenditures for oil and gas property development (7,000) (3,000)
Other additions to property and equipment -- (7,000)
Net cash provided by (used in) investing activities (10,000) 48,000
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury stock (11,000) (10,000)
Net cash used in financing activities (11,000) (10,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 58,000 77,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,675,000 1,254,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,733,000 1,331,000
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,
1998; cash flows for the nine months ended June 30, 1998; and results of
operations for the three and nine months then ended. Such adjust ments consisted
only of normal recurring items. Certain reclassifications have been made to the
financial statements for the three and nine months ended June 30, 1997, to
conform with the classifications used in the financial statements for the three
and nine months ended June 30, 1998. 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 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 nine months ended June 30, 1998,
principally because of net cash provided by operating activities. Accounts
receivable decreased because of decreased sales. During the nine months ended
June 30, 1998, the Company increased its overriding royalty interest in a
producing property for an investment of $4,000 and participated in the drilling
of one development well for an investment of $7,000. Also during the nine months
ended June 30, 1998, the Company acquired 141,000 shares of its Common Stock for
$11,000, issued 733,665 shares of Common Stock to its president as payment of
his bonus for the year ended September 30, 1997, and sold 155,544 shares of
Common Stock to each non-employee Director at a purchase price of $0.17 per
share (See Part II, Item 2. Changes in Securities, below.)
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 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
Page 5 of 7
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 July 31, 1998, the Company had no material
commitments for capital expen ditures.
RESULTS OF OPERATIONS
Oil sales decreased from $130,000 for the quarter ended June 30, 1997,
("Q3FY97") to $50,000 for the quarter ended June 30, 1998, ("Q3FY98"), and from
$477,000 for the nine months ended June 30, 1997, to $246,000 for the nine
months ended June 30, 1998. The decreases resulted from a 26% decrease in oil
sold during Q3FY98 as compared to Q3FY97 and a 28% decrease in oil sold during
the nine months ended June 30, 1998, as compared to the nine months ended June
30, 1997, combined with a 48% decrease in average realized oil price during
Q3FY98 as compared to Q3FY97 and a 28% decrease in average realized oil price
during the nine months ended June 30, 1998, as compared to the nine months ended
June 30, 1997. Approximately 91% of the decrease in oil sold for the quarter and
90% of the decrease in oil sold for the nine 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 increased from $25,000 for Q3FY97 to
$92,000 for Q3FY98, and increased from $217,000 for the nine months ended June
30, 1997, to $279,000 for the nine months ended June 30, 1998. The increase in
gas sales for the quarter resulted from a 105% increase in gas sold and an 80%
increase in average realized gas price, and the increase for the nine months
resulted from a 49% increase in gas sold that was offset by a 14% decrease in
average realized gas price. Included in interest income in each of Q3FY97 and
Q3FY98 is $5,000 payable to the Company by its president and its non-employee
directors pursuant to stock purchase agreements with the Company. Excluding
these amounts, interest income increased from $16,000 in Q3FY97 to $23,000 in
Q3FY98 because of higher cash balances. Included in interest income in the nine
months ended June 30, 1997 and 1998, respectively, are $13,000 and $15,000
payable to the Company by its president and its non-employee directors pursuant
to stock purchase agreements with the Company. Excluding these amounts, interest
income increased from $49,000 to $67,000 in the nine months ended June 30, 1997
and 1998, respectively, because of higher cash balances. During the nine months
ended June 30, 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.
Lease operating expense decreased from $86,000 in Q3FY97 to $74,000 in Q3FY98
and from $289,000 in the nine months ended June 30, 1997, to $194,000 for the
nine months June 30, 1998, because of reduced repairs and maintenance expense
and because of the absence of lease operating expense associated with the
property interests the Company sold in fiscal 1997. Production taxes decreased
from the nine months ended June 30, 1997, to the nine months ended June 30,
1998, because of decreased sales. Included in general and administrative expense
("G&A") in both Q3FY97 and Q3FY98 is $5,000 in interest reimbursement expense
payable to the Company's president and non-employee directors pursuant to stock
purchase agreements with the Company. Excluding interest reimbursement expense,
G&A was $80,000 in both Q3FY97 and Q3FY98. Included in G&A for the nine months
ended June 30, 1997 and 1998, are $13,000 and $15,000, respectively, in interest
reimbursement expense payable to the Company's president and non-employee
directors pursuant to stock purchase agreements with the Company and $12,000 and
$7,000, respectively, in bonus expense payable to the Company's president
pursuant to his employment agreement. Included in G&A for the nine months ended
June 30, 1997, 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 increased from $249,000 for the
nine months ended June 30, 1997, to $256,000 for the nine months ended June 30,
1998. During the nine months ended June 30, 1997, 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.
At July 31, 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 $39,000 and
$79,000 during the nine months ended June 30, 1997 and 1998, respectively. Cash
provided by operating activities increased principally due to the payment in
during the nine months ended June 30, 1997, of accrued RR&D.
Page 6 of 7
INVESTING ACTIVITIES. During the nine months ended June 30, 1997, investing
activities provided the Company with $48,000 cash, and during the nine months
ended June 30, 1998, the Company used $10,000 cash in investing activities. The
Company expended $3,000 for oil and gas property development and $7,000 for
other property and equipment during the nine months ended June 30, 1997, and
$7,000 for oil and gas property development and $4,000 for oil and gas property
acquisitions during the nine months ended June 30, 1998. The Company realized
$58,000 cash proceeds from the sale of its interests in certain producing
properties during the nine months ended June 30, 1997.
FINANCING ACTIVITIES. The Company used $10,000 and $11,000 cash to acquire
140,500 and 141,000 treasury shares during the nine months ended June 30, 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 work overs, 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 reason ably 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 2. CHANGES IN SECURITIES.
(c) On June 26, 1998, the Company sold 155,544 shares of the Company's Common
Stock at a price of $0.17 per share in non- cash transactions to each of
Messrs. Jeffrey S. Chernow and Stephen F. Fante, the Company's non-employee
directors. Messrs. Chernow and Fante each purchased the shares with the
proceeds of a $26,000 non-recourse loan from the Company. The loans, which
are secured by the shares, bear interest at the Applicable Federal Rate and
are due on September 30, 2002. Messrs. Chernow and Fante can pay the
principal amount of the loans with shares of the Company's Common Stock.
The Company will reimburse Messrs. Chernow and Fante for interest expense
related to the loans and will indemnify them against additional tax due as
a result of such reimbursement and indemnification. The Company issued the
shares in a private placement qualifying under Section 4(2) of the
Securities Act of 1933 based on the fact that the shares were offered
privately to two individual investors who have such knowledge and
experience in financial and business matters that they are 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 under signed, thereunto duly
authorized.
ALTEX INDUSTRIES, INC.
Date: AUGUST 10, 1998 By: /S/ STEVEN H. CARDIN
Steven H. Cardin
Chief Executive Officer and
Principal Financial Officer
Page 7 of 7
EXHIBIT INDEX
27 Financial Data Schedule - Submitted only in electronic format, pursuant to
Item 601(c) of Regulation S-B