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, 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.
-----------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 84-0989164
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
POB 1057 Breckenridge CO 80424-1057
-----------------------------------------------------
(Address of Principal Executive Offices)
(970) 453-6641
-----------------------------------------------------
(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 8, 1999:
15,735,491
Transitional Small Business Disclosure Format:
Yes No X
Page 1 of 7
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,671,000
Accounts receivable 86,000
Other receivables 20,000
Other 2,000
Total current assets 1,779,000
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) 2,139,000
Other 71,000
2,210,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (2,100,000)
Net property and equipment 110,000
OTHER ASSETS 34,000
$ 1,923,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,000
Accrued production costs 38,000
Accrued reclamation, restoration, and dismantlement 4,000
Other accrued expenses 24,000
Total current liabilities 90,000
---------------
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 15,770,491 shares 158,000
Additional paid-in capital 14,282,000
Treasury stock, at cost, 35,000 shares at December 31, 1998 (3,000)
Accumulated deficit (12,245,000)
Note receivable from stockholder (359,000)
1,833,000
$ 1,923,000
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
DECEMBER 31
1998 1997
REVENUE
Oil and gas sales $ 87,000 192,000
Interest income 26,000 27,000
Other income 2,000 5,000
115,000 224,000
COSTS AND EXPENSES
Lease operating 66,000 59,000
Production taxes 12,000 22,000
General and administrative 95,000 96,000
Reclamation, restoration, and dismantlement 1,000 --
Depreciation, depletion, amortization, and valuation allowance 45,000 7,000
219,000 184,000
NET EARNINGS (LOSS) $ (104,000) 40,000
EARNINGS (LOSS) PER SHARE $ (0.01) *
WEIGHTED AVERAGE SHARES OUTSTANDING 15,741,198 15,377,059
*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)
THREE MONTHS ENDED
DECEMBER 31
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ (104,000) 40,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, depletion, amortization, and valuation allowance 45,000 7,000
Decrease in accounts receivable 5,000 23,000
Increase in other receivables (1,000) (8,000)
Decrease in other current assets -- 2,000
Increase (decrease) in accounts payable 10,000 (10,000)
Increase in accrued production costs 11,000 --
Decrease in accrued reclamation, restoration, and dismantlement (16,000) --
Decrease in other accrued expenses (9,000) (5,000)
Net cash provided by (used in) operating activities (59,000) 49,000
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for oil and gas property acquisitions -- (4,000)
Expenditures for oil and gas property development (1,000) --
Net cash used in investing activities (1,000) (4,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury stock (3,000) (4,000)
Net cash used in financing activities (3,000) (4,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS (63,000) 41,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,734,000 1,675,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,671,000 1,716,000
See accompanying notes to consolidated, condensed financial statements.
Page 4 of 7
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 December
31, 1998, and the cash flows and results of operations for the three months then
ended ("Q1FY99"). Such adjustments consisted only of normal recurring items.
Certain reclassifications have been made to the financial statements for the
three months ended December 31, 1997 ("Q1FY98"), to conform with the
classifications used in the financial statements for Q1FY99. 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 1998 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 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.
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FINANCIAL CONDITION
Cash and cash equivalents decreased during Q1FY99 principally because of net
cash used in operating activities. The Company is completing the restoration of
the area that had contained its East Tisdale Field in Johnson County, Wyoming.
During Q1FY99 the Company expended $16,000 of $20,000 it has accrued for
reclamation, restoration, and dismantlement expense ("RR&D") related to the
Field. The Company has removed all equipment from, 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 of Wyoming 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 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, or realized prices per barrel of oil
equivalent ("BOE") increase, the Company is likely to continue to experience
negative cash flow from operations. 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
(1) exceedingly depressed oil, natural gas, and natural gas liquids prices, (2)
the Company's intention to acquire producing oil and gas properties, and (3)
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
Page 5 of 7
or external sources of liquidity other than its working capital. At February 8,
1999, the Company had no material commitments for capital expenditures.
RESULTS OF OPERATIONS
Sales decreased from $192,000 for Q1FY98 to $87,000 for Q1FY99 because of the
combined effects of a 6% decrease in BOE sold and a 50% decrease in average
realized price per BOE. Lease operating expense increased from $59,000 to
$66,000 because of increased repair and maintenance expense. Production taxes
decreased because of decreased sales. Included in depreciation, depletion,
amortization, and valuation allowance ("DDA&V") at December 31, 1998, is $5,000
in depreciation and depletion expense and a valuation allowance of $40,000. Net
earnings (loss) decreased from earnings of $40,000 to a loss of $67,000 because
of reduced sales. At February 8, 1999, both world oil prices and North American
natural gas prices were at exceedingly depressed levels because of excessive
world oil supply and inventory levels, depressed demand for oil in southeast
Asia and Latin America, and unusually moderate winter weather in the Northern
Hemisphere. The Company anticipates that oil and natural gas prices, and
therefore, sales and earnings, will be depressed for the foreseeable future.
LIQUIDITY
Operating Activities. Cash provided by (used in) operating activities declined
from positive $49,000 for Q1FY98 to negative $59,000 during Q1FY99 because of
reduced earnings.
Investing Activities. During Q1FY98 the Company expended $4,000 for oil and gas
property acquisitions, and during Q1FY99 the Company expended $1,000 for oil and
gas property development.
Financing Activities. The Company expended $4,000 and $3,000 to acquire 62,000
and 35,000 treasury shares during Q1FY98 and Q1FY99, 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 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 changes in the prices of oil, natural gas, and natural gas
liquids, unanticipated variations in production levels, unanticipated RR&D, and
unanticipated environmental expense, 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.
YEAR 2000 ISSUES
The so-called Year 2000 ("Y2K") Problem arose because many existing computer
programs use only the last two digits to refer to a year and, therefore, cannot
distinguish between a year that begins with "20" and one that begins with "19."
If not corrected, many computer applications could fail or create erroneous
results when references to the Year 2000 become necessary.
RISKS AND STATE OF READINESS
The Company has completed its assessment of its state of readiness, and the
Company believes it faces three kinds of risks as a result of the Year 2000
Problem: (1) Will hardware and software related to oil and gas production
facilities fail as a result of the Y2K Problem? (2) Will back-office hardware or
software fail as a result of the Y2K Problem? (3) Will unresolved Y2K Problems
of third parties on whom the Company is dependent cause material adverse
consequences to the Company?
Production Facilities. The Company operates only one producing well. The Company
does not believe that any equipment associated with that well is susceptible to
the Y2K Problem, but this cannot be assured. If critical production equipment is
not Y2K ready, production could cease or hydrocarbon contamination of the
production facility could occur.
Back-Office Facilities. The Company's back-office operations depend upon the
following hardware: three Intel-chip-based microcomputers and associated
peripheral devices, one AT&T Partner Plus telephone system, one Hewlett Packard
inkjet fax machine, and one Pitney Bowes postage meter. The Company has tested
the telephone system, fax machine, and postage meter and is confident that they
are Y2K ready. One computer is Y2K ready, a second has been modified to be Y2K
ready, and the third computer will be modified in the near future. The Company
does not believe that any of its peripheral devices are subject to Y2K
Page 6 of 7
issues. All of the Company's software is off-the-shelf software provided by
world-class vendors. The Company believes that all software critical to its
back-office functions is currently Y2K ready.
Third Parties. The Company is inquiring of relevant third parties regarding
their state of readiness. Virtually all of the Company's revenue consists of oil
and gas sales and interest income. All cash flow from oil and gas sales results
from remittances to the Company from operators or purchasers of oil and gas
production in which the Company has an interest. Should any operator or
purchaser of production in which the Company has an interest suffer system
failures due to Y2K problems, either in their production or back-office systems,
revenue flowing to the Company could be interrupted. Similarly, should any
financial institution in which the Company deposits its cash suffer system
failures due to Y2K problems, the Company's cash flow from interest income could
be interrupted, and the Company's access to its cash could be delayed. Because
the Company is not significant to any third party, the Company would not have
leverage in dealing with potential problems.
COSTS AND CONTINGENCY PLANS
The Company does not believe that costs associated with achieving Y2K readiness
will exceed $1,000, but this cannot be assured. The Company neither has nor
plans to adopt formal contingency plans for unanticipated Y2K problems.
- --------------------------------------------------------------------------------
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: February 11, 1999 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