UNITED STATES
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, 2005
[_] 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.)
PO Box 1057 Breckenridge CO 80424-1057
---------------------------------------------
(Address of Principal Executive Offices)
(303) 265-9312
---------------------------------------------
(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 (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[_]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
Number of shares outstanding of issuer's Common Stock as of February 9,
2006: 14,877,117
Transitional Small Business Disclosure Format. Yes [_] No [X]
Page 1 of 8
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2005
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 2,583,000
Accounts receivable 160,000
Other 10,000
-------------
Total current assets 2,753,000
-------------
PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) 1,073,000
Other 63,000
-------------
1,136,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (1,090,000)
-------------
Net property and equipment 46,000
OTHER ASSETS 13,000
-------------
$ 2,812,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 9,000
Accrued production costs 79,000
Other accrued expenses 107,000
-------------
Total current liabilities 195,000
-------------
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 14,877,117 shares 149,000
Additional paid-in capital 14,191,000
Accumulated deficit (11,364,000)
Notes receivable from stockholders (359,000)
-------------
2,617,000
-------------
$ 2,812,000
=============
See accompanying notes to consolidated, condensed financial statements.
Page 2 of 8
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31
2005 2004
------------------------
Revenue
Oil and gas sales $ 318,000 235,000
Interest income 25,000 12,000
Gain on sale of assets 206,000 -
------------------------
549,000 247,000
------------------------
Costs and expenses
Lease operating 113,000 88,000
Production taxes 38,000 29,000
General and administrative 143,000 111,000
Depreciation, depletion, amortization, and valuation allowance 2,000 2,000
------------------------
296,000 230,000
------------------------
Net earnings $ 253,000 17,000
========================
Earnings per share $ 0.017 0.001
========================
Weighted average shares outstanding 14,877,117 14,896,287
========================
See accompanying notes to consolidated, condensed financial statements.
Page 3 of 8
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31
2005 2004
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 253,000 17,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets (206,000) -
Depreciation, depletion, amortization, and valuation allowance 2,000 2,000
Increase in accounts receivable (11,000) (7,000)
Decrease in other current assets 9,000 7,000
(Decrease) increase in accounts payable (7,000) 11,000
Increase in accrued production costs 28,000 7,000
Increase in other accrued expenses 28,000 (31,000)
-----------------------
Net cash provided by operating activities 96,000 6,000
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets, net of selling expenses 206,000 -
Other additions to property and equipment - (5,000)
Net cash used in investing activities 206,000 (5,000)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury shares - (11,000)
-----------------------
Net cash used in financing activities - (11,000)
-----------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 302,000 (10,000)
-----------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,281,000 2,114,000
-----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,583,000 2,104,000
=======================
See accompanying notes to consolidated, condensed financial statements.
Page 4 of 8
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, 2005, and the cash flows and results of operations for the quarter then
ended ("Q1FY06"). Such adjustments consisted only of normal recurring items. The
results of operations for Q1FY06 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 2005 Annual Report on Form
10-KSB, and it is suggested that these consolidated, condensed financial
statements be read in conjunction therewith.
NOTE 2 - SUBSEQUENT EVENTS. During Q1FY06 the Company's wholly-owned subsidiary,
Altex Oil Corporation ("AOC"), in three separate transactions, agreed to sell
(1) all of its non-operated working interests in producing oil and gas wells in
Wyoming, (2) all of its operated working interests in producing oil and gas
wells, and (3) all of its overriding royalty interests in producing oil and gas
wells in Wyoming. During the quarter ending March 31, 2006 ("Q2FY06"), AOC
received $2,387,000 cash for the interests it agreed to sell. The transactions
are subject to recision and pricing adjustments until 61 days after the
recordation filing date of the conveyancing documents. The Company reasonably
expects that this 61-day period will have expired by May 1, 2006, although this
cannot be assured. AOC retains very small working and overriding royalty
interests in producing oil and gas wells in the Bluebell-Altamont Field in Utah,
an overriding royalty interest in undrilled locations in the Standard Draw and
Echo Springs Fields in Wyoming, and an interest in an application for leases
under the Combined Hydrocarbon Leasing Act of 1981 in the Tar Sands Triangle
Area of Utah.
"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 price of oil and natural gas; the risks associated with exploration
and production in the Rocky Mountain region; the ability of the Company or AOC
to find, acquire, market, develop, and produce new properties; 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
competitors; the Company's and AOC'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
During Q1FY06 AOC sold its non-operated working interests in three producing oil
and gas wells for proceeds, net of selling expenses, of $206,000. Also during
Q1FY06 AOC agreed to sell (1) all of its remaining non-operated working
interests in producing oil and gas wells in Wyoming, (2) all of its operated
working interests in producing oil and gas wells, and (3) all of its overriding
royalty interests in producing oil and gas wells in Wyoming. During the quarter
ending March 31, 2006 ("Q2FY06"), AOC received $2,387,000 cash for the interests
it agreed to sell. The transactions are subject to recision and pricing
adjustments until 61 days after the recordation filing date of the conveyancing
documents. The Company reasonably expects that this 61-day period will have
expired by May 1, 2006, although this cannot be assured. AOC retains very
Page 5 of 8
small working and overriding royalty interests in producing oil and gas wells in
the Bluebell-Altamont Field in Utah, an overriding royalty interest in undrilled
locations in the Standard Draw and Echo Springs Fields in Wyoming, and an
interest in an application for leases under the Combined Hydrocarbon Leasing Act
of 1981 in the Tar Sands Triangle Area of Utah. The Company intends to reinvest
the proceeds of the sales either in interests in oil and gas properties or
otherwise. There can be no assurance as to if and when any such reinvestment
would be made.
If the recision rights pertaining to the transactions referred to above are not
exercised, the Company is likely to experience negative cash flow from
operations unless and until the Company invests in interests in producing oil
and gas wells or in another venture that produces cash flow from operations. If
recision rights are exercised, the Company is likely to experience positive cash
flow from operations because of the high levels of oil and gas prices. In that
case, if prices decline materially and if interest rates on cash balances also
decline materially, then, unless the Company materially increases production by
acquiring producing properties or by engaging in successful drilling activities
or recompletions, the Company will be likely to experience negative cash flows
from operations.
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 current
level of prices and interest rates, declining production levels, and the
transactions referred to above, 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 AOC's producing oil and gas properties, asset sales, and
interest income, the Company has no internal or external sources of liquidity
other than its working capital. At February 9, 2006, the Company had no material
commitments for capital expenditures.
Cash balances increased $302,000 in Q1FY06 from $2,281,000 to $2,583,000 because
$96,000 cash provided by operating activities was enhanced by proceeds from the
sale of assets, net of selling expenses, of $206,000.
AOC is completing the restoration of the area that had contained its East
Tisdale Field in Johnson County, Wyoming. AOC 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 AOC's 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 ("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.
RESULTS OF OPERATIONS
Sales increased 35% from $235,000 in the quarter ended December 31, 2004
("Q1FY05"), to $318,000 in Q1FY06 because of higher realized prices. Interest
income increased 108% from $12,000 in Q1FY05 to $25,000 in Q1FY06 because of
higher cash balances and higher realized interest rates. Lease operating expense
increased 28% from $88,000 in Q1FY05 to $113,000 in Q1FY06 because of increased
repairs and maintenance expense. Production taxes increased 31% from $29,000 in
Q1FY05 to $38,000 in Q1FY06 because of increased sales. Pursuant to his
employment agreement, the Company's president is to receive a bonus equal to no
less than 10% of earnings before tax, which implies accrued bonus expense of
$28,000 for Q1FY06, which is included in general and administrative expense
("G&A") for Q1FY06. Excluding this expense, G&A increased 4% from $111,000 in
Q1FY05 to $115,000 in Q1FY06. Net earnings increased from $17,000 in Q1FY05 to
$253,000 in Q1FY06 principally because of gain on sale of assets of $206,000.
Excluding gain on sale of assets, net earnings increased from $17,000 in Q1FY05
to $47,000 in Q1FY06 because of higher realized prices and increased interest
income.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash provided by operating activities increased from
$6,000 provided by operating activities in Q1FY05 to $96,000 provided by
operating activities in Q1FY06 principally because net earnings, excluding gain
on sale of assets, increased $30,000, accrued production costs increased
$28,000, and other accrued expenses increased $28,000.
Page 6 of 8
Investing Activities. In Q1FY05 the Company invested $5,000 in information
technology equipment, and in Q1FY06 the Company received $206,000 proceeds, net
of selling expenses, from the sale of assets.
Financing Activities. The Company acquired 110,200 shares of its Common Stock
for $11,000 in Q1FY05.
If the transactions discussed above are rescinded, the Company's revenue and
earnings will continue to be 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, if the
transactions discussed above are rescinded, 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. If the transactions discussed above are rescinded, at current
price and interest rate levels, the Company is likely to record net gains. If
the transactions discussed above are not rescinded, unless and until the Company
invests a substantial portion of its cash balances into interests in producing
oil and gas wells or into one or more other ventures that produce revenue and
net income, the Company is likely to experience net losses. With the exception
of unanticipated variations in production levels, unanticipated RR&D,
unanticipated environmental expense, possible changes in oil and gas price
levels and interest rates, the transactions discussed above, and the possible
consequences of those transactions, 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.
ITEM 3. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Principal Executive
Officer and Principal Financial Officer as appropriate, to allow timely
decisions regarding required disclosure. Management necessarily applied its
judgment in assessing the costs and benefits of such controls and procedures
which, by their nature, can provide only reasonable assurance regarding
management's control objectives.
As of the end of the period covered by the report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Principal Executive Officer and Principal
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon the foregoing, the Company's Principal Executive Officer and
Principal Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiary) required to be
included in the Company's Exchange Act reports. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
10.1 Assignment, Bill of Sale, and Conveyance of non-operated working interests
10.2 Assignment, Bill of Sale, and Conveyance of operated working interest
10.3 Assignment, Bill of Sale, and Conveyance of overriding royalty interests
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Section 1350 Certifications
Page 7 of 8
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 9, 2006 By: /s/ STEVEN H. CARDIN
------------------------------
Steven H. Cardin
Chief Executive Officer and
Principal Financial Officer
Page 8 of 8
EXHIBIT INDEX
10.1 Assignment, Bill of Sale, and Conveyance of non-operated working interests
10.2 Assignment, Bill of Sale, and Conveyance of operated working interest
10.3 Assignment, Bill of Sale, and Conveyance of overriding royalty interests
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Section 1350 Certifications