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 June 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to .
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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)
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 [X] No [ ]
Number of shares outstanding of issuer's Common Stock as of July 31, 2006:
14,762,984
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
JUNE 30, 2006
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 4,895,000
Accounts receivable 5,000
Other 14,000
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Total current assets 4,914,000
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PROPERTY AND EQUIPMENT, AT COST
Proved oil and gas properties (successful efforts method) 95,000
Other 63,000
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158,000
Less accumulated depreciation, depletion, amortization, and valuation allowance (153,000)
------------
Net property and equipment 5,000
OTHER ASSETS 10,000
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$ 4,929,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 7,000
Accrued production costs 20,000
Other accrued expenses 283,000
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Total current liabilities 310,000
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STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized 5,000,000 shares, none issued --
Common stock, $.01 par value. Authorized 50,000,000 shares, issued 14,877,117 shares 149,000
Additional paid-in capital 14,191,000
Accumulated deficit (9,330,000)
Treasury shares, at cost, 114,133 shares (32,000)
Notes receivable from stockholders (359,000)
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4,619,000
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$ 4,929,000
============
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 Nine months Ended
June 30 June 30
2006 2005 2006 2005
------------------------ ----------------------
Revenue
Oil and gas sales $ 3,000 238,000 333,000 682,000
Interest income 59,000 14,000 134,000 39,000
Other income 22,000 - 29,000 -
Gain on sale of assets - - 2,530,000 -
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84,000 252,000 3,026,000 721,000
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Costs and expenses
Lease operating 1,000 61,000 114,000 221,000
Production taxes - 30,000 39,000 83,000
General and administrative 97,000 118,000 581,000 332,000
Depreciation, depletion, amortization, and valuation allowance 1,000 3,000 5,000 7,000
------------------------ ----------------------
99,000 212,000 739,000 643,000
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Net earnings (loss) $ (15,000) 40,000 2,287,000 78,000
======================== ======================
Earnings (loss) per share $ (0.001) 0.003 0.154 0.005
======================== ======================
Weighted average shares outstanding 14,814,407 14,877,117 14,856,214 14,883,577
======================== ======================
See accompanying notes to consolidated, condensed financial statements.
Page 3 of 8
ALTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30 JUNE 30
2006 2005
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,287,000 78,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Gain on sale of assets (2,530,000) -
Depreciation, depletion, amortization, and valuation allowance 5,000 7,000
(Increase) decrease in accounts receivable 144,000 (7,000)
Decrease in other current assets 5,000 7,000
Decrease in other assets 3,000 -
Increase (decrease) in accounts payable (9,000) 4,000
Increase (decrease) in accrued production costs (31,000) 3,000
Increase (decrease) in other accrued expenses 204,000 (6,000)
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Net cash provided by operating activities 78,000 86,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets, net of selling expenses 2,568,000 -
Other additions to property and equipment - (5,000)
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Net cash provided by (used in) investing activities 2,568,000 (5,000)
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CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury shares (32,000) (11,000)
---------------------------
Net cash used in financing activities (32,000) (11,000)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 2,614,000 70,000
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,281,000 2,114,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,895,000 2,184,000
===========================
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 June 30,
2006, 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 three and nine months 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
2005 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
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UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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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; the ability of the Company or its wholly-owned subsidiary, Altex
Oil Corporation ("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 the three months ended December 31, 2005 ("Q1FY06") AOC sold its
non-operated working interests in three producing oil and gas wells for
proceeds, net of selling expenses, of $206,000. Effective January 1, 2006, AOC
sold (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 then
producing oil and gas wells in Wyoming. During the quarter ending March 31, 2006
("Q2FY06"), AOC received $2,362,000 cash, net of selling expenses, for the
interests it sold effective January 1, 2006. The Company intends to invest 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 investment will
be made. 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 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 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. 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, and the possible
investment by the Company in one or more other ventures, 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 July 31, 2006, the Company had no
material commitments for capital expenditures.
Page 5 of 8
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 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.
RESULTS OF OPERATIONS
The sales of AOC's interests in producing oil and gas properties caused oil and
gas sales to decline from $238,000 in the quarter ended June 30, 2005 ("Q3FY05")
to $3,000 in the quarter ended June 30, 2006 ("Q3FY06") and from $682,000 in the
nine months ended June 30, 2005, to $333,000 in the nine months ended June 30,
2006. The increase in cash balances resulting from the sales of AOC's interests
in producing oil and gas properties, together with higher interest rates, caused
interest income to increase from $14,000 in Q3FY05 to $59,000 in Q3FY06 and from
$39,000 in the nine months ended June 30, 2005, to $134,000 in the nine months
ended June 30, 2006. The Company recorded no gain on sale of assets in Q3FY06
and a gain on sale of assets of $2,530,000 in the nine months ended June 30,
2006.
The sales of AOC's interests in producing oil and gas properties caused lease
operating expense to decline from $61,000 in Q3FY05 to $1,000 in Q3FY06 and from
$221,000 in the nine months ended June 30, 2005, to $114,000 in the nine months
ended June 30, 2006. Accrued production costs at June 30, 2006, consist of
accrued production tax liabilities related to oil and gas sales recognized
during the quarter ended December 31, 2005. The sales of AOC's interests in
producing oil and gas properties caused production taxes to decline from $30,000
in Q3FY05 to nil in Q3FY06 and from $83,000 in the nine months ended June 30,
2005, to $39,000 in the nine months ended June 30, 2006. Pursuant to his
employment agreement, the Company's president is to receive a bonus equal to no
less than 10% of earnings before tax. The Company recorded accrued bonus expense
of $28,000 during Q1FY06 and $228,000 during Q2FY06, and reduced accrued bonus
expense by $8,000 during Q3FY06. Excluding accrued bonus expense, general and
administrative expense ("G&A") decreased 11% from $118,000 in Q3FY05 to $105,000
in Q3FY06 and increased from $332,000 in the nine months ended June 30, 2005, to
$333,000 in the nine months ended June 30, 2006.
Net earnings decreased from $40,000 in Q3FY05 to a net loss of $15,000 in
Q3FY06. Excluding reduced accrued bonus expense, net loss was $23,000 in Q3FY06.
Net earnings increased from $78,000 in the nine months ended June 30, 2005, to
$2,287,000 in the nine months ended June 30, 2006, because of gains on sales of
$2,530,000 in the nine months ended June 30, 2006. Excluding gains on sales of
assets and accrued bonus expense, there were net earnings of $5,000 during the
nine months ended June 30, 2006.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash provided by operating activities decreased from
$86,000 in the nine months ended June 30, 2005, to $78,000 in the nine months
ended June 30, 2006.
Investing Activities. In the nine months ended June 30, 2005, the Company
invested $5,000 in information technology equipment. In the nine months ended
June 30, 2006, proceeds from the sales of assets, net of selling expenses, were
$2,568,000.
Financing Activities. The Company acquired 110,200 shares of its Common Stock
for $11,000 in the nine months ended June 30, 2005. The Company acquired 114,133
shares of its Common Stock for $32,000 in the nine months ended June 30, 2006.
Unless and until the Company invests a substantial portion of its cash balances
in 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, and possible changes in
oil and gas price levels and interest rates, the Company is not aware
Page 6 of 8
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 2. CHANGES IN SECURITIES
Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers
========================================================================================================
(a) (b) (c) (d)
Total Average Total Number of Shares Maximum Number (or
Number of Price (or Units) Purchased as Approximate Dollar Value) of
Period Shares (or Paid per Part of Publicly Shares (or Units) that May Yet
Units) Share (or Announced Plans or Be Purchased Under the Plans
Purchased Unit) Programs or Programs
========================================================================================================
April 1, 2006
through - - - -
April 30, 2006
========================================================================================================
May 1, 2006
through 114,133 $ 0.28 - -
May 31, 2006
========================================================================================================
June 1, 2006
through - - - -
June 30, 2006
========================================================================================================
The Company has no publicly announced plan or program for the purchase of
shares. In May 2006 the Company purchased 114,133 shares other than through a
publicly announced plan or program in open-market transactions.
ITEM 6. EXHIBITS
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: July 31, 2006 By:/s/ STEVEN H. CARDIN
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Steven H. Cardin
Chief Executive Officer and
Principal Financial Officer
Page 8 of 8
EXHIBIT INDEX
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Section 1350 Certifications