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, 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 January 22,
2007: 14,346,724
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, 2006
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 5,023,000
Accounts receivable 5,000
Deferred income tax asset 51,000
Other 18,000
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Total current assets 5,097,000
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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 (156,000)
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Net property and equipment 2,000
OTHER ASSETS 10,000
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$ 5,109,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 3,000
Accrued production costs 8,000
Current income taxes payable 2,000
Other accrued expenses 302,000
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Total current liabilities 315,000
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STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized 5,000,000 shares, none issued --
Common stock, $.01 par value. Authorized 50,000,000 shares, issued 14,346,724 shares 144,000
Additional paid-in capital 14,061,000
Accumulated deficit (9,411,000)
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4,794,000
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$ 5,109,000
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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
December 31
2006 2005
------------------------
Revenue
Oil and gas sales $ 7,000 318,000
Interest income 63,000 25,000
Gain on sale of assets - 206,000
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70,000 549,000
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Costs and expenses
Lease operating 1,000 113,000
Production taxes 1,000 38,000
General and administrative 121,000 143,000
Depreciation, depletion, amortization, and valuation allowance 1,000 2,000
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124,000 296,000
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Net earnings (loss) $ (54,000) 253,000
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Earnings (loss) per share $ (0.004) 0.017
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Weighted average shares outstanding 14,346,724 14,877,117
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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 THREE MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
2006 2005
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (54,000) 253,000
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 1,000 2,000
Increase in accounts receivable - (11,000)
(Increase) decrease in other current assets (3,000) 9,000
Decrease in accounts payable (18,000) (7,000)
Decrease in current income taxes payable (49,000) -
Increase (decrease) in accrued production costs (9,000) 28,000
Increase in other accrued expenses 15,000 28,000
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Net cash provided by (used in) operating activities (117,000) 96,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets, net of selling expenses - 206,000
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Net cash provided by investing activities - 206,000
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CASH FLOWS FROM FINANCING ACTIVITIES
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Net cash used in financing activities - -
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (117,000) 302,000
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,140,000 2,281,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,023,000 2,583,000
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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 December
31, 2006, and the cash flows and results of operations for the three months then
ended. Such adjustments consisted only of normal recurring items. The results of
operations for the three months 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 2006 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;
movements in interest rates; the market price of oil and natural gas; the risks
associated with exploration and production in the Rocky Mountain region; the
Company's ability, or the ability of its operating 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 the Company's competitors; the Company's ability 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. During the remainder of fiscal
2006 ("FY06"), AOC sold substantially all of its remaining non-operated working
interests in producing oil and gas wells in Wyoming, all of its operated working
interests in producing oil and gas wells, all of its overriding royalty
interests in then producing oil and gas wells in Wyoming, and its interest in an
application for leases under the Combined Hydrocarbon Leasing Act of 1981 in the
Tar Sands Triangle Area of Utah for $2,387,000 cash, net of selling expenses.
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 small working and overriding
royalty interests in producing oil and gas wells in Utah and Wyoming.
Cash balances declined $117,000 from $5,140,000 at September 30, 2006, to
$5,023,000 at December 31, 2006, because the company used $117,000 cash in
operating activities during the three months ended December 31, 2006 ("Q1FY07").
Current income taxes payable declined from $51,000 at September 30, 2006, to
$2,000 at December 31, 2006, because the Company paid $49,000 in income taxes
during Q1FY07. Accrued production costs at December 31, 2006, consist
principally of accrued production tax liabilities related to oil and gas sales
recognized during FY06. Included in other accrued expenses of $287,000 at
September 30, 2006, and $302,000 at December 30, 2006, is an accrued bonus
payable to the Company's president, pursuant to his employment agreement, of
$251,000.
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 or an
Page 5 of 7
investment in another venture that produces cash flow from operations, none of
which are currently planned, the cash flows that could result from such
acquisitions, activities, or investments, and the possibility of a decline from
the current 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 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 January 22, 2007, the Company had
no material commitments for capital expenditures.
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 $318,000 in Q1FY06 to $7,000 in Q1FY07. The increase
in cash balances resulting from the sales of AOC's interests, together with
higher interest rates, caused interest income to increase from $25,000 in Q1FY06
to $63,000 in Q1FY07. During Q1FY06 the Company recognized a gain of $206,000 on
the sale of AOC's non-operated working interests in three producing oil and gas
wells.
The sales of AOC's interests in producing oil and gas properties caused lease
operating expense to decline from $113,000 in Q1FY06 to $1,000 in Q1FY07. The
sales of AOC's interests in producing oil and gas properties caused production
taxes to decline from $38,000 in Q1FY06 to $1,000 in Q1FY07. Pursuant to his
employment agreement, the Company's president is to receive a bonus equal to no
less than 10% of earnings before tax. Accordingly, the Company recorded accrued
bonus expense of $28,000 during Q1FY06. Excluding accrued bonus expense, general
and administrative expense increased from $115,000 in Q1FY06 to $121,000 in
Q1FY07 principally because of increased legal fees.
Net earnings decreased from $253,000 in Q1FY06 to a net loss of $54,000 in
Q1FY07. The Company's revenue currently consists almost entirely of interest
earned on cash balances. At the current level of cash balances and at current
interest rates, the Company's revenue is unlikely to exceed its expenses. Unless
and until the Company invests a substantial portion of its cash balances in
interests in producing oil and gas wells or in one or more other ventures that
produce revenue and net income, the Company is likely to experience net losses.
With the exception of unanticipated RR&D, unanticipated environmental expense,
and possible changes in interest rates, 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.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash provided by operating activities decreased from
$96,000 in Q1FY06 to net cash used in operating activities of $117,000 in Q1FY07
principally because (1) net earnings exclusive of gain on sale of assets
declined from $47,000 in Q1FY06 to a net loss of $54,000 in Q1FY07 and (2) the
Company paid $49,000 in income taxes during Q1FY07.
Investing Activities. In Q1FY06 the Company received proceeds from the sale of
assets, net of selling expenses, of $206,000.
Page 6 of 7
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
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Section 1350 Certifications
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: January 24, 2007 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
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Section 1350 Certifications