NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002

NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

NATURE OF OPERATIONS: Altex Industries, Inc., through its wholly-owned subsidiary, jointly referred to as the Company, owns interests, including working interests, in productive oil and gas properties located in Utah and Wyoming. The Company's revenues are generated from sales of oil and gas production, sales of oil and gas properties, and interest income from cash deposits. The Company's operations are significantly affected by changes in oil and gas prices and to changes in interest rates.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Altex Industries, Inc. and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT: The Company follows the successful efforts method of accounting for oil and gas operations, under which exploration costs, including geological and geophysical costs, annual delay rentals, and exploratory dry hole costs, are charged to expense as incurred. Costs to acquire unproved properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Capitalized costs relating to proved oil and gas properties are depleted on the units-of-production method based on estimated quantities of proved reserves and estimated RR&D (Note 6). Upon the sale or retirement of property and equipment, the cost thereof and the accumulated depreciation, depletion, and valuation allowance are removed from the accounts, and the resulting gain or loss is credited or charged to operations. Actual RR&D expense in excess of estimated RR&D expense is charged to operations.

IMPAIRMENT OF LONG-LIVED ASSETS: The Company assesses long-lived assets for impairment when circumstances indicate that the carrying value of such assets may not be recoverable. This review compares the assets carrying value with managements best estimate of the assets expected future undiscounted cash flows without interest costs. If the expected future cash flows exceed the carrying value, no impairment is recognized. If the carrying value exceeds the expected future cash flows, an impairment equal to the excess of the carrying value over the estimated fair value of the asset is recognized. No such impairment may be restored in the future. The Company's proved oil and gas properties are assessed for impairment on an individual field basis.

CASH EQUIVALENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS: For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amount reported on the balance sheet for cash and cash equivalents approximates its fair value.

INCOME TAXES: The Company follows the asset and liability method of accounting for deferred income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between financial accounting and tax bases of assets and liabilities.

EARNINGS PER SHARE: Earnings per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year.

CONCENTRATIONS OF CREDIT RISK: The Company sells the majority of its oil and gas production to two customers (Note 4). Although this concentration could affect the Company's overall exposure to credit risk, management believes the risk is minimal since the majority of its sales are ultimately to major companies within the industry. Although the Company maintains significant amounts of cash, management does not permit cash deposits to exceed federally insured limits with any one institution.

REVENUE RECOGNITION: Substantially all of the Company's revenue is from sales of oil and gas production and from interest income. Revenue from oil and gas production is recognized based on sales or delivery date. Interest income is recognized when earned.

DEFERRED TAX ASSETS
   Net operating loss carryforward                                                            $   128,000
   Depletion carryforward                                                                         331,000
   Tax basis of assets written off for financial statement purposes                               688,000
                                                                                              ------------
                                                                                                1,147,000

DEFERRED TAX LIABILITY
   Depletion, depreciation, amortization, and valuation allowance for income tax purposes in
       excess of amounts for financial statement purposes                                          (7,000)
                                                                                              ------------
TOTAL NET DEFERRED TAX ASSETS                                                                   1,140,000
   Less valuation allowance                                                                    (1,140,000)
                                                                                              ------------
NET DEFERRED TAX ASSET                                                                        $         -
                                                                                              ============

Based on the uncertainty of future realization, a valuation allowance equal to the net deferred tax asset has been provided. Accordingly, no tax benefit has been recorded.

Income tax expense is different from amounts computed by applying the statutory Federal income tax rate for the following reasons:

                                                               2003        2002
                                                            ----------------------
TAX EXPENSE (BENEFIT) AT 35% OF NET EARNINGS (LOSS)         $  (8,000)  $ (60,000)
CHANGE IN VALUATION ALLOWANCE FOR NET DEFERRED TAX ASSETS    (120,000)   (201,000)
EXPIRATION OF TAX CARRYFORWARDS                               117,000     279,000
OTHER                                                          11,000     (18,000)
                                                            ----------------------
INCOME TAX EXPENSE                                          $       -   $       -
                                                            ======================

NOTE 3 - RELATED PARTY TRANSACTIONS. Effective October 1, 2001, the Company
entered into a five-year employment agreement with its president which provides for a base salary of $191,000 annually, plus escalations of not less than 5% annually. The agreement contains provisions providing for payments to the president in the event of his disability or termination of his employment. The agreement also provides that he will receive an annual bonus equal to no less than 10% of the Company's earnings before income tax. At September 30, 2001, the Company had accrued bonus expense of $75,000. In 2002 the Company issued 936,868 shares of common stock to the president, valued at $0.08 per share, in lieu of cash, as payment of his accrued bonus. Pursuant to the employment agreement, the Company's president has purchased from the Company 2,383,615 shares of the Company's common stock at a price of $.09375 per share and 1,376,249 shares at a price of $0.06 per share in exchange for a $306,000 note receivable. The Company's two non-executive directors have each purchased 155,544 shares of the Company's common stock from the Company at a price of $0.17 per share in exchange for notes receivable from each of $26,500. Each of the three notes is non-recourse, secured by the respective shares, due on September 30, 2006, and bears interest at the Applicable Federal Rate. The principal amount of the notes can be paid with shares of the Company's common stock. The Company will reimburse the president and the directors for interest expense related to the notes, and will indemnify them against additional tax due as a result of such reimbursement and indemnification. The Company recognized $11,000 and $17,000 of both interest income and general and administrative expense related to the notes in 2003 and 2002, respectively.

NOTE 4 - MAJOR CUSTOMERS. In 2003 and 2002 the Company had two customers who
individually accounted for 10% or more of the Company's revenue and who, in aggregate, accounted for 94% of revenue in each of 2003 and 2002. In 2003 the two customers individually accounted for 79% and 15% of revenue, and in 2002 the two customers individually accounted for 70% and 24% of revenue.

NOTE 5 - LEASES. The Company rents office space under a noncancellable operating
lease that expires in April 2004. At September 30, 2003, required future payments under the lease are $12,000 for the year ending September 30, 2004. In 2003 and 2002 the Company incurred rent expense of $21,000.

NOTE 6 - RECLAMATION, RESTORATION, AND DISMANTLEMENT (RR&D). The Company is
completing the restoration of the area that had contained its East Tisdale Field in Johnson County, Wyoming. The Company 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 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.

NOTE 7 - SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED). The Company's operations are confined to the continental United States, and all of the Company's reserves are proved developed. Prices and costs in the tables below have been estimated using prices and costs in effect at the end of the years indicated. Prices are estimated net of estimated quality and transportation adjustments. Income tax expense is not reflected in the tables below because of the anticipated utilization of net operating loss carryforwards and tax credits. The estimation of reserves is complex and subjective, and reserve estimates tend to fluctuate in light of new production data.

                                                                             SEPTEMBER 30, 2003
                                                                            --------------------
Proved properties                                                           $         1,076,000
Accumulated depreciation, depletion, amortization, and valuation allowance           (1,027,000)
                                                                            --------------------
Net capitalized cost                                                        $            49,000
                                                                            ====================

                                   OIL IN BARRELS   GAS IN MCFS
                                   -----------------------------
BALANCE AT SEPTEMBER 30, 2001              48,000       350,000
  Revisions of previous estimates          54,000       326,000
  Production                              (12,000)      (97,000)
                                   -----------------------------
BALANCE AT SEPTEMBER 30, 2002              90,000       579,000
  Revisions of previous estimates          10,000       223,000
  Production                              (13,000)      (84,000)
                                   -----------------------------
BALANCE AT SEPTEMBER 30, 2003              87,000       718,000
                                   =============================

                                                          AT SEPTEMBER 30
                                                         2003          2002
                                                     --------------------------
Estimated future revenue                             $ 5,345,000   $ 3,601,000
Estimated future expenditures                         (3,771,000)   (2,690,000)
                                                     --------------------------
Estimated future net revenue                           1,574,000       911,000
10% annual discount of estimated future net revenue     (431,000)     (239,000)
                                                     --------------------------
Present value of estimated future net revenue        $ 1,143,000   $   672,000
                                                     ==========================