SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarter Ended March 31, 2006 | Commission File Number 0-9392 |
CLX INVESTMENT COMPANY, INC. (Exact Name of Registrant as Specified in Its Charter) | |
Colorado | 84-0749623 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
43180 Business Park Drive #202, Temecula, CA | 92590 |
(Address of principal executive offices) | (Zip Code) |
(951) 587-9100 Issuer's telephone number, including area code N/A (Registrant's Former Name and Address) | |
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 the number of shares outstanding of each of the issuer's class of common stock, as of the last practicable date.
Class | Outstanding at May 10, 2006 |
Common Stock, $0.01 par value | 118,060,668 shares |
EXPLANATORY NOTE:
This amendment to the Company's Form 10-Q originally filed on May 19, 2006 for the quarter ended June 30, 2006 adds certain financial disclosure in conformity with Regulation S-X.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CLX INVESTMENT COMPANY, INC.
FINANCIAL STATEMENTS
March 31, 2006
CLX Investment Company, Inc. | ||||||||||||
Schedule of Investments | ||||||||||||
March 31, 2006 | ||||||||||||
EQUITY INVESTMENTS: |
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| Description |
| Percent |
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Company | of Business |
| Ownership |
| Investment |
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| Fair Value |
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Non affiliated companies: |
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ActionView International, Inc. | Advertising |
| 3% |
| 128,570 | (1) |
| 134,999 | (2) |
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Total non affiliated companies |
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| $ | 128,570 |
| $ | 134,999 |
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Affiliated Companies: |
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eStrategy Solutions, Inc. | e-Learning |
| 49% | $ | 62,080 | (3) | $ | 62,080 |
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Zonda, Incorporated | Medical diagnostic |
| 31% |
| - | (4) |
| - | (5) |
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Total affiliated companies |
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| 62,080 |
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| 62,080 |
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Total Investments |
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| 190,650 |
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| 197,079 |
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COMMERCIAL LOANS: |
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| Description |
| Percent |
| Type of |
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Company | of Business |
| Ownership |
| Credit |
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Non affiliated companies: |
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ActionView International, Inc. | Advertising |
| 3% |
| Credit Line |
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| 229,963 | (1) |
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Total loans to non affiliates |
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| $ | 229,963 |
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Affiliated Companies: |
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eStrategy Solutions, Inc. | e-Learning |
| 49% |
| Credit Line |
| $ | 148,293 | (3) |
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Zonda, Incorporated | Medical diagnostic |
| 31% |
| Credit Line |
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| 195,890 | (4) |
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Total loans to affiliates |
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| 344,183 |
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Total Loans |
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| 574,146 |
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TOTAL INVESTMENTS AND LOANS |
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| $ | 771,225 |
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(1) The Company will receive 2,000,000 shares of restricted common stock of AVWI as consideration for providing a $350,000 line of credit. The line of credit bears interest at an eight percent (8%) per annum and the principal and interest are due on December 31, 2008. The due date for repaying the line of credit, plus accrued interest, shall be accelerated following the third consecutive month in which ActionView International generates net income (EBIT) of at least $50,000. The Company has only extended $221,653 on the line of credit and added $8,310 of interest for a total due of $229,963 as of March 31, 2006 and as a result ActionView has only issued 1,285,700 shares of its restricted common stock. The fair value of the shares of AVWI at the date of the financing agreement was $0.10 per share therefore the Company has recorded the fair value of all shares received from AVWI (1,285,700) at $0.10, for a total investment value of $128,570. This value was recognized as revenue on the operating statement and recorded as investment income expense. | ||||||||||||
(2) The fair value of the shares received from AVWI on March 31, 2006 was calculated based on the closing bid price of the common stock as quoted by the OTCBB (1,285,700 shares @ $0.105). | ||||||||||||
(3) The Company purchased 4,900 (49%) shares of eStrategy restricted common stock for $62,080. The Company received an additional 1,100 shares (11%) to hold in trust as collateral on the credit line. The shares in trust will be released to eStrategy's management upon achieving profitability in three successive months. As of March 31, 2006 the Company has advanced eStrategy $142,408 under an operating line of credit and added $5,885 of interest for a total of $148,293. The line of credit bears interest at an eight percent (8%) per annum and the principal and interest are due on December 31, 2007. | ||||||||||||
(4) The Company received 615,385 shares of restricted common stock of Zonda, Inc. for providing a $500,000 line of credit. The Company valued the original investment of Zonda at $0.00 based on its start up nature. As of March 31, 2006 the Company has advanced Zonda $191,675 under an operating line of credit and added $4,215 of interest for a total of $195,890. The line of credit bears interest at an eight percent (8%) per annum and the principal and interest are due on December 31, 2007. The repayment of the line of credit, plus accrued interest, shall be accelerated following the third consecutive month in which Zonda generates net income (EBIT) of at least $50,000. | ||||||||||||
(5) The Company estimates the fair value of Zonda to be $0.00 based on the fact that the shares are restricted, | ||||||||||||
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The accompanying notes are an integral part of these financial statements. | ||||||||||||
CLX Investment Company, Inc. | |||||
Statements of Changes in Net Assets | |||||
| For the Six Months Ended | ||||
| March 31, | ||||
| 2006 |
| 2005 | ||
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OPERATIONS: |
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Net investment loss | $ | (131,157) |
| $ | (542,740) |
Net realized and unrealized gain on investment transactions |
| 6,429 |
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| - |
Gain on extinguishment of debt |
| 2,400 |
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| 1,000 |
Net decrease in net assets resulting from operations |
| (122,328) |
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| (541,740) |
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SHAREHOLDER ACTIVITY: |
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Stock issued for cash |
| 278,961 |
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| 578,554 |
Stock issued for conversion of debt |
| 225,888 |
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| 80,000 |
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NET INCREASE (DECREASE) IN ASSET VALUE |
| 382,521 |
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| 116,814 |
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NET ASSETS: |
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Beginning of Period |
| 93,314 |
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| (22,500) |
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End of Period | $ | 475,835 |
| $ | 94,314 |
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The accompanying notes are an integral part of these financial statements. | |||||
CLX Investment Company, Inc. | ||||||||||
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| For Six Months |
| For Three Months | ||||
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| 2006 |
| 2005 |
| 2006 |
| 2005 |
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Investment Revenue |
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Investment - interest | $ | 71,420 | $ | - | $ | 14,280 | $ | - | ||
Interest income from non-affiliates |
| 8,310 |
| - |
| 4,400 |
| - | ||
Interest income from-affiliates |
| 10,101 |
| 1,194 |
| 5,710 |
| 1,144 | ||
Total Revenues |
| 89,831 |
| 1,194 |
| 24,390 |
| 1,144 | ||
Operating Expenses |
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General & administrative |
| 81,557 |
| 24,856 |
| 34,654 |
| 13,390 | ||
Management service fee |
| 63,476 |
| 77,795 |
| 31,900 |
| 32,795 | ||
Investor relations |
| 34,761 |
| 12,153 |
| 17,510 |
| 7,710 | ||
Interest expense |
| 13,394 |
| 410,089 |
| 4,576 |
| 248,749 | ||
Professional fees |
| 27,799 |
| 19,041 |
| 23,200 |
| 9,412 | ||
Total Operating Expenses |
| 220,987 |
| 543,934 |
| 111,840 |
| 312,056 | ||
Net Operating Loss |
| (131,157) |
| (542,740) |
| (87,450) |
| (310,912) | ||
Other Income |
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Unrealized gain on non affiliated investment |
| 6,429 |
| - |
| 29,287 |
| - | ||
Gain on extinguishments of debt |
| 2,400 |
| 1,000 |
| - |
| 1,000 | ||
Total Other Income (Expense) |
| 8,829 |
| 1,000 |
| 29,287 |
| 1,000 | ||
LOSS FROM CONTINUING OPERATIONS |
| (122,328) |
| (541,740) |
| (58,163) |
| (309,912) | ||
Income tax expense |
| - |
| - |
| - |
| - | ||
Net loss | $ | (122,328) | $ | (541,740) | $ | (58,163) | $ | (309,912) | ||
Net loss per share | $ | (0.002) | $ | (0.13) | $ | (0.001) | $ | (0.05) | ||
Weighted average shares outstanding |
| 72,921,744 |
| 4,090,216 |
| 92,615,258 |
| 6,842,634 | ||
The accompanying notes are an integral part of these financial statements. | ||||||||||
CLX Investment Company, Inc. | ||||||||||||||
Statements of Stockholders' Equity (Deficit) | ||||||||||||||
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| Additional |
| Receivable |
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| Preferred Stock |
| Common Stock |
| Paid-in |
| Common |
| Retained | |||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Stock |
| (Deficit) | |
Balance, September 30, 2003 | - | $ | - |
| 3,518,629 | $ | 35,186 | $ | 838,075 | $ | - | $ | (663,582) | |
October, 2003 retirement of Treasury stock | - |
| - |
| (1,002) |
| (10) |
| 10 |
| - |
| - | |
September 2, 2004, sale of subsidiary for exchange of shares | - |
| - |
| (1,916,512) |
| (19,165) |
| (188,897) |
| - |
| - | |
Net loss for period ended September 30, 2004 | - |
| - |
| - |
| - |
| - |
| - |
| (24,116) | |
Balance, September 30, 2004 | - |
| - |
| 1,601,115 |
| 16,011 |
| 649,188 |
| - |
| (687,698) | |
Stock issued on conversion of debentures, November 2004 through September 2005 | - |
| - |
| 9,358,283 |
| 93,583 |
| (23,583) |
| - |
| - | |
Beneficial conversion expense related to convertible debentures | - |
| - |
| - |
| - |
| 696,888 |
| - |
| - | |
Common stock issued for extinguishments of debt | - |
| - |
| 1,336,898 |
| 13,369 |
| (3,369) |
| - |
| - | |
Stock issued for cash sale, January 2005 through September 2005 | - |
| - |
| 35,583,758 |
| 355,838 |
| (58,738) |
| - |
| - | |
Preferred stock issued February 1, 2005 | 9,000,000 |
| 90,000 |
| - |
| - |
| - |
| - |
| - | |
Restricted stock issued for cash on February 1, 2005 | - |
| - |
| 4,010,692 |
| 40,107 |
| (25,107) |
| - |
| - | |
Cancel preferred stock | (7,650,000) |
| (76,500) |
| - |
| - |
| - |
| - |
| - | |
Cancel preferred stock and issue restricted common | (1,250,000) |
| (12,500) |
| 1,671,122 |
| 16,711 |
| (4,211) |
| - |
| - | |
Net loss for period ended September 30, 2005 | - |
| - |
| - |
| - |
| - |
| - |
| (985,674) | |
Balance, September 30, 2005 | 100,000 |
| 1,000 |
| 53,428,584 |
| 534,285 |
| 1,232,401 |
| - |
| (1,673,372) | |
Stock issued on conversion of debentures (unaudited) | - |
| - |
| 22,888,800 |
| 228,888 |
| (3,000) |
| - |
| - | |
Stock issued for cash, thru March 2006 (unaudited) | - |
| - |
| 31,270,000 |
| 312,700 |
| (29,740) |
| 5,000 |
| - | |
Stock issued for stock dividend (unaudited) | - |
| - |
| 133,284 |
| 1,334 |
| (1,333) |
| - |
| - | |
Net Loss for period ended March 31, 2006 (unaudited) | - |
| - |
| - |
| - |
| - |
| - |
| (122,328) | |
Balance, March 31, 2006 | 100,000 | $ | 1,000 |
| 107,720,668 | $ | 1,077,207 | $ | 1,198,328 | $ | 5,000 | $ | (1,795,700) | |
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The accompanying notes are an integral part of these financial statements. | ||||||||||||||
CLX Investment Company, Inc. | ||||
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| For the Six Months ended |
| For the Six Months ended March 31, |
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| 2006 |
| 2005 |
Cash Flows from Operating Activities: |
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Net Loss | $ | (122,328) | $ | (541,740) |
Adjustments to Reconcile Net Loss to Net Cash Provided by Operations: |
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Unrealized gain on investment - non affiliated |
| (6,429) |
| - |
Stock received for interest |
| (71,419) |
| - |
Beneficial conversion expense |
| - |
| 315,000 |
Finance costs |
| - |
| 90,000 |
Gain on extinguishments of debt |
| (2,400) |
| (1,000) |
Bad debt allowance |
| - |
| 10,000 |
Changes in Operating Assets and Liabilities: |
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Increase in prepaid expense |
| (600) |
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Increase in accrued expense |
| 13,379 |
| 89 |
Increase in accounts payable |
| 26,096 |
| (8,230) |
Net Cash Provided (Used) by Operating Activities |
| (163,701) |
| (135,881) |
Cash Flows from Investing Activities: |
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Investment in portfolio company |
| - |
| (60,000) |
Advances on line of credit |
| (293,214) |
| (82,144) |
Net Cash Used by Investing Activities |
| (293,214) |
| (142,144) |
Cash Flows from Financing Activities: |
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Proceeds from issuance of common stock |
| 280,361 |
| 12,000 |
Proceeds from issuing convertible debentures |
| - |
| 305,000 |
Payments on convertible debentures |
| - |
| (135,000) |
Net Cash Provided by Financing Activities |
| 280,361 |
| 182,000 |
Decrease in Cash |
| (176,554) |
| (96,025) |
Cash and cash equivalents at beginning of period |
| 185,849 |
| 130,000 |
Cash and cash equivalents at end of period | $ | 9,295 | $ | 33,975 |
Cash Paid For: |
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Interest | $ | - | $ | - |
Income taxes | $ | - | $ | - |
Non-Cash Investing and Financing Activities: |
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Stock issued for conversion on debentures | $ | 3,000 | $ | 5,600,000 |
The accompanying notes are an integral part of these financial statements. | ||||
CLX Investment Company, Inc. |
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Financial Highlights |
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Per Unit Operating Performance: |
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| For the Six Months Ended |
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| March 31, |
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| 2006 |
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| 2005 |
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NET ASSET VALUE, BEGINNING OF PERIOD |
| $ | 0.000866 |
| $ | (0.000421) |
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INCOME FROM INVESTMENT OPERATIONS: |
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Net investment loss |
| (0.001218) |
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| (0.010158) |
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Net realized and unrealized gain on investment transactions |
| 0.000060 |
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| - |
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Gain on extinguishment of debt |
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| 0.0000223 |
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| 0.000019 |
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Total from investment operations |
| (0.00027) |
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| (0.010561) |
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Net increase in net assets resulting from stock sales |
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| 0.00259 |
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| 0.010829 |
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Net increase in net assets resulting from conversion of debt |
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| 0.00210 |
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| 0.001497 |
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NET ASSET VALUE, END OF PERIOD |
| $ | 0.004417 |
| $ | 0.001765 |
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TOTAL NET ASSET VALUE RETURN (1) |
| 409.93 | % |
| 319.17 | % | |
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RATIOS AND SUPPLEMENTAL DATA: |
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Net assets, end of period |
| $ | 475,835 |
| $ | 94,314 |
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Ratios to average net assets: |
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Net expenses |
| 46.44 | % |
| 576.73 | % | |
Net investment loss |
| (25.71) | % |
| (574.40) | % | |
Portfolio turnover rate |
| N/A | % |
| N/A | % | |
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(1) Net Asset Value Return reflects the impact of stock issues during the periods presented. |
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The accompanying notes are an integral part of these financial statements. |
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CLX INVESTMENT COMPANY, INC.
Notes to the Financial Statements
March 31, 2006 and 2005
NOTE 1 - NATURE OF ORGANIZATION
This summary of significant accounting policies of CLX Investment Company, Inc. is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who are responsible for their integrity and objectivity. In the opinion of management, all adjustments which are necessary for a fair presentation of the financial statements have been included. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
a. Organization and Business Activities
CLX Investment Company, Inc. (“the Company” or “CLXN”) is an investment company reporting under the Investment Company Act of 1940 as a “Business Development Company”. The Company was incorporated on December 12, 1977 under the laws of the State of Colorado as Calvin Exploration Company, Inc. to engage in any lawful activity as shall be appropriate under laws of the State of Colorado. The Company was organized to engage in on-shore oil and gas exploration, development and production in the continental United States. The Company's oil and gas activities concentrated primarily in Colorado, Kansas, Oklahoma and Wyoming. In 1993 the name of the Company was changed to CLX Energy, Inc. Up until September 1, 2004 the Company engaged in only one industry segment and line of business; the acquisition, exploration, development and operation of oil and gas properties for its own account.
On September 13, 2004, the Company filed with the Securities and Exchange Commission to become a Business Development Corporation as defined under the Investment Act of 1940. Additionally, on March 28, 2006, the Company filed an amended offering circular with the SEC for up to $5,000,000 of common stock under Regulation E of the Investment Act to raise capital and to make investments in eligible emerging or early-stage companies in various fields of business by arranging for and contributing capital and providing management assistance. In anticipation of the election to become a BDC, the Company changed its name to CLX Investment Company, Inc. on September 1, 2004 to properly reflect the nature of its business.
On May 24, 2004 the Company appointed new management and moved its headquarters to Temecula, CA. At the same time the Company formed CLX Oil & GAS, LLC a wholly owned subsidiary of CLX Energy, Inc. and transferred all of the oil and gas operations of the Company (including the assets and liabilities pertaining to such operations) into CLX Oil & Gas, LLC. On September 1, 2004 the Company sold 100% of its interest in CLX Oil & Gas, LLC to certain shareholders of the Company in exchange for shares of CLX Energy, Inc. The shareholders returned 1,433,552 shares in exchange for 100% interest in CLX Oil & GAS, LLC. The Board of Directors approved the "Securities Purchase and Sale Agreement" and also obtained a fairness opinion from Lehrer Financial and Economic Advisory Service indicating that the Securities Purchase and Sale Agreement was a fair and equitable exchange. The sale of the subsidiary has been accounted for as an asset sale transaction and al l gas and oil operations are reported as discontinued operations on the financial records.
The Company presently has three portfolio investments: eStrategy Solutions, Inc., ActionView International, Inc, and Zonda, Inc.
NOTE 2 – VALUATION OF PORTFOLIO INVESTMENTS
As an investment company under the Investment Company Act of 1940, the Company is not permitted to employ the “equity method” of accounting for ownership in subsidiaries. As a result, we do not consolidate the operations and balance sheets of our portfolio investments regardless of the percent of ownership. In lieu thereof, we are required to carry the value of our portfolio investments at “fair market value.”
As required by ASR 118, the investment committee of the company is required to assign a fair value to all investments. To comply with Section 2(a)(41) of the Investment Company Act and Rule 2a-4 under the Investment Company Act, it
is incumbent upon the board of directors to satisfy themselves that all appropriate factors relevant to the value of securities for which market quotations are not readily available have been considered and to determine the method of arriving at the fair value of each such security. To the extent considered necessary, the board may appoint persons to assist them in the determination of such value, and to make the actual calculations pursuant to the board's direction. The board must also, consistent with this responsibility, continuously review the appropriateness of the method used in valuing each issue of security in the company's portfolio. The directors must recognize their responsibilities in this matter and, whenever technical assistance is requested from individuals who are not directors, the directors must carefully review the findings of such individuals in order to satisfy themselves that the resulting valuations are fair.
No single standard for determining "fair value...in good faith" can be laid down, since fair value depends upon the circumstances of each individual case. As a general principle, the current "fair value" of an issue of securities being valued by the board of directors would appear to be the amount that the owner might reasonably expect to receive for them upon their current sale. Methods that are in accord with this principle may, for example, be based on a multiple of earnings, or a discount from market of a similar freely traded security, or yield to maturity with respect to debt issues, or a combination of these and other methods. Some of the general factors which the directors should consider in determining a valuation method for an individual issue of securities include: 1) the fundamental analytical data relating to the investment, 2) the nature and duration of restrictions on disposition of the securities, and 3) an evaluation of the forces which influence the market in which these securities are purchased and sold. Among the more specific factors which are to be considered are: type of security, financial statements, cost at date of purchase, size of holding, discount from market value of unrestricted securities of the same class at time of purchase, special reports prepared by analysis, information as to any transactions or offers with respect to the security, existence of merger proposals or tender offers affecting the securities, price and extent of public trading in similar securities of the issuer or comparable companies, and other relevant matters.
The board has arrived at the following valuation methodology for its portfolio investments:
All portfolio investments shall be carried on the books at “fair market value.”
Where market values can be readily determined via stock quotations in a reasonably liquid market, the fair market shall be based on the quoted bid price on the day of calculation.
Fair market value shall be determined on at least a quarterly basis. Where there are material changes in portfolio operations, fair market value shall be re-examined as such material changes occur. In the event the stock trading price is within 10% of Net Book Value, and the Company wishes to sell stock, fair market value shall be calculated on the date of stock sale to ensure that stock is not sold below NBV.
Where there is not a readily available source for determining the market value of any investment, either because the investment is not publicly traded, or is thinly traded, the Board of Directors shall analyze the following factors, where available, for determining the estimated price that could be obtained from selling the investment in an arm’s length transaction:
i. Total amount of the Company’s actual investment. This amount shall include all loans, purchase price of securities, and fair value of securities
given at the time of exchange.
ii. Total revenues for the preceding twelve months
iii. Total revenues for the preceding five years
iv. Historic earnings before interest, taxes and depreciation for each of the past five years
v. Bona fide purchase offers from third parties
vi. Net assets of investment
vii. Likelihood of investment generating positive returns (going concern)
viii. Financial projections for coming 24 months
ix. Independent appraisal reports
x. Budget to actual performance reports
Baring other factors, including default remedies and collateralization, the value of the loans and lines of credit may be adjusted down if there is a reasonable expectation that the Company will not be able to recoup the investment or if there is reasonable doubt about the investment’s ability to continue as a going concern. In order to assess impairment of loan value, the portfolio investment’s budget to actual performance criteria is evaluated along with 12-month financial projections. Additionally, where available, the Board shall review other relevant factors affecting repayment including historical cash flows, material contracts, collateral, debt maturity, alternate financing resources, etc.
NOTE 3 – RELATED PARTY
The Company executed a note payable on June 21, 2005 with Arthur Stone, a member of the board of directors, for $10,000. The note bears interest at eight percent (8%) per annum and is due on June 21, 2006.
NOTE 4 - CONVERTIBLE DEBENTURES
During the six months ended March 31, 2006, the Company eliminated all of its convertible debentures by restructuring $200,000 of its convertible debentures into promissory notes payable. The Promissory note is due October 1, 2006 and bears interest at the rate of eight percent (8%) per annum. The balance of the debentures, $225,888, were converted into 22,888,800 shares of free trading common stock of which 22,588,800 shares were placed in an escrow account in the name of Sequoia International. These escrow shares are voted by the Company’s board of directors and cannot be resold while in escrow. Shares in escrow are released to Sequoia International upon notice to and consent of the escrow agent.
NOTE 5 – EQUITY TRANSACTIONS
During the six months ended March 31, 2006, the Company issued 300,000 shares of free trading common stock on the conversion of $5,400 of convertible debentures and issued 22,588,800 shares of free trading common stock that have been placed in an escrow account in the name of Sequoia International for the conversion of $220,488 of convertible debentures. The Company also issued 25,020,000 shares of unrestricted common stock for a cash sale of $252,960 and $5,000 in stock receivable. These shares were issued pursuant to the Company’s offering circular under Regulation E were sold by the Company’s chief executive officer without the assistance of any broker dealers. The Company relied on Regulation E in making these sales. No advertising or general solicitation was employed in offering these shares. Each purchaser received a copy of the Company’s offering circular. The shares sold in reliance on Regulation E are not restricted securities. ;
During the six months ended March 31, 2006, the Company issued 6,250,000 shares of restricted common shares for $25,000 cash. The shares were sold based upon the exemption from registration found in Section 4(2) of the Securities Act of 1933 and/or Regulation D of the Securities Act Rules.
NOTE 6 – MATERIAL EVENT
Stock Dividend
The company declared a stock dividend at the end of the fiscal year ending September 30, 2005. During the quarter ending March 31, 2006 the Company issued an additional 133,284 shares of restricted common stock to Broker/Dealers as an adjustment for rounding up the shares for individual stockholders.
NOTE 7 - SUBSEQUENT EVENTS
Stock Transactions
Subsequent to the quarter ending March 31, 2006, the Company issued 10,340,000 shares of common stock exempt from registration under regulation E for cash of $103,400. The shares sold pursuant to the Company’s offering circular under Regulation E were sold by the Company’s chief executive officer without the assistance of any broker dealers. The Company relied on Regulation E in making these sales. No advertising or general solicitation was employed in offering these shares. Each purchaser received a copy of the Company’s offering circular. The shares sold in reliance on Regulation E are not restricted securities.
Portfolio Investments
Subsequent to March 31, 2006, the Company made an additional investment of $12,115 into its portfolio company Zonda, Inc and an additional investment of $12,260 into its portfolio company eStrategy. Both amounts were in the form of advances against the companies respective credit lines.
NOTE 8 - GOING CONCERN
The ability of the Company to continue as a going concern is dependant upon its ability to successfully seek out and consummate investments, or to secure other sources of financing such that it may commence profitable operations. Further, if the Company is not able to generate positive cash flow from operations, or is unable to secure adequate funding under acceptable terms, there is substantial doubt that the company an continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The statements contained in this Quarterly Report on Form 10-Q/A that are not historical facts may contain forward-looking statements that involve a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated by management. Potential risks and uncertainties include, among other factors, general business conditions, government regulations, manufacturing practices, competitive market conditions, success of the Company's business strategy, delay of orders, changes in the mix of products sold, availability of suppliers, concentration of sales in markets and to certain customers, changes in manufacturing efficiencies, development and introduction of new products, fluctuations in margins, timing of significant orders, and other risks and uncertainties currently unknown to management.
CRITICAL ACCOUNTING POLICIES
The Company's financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States of America ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in the external disclosures of the Company including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We review valuations based on estimates for reasonableness and conservatism on a consistent basis throughout the Company. Primary areas where financial information of the Company is subject to the use of estimates, assumptions and the application of judgment inclu de acquisitions, valuation of long-lived and intangible assets, and the realizability of deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.
Valuation Of Long-Lived And Intangible Assets
The recoverability of long lived assets requires considerable judgment and is evaluated on an annual basis or more frequently if events or circumstances indicate that the assets may be impaired. As it relates to definite life intangible assets, we apply the impairment rules as required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of" as amended by SFAS No. 144, which also requires significant judgment and assumptions related to the expected future cash flows attributable to the intangible asset. The impact of modifying any of these assumptions can have a significant impact on the estimate of fair value and, thus, the recoverability of the asset.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. As of March 31, 2006, we estimated the allowance on net deferred tax assets to be one hundred percent of the net deferred tax assets.
Valuation of Investments
As required by ASR 118, the investment committee of the company is required to assign a fair value to all investments. To comply with Section 2(a)(41) of the Investment Company Act and Rule 2a-4 under the Investment Company Act, it is incumbent upon the board of directors to satisfy themselves that all appropriate factors relevant to the value of securities for which market quotations are not readily available have been considered and to determine the method of arriving at the fair value of each such security. To the extent considered necessary, the board may appoint persons to assist them in the determination of such value, and to make the actual calculations pursuant to the board's direction. The board must also, consistent with this responsibility, continuously review the appropriateness of the method used in valuing each issue of security in the company's portfolio. The directors must recognize their responsibilities in this matter and, whenever technical assistance is requested from individuals who are not directors, the directors must carefully review the findings of such individuals in order to satisfy themselves that the resulting valuations are fair.
No single standard for determining "fair value...in good faith" can be laid down, since fair value depends upon the circumstances of each individual case. As a general principle, the current "fair value" of an issue of securities being valued by the board of directors would appear to be the amount that the owner might reasonably expect to receive for them upon their current sale. Methods that are in accord with this principle may, for example, be based on a multiple of earnings, or a discount from market of a similar freely traded security, or yield to maturity with respect to debt issues, or a combination of these and other methods. Some of the general factors which the directors should consider in determining a valuation method for an individual issue of securities include: 1) the fundamental analytical data relating to the investment, 2) the nature and duration of restrictions on disposition of the securities, and 3) an evaluation of the forces which influence the market in which these securities are purchased and sold. Among the more specific factors which are to be considered are: type of security, financial statements, cost at date of purchase, size of holding, discount from market value of unrestricted securities of the same class at time of purchase, special reports prepared by analysis, information as to any transactions or offers with respect to the security, existence of merger proposals or tender offers affecting the securities, price and extent of public trading in similar securities of the issuer or comparable companies, and other relevant matters.
The board has arrived at the following valuation methodology for its portfolio investments:
All portfolio investments shall be carried on the books at “fair market value.”
Where market values can be readily determined via stock quotations in a reasonably liquid market, the fair market shall be based on the quoted bid price on the day of calculation.
Fair market value shall be determined on at least a quarterly basis. Where there are material changes in portfolio operations, fair market value shall be re-examined as such material changes occur. In the event the stock trading price is within 10% of Net Book Value, and the Company wishes to sell stock, fair market value shall be calculated on the date of stock sale to ensure that stock is not sold below NBV.
Where there is not a readily available source for determining the market value of any investment, either because the investment is not publicly traded, or is thinly traded, the Board of Directors shall analyze the following factors, where available, for determining the estimated price that could be obtained from selling the investment in an arm’s length transaction:
i. Total amount of the Company’s actual investment. This amount shall include all loans, purchase price of securities, and fair value of securities given at the time of exchange.
ii. Total revenues for the preceding twelve months
iii. Total revenues for the preceding five years
iv. Historic earnings before interest, taxes and depreciation for each of the past five years
v. Bona fide purchase offers from third parties
vi. Net assets of investment
vii. Likelihood of investment generating positive returns (going concern)
viii. Financial projections for coming 24 months
ix. Independent appraisal reports
x. Budget to actual performance reports
Baring other factors, including default remedies and collateralization, the value of the loans and lines of credit may be adjusted down if there is a reasonable expectation that the Company will not be able to recoup the investment or if there is reasonable doubt about the investment’s ability to continue as a going concern. In order to assess impairment of loan value, the portfolio investment’s budget to actual performance criteria is evaluated along with 12-month financial projections. Additionally, where available, the Board shall review other relevant factors affecting repayment including historical cash flows, material contracts, collateral, debt maturity, alternate financing resources, etc.
COMPANY STRATEGY
CLX Investment Company, Inc. (“the Company” or “CLXN”) is an investment company reporting under the Investment Company Act of 1940 as a “Business Development Company”. The Company was incorporated on December 12, 1977 under the laws of the State of Colorado as Calvin Exploration Company, Inc. to engage in any lawful activity as shall be appropriate under laws of the State of Colorado. The Company was organized to engage in on-shore oil and gas exploration, development and production in the continental United States. The Company's oil and gas activities concentrated primarily in Colorado, Kansas, Oklahoma and Wyoming. In 1993 the name of the Company was changed to CLX Energy, Inc. Up until September 1, 2004 the Company engaged in only one industry segment and line of business; the acquisition, exploration, development and operation of oil and gas properties for its own account.
On May 24, 2004 the Company appointed new management and moved its headquarters to Temecula, CA. At the same time the Company formed CLX Oil & GAS, LLC a wholly owned subsidiary of CLX Energy, Inc. and transferred all of the oil and gas operations of the Company (including the assets and liabilities pertaining to such operations) into CLX Oil & Gas, LLC. On September 1, 2004 the Company sold 100% of its interest in CLX Oil & Gas, LLC to certain shareholders of the Company in exchange for shares of CLX Energy, Inc. The shareholders returned 1,433,552 shares in exchange for 100% interest in CLX Oil & GAS, LLC. The Board of Directors approved the "Securities Purchase and Sale Agreement" and also obtained a fairness opinion from Lehrer Financial and Economic Advisory Service indicating that the Securities Purchase and Sale Agreement was a fair and equitable exchange. The sale of the subsidiary has been accounted for as an asset sale transaction and al l gas and oil operations are reported as discontinued operations on the financial records.
On September 13, 2004, the Company filed with the Securities and Exchange Commission to become a Business Development Corporation as defined under the Investment Act of 1940. Additionally, on March 28, 2006, the Company filed an amended offering circular with the SEC for up to $5,000,000 of common stock under Regulation E of the Investment Act to raise capital and to make investments in eligible emerging or early-stage companies in various fields of business by arranging for and contributing capital and providing management assistance. In anticipation of the election to become a BDC, the Company changed its name to CLX Investment Company, Inc. on September 1, 2004 to properly reflect the nature of its business.
CLX Investment Company, Inc. presently has three portfolio investments: eStrategy Solutions, Inc, ActionView International, Inc. and Zonda, Inc. Management anticipates making additional portfolio investments as opportunities present themselves in the coming year.
Investment Strategy
CLX Investments Company, Inc. intends to make strategic investments in developing companies with perceived growth potential. The Investment Committee has adopted a charter wherein this is weighed against other criteria including strategic fit, investment amount, management ability, etc. In principle, the Company will prefer to make investments in companies where the Company can acquire at least a 51% ownership interest in the outstanding capital of the portfolio company, or exert some other management control.
As a Business Development Company, the Company is required to have at least 70% of its assets in "eligible portfolio companies." It is stated in the Investment Committee Charter that the Company will endeavor to maintain this minimum asset ratio.
Portfolio Investments
The Company presently has three portfolio investments: eStrategy Solutions, Inc., ActionView International, Inc, and Zonda, Inc.
eStrategy Solutions, Inc.
eStrategy Solutions, Inc. is a Texas corporation specializing in the development, and marketing of e-learning software solutions. The Company owns 49% of the common stock of eStrategy Solutions, Inc., which it acquired in exchange for cash and an open line of credit. eStrategy Solutions already has training software in place but is projecting a late January completion date for its expanded content delivery platform, which is expected to significantly increase the user capacity of its training programs. The implementation of this new platform is expected to allow the company to expand its customer base and grow revenues unfettered by current system limitations.
The Texas Department of Information Resources has recently renewed its contract to engage the services of eStrategy Solutions. Under the terms of the contract, eStrategy Solutions can be retained by agencies to serve as the provider for agency defined training courses via web-based training. The contract includes development costs, notification to participants, delivery, testing, and management reporting, encompassing all state agencies, all institutions of higher learning, all independent school districts, counties and municipalities. To date, there have been several thousand deliveries covering over 20 courses. In addition to delivery, eStrategy Solutions provides completion documentation and management reports.
In the State of Texas, eStrategy Solutions has focused its business strategy on a large market niche that has a clear need for low-cost, highly effective e-learning programs. eStrategy Solutions has proven a new unique sales and pricing model that targets a defined portion of overlooked clients. By focusing on thousands of licensing regulatory agencies and certificate granting organizations, eStrategy Solutions offers enterprise level software features at low cost, and eStrategy Solutions further creates a cost-recovery method which produces funds needed to deploy a robust e-learning system. An example of this cost-recovery method is at work with the Texas Board of Chiropractic Examiners (CE). This agency chose eStrategy Solutions to host the learning system at no cost and convert the mandatory CE course into an attractive web based delivery to thousands of chiropractic professionals. The convenience of online secure payment and 24-hour access to courses are a source of savings for the user and eStrategy splits the revenue with the agency.
eStrategy Solution’s market is not just limited to Texas. The model that has been developed in Texas is applicable to all other states as well. The market potential for e-learning is in the billions of dollars and eStrategy Solutions is expected to grow and capture a significant percentage of its specific market segment.
ActionView International, Inc.
On July 15, 2005, the Company entered into a financing agreement with ActionView International, Inc. (“AVWI”) wherein the Company will provide a line of credit to AVWI in the amount of $350,000. The line of credit accrues interest at 8% per annum and is to be repaid in an amount equal to the greater of 25% of net monthly income (EBIT) or $25,000 per month commencing on the earlier of nine months from the date of the final draw down, or the month following the third consecutive month in which AVWI generates net income (EBIT) of at least $50,000. In consideration AVWI shall issue CLXN a total of 2,000,000 shares of AVWI restricted common stock, the shares will be issued in proportion with the line of credit being drawn upon.
AVWI custom-designs, develops and manufactures “smart” scrolling advertising billboards. AVWI attempts to place its signs into high traffic locations and then markets advertising space on the signs. Advertising revenues generated from the billboards will be shared with advertising agencies, the local business partner and the location owner. The benefit to advertisers is big, bold exposure at top tier locations at very reasonable costs. AVWI’s plan for proceeds is manufacturing the remaining billboards at the Guangzhous airport just outside of Hong Kong and general working capital purposes. With all 150 airport signs in place, advertising revenue is expected to be $3.9mm for the calendar year 2006.
Zonda, Inc.
On August 30, 2005, the Company entered into a financing agreement with Zonda, Inc. (“Zonda”) wherein the Company will provide a line of credit to Zonda in the amount of $500,000. The line of credit accrues interest at 8% per annum, in consideration for the line of credit Zonda shall issue an equity position of 20% to the Company.
Zonda, Inc. is a privately held company that specializes in test products that serve the medical diagnostic (IVD), food safety, and sanitation testing markets. Zonda is currently expanding the distribution of its product lines into broader markets around the world. The first product that has been targeted for accelerated marketing and distribution efforts is an innovative, rapid, self-contained diagnostic device for the detection of Chlamydia. The device, which is marketed under the HandiLab name, is superior to its competition due to its comparable accuracy, ease of use, compact design, long shelf life, rapid results and cost effectiveness.
RESULTS OF OPERATIONS
Three months ended March 31, 2006 compared to three months ended March 31, 2005
During the quarter ended March 31, 2006, the Company incurred a net loss of $58,163 or $0.001 per share compared to a net loss of $309,912 or $0.05 per share for the same quarter of 2005. The current loss is primarily due to an unrealized gain on non affiliated investment of $29,287 related to the Company’s portfolio investments and operating expenses, which were $111,840 for the quarter ended March 31, 2006. The Company will be able to keep future operating costs at a minimum based on the management agreement it has in place to outsource all its administrative support.
Revenues for the three months ended March 31, 2006 were $24,390 compared with revenues of $1,144 for the three months ended March 31, 2005. The current revenue was generated from interest income from portfolio investments and recognition of stock received on a financing agreement as investment income interest.
Six months ended March 31, 2006 compared to six months ended March 31, 2005
During the six months ended March 31, 2006, the Company incurred a net loss of $122,327 or $0.00 per share compared to a net loss of $541,740 or $0.13 per share for the same six months ended March 31, 2005. The change in net loss is primarily due to interest expense decrease of $396,695. The Company will be able to keep future operating costs at a minimum based on the management agreement it has in place to outsource all its administrative support. Interest expense for the six months ended March 31, 2006 was $13,394.
Revenues for the six months ended March 31, 2006 were $89,831 compared with revenues of $1,194 for the six months ended March 31, 2005. The current revenue was generated from interest income from portfolio investments and recognition of stock received on a financing agreement as investment income interest.
Liquidity and Capital Resources
The accompanying financial statements have been prepared in conformity with principles of accounting applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating losses in the quarter ended March 31, 2006, and some of the past years and has generated an accumulated deficit of $1,795,700. The Company requires additional capital to meet its operating requirements. Management plans to increase cash flows through the sale of securities. The portfolio companies will require additional funds against their line of credit for operations. Funds will also be required for additional portfolio investments. There are no assurances that such capital raising plans will be successful. No adjustments have been made to the accompanying financial statements as a result of this uncertainty.
As of March 31, 2006, the Company had total cash and current assets of $9,895 and current liabilities of $305,285. The Company generated cash for operations through the sale of common stock. As of March 31, 2006, the Company has promissory notes dues October 1, 2006 that bear interest at the rate of eight percent (8%) per annum. On September 13, 2004, the Company filed a notification with the Securities and Exchange Commission of its intent to raise capital through the issuance of securities exempt from registration under Regulation E of the Securities Act of 1933. This exemption allows the Company to sell up to $5,000,000 of securities exempt from registration. There is no assurance that the Company will be able to raise any additional funds through the issuance of the remaining convertible debentures or that any funds made available will be adequate for the Company to continue as a going concern. Further, if the Company is not able to generate positive cash flow from operations, or is unable to secure adequate funding under acceptable terms, there is substantial doubt that the company can continue as a going concern.
RISKS AND UNCERTAINTIES
An investment in the Company involves a high degree of risk. In addition to matters discussed elsewhere in this report, careful consideration should be given to the following risk factors. This report contains certain forward-looking statements that involve risks and uncertainties. Our actual results could be substantially different from the results we anticipate in these forward-looking statements because of one or more of the factors described below and/or elsewhere in this report. If any of these risks were to actually occur, our business, results of operations and financial condition would likely suffer materially. The risks outlined below are those which management believes are material to an understanding of our business and the risks inherent in it, but such list is not exclusive of every possible risk which may impact the Company and its shareholders in the future. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also appear or increase in significance, and could therefore impair our projected business results of operations and financial condition.
We Have Historically Lost Money and Losses May Continue in the Future
We have historically lost money. The loss for the 2005 fiscal year was $985,674 and future losses are likely to occur. Accordingly, we may experience significant liquidity and cash flow problems if we are not able to raise additional capital as needed and on acceptable terms. No assurances can be given we will be successful in reaching or maintaining profitable operations.
There is Substantial Doubt About Our Ability to Continue as a Going Concern Due to Recurring Losses and Working Capital Shortages, Which Means that We May Not Be Able to Continue Operations Unless We Obtain Additional Funding
Our September 30, 2005 financial statements included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to recurring losses and working capital shortages. Our ability to continue as a going concern will be determined by our ability to obtain additional funding. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our Common Stock May Be Affected By Limited Trading Volume and May Fluctuate Significantly
Prior to this offering there has been a limited public market for our common stock and there can be no assurance an active trading market for our common stock will develop. This could adversely affect our shareholders' ability to sell our common stock in short time periods or possibly at all. Our common stock has experienced and is likely to experience significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance. We also believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. Substantial fluctuations in our stock price could significantly reduce the price of our stock.
There is no Assurance of Continued Public Trading Market and Being a Low Priced Security may Affect the Market Value of Our Stock
To date, there has been only a limited public market for our common stock. Our common stock is currently quoted on the OTCBB. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of our stock. Our stock is subject to the low-priced security or so called "penny stock" rules that impose additional sales practice requirements on broker-dealers who sell such securities. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, according to recent regulations adopted by the SEC, any equity security that has a market price of less than $5.00 per share, subject to certain exceptions that we no longer meet). For example, brokers/dealers selling such securities must, prior to effecting the transaction, provide their customers with a document that discloses the risks of investing in such securities. Inclu ded in this document are the following:
- the bid and offer price quotes in and for the "penny stock," and the number of shares to which the quoted prices apply,
- the brokerage firm's compensation for the trade, and
- the compensation received by the brokerage firm's sales person for the trade.
In addition, the brokerage firm must send the investor:
- a monthly account statement that gives an estimate of the value of each "penny stock" in the investor's account, and
- a written statement of the investor's financial situation and investment goals.
If the person purchasing the securities is someone other than an accredited investor or an established customer of the broker/dealer, the broker/dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker/dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in such securities. Accordingly, the Commission's rules may limit the number of potential purchasers of the shares of our common stock.
Resale restrictions on transferring "penny stocks" are sometimes imposed by some states, which may make transaction in our stock more difficult and may reduce the value of the investment. Various state securities laws pose restrictions on transferring "penny stocks" and as a result, investors in our common stock may have the ability to sell their shares of our common stock impaired.
There can be no assurance we will have market makers in our stock. If the number of market makers in our stock should decline, the liquidity of our common stock could be impaired, not only in the number of shares of common stock which could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for the common stock than might otherwise prevail. Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market.
We Could Fail to Retain or Attract Key Personnel
Our future success depends in significant part on the continued services of Robert McCoy, our Chief Executive. We cannot assure you we would be able to find an appropriate replacement for key personnel. Any loss or interruption of our key personnel's services could adversely affect our ability to develop our business plan. We have no employment agreements or life insurance on Mr. McCoy.
Colorado Law and Our Charter May Inhibit a Takeover of Our Company That Stockholders May Consider Favorable
Provisions of Colorado law, such as its business combination statute, may have the effect of delaying, deferring or preventing a change in control of our company. As a result, these provisions could limit the price some investors might be willing to pay in the future for shares of our common stock.
Our Portfolio of Investments is Non-Diversified
The Company is a non-diversified company. As a result, if ActionView International, Inc. eStrategy Solutions, Inc. or Zonda, Inc. fails to perform as expected, our financials results could be more negatively affected and the magnitude of the loss could be more significant than if we had multiple investments to spread the risk. At present, our portfolio investments consist of three investments, ActionView International, Inc., eStrategy Solutions, Inc. and Zonda, Inc.
Our Expenses exceed investment income
Our operating expenses have exceeded investment income, which could affect our ability to continue as a going concern. To maintain operations we will need to borrow money or raise additional capital to fund our ongoing operating expenses. We cannot be assured that that financing whether from external sources or related parties will be available, or if available, on favorable terms. Also the sale of our common stock to raise capital may cause dilution to our existing shareholders. It may also cause our stock price to decline or, if we are not successful in raising additional capital, we would need to curtail business operations, or cease to continue as a going concern.
We May Change Our Investment Policies Without Further Shareholder Approval
Although we are limited by the Investment Company Act of 1940 with respect to the percentage of our assets that must be invested in qualified investment companies, we are not limited with respect to the minimum standard that any investment company must meet, nor the industries in which those investment companies must operate. We may make investments without shareholder approval and such investments may deviate significantly from our historic operations. Any change in our investment policy or selection of investments could adversely affect our stock price, liquidity, and the ability of our shareholders to sell their stock.
We Failed to Maintain a Board of Directors That Was Independent as Required by the Investment Company Act of 1940, Which Could Create Additional Liability With Shareholders
Shortly after electing to become a Business Development Company, one of our independent directors resigned, leaving the Company out of compliance with the Investment Company Act of 1940, which requires that the Board be comprised of majority independent directors. This non-compliance was remedied within 30 days; however, for a brief period, we were in Violation of Section 56 of the Act. No stock was sold to the public during this time and we had not yet made any investments. Subsequent to remedying this initial non-compliance, we have continuously maintained a Board of Directors a majority of who were independent. Until Mr. McCoy’s appointment as Interim Chief Executive Officer, all three of our directors were independent. However, during our period of non-compliance, our shareholders were denied the protection afforded by Section 56 of the Act. As a result, there could be some liability if it were determined that shareholders inter ests were not met during this period.
We Recently Changed Our Investment Strategy, Which Could Increase the Risk In Our Investment Portfolio and Open Us Up to Shareholder Liability
Our initial investment strategy indicated that we would seek for investment in “cash flow positive” companies; however our strategy was recently changed to eliminate “cash flow positive” as significant investment criteria. Investing in non-cash flow positive companies entails significantly greater risk than investing in cash flow positive companies; however, the Company’s Board of Directors determined that the higher risk was merited to achieve greater returns to find the type of portfolio companies that would otherwise meet our investment criteria. Prior to changing our investment strategy, we raised approximately $500,000 using an Offering Circular that stated the previous strategy. Purchasers of those securities may be opposed to the change in investment strategy and could seek action against the Company since the risk level of their investment has changed.
Our Investments May Not Generate Sufficient Income to Cover Our Operations
We intend to make investments into qualified companies that will provide the greatest overall return on our investment. However, certain of those investments may fail, in which case we will not receive any return on our investment. In addition, our investments may not generate income, either in the immediate future, or at all. As a result, we may have to sell additional stock, or borrow money, to cover our operating expenses. The effect of such actions could cause our stock price to decline or, if we are not successful in raising additional capital, we could cease to continue as a going concern.
Investing in Private Companies Involves a High Degree of Risk
Our portfolio will consist of primarily long-term loans to and investments in private companies. Investments in private businesses involve a high degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. There is generally no publicly available information about the companies in which we invest, and we rely significantly on the diligence of our employees and agents to obtain information in connection with our investment decisions. In addition, some smaller businesses have narrower product lines and market shares than their competition, and may be more vulnerable to customer preferences, market conditions or economic downturns, which may adversely affect the return on, or the recovery of, our investment in such businesses.
Our Portfolio of Investments are Recorded at Fair Value as Determined in Good Faith by our Board of Directors, as a result, there is uncertainty regarding the value of our Portfolio Investment. Illiquid
There is uncertainty regarding the value of our portfolio investments. At March 31, 2006, portfolio investments recorded at fair value were approximately 99% of our total assets. Pursuant to the requirements of the 1940 Act, we value all of our investments at fair value as determined in good faith by our Board of Directors on a quarterly basis. Since there is typically no readily available market value for the investments in our portfolio, our Board of Directors determines in good faith the fair value of these investments pursuant to a valuation policy and a consistently applied valuation process.
There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses; we are instead required by the 1940 Act to specifically value each individual investment on a quarterly basis and record unrealized depreciation for an investment that we believe has become impaired, including where collection of a loan or realization of an equity security is doubtful, or when the enterprise value of the portfolio company does not currently support the cost of our debt or equity investment. Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a p oint in time. We will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and/or our equity security has appreciated in value. Without a readily available market value and because of the inherent uncertainty of valuation, the fair value of our investments determined in good faith by the Board of Directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. Our net asset value could be affected if our determination of the fair value of our investments is materially different than the value that we ultimately realize.
We will adjust quarterly the valuation of our portfolio to reflect the board of directors' determination of the fair value of each investment in our portfolio. Any changes in estimated fair value will be recorded in our statement of operations as "Net unrealized gains (losses)."
Our Common Stock Price May be Volatile
The trading price of our common stock may fluctuate substantially. The price of the common stock may be higher or lower than the price you pay for your shares, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. While there are not presently any derivative securities relating to our stock, there are other factors that could impact the volatility of our stock price. These factors include the following:
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Price and volume fluctuations in the overall stock market from time to time;
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Significant volatility in the market price and trading volume of securities of business development companies or other financial services companies;
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Volatility resulting from potential short trading in our common stock by foreign investors*;
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Changes in regulatory policies or tax guidelines with respect to business development companies or regulated investment companies;
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Actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts;
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General economic conditions and trends;
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Loss of a major funding source; or
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Departures of key personnel
The OTCBB has measures in place to prevent the “shorting” of penny stocks; however, foreign investors are typically not bound to follow OTCBB rules. In addition, the Company’s stock may trade on foreign exchanges without the consent or knowledge of the Company. While the Company tries to prevent foreign investor shorting, it is impossible to entirely prevent or eliminate it. The Company has previously sold its common stock to certain foreign investment entities; however, these entities have executed agreements with the Company that prohibit them from engaging in shorting practices.
Our Expenses Exceed Investment Income
Our operating expenses have exceeded investment income, which could affect our ability to continue as a going concern. To date we have reported minimal returns from our investments. We have funded our investments from raising capital, which causes additional dilution to shareholders.
We May Not Have Adequate Resource to Comply with Rules and Provisions
The Company’s size and capital resources may have an effect on its ability to adequately comply with the Investment Company Act of 1940. Specifically, the Company is required to maintain a fidelity bond and additional internal controls, employ a chief compliance officer and remain current on all 1933 and 1934 Act filings. If the cost of compliance becomes prohibitive, we may fall out of compliance or unwittingly violate sections of the 1940 Act. Failure to comply with the 1940 Act may affect our ability to continue as a going concern.
CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the Exchange Act"), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures within the 90 days prior to the filing date of this report. This evaluation was carried out under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Compliance Officer, Mr. Robert McCoy and Chief Financial Officer, Mr. Kenneth Wiedrich. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting management to material information relating to us and required to be included in our periodic SEC filings. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, Chief Compliance Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
PART II.
Other Information
Item 1.Legal Proceedings
None
Item 2.Changes in Securities
During the six months ended March 31, 2006, the Company issued 300,000 shares of free trading common stock on the conversion of $5,400 of convertible debentures and issued 22,588,800 shares of free trading common stock that have been placed in an escrow account in the name of Sequoia International for the conversion of $220,488 of convertible debentures. The Company also issued 25,020,000 shares of unrestricted common stock for a cash sale of $252,960 and $5,000 in stock receivable. These shares were
issued pursuant to the Company’s offering circular under Regulation E were sold by the Company’s chief executive officer without the assistance of any broker dealers. The Company relied on Regulation E in making these sales. No advertising or general solicitation was employed in offering these shares. Each purchaser received a copy of the Company’s offering circular. The shares sold in reliance on Regulation E are not restricted securities.
During the six months ended March 31, 2006, the Company issued 6,250,000 shares of restricted common shares for $25,000 cash. The shares were sold based upon the exemption from registration found in Section 4(2) of the Securities Act of 1933 and/or Regulation D of the Securities Act Rules.
Item 3.Defaults Upon Senior Securities
None
Item 4.Submission of Matters to Vote of Security Holders
None
Item 5.Other Information
None
Item 6.Exhibits and Reports
(a) Exhibits
3.1 | Articles of Incorporation | Incorporated by reference to corresponding Exhibit previously filed. |
3.2 | Bylaws | Incorporated by reference to corresponding Exhibit previously filed. |
3.3 | Amendment to Articles of Incorporation | Incorporated by reference to corresponding Exhibit previously filed. |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith. |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith. |
SIGNATURE PAGE
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.
Dated: August 24, 2006 |
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/s/ Robert McCoy |
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Robert McCoy |
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Chief Executive Officer and Chairman of the Board of Directors |
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EXHIBIT 31.1
SECTION 302
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Robert McCoy, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of CLX Investment Company, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 24, 2006 | By:/s/ Robert McCoy Robert McCoy, Chief Executive Officer |
EXHIBIT 31.2
SECTION 302
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Kenneth Wiedrich, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of CLX Investment Company, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 24, 2006 | By:/s/ Kenneth Wiedrich Kenneth Wiedrich, Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CLX Investment Company, Inc. (the "Company") on Form 10-Q/A for the period ending March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert McCoy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of the operation of the Company.
/s/ Robert McCoy Robert McCoy Chief Executive Officer August 24, 2006 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CLX Investment Company, Inc. (the "Company") on Form 10-Q/A for the period ending March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth Wiedrich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of the operation of the Company.
/s/ Kenneth Wiedrich Kenneth Wiedrich Chief Financial Officer August 24, 2006 |
