FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission File No. 0-9392
CLX ENERGY, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0749623
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
518 17th Street, Suite 745, Denver, CO 80202
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (303) 825-7080
1776 Lincoln Street, Suite 806, Denver, CO 80203
(Former address of principal executive offices)
Indicate by check mark whether the registrant (1) has 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 latest practicable date.
10,498,132 shares of Common Stock, $.01 par value at February 5, 1999
CLX ENERGY, INC.
December 31, 1998
INDEX
Form 10-Q
Part I. - Financial Information
Balance Sheets - December 31, 1998 and
September 30, 1998
Statements of Operations for the three months
ended December 31, 1998 and 1997
Statements of Cash Flows for the three months
ended December 31, 1998 and 1997
Notes to Unaudited Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II. - Other Information
Signatures
CLX ENERGY, INC.
BALANCE SHEETS
December 31, 1998 and September 30, 1998
(Unaudited)
December 31, September 30,
ASSETS: 1998 1998
Current assets:
Cash $ 27,069 30,024
Accounts Receivable:
Trade 240 294
Oil and gas sales 7,498 7,099
Deposits 1,138 -
------- -------
Total current assets 35,945 37,417
------- -------
Property and equipment, at cost:
Oil and gas properties
(successful effort method):
Proved 327,213 327,213
Unproved 20,143 18,314
Office equipment 3,618 3,618
------- -------
350,974 349,145
Less accumulated depreciation
and depletion (218,985) (214,265)
------- -------
131,989 134,880
------- -------
Total assets $167,934 172,297
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 94,478 81,607
Due joint interest owners 8,355 8,355
------- -------
Total current liabilities 102,833 89,962
------- -------
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
600,000 shares designated Series A
$.06 cumulative convertible:
134,000 shares issued and outstanding
(aggregate involuntary liquidation
preference of $134,000 plus unpaid
dividends) 1,340 1,340
Common stock, $.01 par value,
50,000,000 shares authorized,
4,054,154 shares issued and
outstanding 40,542 40,542
Additional paid-in capital 541,417 541,417
Accumulative deficit (518,198) (500,964)
------- -------
Net stockholders' equity 65,101 82,335
------- -------
Total Liabilities and Equities $167,934 172,297
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
CLX ENERGY, INC.
STATEMENTS OF OPERATIONS
Three months ended December 31, 1998 and 1997
(Unaudited)
Three Months Ended
December 31,
1998 1997
Revenues:
Oil and gas sales $ 14,619 29,927
Management fees - 900
------- -------
Total revenue 14,619 30,827
Operating costs and expenses:
Lease operating and
production taxes 4,389 6,345
Lease rentals and abandonments 71 719
Depreciation and depletion 4,720 6,664
General and administrative 21,701 32,398
------- -------
Total operating costs and expenses 30,881 46,126
------- -------
Operating loss ( 16,262) ( 15,299)
------- -------
Other income (expenses):
Gain on sale of assets - 669
Interest expense ( 972) ( 894)
------- -------
Total other income (expenses) ( 972) ( 225)
------- -------
Net loss $( 17,234) ( 15,524)
======= =======
Weighted average number of common shares
outstanding - basic and diluted 4,054,154 4,054,154
========= =========
Net loss per common share -
basic and diluted ( * ) ( * )
======= =======
* Less than ($.01) per share.
<FN>
The accompanying notes are an integral part of these financial statements.
CLX ENERGY, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1998 and 1997
(Unaudited)
1998 1997
Cash flows from operating activities:
Net loss $( 17,234) ( 15,524)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and depletion 4,720 6,664
Gain on sale of assets - ( 669)
(Increase) decrease in
accounts receivable ( 345) 52,903
(Increase) in prepaid expenses ( 1,138) -
Increase (decrease) in accounts
payable 12,871 ( 23,175)
------- -------
Net cash provided by (used in)
operating activities ( 1,126) 20,199
------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment - 2,300
Purchase of property and equipment ( 1,829) -
------- -------
Net cash provided by (used in)
investing activities ( 1,829) 2,300
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock - -
------- -------
Net cash provided by (used in)
financing activities - -
------- -------
Net increase (decrease) in cash ( 2,955) 22,499
Cash, beginning of period 30,024 34,763
------- -------
Cash, end of period $ 27,069 57,262
======= =======
Supplemental disclosures of cash
flow information - cash paid
during period for interest $ - -
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
CLX ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
December 31, 1998
Note A - Basis of Presentation
The balance sheet as of December 31, 1998, the statements of
operations for the three months ended December 31, 1998 and 1997 and
the statements of cash flows for the three months ended December 31, 1998
and 1997 have been prepared by the Company, without audit. The preparation of
financial statements requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
December 31, 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission.
While the Company believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these
financial statements be read in conjunction with the September 30, 1998
financial statements of CLX Energy, Inc., the notes thereto and the
Independent Auditors' Report thereon.
Note B - Net loss per common share
Net loss per common share is computed on the basis of the weighted
average number of common shares outstanding during the period as illustrated
below:
Three Months Ended
December 31,
------------------
1998 1997
------ ------
Net Loss $( 17,234) ( 15,524)
Preferred stock dividends ( 2,010) ( 2,010)
------- -------
Net loss, basic and diluted,
applicable to common
stockholders $( 19,244) ( 17,534)
======= =======
Weighted average number of
shares outstanding - basic
and diluted 4,054,154 4,054,154
========= =========
Net loss per share, basic and
diluted, applicable to
common stockholders $( * ) ( * )
======== ========
* Less than $( .01) per share
Options to purchase 475,000 shares of common stock were outstanding at
December 31, 1998 and December 31, 1997 but were not included in the
computation of diluted net loss per share because the result would be
antidilutive.
Note C - Preferred stock
Each share of the Company's outstanding Series A preferred stock was
convertible into one share of common stock until the conversion
privilege expired on April 30, 1983. Except in certain specified
circumstances, the Series A preferred stock is nonvoting. The Series
A shares are redeemable at the option of the Company at $1.50 per
share, plus any accrued and unpaid dividends. The Series A preferred
stock has an involuntary liquidation preference of $1 per share plus
accrued and unpaid dividends. Dividends on preferred stock of $.06
per share, $8,040, were not declared in 1984 through 1998 for a total
of $120,600 and are in arrears at December 31, 1998.
Note D - Contingency
The Company has been advised by Panhandle Eastern Pipe Line Company that on
September 10, 1997 the Federal Energy Regulatory Commission (FERC) issued an
order that requires first sellers of gas to make refunds for all Kansas Ad
Valorem tax reimbursements collected for the period from October 3, 1983
through June 28, 1988, with interest.
This claim resulted from a Federal Energy Regulatory Commission (FERC) order
issued September 10, 1997 which stated that ad valorem tax levied by the State
of Kansas could not be considered as an add-on the Maximum Lawful Price (MLP)
of gas sold under the NGPA of 1978 covering the period from October 3, 1983
through June 28, 1988. This order reversed the FERC rules in effect during
that time period that ad valorem taxes paid to the State of Kansas by producers
could recover from the pipeline company by the producers over and above the MLP
of gas sold under the guidelines set forth in the NGPA of 1978.
The predecessor of the Company, Calvin Exploration Inc. was operator of certain
Kansas gas wells during the period covered by the order. Panhandle Eastern
Pipe Line Company has advised the Company that Calvin Exploration Inc., as
first seller, was paid $57,732 in Kansas Ad Valorem taxes. The Company was
also advised that as successor in interest to the first seller, the amount of
the refund that must be repaid with interest will approximate $196,000 on the
due date of March 9, 1998.
On February 6, 1998 the Company filed a request for Staff Review with the FERC
relative to their order. In the request, the Company asked that the Company be
responsible only for reimbursement of ad valorem taxes attributable to its
working interest in the properties subject to the FERC order, that the Company
not be required to reimburse taxes on behalf of royalty owners since such taxes
are not recoverable from the royalty owners, and that the Company be allowed to
service it's reimbursement obligation over a five year period due to the
financial hardship which would result from one lump sum payment.
The Company has received various correspondence from the FERC concerning its
request for Staff Review, the latest dated December 4, 1998. In this letter
the Company was advised that it was responsible only for reimbursement of it's
working interest share of the total refund. Additional information was
requested prior to the Commission making a decision to relieve the Company of
the obligation to reimburse taxes on behalf of the royalty owners. The
request for installment payments was not addressed. The Company was further
advised that the FERC staff expected to make a decision on the Company's
request by May 4, 1999.
A total of $46,400 has been booked as a current liability at December 31, 1998
($45,400 at September 30, 1998) covering the Company's working interest share
of the total reimbursement claim. If the FERC rules that the Company is
responsible for reimbursement of tax refunds received by royalty owners, this
amount would be increased by approximately $5,300.
Note E - Subsequent Events
On February 2, 1999, the Company completed a private placement of 5,773,793
shares of it's $.01 par value common stock for $275,000. The investors in the
private placement also agreed to provide guarantees of bank loans or interim
financing as necessary to a maximum of $300,000 for property acquisitions.
Simultaneous with the completion of the private placement, the preferred stock
of the Company, including the accrued but unpaid interest, was converted into
common stock of the Company at an exchange rate of five shares of common stock
for each share of preferred stock including accrued but unpaid interest. A
total of 670,005 shares of common stock was issued.
Prior to the completion of the private offering, the Officers and Directors of
the Company agreed to cancel their outstanding stock options previously granted
to them. As a result, options on 425,000 share of common stock were canceled.
As of February 2, 1999 the Company currently has options for 50,000 shares of
common stock outstanding that were issued in 1994 in connection with the
acquisition of an oil and gas property. The Company did not cancel the
previously adopted stock option plans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity, Capital Resources and Commitments
Under current prices for oil and gas, net cash flows from oil and gas sales
does not cover fixed costs of the Company. Cash flow from oil and gas sales
have decreased by approximately 50% as a result of depressed oil and gas
prices and declining production. This has resulted in net cash flow failing to
cover fixed costs. The Company currently has a negative current ratio with
current liabilities exceeding current assets by approximately $67,000.
Internally, the Company does not expect to be adversely affected by the year
2000 (y2k) problem. The Company's use of computers is minimal and any work
performed by computer programs can be done manually. The Company does not know
the extent to which purchasers of its oil and gas production will be affected
by the y2k problem.
The Company currently has drilling prospects which it is actively marketing to
industry participants. If these prospects are successfully sold, the Company
will receive a front-end payment and an interest carried free of costs in these
prospects which would improve the Company's liquidity.
On February 2, 1999, the Company completed a private placement of 5,773,793
shares for $275,000. The investors in the private placement also agreed to
provide guarantees of bank loans or interim financing as necessary to a
maximum of $300,000 for property acquisitions.
Analysis of Results of Operations
Oil and gas sales decreased by 49% primarily as a result of depressed oil and
gas prices and declining oil and gas production. Management fees decreased due
to the termination of the drilling program that the Company managed.
Lease operating expenses and production taxes decreased due to a decrease in
production taxes caused by reduced sales of oil and gas and a decrease in lease
operating expenses due to normal fluctuations. Depreciation and depletion
declined as a result of declining oil and gas production. General and
administrative expenses decreased primarily due to a reduction in salary
expense.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLX ENERGY, INC.
/s/ E. J. Henderson
By: E. J. Henderson
President and Chief
Financial Officer
Dated: February 10, 1999