FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1999
Commission file number 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 number)
518 17th Street, Suite 745, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 825-7080
Indicate by check mark whether the issuer (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 August 10, 1999
CLX ENERGY, INC.
INDEX
PART I - FINANCIAL INFORMATION
Balance Sheet - June 30, 1999 and September 30, 1998 1
Statements of Operations for the Three Months and Nine Months
Ended June 30, 1999 and 1998 2
Statement of Stockholders' Equity for the Nine Months Ended
June 30, 1999 3
Statements of Cash Flows for the Nine Months Ended June 30,
1999 and 1998 4
Notes to Unaudited Financial Statements 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION 9
CLX ENERGY, INC.
Balance Sheets
June 30, 1999 and September 30, 1998
(Unaudited)
June 30 September 30
---------- -------------
ASSETS 1999 1998
- ------------------------------------------------------ ---------- -------------
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 270,533 30,024
Accounts Receivable:
Trade. . . . . . . . . . . . . . . . . . . . . . . 2,614 294
Oil and Gas Sales. . . . . . . . . . . . . . . . . 7,863 7,099
Deposits . . . . . . . . . . . . . . . . . . . . . . 1,138 -
------- -------
Total Current Assets. . . . . . . . . . . . . 282,148 37,417
Property and Equipment, at cost:
Oil and Gas Properties (successful effort method):
Proved . . . . . . . . . . . . . . . . . . . . . . 368,088 327,213
Unproved . . . . . . . . . . . . . . . . . . . . . 22,079 18,314
Office Equipment . . . . . . . . . . . . . . . . . . 6,621 3,618
------- -------
396,788 349,145
Less accumulated depreciation and depletion . . . . . (227,575) (214,265)
------- -------
169,213 134,880
------- -------
Total Assets. . . . . . . . . . . . . . . . . $ 451,361 172,297
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . . . $ 146,263 81,607
Due joint interest owners. . . . . . . . . . . . . . 34,847 8,355
------- -------
Total Current Liabilities . . . . . . . . . . 181,110 89,962
------- -------
Stockholder's Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, 600,000 shares designated
Series A $.06 cumulative convertible: issue and
outstanding - none at June 30, 1999 and 134,000 at
September 30, 1998 . . . . . . . . . . . . . . . . - 1,340
Common Stock, $.01 par value, 50,000,000
shares authorized, issued, and outstanding -
10,498,132 at June 30, 1999 and 4,054,154 at
September 30, 1998 . . . . . . . . . . . . . . . . 104,981 40,542
Additional Paid in Capital . . . . . . . . . . . . . 737,770 541,417
Accumulated Deficit. . . . . . . . . . . . . . . . . (572,500) (500,964)
------- -------
Net Stockholders' Equity . . . . . . . . . . . 270,251 82,335
------- -------
Total Liabilities and Stockholders' Equity . . $ 451,361 172,297
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
1
CLX ENERGY, INC.
Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ----------- ----------
Revenues:
Oil and gas sales $ 43,201 65,871 16,336 20,587
Management fees 2,967 900 2,967 -
------ ------ ------ ------
Total revenue 46,168 66,771 19,303 20,587
Operating costs and expenses:
Lease operating and
production taxes 14,873 18,256 5,732 5,629
Lease rentals and
abandonments 2,377 1,785 392 230
Dry Holes 4,427 - 4,427 -
Depreciation and depletion 13,310 19,014 4,661 6,807
Unusual expenses 9,900 - - -
General and administrative . 76,323 77,905 27,716 17,483
------ ------ ------ ------
Total operating costs and
expenses 121,210 116,960 42,928 30,149
------- ------- ------ ------
Operating loss ( 75,042) ( 50,189) ( 23,625) ( 9,562)
Other income (expense):
Gain on sale of assets 5,250 632 5,000 ( 37)
Interest income 1,203 - 770 -
Interest expense ( 2,947) ( 2,849) ( 1,003) ( 993)
------ ------ ------ ------
Total other income(expense) 3,506 ( 2,217) 4,767 ( 1,030)
------ ------ ------ ------
Net loss $ ( 71,536) (52,406) ( 18,858) ( 10,592)
====== ====== ====== ======
Weighted average number of
common shares outstanding -
basic and diluted 7,547,592 4,054,154 10,498,132 4,054,154
========= ========= ========= =========
Net loss per common share -
basic and diluted. . . . . . . $ ( .01) ( .01) ( * ) ( * )
====== ====== ====== ======
* Less than $(.01) per
share
<FN>
The accompanying notes are an integral part of these financial statements.
2
CLX ENERGY, INC.
Statement of Stockholders' Equity
Nine Months Ended June 30, 1999
(Unaudited)
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- --------
Balances, September 30, 1998 134,000 $ 1,340 4,054,154 $ 40,542 541,417 (500,964)
Common stock issued for
preferred stock (134,000) ( 1,340) 670,005 6,700 ( 5,360) -
Common stock issued for
cash, net of expenses - - 5,773,973 57,739 201,713 -
Net Loss - - - - - ( 71,536)
------ ------ ---------- ------- ------- --------
Balances, June 30, 1999 - $ - 10,498,132 $ 104,981 737,770 572,500
====== ====== ========== ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
3
CLX ENERGY, INC.
Statements of Cash Flows
Nine months ended June 30, 1999 and 1998
(Unaudited)
Nine Months Ended
June 30,
-----------------
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ ( 71,536) ( 52,406)
Adjustments to reconcile net loss to net cash used in
in operating activities:
Depreciation and depletion 13,310 19,014
Abandoned properties 1,171 -
Gain on sale of assets ( 5,250) ( 632)
(Increase) decrease in accounts receivable ( 3,084) 62,155
Increase in prepaid expense ( 1,138) -
Increase (decrease) in accounts payable 64,656 ( 32,794)
Increase in due joint interest owners 26,492 -
------ ------
Net cash provided by (used in) operating activities 24,621 ( 4,663)
Cash flows from investing activities:
Proceeds from sale of property and equipment 5,250 7,130
Purchase of property and equipment ( 48,814) ( 4,752)
------ ------
Net cash provided by (used in) investing activities ( 43,564) 2,378
Cash flows from financing activities:
Proceeds from issuance of common stock, net 259,452 -
------- ------
Net cash provided by (used in) financing activities 259,452 -
------- ------
Net increase (decrease) in cash 240,509 ( 2,285)
Cash, beginning of period 30,024 34,763
------- ------
Cash, end of period $ 270,533 32,478
======= ======
Supplemental disclosures of cash flow information -
cash paid during period for interest. $ - -
======= ======
<FN>
The accompanying notes are an integral part of these financial statements.
4
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
Note A - Basis of Presentation
The balance sheet as of June 30, 1999, the statements of operations for the nine
months and three months ended June 30, 1999 and 1998, the statement of
stockholders' equity for the nine months ended June 30, 1999 and the statement
of cash flows for the nine months ended June 30, 1999 and 1998 have been
prepared by the company without an 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 June 30, 1999
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 principles
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 income (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:
Nine months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Net Loss. . . . . . . . . . . . . $ ( 71,536) ( 52,406) ( 18,858) ( 10,592)
Preferred stock
dividends ( 2,747) ( 6,030) - ( 2,010)
------------ ------------ --------- ----------
Net loss, basic
and diluted,
applicable to
common stockholders $ ( 74,283) ( 58,436) ( 18,858) ( 12,602)
========== ========== =========== ==========
Weighted average
number of shares
outstanding - basic
and diluted 7,547,592 4,054,154 10,498,132 4,054,154
========= ========= ========== =========
Net loss per share,
basic and diluted, applicable to
common shareholders $ ( .01) ( .01) ( * ) ( * )
========== ========== =========== ==========
* Less than $(.01)
per share.
5
Options to purchase 50,000 shares of common stock were outstanding at June 30,
1999 (475,000 at June 30, 1998) but were not included in the computation of
diluted net loss per share because the result would be antidilutive.
Note C - Preferred stock and common stock
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 during
the period from February 2, 1999 to February 2, 2002.
Simultaneous with 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 shares of common
stock were canceled and 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 options plan.
Note D - Unusual expenses
The amount reflected as unusual expenses in the statements of operations
represents the Company's share of a settlement with the Wind River Tax
Commission concerning royalty calculations for gas sold from a gas field from
1988 to 1995. All working interest owners approved settling the dispute to
avoid the cost of litigation. The Company sold its interest in the gas property
in 1995.
Note E - Contingency
The Company has been advised by the 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 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 to the Maximum Lawful Price (MLP) of gas sold under the NGPA of 1978 for
the period from October 3, 1983 through June 28, 1988. This order reversed the
FERC rules in effect during the time periods that ad valorem taxes paid to the
State of Kansas by producers could be recovered 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 approximated $196,000 on the original
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. 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 taxes are not recoverable
6
from the royalty owners, and that the Company be allowed to service it's
membership 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 which date has been extended to October 1, 1999.
On March 12, 1999 the Missouri Public Service Commission filed a Petition for
Review with the U.S. Court of Appeals. The Petition requests a review of
certain orders issued by FERC with respect to the Company. Counsel for the
Company has filed a motion for Leave to Intervene in the proceeding.
A total of $48,300 has been booked as a current liability as of June 30, 1999
($45,400 at September 30, 1998) covering the Company's working interest share of
the total reimbursable claim. If the FERC rules that the Company is responsible
for reimbursement for its proportionate share of tax refunds received by royalty
owners, this amount would be increased by approximately $5,400.
Note F - Subsequent Events
In August 1999, the Company purchased oil and gas producing properties for
approximately $1,935,000. The Company obtained bank financing for the
acquisition. The bank loan is secured by the oil and gas properties and the
personal guaranty of $500,000 by the major shareholder of the Company.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity, Capital Resources and Commitments
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.
Cash flows from oil and gas sales have decreased as a result of depressed oil
and gas prices and declining production. This has resulted in net cash flow
from oil and gas sales failing to cover fixed costs. The Company currently has
working capital of approximately $101,000.
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 has participated in the drilling of three wells during the three
months ended June 30, 1999. Two of the wells appear to be capable of commercial
production and one well is a dry hole.
In August 1999, the Company purchased oil and gas producing properties for
approximately $1,935,000. The Company obtained bank financing for the
acquisition. A portion of the bank financing ($500,000) was guaranteed by the
major shareholder of the Company.
The Company is also attempting to purchase additional oil and gas producing
properties.
Analysis of Results of Operations:
Oil and gas sales decreased for the nine months and the three months ended June
30, 1999 as a result of lower oil and gas prices and declining production.
For the nine months and the three months ended June 30, 1999 the Company
received $2,967 in management fees for the drilling of a well that it is acting
as operator.
Lease operating expenses and production taxes decreased for the nine months
ended June 30, 1999 due to lower production taxes as a result of the decrease in
sales, and a general decrease in operating costs caused by mild weather
conditions. Depreciation and depletion decreased as a result of declining oil
and gas production. The Company incurred dry hole costs of $4,427 in the
periods ending in 1999. There were no similar costs in the periods ending in
1998. General and administrative expenses increased for the three months ended
June 30,1999 as compared to the prior period primarily due to an increase in
salary expense and a general increase in activity.
Unusual expenses in 1999 represented an amount paid to resolve a dispute
regarding royalty calculations for gas sold from 1988 to 1995. There were no
unusual expenses in 1998.
8
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 From 8-K
None
9
SIGNATURES
Pursuant to the Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf buy the undersigned thereunto duly
authorized.
CLX ENERGY, INC.
(REGISTRANT)
Date: August 13, 1999 By: /s/ E. J. Henderson
------------------------
By: E. J. Henderson
President and Chief Financial Officer