FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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.
As of August 2, 2001, there were 2,631,936 shares of the Registrant's sole class
of Common Stock outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
CLX ENERGY, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Independent Accountants' Report 1
Condensed Balance Sheet
June 30, 2001 2
Condensed Statements of Operations
Nine Months and Three Months Ended June 30, 2001 and 2000 3
Condensed Statement of Stockholders' Equity
Nine Months Ended June 30, 2001 4
Condensed Statements of Cash Flows
Nine Months Ended June 30, 2001 and 2000 5
Notes to Condensed Financial Statements
Nine Months Ended June 30, 2001 and 2000 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 9
PART II - OTHER INFORMATION 11
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
CLX Energy, Inc.
We have reviewed the accompanying condensed balance sheet of CLX Energy, Inc. as
of June 30, 2001, the related condensed statements of operations for the
nine-month and three-month periods ended June 30, 2001 and 2000, condensed
statement of stockholders' equity for the nine-month period ended June 30 2001,
and condensed statement of cash flows for the nine month periods ended June 30,
2001 and 2000. These condensed financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
EASTON AND BARSCH
Certified Public Accountants
Lakewood, Colorado
August 9, 2001
1
CLX ENERGY, INC.
Condensed Balance Sheet
June 30, 2001
(Unaudited)
ASSETS
- ------
Current assets:
Cash $ 934,971
Accounts receivable:
Trade 240,042
Oil and gas sales 258,855
Prepaid expenses 5,173
-----------
Total current assets 1,439,041
-----------
Property and equipment, at cost:
Oil and gas properties (successful effort method):
Proved 1,330,489
Unproved 52,131
Office equipment 16,353
-----------
1,398,973
Less accumulated depreciation and depletion (465,017)
-----------
933,956
-----------
Other assets - oil and gas bond deposit 26,725
-----------
$2,399,722
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable:
Trade $ 848,567
Oil and gas sales 277,719
Current portion of long-term debt 120,000
Accrued liabilities and other 16,709
-----------
Total current liabilities 1,262,995
-----------
Long-term debt, less current portion 397,857
-----------
Stockholder's equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, 600,000 shares designated
Series A $.06 cumulative convertible
no shares outstanding -
Common stock, $.01 par value, 50,000,000 shares
authorized, 2,631,936 issued and outstanding 26,319
Additional paid in capital 846,941
Accumulated deficit (134,390)
-----------
Net stockholders' equity 738,870
-----------
$2,399,722
===========
The accompanying notes are an integral part of these condensed financial
statements.
2
CLX ENERGY, INC.
Condensed Statements of Operations
Nine Months and Three Months Ended June 30, 2001 and 2000
(Unaudited)
Nine Months Ended Three Months Ended
June 30, June 30,
----------------------- ----------------------
2001 2000 2001 2000
----------- ---------- ---------- ----------
Revenues:
Oil and gas sales $ 739,756 403,841 182,258 193,471
Management fees and other 56,630 103,295 18,544 29,523
----------- ---------- ---------- ----------
Total revenue 796,386 507,136 200,802 222,994
----------- ---------- ---------- ----------
Operating expenses:
Lease operating 146,833 86,453 41,288 32,020
Production taxes 39,920 23,278 9,950 10,243
Lease rentals 2,443 4,769 1,408 (4,426)
Dry holes and abandoned leases 66,759 7,621 10,442 4,808
Depreciation and depletion 99,957 79,796 29,119 39,158
General and administrative 206,564 153,826 53,485 42,580
----------- ---------- ---------- ----------
Total operating costs
and expenses 562,476 355,743 145,692 124,383
----------- ---------- ---------- ----------
Operating income 233,910 151,393 55,110 98,611
----------- ---------- ---------- ----------
Other income (expenses):
Gain on sale of assets 20,735 3,134 - 3,134
Interest income 15,058 4,747 7,451 1,456
Interest expense (39,201) (36,699) (13,237) (10,412)
----------- ---------- ---------- ----------
Other income (expenses) (3,408) (28,818) (5,786) (5,822)
----------- ---------- ---------- ----------
Net income (loss) before
income taxes 230,502 122,575 49,324 92,789
Provision for income taxes (10,000) - (3,500) -
----------- ---------- ---------- ----------
Net income (loss) $ 220,502 122,575 45,824 92,789
=========== ========== ========== ==========
Net income (loss) per
common share
Basic $ .08 .05 .02 .04
=========== ========== ========== ==========
Diluted $ .08 .05 .02 .03
=========== ========== ========== ==========
Weighted average number of
common shares outstanding
Basic 2,634,850 2,637,033 2,631,984 2,637,033
=========== ========== ========== ==========
Diluted 2,764,480 2,698,033 2,761,614 2,698,033
=========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
3
CLX ENERGY, INC.
Condensed Statement of Stockholders' Equity
Nine Months Ended June 30, 2001
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
---------- ---------- -------- ---------
Balances,
October 1, 2000 2,636,283 $ 105,451 742,488 (354,892)
Reverse stock split - (79,088) 79,088 -
Repurchase of common
stock (4,347) (44) (2,635) -
Stock option issued
for services - - 28,000 -
Net income - - - 220,502
---------- ---------- -------- ---------
Balances,
June 30, 2001 2,631,936 $ 26,319 846,941 (134,390)
========== ========== ======== =========
The accompanying notes are an integral part of these financial statements.
4
CLX ENERGY, INC.
Condensed Statements of Cash Flows
Nine Months Ended June 30, 2001 and 2000
(Unaudited)
Nine Months Ended
June 30,
-----------------------
2001 2000
---------- -----------
Cash flows from operating activities:
Net income $ 220,502 122,575
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and depletion 99,957 79,796
Expenses incurred in exchange for options 28,000 -
Gain on sale of assets (20,735) (3,134)
(Increase) decrease in accounts receivable 38,710 (133,561)
Increase in prepaid expense (1,627) (3,613)
Increase in accounts payable 169,871 118,858
Increase (decrease) in accrued liabilities
and other (35) 21,837
Other - (1,719)
---------- -----------
Net cash provided by
operating activities 534,643 201,039
Cash flows from investing activities:
Proceeds from sale of property and equipment 82,529 8,849
Reduction in assets held for sale - 1,585,640
Purchase of property and equipment (467,025) (139,178)
Additions to other assets (1,122) -
---------- -----------
Net cash provided by (used in)
investing activities (385,618) 1,455,311
Cash flows from financing activities:
New long-term borrowings 265,000 -
Reductions to long-term debt (80,907) (1,611,996)
Repurchase of common stock (2,679) -
---------- -----------
Net cash provided by (used in)
financing activities 181,414 (1,611,996)
---------- -----------
Net increase in cash 330,439 44,354
Cash, beginning of period 604,532 318,330
---------- -----------
Cash, end of period $ 934,971 362,684
========== ===========
Supplemental disclosures of cash flow:
Interest paid $ 35,067 32,975
========== ===========
Income taxes paid $ 6,645 -
========== ===========
The accompanying notes are an integral part of these financial statements.
5
CLX ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
Note A - Basis of Presentation
The condensed balance sheet as of June 30, 2001, the condensed statements of
operations for the nine months and three months ended June 30, 2001 and 2000,
the condensed statement of stockholders' equity for the nine months ended June
30, 2001 and the condensed statements of cash flows for the nine months ended
June 30, 2001 and 2000 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
June 30, 2001 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, 2000 financial statements of the Company, the notes thereto and
the independent Auditors' Report thereon.
Certain amounts reported in the prior period financial statements have been
reclassified to conform with the 2001 presentation.
Note B - Capital structure
On March 20, 2001 the shareholders approved a 1 for 100 reverse stock split
followed immediately by a 25 for 1 forward share stock split of the Company's
common stock. Shareholders holding fewer than 100 common shares of the Company
were cashed out in April, 2001 for $2,679. The Company's authorized common
shares of 50,000,000 shares did not change. The par value of the common stock
remained at $.01 per share. The financial statements have been adjusted
retroactively to reflect this change in capital structure.
Note C - Stock option
On March 20, 2001 the Board of Directors granted an officer of the Company an
option to purchase 125,000 shares of stock of the Company at $.40 per share.
The Company recorded compensation expense of $28,000 since the option price was
less than the market price of the stock at the date of grant.
6
Note D - Net income per common share
SFAS No. 128, Earnings per Share, requires dual presentation of basic and
diluted earnings or loss per share (EPS) with a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Basic income (loss) per share of common stock is computed based on the average
number of common shares outstanding during the period. Diluted EPS includes the
potential conversion of stock options.
Note E - Oil and Gas Property Acquisition
In December 2000 the Company acquired interests in fifteen producing oil and gas
wells for approximately $265,000. The Company borrowed $265,000 from a bank in
connection with the acquisition.
Note F - Income Taxes
No provision for income taxes is required for the nine months and three months
ended June 30, 2000.
The following table reconciles the U.S. statutory rate to the Company's
effective tax rate:
2001 2000
---- ----
Federal statutory rate 35.0% 35.0%
Net operating losses ( 2.7 ) (35.0 )
State taxes ( 0.0 ) ( 0.0 )
Statutory depletion (13.4 ) ( 0.0 )
Intangible drilling costs (18.4 ) ( 0.0 )
Other 3.8 0.0
---- ----
Effective tax rate 4.3% 0.0%
==== ====
At September 30, 2000, after giving effect to ownership changes that occurred in
the 1999 fiscal year, the Company has a net operating loss carryforward of
approximately $360,000 which expires in varying amounts from September 30, 2003
through 2017. The $360,000 carryforward is subject to an annual limitation of
approximately $23,500. Differences between income tax and financial statement
basis of assets at September 30, 2000 consists of basis difference of oil and
gas properties ($40,000) as a result of a purchase acquisition in a prior fiscal
year and intangible drilling costs ($140,000) which are expensed for tax
purposes.
7
Deferred tax benefit relating to the net operating loss carryforward has not
been reflected as a net deferred tax asset because the limited carryover period
combined with the history of losses of the Company, prior to the year ended
September 30, 2000, make it more likely than not that the net operating losses
will not be utilized by the Company prior to their expiration.
Note G - 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 from
the royalty owners, and that the Company be allowed to service it's 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 Company was advised by FERC 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 has booked approximately $64,000 as a current liability to cover the
Company's estimated share of the reimbursable claim.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The statements contained in this Form 10-QSB, if not historical, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve risks and uncertainties that could
cause actual results to differ materially from the results, financial or
otherwise, or other expectations described in such forward-looking statements.
Any forward-looking statement or statements speak only as of the date on which
such statements were made, and the Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statements are made or reflect the occurrence of unanticipated
events. Therefore, forward-looking statements should not be relied upon as
prediction of actual future results.
Liquidity, Capital Resources and Commitments
In the nine months ended June 30, 2001 the Company participated in drilling of
four wells, one of which the Company believes is capable of commercial
production. In December 2000 the Company purchased an interest in 15 oil and
gas wells for approximately $265,000. The Company obtained a bank loan for
$265,000 in connection with the acquisition.
The Company currently has a positive current ratio with current assets exceeding
current liabilities by approximately $176,000. Based on current prices for oil
and gas, the Company believes that net cash flow from oil and gas sales should
be adequate to participate in the drilling of additional wells and cover the
fixed costs of the Company for the next fiscal year including servicing the bank
debt.
The Company currently has drilling prospects which it will be actively marketing
to industry participants on a promoted basis and the Company is attempting to
purchase additional producing oil and gas properties.
Analysis of Results of Operations:
Oil and gas sales increased for the nine months ended June 30, 2001 compared to
the nine months ended June 30, 2000 primarily as a result of higher prices for
gas and oil, additional revenues from oil and gas wells that the Company
participated in drilling during the last year, and revenues from the wells
purchased in December, 2000. Oil and gas sales decreased for the three months
ended June 30, 2001 compared to the three months ended June 30, 2000 as a result
of lower prices and declining production.
Management fees and other income received for the nine months and three months
periods ended June 30, 2001 decreased over the prior year periods primarily due
to one time management fees received in the prior periods in connection with the
acquisition of oil and gas properties for a limited partnership.
9
Lease operating expenses and production taxes increased for the nine months
ended June 30, 2001 due to additional wells and the increase in oil and gas
sales. Lease operating expenses increased for the three months ended June 30,
2001 as compared to the three months ended June 30, 2000 due to additional
wells. Dry holes and abandoned leases increased as a result of participating in
three dry holes during the nine months ended June 30, 2001. Depreciation and
depletion increased for the nine months ended June 30, 2001 as compared to the
prior year period as a result of the increase in oil and gas properties and
related production. Depreciation and depletion decreased for the three months
ended June 30, 2001 as compared to the prior period due to declining sales.
General and administrative expenses increased for the nine months and three
months periods ended June 30, 2001 as compared to the prior periods primarily
due to $28,000 of expense associated with a stock option granted during the
three months ended March 31, 2001, and expenses incurred in connection with the
stockholders' meeting and reverse stock split. During the nine months ended
June 30, 2001 the Company had a gain of $20,735 from selling part of its
interest in undeveloped oil and gas leases. During the nine and three months
ended June 30, 2000 the Company had a gain on sale of assets of $3,134.
Interest income increased as a result of an increase in the amount of interest
bearing cash accounts. Interest expense increased as a result of the additional
bank debt incurred to purchase producing properties. The Company accrued
$10,000 for estimated income taxes for the nine months ended June 30, 2001
($3,500 for the three month period ended June 30, 2001).
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
On March 20, 2001 the shareholders approved a reverse 100 for 1 stock
split followed immediately by a forward 1 for 25 share stock split of
the Company's common stock. Shareholders holding fewer than 100 common
shares of the Company were cashed out in April 2001 for $2,679. The
Company's authorized common shares of 50,000,000 shares did not
change. The par value of the common stock remained at $.01 per share.
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 11. Statement of Computation of Earnings Per Share
(b) Reports on Form 8-K
None
11
SIGNATURES
Pursuant to the Securities and 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.
(REGISTRANT)
Date: August 9, 2001 By: /s/ E. J. Henderson
---------------------------
By: E. J. Henderson
President and Chief Financial Officer
12