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 December 31, 2003
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 February 9, 2004, 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 3
Condensed Balance Sheet
December 31, 2003 4
Condensed Statements of Operations
Three Months December 31, 2003 and 2002 5
Condensed Statement of Stockholders' Equity
Three Months Ended December 31, 2003 6
Condensed Statements of Cash Flows
Three Months Ended December 31, 2003 and 2002 7
Notes to Condensed Financial Statements
Three Months Ended December 31, 2003 and 2002 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 10
PART II - OTHER INFORMATION 12
2
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
CLX Energy, Inc.
We have reviewed the accompanying condensed balance sheet of CLX Energy, Inc. as
of December 31, 2003, the related condensed statements of operations and cash
flows for the three-month periods ended December 31, 2003 and 2002, and the
condensed statement of changes in stockholders' equity for the three-month
period ended December 31, 2003. These condensed financial statements are the
responsibility of the Company's management.
We conducted our reviews 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 auditing standards generally accepted in the United States of
America, 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 reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
EASTON AND BARSCH
Certified Public Accountants
Lakewood, Colorado
February 12, 2004
3
CLX ENERGY, INC.
Condensed Balance Sheet
December 31, 2003
(Unaudited)
Assets
------
Current assets:
Cash $ 282,765
Accounts receivable:
Trade 87,692
Oil and gas sales 109,293
Prepaid expenses 2,650
-----------
Total current assets 482,400
-----------
Property and equipment, at cost:
Oil and gas properties (successful
effort method):
Proved 846,769
Unproved 23,373
Office equipment 16,353
-----------
886,495
Less accumulated depreciation
and depletion (690,741)
-----------
Property and equipment, net 195,754
Other assets - oil and gas bond deposit 28,690
-----------
$ 706,844
===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable:
Trade $ 151,560
Joint interest owner advances 73,027
Oil and gas sales 116,772
Current portion of long-term debt 84,000
Accrued liabilities and other 8,355
-----------
Total current liabilities 433,714
-----------
Other liabilities:
Long-term debt, less current portion 41,857
Asset retirement obligations 18,450
-----------
Total other liabilities 60,307
-----------
Stockholders' 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 shares issued and
outstanding 26,319
Additional paid-in capital 846,941
Accumulated deficit (660,437)
-----------
Net stockholders' equity 212,823
-----------
$ 706,844
===========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
4
CLX ENERGY, INC.
Condensed Statements of Operations
Three Months Ended December 31, 2003 and 2002
(Unaudited)
Three Months Ended
December 31,
-----------------------
2003 2002
----------- ----------
Revenues:
Oil and gas sales $ 70,482 62,907
Management fees 18,196 13,424
----------- ----------
Total revenue 88,678 76,331
----------- ----------
Operating expenses:
Lease operating and production taxes 30,160 38,123
Lease rentals 784 -
Dry holes and abandoned leases - 8,750
Depreciation and depletion 7,202 12,402
General and administrative 57,149 46,117
----------- ----------
Total operating expenses 95,295 105,392
----------- ----------
Operating loss ( 6,617) ( 29,061)
----------- ----------
Other income (expenses):
Gain on sale of assets 10,057 -
Interest income 1,305 1,234
Interest expense ( 1,600) ( 2,747)
----------- ----------
Total other income (expenses) 9,762 ( 1,513)
----------- ----------
Net income (loss) $ 3,145 ( 30,574)
=========== ==========
Net income (loss) per common share:
Basic $ .00 ( .01)
=========== ==========
Diluted $ .00 ( .01)
=========== ==========
Weighted average number of
common shares outstanding:
Basic 2,631,936 2,631,936
=========== ==========
Diluted 2,631,936 2,631,936
=========== ==========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
5
CLX ENERGY, INC.
Condensed Statement of Changes in Stockholders' Equity
Three Months Ended December 31, 2003
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------- ------- ---------- -----------
Balances,
October 1, 2003 2,631,936 $26,319 846,941 (663,582)
Net income - - - 3,145
--------- ------- ---------- -----------
Balances,
December 31, 2003 2,631,936 $26,319 846,941 (660,437)
========= ======= ========== ===========
<FN>
The accompanying notes are an integral part of these condensed financial statements.
6
CLX ENERGY, INC.
Condensed Statements of Cash Flows
Three Months Ended December 31, 2003 and 2002
(Unaudited)
Three Months Ended
December 31,
----------------------
2003 2002
----------- ---------
Cash flows from operating activities:
Net income (loss) $ 3,145 ( 30,574)
----------- ---------
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and depletion 7,202 12,402
Gain on sale of assets ( 10,057) -
(Increase) decrease in accounts receivable ( 42,776) ( 15,540)
(Increase) decrease in prepaid expenses 1,511 1,471
Increase (decrease) in accounts payable 93,826 8,602
Decrease in accrued liabilities
and other - -
----------- ---------
Total adjustments 49,706 6,935
----------- ---------
Net cash provided by (used in)
operating activities 52,851 ( 23,639)
----------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 25,245 -
Purchase of property and equipment ( 1,970) ( 1,687)
Addition to other assets ( 39) ( 199)
----------- ---------
Net cash provided by (used in)
investing activities 23,236 ( 1,886)
----------- ---------
Cash flows from financing activities:
Reductions to long-term debt ( 21,000) ( 30,000)
----------- ---------
Net cash used in
financing activities ( 21,000) ( 30,000)
----------- ---------
Net increase (decrease) in cash 55,087 ( 55,525)
Cash, beginning of period 227,678 314,065
----------- ---------
Cash, end of period $ 282,765 258,540
=========== =========
Supplemental disclosures of cash flow:
Interest paid $ 1,600 2,747
=========== =========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
7
CLX ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(UNAUDITED)
Note A - Business and Basis of Presentation
The Company is engaged in the oil and gas business which consists of acquiring,
exploring, developing, selling and operating oil and gas properties. The
Company's oil and gas activities are subject to existing Federal, state and
local environmental laws, rules and regulations. All of the Company's
activities are in the United Sates, primarily Colorado, Kansas, Oklahoma and
Wyoming.
The condensed balance sheet as of December 31, 2003, the condensed statements of
operations for the three months ended December 31, 2003 and 2002, the condensed
statement of stockholders' equity for the three months ended December 31, 2003
and the condensed statements of cash flows for the three months ended December
31, 2003 and 2002 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, 2003 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, 2003 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 2003 presentation.
Note B - Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Oil and gas reserve estimates
are inherently imprecise and are continually subject to revisions based on
production history, results of additional exploration and development, price of
oil and gas and other factors. Accordingly it is at least reasonably possible
those estimates could be revised in the near term and those revisions could be
material.
8
CLX ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(UNAUDITED)
Note C - Net income (loss) 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 that are dilutive (no stock options were
dilutive for the period ending December 31, 2003). Stock options are not
considered in the diluted EPS calculation for those periods with net losses, as
the impact of the potential common shares (250,000 shares at December 31, 2002)
would be to decrease loss per share.
Note D - Income Taxes
Benefit relating to the tax 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 make it more likely than not
that the net operating losses will not be utilized by the Company prior to their
expiration.
Note E - Asset Retirement obligations
Asset retirement obligations increased by $320 to $18,450 for accretion expense
for the three months ended December 31, 2003 which is included in depreciation
and depletion. No liabilities were incurred or settled during the three months
ended December 31, 2003 or the three months ended December 31, 2002. Accretion
expense for the three months ended December 31, 2002 was insignificant.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Certain statements contained in this Form 10-QSB contain "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
The Company's current assets exceed its current liabilities by $48,686. The
Company believes that current assets and projected cash flow from oil and gas
sales, based on current prices, should be adequate to cover the fixed costs of
the Company for the fiscal year ended September 30, 2004, including servicing
the bank debt.
The Company's projected payments on long-term debt and asset retirement
obligations as of December 31, 2003 are as follows:
Less than 1 to 2 3 to 5 More than
Total one year years years 5 years
-------- --------- ------ ------ ---------
Long-term debt $125,857 84,000 41,857 - -
Asset retirement
Obligations 18,450 - 804 6,393 11,253
-------- --------- ------ ------ ---------
Totals $144,307 84,000 42,661 6,393 11,253
======== ========= ====== ====== =========
The Company currently has drilling prospects it is actively marketing to
industry participants on a promoted basis. The Company is committed to
participate in the drilling of two oil and gas wells during the year ending
September 30, 2004. Estimated net cost to Company for the two wells is $18,000
if both wells are dry holes to $38,000 if both wells are completed as producing
oil or gas wells.
Analysis of Results of Operations:
Oil and gas sales increased by $7,575 for the three months ended December 31,
2003 compared to the three months ended December 31, 2002 primarily as a result
of higher prices for oil and gas, offset by declining oil and gas production.
Management fees for the three months ended December 31, 2003 increased by $4,772
compared to the prior year period primarily due to an increase in fees charged
in managing properties for a partnership.
10
Lease operating expenses and production taxes decreased by $7,963 for the three
months ended December 31, 2003 compared to the three months ended December 31,
2002 due to a general reduction in lease operating expenses and a reduction in
estimated ad valorem taxes. Dry hole expense decreased since no costs were
incurred in drilling of dry holes for the three months ended December 31, 2003.
Depreciation and depletion decreased as a result of the decrease in oil and gas
production, higher estimated reserves on certain wells and the lower carrying
value of the oil and gas properties due to the impairment provision in the
fiscal year ended September 30, 2003. General and administrative expenses
increased by $11,032 primarily as a result of professional fees incurred in
evaluating offers from entities attempting to buy the Company or its oil and gas
properties. The Company considered the offers inadequate.
During the three months ended December 31, 2003 the sold part of its interest in
certain undeveloped leases resulting in a gain of $10,057. During the three
months ended December 31, 2003 interest income increased by $71 and interest
expense decreased primarily as a result of a reduction in the average amount of
debt outstanding.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 4. Controls and Procedures.
A review and evaluation was performed by the Company's management, including the
Company's Chief Executive Officer (the "CEO') and Chief Financial Officer (the
"CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of a date within 90 days prior to the
filing of this quarterly report. Based on that review and evaluation, the CEO
and CFO has concluded that Company's current disclosure controls and procedures,
as designed and implemented, were effective. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect the Company's internal controls subsequent to the date of
their evaluation. There were no significant material weaknesses identified in
the course of such review and evaluation and, therefore, no corrective measures
were taken by the Company.
Notwithstanding the foregoing, because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. Moreover, the design of any system of controls is also
based in part upon certain assumptions about the likelihood of future events.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11. Statement of Computation of Earnings (Loss) Per Share
Exhibit 31. Certification pursuant to Section 302 of the
Sarbanes-Oxley Act
Exhibit 32. Certification pursuant to Section 906 of the
Sarbanes-Oxley Act
(b) Reports on Form 8-K
None
12
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: February 12, 2004 By: /s/ E. J. Henderson
------------------------
E. J. Henderson
President and Chief Financial Officer
13