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 March 31, 2004
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 May 3, 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
March 31, 2004 4
Condensed Statements of Operations
Six Months and Three Months Ended March 31, 2004 and 2003 5
Condensed Statement of Stockholders' Equity
Six Months Ended March 31, 2004 6
Condensed Statements of Cash Flows
Six Months Ended March 31, 2004 and 2003 7
Notes to Condensed Financial Statements
Six Months Ended March 31, 2004 and 2003 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 March 31, 2004, the related condensed statements of operations for the
six-month and three-month periods ended March 31, 2004 and 2003, condensed
statement of stockholders' equity for the six-month period ended March 31, 2004,
and condensed statement of cash flows for the six-month periods ended March 31,
2004 and 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
May 12, 2004
3
CLX ENERGY, INC.
Condensed Balance Sheet
March 31, 2004
(Unaudited)
Assets
------
Current assets:
Cash $ 249,353
Accounts receivable:
Trade 60,405
Oil and gas sales 99,169
Prepaid expenses 4,642
----------
Total current assets 413,569
----------
Property and equipment, at cost:
Oil and gas properties (successful
effort method):
Proved 846,682
Unproved 7,852
Office equipment 16,353
----------
870,887
Less accumulated depreciation
and depletion (697,398)
----------
Property and equipment, net 173,489
Other assets - oil and gas bond deposit 28,730
----------
$ 615,788
==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable:
Trade $ 145,350
Joint interest owner advances 20,627
Oil and gas sales 130,937
Bank debt 111,857
----------
Total current liabilities 408,771
----------
Other long-term liabilities:
Asset retirement obligations 18,770
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 (685,013)
----------
Net stockholders' equity 188,247
----------
$ 615,788
==========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
4
CLX ENERGY, INC.
Condensed Statements of Operations
Six Months and Three Months Ended March 31, 2004 and 2003
(Unaudited)
Six Months Ended Three Months Ended
March 31, March 31,
----------------------- ----------------------
2004 2003 2004 2003
----------- ---------- ---------- ----------
Revenues:
Oil and gas sales $ 149,757 179,895 79,275 116,988
Management fees 36,993 27,373 18,797 13,949
----------- ---------- ---------- ----------
Total revenue 186,750 207,268 98,072 130,937
----------- ---------- ---------- ----------
Operating expenses:
Lease operating and
production taxes 62,462 70,070 32,302 31,947
Lease rentals 884 68 100 68
Dry holes and abandoned leases 32,135 10,268 32,135 1,518
Depreciation and depletion 14,179 26,292 6,977 13,890
General and administrative 109,693 84,639 52,544 38,522
----------- ---------- ---------- ----------
Total operating costs and
expenses 219,353 191,337 124,058 85,945
----------- ---------- ---------- ----------
Operating income (loss) ( 32,603) 15,931 ( 25,986) 44,992
----------- ---------- ---------- ----------
Other income (expenses):
Gain on sale of assets 11,114 - 1,057 -
Interest income 2,556 2,172 1,251 938
Interest expense (2,498) (5,048) (898) (2,301)
----------- ---------- ---------- ----------
Other income (expenses) 11,172 (2,876) 1,410 (1,363)
----------- ---------- ---------- ----------
Net income (loss) $ ( 21,431) 13,055 ( 24,576) 43,629
=========== ========== ========== ==========
Net income (loss) per
common share:
Basic $ ( .01) .00 (.01) .02
=========== ========== ========== ==========
Diluted $ ( .01) .00 (.01) .02
=========== ========== ========== ==========
Weighted average number of
common shares outstanding:
Basic 2,631,936 2,631,936 2,631,936 2,631,936
=========== ========== ========== ==========
Diluted 2,631,936 2,631,936 2,631,936 2,631,936
=========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
5
CLX ENERGY, INC.
Condensed Statement of Stockholders' Equity
Six Months Ended March 31, 2004
(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 - - - ( 21,431)
--------- ---------- --------- ------------
Balances,
March 31, 2004 2,631,936 $ 26,319 846,941 (685,013)
========= ========== ========= ============
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
6
CLX ENERGY, INC.
Condensed Statements of Cash Flows
Six Months Ended March 31, 2004 and 2003
(Unaudited)
Six Months Ended
March 31,
------------------------
2004 2003
----------- ----------
Cash flows from operating activities:
Net income (loss) $ ( 21,431) 13,055
----------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and depletion 14,179 26,292
Abandoned leases 15,824 -
Gain on sale of assets ( 11,114) -
(Increase) decrease in accounts receivable (5,365) (133,201)
(Increase) decrease in prepaid expense (481) 2,452
Increase in accounts payable 41,026 57,578
----------- ----------
Total adjustments 54,069 ( 46,879)
----------- ----------
Net cash provided by (used in)
operating activities 32,638 ( 33,824)
----------- ----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 25,905 -
Purchase of property and equipment (1,789) ( 13,384)
Addition to other assets ( 79) (400)
----------- ----------
Net cash provided by (used in)
investing activities 24,037 ( 13,784)
----------- ----------
Cash flows from financing activities:
Reductions to long-term debt ( 35,000) ( 54,000)
----------- ----------
Net cash used in
financing activities ( 35,000) ( 54,000)
----------- ----------
Net increase (decrease) in cash 21,675 (101,608)
Cash, beginning of period 227,678 314,065
----------- ----------
Cash, end of period $ 249,353 212,457
=========== ==========
Supplemental disclosures of cash flow:
Interest paid $ 2,498 5,048
=========== ==========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
7
CLX ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
Note A - 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 March 31, 2004, the condensed statements of
operations for the six months and three months ended March 31, 2004 and 2003,
the condensed statement of stockholders' equity for the six months ended March
31, 2004 and the condensed statements of cash flows for the six months ended
March 31, 2004 and 2003 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
March 31, 2004 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 2004 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
SIX MONTHS ENDED MARCH 31, 2004 AND 2003
(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 options were
dilutive for the periods ending March 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 March 31, 2004)
would be to decrease loss per share.
Note D - Income Taxes
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 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 $640 to $18,770 for accretion expense
for the six months ended March 31, 2004 which amount is included in depreciation
and depletion. No liabilities were incurred or settled during the six months
ended March 31, 2004 or the six months ended March 31, 2003. Accretion expense
for the six months and three months ended March 31, 2004 was insignificant.
9
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
The Company's current assets exceed its current liabilities by $4,798. 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 bank debt and asset retirement obligations
as of March 31, 2004 are as follows:
Less than 1 to 2 3 to 5 More than
Total one year years years 5 years
-------- --------- ------ ------ ---------
Bank debt $111,857 111,857 - - -
Asset retirement
Obligations 18,770 - 818 6,504 11,448
-------- --------- ------ ------ ---------
Totals $130,627 111,857 818 6,504 11,448
======== ========= ====== ====== =========
The Company continues to evaluate additional offers from other entities to buy
the Company or its oil and gas properties.
10
Analysis of Results of Operations:
Oil and gas sales decreased for the six months and three months ended March 31,
2004 compared to the six months and three months ended March 31, 2003 primarily
as a result of declining oil and gas production.
Management fees for the six months and three months ended March 31, 2004
increased over the prior year periods primarily due to an increase in fees
charged in managing properties for a partnership.
Lease operating expenses and production taxes decreased for the six months ended
March 31, 2004 compared to the six months ended March 31, 2003 due to a
reduction in taxes as a result of lower oil and gas sales. Dry hole expense
increased as a result of costs incurred in drilling two dry holes during the
three months ended March 31, 2004. 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 primarily as a result of professional fees
incurred in evaluating offers from entities attempting to buy the Company or its
oil and gas properties, and bad debts incurred as operator of oil and gas
properties.
During the six months and three months ended March 31, 2004 the Company sold
part of its interest in certain undeveloped leases resulting gains on sale of
assets. There were no sales in the prior year periods. Interest income
increased as a result of interest being charged on past due receivables.
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: May 12, 2004 By: /s/ E. J. Henderson
------------------------
By: E. J. Henderson
President and Chief Financial Officer
13