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, 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)
43180 Business Park Dr., Suite 202, Temecula, CA 92590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 587-9100
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 10, 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
June 30, 2004 4
Condensed Statements of Operations
Nine Months and Three Months Ended June 30, 2004 and 2003 5
Condensed Statement of Stockholders' Equity
Nine Months Ended June 30, 2004 6
Condensed Statements of Cash Flows
Nine Months Ended June 30, 2004 and 2003 7
Notes to Condensed Financial Statements
Nine Months Ended June 30, 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 June 30, 2004, the related condensed statements of operations for the
nine-month and three-month periods ended June 30, 2004 and 2003, condensed
statement of stockholders' equity for the nine-month period ended June 30, 2004,
and condensed statement of cash flows for the nine-month periods ended June 30,
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
August 12, 2004
3
CLX ENERGY, INC.
Condensed Balance Sheet
June 30, 2004
(Unaudited)
Assets
------
Current assets:
Cash $ 183,038
Accounts receivable:
Trade 105,245
Oil and gas sales 132,744
Prepaid expenses 3,638
----------
Total current assets 424,665
----------
Property and equipment, at cost:
Oil and gas properties (successful
effort method):
Proved 847,143
Unproved 11,298
Office equipment 16,353
----------
874,794
Less accumulated depreciation
and depletion (702,529)
----------
Property and equipment, net 172,265
Other assets - oil and gas bond deposit 28,769
----------
$ 625,699
==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable:
Trade $ 142,039
Joint interest owner advances 5,418
Oil and gas sales 168,497
Bank debt 97,857
----------
Total current liabilities 413,811
----------
Other long-term liabilities:
Asset retirement obligations 19,090
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 (680,462)
----------
Net stockholders' equity 192,798
----------
$ 625,699
==========
The accompanying notes are an integral part of these condensed financial
statements.
4
CLX ENERGY, INC.
Condensed Statements of Operations
Nine Months and Three Months Ended June 30, 2004 and 2003
(Unaudited)
Nine Months Ended Three Months Ended
June 30, June 30,
---------------------------------------- ----------------------
2004 2003 2004 2003
------------------- ------------------- ---------- ----------
Revenues:
Oil and gas sales $ 231,129 270,917 81,372 91,022
Management fees 55,298 45,645 18,305 18,272
------------------- ------------------- ---------- ----------
Total revenue 286,427 316,562 99,677 109,294
------------------- ------------------- ---------- ----------
Operating expenses:
Lease operating and
production taxes 101,909 107,560 39,447 37,490
Lease rentals 884 196 - 128
Dry holes and abandoned leases 36,954 10,343 4,819 75
Depreciation and depletion 19,630 38,263 5,451 11,971
General and administrative 154,211 117,818 44,518 33,179
------------------- ------------------- ---------- ----------
Total operating costs and
expenses 313,588 274,180 94,235 82,843
------------------- ------------------- ---------- ----------
Operating income (loss) ( 27,161) 42,382 5,442 26,451
------------------- ------------------- ---------- ----------
Other income (expenses):
Gain on sale of assets 11,114 5,765 - 5,765
Interest income 3,329 3,080 773 908
Interest expense ( 4,162) ( 7,225) ( 1,664) ( 2,177)
------------------- ------------------- ---------- ----------
Other income (expenses) 10,281 1,620 ( 891) 4,496
------------------- ------------------- ---------- ----------
Net income (loss) $ ( 16,880) 44,002 4,551 30,947
=================== =================== ========== ==========
Net income (loss) per
common share:
Basic $ ( .01) .02 .00 .01
=================== =================== ========== ==========
Diluted $ ( .01) .02 .00 .01
=================== =================== ========== ==========
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
=================== =================== ========== ==========
The accompanying notes are an integral part of these financial statements.
5
CLX ENERGY, INC.
Condensed Statement of Stockholders' Equity
Six Months Ended June 30, 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 - - - ( 16,880)
------------ -------- ----------- ---------
Balances,
June 30, 2004 2,631,936 $ 26,319 846,941 (680,462)
============ ======== =========== =========
The accompanying notes are an integral part of these condensed financial
statements.
6
CLX ENERGY, INC.
Condensed Statements of Cash Flows
Nine Months Ended June 30, 2004 and 2003
(Unaudited)
Nine Months Ended
June 30,
------------------------------
2004 2003
------------------- ---------
Cash flows from operating activities:
Net income (loss) $ ( 16,880) 44,002
------------------- ---------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and depletion 19,630 38,263
Abandoned leases 15,918 -
Gain on sale of assets ( 11,114) ( 5,765)
(Increase) decrease in accounts receivable ( 83,780) ( 25,563)
(Increase) decrease in prepaid expense 523 ( 2,097)
Increase in accounts payable 60,066 ( 41,529)
------------------- ---------
Total adjustments 1,243 ( 36,691)
------------------- ---------
Net cash provided by (used in)
operating activities ( 15,637) 7,311
------------------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 25,905 7,160
Purchase of property and equipment ( 5,790) ( 20,758)
Addition to other assets ( 118) ( 604)
------------------- ---------
Net cash provided by (used in)
investing activities 19,997 ( 14,202)
------------------- ---------
Cash flows from financing activities:
Reductions to long-term debt ( 49,000) ( 75,000)
------------------- ---------
Net cash used in
financing activities ( 49,000) ( 75,000)
------------------- ---------
Net increase (decrease) in cash ( 44,640) ( 81,891)
Cash, beginning of period 227,678 314,065
------------------- ---------
Cash, end of period $ 183,038 232,174
=================== =========
Supplemental disclosures of cash flow:
Interest paid $ 4,162 7,225
=================== =========
The accompanying notes are an integral part of these condensed financial
statements.
7
CLX ENERGY, INC.
Notes to Condensed Financial Statements
Nine months ended June 30, 2004 and 2003
(Unaudited)
Note A - Basis of Presentation (See Note B for Change in Control and Proposed
Transition in Business Strategy)
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 States, primarily Colorado, Kansas, Oklahoma and Wyoming.
The condensed balance sheet as of June 30, 2004, the condensed statements of
operations for the nine months and three months ended June 30, 2004 and 2003,
the condensed statement of stockholders' equity for the nine months ended June
30, 2004 and the condensed statements of cash flows for the nine months ended
June 30, 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
June 30, 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 - Change in Control and Proposed Transition in Business Strategy
At a May 24, 2004 meeting of the Company's Board of Directors, the Directors
approved a change in the Company's Officers and Board of Directors.
The Company plans to undergo a transition in business strategy. The plan
includes establishing a wholly owned subsidiary of the Company (CLX Oil and Gas,
LLC) which will be sold to prior management in exchange for their stock
positions. The Company then intends to operate as a holding company, seeking to
acquire interests in private and public companies across a spectrum of
industries. The plan is subject to certain contingencies including shareholder
approval.
8
CLX ENERGY, INC.
Notes to Condensed Financial Statements
Nine months ended June 30, 2004 and 2003
(Unaudited)
Note C - 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.
Note D - 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 June 30, 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 June 30, 2004) would be to
decrease loss per share.
Note E - 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 F - Asset Retirement Obligations
Asset retirement obligations increased by $960 to $19,090 for accretion expense
for the nine months ended June 30, 2004 which amount is included in depreciation
and depletion. No liabilities were incurred or settled during the nine months
ended June 30, 2004 or the nine months ended June 30, 2003. Accretion expense
for the nine months and three months ended June 30, 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
At June 30, 2004, the Company's current assets exceed its current liabilities by
$10,854. 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 June 30, 2004 are as follows:
Less than 1 to 2 3 to 5 More than
Total one year years years 5 years
---------- ------ ------ --------- ------
Bank debt $ 97,857 97,857 - - -
Asset retirement
Obligations 19,090 - 832 6,615 11,643
---------- ------ ------ --------- ------
Totals $ 116,947 97,857 832 6,615 11,643
========== ====== ====== ========= ======
At a May 24, 2004 meeting of the Company's Board of Directors, the Directors
approved a change in the Company's Officers and Board of Directors.
The Company plans to undergo a transition in business strategy. The plan
includes establishing a wholly owned subsidiary of the Company (CLX Oil and Gas,
LLC) which will be sold to prior management in exchange for their stock
positions. The Company then intends to operate as a holding company, seeking to
acquire interests in private and public companies across a spectrum of
industries. The plan is subject to certain contingencies including shareholder
approval.
10
Analysis of Results of Operations:
Oil and gas sales decreased for the nine months and three months ended June 30,
2004 compared to the nine months and three months ended June 30, 2003 primarily
as a result of declining oil and gas production.
Management fees for the nine months ended June 30, 2004 increased over the prior
year period primarily due to an increase in fees charged in managing properties
for a partnership.
Lease operating expenses and production taxes decreased for the nine months
ended June 30, 2004 compared to the nine months ended June 30, 2003 due to a
reduction in taxes as a result of lower oil and gas sales offset by higher
workover costs on certain wells. Lease operating expenses and production taxes
increased for the three months ended June 30, 2004 compared to the three months
ended June 30, 2003 due to higher workover costs on certain wells offset by
lower production taxes as a result of declining oil and gas sales. Dry hole
expense increased as a result of costs incurred in drilling two dry holes during
the nine months ended June 30, 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 nine months ended June 30, 2004 the Company sold part of its interest
in certain undeveloped leases resulting in gains of $11,114 on sale of assets
compared to gains of $5,765 in the prior year periods. 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
In a Form 8-K dated May 25, 2004 The Company announced a Change
in Control of Registrant and plans to undergo a transition in
business strategy.
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: August 12, 2004 By: /s/ Shane H. Traveller
------------------------------
Shane H. Traveller
Chief Executive Officer and
Chief Financial Officer
By: /s/ E. J. Henderson
---------------------------
E. J. Henderson
President
13