SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from:
Commission File No. 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 No.)
1776 Lincoln Street, Suite 806, Denver, CO 80203
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 894-0763
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act 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 [ ]
The number of shares outstanding of each class of the Registrant's common
stock as of the end of the period covered by this report was: Common Stock -
$0.01 par value, 4,054,154 shares.
There is no established public trading market for the Registrant's common
stock. Accordingly, the aggregate market value of the voting stock held by
non-affiliates of the Registrant at December 31, 1997 was not determinable.
Documents Incorporated By Reference
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
<PAGE>
CLX ENERGY, INC.
FORM 10-K
Table of Contents
September 30, 1997
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a vote of Security Holders
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Director's and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
Signatures
<PAGE>
PART I
ITEM 1.
BUSINESS
General Development of Business
- -------------------------------
CLX Energy, Inc., the registrant (the "Company") is an independent oil and
gas company which was incorporated in the State of Colorado on December 12,
1977. The Company engages in on-shore oil and gas exploration, development
and production in the continental United States. The Company's oil and gas
activities are concentrated primarily in Kansas, Oklahoma and Wyoming.
Financial Information About Industry Segments
- ---------------------------------------------
The Company has engaged in only one industry segment and line of business,
namely the acquisition, exploration, development and operation of oil and
gas properties for its own account. See the Company's Financial Statements
included herein.
Description of Business
- -----------------------
CLX Energy, Inc., the Company, is engaged in the operation of producing
oil and gas wells, the acquisition of producing properties, the acquisition of
oil and gas leases, and the development of oil and gas drilling prospects.
Drilling prospects, both development and wildcat, are sold to others on a
promoted basis with the Company recovering its land, legal and geological costs
and retaining a cost free interest in the prospect.
As of September 30, 1997 the Company's significant oil and gas operations
were located in the following areas.
STATE COUNTY
----- ------
Wyoming Campbell and Crook
Kansas Meade
Oklahoma Alfalfa and Beaver
<PAGE>
Principal Products Produced and Services Rendered
- -------------------------------------------------
The Company's principal products are crude oil and natural gas. Crude oil
and natural gas are sold to various purchasers, including pipeline companies,
which generally service the area in which the Company's wells are located. The
Company's oil and gas production is sold to several purchasers, three of which
purchased more than 10% of oil and gas revenues. Prices received for the
Company's oil and gas production is based upon the "spot" market of the
National Commodity Futures Exchange subject to reductions for transportation
and product quality. These prices vary from month to month subject to supply
and demand. See the Company's Financial Statements included herein.
Status of New Products or Industry Segments
- -------------------------------------------
There has been no public announcement of, and no information otherwise has
been made public about a new product or industry segment, which would require
the investment of a material amount of the Company's assets, or which otherwise
is material.
Sources and Availability of Raw Materials
- -----------------------------------------
The existence of commercial oil and gas reserves is essential to the
ultimate realization of value from the Company's properties and thus may be
considered a raw material essential to the Company's business. However, the
acquisition, exploration, development, production, and sale of oil and gas is
subject to many factors which are outside of the Company's control. These
factors include national and international economic conditions, availability of
drilling rigs, casing, pipe and other equipment and supplies, proximity to
pipelines, the supply and price of other fuels. The Company acquires oil and
gas properties from landowners, other owners of interests in such properties,
or governmental entities. For information relating to specific properties of
the Company see Item 2 below. The Company currently is not experiencing any
difficulty in acquiring necessary supplies, including drilling rigs.
Patents, Trademarks, Licenses, Franchises and Concessions
- ---------------------------------------------------------
The Company does not own any patents, trademarks, licenses, franchises, or
concessions, except oil and gas interests granted by governmental authorities
and private land owners.
Seasonal Nature of Business
- ---------------------------
The Company's business is not seasonal in nature.
<PAGE>
Working Capital Items
- ---------------------
Working capital is not required to carry inventories to meet rapid
delivery requirements, or to assure continuous allotments of goods from
suppliers. Access to sufficient cash is essential to take advantage of
opportunities to acquire, develop, and operate oil and gas properties.
Major Customers
- ---------------
The Company's business does not depend upon a single customer or a very
few customers. Oil and gas purchasers have been readily available in this
Company's market areas (See Note 8 to Financial Statements).
Backlog
- -------
Backlog is not relevant to an understanding of the Company's business.
Renegotiation or Termination of Government Contracts
- ----------------------------------------------------
No portion of the Company's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
Government.
Competitive Conditions
- ----------------------
The exploration for and development and production of oil and gas are
subject to intense competition. The principal methods of competition in the
industry for the acquisition of oil and gas leases are the payment of bonus
payments at the time of acquisition of leases, delay rentals, location damage
supplement payments, the use of differential royalty rates, the amount of
annual rental payments and stipulations requiring exploration and production
commitments by the lessee. Companies with greater financial resources,
existing staff and labor forces, equipment for exploration, and vast experience
will be in a better position than the Company to compete for such leases. In
addition, the availability of a ready market for oil and gas will depend upon
numerous factors beyond the Company's control, including the extent of domestic
production and imports of oil, proximity and capacity of pipelines, and the
affect of federal and state regulation of oil and gas sales. The Company has
an insignificant competitive position in the oil and gas industry.
Research and Development
- ------------------------
The Company has not engaged and does not currently engage in any research
and development activities.
<PAGE>
Environment Protection
- ----------------------
The Company is subject to various federal, state and local provisions
regarding environmental matters, the existence of which has not hindered nor
adversely affected the Company's business. Although the Company does not
believe its business operations presently impair environmental quality,
compliance with federal, state and local regulations which have been enacted or
adopted regulating the discharge of materials into the environment could have
an adverse effect upon the capital expenditures, earnings and competitive
position of the Company. Since inception, the Company has not made any
material capital expenditures for environmental control facilities and is not
aware of any such expenditures that will be required in current or following
fiscal years.
Employees
- ---------
As of September 30, 1997, the Company employed one person, the President
and Chief Executive Officer, on a full-time basis.
Financial Information About Foreign and Domestic Operations and Export Sales
- ----------------------------------------------------------------------------
The Company has no operations in foreign countries and no portion of its
sales or revenues is derived from customers in foreign countries.
<PAGE>
ITEM 2.
PROPERTIES
Office Facilities
- -----------------
The Company's offices are located at 1776 Lincoln Street, Suite 806,
Denver, Colorado 80203, in space which the Company leases from an unaffiliated
entity. The Company currently occupies approximately 1,440 square feet for
which it pays a monthly rental of $1,113. The lease agreement on this space
expires on May 31, 1998.
Oil and Gas Properties
- ----------------------
The Company is in only one line of business, that of acquiring, developing
and producing oil and gas properties. The Company's estimated discounted
future net revenue attributable to proved producing reserves of $288,600 is
attributed 67.4% to natural gas reserves and 32.6% to oil reserves.
The Company holds interests in producing and non-producing leaseholds as
set forth below.
Producing Properties Non-Prod. Properties
-------------------- --------------------
Gross Net Gross Net
Acres Acres Acres Acres
----- ----- ----- -----
State
- -----
Kansas 1,920 294 - -
Oklahoma 1,120 212 - -
Wyoming 716 58 5,855 1,553
----- --- ----- -----
3,756 564 5,855 1,553
Net acres represent the gross acres in a lease or leases multiplied by the
Company's working interest in such lease or leases.
The Company's undeveloped acreage is all held pursuant to leases from the
landowner or a governmental entity. Such leases have varying dates of
execution and generally expire one to five years after the date of the lease.
The Company is obligated to pay varying delay rentals to the lessors of such
properties to prevent the leases from expiring.
<PAGE>
Proved and Proved Developed Reserves
- ------------------------------------
The following table shows, for the years indicated, the proved and proved
developed oil and gas reserves attributable to the Company's interests.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not
on escalations based upon future conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with equipment and operating methods.
September 30
--------------------------------------
1997 1996 1995
------------ ---------- -----------
Barrels of oil
--------------
Proved 30,500 38,200 46,100
Proved developed 16,300 24,100 32,000
MCF of gas
----------
Proved 242,600 183,400 212,500
Proved developed 242,600 183,400 212,500
No oil and gas of the Company is applicable to long term supply or similar
agreements with foreign governments or authorities in which the Company is
a producer.
Estimated Future Net Revenues
- -----------------------------
The following table shows, for the years indicated, the present value of
estimated future net revenues to be generated by the sales of the estimated
reserves utilizing a discount factor of 10% per year and holding the sales
price of oil and gas constant at the respective year end levels.
September 30
--------------------------------------
1997 1996 1995
---------- -------- -----------
Oil
---
Proved $ 222,700 244,700 266,700
Proved developed $ 94,100 134,300 199,300
Gas
---
Proved $ 194,500 201,100 145,800
Proved developed $ 194,500 201,100 145,800
See Supplementary Information - Oil and Gas Producing Activities for an
explanation of change in the estimated future net revenue of the Company.
The above reserves are located entirely within the United States.
<PAGE>
Oil and Gas Reserve Estimates Filed
- -----------------------------------
Since September 30, 1997 the Company has filed no estimates of total
proved net oil or gas reserves with or included such information in reports to
any federal authority or agency other than the Securities and Exchange
Commission.
Net Oil and Gas Production
- --------------------------
The following table shows, for the periods indicated, the approximate
production attributable to the Company's oil and gas interests.
YEAR ENDED SEPTEMBER 30
---------------------------------------
1997 1996 1995
---- ---- ----
Crude Oil (Bbls) 1,800 1,900 2,500
Natural Gas (MCF) 31,400 35,200 44,300
The following table shows, for the periods indicated, the approximate
average sales price per barrel of oil and MCF of gas and approximate average
productive cost of oil and gas produced on a relative unit basis.
YEAR ENDED SEPTEMBER 30
---------------------------------------
1997 1996 1995
---- ---- ----
Average Sales Price
Per Barrel of Oil $ 16.84 16.13 13.06
Per MCF of Gas $ 2.55 2.03 1.43
Average Lifting Cost
Per Equivalent MCF $ .36 0.24 0.37
Per Equivalent BBL $ 6.28 4.57 7.48
<PAGE>
Total Gross and Net Productive Wells and Developed Acres
- --------------------------------------------------------
The following table sets forth the Company's total gross and net
productive wells as of September 30, 1997, which are located on 3,756 gross
(564 net) acres:
Gross Wells Net Wells
----------- ---------
Oil Gas Oil Gas
--- --- --- ---
2 11 .15 .91
Net Productive and Dry Exploratory and Development Wells
- --------------------------------------------------------
The following table sets forth the number of net productive and dry
exploratory and development wells drilled by the Company during fiscal 1997,
1996 and 1995.
Exploratory Wells Development Wells
----------------- -----------------
Net Prod. Net Dry Net Prod. Net Dry
--------- ------- --------- -------
1997
----
0 .21 0 0
1996
----
0 .20 0 0
1995
----
0 .02 .07 0
Present Activities
- ------------------
As of December 31, 1997, the Company was not involved in the drilling of
any wells.
Future Oil and Gas Delivery Contracts
- -------------------------------------
The Company is not obligated to provide a fixed and determinable quantity
of oil or gas in the future pursuant to existing contracts or agreements.
<PAGE>
ITEM 3.
LEGAL PROCEEDINGS
The Company is not party to any pending legal proceedings, nor have any
such proceedings been threatened and none are contemplated, except for the
demand for reimbursement of certain taxes as described in Note 9. The Company
knows of no legal proceedings, pending or threatened, or judgements against any
Director or Officer of the Company in their capacity as such, nor are any such
persons involved in "Certain Legal Proceedings" as defined in Section 401(f) of
Regulation SK.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders during the
fourth quarter of the fiscal year.
PART II
ITEM 5.
MARKET PRICE OF THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
No quotations on the Company's stock are readily available since the
Company's stock is not quoted on either the NASDAQ Small Capitalization level
or the Bulletin Board.
The Company has paid no dividends on its common stock and does not expect
to pay dividends in the foreseeable future. All revenues received by the
Company will be reinvested in the business.
The following table sets forth the approximate number of security holders
of record of the Company's $0.01 par value common stock and $0.01 par value
preferred stock as of September 30, 1997.
TITLE OF CLASS SHARES OUTSTANDING NUMBER OF SHAREHOLDERS
-------------- ------------------ ----------------------
$0.01 Par Value 4,054,154 943
Common Stock
$0.01 Par Value 134,000 18
Series A
Preferred Stock
The Series A Preferred Stock was issued as a cumulative convertible
preferred stock paying a dividend of $0.06 per share per year. See Note (3) of
the Notes to Financial Statements for details of the preferred stock.
<PAGE>
ITEM 6.
SELECTED FINANCIAL DATA
-----------------------
<TABLE>
YEAR ENDED
SEPTEMBER 30
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Oil and gas sales $ 111,309 108,845 95,648 127,240 89,170
Total revenues 143,092 172,507 120,782 227,529 114,860
Costs and expenses 259,589 184,126 241,676 259,674 175,253
------- ------- ------- ------- -------
Net loss $(116,497) ( 11,619) (120,894) ( 32,145) ( 60,393)
======= ======= ======= ======= =======
Net loss per
common share $( .03) ( .01) ( .04) ( .01) ( .03)
======= ======= ======= ======= =======
Weighted average
number of common
shares outstanding 3,905,752 3,220,821 3,220,821 3,220,821 2,219,240
========= ========= ========= ========= =========
At year end:
Current assets $ 106,244 30,040 16,951 36,617 65,188
Current liabilities 124,748 75,522 90,400 62,666 75,068
Working capital
(deficit) ( 18,504) ( 45,482) ( 73,449) ( 26,049) ( 9,880)
Total assets 266,519 208,789 239,420 349,260 372,993
Long-term debt - - 4,134 20,814 -
Stockholders equity 141,771 133,267 144,886 265,780 297,925
Cash dividends per
common share $ - - - - -
======= ======= ======= ======= =======
</TABLE>
<PAGE>
ITEM 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity, Capital Resources and Commitments
- --------------------------------------------
During 1997, the Company accessed capital from the following sources,
other than oil and gas sales:
* $125,000 from the sale of 833,333 shares of the Company's common
stock.
* $26,783 in the form of management fees for managing a drilling
program for a corporation which purchased certain drilling prospects
from the Company.
* $5,000 from the sale of a drilling prospect in Wyoming.
These funds were utilized for payment of bank debt and for operating
capital.
The Company's $75,000 revolving line of credit with the Union Bank & Trust
of Denver, Colorado expired in August, 1997. The Company has not requested
that this credit line be renewed.
The Company's cash flow from oil and gas sales is not expected to cover
the normal operating expenses of the Company. Additionally, the Company's
current liabilities exceed its current assets by approximately $19,000.
The Company currently has drilling prospects which it is actively
marketing to industry participants. If these prospects are successfully sold,
the Company will receive a front-end payment and an interest carried free of
costs in these prospects which would improve the Company's cash flow.
<PAGE>
Results of Operations
- ---------------------
Year Ended September 30, 1997 Compared With Year Ended September 30, 1996:
- --------------------------------------------------------------------------
Operating Revenue
- -----------------
Revenue from oil and gas sales for the year ended September 30, 1997 was
$111,309 compared to $108,845 for the year ended September 30, 1996. This
increase is attributable to increases in average unit prices for oil and gas
offset by a decrease in revenue due to quantities sold in 1997 compared to
1996. The decrease in sales volume was primarily the result of normal
declines. Management fees increased due to an increase in activity in a
drilling program that the Company manages.
A comparison of approximate volumes sold and average unit prices is
summarized as follows:
YEAR ENDED SEPT. 30
-------------------
Quantities Sold 1997 1996
--------------- ---- ----
Oil (Bbls.) 1,800 1,900
Gas (MCF) 31,400 35,200
Average Unit Price
------------------
Oil (Bbls.) $16.84 16.13
Gas (MCF) $ 2.55 2.03
Operating Costs and Expenses
- ----------------------------
Lease operating expense, was $21,804 for the year ended September 30, 1997
compared to $24,292 for the year ended September 30, 1996, a decrease of 10%.
This decrease is attributable primarily to normal fluctuations in operating
costs.
The unusual expenses for the year ended September 30, 1997 represents
estimated costs of settlement of a claim relating to gas prices during the
years 1983 through 1985.
General and administrative expense for the year ended September 30, 1997
was $133,836 compared to $110,195 for the year ended September 30, 1996. The
increase was primarily the result of an increase in salary expense.
Dry hole expense increased as a result of additional participation in
exploratory wells.
<PAGE>
Results of Operations
- ---------------------
Year Ended September 30, 1996 Compared With Year Ended September 30, 1995:
- --------------------------------------------------------------------------
Operating Revenue:
- ------------------
Revenue from oil and gas sales for the year ended September 30, 1996 was
$108,845 compared to $95,648 for the year ended September 30, 1995. This
increase is attributable to increase in average unit prices for oil and gas
offset by a decrease in revenue due to quantities sold in 1996 compared to
1995. The decrease in sales volumes was primarily the result of normal
declines.
A comparison of approximate volumes sold and average unit prices is
summarized as follows:
YEAR ENDED SEPT. 30
-------------------
Quantities Sold 1996 1995
--------------- ---- ----
Oil (Bbls.) 1,900 2,500
Gas (MCF) 35,200 44,300
Average Unit Price
------------------
Oil (Bbls.) $16.13 13.06
Gas (MCF) $ 2.03 1.44
Operating Costs and Expenses
- ----------------------------
Lease operating expense, including production taxes, was $34,068 for the
year ended September 30, 1996 compared to $28,326 for the year ended September
30, 1995, an increase of 20%. This increase is attributable to a general
increase in operating costs during 1996.
General and administrative expense for the year ended September 30, 1996
was $110,195 compared to $122,146 for the year ended September 30, 1995.
Approximately $9,000 of this $12,000 decrease in general and administrative
expense was from reduced salary expense and the balance of the decrease
resulted from a decrease activity level of oil and gas leasing and prospect
generation.
Depreciation and depletion expense for the year ended September 30, 1996
was $30,592 compared to $47,129 for the year ended September 30, 1995, a
decrease of 35%. This decrease is the result of a decrease in oil and gas
production quantities sold and reduced capitalized costs due to an impairment
provision recorded for the year ended September 30, 1995.
<PAGE>
Year Ended September 30, 1995 Compared With Year Ended September 30, 1994:
- --------------------------------------------------------------------------
Operating Revenue
- -----------------
Revenue from oil and gas sales for the year ended September 30, 1995 was
$95,648 compared to $127,240 for the year ended September 30, 1994. This
decrease is attributable to a decrease in revenue for gas of approximately
$47,100 (-43%) offset by an increase in revenue for oil of approximately
$15,500 (+92%) sold in 1995 compared to 1994. The increase in sales volumes
was primarily the result of producing property acquisitions during the year
ended September 30, 1994. The decrease in gas revenue is primarily due to the
sale of a producing property in 1994 and lower prices per MCF for gas sold.
A comparison of volumes sold and average unit prices is summarized as
follows:
YEAR ENDED SEPT. 30
-------------------
Quantities Sold 1995 1994
--------------- ---- ----
Oil (Bbls.) 2,500 1,300
Gas (MCF) 44,300 59,700
Average Unit Price
------------------
Oil (Bbls.) $13.06 12.25
Gas (MCF) $ 1.44 1.92
Operating Costs and Expenses
- ----------------------------
Lease operating expense, including severance and ad valorem taxes, was
$28,326 for the year ended September 30, 1995 compared to $37,302 for the year
ended September 30, 1994, a decrease of 24%. This decrease is attributable to
the sale of an interest in a producing oil property with high operating costs
during 1995 and reduced taxes as a result of reduced gas sales.
General and administrative expense for the year ended September 30, 1995
was $122,146 compared to $144,401 for the year ended September 30, 1994.
Approximately $9,300 of this $22,255 decrease was from reduced salary expenses
as the results of eliminating one full time employee. The balance of the
decrease in general and administrative expense resulting from a decrease
activity level of oil and gas leasing and prospect generation with
accompanying drafting, reproduction, broker, telephone, etc. costs.
Depreciation and depletion expense for the year ended September 30, 1995
was $47,129 compared to $69,691 for the year ended September 30, 1994, a
decrease of 32%. This decrease is the result of decreased gas production and
the addition of gas reserves in a higher cost basis producing property as a
result the participation in drilling of an additional gas well during 1995 on
the property.
<PAGE>
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
CLX ENERGY, INC.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditor's Report
Balance Sheets - September 30, 1997 and 1996
Statements of Operations - years ended
September 30, 1997, 1996 and 1995
Statements of Stockholders' Equity -
years ended September 30, 1997, 1996 and 1995
Statements of Cash Flows - year ended
September 30, 1997, 1996 and 1995
Notes to financial statements - years
ended September 30, 1997, 1996 and 1995
Schedule V. Property and equipment - years
ended September 30, 1997, 1996 and 1995
Schedule VI. Accumulated depreciation and
depletion of property and equipment -
years ended September 30, 1997, 1996 and 1995
The remaining schedules for which provision is made in Regulation S-X
are not required under the instructions contained therein, are
inapplicable, or the information required in included in the financial
statements or footnotes.
<PAGE>
EASTON AND BARSCH
Certified Public Accountants
8790 West Colfax Avenue, Suite 106
Lakewood, CO 80215
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
CLX Energy, Inc.
Denver, CO
We have audited the accompanying balance sheets of CLX Energy, Inc. as of
September 30, 1997 and 1996 and the related statements of operations,
stockholders' equity and cash flows for the years ended September 30, 1997,
1996 and 1995. Our audits also included the financial statement schedules
listed in the index at Item 8. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CLX Energy, Inc. as of
September 30, 1997 and 1996 and the results of its operations and its cash
flows for the years ended September 30, 1997, 1996 and 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules V and VI, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ EASTON AND BARSCH
EASTON AND BARSCH
Certified Public Accountants
Lakewood, Colorado
January 8, 1998
<PAGE>
<TABLE>
CLX ENERGY, INC.
Balance Sheets
September 30, 1997 and 1996
<CAPTION>
ASSETS: 1997 1996
<S> <C> <C>
Current assets:
Cash 34,763 15,245
Accounts receivable:
Trade 59,471 736
Oil and gas sales 12,010 14,010
Deposits and prepaid expenses - 49
------- -------
Total current assets 106,244 30,040
------- -------
Property and equipment, at cost:
Oil and gas properties
(successful effort method):
Proved 329,732 329,732
Unproved 20,060 7,438
Office equipment 3,618 3,618
------- -------
353,410 340,788
Less accumulated depreciation
and depletion (193,135) (162,039)
------- -------
160,275 178,749
------- -------
Total assets 266,519 208,789
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 116,393 5,677
Note payable-bank - 57,000
Current portion on long-term debt - 4,134
Due joint interest owners 8,355 8,355
Accrued expenses - 356
------- -------
Total current liabilities 124,748 75,522
------- -------
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
600,000 shares designated Series A
$.06 cumulative convertible:
134,000 shares issued and outstanding
(aggregate involuntary liquidation
preference of $134,000 plus unpaid
dividends) 1,340 1,340
Common stock, $.01 par value,
50,000,000 shares authorized,
4,054,154 shares issued and
outstanding (3,220,821 at
September 30, 1996) 40,542 32,208
Additional paid-in capital 541,417 424,750
Accumulative deficit (441,528) (325,031)
------- -------
Net stockholders' equity 141,771 133,267
------- -------
Total Liabilities and Equities 266,519 208,789
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CLX ENERGY, INC.
Statements of Operations
Years Ended September 30, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 111,309 108,845 95,648
Management fees 26,783 19,075 17,760
------- ------- -------
Total revenue 138,092 127,920 113,408
------- ------- -------
Operating expenses:
Lease operating 21,804 24,292 18,541
Production taxes 9,748 9,776 9,785
Lease rentals 2,324 645 288
Dry holes and abandoned leases 14,580 520 4,796
Depreciation and depletion 31,096 30,592 47,129
Unusual expenses 45,000 - -
Impairment of oil and gas properties - - 31,052
General and administrative 133,836 110,195 122,146
------- ------- -------
Total operating expenses 258,388 176,020 233,737
------- ------- -------
Operating loss (120,296) ( 48,100) (120,329)
------- ------- -------
Other income (expenses):
Gain on sale of assets 5,000 44,587 6,751
Interest income - - 623
Interest expense ( 1,201) ( 8,106) ( 7,939)
------- ------- -------
Total other income (expenses) 3,799 36,481 ( 565)
------- ------- -------
Net loss $(116,497) ( 11,619) (120,894)
======= ======= =======
Weighted average number of common
shares outstanding 3,905,752 3,220,821 3,220,821
========= ========= =========
Net loss per common share ( .03) ( .01) ( .04)
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CLX ENERGY, INC.
Statements of Stockholders' Equity
Years Ended September 30, 1997, 1996 and 1995
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balances,
September 30, 1994 134,000 $1,340 3,220,821 $32,208 424,750 (192,518)
Net loss - - - - - (120,894)
------- ----- --------- ------ ------- -------
Balances,
September 30, 1995 134,000 1,340 3,220,821 32,208 424,750 (313,412)
Net loss - - - - - ( 11,619)
------- ----- --------- ------ ------- -------
Balances,
September 30, 1996 134,000 1,340 3,220,821 32,208 424,750 (325,031)
Issuance of common
stock - - 833,333 8,334 116,667 -
Net loss - - - - - (116,497)
------- ----- --------- ------ ------- -------
Balances,
September 30, 1997 134,000 $1,340 4,054,154 $40,542 541,417 (441,528)
======= ===== ========= ====== ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CLX ENERGY, INC.
Statements of Cash Flows
Years Ended September 30, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(116,497) ( 11,619) (120,894)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and depletion 31,096 30,592 47,129
Impairment of oil and gas
properties - - 31,052
Abandoned properties - 623 2,715
Gain on sale of assets ( 5,000) ( 44,587) ( 6,751)
(Increase) decrease in
accounts receivable ( 56,734) ( 5,234) 5,891
(Increase) decrease in
deposits and prepaid expenses 49 671 297
Increase (decrease) in
accounts payable 110,716 ( 5,921) ( 371)
Increase (decrease) in
accrued expenses ( 356) ( 36) 105
------- ------- -------
Net cash provided by (used in)
operating activities ( 36,726) ( 35,511) ( 40,827)
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property and
equipment 5,000 58,141 20,420
Redemption of certificate of deposit,
pledge on bond - - 25,000
Purchase of property and equipment ( 12,622) ( 1,049) ( 29,391)
------- ------- -------
Net cash provided by (used in)
investing activities ( 7,622) 57,092 16,029
------- ------- -------
Cash flows from financing activities:
New short-term borrowings - 14,000 38,000
Payments on short-term borrowings ( 4,134) ( 10,375) ( 10,000)
Payments on long-term borrowings ( 57,000) ( 16,680) ( 16,680)
Proceeds from issuance of common stock 125,000 - -
------- ------- -------
Net cash provided by (used in)
financing activities 63,866 ( 13,055) 11,320
------- ------- -------
Net increase (decrease) in cash 19,518 8,526 ( 13,478)
Cash, beginning of year 15,245 6,719 20,197
------- ------- -------
Cash, end of year $ 34,763 15,245 6,719
======= ======= =======
Supplemental disclosures of cash
flow information - cash paid
during period for interest $ 1,557 8,142 7,834
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Nature of operations
--------------------
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 Kansas, Oklahoma and Wyoming. The Company's oil
and gas production is sold to several purchasers, three of which
purchase more than 10 percent of oil and gas revenues.
(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 actual results could
differ from those estimates.
(c) Property and equipment
----------------------
The Company follows the successful efforts method of accounting.
Lease acquisition and development costs (tangible and intangible)
for expenditures relating to proved oil and gas properties are
capitalized. Delay and surface rentals are charged to expense in
the year incurred. Dry hole costs incurred on exploratory
operations are expensed. Dry hole costs associated with developing
proved fields are capitalized. Expenditures for additions,
betterments, and renewals are capitalized. Geological and
geophysical costs are expensed when incurred.
Upon sale or retirement of proved properties, the cost thereof and
the accumulated depreciation or depletion are removed from the
accounts and any gain or loss is credited or charged to income.
Maintenance and repairs are charged to operating expenses.
Provisions for depreciation and depletion of capitalized exploration
and development costs are computed on the unit-of-production method
based on estimated proved developed reserves of oil and gas on a
property by property basis. An additional impairment provision is
recorded if the recoverability of the carrying amount of an asset
may not be recoverable (see Note (1) (d) for additional information)
Unproved properties are assessed periodically to determine whether
they are impaired. When impairment occurs, an impairment loss is
recognized. When leases for unproved properties expire, any
remaining cost is expensed.
Depreciation on office equipment is provided using accelerated
methods with estimated useful lives of five to seven years.
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(d) Accounting Change
-----------------
In the fourth quarter of the 1995 fiscal year, the Company adopted
the provisions of Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS 121) which requires an
impairment provision if future estimated cash flows are less than the
carrying amount of the assets on a property by property basis.
Restatement of previously issued financial statements is not
permitted under SFAS 121. When SFAS 121 was adopted, the carrying
amount of certain individual proved oil and gas properties was in
excess of future estimated cash flow. An impairment provision of
$31,052 was charged to operating expenses in the Statement of
Operations for the year ended September 30, 1995 based on the
difference between estimated fair market value and carrying amount
of the properties. Estimated fair market value was based on
discounted estimated cash flow from the properties. Prior to the
adoption of the new Standard, a valuation provision was made only if
total capitalized costs of all proved oil and gas properties
exceeded the present value of future net revenues from estimated
production of all proved oil and gas reserves using constant
prices discounted at 10%.
(e) Statements of cash flows
------------------------
For purposes of the accompanying statements of cash flows, the
Company considers cash and other highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.
(f) Fair value of financial instruments
-----------------------------------
The Company's financial investments consist of cash, trade
receivables and trade payables. The carrying value of cash and cash
equivalents, trade receivables and trade payables are considered to
be representative of their fair market value, due to the short
maturity of these instruments.
(g) Net loss per common share
-------------------------
Net loss per share is computed on the basis of the weighted average
number of common and common equivalent shares outstanding during the
period. Common stock equivalents, consisting of options, have not
been considered in the computation because they would have reduced
the net loss per share. The net loss per share includes the effect
of unpaid dividends on cumulative preferred shares of $8,040 or $.06
per share of preferred stock (See Note 3).
(2) Notes Payable
-------------
At September 30, 1996, the Company owed $57,000 on a revolving line
of credit with a bank. Principal and interest was paid in full in
December, 1996.
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATMENTS (continued)
In December, 1993 the Company borrowed $50,000 from a bank in
connection with the acquisition of an oil and gas property. The
note had a balance due of $4,134 at September 30, 1996 which was paid
in full in December, 1996.
The weighted average balance outstanding and the weighted average
interest rate for 1997, 1996 and 1995 were as follows:
1997 1996 1995
---- ---- ----
Weighted average balance
outstanding $11,428 73,157 68,580
Weighted average interest rate 10.5% 10.2% 10.6%
(3) Stockholders' Equity
--------------------
On December 4, 1996 the Company sold, in a private placement, 833,333
shares of common stock for $ .15 per share.
Each share of the Company's outstanding Series A preferred stock was
convertible into one share of common stock until the conversion
privilege expired on April 30, 1983. Except in certain specified
circumstances, the Series A preferred stock is nonvoting. The
Series A shares are redeemable at the option of the Company at $1.50
per share, plus any accrued and unpaid dividends. The Series A
preferred stock has an involuntary liquidation preference of $1 per
share plus accrued and unpaid dividends. Dividends on preferred
stock of $.06 per share, $8,040, were not declared in 1984 through
1997 for a total of $112,560 and are in arrears at September 30,
1997.
(4) Stock Options
-------------
During the 1994 fiscal year the Company adopted an employee incentive
stock option plan which provides for the issuance to employees,
including officers, of up to 10 percent of the issued and outstanding
shares of common stock in accordance with the plan. Under this plan,
options are exercisable at market price of the Company's common stock
on the date of grant, have a term of ten years and are earned over a
five year period. The Company issued options on 200,000 shares under
this plan during the 1994 fiscal year. Options on 100,000 shares
were canceled during the 1997 fiscal year and options on 100,000
shares remain outstanding at September 30, 1997.
During the 1994 fiscal year the Company adopted a director stock
option plan which provides for the issuance to members of the board,
who are not full time employees of the Company, options to purchase
up to 125,000 shares of the Company's common stock in accordance with
the plan. Under this plan, options are exercisable at market price
of the Company's common stock on the date of grant, have a term of
ten years and are earned over a five year period. The Company issued
options on 93,750 shares under this plan during the 1994 fiscal year
and issued options on 31,250 during the 1997 fiscal year.
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The Company granted non-qualified options to two officers of the
Company for 400,000 common shares at $ .25 per share during the 1994
fiscal year. The options are exercisable for up to ten years after
the date of grant. Options on 200,000 common shares were canceled
during the 1997 fiscal year and options on 200,000 shares remain
outstanding at September 30, 1997.
In connection with the acquisition of an oil and gas property in
September, 1994, the Company issued non-qualified options for 50,000
shares of common stock at $ .12. The options are exercisable until
September, 1999.
A summary of certain stock options information follows:
Outstanding options Exercisable options
Weighted Weighted
Number of average Number of average
shares price shares price
--------- -------- --------- --------
September 30, 1995:
-------------------
Incentive stock options 293,750 $ .12 58,750 $ .12
Non-qualified options 450,000 .236 450,000 .236
September 30, 1996:
-------------------
Incentive stock options 293,750 $ .12 117,500 $ .12
Non-qualified options 450,000 .236 450,000 .236
September 30, 1997:
-------------------
Incentive stock options 225,000 $ .12 116,250 $ .12
Non-quaified options 250,000 .224 250,000 .224
No options were exercised during the 1997, 1996 or 1995 fiscal years.
The Company has elected to account for grants of stock options under
APB Opinion No. 25. No compensation cost has been recognized on the
statements of operations through September 30, 1997 for stock options
granted. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", (SFAS No.123) requires
compensation expense to be determined based on the fair value, as
defined, of options at the grant date. Pro forma net earnings and
pro forma earnings per share must be disclosed based on the
additional compensation expense. The provisions of SFAS No. 123 are
effective for the Company's 1996 and 1997 fiscal years. No options
were granted during the 1996 fiscal year. For the 1997 fiscal year,
additional compensation expense under SFAS No. 123 would have
increased the net loss from $116,497 to a pro forma net loss of
$118,278. The additional compensation expense did not change the net
loss per share of $.03. The pro forma adjustment is calculated using
an estimated fair market value of each option on the date of grant
based upon an expected life of 10 years, risk-free interest rate of
6.3%, expected dividend yield and volatility of 0%.
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(5) Income Taxes
------------
For tax reporting purposes, after giving effect to ownership changes
that occured in the 1993 fiscal year, the Company has a net operating
loss carryforward of approximately $440,000 at September 30, 1997,
which expires in varying amounts from September 30, 1998 through
2012. Of the $440,000 carryforward, $64,000 is subject to an annual
limitation of approximately $6,400 and $150,000 is available only if
certain built in gains are recognized by September 30, 1998.
Differences between income tax and financial statement basis of
assets consists of basis difference of oil and gas properties
($48,800) as a result of a purchase acquisition in the 1993 fiscal
year and intangible drilling costs ($10,900) which are expensed for
tax purposes.
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.
Components of deferred tax liabilities and deferred tax assets of the
Company are comprised of the following at September 30, 1997:
Gross deferred tax liabilities:
Proved properties
basis differences $( 20,300)
Gross deferred tax assets:
Net operating loss carryforward 149,600
Valuation allowance for deferred
tax assets (129,300)
-------
Net deferred amount $ -
=======
CLX Exploration, a predecessor Company, has not filed state income
tax returns for the years ended September 30, 1983 through 1992. The
Company has filed its federal and state income tax returns for the
fiscal years ended September 30, 1993 through 1996.
(6) Related Party Transactions
--------------------------
The Company paid $12,800 in consulting fees to a Director during the
eight months ended September 30, 1997. Prior to that time, the
Director was also an Officer of the Company and received a salary
from the Company.
(7) Lease
-----
The Company leases its office space on a two year lease. Monthly
rent is $1,113 and the lease expires May 31, 1998. Rent expense for
all operating leases totaled $13,614, $15,172 and $13,728 during
1997, 1996 and 1995, respectively. Minimum lease payments under the
lease are $8,904 in 1998.
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(8) Major Customers
---------------
During the periods ended September 30, 1997, 1996 and 1995 the
Company had four major customers, each of which acquired 10% or more
of total oil and gas revenues:
1997 1996 1995
---- ---- ----
Credo Petroleum Corp 47% 44% 42%
Nomeco Oil & Gas - % 19% 28%
Texaco, Inc. 18% 17% 29%
Dolphin - Lariat 12% - % - %
(9) Contingency and Unusual Expenses
--------------------------------
The Company has been advised by 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 Federal Energy Regulatory Commission
(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 the Maximum Lawful Price (MLP) of gas sold under the NGPA of
1978 covering the period from October 3, 1983 through June 28, 1988.
This order reversed the FERC rules in effect during that time period
that ad valorem taxes paid to the State of Kansas by producers could
recover 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 will approximate $196,000 on the due date of
March 9, 1998 (approximately $186,000 at September 30, 1997.)
The Company believes that, based on the law as it exists today, its
liability is limited to its ownership percentage. The Company
recorded unusual expense of $45,000 in connection with the FERC
claim, including interest and estimated legal expenses. This is
presented separately as a component of operating expenses in the
statement of operations for the year ended September 30, 1997.
The Kansas Independent Oil and Gas Association (KIOGA) has intervened
with the FERC requesting elimination of the interest charge on the
claimed refunds. The interest amounts to approximately 70% of the
total refunds claimed. Bills have been introduced in both the U. S.
House of Representatives and Senate seeking the same relief.
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(10) Oil and Gas Expenditures
------------------------
The Company's results of operations from oil and gas exploration and
production activities (all within the United States) for fiscal 1997,
1996 and 1995 were as follows:
1997 1996 1995
---- ---- ----
Revenues from oil and gas
producing activities $111,309 108,845 95,648
Producing costs ( 31,552) ( 34,068) ( 28,326)
Depreciation, depletion and
impairment provision ( 30,715) ( 30,057) ( 78,181)
------ ------ ------
Results of operations from
oil and gas producing
activities (excluding
general and administrative
and interest costs) $ 49,042 44,720 ( 10,859)
======= ====== =======
The following table sets forth the costs incurred in oil and gas
producing activities during 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Property acquisition costs:
Unproved $ 12,622 1,049 6,672
Proved - - -
Exploration costs 14,580 - -
Development costs - - 22,719
Depreciation and depletion of oil and gas properties per $1.00 of
gross revenue was $0.28, $0.28 and $0.49 in 1997, 1996 and 1995,
respectively. The 1995 fiscal year impairment provision of oil and
gas properties (see note (1) (d) for additional information) was $.32
per $1.00 of gross revenue.
The capitalized costs related to oil and gas properties were as
follows at September 30, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Proved properties $329,732 329,732 330,049
Unproved properties 20,060 7,438 20,463
------- ------- -------
Total capitalized costs 349,792 337,170 350,512
Less accumulated depreciation
and depletion (189,871) (159,156) (129,416)
------- ------- -------
Net capitalized costs $159,921 178,014 221,096
======= ======= =======
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(11) Supplemental Schedules of Reserve Information (Unaudited)
---------------------------------------------------------
The following reserve related information for 1997, 1996 and 1995 is
based on estimates prepared by management of the Company. 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.
All of the Company's oil and gas reserves are located in the United
States.
Oil (Bbl) Gas (MCF)
--------- ---------
Proved reserves at September 30, 1994 28,000 201,700
Revisions in previous estimates ( 1,700) 14,500
Production ( 2,500) ( 44,300)
Discoveries and extensions 40,700 40,600
Sale of reserves in place ( 18,400) -
------- -------
Proved reserves at September 30, 1995 46,100 212,500
Revisions in previous estimates ( 6,000) 6,100
Production ( 1,900) ( 35,200)
------- -------
Proved reserves at September 30, 1996 38,200 183,400
Revisions in previous estimates ( 5,900) 90,600
Production ( 1,800) ( 31,400)
------- -------
Proved reserves at September 30, 1997 30,500 242,600
======= =======
Proved developed reserves:
September 30, 1995 32,000 212,500
September 30, 1996 24,100 183,400
September 30, 1997 16,300 242,600
The following is the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas
reserves. Future net cash flows were computed using year-end prices
and costs related to existing proved oil and gas reserves in which
the Company has mineral interests. No future income tax expense was
provided due to the Federal income tax carryover. All of the
reserves are located in the United States.
September 30
----------------------
1997 1996 1995
---- ---- ----
Future cash infows $1,081,200 1,098,800 899,100
Future production costs 421,300 393,100 307,600
--------- ------- -------
Future cash flows 659,900 705,700 591,500
10% annual discount for estimated
timing of cash flows 242,700 256,800 178,900
--------- ------- -------
Standardized measure of
discounted cash flows $ 417,200 448,900 412,600
========= ======= =======
<PAGE>
CLX ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The following are the principal sources of change in the
standardized measure of discounted future net cash flows:
September 30
-----------------------
1997 1996 1995
---- ---- ----
Standardized measure,
beginning of year $448,900 412,600 281,800
Sales of oil and gas,
net of production costs ( 79,800) ( 74,800) ( 67,300)
Net changes in prices and
future production costs ( 48,800) 204,400 ( 67,800)
Discoveries and extensions - - 286,100
Sales of reserves in place - - ( 33,800)
Revisions of previous
quantity estimates 70,600 (114,900) ( 1,900)
Accretion of discount 26,300 21,600 15,500
------- ------- -------
Standardized measure,
end of year $417,200 448,900 412,600
======= ======= =======
Future net cash flows were computed using year-end prices for oil of
$17.49 in 1997, $19.04 in 1996 and $13.04 in 1995 and for gas of
$2.26 in 1997, $2.02 in 1996 and $1.40 in 1995.
<PAGE>
CLX ENERGY, INC.
----------------
SCHEDULE V - PROPERTY AND EQUIPMENT
-----------------------------------
Balance at Changes
beginning Additions Retire- add Balance at
of period at cost ments (deduct) end of period
---------- --------- ------- -------- -------------
Description
-----------
Year ended September 30, 1995
- -----------------------------
Oil and gas properties:
Proved $327,865 22,719 658 ( 15,000)*
26,175 **
( 31,052)*** 330,049
Unproved 42,681 6,672 2,715 ( 26,175)** 20,463
Office equipment 4,763 - - - 4,763
------- ------- ------- ------- -------
$375,309 29,391 3,373 ( 46,052) 355,275
======= ======= ======= ======= =======
Year ended September 30, 1996
- -----------------------------
Oil and gas properties:
Proved $330,049 - - ( 317)* 329,732
Unproved 20,463 1,049 520 ( 13,554)* 7,438
Office equipment 4,763 - 1,145 - 3,618
------- ------- ------- ------- -------
$355,275 1,049 1,665 ( 13,871) 340,788
======= ======= ======= ======= =======
Year ended September 30, 1997
- -----------------------------
Oil and gas properties:
Proved $329,732 - - - 329,732
Unproved 7,438 12,622 - - 20,060
Office equipment 3,618 - - - 3,618
------- ------- ------- ------- -------
$340,788 12,622 - - 353,410
======= ======= ======= ======= =======
* Sales of properties.
** Transfer.
*** Impairment provision.
<PAGE>
CLX ENERGY, INC.
----------------
SCHEDULE VI - ACCUMULATED DEPRECIATION
--------------------------------------
AND DEPLETION OF PROPERTY AND EQUIPMENT
---------------------------------------
Additions
Balance at charged to
beginning costs and Retire- Balance at
of period expenses ments end of period
---------- ---------- ------- -------------
Description
-----------
Year ended September 30, 1995
- -----------------------------
Oil and gas properties:
Proved $ 85,209 46,196 1,989 129,416
Unproved - - - -
Office equipment 2,457 933 - 3,390
------- ------- ------- -------
$ 87,666 47,129 1,989 132,806
======= ======= ======= =======
Year ended September 30, 1996
- -----------------------------
Oil and gas properties:
Proved $129,416 30,057 317 159,156
Unproved - - - -
Office equipment 3,390 535 1,042 2,883
------- ------- ------- -------
$132,806 30,592 1,359 162,039
======= ======= ======= =======
Year ended September 30, 1997
- -----------------------------
Oil and gas properties:
Proved $159,156 30,715 - 189,871
Unproved - - - -
Office equipment 2,883 381 - 3,264
------- ------- ------- -------
$162,039 31,096 - 193,135
======= ======= ======= =======
<PAGE>
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no disagreements between the Company and its auditors on
accounting and financial disclosure.
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS ON THE REGISTRANT
Information concerning the Company's Directors and Executive Officers is
set forth below:
PERIOD OF
NAME AND AGE POSITION SERVICE
------------ -------- ---------
S. W. Houghton Chairman of the board, March 26, 1993
57 Secretary & Director to Present
E. J. Henderson President, Chief March 26, 1993
63 Executive Officer, to Present
Treasurer & Director
Donald B. Lamont Director December 1, 1996
78 to present
Kerry L. Phelps Director May 1, 1993
54 to Present
Gary C. Wilkins Director December 1977
65 to Present
George H.C. Lawrence Director December 2, 1993
60 to Present
<PAGE>
S. W. Houghton (57) Chairman of the Board
- --------------
Mr. Houghton is a graduate of the Wharton School of Finance and Commerce with
a B.S. in Economics. Mr. Houghton has an extensive background in investment
banking in the financial and natural resources industries serving in corporate
management, an investor in, and a Director in several public and private oil,
gas and mining companies. Some of the companies with which Mr. Houghton has
been associated are Cotton Petroleum Corporation, Henderson Petroleum
Corporation, Siskon Mining Corporation and Hadson Corporation. Since
resigning as President and Chief Executive Officer of Hadson Corporation in
February 1990, Mr. Houghton has been active as a private investor and in the
management of Houghton & Company, Inc.
E. J. Henderson (63) President, Chief Executive Officer, Treasurer
- --------------- and Director
Mr. Henderson is a graduate of Texas A & M University with a B.S. in Petroleum
Engineering. Mr. Henderson served in Engineering/Operations positions with
Pan American Petroleum and Hunt Oil Company and in Engineering/Management
positions with Consolidated Oil & Gas, Inc., and K.R.M. Petroleum Corporation.
Mr. Henderson founded Henderson Petroleum Corporation in September 1978.
Henderson Petroleum Corporation, a public corporation, was acquired by
Burkhart Petroleum Corporation in December 1985. Mr. Henderson has served as
President of E & S Investments, Inc., since its formation in April 1981 until
the merger with CLX Energy, Inc. in March 1993.
Donald B. Lamont (78) Director
- ----------------
Mr. Lamont is a graduate of the Harvard Graduate School of Business (MBA) and
Yale University (BA) and has extensive experience in the oil and gas industry.
Mr. Lamont is President of Interocean Oil & Gas Company (USA), Interocean Oil
Company of Canada, Interocean Oil Company of Abu Dhabi, Interocean Oilfields
Ltd. and Interocean Oil Exploration Ltd. He serves as a Director for American
Independent Oil Company and South American Gold & Copper Company. Mr. Lamont
has also served as an officer and director of several other international oil
and gas companies.
Kerry L. Phelps (54) Director
- ---------------
Mr. Phelps is a graduate of Bowling Green State University with a B.S. in
Geology. Mr. Phelps has a broad background in petroleum exploration including
the management of large geographically diverse exploration and drilling
programs. Mr. Phelps served in various positions with Amerada Hess
Corporation in Canada for seven years, then in Denver worked for several
independent producers including Duncan Oil Properties and Resources Investment
Corporation. Mr. Phelps was Senior Vice President/Exploration for General
Atlantic Energy from 1982 to 1989, then formed Cavalier Petroleum where he
served as President until joining CLX Energy, Inc. in May 1993 as Executive
Vice President, Secretary and Director. Mr. Phelps resigned as Executive Vice
President and Secretary on February 1, 1997, but remains as a Director.
<PAGE>
Gary C. Wilkins (65) Director
- ---------------
Mr. Wilkins is a graduate of the University of Iowa with both a B.A. and M.S.
in geology. Mr. Wilkins served in exploration geology positions with Mobil
Oil Corporation and Mesa Petroleum Company and exploration and senior
management positions with Lear Petroleum Corporation. Mr. Wilkins is
currently an independent Geological Consultant, operating as Hawkeye
Exploration. Mr. Wilkins has been associated with CLX since its inception as
a Director and has served for various periods as President, Senior Vice
President, Chief Operating Officer and Vice President of Exploration.
George H.C. Lawrence (60) Director
- --------------------
Mr. Lawrence is a graduate of Columbia College (NYC) and Pace University. Mr.
Lawrence has extensive experience in investment banking, having served with
W. E. Hutton & Co., R. W. R/Pressrich & Co., and G. H. Walker & Co. from 1960
to 1970. Since 1970, Mr. Lawrence has been President and CEO of Lawrence
Investing Co., a 100 year old family owned real estate development company.
Mr. Lawrence has served on the Board of Directors of several companies,
including Cotton Petroleum Corporation from 1971 to 1986. He has served as a
Trustee of Sarah Lawrence College and as a member of the Board of Governors of
Lawrence Hospital.
No Family relationship exists between any director, executive officer,
significant employee or person nominated or chosen by the Company to become a
director of executive officer.
There was no arrangement or understanding between any officer or director
and any other person pursuant to which any director or officer was elected as
such.
The Company has not established an executive committee of the Board of
Directors or any committee that would serve similar functions. The Company
has discontinued its audit, incentive compensation and nominating committees.
ITEM 11.
EXECUTIVE COMPENSATION
The following table sets information regarding compensation of certain
Executive Officers of the Company, none of whom received compensation in
excess of $30,000 during 1994.
Name Principal Position Year Annual
---- ------------------ ---- Compensation
------------
E. J. Henderson President, Chief Executive 1997 $48,000
Officer and Chief Financial 1996 24,000
Officer 1995 23,000
The officers receive no benefits other than cash compensation.
<PAGE>
The company does not have any plans for its Executive Officers involving
stock appreciation rights, long term incentive, employment contracts,
termination of employment and change in control agreements. An officer of the
Company has stock options totaling 300,000 shares which were granted in 1994.
These options are detailed in Item 12, footnote (4).
Directors are not compensated for their services; however, Mr. Phelps
received $12,800 as a consultant to the Company for the year ended September
30, 1997. Directors are currently reimbursed travel expenses and the cost of
overnight accomodations incurred in connection with attendance of Directors
meetings.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
equity securities by the directors and executive officers of the Company, and
certain individuals who own 5% or more of the Company's outstanding common
stock.
Common Stock
Name Position Par Value $0.001 % of Class
- -------- ------------ ---------------- ----------
Beneficial Owners:
- -----------------
None
Officers & Directors:
- --------------------
S. W. Houghton Chairman of 412,390 (5) 10.17
369 Lexington Ave. the Board
New York, New York 10017
E. J. Henderson President 497,390 (1), (6) 12.27
1776 Lincoln St., Suite 806
Denver, Colorado 80203
Donald B. Lamont Director 566,667 13.98
680 Fifth Ave., Suite 1100
New York, NY 10019
Kerry Phelps Director 497,390 (2) 12.27
1776 Lincoln St., Suite 806
Denver, Colorado 80203
Gary C. Wilkins Director 168,894 (3), (5) 3.43
518 17th St., Suite 660
Denver, Colorado 80202
George H.C. Lawrence Director 42,000 (4), (5) 1.04
P.O. Box 3445
Vero Beach, Florida 32964
Officers and Directors 2,184,731 53.89
as a group (5 Persons)
<PAGE>
(1) Includes 175,000 shares owned by Mr. Henderson's wife and three adult
children. Mr. Henderson disclaims beneficial ownership of these 175,000
shares.
(2) These shares are held in the name of Cavalier Petroleum Corporation, a
company of which Mr. Phelps is the sole stockholder.
(3) Includes 23,194 shares held in the name of Hawkeye Exploration Inc., a
company 100% owned by Mr. Wilkins.
(4) Includes 42,000 shares held in the name of Lawrence Properties, Inc., a
company 100% owned by Mr. Lawrence.
(5) Does not include an option to acquire 31,250 shares of the Company's
restricted common stock granted May 24, 1994 under the Company's
Qualified Directors Stock Option Plan. The options may be exercised in
five cumulative annual installments beginning January 1, 1995 and will
expire March 1, 2004. The exercise price is $0.12 per share.
(6) Does not include:
(a) An option to acquire 100,000 shares of the Company's restricted
common stock granted May 24, 1994 under the Company's Qualified
Employee Stock Option Plan. The option may be exercised as to 20%
of the total option each successive anniversary date of the grant of
the option at an exercise price of $0.12 per share. The option will
expire May 24, 2004.
(b) A non-qualified option granted May 24, 1994 to acqire 200,000 shares
of the Company's restricted common stock at an exercise price of
$0.25 per share. This option is exercisable at any time, in whole
or in part, and will expire on May 24, 2004.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSCATIONS
For information on these matters refer to Notes 4 and 6 of "Notes to
Financial Statements".
ITEM 14.
EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
See "Index to Financial Statements and Supplemental Schedules" in Part
II, Item 8.
(3) Exhibits - Exhibit 27. Financial Data Schedule.
(b) No reports on Forms 8-K were filed during the Company's fiscal
quarter ended September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CLX ENERGY, INC.
By /s/ E. J. Henderson
Dated: January 8, 1998 E. J. Henderson
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on dates indicated:
By /s/ S. W. Houghton
Dated: January 8, 1998 S. W. Houghton
Chairman of the Board
and Director
By /s/ E. J. Henderson
Dated: January 8, 1998 E. J. Henderson
Chief Executive
Officer, President,
Treasurer, Director
By /s/ Donald B. Lamont
Dated: January 8, 1998 Donald B. Lamont
Director
By /s/ Kerry L. Phelps
Dated: January 8, 1998 Kerry L. Phelps
Director
By /s/ Gary C. Wilkins
Dated: January 8, 1998 Gary C. Wilkins
Director
By /s/ George H.C. Lawrence
Dated: January 8, 1998 George H.C. Lawrence
Director
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<PERIOD-END> SEP-30-1997
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