-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G163zwU9jZEVM5OZHs11EF/SkMwJRfIDwxQzrDDkGslxE/ITO6HyRnINTcA3V2zg /A++B7bsAO2PxmNTBZnZ6w== 0000912057-00-001491.txt : 20000202 0000912057-00-001491.hdr.sgml : 20000202 ACCESSION NUMBER: 0000912057-00-001491 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLOTEK INDUSTRIES INC/CN/ CENTRAL INDEX KEY: 0000928054 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 120370187 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13270 FILM NUMBER: 508434 BUSINESS ADDRESS: STREET 1: 7030 EMPIRE CENTRAL DRIVE CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7138499911 MAIL ADDRESS: STREET 1: 7030 EMPIRE CENTRAL DRIVE CITY: HOUSTON STATE: TX ZIP: 77040 10QSB 1 FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (x) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended November 30, 1999 ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) Commission file number 1-13270 FLOTEK INDUSTRIES INC. (Exact name of registrant as specified in its charter) ALBERTA 77-0709256 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7030 EMPIRE CENTRAL DRIVE, HOUSTON, TEXAS 77040 (Address of principal executive offices) (zip code) REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE (713) 849-9911 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 and 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 / / As of November 30, 1999 the number of shares of common stock outstanding was 48,493,295 Transitional Small Business Disclosure Format (check one): Yes / / No /x/ Part I - Financial Information FLOTEK INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
November 30, November 30, ASSETS 1999 1998 ------------- ------------- CURRENT ASSETS Cash $ 115 $ - Accounts receivable, less allowance for doubtful accounts of $17,905.58 and $6,017.78 504,590 238,337 Inventory 894,634 861,074 ------------ ------------ Total current assets 1,399,339 1,099,411 FURNITURE AND EQUIPMENT 363,104 111,972 OTHER ASSETS 379,624 139,195 ------------ ------------ $ 2,142,067 $ 1,350,578 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Note payable $ 249,515 $ 45,000 Current portion of long-term debt 1,352,218 774,323 Accounts payable and accrued liabilities 730,931 510,517 Accrued repurchase option - ------------ ------------ Total current liabilities 2,332,664 1,329,840 LONG-TERM DEBT 136,841 10,061 COMMITMENTS - - SHAREHOLDERS' EQUITY Common stock - no par value; 100,000,000 shares authorized; 48,493,295 issued and outstanding 18,384,296 18,134,295 Additional paid in capital 163,813 150,313 Equity adjustment from foreign currency translation (232,319) (288,965) Accumulated deficit (18,643,226) (17,984,966) ------------ ------------ Shareholder equity (327,438) (10,677) ------------ ------------ Total $ 2,142,067 $ 1,350,578 ============ ============
The accompanying notes are an integral part of these statements and should be read in conjunction herewith. 2 FLOTEK INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months Ended November 30, Ended November 30, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Sales 399,513 357,089 $ 1,155,285 $ 1,573,672 Costs and expenses: Cost of goods sold 139,639 220,469 520,802 969,267 Selling 228,400 226,458 694,138 847,271 General and administrative 132,800 149,920 321,602 654,401 Depreciation and amortization 14,458 13,323 38,648 43,176 Research and development - - - - ----------- ----------- ----------- ----------- 515,296 610,170 1,576,190 2,514,115 Loss from operations (115,782) (253,081) (420,905) (940,443) Other income (expense), net Interest (35,249) (27,431) (115,532) (112,168) Other 15,414 7,393 102,847 62,068 ----------- ----------- ----------- ----------- (19,835) (20,038) (12,685) (50,100) Net loss $ 135,617 $ 273,119 $ 433,590 $ 990,543 Basic and diluted loss per share $ 0.01 $ 0.01 $ 0.01 $ 0.02 Weighted average number of shares outstanding 48,493,295 45,680,795 48,493,295 44,014,128
The accompanying notes are an integral part of these financial statements and should be read in conjunction herewith. 3 FLOTEK INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended November 30, 1999 1998 --------- --------- Cash flows from operating activities Net loss for the period $(433,590) $(990,543) Adjustments to reconcile net losses to net cash used in operating activities Depreciation and amortization 38,698 43,176 Accretion of discount - 55,326 Compensatory stock options - 1,200 Write-off of Inventory - 98,170 Severance provision - 80,635 Loss on disposal of capital assets - 24,638 Change in assets and liabilities (Increase) Decrease in accounts receivable (366,233) 189,129 Decrease (Increase) in inventory (108,995) 221,860 (Decrease) Increase in accounts payable and accrued liabilities 298,658 (309,774) --------- --------- Net cash (used) provided in operating activities (573,317) (586,183) Cash flows from investing activities - Proceeds from sale of capital assets 12,000 Purchase of capital assets (282,124) - Purchase of other assets (242,438) - --------- Net cash provided (used) by investing activities (1,095,879) 12,000 Cash flows from financing activities Proceeds from issuance of share capital, net of costs 250,000 Proceeds from long-term debt and notes payable 795,697 15,000 Repayment of long-term debt and notes payable (0) (75,328) --------- Net cash (used) provided by financing activities 1,045,697 (60,328) Net (decrease) increase in cash (50,377) (634,511) Cash at beginning of year $ 50,492 $ 634,511 --------- Cash at end of period $ 115 $ - Supplementary information Interest paid 103,539 $ 64,355 Income taxes paid - -
The accompanying notes are an integral part of these financial statements and should be read in conjunction herewith. 4 FLOTEK INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General The unaudited consolidated condensed financial statements included herein have been prepared by Flotek Industries Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements reflect all adjustments which the Company considers necessary for the fair presentation of such financial statements for the interim periods presented. Although the Company believes that the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to the Company's organization and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted in this Form 10-QSB pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended February 28, 1999. The results of operations for the three-month period ended November 30, 1999 are not necessarily indicative of the results expected for the full year. Note 2 - Comprehensive Income In September 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Three Months Ended Nine Months Ended November 30, November 30, 1999 1998 1999 1998 ---- ---- ---- ---- Comprehensive income: Net Loss $ 135,617 $ 273,119 $ 433,591 $ 990,543 Cumulative translation adjustment 4,343 3,329 ---------- ---------- Total comprehensive income $ 135,617 $ 277,462 $ 433,591 $ 993,872 ========== ========== ========== ==========
5 RESULTS OF OPERATIONS Revenue by Operating Segment:
Three Months Ended Nine Months Ended November 30, November 30, 1998 1999 1998 1999 ---- ---- ---- ---- Drilling Products $ 321,684 $ 284,787 $ 1,259,307 $ 729,968 Production Equipment 35,405 114,727 314,365 376,904 ------- ------- --------- --------- $ 357,089 $ 399,514 $ 1,573,672 $ 1,106,872 ======== ======== ========== ==========
Consolidated revenues were down $418,473, or 27% for the quarter ended November 30, 1999, as compared to the same period in 1998, resulting from certain customers' decision to limit investments in exploration, drilling and production activities. Selling expenses, which consist primarily of the salaries, wages, and benefits of the Company's salesmen, rent, insurance, and other direct selling costs, were down $601,598, or 33% in the third quarter as compared to the same period in 1998 General corporate expenses decreased in the third quarter by $337,327, or 48% as compared to the same period in 1998 Interest Expenses Overall interest expense for the quarter ended November 30, 1999 is up 30% due to the additional capital investments of William Ziegler, Jerry D. Dumas, Sr. and Chisholm Energy Partners, L.L.P., in addition to the TOSI Ltd. Investment. Note 3 - Recent Accounting Pronouncements The Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and Related Information, in the first quarter of 1999. SFAS No. 131 requires segment information to be reported on a basis consistent with that used internally for evaluating segment performance and deciding how to allocate resources to the segment. Quarterly disclosures are not required in the first year of adoption. Note 4 - Reclassifications and Restatements Certain reclassifications of prior year balances have been made to conform such amounts to corresponding 1999 classifications. These reclassifications had no impact on net income or shareholders' equity. 6 ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-QSB includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The words "anticipate," "believe," "expect," "plan," "intend," "project," "forecasts," "could" and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts included in this Form 10-QSB regarding the Company's financial position, business strategy, budgets and plans and objectives of management for future operations are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that actual results may not differ materially from those in the forward-looking statements herein for reasons including the effect of competition, the level of petroleum industry exploration and production expenditures, world economic conditions, prices of, and the demand for crude oil and natural gas, drilling activity, weather, the legislative environment in the United States and other countries, and the condition of the capital and equity markets. Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto. BUSINESS Flotek Industries Inc. (hereafter the "Company" or "Flotek") was originally incorporated under the laws of the Province of British Columbia on May 17, 1985. Flotek is headquartered in Houston, Texas and its common shares are listed on the OTC Bulletin Board market. The Company's product lines are divided into two separate segments in the industry: drilling products and production equipment. The production equipment division develops, manufactures and markets the PETROVALVE + PLUS-R-PUMP VALVE and the PETROVALVE GAS BREAKER VALVE, which are valves for downhole sucker-rod pumps used in oil wells. The drilling products division manufactures and distributes casing centralizers, which are vaned sleeves and stand off tools that improve mud and cementation displacement in drilled oil wells. PRODUCTION EQUIPMENT The Company has focused on the development of its proprietary and patented technologies: the PETROVALVE + PLUS-R- PUMP VALVE and the PETROVALVE GAS BREAKER VALVE. Both patented products are valves used in down-hole sucker-rod pumps. The PETROVALVE GAS BREAKER VALVE provides a solution to gas lock problems. Both valves offer producers operating advantages by performing more efficiently and lasting longer than the traditional ball and seat valves. We have now expanded the use of the valve as a standing valve for other types of artificial lift applications in the oil industry, such as the Hydraulic Pump, Electro Submersible Pump (ESP) Gas Lift and Plunger Lift. 7 DRILLING PRODUCTS Flotek's drilling products division distributes and services several products that enhance oil and gas well cementing programs and the safety and effectiveness of the drilling process. Its primary product is the CEMENTING TURBULATOR, which the Company began distributing in March of 1994, when it acquired Turbeco Inc., an oilfield service company. The TURBULATOR is a steel sleeve, which is placed over pipe before the cementation process of pipe or casing. This pipe or casing is commonly cemented in the open hole section of a recently drilled oil well. The main purpose of this tool is to provide maximum standoff and improve mud displacement to obtain the best cement bond. The Company was one of the first companies to distribute spiral vaned cementing turbulators. The TURBULATOR has gained widespread acceptance through its proven ability to improve oil and gas well cementing programs and is effective in deep, directional and horizontal well applications. The Company also markets the patented D-Mudder, a tool that effectively removes external casing mud and improves primary cement results. The Company also has patents pending on new technology that should have a positive effect on the Company's business and income. Business Environment The business environment for oilfield operations and its corresponding operating results have shown marked improvement during the quarter, but are affected significantly by petroleum industry exploration and production expenditures. The market for oilfield products and services has resulted in a small increase in domestic rig count that still remains at historical low levels. Despite recent increases in oil and natural gas prices, drilling and production activity has remained relatively low. The increase in oil prices has followed an agreement of the Organization of Petroleum Exporting Countries to limit oil production. The increase in oil prices has not yet resulted in any material increase in rig or drilling activity. The reduction in exploration and production activity during 1999 continues to impact the Company's businesses through relatively low revenues, pricing pressures, and reduced margins. Low exploration activity reduces the demand for the products and services provided by us serving the drilling markets. Our drilling products were the most significantly affected. The patent suit brought by Milam Tool Company has now been settled on the basis of Turbeco, Inc. modifying and reconfiguring some of its centralizer products, and the settlement payment to the Complainants of $125,000, $75,000 of which has been paid, and the remainder to be paid in eight quarterly payments. On the claim made by William Jayroe under his employment agreement with the Company, an arbitration hearing was held on November 30, 1999; briefs were filed by legal counsel for both sides; and a decision will be handed down by the Arbitrator by the end of January, 2000. OPERATING ACTIVITIES Substantially all of the Company's customers are engaged in the energy industry. This concentration of customers may impact the Company's overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. The Company performs ongoing credit evaluations of its customers and does not generally require collateral in support of its trade receivables. The Company maintains reserves for potential credit losses, and actual losses have historically been within the Company's expectations. 8 The Company has sustained substantial operating losses in recent years. In addition, the Company has used substantial amounts of working capital in its operations. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements, and the success of its future operations. Management believes that actions presently being taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. Management is taking the following steps to provide the Company with adequate working capital: - - Management continues to reduce selling, general and administrative expenses. - - Management is adding complimentary product lines to help diversify the Company's product mix, without increasing supporting expenditures. - - Management intends to secure new long-term equity financing for working capital purposes. - - Management plans to seek potential acquisition candidates that will accrete to earnings and diversify the Company's market. RISK FACTORS The following risk factors, among others, may cause the Company's operating results and/or financial position to be adversely affected: - - The Company's ability to raise additional working capital could be limited due to future operating losses and the existing level of short-term debt. Without the ability to raise operating capital, there would be substantial doubt about the Company's ability to continue as a going concern. - - Competitive factors including, but not limited to, the Company's limitations with respect to financial resources and its ability to compete against companies with substantially greater resources. - - The Company's ability to control the amount of operating expenses. - - Any declines in the current worldwide rig count or drilling activity will further reduce the demand for our drilling products and services and will have a material adverse effect on the Company's financial condition and results of operations. 9 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Articles of Incorporation (incorporated by reference to the Company's Form 10-Q for the quarter ended November 30, 1997) 3.2 By-laws (incorporated by reference to the Company's Form 10-Q for the quarter ended November 30, 1997) 3.3 Amendment to Registrant's Bylaws (incorporated by reference to the Company's Form 10-KSB for the fiscal year ended February 28, 1998) 4.1 Shareholders Protection Rights Plan (incorporated by reference to the Company's Form 10-Q for the quarter ended November 30, 1997) *27.1 Financial Data Schedule * filed herewith (b) Reports on Form 8-K During the fiscal quarter ended November 30, 1999 the Company filed no reports on Form 8-K. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLOTEK INDUSTRIES INC. (Registrant) Date: January 15, 2000 By: /s/ Jerry Dumas ----------------------------------- Jerry Dumas President and Chief Executive Officer (PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER) 10 EX-27.1 2 EXHIBIT 27.1
5 3-MOS FEB-28-2000 SEP-01-1999 NOV-30-1999 115 0 504,590 17,906 894,634 1,399,339 363,104 0 2,142,067 2,332,684 0 0 0 18,384,296 (18,643,226) 2,142,087 399,513 399,513 189,639 515,296 19,885 0 35,249 0 0 (135,617) 0 0 0 (135,617) 0.01 0.01
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