Notes
to Consolidated Financial Statements
Note
1 - Description of Business and Summary of Significant Accounting Policies
Environmental
Alternative Fuels, LLC (the “Company”) was formed on May 3, 2012 as a limited liability company under the laws of the
state of Delaware. The Company is engaged in the business of selling natural gas fueling solutions to its customers. The Company’s principal business is supplying compressed natural gas (“CNG”) for light, medium
and heavy-duty vehicles.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Environmental Alternative Fuels, LLC and its subsidiary,
EVO CNG, LLC (“EVO”). EVO changed its name on March 1, 2016 from EVO Trillium, LLC. On February 26, 2016, the Company
entered into an agreement with the non-controlling interest member of EVO. In connection with this agreement, the Company acquired
the non-controlling interest member’s unit for a nominal amount. In addition, the Company and the non-controlling interest member
agreed to and settled all outstanding obligations between the two entities. EVO’s non-controlling interest has not been reflected,
as the amount is an accumulated deficit and the Company is responsible for the deficit. All intercompany accounts and transactions
have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The
consolidated financial statements include some amounts that are based on management’s best estimates and judgments. The most significant
estimates relate to allowance for uncollectible accounts receivable, estimated lives and recoverability of property and equipment,
valuation of the derivative liability, and contingencies. These estimates may be adjusted as more current information becomes
available, and any adjustment could be significant.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests.
As of the consolidated balance sheet dates and periodically throughout the year, the Company has maintained balances in various
operating accounts in excess of federally insured limits.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
1 - Description of Business and Summary of Significant Accounting Policies (continued)
Accounts
Receivable
The
Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based
on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible
that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could differ
materially from the amounts estimated in determining the allowance. As of December 31, 2016, the Company had an allowance for
doubtful accounts balance of $204,420. No allowance for doubtful accounts was recorded as of December 31, 2015.
Concentrations
of Credit Risk
The
Company grants credit in the normal course of business to customers in the United States. The Company periodically performs credit
analysis and monitors the financial condition of its customers to reduce credit risk. The Company performs ongoing credit evaluations
of its customers but generally does not require collateral to support accounts receivable.
During
the years ended December 31, 2016 and 2015, five and four customers accounted for 80% and 87% of total revenues, respectively.
At December 31, 2016 and 2015, five and one customers accounted for 94% and 87% of total accounts receivable, respectively.
Volumetric
Excise Tax Receivable
The
Company collects and remits volumetric excise tax credit receivable (“VETC”) assessed by governmental authorities that
are imposed on and concurrent with revenue-producing transactions between the Company and its customers. The VETC receivables
consist primarily of excise tax refunds to be received from the Federal Government on CNG fuel sales, which is recorded gross
and the Company’s obligation due to its customer is recorded in accounts payable and accrued liabilities.
Prepaid
Expenses and Other Current Assets
Prepaid
expenses and other current assets consist primarily of deposits and other expenses paid in advance.
CNG
Station Facilities
CNG
station facilities are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives
for the station of 15 years. The Company periodically reviews the reasonableness of estimates regarding useful lives based upon
the Company’s experience with similar assets and conditions. The Company expenses repairs and maintenance costs as incurred and
capitalizes costs that extend the useful lives of the stations.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
1 - Description of Business and Summary of Significant Accounting Policies (continued)
Long-Lived
Assets
The
Company evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s
carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in
the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation
of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying
amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future
net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment
loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured
based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on
various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment
requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions
require significant judgment and actual results may differ from assumed and estimated amounts.
Grant
Agreement
During
2016, the Company was the recipient of a grant in the amount of $400,000 from the Texas Commission on Environmental Quality. The
grant funds were used to complete the construction of the Company’s San Antonio facility as contemplated in the grant agreement.
The grant proceeds are subject to repayment if the Company does not satisfy certain operational metrics contained in the grant
agreements. The Company believes that it can satisfy these objectives, although it cannot provide assurance that such future events
will occur. The grant agreement expires in August 2020. The Company records the grant proceeds as a reduction of the cost of the
respective station.
Hedging
Activities
The
Company periodically enters into commodity derivative contracts to manage its exposure to gas price volatility.
Generally
accepted accounting principles (“GAAP”) require recognition of all derivative instruments on the balance sheets as either
assets or liabilities measured at fair value. Subsequent changes in a derivative’s fair value are recognized currently in
earnings unless specific hedge accounting criteria are met. Gains and losses on derivative hedging instruments must be recorded
in either other comprehensive income or current earnings, depending on the nature and designation of the instrument.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
1 - Description of Business and Summary of Significant Accounting Policies (continued)
Hedging
Activities (continued)
Management
of the Company has determined that the administrative effort required to account for derivative instruments as cash flow hedges
is greater than the financial statement presentation benefit. As a result, the Company marks its derivative instruments to fair
value and records the changes in fair value as a component of other income and expense. Cash settlements from the Company’s price
risk management activities are likewise shown as a component of other income and expense and as a component of operating cash
flows on the statements of cash flows.
Advertising
Costs
The
Company expenses advertising costs as incurred. Advertising expense for the periods ended December 31, 2016 and 2015 was $13,011
and $8,019, respectively.
Income
Taxes
The
Company has elected to be treated as a partnership for income tax purposes. Accordingly, taxable income and losses of the Company
are reported on the income tax returns of the Company’s members, and no provision for federal income taxes has been recorded on
the accompanying consolidated financial statements. The Company follows the authoritative guidance relating to accounting for
uncertain tax positions, which requires that it recognize the financial statement impact of a tax position attributed to the entity
only after determining that the relevant taxing authority would more likely than not sustain the position following an audit.
If
taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed
on the members rather than the Company. Accordingly, there would be no effect on the Company’s consolidated financial statements.
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.
No interest or penalties have been assessed as of December 31, 2016 and 2015, respectively.
Revenue
Recognition
The
Company’s revenues primarily consist of CNG fuel sales. These revenues are recognized in accordance with GAAP, which requires
that the following four criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists;
(ii) delivery has occurred and title and the risks and rewards of ownership have been transferred to the customer or services
have been rendered; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. Applying these factors,
the Company typically recognizes revenue from the sale of natural gas fuel at the time the fuel is dispensed.
The
Company is eligible to receive, at times, VETC when a gasoline gallon equivalent of CNG is sold as vehicle fuel. Based on the
service relationship with its customers, either the Company or its customers claims the credit. The Company records its VETC credits,
if any, as revenue in its statements of operations as the credits are fully refundable. See the discussion under Volumetric Excise
Tax Credit below for further information.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
1 - Description of Business and Summary of Significant Accounting Policies (continued)
Volumetric
Excise Tax Credit
From
May 12, 2012 through December 31, 2015, the Company was eligible to receive the VETC alternative fuels tax credit of $0.50 per
gasoline gallon equivalent of CNG that it sold as vehicle fuel. For 2016, the VETC credit is $0.50 per gasoline gallon equivalent
of CNG that is sold as a vehicle fuel. The American Taxpayer Relief Act, signed into law on January 2, 2013, reinstated VETC for
2013 and made it retroactive to January 1, 2012. The Company did not record any VETC revenues in 2012 or 2013. The Tax Increase
Prevention Act, signed into law on December 19, 2014, reinstated VETC for the 2014 calendar year and made it retroactive to January
1, 2014. As a result, VETC revenues for 2014 totaled $103,802. In December 2015, the VETC was extended through December 31, 2016
and made retroactive to January 1, 2015. As a result, VETC revenues for the year ended December 31, 2016 and 2015 were $92,170
and $431,391, respectively.
Recently
Issued Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-02,
Leases
, which will require lessees to recognize a right-of-use asset and a lease liability for all leases
that are not short-term in nature. For a lessor, the accounting applied is also largely unchanged from previous guidance. The
new rules will be effective for the Company in 2020. The Company is currently in the process of evaluating the impact of adoption
of the new rules on the Company’s financial condition, results of operations, and cash flows.
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes current
revenue recognition requirements and industry-specific guidance. The codification was amended through additional ASUs and, as
amended, requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects
the consideration the entity expects to be entitled to in exchange for those goods or services. The Company is required to adopt
the new standard in 2019 and may adopt either retrospectively to each prior reporting period presented or as a cumulative-effect
adjustment as of the date of adoption using one of two retrospective application methods. The Company is continuing to evaluate
the provisions of this new guidance and has not determined the impact this standard may have on its financial condition, results
of operations, cash flows, and related disclosures or decided upon the method of adoption.
In
August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40)
. ASU
No. 2014-15 explicitly requires management of all entities to evaluate whether there are conditions and events that raise substantial
doubt about the entity’s ability to continue as a going concern within one year after the consolidated financial statements are
available to be issued and to provide related footnote disclosure in certain circumstances. ASU No. 2014-15 was effective for
the year ending December 31, 2016. The adoption of this standard has resulted in additional disclosure related to management’s
plans for liquidity and capital resources.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
1 - Description of Business and Summary of Significant Accounting Policies (continued)
Recently
Issued Accounting Pronouncements (continued)
The
accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization
of assets and liquidation of liabilities in the ordinary course of business.
In
February 2017, the Company was acquired by Minn Shares Inc. (“Minn”). Minn is an early stage company in the process
of acquiring several businesses in the vehicle fuels industry. Minn financed the acquisition of the Company with approximately
$13.6 million of debt of which $3.8 million is contemplated to be repaid through a successful secondary offering before the December
31, 2017 due date. As of December 31, 2016, both the Company and Minn have a working capital deficit and have suffered recurring
losses from operations that raises doubt about its ability to continue as a going concern. Minn anticipates rectifying outstanding
obligations with additional public or private offerings. Minn is also evaluating certain cash flow improvement measures. However,
there can be no assurance that Minn will be successful in these efforts.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern;
however, the above conditions raise doubt about the Company’s ability to do so. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Note
2 - Consolidated Balance Sheet Disclosures
Property
and equipment are summarized as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
CNG station facilities
|
|
$
|
7,877,812
|
|
|
$
|
8,277,812
|
|
Less accumulated depreciation
|
|
|
(1,245,411
|
)
|
|
|
(720,224
|
)
|
|
|
$
|
6,632,401
|
|
|
$
|
7,557,588
|
|
Depreciation
expense for the years ended December 31, 2016 and 2015 was $525,187 and $522,082, respectively.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note 2 - Consolidated Balance Sheet
Disclosures (continued)
Accounts payable and accrued liabilities consist of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accounts payable
|
|
$
|
168,763
|
|
|
$
|
355,468
|
|
VETC payable
|
|
|
228,241
|
|
|
|
127,488
|
|
Other
|
|
|
2,010
|
|
|
|
1,841
|
|
|
|
$
|
399,014
|
|
|
$
|
484,797
|
|
Note
3 - Derivative Instruments
The
Company periodically enters into various commodity hedging instruments to mitigate a portion of the effect of natural gas price
fluctuations, as summarized in the table below. Open derivative positions are accounted for on a fair value basis at the consolidated
balance sheet date, and any unrealized gain or loss is included in other expense on the consolidated statement of operations.
Gains and losses from settled transactions are also recorded in other expense on the consolidated statement of operations. The
Company does not have any derivative contracts designated as cash flow hedges.
The
following table summarizes the fair value of the derivatives recorded in the consolidated balance sheets, by category.
|
|
Fair Value at
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Current commodity derivative liability
|
|
$
|
5,821
|
|
|
$
|
38,983
|
|
Long-term commodity derivative liability
|
|
|
76,811
|
|
|
|
55,260
|
|
Total derivative liability
|
|
$
|
82,632
|
|
|
$
|
94,243
|
|
As
of December 31, 2016, the Company was party to one open derivative positions outstanding summarized below:
Type
|
|
Term
|
|
Volume
Hedged
(Dth)
|
|
|
Index
|
|
|
Fixed
Price
($/Dth)
|
|
Swap
|
|
March 2015 - February
2019
|
|
|
95,000
|
|
|
|
NYM-LDS
|
|
|
$
|
3.82
|
|
The
Company incurred realized losses on derivative liability of $29,438 and $32,775 for the years ended December 31, 2016 and 2015,
respectively. The Company incurred unrealized gains (losses) on derivative liability of $11,611 and ($94,243) for the years ended
December 31, 2016 and 2015, respectively.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
4 - Fair Value Measurements
Authoritative
guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price)
in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring
that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing
the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are
inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed
based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability
of the inputs as follows:
|
Level 1:
|
Quoted prices are available in active markets for identical
assets or liabilities;
|
|
|
|
|
Level 2:
|
Quoted prices in active markets for similar assets and
liabilities that are observable for the asset or liability; or
|
|
|
|
|
Level 3:
|
Unobservable pricing inputs that are generally less
observable from objective sources, such as discounted cash flow models or valuations.
|
The
determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. The Company’s policy is to recognize transfers in and/or out of the fair value hierarchy as of
the end of the reporting period in which the event or change in circumstances caused the transfer. The Company has consistently
applied the valuation techniques discussed below in all periods presented.
The
following table presents the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of
December 31, 2016, by level, within the fair value hierarchy:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
82,632
|
|
|
$
|
-
|
|
|
$
|
82,632
|
|
The
following table presents the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of
December 31, 2015, by level, within the fair value hierarchy:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
94,243
|
|
|
$
|
-
|
|
|
$
|
94,243
|
|
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
4 - Fair Value Measurements (continued)
The
fair value of these derivative swap contracts is based on market prices posted on the New York Mercantile Exchange for natural
gas. The Company determines the fair value of its derivative instruments under the income approach using a discounted cash flow
model. The valuation model requires a variety of inputs, including contractual terms, projected natural gas prices, discount rates,
and credit risk adjustments, as appropriate. The Company's estimates of fair value of derivatives include consideration of the
counterparty's creditworthiness, the Company's creditworthiness, and the time value of money. The consideration of these factors
results in an estimated exit price for each derivative asset or liability under a marketplace participant's view. All of the significant
inputs are observable, either directly or indirectly; therefore, the Company's derivative instruments are included within the
Level 2 fair value hierarchy.
Note
5 - Promissory Note
On
March 24, 2016, the Company entered into a promissory note with Arizona Business Bank for $4,000,000 to fund the payoff of
the related party promissory note. Interest payments are payable monthly based on an interest of LIBOR plus 2.50% with the
full principal amount due at maturity on March 23, 2017. The promissory note is collateralized by substantially of the
Company's assets. As of December 31, 2016, the outstanding amount under the promissory note was $4,000,000. In February 2017,
the Company was acquired by Minn and the Company’s former members assumed the outstanding balance on the promissory
note (Note 1).
Note
6 - Related Party Promissory Notes
In
April 2014 and January 2015, the Company entered into a related party promissory note with the EVO non-controlling interest
member for $1,779,935 and $2,241,858, respectively. The promissory note was secured by two of the Company's stations. On
February 26, 2016, the Company entered into an agreement with the non-controlling interest member of EVO which settled all
outstanding obligations between the two entities (Note 1).
Note
7 - Members' Equity
Profit,
losses, and distributions are allocated to the owners in accordance with the Company’s operating agreement.
ENVIRONMENTAL
ALTERNATIVE FUELS, LLC
Notes
to Consolidated Financial Statements
Note
8 - Commitments and Contingencies
Environmental
Matters
The
Company is subject to federal, state, and local environmental laws and regulations. The Company does not anticipate any expenditures
to comply with such laws and regulations that would have a material impact on the Company's financial position, results of operations
or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state, local,
and foreign environmental laws and regulations.
Long-Term
Take-or-Pay Natural Gas Supply Contracts
At
December 31, 2016 and 2015, the Company had commitments to purchase CNG on a take-or-pay basis of approximately $545,000 and $742,000,
respectively. It is anticipated these are normal purchases that will be necessary for sales, and no cash settlements will be made
related to the purchase commitments.
Note
9 - Subsequent Events
The
Company has evaluated all subsequent events through the auditors' report date, which is the date the consolidated financial statements
were available for issuance. With the exception of those matters discussed in Note 1, there were no material subsequent events
that required recognition or additional disclosure in the consolidated financial statements.
UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
The
following unaudited pro forma financial statements have been prepared in accordance with guidelines specified by Article 11 of
Regulation S-X. Specifically, the Unaudited Combined Statements of Operations for the twelve months ended December 31, 2016, have
been prepared as if the offering of our:
|
(1)
|
Promissory
note to a former Environmental Alternative Fuels, LLC (“EAF”) member in the principal amount of $3.8 million
(the “Senior
Promissory Note”) that bears interest at 7.5%, and has a maturity date of the
earlier of (a) the date that is ten days after the initial closing of a private
offering of capital stock of Minn Shares Inc. (“Minn”) in an amount not
less than $10 million
(a
“Private Offering”); (b) December 31, 2017 or a (c) declaration by the
noteholder of an event of default under the Senior Promissory Note.
|
|
(2)
|
Convertible
promissory notes to the former EAF members in the aggregate principal amount of $9.5 million
(the “Convertible Notes”). The Convertible Notes are convertible into 1,400,000
shares (the “Transaction Shares”) of Minn's common stock, par value
$0.0001 per share (the “Common Stock”), subject to adjustment for any stock
splits, combinations or similar transactions, representing approximately 81.1% of Minn’s total outstanding shares of Common Stock on a post transaction basis.
|
|
(3)
|
Promissory
notes to the former EAF Members in the aggregate principal amount of $250,000 that bear interest
at 6% per annum and a maturity date of the earlier of (a) the closing of a Private Offering;
(b) 180 days from the date of the notes and (c) declaration by a holder of an event of
default under the holder’s note (the “Working Capital Notes”).
|
The
transactions are more fully described in Note 1 hereto. The pro forma adjustments are based upon various estimates and assumptions
that our management believes are reasonable and appropriate given the currently available information. Use of different estimates
and judgments could yield different results.
The
unaudited pro forma financial statements do not reflect any future operating efficiencies, associated cost savings or possible
integration costs that may occur related to the combination of Minn and EAF. The
unaudited pro forma financial statements do not purport to reflect our results of operations or financial position that would
have occurred had we operated as a public company or as a group of companies during the periods presented. The unaudited pro forma
financial statements should not be relied upon as being indicative of our financial condition or results of operations had the
transactions occurred on the date assumed nor as a projection of our results of operations or financial position for any future
period or date.
The
unaudited pro forma financial statements should be read in conjunction with the historical financial statements and related notes
of Minn appearing in Minn’s public filings available on www.sec.gov.and appearing elsewhere in this Current
Report on Form 8-K and in our Current Report on Form 10-K filed April 18, 2017.
MINN
SHARES INC.
Unaudited
Pro Forma Combined Balance Sheets
As
of December 31, 2016
|
|
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
|
Minn
|
|
|
Alternative
|
|
|
Pro Forma
|
|
|
|
|
|
|
Shares Inc
|
|
|
Fuels, LLC
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,944
|
|
|
$
|
669,401
|
|
|
$
|
(669,401
|
)
|
[a]
|
$
|
24,944
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
400,152
|
|
|
|
(400,152
|
)
|
[b]
|
|
-
|
|
Volumetric excise tax credit receivable
|
|
|
15,214
|
|
|
|
248,704
|
|
|
|
(248,704
|
)
|
[c]
|
|
15,214
|
|
Prepaids and other current assets
|
|
|
11,576
|
|
|
|
103,958
|
|
|
|
-
|
|
|
|
115,534
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Total current assets
|
|
|
51,734
|
|
|
|
1,422,215
|
|
|
|
(1,318,257
|
)
|
|
|
155,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,102,249
|
|
|
|
6,632,401
|
|
|
|
-
|
|
|
|
7,734,650
|
|
Construction in progress
|
|
|
79,354
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79,354
|
|
Deposits
|
|
|
39,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,646
|
|
Goodwill and other intangibles
|
|
|
-
|
|
|
|
-
|
|
|
|
6,896,273
|
|
|
|
6,896,273
|
|
|
|
|
|
|
|
|
|
|
|
|
(737,175
|
)
|
[j]
|
|
|
|
Total non-current assets
|
|
|
1,221,249
|
|
|
|
6,632,401
|
|
|
|
6,159,098
|
|
|
|
14,012,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,272,983
|
|
|
$
|
8,054,616
|
|
|
$
|
4,840,841
|
|
|
$
|
14,168,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
822,829
|
|
|
$
|
228,944
|
|
|
$
|
(228,944
|
)
|
[d]
|
$
|
822,829
|
|
Accounts payable - related party
|
|
|
261,060
|
|
|
|
-
|
|
|
|
-
|
|
|
|
261,060
|
|
Advances from member
|
|
|
37,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,500
|
|
Accrued interest - related party
|
|
|
164,368
|
|
|
|
-
|
|
|
|
442,500
|
|
[h] and [i]
|
|
606,868
|
|
Accrued expenses
|
|
|
127,596
|
|
|
|
170,070
|
|
|
|
(170,070
|
)
|
[e]
|
|
127,596
|
|
Derivative liability
|
|
|
-
|
|
|
|
5,821
|
|
|
|
-
|
|
|
|
5,821
|
|
Promissory note - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
3,800,000
|
|
[h]
|
|
4,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
[h]
|
|
|
|
Current portion of subordinated convertible senior notes payable to members
|
|
|
1,021,556
|
|
|
|
|
|
|
|
|
|
|
|
1,021,556
|
|
Current portion of long-term debt
|
|
|
121,299
|
|
|
|
4,000,000
|
|
|
$
|
(4,000,000
|
)
|
[f]
|
|
121,299
|
|
Total current liabilities
|
|
|
2,556,208
|
|
|
|
4,404,835
|
|
|
|
93,486
|
|
|
|
7,054,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term subordinated convertible notes payable to members
|
|
|
1,166,373
|
|
|
|
|
|
|
|
|
|
|
|
1,166,373
|
|
Convertible promissory notes - related party
|
|
|
405,103
|
|
|
|
-
|
|
|
|
9,500,000
|
|
[i]
|
|
9,905,103
|
|
Long term debt, less current portion
|
|
|
1,073,690
|
|
|
|
-
|
|
|
|
|
|
|
|
1,073,690
|
|
Deferred rent
|
|
|
15,439
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,439
|
|
Derivative liability, less current portion
|
|
|
-
|
|
|
|
76,811
|
|
|
|
-
|
|
|
|
76,811
|
|
Deferred income tax liability
|
|
|
71,294
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71,294
|
|
Total non-current liabilities
|
|
|
2,731,899
|
|
|
|
76,811
|
|
|
|
9,500,000
|
|
|
|
12,308,710
|
|
Total liabilities
|
|
|
5,288,107
|
|
|
|
4,481,646
|
|
|
|
9,593,486
|
|
|
|
19,363,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members' and Stockholders' deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Common stock, $.0001 par value; 100,000,000 shares authorized; 317,207 shares issued and outstanding
|
|
|
32
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32
|
|
Additional paid-in capital
|
|
|
899,304
|
|
|
|
5,817,546
|
|
|
|
(5,817,546
|
)
|
[g]
|
|
899,304
|
|
Accumulated deficit
|
|
|
(4,914,460
|
)
|
|
|
(2,244,576
|
)
|
|
|
2,244,576
|
|
[g]
|
|
(6,094,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(737,175
|
)
|
[j]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(442,500
|
)
|
[h] and [i]
|
|
|
|
Total members' and stockholders' deficit
|
|
|
(4,015,124
|
)
|
|
|
3,572,970
|
|
|
|
(4,752,645
|
)
|
|
|
(5,194,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members' and stockholders' deficit
|
|
$
|
1,272,983
|
|
|
$
|
8,054,616
|
|
|
$
|
4,840,841
|
|
|
$
|
14,168,440
|
|
MINN
SHARES INC.
Unaudited
Pro Forma Combined Statements of Operations
For
the Twelve Months Ended December 31, 2016
|
|
|
|
|
Environmental
|
|
|
|
|
|
|
|
|
|
Minn
|
|
|
Alternative
|
|
|
Pro Forma
|
|
|
|
|
|
|
Shares Inc
|
|
|
Fuels, LLC
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
CNG sales
|
|
$
|
353,346
|
|
|
$
|
2,574,369
|
|
|
$
|
-
|
|
|
$
|
2,927,715
|
|
Volumetric excise tax credit
|
|
|
129,549
|
|
|
|
71,245
|
|
|
|
-
|
|
|
|
200,794
|
|
Total sales
|
|
|
482,895
|
|
|
|
2,645,614
|
|
|
|
-
|
|
|
|
3,128,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of CNG sales
|
|
|
281,441
|
|
|
|
1,544,261
|
|
|
|
-
|
|
|
|
1,825,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
201,454
|
|
|
|
1,101,353
|
|
|
|
-
|
|
|
|
1,302,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,760,347
|
|
|
|
784,751
|
|
|
|
-
|
|
|
|
2,545,098
|
|
Depreciation
|
|
|
210,892
|
|
|
|
525,187
|
|
|
|
-
|
|
|
|
736,079
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
737,175
|
|
[a]
|
|
737,175
|
|
Total operating expenses
|
|
|
1,971,239
|
|
|
|
1,309,938
|
|
|
|
-
|
|
|
|
3,281,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,769,785
|
)
|
|
|
(208,585
|
)
|
|
|
-
|
|
|
|
(1,978,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(375,453
|
)
|
|
|
(188,624
|
)
|
|
|
(442,500
|
)
|
[b]
|
|
(1,006,577
|
)
|
Loss on acquisition of El Toro
|
|
|
(717,011
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(717,011
|
)
|
Commodity derivative gain (loss)
|
|
|
-
|
|
|
|
(17,827
|
)
|
|
|
-
|
|
|
|
(17,827
|
)
|
Total other income (expense)
|
|
|
(1,092,464
|
)
|
|
|
(206,451
|
)
|
|
|
(442,500
|
)
|
|
|
(1,741,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,862,249
|
)
|
|
|
(415,036
|
)
|
|
|
(442,500
|
)
|
|
|
(3,719,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense
|
|
|
(71,294
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(71,294
|
)
|
Total provision for income taxes
|
|
|
(71,294
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(71,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,933,543
|
)
|
|
$
|
(415,036
|
)
|
|
$
|
(442,500
|
)
|
|
$
|
(3,791,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(9.25
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(11.95
|
)
|
Dilutive
|
|
$
|
(9.25
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(11.95
|
)
|
Note
1 – Basis of Pro Forma Presentation
For
purposes of pro forma presentation, the acquisition date of Environmental Alternative Fuels, LLC is assumed to be the following
for each of the respective financial statements.
●
|
Unaudited Combined Statement of Operations for the twelve
months ended December 31, 2016 – Acquisition Date January 1, 2016
|
|
|
●
|
Unaudited Combined Balance sheet as of December 31,
2016 - Acquisition date December 31, 2016
|
In
conjunction with the acquisition of Environmental Alternative Fuels, LLC, the following equity and debt instruments were issued:
●
|
$3,800,000 in related party promissory note, maturity
December 2017, interest rate of 7.5%;
|
|
|
●
|
$9,500,000 in convertible promissory note – related
party, maturity February 2026, interest rate of 1.5%
|
|
|
●
|
$250,000 in related party promissory note, maturity
180 days from the date of the promissory note, interest rate of 6%
|
For
purposes of these unaudited pro forma condensed combined financial statements, it has been assumed that the promissory notes –
related party and convertible promissory note – related party instruments have been received as of the Acquisition Date.
The
unaudited pro forma condensed combined financial statements have been prepared assuming that the acquisition is accounted for
using the acquisition method of accounting. Accordingly, the assets acquired and liabilities of the seller have been adjusted
to their fair values as of December 31, 2016.
Fair
Values as of December 31, 2016
Environmental Alternative Fuels, LLC tangible assets
|
|
$
|
6,736,359
|
|
Environmental Alternative Fuels, LLC tangible liabilities
|
|
|
(82,632
|
)
|
Net Tangible Assets
|
|
|
6,653,727
|
|
|
|
|
|
|
Goodwill and other intangibles
|
|
|
6,896,273
|
|
|
|
|
|
|
Promissory notes – related party
|
|
|
13,550,000
|
|
|
|
|
|
|
Consideration of promissory notes – related party
|
|
$
|
13,550,000
|
|
The
difference between the fair market value of the net tangible assets and the consideration given have been allocated between Identifiable
intangible assets (trademarks and customer relationships) which will be amortized over three (3) to ten (10) years and Goodwill
which in accordance with the ASC No. 805 Business Combinations will not be amortized but instead will be tested for impairment
at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. The identifiable
intangible assets of trademarks and customer relationships have not been separately identified as the information is incomplete
at the time of this report. The identifiable intangible assets will be included in the Company’s Form 10-Q to be filed on
or before May 15, 2017.
Acquisition
related costs are estimated to be $100,000 for the year ended December 31, 2016.
Note
2 – Pro Forma Presentation Adjustments and Assumptions
The
adjustments included in the column under the heading “Pro Forma Adjustments” in the unaudited pro forma condensed
combined financial statements are as follows:
Pro
Forma Adjustments to the Combined Balance Sheet
[a]
To eliminate seller’s cash and cash equivalents which were excluded from the Agreement and Plan of Securities
Exchange dated January 11, 2017 (the “Securities Exchange Agreement”) by and among Minn, EAF, EVO, and the EAF
members.
[b]
To eliminate seller’s accounts receivable, net which was excluded from the Securities Exchange Agreement.
[c]
To eliminate seller’s Volumetric excise tax credit receivable which was excluded from the Securities Exchange Agreement.
[d]
To eliminate seller’s accounts payable which was excluded from the Securities Exchange Agreement.
[e]
To eliminate seller’s accrued expenses which were excluded from the Securities Exchange Agreement.
[f]
To eliminate seller’s debt instrument which was excluded from the Securities Exchange Agreement.
[g]
To eliminate seller’s portion of members’ deficit.
[h]
To record the issuance of promissory notes – related party and related interest.
[i]
To record the issuance of convertible promissory notes – related party and related interest.
[j]
To record identifiable intangible assets and goodwill associated with the acquisition of Environmental Alternative Fuels, LLC
and related amortization.
Pro
Forma Adjustments to the Combined Statements of Operations
[a]
To record the estimated amortization of identifiable intangible assets expense for the year ended December 31, 2016.
[b]
To record the interest expense associated with the issuance of promissory notes – related party and convertible promissory
note – related party for the year ended December 31, 2016.