The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Aly Energy Services, Inc., together with its subsidiaries (“Aly Energy” or the “Company”), is a provider of oilfield services to leading oil and gas exploration and production (“E&P”) companies operating in unconventional plays in the United States (“U.S.”). Generally, the services we offer fall within two broad categories: surface rental and solids control. Our surface rental equipment includes a wide variety of large capacity tanks with circulating systems, associated pumps, separators, gas busters, mud mix plants and ancillary equipment. We also provide environmental containment berms to safeguard against spills from mud systems on the drilling rig site. Our solids control equipment includes large centrifuges, shakers, cuttings dryers and ancillary components that can be integrated into a closed loop mud system. We operate in the U.S., primarily in Texas, Oklahoma, and New Mexico.
Throughout this report, we may also refer to Aly Energy and its subsidiaries as “we”, “our” or “us”.
Basis of Presentation
Aly Energy has two wholly-owned subsidiaries with continuing operations: Aly Operating, Inc. and Aly Centrifuge Inc. Aly Operating, Inc. has one wholly-owned subsidiary, Austin Chalk Petroleum Services Corp. We operate as one business segment which services customers within the U.S.
The consolidated financial statements have been prepared in conformity with U.S. GAAP and include the accounts of Aly Energy and each of its subsidiaries in the consolidated balance sheets as of December 31, 2018 and 2017 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years ended December 31, 2018 and 2017. All significant intercompany transactions and account balances have been eliminated upon consolidation.
Reverse Stock Split
On August 7, 2018, the Company effected a 1-for-20 reverse stock split of its common stock (“Reverse Split”), as approved by its Board of Directors and stockholders. All information contained in these consolidated financial statements relating to the number of common shares, price per share and per share amounts, including such information related to options and the conversion feature of the Series A convertible preferred stock, have been retroactively restated to give effect to the Reverse Split. See
Note 9 – Stockholders’ Equity
for further detail.
Recapitalization
In September 2016, certain of the Company’s principal stockholders formed Permian Pelican, Inc. (“Pelican”), formerly Permian Pelican, LLC, with the objective of consummating a recapitalization transaction (the “Recapitalization”) whereby (i) our obligations under our then existing credit facility and various capital leases would be restructured and, (ii) the Company’s then outstanding redeemable preferred stock, subordinated note payable and contingent payment liability would be exchanged into common stock resulting in a gain on extinguishment of debt and other liabilities of $2.4 million. The Recapitalization, completed on January 31, 2017, had a significant impact on our capital structure and on our consolidated financial statements for the year ended December 31, 2017. See
Note 13 – Recapitalization
for further detail.
Reclassifications
Certain reclassifications have been made to prior period consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on our consolidated financial position, results of operations or cash flows.
NOTE 2
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the amounts of revenue and expenses recognized during the reporting period. Areas where critical accounting estimates are made by management include:
|
·
|
Revenue recognition,
|
|
·
|
Allowance for doubtful accounts,
|
|
·
|
Depreciation and amortization of property and equipment and intangible and other assets,
|
|
·
|
Impairment of property and equipment and intangible and other assets,
|
|
·
|
Litigation settlement accruals,
|
|
·
|
Stock-based compensation, and
|
|
·
|
Income taxes.
|
The Company analyzes its estimates based on historical experience and various other indicative assumptions that it believes to be reasonable under the circumstances. Under different assumptions or conditions, the actual results could differ, possibly materially, from those previously estimated. Many of the conditions impacting these assumptions are outside of the Company’s control.
Major Customers and Concentration of Credit Risk
The Company’s assets that are potentially exposed to concentrations of credit risk consist primarily of cash and trade receivables.
The financial institutions in which the Company transacts business are large, investment grade financial institutions which are “well capitalized” under applicable regulatory capital adequacy guidelines, thereby minimizing its exposure to credit risks for deposits in excess of federally insured amounts.
The majority of the Company’s trade receivables are due from major and independent oil and gas companies operating within the U.S. land-based oil and gas industry. The industry has been, and will likely continue to be, characterized by significant volatility which may negatively impact our customers from time-to-time. The Company evaluates the financial strength of its customers quarterly and provides allowances for probable credit losses when deemed necessary.
During the year ended December 31, 2018, the Company derived revenue from 49 customers. Significant customers, customers which individually generated more than 10.0% of total revenue, collectively accounted for approximately $10.8 million, or 62.5% of our revenue. Amounts due from these customers included in accounts receivable and unbilled receivables as of December 31, 2018 aggregate to $1.2 million.
During the year ended December 31, 2017, the Company derived revenue from over 40 customers. Significant customers, customers which individually generated more than 10.0% of total revenue, collectively accounted for approximately $8.2 million, or 56.3% of our revenue. Amounts due from these customers included in accounts receivable and unbilled receivables as of December 31, 2017 aggregate to $1.8 million.
Cash
For purposes of the consolidated statements of cash flows, cash is defined as cash on-hand and balances in operating bank accounts. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2018 and 2017, we have no cash equivalents. Restricted cash serves as collateral for the Company's corporate credit card program.
Accounts Receivable, Unbilled Receivables and Allowance for Doubtful Accounts
Accounts receivable and unbilled receivables are stated at the amount which has been or will be billed to customers. Once billed, customer payments are typically due within 30 days. We provide an allowance for doubtful accounts based upon a review of outstanding receivables, historical collection information, existing economic conditions and specific identification. Provisions for doubtful accounts are recorded when it is deemed probable that the customer will not make the required payments. As of December 31, 2018 and 2017, the allowance for doubtful accounts was approximately $70,000 and $73,000, respectively.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and amortization. The cost of property and equipment currently in service less its residual value is depreciated on a straight-line basis over the estimated useful lives of the related assets. A residual value of 20% is used for asset types deemed to have a salvage value. Typically, these assets contain a large amount of iron in their construction. Leasehold improvements are amortized on a straight-line basis over the shorter of their economic lives or the lease term.
Estimated useful lives of property and equipment are as follows:
Machinery and equipment
|
|
1 - 20 years
|
Vehicles, trucks and trailers
|
|
5 - 7 years
|
Office furniture, fixtures and equipment
|
|
3 - 7 years
|
Leasehold improvements
|
|
Remaining lease term
|
Buildings
|
|
20 years
|
When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved and the impact of any resulting gain or loss is recognized within “Selling, general and administrative expenses” on the consolidated statement of operations for the period. Maintenance and repairs, which do not improve or extend the life of the related assets, are charged to expense when incurred. Refurbishments are capitalized when the value of the equipment is enhanced for an extended period.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of such assets to their fair value calculated, in part, by the estimated undiscounted future cash flows expected to be generated by the assets. Cash flow estimates are based upon, among other things, historical results adjusted to reflect the best estimate of future market rates, utilization levels, and operating performance. Estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. The Company’s assets are grouped at the lowest level of identifiable cash flows. If the asset grouping’s fair value is less than the carrying amount of those items, impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated costs to sell. The net carrying value of assets not fully recoverable is reduced to fair value. The estimate of fair value represents the Company’s best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying values of these assets and, in periods of prolonged down cycles, may result in impairment charges.
Management determined there were no events or changes in circumstances during the years ended December 31, 2018 and 2017 indicating the carrying amount of long-lived assets may not have been recoverable and, accordingly, there were no impairments recorded.
Intangible Assets
The Company’s intangible assets with finite lives include customer relationships and trade names. The value of customer relationships is estimated using the income approach, specifically the excess earnings method. The excess earnings method consists of discounting to present value the projected cash flows attributable to the customer relationships, with consideration given to customer contract renewals, the importance or lack thereof of existing customer relationships to the Company’s business plan, income taxes and required rates of return. The value of trade names is estimated using the relief-from-royalty method of the income approach. This approach is based on the assumption that in lieu of ownership, a company would be willing to pay a royalty in order to exploit the related benefits of this intangible asset.
The Company amortizes intangible assets based upon a straight-line basis because the pattern of economic benefits consumption cannot otherwise be reliably estimated. Customer relationships and trade names each have a useful life of ten years.
Income Taxes
We account for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In assessing the likelihood and extent that deferred tax assets will be realized, consideration is given to projected future taxable income and tax planning strategies. A valuation allowance is recorded when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. See further discussion in “
Note 5 – Income Taxes
”
We recognize the financial statement effects of a tax position when it is more-likely-than-not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. Previously recognized tax positions are reversed in the first period in which it is no longer more-likely-than-not that the tax position would be sustained upon examination.
Income tax related interest and penalties, if applicable, are recorded as a component of the provision for income tax expense. However, there were no amounts recognized relating to interest and penalties in the consolidated statements of operations for the years ended December 31, 2018 and 2017. We had no uncertain tax positions as of December 31, 2018 and 2017.
Stock-Based Compensation
From time-to-time, we issue time-based vesting and performance-based vesting stock options, time-based vesting and performance-based vesting restricted stock units, and restricted stock awards to our employees as part of those employees’ compensation and as a retention tool for non-employee directors. We calculate the fair value of the awards on the grant date and amortize that fair value to compensation expense ratably over the vesting period of the award, net of estimated and actual forfeitures. The grant date fair value of our restricted stock awards and restricted stock units is determined using our stock price on the grant date. The fair value of our stock option awards is estimated using a Black-Scholes fair value model. The valuation of our stock options requires us to estimate the expected term of the award, which we estimate using the simplified method as we do not have sufficient historical exercise information. Additionally, the valuation of our stock option awards is also dependent on historical stock price volatility. In view of our insignificant trading volume, volatility is calculated based on historical stock price volatility of our peer group with a lookback period equivalent to the expected term of the award. Fair value of performance-based stock options and restricted stock units is estimated in the same manner as our time-based awards and assumes that performance goals will be achieved, and the awards will vest. If the performance-based awards do not vest, any previously recognized compensation costs will be reversed. We record stock-based compensation as a component of general and administrative or direct operating expense based on the role of the applicable individual.
There was no stock-based compensation expense recorded during the year ended December 31, 2018.
During the year ended December 31, 2017, we recorded stock-based compensation expense of $0.6 million. See further discussion in “
Note 8 – Stock-Based Compensation”
.
Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional shares of common stock that could have been outstanding assuming the exercise of outstanding stock options and restricted stock or other convertible instruments, as appropriate. See further discussion in “
Note 10 – Earnings per Share
”.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which we adopt as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
Accounting Standards Adopted in 2018
Revenue recognition.
On January 1, 2018, we adopted accounting standards update (“ASU”) 2014-09, Revenue from Contracts with Customers and all the related amendments (“new revenue standard” or “ASC 606”) to all contracts using the full retrospective method. The Company does not incur significant contract costs. The adoption of ASC 606 did not have a material impact on our consolidated financial statements, and we did not record any adjustments to opening retained earnings, because our services and rental contracts are principally charged on an hourly or daily rate basis and are primarily short-term in nature, typically less than 30 days.
The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This is accomplished by applying the following steps:
|
1.
|
Identify the contract with a customer
|
|
2.
|
Identify the performance obligations in the contract
|
|
3.
|
Determine the transaction price
|
|
4.
|
Allocate the transaction price to the performance obligations
|
|
5.
|
Recognize revenue as the performance obligations are satisfied
|
Our services are generally sold based upon quotes or contracts with customers that include fixed or determinable prices. The prices we are able to charge and the margins we require depend on the demand of our potential and existing customers and the supply of equipment and services available to such customers from us and our competitors. When the supply exceeds the demand, the competitive environment intensifies significantly, particularly because many of the products we supply are not differentiated from the products provided by our competitors. Our customers choose to use our equipment and services primarily based upon the pricing we offer and our ability to execute efficiently and safely.
Our typical payment terms are 30 days and our sales arrangements do not contain any significant financing component for our customers. Our customer arrangements do not generate contract assets or liabilities. We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. On an ongoing basis, the collectability of accounts receivable is assessed based upon historical collection trends, current economic factors and the assessment of the collectability of specific accounts. We evaluate the collectability of specific accounts and determine when to grant credit to our customers using a combination of factors, including the age of the outstanding balances, evaluation of customers’ current and past financial condition, recent payment history, current economic environment, and discussions with our personnel and with the customers directly. Accounts are written off when it is determined the receivable will not be collected. If circumstances change, our estimates of the collectability of amounts could change by a material amount.
Performance Obligations
We have concluded that our contractual promises to provide equipment rental, rig-up/rig-down and transportation services are not separately identifiable in the context of how our customers derive value from our contracts and therefore represent a single performance obligation. The majority of the Company’s performance obligations are satisfied over time, which is generally represented by a period measured in days or months.
The activities included in the “other revenue” stream are not distinct as our customers would not benefit from these activities separately.
Under our revenue contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our revenue contracts do not give rise to contract assets or liabilities under ASC 606.
There was no revenue recognized in the current period from performance obligations satisfied in previous periods. The Company's significant judgments made in connection with ASC 606 included the determination of when the Company satisfies its performance obligation to customers and the applicability of the as invoiced practical expedient.
Disaggregation of Revenue
Rental Services
– We are a provider of solids control systems and surface rental equipment, including centrifuges and auxiliary solids control equipment, mud circulating tanks (400 and 500-barrel capacity) and auxiliary surface rental equipment (e.g. portable mud mixing plants, and containment systems). We generate revenue primarily from renting this equipment at per-day rates. In connection with certain of our solids control operations, we also provide personnel to operate our equipment at the customer’s location at per-day or per-hour rates. We recognize revenue on rental services upon completion of each day of services.
Transportation of Equipment and Rig-Up/Rig-Down
Services – We offer transportation of our rental equipment to the well site and rig-up/rig-down of such equipment. These services are charged to the client at flat rates per job or at an hourly rate. We recognize revenue on transportation and rig-up/rig-down services at the point in time when such services have been completed.
Other
– Upon request, we sometimes sell chemicals, supplies and other consumables to our customers. We recognize revenue from the sale of consumables when they are used on site.
Reimbursable Expenses
– Customer charges for reimbursable expenses (consisting primarily of repairs to assets) are considered reimbursable revenue and are reported within operating expenses net of the associated expense. Customer charges for damaged equipment for which there is a recovery under the contract are considered asset sales and are reported within selling, general and administrative expenses net of the associated net book value for the damaged asset.
Sales and Other Related Taxes
– Taxes assessed on sales transactions are not included in revenue.
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The following table presents our revenue disaggregated by revenue source (in thousands):
|
|
For the Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Rental services
|
|
$
|
12,174
|
|
|
$
|
10,385
|
|
Transportation services
|
|
|
2,643
|
|
|
|
2,133
|
|
Rig-up/rig-down services
|
|
|
2,355
|
|
|
|
1,861
|
|
Other
|
|
|
158
|
|
|
|
194
|
|
Total
|
|
$
|
17,330
|
|
|
$
|
14,573
|
|
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.
We do not incur any incremental costs to obtain or fulfill our customer contracts which require capitalization under ASC 606 and have elected the practical expedient afforded to expense such costs if incurred.
The Company applies the “as-invoiced” practical expedient as the amount of consideration the Company has a right to invoice corresponds directly with the value of the Company’s performance to date.
Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the Company transfers a promised good or service to its customer and when the customer pays for that good or service will be one year or less.
The majority of our services are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Adjustments to Previously Reported Financial Statements from the Adoption of ASC 606
In accordance with the new revenue standard requirements, there was no impact of adoption on our condensed consolidated balance sheet. The impact of adoption on our condensed consolidated statement of operations is reflected below (in thousands):
|
|
For the Year Ended December 31, 2017
|
|
|
|
As Restated
|
|
|
Adoption of
ASC 606
|
|
|
As Adjusted
|
|
Rental services
|
|
$
|
10,385
|
|
|
$
|
-
|
|
|
$
|
10,385
|
|
Rig-up/Rig-down services
|
|
|
1,861
|
|
|
-
|
|
|
|
1,861
|
|
Transportation services
|
|
|
2,133
|
|
|
-
|
|
|
|
2,133
|
|
Other
|
|
|
258
|
|
|
|
(64
|
)
|
|
|
194
|
|
Total revenue
|
|
|
14,637
|
|
|
|
(64
|
)
|
|
|
14,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
9,927
|
|
|
|
-
|
|
|
|
9,927
|
|
Depreciation and amortization
|
|
|
3,614
|
|
|
|
-
|
|
|
|
3,614
|
|
Selling, general and administrative expenses
|
|
|
3,001
|
|
|
|
(64
|
)
|
|
|
2,937
|
|
Total expenses
|
|
|
16,542
|
|
|
|
(64
|
)
|
|
|
16,478
|
|
Loss from operations
|
|
$
|
(1,905
|
)
|
|
$
|
-
|
|
|
$
|
(1,905
|
)
|
Modification Accounting for Stock Compensation.
In May 2017, the FASB issued ASU No. 2017-09 Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new ASU, an entity should apply modification accounting unless the fair value, the vesting conditions, and the classification as equity or liability of the modified award all remain the same as the original award. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance had no material impact on our consolidated financial statements.
Clarifying the Definition of a Business.
In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805) - Clarifying the Definition of a Business, in an effort to clarify the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance had no material impact on our consolidated financial statements.
Deferred Taxes on Intra-Entity Asset Transfers.
In October 2016, the FASB issued ASU No. 2016-16 Income Tax (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. Previous GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset was sold to an outside party. This new guidance eliminated this exception and requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs. We applied the update effective January 1, 2018. The adoption of this new guidance had no material impact on our consolidated financial statements.
Restricted Cash Presentation.
In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230) - Restricted Cash, a consensus of the FASB Emerging Issues Task Force. This new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We applied the update prospectively beginning January 1, 2018. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
Fair Value Measurement Disclosure
. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (topic 820) – Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement. This new guidance eliminated, modified and added certain disclosure requirements related to fair value measurements. The amended disclosure requirements are effective for all entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. We are evaluating the impact of adopting this guidance. However, we currently expect that the adoption of this guidance will not have a material impact on our consolidated financial statements.
Stranded Tax Effects from the Tax Cuts and Jobs Act.
In February 2018, the FASB issued ASU No. 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. U.S. GAAP requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates, with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (referred to as “stranded tax effects”). The amendments in this ASU allow a specific exception for reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. In addition, the amendments in this update also require certain disclosures about stranded tax effects. The standard will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We currently expect that the adoption of this guidance will not have a material impact on our consolidated financial statements.
Financial Instruments—Credit Losses.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326), which introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. It requires an entity to estimate credit losses expected over the life of an exposure based on historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This guidance will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.
Leases.
In February 2016, the FASB established Topic 842,
Leases,
by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01,
Land Easement Practical Expedient for Transition
to Topic 842; ASU No. 2018-10,
Codification Improvements
to Topic 842,
Leases
; and ASU No. 2018-11,
Targeted Improvements
. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification as either a financing or operating lease will determine whether lease expense is recognized on an effective interest method basis or on a straight-line basis over the term of the lease, respectively.
The new standard is effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application and used the effective date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The package of practical expedients, the use of hindsight, and the land easement practical expedient may each be elected on its own or with either or both of the other practical expedients. The package of practical expedients must be elected entirely or not at all. We expect to elect the package of practical expedients which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs under the new standard.
We expect that this standard will have a material effect on our balance sheet. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new ROU assets and lease liabilities on our balance sheet for our office and real estate operating leases; and providing significant new disclosures about our leasing activities. On adoption, we currently expect to recognize additional operating liabilities ranging from $0.4 million to $0.6 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. We do not believe the new standard will materially affect our consolidated net earnings. These estimates are based on our current lease portfolio as of December 31, 2018, and the actual amounts may be different as a result of changes in our overall lease portfolio. While substantially complete, we are still in the process of finalizing our evaluation of the new standard and the overall impact of the new guidance on our consolidated financial statements and related disclosures.
NOTE 3
— DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Prepaid insurance
|
|
$
|
399
|
|
|
$
|
355
|
|
Other prepaid expenses
|
|
|
186
|
|
|
|
34
|
|
Other current assets
|
|
|
36
|
|
|
|
1
|
|
Total prepaid expenses and other current assets
|
|
$
|
621
|
|
|
$
|
390
|
|
Property and Equipment
Major classifications of property and equipment are as follows (in thousands):
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
(Restated)
|
|
Machinery and equipment
|
|
$
|
33,503
|
|
|
$
|
31,418
|
|
Vehicles, trucks and trailers
|
|
|
4,242
|
|
|
|
4,265
|
|
Office furniture, fixtures and equipment
|
|
|
567
|
|
|
|
560
|
|
Leasehold improvements
|
|
|
63
|
|
|
|
105
|
|
Buildings
|
|
|
212
|
|
|
|
212
|
|
|
|
|
38,587
|
|
|
|
36,560
|
|
Less: Accumulated depreciation and amortization
|
|
|
(13,490
|
)
|
|
|
(11,011
|
)
|
|
|
|
25,097
|
|
|
|
25,549
|
|
Assets not yet placed in service
|
|
|
711
|
|
|
|
73
|
|
Property and equipment, net
|
|
$
|
25,808
|
|
|
$
|
25,622
|
|
Depreciation and amortization expense related to property and equipment for the years ended December 31, 2018 and 2017 was $2.7 million and $2.9 million (restated), respectively.
Intangible Assets
Intangible assets consist of the following (in thousands):
|
|
Customer Relationships
|
|
|
Tradename
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
5,323
|
|
|
$
|
2,174
|
|
|
$
|
7,497
|
|
Less: Accumulated amortization
|
|
|
(2,964
|
)
|
|
|
(1,184
|
)
|
|
|
(4,148
|
)
|
Net book value
|
|
$
|
2,359
|
|
|
$
|
990
|
|
|
$
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
5,323
|
|
|
$
|
2,174
|
|
|
|
7,497
|
|
Less: Accumulated amortization
|
|
|
(2,432
|
)
|
|
|
(966
|
)
|
|
|
(3,398
|
)
|
Net book value
|
|
$
|
2,891
|
|
|
$
|
1,208
|
|
|
$
|
4,099
|
|
Estimated amortization expense for the next five years and thereafter is as follows (in thousands):
For the Year Ending December 31,
|
|
|
|
|
|
|
|
2019
|
|
$
|
750
|
|
2020
|
|
|
750
|
|
2021
|
|
|
750
|
|
2022
|
|
|
679
|
|
2023
|
|
|
326
|
|
Thereafter
|
|
|
94
|
|
|
|
$
|
3,349
|
|
Total amortization expense for the years ended December 31, 2018 and 2017 was approximately $0.8 million and $0.8 million, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accrued compensation
|
|
$
|
384
|
|
|
$
|
306
|
|
Insurance payable
|
|
|
366
|
|
|
|
302
|
|
Accrued severance
|
|
|
281
|
|
|
|
10
|
|
Sales tax payable
|
|
|
211
|
|
|
|
188
|
|
Other accrued expenses
|
|
|
262
|
|
|
|
325
|
|
Total accrued expenses
|
|
$
|
1,504
|
|
|
$
|
1,131
|
|
NOTE 4 — LONG-TERM DEBT – RELATED PARTY
Long-term debt – related party consists of the following (in thousands):
|
|
December 31, 2018
|
|
|
|
Current
|
|
|
Long-Term
|
|
Credit facility
|
|
|
|
|
|
|
Term loan
|
|
$
|
1,000
|
|
|
$
|
4,185
|
|
Revolving credit facility
|
|
|
-
|
|
|
|
1,000
|
|
Delayed draw term loan
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
1,000
|
|
|
$
|
5,185
|
|
Credit Facility – Related Party: Term Loan, Delayed Draw Term Loan, and Revolving Credit Facility
In conjunction with the Recapitalization, we entered into the Second Amended and Restated Credit Agreement with Pelican, a related party, on January 31, 2017 (“Related Party Credit Facility”).
On June 30, 2018, the Company entered into the Third Amended and Restated Credit Agreement with Pelican which, among other things, (i) combined the outstanding balances on the delayed draw term loan and the term loan and initiated a required monthly principal payment of approximately $83,000 on the aggregate outstanding balance of the term loan, (ii) expanded availability on the revolving credit facility by $0.7 million while simultaneously reducing the aggregate availability under the other lines of the facility by the same amount, and (iii) extended the maturity date of the facility to June 30, 2021. Borrowings under the Related Party Credit Facility are subject to monthly interest payments at an annual base rate of the six-month LIBOR rate on the last day of the calendar month plus a margin of 3.0%. The obligations under the Related Party Credit Facility are guaranteed by all our subsidiaries and secured by substantially all of our assets. The Related Party Credit Facility contains customary events of default and covenants including restrictions on our ability to incur additional indebtedness, pay dividends or make other distributions, grant liens and sell assets. The Related Party Credit Facility does not include any financial covenants.
Effective June 30, 2018, Pelican assigned and transferred its rights under the credit agreement to an affiliated entity, Permian Pelican Financial, LLC (“PPF”). The members and membership interests of PPF are the same as Pelican and PPF is a related party.
Under the revolving credit facility, the Company has the ability to borrow the lesser of 80% of eligible receivables, as defined in the credit agreement, and $1.7 million. As of December 31, 2018, there was $1.0 million outstanding under the revolving credit facility and the Company had the ability to borrow an incremental $0.7 million.
In February 2019, the Company borrowed the remaining $0.7 million available under the revolving credit facility.
NOTE 5 — INCOME TAXES
During the year ended December 31, 2017, the Tax Cuts and Jobs Act ("U.S. Tax Reform") was enacted by the U.S. federal government. The legislation significantly changed U.S. income tax law, by, among other things, lowering the federal corporate income tax rate from 35% to 21% effective January 1, 2018. In addition, there are many new provisions, including changes to expensing of qualified tangible property and the deductions for executive compensation and interest expense. During the years ended December 31, 2018 and 2017, we recognized the income tax effects of the 2017 Tax Act in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), which provides SEC staff guidance for the application of accounting standards for income taxes in the reporting period in which the 2017 Tax Act was enacted. The Company determined the reduction in the federal tax rate applicable to deferred tax balances reduced the net deferred tax asset balance, before valuation allowance, by approximately $0.8 million, with a corresponding reduction in the recorded valuation allowance.
The provision for income taxes consists of the following (in thousands):
|
|
For the Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current provision:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
15
|
|
|
|
59
|
|
Total current provision
|
|
|
15
|
|
|
|
59
|
|
Deferred benefit:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Total deferred benefit
|
|
|
-
|
|
|
|
-
|
|
Provision for income taxes
|
|
$
|
15
|
|
|
$
|
59
|
|
The following table reconciles the statutory tax rates to our effective tax rate:
|
|
For the Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
(Restated)
|
|
Federal statutory rate
|
|
|
21.00
|
%
|
|
|
34.00
|
%
|
State taxes, net of federal benefit
|
|
|
3.38
|
%
|
|
|
-7.28
|
%
|
Write-off of state NOLs
|
|
|
190.60
|
%
|
|
|
0.00
|
%
|
Valuation allowance - write-off of state NOLs
|
|
|
-190.60
|
%
|
|
|
0.00
|
%
|
Permanent differences
|
|
|
2.42
|
%
|
|
|
-5.15
|
%
|
Deferred income taxes - Tax Reform Rate Change
|
|
|
0.00
|
%
|
|
|
-356.48
|
%
|
Valuation allowance - Tax Reform Rate Change
|
|
|
0.00
|
%
|
|
|
356.48
|
%
|
Valuation allowance - other
|
|
|
-22.86
|
%
|
|
|
-223.47
|
%
|
Gain on cancellation of debt income - Recapitalization
|
|
|
0.00
|
%
|
|
|
214.15
|
%
|
Accrued interest on equity - Recapitalization
|
|
|
0.00
|
%
|
|
|
-33.65
|
%
|
Other
|
|
|
0.34
|
%
|
|
|
0.00
|
%
|
Effective income tax rate
|
|
|
4.28
|
%
|
|
|
-21.40
|
%
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income taxes. Components of our deferred income taxes are as follows (in thousands):
|
|
For the Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
(Restated)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
15
|
|
|
$
|
15
|
|
Net operating loss
|
|
|
6,904
|
|
|
|
6,664
|
|
Start-up costs
|
|
|
8
|
|
|
|
9
|
|
State net operating loss, net of federal benefit
|
|
|
443
|
|
|
|
1,005
|
|
Accrued compensation
|
|
|
59
|
|
|
|
84
|
|
Charitable contributions and other
|
|
|
13
|
|
|
|
9
|
|
Total deferred tax assets
|
|
|
7,442
|
|
|
|
7,786
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid assets
|
|
|
7
|
|
|
|
82
|
|
Property and equipment
|
|
|
4,779
|
|
|
|
4,271
|
|
Intangibles
|
|
|
462
|
|
|
|
595
|
|
State deferreds, net of federal benefit
|
|
|
272
|
|
|
|
153
|
|
Total deferred tax liabilities
|
|
|
5,520
|
|
|
|
5,101
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
1,922
|
|
|
|
2,685
|
|
Valuation allowance
|
|
|
(1,922
|
)
|
|
|
(2,685
|
)
|
Net deferred tax assets after valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
We have a loss for the year ended December 31, 2018 for federal income tax purposes and in certain state income tax jurisdictions. As of December 31, 2018, we had a gross U.S. federal net operating loss (NOL) of $32.9 million, of which $31.3 million is subject to pre-Tax Cuts and Jobs Act carryforward limitations and will begin expiring in 2033 if not utilized. The remaining $1.5 million is indefinitely carried forward and is limited to offset 80% of federal taxable income in each carryforward year. We also have state NOL carryforwards that will affect state taxes of approximately $0.4 million that will begin to expire in 2034. Carryback provisions are not allowed by all states, accordingly the state NOLs also give rise to a deferred tax asset. The Company’s ability to utilize its NOL carryforwards to offset future taxable income and to reduce U.S. federal income tax liability is subject to certain requirements and restrictions.
In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. An ownership change generally occurs if one or more shareholders (or groups of shareholders) who are each deemed to own at least 5% of the Company’s stock have aggregate increases in their ownership of such stock of more than 50 percentage points over such stockholders’ lowest ownership percentage during the testing period (generally a rolling three-year period). The Company believes it has not experienced an ownership change in January 2017 as a result of the Recapitalization; however, the Company remains subject to ongoing testing for future ownership changes based on shareholder ownership that may create a restrictive Section 382 limitation on the NOLs in subsequent reporting periods.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company has evaluated the available evidence and the likelihood of realizing the benefit of its net deferred tax assets. Management considers cumulative losses and other negative evidence as well as positive evidence such as the scheduled reversal of deferred tax liabilities, future profitability, and tax planning strategies in making this assessment. From its evaluation, the Company has concluded that, based on the weight of available evidence, it is not more likely than not to realize the benefit of its deferred tax assets. Therefore, the Company has maintained a valuation allowance of $1.9 million and $2.7 million for the years ended December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, the Company wrote-off approximately $0.7 million of deferred tax assets associated with its state NOL carryforward as a result of terminating operations in certain states. The write-off was offset by a corresponding release in the valuation allowance of $0.7 million.
We file income tax returns in our major taxing jurisdictions, which include the US federal jurisdiction, Texas and Oklahoma. Our federal tax returns remain open for the tax year 2015 forward and our state tax returns remain open for tax year 2014 forward. None of our federal or state income tax returns are currently under examination by the Internal Revenue Service or state tax authorities.
The Company has restated its 2017 comparative disclosure for the restatement adjustment detailed in Note 12. The Company has analyzed the impact of the restatement adjustment on both federal and state deferred taxes as of December 31, 2017 and recorded a deferred income tax benefit of $0.3 million, offset by an equal adjustment to the valuation allowance. The deferred income tax benefit to federal and state NOLs was approximately $42,000 and $25,000, respectively. The deferred income tax benefit recorded to federal property, plant and equipment deferred tax liability was $0.2 million and the deferred income tax benefit recorded to state deferred tax liability was approximately $8,000.
NOTE 6
— COMMITMENTS AND CONTINGENCIES
Litigation
We are subject to certain claims arising in the ordinary course of business. Management does not believe any claims will have a material adverse effect on our financial position or results of operations.
The Company entered into certain employment agreements in connection with acquisitions in 2014 which provided for specified severance obligations of the Company in the event of a termination of employment of the subject employees. The Company also entered into a similar employment agreement in 2014 in connection with the recruitment of an additional employee. During 2015 and 2016, the employment of these individuals was terminated, and the Company did not pay the severance obligations that were contemplated by the employment agreements in the event that the cessation of employment would be determined to have been a termination by the Company “without cause.” During the years ended December 31, 2018 and 2017, we settled certain of these obligations reducing the liability previously recorded. As of December 31, 2018 and 2017, the aggregate unpaid severance obligations under these agreements was approximately $0.2 million and $0.4 million, respectively. As of March 31, 2019, we have settled all remaining obligations and we no longer have a liability related to unpaid severance obligations.
Contractual Commitments
We have numerous contractual commitments in the ordinary course of business including debt service requirements and operating leases. We lease land, facilities and equipment from non-affiliates. Certain of these leases extend to 2021.
Operating Leases
We lease certain property and equipment under non-cancelable operating leases that expire on various dates through 2021. The terms of our operating leases generally range from one to five years. We are also party to certain month-to-month leases that can be cancelled at any time. Lease expense under all non-cancelable operating leases totaled approximately $0.2 million for the years ended December 31, 2018 and 2017. As of December 31, 2018, the future minimum lease payments under non-cancelable operating leases were as follows (in thousands):
Year Ending December 31,
|
|
|
|
2019
|
|
$
|
171
|
|
2020
|
|
|
112
|
|
2021
|
|
|
60
|
|
|
|
$
|
343
|
|
NOTE 7 — RELATED PARTY TRANSACTIONS
From time-to-time, the Company engages in business transactions with related parties, including Pelican and PPF.
Former Controlling Shareholder – Pelican
Beginning January 31, 2017, upon completion of the Recapitalization, Pelican held the power to vote the substantial majority of the Company’s outstanding common stock. As of December 31, 2018, six of our seven board members, including two of our executive officers, and our Chief Financial Officer held an ownership interest in Pelican.
On January 31, 2017, we issued 16,092 shares of Series A convertible preferred stock to Pelican in connection with the Recapitalization. On May 23, 2017, in consideration of the increase in the revolving credit facility and the extension of the final maturity date of the Related Party Credit Facility, the Company issued Pelican an amendment fee of 1,200 shares of Series A convertible preferred stock. Each share of Series A convertible preferred stock could be converted into 166.632 shares of the Company’s common stock at any time at the option of the shareholder and had a liquidation preference of $1,000 per share. All shares of the Series A convertible preferred stock voted on an “as if converted” basis.
As of December 31, 2018 and 2017, Pelican owned 17,292 shares of Series A convertible preferred stock which was convertible into 2,881,400 common shares and carried a liquidation preference of $17.3 million. On an as-if-converted basis, Pelican owned approximately 75.4% and 80.7% of our common stock (excluding the impact of options) as of December 31, 2018 and 2017, respectively. As such, Pelican, who owned 100% of the Series A convertible preferred stock, controlled the substantial majority of votes of Aly Energy.
On January 28, 2019, we executed an Agreement and Plan of Merger (“Merger Agreement”) with Pelican pursuant to which Pelican merged with and into the Company (the “Merger”). By virtue of the Merger, each issued and outstanding share of Pelican common stock, 7,429 shares in aggregate, was converted into 387.858 shares of our common stock and each share of Series A convertible preferred stock was canceled. We issued an aggregate of 2,881,411 new shares of our common stock, representing approximately 75.4% of our outstanding common stock, with a value of approximately $14.4 million in consideration for all of the shares of Pelican common stock outstanding as of the Merger on January 28, 2019. The new shares of our common stock were issued directly to the individual shareholders of Pelican and, as a result, effective January 28, 2019, we no longer have a controlling shareholder.
Related Party Lender – PPF
In January 2017, we entered into the Related Party Credit Facility with Pelican. Effective June 30, 2018, Pelican assigned and transferred its rights under the Related Party Credit Facility to PPF. Because the members and membership interests of PPF are the same as Pelican, PPF is a related party. See
Note 4 – Long-Term Debt – Related Party
for further detail on the Related Party Credit Facility.
In connection with our Related Party Credit Facility, during each of the years ended December 31, 2018 and 2017, we recorded interest expense of approximately $0.4 million. In addition, approximately $0.3 million of expense was recorded during the year ended December 31, 2017 related to a debt modification fee in connection with Amendment No. 2 to the Related Party Credit Facility which was entered into on May 23, 2017. The fee consisted of 1,200 shares of our Series A convertible preferred stock. Approximately $0.2 million of the aggregate interest expense on the Related Party Credit Facility recorded during the year ended December 31, 2017 was included in the obligations exchanged as part of the Recapitalization.
Our consolidated balance sheet includes accrued interest under the Related Party Credit Facility of approximately $31,000 and $26,000 as of December 31, 2018 and 2017, respectively.
Other Related Party Transactions
Tim Pirie, appointed as a director of the Company on March 3, 2015, holds a 30% ownership interest in Canadian Nitrogen Services, Ltd. (“CNS”), one of the sellers involved with an acquisition completed in April 2014. Part of the acquisition price was payable in contingent consideration and part of the purchase price was payable in redeemable preferred stock. On January 31, 2017, in connection with the Recapitalization, the remaining contingent consideration liability and the redeemable preferred stock were converted into 22,875 and 151,972 shares of the Company’s common stock, respectively, of which CNS received 46,032 shares.
NOTE 8
— STOCK-BASED COMPENSATION
As of December 31, 2018 and 2017, we had two stock-based compensation plans with outstanding options. Only one of our plans is currently available to grant incentive stock options, non-qualified stock options and restricted stock to employees and non-employee members of the board of directors.
2017 Stock Option Plan
Effective April 4, 2017, the 2017 Stock Option Plan (the “2017 Plan”) was approved by the board of directors. On May 30, 2017, we granted options to purchase approximately 843,094 shares of common stock under the 2017 Plan which was the maximum amount authorized. The option contract term is 10 years and the exercise price is $2.00. The options vested and became exercisable immediately upon grant. The fair value of the award was estimated using a Black-Scholes fair value model. The valuation of stock options requires us to estimate the expected term of award, which was estimated using the simplified method, as the Company does not have sufficient historical exercise information. The valuation of stock option awards is also dependent on historical stock price volatility. In view of our limited trading volume, volatility was calculated based on historical stock price volatility of the Company’s peer group.
Black-Scholes-Merton Assumptions
|
|
|
|
Risk-free interest rate
|
|
|
1.76
|
%
|
Expected life (years)
|
|
|
5
|
|
Volatility
|
|
|
60.00
|
%
|
Dividend yield
|
|
|
-
|
|
On August 20, 2018, our former Chief Executive Officer, Shauvik Kundagrami, exercised options to purchase 250,000 shares of common stock under the 2017 Plan at an exercise price of $2.00 per share resulting in aggregate proceeds to the Company of $0.5 million. In accordance with the terms of the 2017 Plan, effective August 24, 2018, Mr. Kundagrami’s remaining options to purchase 2,928 shares of common stock under the 2017 Plan were forfeited.
Options to purchase 590,166 and 843,094 common shares under the 2017 Plan were outstanding as of December 31, 2018 and 2017, respectively. These options were granted, vested and became exercisable during the year ended December 31, 2017. As a result, we recorded stock-based compensation of $0.6 million, the full value of the grant of options to purchase common stock, as a component of selling, general and administrative expenses during the year ended December 31, 2017.
Omnibus Incentive Plan
Subsequent to the adoption of the 2017 Plan, options are no longer permitted to be granted under the previous Omnibus Incentive Plan (the “2013 Plan”). Options to purchase 11,706 common shares under the 2013 Plan were outstanding and none of these options were vested as of December 31, 2018 and 2017.
The option contract term is 10 years and the exercise price is $4.00. The options vest and are exercisable if a “Liquidity Event” occurs and certain conditions are met. A Liquidity Event is defined as an IPO or a change of control, as defined in the plan. Pursuant to the plan, an IPO is defined as an underwritten public offering of shares. If the first Liquidity Event is an IPO, then the options vest and are exercisable immediately if the IPO is effected at a price of $8.00 per share or greater. If the IPO is effected at a price less than $8.00 per share, but the stock price post-IPO reaches $8.00 per share during the six-month period immediately following the IPO, then the options vest and are exercisable. If the IPO is effected at a price less than $8.00 per share and the share price does not reach $8.00 per share prior to the sixth month anniversary of the IPO, the options do not vest and expire. If the first Liquidity Event to occur is a change of control, then the options vest if the change of control takes place at a price of at least $8.00 per share. If such change in control occurs at a price less than $8.00 per share, the options do not vest and expire.
The fair value of each option award granted under the 2013 Plan is estimated on the date of grant using the Monte Carlo simulation method. The same Monte Carlo simulation method is used to determine the derived service period of five years. In addition, expected volatilities have been based on comparable public company data, with consideration given to our limited historical data. We make estimates with respect to employee termination and forfeiture rates of the options within the valuation model. The risk-free rate is based on the approximate U.S. Treasury yield rate in effect at the time of grant. For options granted prior to the Share Exchange, the calculation of our stock price involved the use of different valuation techniques, including a combination of an income and/or market approach. Determination of the fair value was a matter of judgment and often involved the use of significant estimates and assumptions.
The aggregate unrecognized compensation cost related to these non-vested stock option awards is approximately $0.3 million. Such amount will be recognized in the future upon occurrence of Liquidity Event that results in a vesting of the options. During the year ended December 31, 2018, there were no forfeited options. Options to purchase 418 shares of common stock were forfeited during the year ended December 31, 2017.
NOTE 9 — STOCKHOLDERS’ EQUITY
Common Shares
On August 7, 2018, the Company effected the Reverse Split, a 1-for-20 reverse stock split of its common stock, as approved by its Board of Directors and stockholders. Under the terms of the Reverse Split, each 20 shares of common stock issued and outstanding as of such effective date was automatically reclassified and changed into one share of common stock without further action by the stockholder. In lieu of issuing fractional shares in connection with the Reverse Split, holders received the proportionate fraction of $7.00 per share in cash. The aggregate payment for all fractional shares was $231.35. Shares of common stock previously issued and held as treasury shares were escheated to applicable governmental authorities and, in connection with the Reverse Split, were reinstated as outstanding shares of common stock. All share and per share amounts in these consolidated financial statements, including such amounts related to options and the conversion feature of the Series A convertible preferred stock, have been retroactively restated to reflect the Reverse Split.
On August 7, 2018, we filed an amendment to our certificate of formation reducing our authorized common shares from 25,000,000 to 15,000,000.
On August 20, 2018, our former Chief Executive Officer, Shauvik Kundagrami, exercised options to purchase 250,000 shares of common stock for an exercise price of $2.00 per share, or $500,000 in aggregate.
On January 31, 2017, we issued 355,595 shares of our common stock to the former holders of our redeemable preferred stock, a subordinated note payable, and a contingent payment liability (an aggregate of six individual entities and persons).
On January 28, 2019, in connection with the Merger, we issued an aggregate of 2,881,411 new shares of our common stock, representing approximately 75.4% of our outstanding common stock, in consideration for all of the shares of Pelican common stock outstanding as of the effective date of the Merger. Please see
Note 7 – Related Party Transactions
for additional detail.
Preferred Shares
On August 7, 2018, we filed an amendment to our certificate of formation reducing our aggregate authorized preferred stock from 10,000,000 to 5,000,000 shares. Previously, in connection with the Recapitalization, the Company allocated 20,000 of the authorized preferred shares to be authorized Series A convertible preferred shares. Authorized preferred shares, with a par value of $0.001 per share, total 4,980,000 and 9,980,000 as of December 31, 2018 and 2017, respectively, of which, none were issued and outstanding as of December 31, 2018 and 2017.
On January 28, 2019, by virtue of the Merger, each issued and outstanding share of our Series A convertible preferred stock was canceled. Please see
Note 7 – Related Party Transactions
for additional detail on the Merger.
Redeemable Preferred Stock
Prior to the Recapitalization on January 31, 2017, the Company had two series of redeemable preferred stock which were entitled to a cumulative paid-in-kind dividend of 5% per year on their respective liquidation preference, compounded quarterly. Both series of redeemable preferred stock, including all accrued dividends, were converted into an aggregate of 272,720 shares of our common stock in connection with Recapitalization. There was no redeemable preferred stock outstanding as of December 31, 2018 and 2017. Aggregate dividends accrued during the year ended December 31, 2017 were approximately $63,000.
NOTE 10 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional shares of common stock that could have been outstanding assuming the exercise of outstanding stock options and restricted stock or other convertible instruments, as appropriate.
For the year ended December 31, 2017, the effect of incremental shares is antidilutive so the diluted earnings per share will be the same as the basic earnings per share. The calculations of basic and diluted earnings per share for the year ended December 31, 2018 are shown below (in thousands, except for share and per share amounts):
|
|
For the Year
Ended
December 31,
2018
|
|
Numerator:
|
|
|
|
Net income available to common stockholders
|
|
$
|
343
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted average shares used in basic earnings per share
|
|
|
782,014
|
|
Series A convertible preferred stock
|
|
|
2,881,400
|
|
Stock options issued under the 2017 Plan
|
|
|
750,963
|
|
Weighted average shares used in diluted earnings per share
|
|
|
4,414,377
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.44
|
|
Diluted earnings per share
|
|
$
|
0.08
|
|
Unvested stock options under the 2013 Plan are excluded from the computation of basic and diluted earnings per share because they vest upon the occurrence of certain events as defined in the 2013 Plan. As of December 31, 2018, there were 11,706 stock options outstanding and unvested under the 2013 Plan.
NOTE 11 – SELECTED QUARTERLY INFORMATION (UNAUDITED)
The following table represents summarized data for each of the quarters in the years ended December 31, 2018 and 2017 (in thousands, except per share amounts):
|
|
For the Quarter Ended
|
|
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
|
June 30, 2018
|
|
|
March 31, 2018
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
Revenue
|
|
$
|
4,088
|
|
|
$
|
4,518
|
|
|
$
|
4,388
|
|
|
$
|
4,336
|
|
Income (loss) from operations
|
|
|
419
|
|
|
|
368
|
|
|
|
(163
|
)
|
|
|
121
|
|
Income (loss) before income taxes
|
|
|
314
|
|
|
|
273
|
|
|
|
(258
|
)
|
|
|
29
|
|
Net income (loss)
|
|
|
311
|
|
|
|
303
|
|
|
|
(279
|
)
|
|
|
8
|
|
Net income (loss) available to common stockholders
|
|
|
311
|
|
|
|
303
|
|
|
|
(279
|
)
|
|
|
8
|
|
Earnings per common share - basic
|
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
(0.40
|
)
|
|
$
|
0.01
|
|
Earnings per common share - diluted
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
|
$
|
(0.40
|
)
|
|
$
|
0.00
|
|
|
|
For the Quarter Ended
|
|
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Restated)
|
|
Revenue
|
|
$
|
3,439
|
|
|
$
|
4,122
|
|
|
$
|
4,175
|
|
|
$
|
2,837
|
|
Income (loss) from operations
|
|
|
(792
|
)
|
|
|
73
|
|
|
|
(612
|
)
|
|
|
(574
|
)
|
Income (loss) before income taxes
|
|
|
(871
|
)
|
|
|
2
|
|
|
|
(999
|
)
|
|
|
1,589
|
|
Net income (loss)
|
|
|
(912
|
)
|
|
|
(4
|
)
|
|
|
(1,002
|
)
|
|
|
1,580
|
|
Net income (loss) available to common stockholders
|
|
|
(912
|
)
|
|
|
(4
|
)
|
|
|
(1,002
|
)
|
|
|
1,517
|
|
Earnings per common share - basic
|
|
$
|
(1.32
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
2.67
|
|
Earnings per common share - diluted
|
|
$
|
(1.32
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
0.65
|
|
See “
Note 12 – Restatement of Prior Year Financial Statements
” for a discussion of the restatement and its impact on the financial statements.
NOTE 12 – RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
Prior to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2018, the Company concluded that its previously issued consolidated financial statements for the years ended December 31, 2017 and 2016 and for the quarters ending March 31, 2018 and 2017, June 30, 2018 and 2017 and September 30, 2018 and 2017 should be restated due to accounting errors discovered in conjunction with certain remediation activities for our internal controls over financial reporting.
During the first quarter of 2019, we reviewed our existing fixed asset inventory, our current and historical fixed asset records, and the accounting for a significant transaction in 2016 in which we sold assets with a net book value of $18.6 million to Tiger Finance, LLC (“Tiger”). As a result of this review, we (i) identified certain assets which were included in the asset purchase agreement with Tiger and had not been written off in connection with the sale, and (ii) identified certain other assets which had been disposed of on or prior to December 31, 2016 which had not been written off at the time of disposal.
We determined it would be necessary to restate the financial statements for the years ended December 31, 2017 and 2016 and the quarters ended March 31, 2018 and 2017, June 30, 2018 and 2017 and September 30, 2018 and 2017. The adjustments to the consolidated statements of operations consist of an increased impairment and increased loss on disposal of assets in 2016 and a reduction in depreciation expense during all periods from November 1, 2016 through September 30, 2018. The adjustments to the consolidated balance sheet consist of a reduction of property and equipment, net in all periods to reflect the write-off of certain assets in 2016. The Company’s consolidated statements of cash flows had no changes to net cash flows from operating, investing or financing activities as a result of the restatement. The impact of the restatement to the consolidated financial statements for the year ended December 31, 2017 was as follows (in thousands):
|
|
Consolidated Statement of Operations
|
|
|
|
For the Year Ended
|
|
|
|
December 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Depreciation and amortization
|
|
$
|
3,701
|
|
|
$
|
(87
|
)
|
|
$
|
3,614
|
|
Total expenses
|
|
|
16,565
|
|
|
|
(87
|
)
|
|
|
16,478
|
|
Income (loss) from operations
|
|
|
(1,992
|
)
|
|
|
87
|
|
|
|
(1,905
|
)
|
Income (loss) before income taxes
|
|
|
(366
|
)
|
|
|
87
|
|
|
|
(279
|
)
|
Net income (loss)
|
|
|
(425
|
)
|
|
|
87
|
|
|
|
(338
|
)
|
Net income (loss) available to common stockholders
|
|
$
|
(488
|
)
|
|
$
|
87
|
|
|
$
|
(401
|
)
|
Earnings per common share - basic
|
|
$
|
(0.74
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.61
|
)
|
Earnings per common share - diluted
|
|
$
|
(0.74
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.61
|
)
|
|
|
Consolidated Balance Sheet
|
|
|
|
As of December 31, 2017
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
26,888
|
|
|
$
|
(1,266
|
)
|
|
$
|
25,622
|
|
Total assets
|
|
|
35,502
|
|
|
|
(1,266
|
)
|
|
|
34,236
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(34,583
|
)
|
|
|
(1,266
|
)
|
|
|
(35,849
|
)
|
Total stockholders' equity
|
|
|
25,938
|
|
|
|
(1,266
|
)
|
|
|
24,672
|
|
Total liabilities and stockholders' equity
|
|
$
|
35,502
|
|
|
$
|
(1,266
|
)
|
|
$
|
34,236
|
|
The impact of the restatement for each of the quarters in the nine months ended September 30, 2018 and the year ended December 31, 2017 was as follows (in thousands):
|
|
Consolidated Statements of Operations
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2018 (Unaudited)
|
|
|
June 30, 2018 (Unaudited)
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Depreciation and amortization
|
|
$
|
862
|
|
|
$
|
(21
|
)
|
|
$
|
841
|
|
|
$
|
888
|
|
|
$
|
(21
|
)
|
|
$
|
867
|
|
Total expenses
|
|
|
4,171
|
|
|
|
(21
|
)
|
|
|
4,150
|
|
|
|
4,572
|
|
|
|
(21
|
)
|
|
|
4,551
|
|
Income (loss) from operations
|
|
|
347
|
|
|
|
21
|
|
|
|
368
|
|
|
|
(184
|
)
|
|
|
21
|
|
|
|
(163
|
)
|
Income (loss) before income taxes
|
|
|
252
|
|
|
|
21
|
|
|
|
273
|
|
|
|
(279
|
)
|
|
|
21
|
|
|
|
(258
|
)
|
Net income (loss)
|
|
|
282
|
|
|
|
21
|
|
|
|
303
|
|
|
|
(300
|
)
|
|
|
21
|
|
|
|
(279
|
)
|
Net income (loss) available to common stockholders
|
|
$
|
282
|
|
|
$
|
21
|
|
|
$
|
303
|
|
|
$
|
(300
|
)
|
|
$
|
21
|
|
|
$
|
(279
|
)
|
Earnings per common share - basic
|
|
$
|
0.35
|
|
|
$
|
0.03
|
|
|
$
|
0.38
|
|
|
$
|
(0.43
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.40
|
)
|
Earnings per common share - diluted
|
|
$
|
0.06
|
|
|
$
|
0.00
|
|
|
$
|
0.07
|
|
|
$
|
(0.43
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.40
|
)
|
|
|
Three Months Ended
|
|
|
|
March 31, 2018 (Unaudited)
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Depreciation and amortization
|
|
$
|
891
|
|
|
$
|
(21
|
)
|
|
$
|
870
|
|
Total expenses
|
|
|
4,236
|
|
|
|
(21
|
)
|
|
|
4,215
|
|
Income (loss) from operations
|
|
|
100
|
|
|
|
21
|
|
|
|
121
|
|
Income (loss) before income taxes
|
|
|
8
|
|
|
|
21
|
|
|
|
29
|
|
Net income (loss)
|
|
|
(13
|
)
|
|
|
21
|
|
|
|
8
|
|
Net income (loss) available to common stockholders
|
|
$
|
(13
|
)
|
|
$
|
21
|
|
|
$
|
8
|
|
Earnings per common share - basic
|
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Earnings per common share - diluted
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
Three Months Ended
|
|
|
|
December 31, 2017 (Unaudited)
|
|
|
September 30, 2017 (Unaudited)
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Depreciation and amortization
|
|
$
|
908
|
|
|
$
|
(21
|
)
|
|
$
|
887
|
|
|
$
|
944
|
|
|
$
|
(22
|
)
|
|
$
|
922
|
|
Total expenses
|
|
|
4,252
|
|
|
|
(21
|
)
|
|
|
4,231
|
|
|
|
4,071
|
|
|
|
(22
|
)
|
|
|
4,049
|
|
Income (loss) from operations
|
|
|
(813
|
)
|
|
|
21
|
|
|
|
(792
|
)
|
|
|
51
|
|
|
|
22
|
|
|
|
73
|
|
Income (loss) before income taxes
|
|
|
(892
|
)
|
|
|
21
|
|
|
|
(871
|
)
|
|
|
(20
|
)
|
|
|
22
|
|
|
|
2
|
|
Net income (loss)
|
|
|
(933
|
)
|
|
|
21
|
|
|
|
(912
|
)
|
|
|
(26
|
)
|
|
|
22
|
|
|
|
(4
|
)
|
Net income (loss) available to common stockholders
|
|
$
|
(933
|
)
|
|
$
|
21
|
|
|
$
|
(912
|
)
|
|
$
|
(26
|
)
|
|
$
|
22
|
|
|
$
|
(4
|
)
|
Earnings per common share - basic
|
|
$
|
(1.35
|
)
|
|
$
|
0.03
|
|
|
$
|
(1.32
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
Earnings per common share - diluted
|
|
$
|
(1.35
|
)
|
|
$
|
0.00
|
|
|
$
|
(1.32
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
|
Three Months Ended
|
|
|
|
June 30, 2017 (Unaudited)
|
|
|
March 31, 2017 (Unaudited)
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Depreciation and amortization
|
|
$
|
922
|
|
|
$
|
(22
|
)
|
|
$
|
900
|
|
|
$
|
927
|
|
|
$
|
(22
|
)
|
|
$
|
905
|
|
Total expenses
|
|
|
4,809
|
|
|
|
(22
|
)
|
|
|
4,787
|
|
|
|
3,433
|
|
|
|
(22
|
)
|
|
|
3,411
|
|
Income (loss) from operations
|
|
|
(634
|
)
|
|
|
22
|
|
|
|
(612
|
)
|
|
|
(596
|
)
|
|
|
22
|
|
|
|
(574
|
)
|
Income (loss) before income taxes
|
|
|
(1,021
|
)
|
|
|
22
|
|
|
|
(999
|
)
|
|
|
1,567
|
|
|
|
22
|
|
|
|
1,589
|
|
Net income (loss)
|
|
|
(1,024
|
)
|
|
|
22
|
|
|
|
(1,002
|
)
|
|
|
1,558
|
|
|
|
22
|
|
|
|
1,580
|
|
Net income (loss) available to common stockholders
|
|
$
|
(1,024
|
)
|
|
$
|
22
|
|
|
$
|
(1,002
|
)
|
|
$
|
1,495
|
|
|
$
|
22
|
|
|
$
|
1,517
|
|
Earnings per common share - basic
|
|
$
|
(1.48
|
)
|
|
$
|
0.03
|
|
|
$
|
(1.45
|
)
|
|
$
|
2.63
|
|
|
$
|
0.04
|
|
|
$
|
2.67
|
|
Earnings per common share - diluted
|
|
$
|
(1.48
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.45
|
)
|
|
$
|
0.64
|
|
|
$
|
0.01
|
|
|
$
|
0.65
|
|
|
|
Consolidated Balance Sheets
|
|
|
|
September 30, 2018 (Unaudited)
|
|
|
June 30, 2018 (Unaudited)
|
|
|
March 31, 2018 (Unaudited)
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
26,495
|
|
|
$
|
(1,203
|
)
|
|
$
|
25,292
|
|
|
$
|
26,069
|
|
|
$
|
(1,224
|
)
|
|
$
|
24,845
|
|
|
$
|
26,449
|
|
|
$
|
(1,245
|
)
|
|
$
|
25,204
|
|
Total assets
|
|
|
35,838
|
|
|
|
(1,203
|
)
|
|
|
34,635
|
|
|
|
34,970
|
|
|
|
(1,224
|
)
|
|
|
33,746
|
|
|
|
35,173
|
|
|
|
(1,245
|
)
|
|
|
33,928
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(34,614
|
)
|
|
|
(1,203
|
)
|
|
|
(35,817
|
)
|
|
|
(34,896
|
)
|
|
|
(1,224
|
)
|
|
|
(36,120
|
)
|
|
|
(34,596
|
)
|
|
|
(1,245
|
)
|
|
|
(35,841
|
)
|
Total stockholders' equity
|
|
|
26,407
|
|
|
|
(1,203
|
)
|
|
|
25,204
|
|
|
|
25,625
|
|
|
|
(1,224
|
)
|
|
|
24,401
|
|
|
|
25,925
|
|
|
|
(1,245
|
)
|
|
|
24,680
|
|
Total liabilities and stockholders' equity
|
|
$
|
35,838
|
|
|
$
|
(1,203
|
)
|
|
$
|
34,635
|
|
|
$
|
34,970
|
|
|
$
|
(1,224
|
)
|
|
$
|
33,746
|
|
|
$
|
35,173
|
|
|
$
|
(1,245
|
)
|
|
$
|
33,928
|
|
|
|
September 30, 2017 (Unaudited)
|
|
|
June 30, 2017 (Unaudited)
|
|
|
March 31, 2017 (Unaudited)
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
27,207
|
|
|
$
|
(1,287
|
)
|
|
$
|
25,920
|
|
|
$
|
27,547
|
|
|
$
|
(1,309
|
)
|
|
$
|
26,238
|
|
|
$
|
27,540
|
|
|
$
|
(1,331
|
)
|
|
$
|
26,209
|
|
Total assets
|
|
|
35,820
|
|
|
|
(1,287
|
)
|
|
|
34,533
|
|
|
|
36,065
|
|
|
|
(1,309
|
)
|
|
|
34,756
|
|
|
|
35,235
|
|
|
|
(1,331
|
)
|
|
|
33,904
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(33,650
|
)
|
|
|
(1,287
|
)
|
|
|
(34,937
|
)
|
|
|
(33,624
|
)
|
|
|
(1,309
|
)
|
|
|
(34,933
|
)
|
|
|
(32,600
|
)
|
|
|
(1,331
|
)
|
|
|
(33,931
|
)
|
Total stockholders' equity
|
|
|
26,871
|
|
|
|
(1,287
|
)
|
|
|
25,584
|
|
|
|
26,897
|
|
|
|
(1,309
|
)
|
|
|
25,588
|
|
|
|
26,976
|
|
|
|
(1,331
|
)
|
|
|
25,645
|
|
Total liabilities and stockholders' equity
|
|
$
|
35,820
|
|
|
$
|
(1,287
|
)
|
|
$
|
34,533
|
|
|
$
|
36,065
|
|
|
$
|
(1,309
|
)
|
|
$
|
34,756
|
|
|
$
|
35,235
|
|
|
$
|
(1,331
|
)
|
|
$
|
33,904
|
|
NOTE 13 — RECAPITALIZATION
In September 2016, Pelican was formed with the primary objective of completing the Recapitalization. Pelican agreed to acquire certain outstanding debt and capital lease obligations (“Aly Senior Obligations”), provided the Company was successful in effecting the exchange of its redeemable preferred stock, a subordinated note payable and a liability for a contingent payment into approximately 10% of our common stock on a fully diluted basis.
Effective January 31, 2017, the final restructuring event occurred, and the Recapitalization was completed which resulted in the following:
|
§
|
an exchange of certain of the Company’s outstanding obligations (namely, the redeemable preferred stock, a subordinated note payable and a contingent payment liability) for approximately 10% of our common stock, or 355,595 common shares, on a fully diluted basis as of January 31, 2017;
|
|
|
|
|
§
|
an exchange of certain amendments to the Aly Senior Obligations (namely, a $16.1 million principal reduction, removal of restrictive covenants and extended maturity of payment obligations) for shares of our Series A convertible preferred stock (liquidation preference of $16.1 million or $1,000 per share) which represented approximately 80% of our common stock, or 2,681,442 common shares, on a fully diluted basis as of January 31, 2017; and
|
|
|
|
|
§
|
the formation of a new credit agreement with Pelican (consisting of a $5.1 million term loan and $1.0 million revolving credit facility) with an extended maturity date of December 31, 2018.
|
The Recapitalization had a significant impact to our capital structure and to our consolidated financial statements and there was a significant dilutive effect to those shareholders who held common stock immediately before the transaction was completed.
Troubled Debt Restructuring
Except for the Pelican exchange, each exchange was accounted for as a troubled debt restructuring (“TDR”) since an equity interest in the Company was issued to fully satisfy each debt. A gain on TDR is recognized for the excess of the carrying amount of the debt over the fair value of each equity interest granted. The impact of the Recapitalization includes a “gain on the extinguishment of debt and other liabilities” from the debtors of the subordinated note payable and the contingent payment liability and a “gain on the extinguishment of redeemable preferred stock” from the holders of the redeemable preferred stock. The share price of common stock as of January 31, 2017 of $2.40 per share was used as the basis of fair value for each equity interest granted.
The impact of the TDR is as follows:
Extinguishment of Debt and Other Liabilities.
The exchange of the subordinated note payable and the contingent payment liability for common stock resulted in a gain of $2.4 million, or $7.20 per share, on the consolidated statement of operations for the year ended December 31, 2017 and was recorded as an “Issuance of common stock in exchange for the extinguishment of debt and other liabilities” on the consolidated statement of changes in stockholders’ equity (deficit) for the year ended December 31, 2017.
Extinguishment of Redeemable Preferred Stock.
The exchange of the redeemable preferred stock for common stock resulted in a gain of $14.4 million, or $42.80 per share, which was recorded as an “Issuance of common stock in exchange for the extinguishment of redeemable preferred stock” on the consolidated statement of changes in stockholders’ equity (deficit) for the year ended December 31, 2017.
Credit Facility Restructuring
Given the nature of the related party relationship between the Company and Pelican, the extinguishment of our Aly Senior Obligations was accounted for as a capital transaction whereby we issued Series A convertible preferred stock in exchange for the extinguishment of our Aly Senior Obligations and the issuance of a new credit facility. The exchange resulted in a gain on the extinguishment of debt and other liabilities calculated as the amount above the estimated fair value of the equity interest granted. The share price of common stock as of January 31, 2017 of $2.40 per share was used as the basis of fair value for the equity interest granted.
The impact of the exchange and extinguishment of our Aly Senior Obligations is as follows:
Old Credit Facility.
The partial extinguishment and exchange of our Aly Senior Obligations ($16.1 million principal debt reduction) for shares of our Series A convertible preferred stock resulted in a gain of $9.7 million which is recorded as an “Issuance of preferred shares in exchange for the extinguishment of debt and other liabilities – related party” on the consolidated statement of changes in stockholders’ equity (deficit) for the year ended December 31, 2017. The components of the Aly Senior Obligations were as follows (in thousands):
Aly Senior Obligations as of January 31, 2017
|
|
|
|
|
Debt and Other Obligations Extinguished
|
|
Amount
|
|
|
|
|
|
Credit facility
|
|
$
|
17,772
|
|
Accrued fees and interest on credit facility
|
|
|
1,414
|
|
Capital lease obligations
|
|
|
1,930
|
|
Accrued interest on capital lease obligations
|
|
|
26
|
|
Line of credit and accrued interest - Pelican
|
|
|
500
|
|
Total
|
|
$
|
21,642
|
|
New Credit Facility.
On January 31, 2017, we completed the full extinguishment of our old credit facility and we entered into a new credit agreement with Pelican which consisted of a $5.1 million term loan and $1.0 million revolving credit facility ($5.1 million and $0.5 million outstanding as of January 31, 2017). See
“Note 4 – Long-Term Debt – Related Party”
for further discussion.
On January 31, 2017, we issued 16,092 shares of our Series A convertible preferred stock to Pelican in exchange for the above mentioned $16.1 million reduction of the Aly Senior Obligations.