UNITED CENTRIFUGE USA, LLC
STATEMENTS OF OPERATIONS
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|
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Period from
|
|
|
|
|
|
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Inception
|
|
|
|
|
|
|
(February 28,
|
|
|
|
Year Ended
|
|
|
2012) through
|
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December 31,
|
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December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
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|
SALES
|
|
$
|
12,013,508
|
|
|
$
|
2,258,125
|
|
|
|
|
|
|
|
|
|
|
COST OF SERVICES
|
|
|
9,566,000
|
|
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2,149,622
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
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2,447,508
|
|
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108,503
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|
|
|
|
|
|
|
|
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
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712,978
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|
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356,054
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|
|
|
|
|
|
|
|
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INCOME (LOSS) FROM OPERATIONS
|
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1,734,530
|
|
|
|
(247,551
|
)
|
|
|
|
|
|
|
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INTEREST EXPENSE
|
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24,159
|
|
|
|
-
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|
|
|
|
|
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|
|
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|
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
|
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1,710,371
|
|
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(247,551
|
)
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|
|
|
|
|
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STATE INCOME TAXES
|
|
|
3,037
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
1,707,334
|
|
|
$
|
(247,551
|
)
|
See notes to financial statements.
UNITED CENTRIFUGE USA, LLC
STATEMENTS OF MEMBERS’ EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 2013 AND PERIOD FROM INCEPTION
(FEBRUARY 28, 2012) THROUGH DECEMBER 31, 2012
Balance, February 28, 2012 (date of inception)
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$
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-
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|
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|
|
|
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Member contributions
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|
568
|
|
|
|
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|
|
Net loss
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|
(247,551
|
)
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|
|
|
|
|
Balance, December 31, 2012
|
|
|
(246,983
|
)
|
|
|
|
|
|
Distributions
|
|
|
(40,894
|
)
|
|
|
|
|
|
Net income
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|
|
1,707,334
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|
|
|
|
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|
Balance, December 31, 2013
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|
$
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1,419,457
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|
See notes to financial statements.
UNITED CENTRIFUGE USA, LLC
STATEMENTS OF CASH FLOWS
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Period from
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Inception
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(February 28,
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|
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Year Ended
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2012) through
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December 31,
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December 31,
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2013
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2012
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CASH FLOWS FROM OPERATING ACTIVITIES
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|
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|
|
|
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Net income (loss)
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|
$
|
1,707,334
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|
|
$
|
(247,551
|
)
|
Adjustments to reconcile net income (loss) to net cash
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|
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
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99,326
|
|
|
|
14,569
|
|
Gain on sale of equipment
|
|
|
(8,308
|
)
|
|
|
-
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|
Changes in operating assets and liabilities:
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|
|
|
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|
|
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Accounts receivable
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|
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(1,648,408
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)
|
|
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(326,744
|
)
|
Unbilled receivables
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|
|
(488,312
|
)
|
|
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(228,150
|
)
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Advances to/from related parties
|
|
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360,889
|
|
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953,342
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|
Prepaid expenses and deposits
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(11,300
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)
|
|
|
(3,900
|
)
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Accounts payable and accrued expenses
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599,906
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|
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|
178,265
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|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
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611,127
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|
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339,831
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|
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CASH FLOWS FROM INVESTING ACTIVITIES
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Acquisition of property and equipment
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|
|
(1,583,919
|
)
|
|
|
(339,646
|
)
|
Proceeds from sale of equipment
|
|
|
69,400
|
|
|
|
-
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|
NET CASH USED IN INVESTING ACTIVITIES
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|
|
(1,514,519
|
)
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|
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(339,646
|
)
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|
|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from line of credit
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|
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472,000
|
|
|
|
-
|
|
Proceeds from long-term debt
|
|
|
984,147
|
|
|
|
-
|
|
Repayments of long-term debt
|
|
|
(51,021
|
)
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|
|
-
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|
Repayments of capital lease obligations
|
|
|
(5,377
|
)
|
|
|
-
|
|
Member contributions
|
|
|
-
|
|
|
|
568
|
|
Distributions to member
|
|
|
(40,894
|
)
|
|
|
-
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|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,358,855
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
455,463
|
|
|
|
753
|
|
|
|
|
|
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|
|
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|
CASH AND CASH EQUIVALENTS, beginning of period
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|
|
753
|
|
|
|
-
|
|
|
|
|
|
|
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|
CASH AND CASH EQUIVALENTS, end of period
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|
$
|
456,216
|
|
|
$
|
753
|
|
|
|
|
|
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SUPPLEMENTAL CASH FLOW INFORMATION
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Cash paid during the year for interest
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|
$
|
19,044
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment through capital leases
|
|
$
|
290,479
|
|
|
$
|
-
|
|
See notes to financial statements.
UNITED CENTRIFUGE USA, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
United Centrifuge, USA, LLC (“United” or the “Company”), was incorporated as a limited liability corporation in the State of Texas on February 28, 2012 and provides centrifuge equipment and rental services to oil and natural gas exploration and production companies in North Dakota, Wyoming, Texas, Oklahoma, Ohio and Pennsylvania.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
: For the purpose of the statement of cash flows, the Company includes all short term investments purchased with original maturities of three months or less as of the date of the purchase as cash equivalents.
Accounts Receivable
: Accounts receivable represent amounts due from customers. Accounts receivable are recognized at invoiced amounts, net of allowance, and do not bear interest. The Company uses its best estimate to determine the required allowance for doubtful accounts based on a variety of factors, including the length of time the receivables are past due, economic trends, and conditions affecting its customer base. Specific provisions are recorded for individual receivables when the Company becomes aware of a customer’s inability to meet financial obligations. The Company reviews the adequacy of its allowance annually. Receivables balances greater than 30 days past due are individually reviewed for collectability and if deemed uncollectible; are charged off against the allowance account after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was $0 as of December 31, 2013 and 2012.
Property, Plant and Equipment
: Property, plant and equipment are recorded at cost, less accumulated depreciation and any impairment. Maintenance and repairs which do not improve or extend the life of the related assets are charged to expense when incurred. Refurbishments and renewals are capitalized when the value of the equipment is enhanced for an extended period. When property and equipment is sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operating income.
The cost of property and equipment currently in service is depreciated on a straight-line basis over their estimated useful lives. Major classifications of property and equipment and their estimated useful lives are as follows:
|
Estimated
|
|
Useful Lives
|
|
|
Centrifuge equipment
|
7 years
|
Furniture and fixtures
|
5 years
|
Leasehold improvements
|
Remaining life of lease
|
Office computers
|
3-4 years
|
Trailers
|
3-4 years
|
Trucks under capital lease
|
3-4 years
|
UNITED CENTRIFUGE USA, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-lived Assets
: The carrying values of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the undiscounted future net cash flows expected to result from the asset, including eventual disposition. If the undiscounted future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. No impairment loss has been recognized for the year ended December 31, 2013, or for the period from inception (February 28, 2012) through December 31, 2012.
Revenue Recognition
: The Company provides rental equipment and oilfield services to its customers at a per-day contractual rates. Revenue is recognized when it is realized or realizable and collectability is reasonably assured. As disclosed in Note G, the Company has negotiated a revenue and cost sharing agreement with related parties for the rental of certain centrifuge equipment not owned by the Company; however, all revenue is recognized as described above.
Income Taxes
: The Company follows guidance issued by the Financial Accounting Standards Board (“FASB”) regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement.
The Company has elected under the Internal Revenue Code and related state provisions to be a flow through entity. In lieu of corporate income taxes, the members of a limited liability company are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal income taxes has been included in the financial statements.
The income tax position taken by the Company for any years open under the various statutes of limitations is that the Company continues to be exempt from income taxes by virtue of being a pass-through entity. Management believes this tax position meets the more-likely-than-not threshold and, accordingly, the tax benefits of this income tax position (no income tax liability) has been recognized for the years ended on or before December 31, 2012.
The Company is subject to a tax mandated by the State of Texas based on a defined calculation of gross margin (the “margin tax”). The margin tax is calculated by applying a tax rate to a base that considers both revenue and expenses and therefore has the characteristics of an income tax. As a result, the Company recorded $3,037 in state income tax for the year ended December 31, 2013 and $0 for the period from inception (February 28, 2012) through December 31, 2012.
The Company records income tax related interest and penalties, if applicable, as a component of the provision for income tax expense. None of the Company’s federal or state income tax returns are currently under examination by the Internal Revenue Service (“IRS”) or state authorities, but fiscal year 2012 remains subject to examination by the IRS and the State of Texas. The Company believes that it has no uncertain tax positions for both federal and state income taxes and believes there will be no significant changes in these positions during the next 12 months.
UNITED CENTRIFUGE USA, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 revenues and expenses during the period, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Concentrations of Credit Risk
: Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains cash with one financial institution which, at times, exceed federally insured limits. The Company monitors the financial condition of the banks and has experienced no losses associated with the accounts. The Company is not party to any financial instruments which would have off-balance sheet credit or interest rate risk.
NOTE C - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Centrifuge equipment
|
|
$
|
1,828,069
|
|
|
$
|
330,594
|
|
Furniture and fixtures
|
|
|
10,574
|
|
|
|
7,189
|
|
Leasehold improvements
|
|
|
10,654
|
|
|
|
-
|
|
Office computers
|
|
|
9,184
|
|
|
|
1,863
|
|
Trailers
|
|
|
3,990
|
|
|
|
-
|
|
Trucks under capital lease
|
|
|
290,474
|
|
|
|
-
|
|
|
|
|
2,152,945
|
|
|
|
339,646
|
|
Less: accumulated depreciation and amortization
|
|
|
(113,895
|
)
|
|
|
(14,569
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
2,039,050
|
|
|
$
|
325,077
|
|
Depreciation expense was $99,326 and $14,569 for the year ended December 31, 2013 and for the period from inception (February 28, 2012) through December 31, 2012, respectively.
NOTE D - LINE OF CREDIT
The Company maintains an operating line of credit of $500,000, is due August 30, 2014 and bears interest at a floating rate of the Wall Street Journal (“WSJ”) prime rate plus 1.5% per annum (4.75% at December 31, 2013). As of December 31, 2013 and 2012, the balance was $472,000 and $0 respectively, and the line of credit and term loan (Note E) are secured by a general security agreement on all the assets of the Company.
The Company is required to maintain certain financial ratios and other affirmative and negative covenants as described in the line of credit and term loan agreements. As of December 31, 2013 the Company was in compliance with the credit agreements, except for the requirement that the Company receive written consent from the financial institution prior entering into capital lease agreements. The Company received a waiver of this covenant on April 2, 2014.
UNITED CENTRIFUGE USA, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Term loan payable in monthly blended installments of
|
|
|
|
|
|
|
$29,495, bearing interest at a fixed rate of WSJ prime rate plus 1.75% per annum (5% at December 31, 2013), maturing September 2016.
|
|
$
|
933,126
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(314,519
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
618,607
|
|
|
$
|
-
|
|
Principal repayments on long-term debt are estimated as follows:
Year Ending December 31,
|
|
|
|
|
|
|
|
2014
|
|
$
|
314,519
|
|
2015
|
|
|
330,514
|
|
2016
|
|
|
288,093
|
|
|
|
|
|
|
|
|
$
|
933,126
|
|
NOTE F - CAPITAL LEASE OBLIGATIONS
The Company accounts for certain long-term lease transactions related to the financing of various equipment as capital leases. Capital lease obligations reflect the present value of future rental payments, less an interest amount implicit in the lease. A corresponding amount is capitalized as property and equipment, and amortized over the individual asset’s estimated useful life. Depreciation of assets under capital lease obligations is included in depreciation and amortization expense and amounted to $5,539 for the year ended December 31, 2013.
Future minimum lease payments required under the capital leases are as follows:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Various capital leases payable in monthly installments of
|
|
|
|
|
|
|
$6,072, including interest at a rate of 3.775% per annum, maturing between January and February 2018, secured by trucks.
|
|
$
|
285,095
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(75,410
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,685
|
|
|
$
|
-
|
|
UNITED CENTRIFUGE USA, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE F - CAPITAL LEASE OBLIGATIONS (Continued)
Minimum lease payments related to the obligations under capital lease are as follows:
Year Ending December 31,
|
|
|
|
|
|
|
|
2014
|
|
$
|
75,410
|
|
2015
|
|
|
75,410
|
|
2016
|
|
|
75,410
|
|
2017
|
|
|
75,410
|
|
2018
|
|
|
6,293
|
|
|
|
|
307,933
|
|
Less: imputed interest
|
|
|
(22,838
|
)
|
|
|
|
285,095
|
|
Less: current portion
|
|
|
(75,410
|
)
|
|
|
|
|
|
|
|
$
|
209,685
|
|
The assets held under capital leases are as follows:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Capitalized costs
|
|
$
|
290,474
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(5,539
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
284,935
|
|
|
$
|
-
|
|
NOTE G - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2013 and for the period from inception (February 28, 2013) through December 31, 2012, the Company incurred the following transactions with entities related by common control. The transactions are in the normal course of operations and are measured at their exchange amount, which represents the amount of consideration established and agreed to by the related parties.
The Company negotiated a revenue and cost sharing agreement with certain entities related by common control by which revenues earned on certain centrifuge equipment owned by such related parties is split on a 60%/40% basis to the related parties and Company, respectively.
Purchases from related parties of the Company totaled approximately $6,429,000 and $1,457,000 for the year ended December 31, 2013 and the period from inception (February 28, 2012) through December 31, 2012, respectively. Sales to related parties totaled approximately $179,000 and $719,000 for the year ended December 31, 2013 and the period since inception (February 28, 2012) through December 31, 2012, respectively. Advances to related parties of the Company totaled approximately $103,000 and $5,000 at December 31, 2013 and 2012, respectively. Advances from related parties of the Company totaled approximately $1,418,000 and $958,000 at December 31, 2013 and 2012, respectively.
UNITED CENTRIFUGE USA, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company has various leases for office space at rates ranging between approximately $1,700 and $4,800 per month that are considered operating leases. These leases are due to expire through August 2018. Total annual lease expense during the year ended December 31, 2013 and the period from inception (February 28, 2012) through December 31, 2012 related to these leases was approximately $19,000 and $3,000, respectively, and are reflected as part of general and administrative expense in the consolidated statement of income.
Future minimum lease payments under all non-cancelable operating lease obligations as of December 31, 2013 are as follows:
Year Ending December 31,
|
|
|
|
|
|
|
|
2014
|
|
$
|
79,800
|
|
2015
|
|
|
59,300
|
|
2016
|
|
|
57,600
|
|
2017
|
|
|
57,600
|
|
2018
|
|
|
33,600
|
|
|
|
|
|
|
|
|
$
|
287,900
|
|
NOTE I - SIGNIFICANT CUSTOMERS
During the year ended December 31, 2013, the Company had sales of approximately $9,500,000 to three customers. Approximately $1,900,000 of the total of accounts and unbilled receivables at December 31, 2013 were due from these three customers. For the period from inception (February 28, 2012) through December 31, 2012, the Company had sales of approximately $1,900,000 to three customers, one of which is a related party. Approximately $340,000 of the total accounts and unbilled receivables at December 31, 2012 were due from these three customers.
NOTE J - SUBSEQUENT EVENTS
The Company evaluated all activity through April 7, 2014, the date the financial statements were available for issuance, and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosures in the notes to the financial statements.