UNITED CENTRIFUGE USA, LLC
CONDENSED STATEMENTS OF MEMBERS’ EQUITY
Balance, January 1, 2014
|
|
$
|
1,419,457
|
|
|
|
|
|
|
Net income
|
|
|
638,337
|
|
|
|
|
|
|
Balance, March 31, 2014
|
|
$
|
2,057,794
|
|
See notes to condensed financial statements.
UNITED CENTRIFUGE USA, LLC
CONDENSED STATEMENTS OF CASH FLOWS
|
|
Three Months Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
638,337
|
|
|
$
|
(122,676
|
)
|
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
74,357
|
|
|
|
39,021
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(825,413
|
)
|
|
|
(1,455,308
|
)
|
Unbilled receivables
|
|
|
202,772
|
|
|
|
228,150
|
|
Advances to/from related parties
|
|
|
103,586
|
|
|
|
1,181,909
|
|
Prepaid expenses and deposits
|
|
|
(104,389
|
)
|
|
|
(1,500
|
)
|
Accounts payable and accrued expenses
|
|
|
(135,322
|
)
|
|
|
257,805
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
(46,072
|
)
|
|
|
127,401
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(186,366
|
)
|
|
|
(58,912
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(186,366
|
)
|
|
|
(58,912
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from line of credit
|
|
|
28,000
|
|
|
|
-
|
|
Repayments of long-term debt
|
|
|
(77,662
|
)
|
|
|
-
|
|
Repayments of capital lease obligations
|
|
|
(18,275
|
)
|
|
|
-
|
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(67,937
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(300,375
|
)
|
|
|
68,489
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
456,216
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
155,841
|
|
|
$
|
69,242
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
19,044
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment through capital leases
|
|
$
|
36,600
|
|
|
$
|
-
|
|
See notes to condensed financial statements.
UNITED CENTRIFUGE USA, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2014 AND 2013
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
Basis of Presentation
: The accompanying condensed financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the balance sheet at December 31, 2013 is derived from audited financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for fair presentation have been included.
These condensed financial statements have been prepared pursuant to the rules and regulations of the American Institute of Certified Public Accountants for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. Therefore, these condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2013. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
Cash and Cash Equivalents
: For the purpose of the condensed 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 March 31, 2014 and December 31, 2013.
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.
UNITED CENTRIFUGE USA, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2014 AND 2013
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
|
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 three months ended March 31, 2014 or March 31, 2013.
Revenue Recognition
: The Company provides rental equipment and oilfield services to its customers at 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 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 condensed financial statements.
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.
Use of Estimates
: The preparation of condensed 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 condensed financial statements. Actual results could differ from those estimates.
UNITED CENTRIFUGE USA, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2014 AND 2013
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Centrifuge equipment
|
|
$
|
2,010,214
|
|
|
$
|
1,828,069
|
|
Furniture and fixtures
|
|
|
10,574
|
|
|
|
10,574
|
|
Leasehold improvements
|
|
|
10,655
|
|
|
|
10,654
|
|
Office computers
|
|
|
9,184
|
|
|
|
9,184
|
|
Trailers
|
|
|
3,990
|
|
|
|
3,990
|
|
Trucks under capital lease
|
|
|
327,073
|
|
|
|
290,474
|
|
|
|
|
2,371,690
|
|
|
|
2,152,945
|
|
Less: accumulated depreciation and amortization
|
|
|
(184,024
|
)
|
|
|
(113,895
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
2,187,666
|
|
|
$
|
2,039,050
|
|
Depreciation expense was $74,357 and $39,021 for the three months ended March 31, 2014 and 2013, 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 March 31, 2014). As of March 31, 2014 and December 31, 2013, the balance was $500,000 and $472,000, 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 March 31, 2014 the Company was in compliance with the credit agreements, except for the requirement that the Company receive written consent from the financial institution prior to entering into capital lease agreements. The Company received a waiver of this covenant on April 2, 2014.
UNITED CENTRIFUGE USA, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2014 AND 2013
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
$
|
855,464
|
|
|
$
|
933,126
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(236,857
|
)
|
|
|
(314,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
618,607
|
|
|
$
|
618,607
|
|
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 $19,332 and $0 for the three months ended March 31, 2014 and 2013, respectively.
Future minimum lease payments required under the capital leases are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
$
|
303,427
|
|
|
$
|
285,095
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(84,914
|
)
|
|
|
(75,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
218,513
|
|
|
$
|
209,685
|
|
UNITED CENTRIFUGE USA, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2014 AND 2013
NOTE F - CAPITAL LEASE OBLIGATIONS (Continued)
The assets held under capital leases are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized costs
|
|
$
|
327,073
|
|
|
$
|
290,474
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(24,871
|
)
|
|
|
(5,539
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
302,202
|
|
|
$
|
284,935
|
|
NOTE G - RELATED PARTY TRANSACTIONS
The Company conducted transactions with entities related by common control 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 $1,478,000 and $496,000 for the three months ended March 31, 2014 and 2013, respectively. Sales to related parties totaled approximately $35,000 and $0 for the three months ended March 31, 2014 and 2013, respectively. Advances to related parties of the Company totaled approximately $35,000 and $103,000 at March 31, 2014 and December 31, 2013, respectively. Advances from related parties of the Company totaled approximately $1,452,000 and $1,418,000 at March 31, 2014 and December 31, 2013, respectively.
NOTE H - COMMITMENTS AND CONTINGENCIES
Contractual Commitments — The Company has numerous contractual commitments in the ordinary course of business including debt service requirements and operating leases. The Company leases land and other facilities from an affiliate and leases equipment from non-affiliates, which expire through 2018.
Litigation — The Company is subject to certain claims arising in the ordinary course of business. Management does not believe that any claims will have a material adverse effect on the Company’s financial position or results of operations.
NOTE I - SUBSEQUENT EVENTS
On April 11, 2014, all the Company outstanding stock was purchased by Aly Energy Services, Inc.