Item 1a.1. Unaudited Condensed Consolidated Financial Statements
Index |
| Page | ||
| ||||
| ||||
| ||||
| 3 |
| Table of Contents |
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) September 30, 2017 December 31, 2016 (unaudited) ASSETS Current assets Cash and cash equivalents Restricted cash Receivables, net Prepaid expenses and other current assets Total current assets Property and equipment, net Intangible assets, net Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable and accrued expenses Accrued interest and other - Pelican Current portion of long-term debt Current portion of long-term debt - Pelican Current portion of contingent payment liability Total current liabilities Long-term debt, net Long-term debt, net - Pelican Other long-term liabilities Total liabilities �� Commitments and contingencies Aly Operating redeemable preferred stock Aly Centrifuge redeemable preferred stock Stockholders' equity (deficit) Series A convertible preferred stock of $0.001 par value (liquidation preference of $17,292) Authorized - 20,000; Issued and outstanding - 17,292 as of September 30, 2017 Authorized, issued, and outstanding - none as of December 31, 2016 Preferred stock of $0.001 par value Authorized - 9,980,000; none issued and outstanding as of September 30, 2017 Authorized - 10,000,000; none issued and outstanding as of December 31, 2016 Common stock of $0.001 par value Authorized - 25,000,000; Issued - 13,819,020; Outstanding - 13,818,795 as of September 30, 2017 Authorized - 25,000,000; Issued - 6,707,039; Outstanding - 6,706,814 as of December 31, 2016 Additional paid-in-capital Accumulated deficit Treasury stock, 225 shares at cost Total stockholders' equity (deficit) Total liabilities and stockholders' equity (deficit) $ 151 $ 681 30 30 4,049 1,448 82 496 4,312 2,655 27,207 28,226 4,295 4,931 6 14 $ 35,820 $ 35,826 $ 2,278 $ 2,075 23 1,277 5 1,593 - 18,880 - 810 2,306 24,635 - 10 6,127 1,315 516 708 8,949 26,668 - 4,924 - 10,080 - 15,004 6,755 - - - 14 7 53,754 28,307 (33,650 ) (34,158 ) (2 ) (2 ) 26,871 (5,846 ) $ 35,820 $ 35,826
See accompanying notes to condensed consolidated financial statements.
| 4 |
| Table of Contents |
June 30, 2016 December 31, 2015 (unaudited) ASSETS Current assets Cash and cash equivalents Restricted cash Receivables, net Prepaid expenses and other current assets Assets associated with discontinued operations Total current assets Property and equipment, net Intangible assets, net Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses Current portion of long-term debt Current portion of contingent payment liability Liabilities associated with discontinued operations Total current liabilities Long-term debt, net Contingent payment liability, net Deferred tax liabilities Other long-term liabilities Total liabilities Commitments and contingencies Aly Operating redeemable preferred stock Aly Centrifuge redeemable preferred stock Stockholders' equity Preferred stock of $0.001 par value Authorized - 10,000,000, none issued and outstanding as of June 30, 2016 Authorized - 25,000,000, none issued and outstanding as of December 31, 2015 Common stock of $0.001 par value Authorized - 25,000,000; issued - 6,707,039; outstanding - 6,706,814 as of June 30, 2016 Authorized - 100,000,000; issued - 6,707,039; outstanding - 6,706,814 as of December 31, 2015 Additional paid-in-capital Accumulated deficit Treasury stock, 225 shares at cost Total stockholders' equity Total liabilities and stockholders' equity
For the Three Months Ended June 30, For the Six Months Ended June 30, 2016 2015 2016 2015 (unaudited) (unaudited) Revenue Expenses: Operating expenses Depreciation and amortization Selling, general and administrative expenses Reduction in value of assets Total expenses Loss from continuing operations Interest expense, net Loss from continuing operations before income taxes Income tax benefit Net loss from continuing operations Loss from discontinued operations, net of income taxes Net loss Preferred stock dividends Accretion of preferred stock, net Net loss available to common stockholders Basic and diluted earnings per share information: Net loss from continuing operations available to common stockholders Loss from discontinued operations, net of income taxes Net loss available to common stockholders Weighted-average shares - basic and diluted
For the Six Months Ended June 30, 2016 2015 (unaudited) Cash flows from operating activities: Net loss Less: Loss from discontinued operations, net of income taxes Net loss from continuing operations Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization Amortization of deferred loan costs Reduction in value of assets Stock-based compensation Bad debt expense Fair value adjustments to contingent payment liability Deferred taxes Changes in operating assets and liabilities: Receivables Prepaid expenses and other assets Accounts payable, accrued expenses and other liabilities Net cash provided by continuing operations Net cash provided by (used in) discontinued operations Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Proceeds from disposal of property and equipment Net cash provided by (used in) continuing operations Net cash provided by (used in) discontinued operations Net cash provided by (used in) investing activities Cash flows from financing activities: Proceeds from issuance of common stock, net Repayment of long-term debt Payment of contingent payment liability Payment of deferred loan costs Net cash used in continuing operations Net cash used in discontinued operations Net cash used in financing activities Net increase (decrease) in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash, beginning of period Cash, cash equivalents, and restricted cash, end of period $ $
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Nine Months Ended September 30, 2017 2016 (unaudited) Cash flows from operating activities: Net income (loss) Less: Loss from discontinued operations, net of income taxes Net income (loss) from continuing operations Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Amortization of deferred loan costs Reduction in value of assets Stock-based compensation Bad debt expense Fair value adjustments to contingent payment liability Gain on extinguishment of debt and other liabilities Debt modification fee Deferred taxes Changes in operating assets and liabilities: Receivables Prepaid expenses and other assets Accounts payable, accrued expenses and other liabilities Accrued interest and other - Pelican Net cash provided by continuing operations Net cash used in discontinued operations Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Proceeds from disposal of property and equipment Net cash provided by (used in) continuing operations Net cash provided by discontinued operations Net cash provided by (used in) investing activities Cash flows from financing activities: Borrowings on long-term debt - Pelican Repayment of long-term debt Net cash provided by (used in) continuing operations Net cash used in discontinued operations Net cash provided by (used in) financing activities Net decrease in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash, beginning of period Cash, cash equivalents, and restricted cash, end of period See accompanying notes to condensed consolidated financial statements.
Basis of Presentation Aly Energy has three wholly-owned subsidiaries, Aly Operating Inc. (“Aly Operating”) of which Austin Chalk is a wholly-owned subsidiary, Aly Centrifuge and Evolution. We operate as one business segment which services customers within the United States. The condensed 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 condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, the related condensed consolidated statements of operations for each of the three- and nine-month periods ended September 30, 2017 and 2016, stockholders’ equity (deficit) for the nine months ended September 30, 2017, and cash flows for each of the nine-month periods ended September 30, 2017 and 2016. All significant intercompany transactions and account balances have been eliminated upon consolidation. Interim Financial Information The condensed consolidated balance sheet as of December 31, 2016 has been derived from our audited financial statements and the unaudited condensed consolidated financial statements of the Company are prepared in conformity with U.S. GAAP for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Therefore, these condensed consolidated financial statements should be read along with the annual audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the three and nine months ended September 30, 2017 may not be indicative of results that will be realized for the full year ending December 31, 2017.
Use of Estimates The preparation of condensed 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:
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.
Reclassifications Certain reclassifications have been made to prior period consolidated financial statements to conform to the current period presentations. These reclassifications had no effect on our consolidated financial position, results of operations or cash flows. Subsequent Events We conducted our subsequent events review through the date these condensed consolidated financial statements were filed with the U.S. Securities and Exchange Commission (“SEC”). NOTE 2 — RECENT DEVELOPMENTS
Operational Restructuring
Our activity is tied directly to the rig count and, even though we instituted significant cost cutting measures beginning in 2015, we were unable to cut costs enough to match the decline in our business. As a result, as of December 31, 2015, we were in default of our credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”).
Throughout 2015, in an effort to mitigate the significant declines in pricing and utilization of our equipment, we committed to a reorganization initiative to strengthen our sales and marketing efforts, consolidate support functions, and operate more efficiently. The reorganization effort included, but was not limited to, training our salesforce to enable the cross-selling of our product lines in certain geographical markets, sharing a common support services infrastructure across all reporting units, reducing headcount and wage rates, and rebranding and launching a new web site to increase awareness of our service lines. We recognized some benefit from these measures in late 2015 resulting in increased gross margins and lower selling, general and administrative expenses when compared to the first half of 2015.
During the year ended December 31, 2016, we entered into a series of forbearance agreements with our lender. Under the forbearance agreements, among other provisions, the lenders agreed to forbear from exercising their remedies under the credit agreement. These forbearance agreements permitted us to operate within the parameters of our normal course of business despite the continuing default under the credit agreement. Without these forbearance agreements, our outstanding debt would have been immediately due and payable. Throughout 2016, we remained in default and we did not have sufficient liquidity to repay all of the outstanding debt to the lender at any point during the year ($20.1 million as of December 31, 2015). As such, we may have been forced to file for protection under Chapter 11 of the U.S. Bankruptcy Code.
In early 2016, we were hopeful that a successful operational restructuring would facilitate negotiations to modify the terms of our existing credit facility with Wells Fargo. Our operational restructuring in 2016 consisted of severe cost cuts which were incremental to the year-over-year cost cuts already achieved in 2015 when compared to 2014. In 2016, significant cost savings were primarily generated by:
We also achieved significant cost savings from the decrease in third party costs, such as sub-rental equipment and trucking, and other variable costs which declined with the decrease in activity. In order to further support our working capital needs, we identified and sold idle and underutilized assets. During 2016, we realized aggregate proceeds from sales of approximately $0.8 million of which $0.5 million and $0.3 million was used to fund working capital needs and pay down debt, respectively. Capital Restructuring Despite our successful operational restructuring efforts, particularly during the first half of 2016, the decline in our activity levels and the declines in customer pricing outpaced the impact of our cost reductions and it became evident that a capital restructuring would also be necessary to continue operations and position our business for an industry turnaround. In the second quarter of 2016, certain of the Company’s principal stockholders (“Shareholder Group”) began negotiations with Wells Fargo with the objective of consummating a recapitalization transaction (the “Recapitalization”) whereby our obligations under the credit agreement and the outstanding capital leases in favor of Wells Fargo’s equipment finance affiliate and certain other obligations of Aly Energy (collectively the “Aly Senior Obligations”) would be restructured. In August 2016, the Shareholder Group was introduced to a third party, Tiger Finance, LLC (“Tiger”), to provide bridge financing and to extend forbearance until such date as sufficient capital could be raised to complete the Recapitalization. In September 2016, the Shareholder Group formed Permian Pelican, LLC (“Pelican”) with the objective of raising capital and executing the steps necessary to complete the restructuring, inclusive of successfully effecting the exchange of the Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt and liability for a contingent payment into approximately 10% of our common stock on a fully diluted basis. Effective January 31, 2017, the Recapitalization was completed through the execution and delivery of a Securities Exchange Agreement and a Second Amended and Restated Credit Agreement, and, as a result, the new credit facility, now with Pelican, consisted of a term loan of $5.1 million and a revolving facility of up to $1.0 million as of January 31, 2017. Availability under the revolving credit facility is determined by a borrowing base calculated as 80% of eligible receivables (receivables less than 90 days old). See further discussion in “Note 3 – Recapitalization”.
Subsequent to the Recapitalization, we entered into several further amendments to capitalize on improved market conditions and increased activity in our business:
| To the extent there is free cash flow as defined in the credit agreement, principal payments of 50% of such free cash flow are due annually. The maturity date of all remaining outstanding balances under the credit facility is December 31, 2019.
| The obligations under the credit facility are guaranteed by all of our subsidiaries and secured by substantially all of our assets. The credit agreement contains customary events of default and covenants including restrictions on our ability to incur additional indebtedness, make capital expenditures, pay dividends or make other distributions, grant liens and sell assets. The credit facility does not include any financial covenants. We are in full compliance with the credit facility as of September 30, 2017.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
To the extent there is free cash flow as defined in the credit agreement, principal payments of 50% of such free cash flow are due annually. The maturity date of all remaining outstanding balances under the credit facility is December 31, 2019.
The obligations under the credit facility are guaranteed by all of our subsidiaries and secured by substantially all of our assets. The credit agreement 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 credit facility does not include any financial covenants. We are in full compliance with the credit facility as of June 30, 2017.
As of June 30, 2017, there were outstanding borrowings of $5.0 million, $0.8 million, and $0.3 million on the term loan, revolving credit facility, and delayed draw term loan, respectively. As of June 30, 2017, we have the availability to borrow an incremental $0.2 million under the revolving credit facility and, if we have capital expenditures which are eligible to be financed, an incremental $1.0
As of September 30, 2017, there were outstanding borrowings of $5.0 million, $0.8 million, and $0.4 million on the term loan, revolving credit facility, and delayed draw term loan, respectively. As of September 30, 2017, we have the availability to borrow an incremental $0.3 million under the revolving credit facility and, if we have capital expenditures which are eligible to be financed, an incremental $0.9 million under the delayed draw term loan to finance 90% of such expenditures.
Severance Expense – Operational Restructuring
During 2016 and 2015, the Company recorded $0.5 million and $0.3 million, respectively, in charges relating to severance due to the significant downturn in the industry. The accrued severance liability balance of $0.7 million as of December 31, 2016 was reduced to $0.5 million as a result of the settlement of certain obligations during the three months ended September 30, 2017. There have been no incremental severance charges during 2017.
NOTE 3 — RECAPITALIZATION
Recapitalization Summary
To complete the transaction, the Company’s directors and principal stockholders formed and organized Pelican. Pursuant to the Recapitalization, Pelican agreed to acquire the Aly Senior Obligations, provided the Company was successful in effecting the exchange of the Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt and liability for a contingent payment into approximately 10% of our common stock on a fully diluted basis.
The Recapitalization consisted of three restructuring events which took place in the period beginning October 26, 2016 and ending on January 31, 2017. The first two restructuring events occurred before January 1, 2017 and any impact is presented in the Company’s historical consolidated financial statements for the year ended December 31, 2016. Below is a description of each event:
The first restructuring event occurred on October 26, 2016 when Tiger acquired the Aly Senior Obligations from Wells Fargo and its equipment affiliate. Simultaneously, Tiger entered into an assignment agreement with Pelican whereby it agreed to sell the Aly Senior Obligations to Pelican on the conditions that (i) Pelican provide $0.5 million of unsecured working capital financing to the Company pending the closing and (ii) the Company transfer to Tiger (in consideration of Tiger’s reduction of the Aly Senior Obligations in the amount of $2.0 million) certain excess equipment and vehicles which the Company was not utilizing and considered unnecessary for its continuing operations.
As a result of the above, we transferred property and equipment with an estimated fair value of $2.6 million, inclusive of $0.4 million of assets associated with discontinued operations, to Tiger and recognized a corresponding reduction in the Aly Senior Obligations of $2.0 million and debt modification fee of $0.6 million. Property and equipment transferred had an aggregate net book value of $18.6 million resulting in our recording an impairment charge of $16.0 million, inclusive of a $0.4 million impairment associated with discontinued operations. As part of this transaction and upon satisfaction of
The second restructuring event occurred on December 12, 2016 when Pelican acquired the Aly Senior Obligations from Tiger. As the new holder of the Aly Senior Obligations, Pelican further extended the forbearance period for the obligations to January 31, 2017, provided the Company was successful in completing the third and final restructuring event on or before such date. | |||||
Effective January 31, 2017, the final restructuring event occurred and the Recapitalization was completed which resulted in the following: |
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. The Recapitalization has been accounted for in accordance with ASC 470, including (i) the exchange of debt and equity securities accounted for as a troubled debt restructuring and (ii) the issuance of preferred shares in exchange for the extinguishment of debt and other liabilities and for the issuance of a new credit facility.
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 Aly Centrifuge subordinated debt and the contingent payment liability and a “gain on the extinguishment of redeemable preferred stock” from the holders of Aly Operating redeemable preferred stock and Aly Centrifuge redeemable preferred stock. The share price of common stock as of January 31, 2017 of $0.12 per share was used as the basis of fair value for each equity interested granted.
The impact of the TDR is as follows:
On January 31, 2017, we issued 7,111,981 shares of our common stock to the former holders of Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt, and liability for contingent payment in exchange for the above mentioned extinguishments in connection with our TDR.
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 which 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 $0.12 per share was used as the basis of fair value for the equity interested granted.
Old Credit Facility. The partial extinguishment and exchange of our Aly Senior Obligations ($16.1 million principal 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 - Pelican” on the condensed consolidated statement of changes in stockholders’ equity (deficit) for the three months ended March 31, 2017. The components of the Aly Senior Obligations are as follows (in thousands): Aly Senior Obligations as of January 31, 2017 Debt and Other Liabilities Extinguished Amount Credit facility Accrued fees and interest on credit facility Capital lease obligations Accrued interest on capital lease obligations Line of credit - Pelican Total New Credit Facility. Our new credit agreement with Pelican consists of a $5.1 million term loan and $0.5 million outstanding under a revolving credit facility (which was subsequently amended to $5.0 million and $0.8 million, respectively, as of June 30, 2017 in addition to $0.3 million outstanding under a delayed draw term loan with Pelican) completing the full extinguishment of our old credit facility.
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 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 - Pelican” on the condensed consolidated statement of changes in stockholders’ equity (deficit). The components of the Aly Senior Obligations are as follows (in thousands): Aly Senior Obligations as of January 31, 2017 Debt and Other Obligations Extinguished Amount Credit facility Accrued fees and interest on credit facility Capital lease obligations Accrued interest on capital lease obligations Line of Credit - Pelican Total New Credit Facility. Our new credit agreement with Pelican consists 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) completing the full extinguishment of our old credit facility.
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.
Effective January 31, 2017, the Recapitalization was completed, and the credit facility was amended in its entirety. The amended facility consisted of a term loan of $5.1 million and a revolving credit facility of up to $1.0 million (“Pelican Credit Facility”, as amended). Availability under the revolving credit facility is determined by a borrowing base calculated as 80% of eligible receivables (less than 90 days old). Borrowings under the Pelican 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%. To the extent there is free cash flow, as defined in the credit agreement, principal payments of 50% of such free cash flow are due annually.
Subsequent to the Recapitalization, we entered into several further amendments to capitalize on improved market conditions and increased activity in our business:
For the Three Months Ended June 30, For the Six Months Ended June 30, 2016 2015 2016 2015 (unaudited) (unaudited) Revenue Expenses: Operating expenses Depreciation and amortization Selling, general and administrative expenses Reduction in value of assets Total expenses Loss from discontinued operations Interest expense, net Loss from discontinued operations before income taxes Income tax benefit Loss from discontinued operations, net of income taxes
June 30, 2016 December 31, 2015 (unaudited) Current assets Property and equipment, net Intangible assets, net Goodwill Other assets Total assets Current liabilities Deferred tax liabilities Other liabilities Total liabilities Net assets
For the Three Months Ended June 30, For the Six Months Ended June 30, 2016 2015 2016 2015 (Unaudited) (Unaudited) Reduction in value of property and equipment - disposals $ $ $ $ Reduction in value of intangibles Total reduction in value of assets
June 30, 2016 December 31, 2015 Machinery and equipment Vehicles, trucks and trailers
Customer Relationships Tradename Non-Compete Supply Agreements Total Cost Less: Accumulated amortization Cost Less: Accumulated amortization
June 30, 2016 December 31, 2015 Current Long-Term Current Long-Term (Unaudited) Credit facility Term loan Delayed draw term loan Subordinated note payable Equipment financing and capital leases Less: Deferred loan costs, net Total
Aly Operating Redeemable Preferred Stock
As part of the acquisition of Austin Chalk, Aly Operating agreed to issue up to 4 million shares of Aly Operating Redeemable Preferred Stock, with a par value of $0.01, to the seller, with a fair value and liquidation value of $3.8 million and $4.0 million, respectively. The preferred stock was valued as of the date of acquisition by discounting the sum of (i) the liquidation value at issuance and (ii) the future cumulative accrued dividends as of the date of optional redemption for a lack of marketability.
The Aly Operating Redeemable Preferred Stock was entitled to a cumulative paid-in-kind dividend of 5% per year on its liquidation preference, compounded quarterly. Aly Operating was not required to pay cash dividends.
Carrying Value of Aly Operating Redeemable Preferred Stock Number of Outstanding Aly Operating Redeemable Preferred Shares Liquidation Value of Aly Operating Redeemable Preferred Stock (unaudited) January 1, 2016 Accrued dividends Accretion June 30, 2016
On January 31, 2017, the Aly Operating Redeemable Preferred Stock and all accrued dividends were converted into 2,414,971 shares of common stock in connection with the Recapitalization. This conversion was accounted for as a trouble debt restructuring, see further details in “Note 3 – Recapitalization”.
Aly Centrifuge Redeemable Preferred Stock
On April 15, 2014, as part of the United Acquisition, Aly Centrifuge issued 5,000 shares of Aly Centrifuge Redeemable Preferred Stock, with a par value of $0.01, to the sellers in the transaction, with a fair value and liquidation value of $5.1 million and $5.0 million, respectively. The preferred stock was valued as of the date of acquisition by discounting the sum of (i) the value of the preferred stock without a conversion option using the option pricing method and (ii) the value of the conversion option using the Black-Scholes option pricing model for a lack of marketability. In 2015, Aly Centrifuge asserted an indemnification claim of 124 shares against shares that were subject to an eighteen-month holdback for general indemnification purposes pursuant to the purchase agreement.
On August 15, 2014, in connection with a bulk equipment purchase, Aly Centrifuge issued an additional 4,000 shares of Aly Centrifuge Redeemable Preferred Stock, with a par value of $0.01, to the sellers in the transaction, with a fair value and liquidation value of $4.3 million and $4.0 million, respectively. The preferred stock was valued as of the date of the equipment purchase by discounting the sum of (i) the value of the preferred stock without a conversion option using the option pricing method and (ii) the value of the conversion option using the Black-Scholes option pricing model for a lack of marketability.
The Aly Centrifuge Redeemable Preferred Stock was entitled to a cumulative paid-in-kind dividend of 5% per year on its liquidation preference, compounded quarterly. Aly Centrifuge was not required to pay cash dividends.
Carrying Value of Aly Centrifuge Redeemable Preferred Stock Number of Outstanding Aly Centrifuge Redeemable Preferred Shares Liquidation Value of Aly Centrifuge Redeemable Preferred Stock (unaudited)
The following table describes the changes in the Aly Centrifuge Redeemable Preferred Stock (in thousands, except for shares) for the nine months ended September 30, 2017: Carrying Value of Aly Centrifuge Redeemable Preferred Stock Number of Outstanding Aly Centrifuge Redeemable Preferred Shares Liquidation Value of Aly Centrifuge Redeemable Preferred Stock (unaudited) January 1, 2017 Accrued dividends Exchange for common stock in connection with Recapitalization September 30, 2017 The Aly Centrifuge Redeemable Preferred Stock was classified outside of permanent equity in our condensed consolidated balance sheet because the settlement provisions provided the holder the option to require Aly Centrifuge to redeem the Aly Centrifuge Redeemable Preferred Stock at the liquidation price plus any accrued dividends.
NOTE 7 —CONTROLLING SHAREHOLDER ANDRELATED PARTY TRANSACTIONS From time-to-time, the Company engages in business transactions with its controlling shareholder, Pelican, and other related parties. Controlling Shareholder – Pelican On December 12, 2016, Pelican purchased our Aly Senior Obligations from Tiger for $5.1 million as a part of the Recapitalization. Effective January 31, 2017, the Recapitalization was completed and resulted in the following:
On January 31, 2017 upon completion of the Recapitalization, Pelican had the power to vote the substantial majority of the Company’s outstanding common stock. Currently six of our board members and all four of our executive officers hold an ownership interest in Pelican. On May 23, 2017 and in consideration of the increase in the revolving credit facility and the extension of the maturity date of December 31, 2019, the Company agreed to issue Pelican an amendment fee of 1,200 shares of our Series A convertible preferred stock. Given the nature of the related party relationship between the Company and Pelican, the debt modification fee was accounted for as a capital transaction whereby we issued Series A convertible preferred stock in exchange for the modification of our Pelican Credit Facility which resulted in a debt modification fee equal to the estimated fair value of the equity interest granted. The share price of common stock as of May 23, 2017 of $0.08 per share was used as the basis of fair value for the equity interested granted. The debt modification fee is included in “Interest expense – Pelican” on the condensed consolidated statement of operations recorded as an “Issuance of preferred shares in exchange for the amendment to credit facility - Pelican” on the condensed consolidated statement of changes in stockholders’ equity (deficit). See further details at “Note 2 – Recent Developments” and “Note 3 – Recapitalization”.
Other Related Party Transactions One of our directors, Tim Pirie, appointed March 3, 2015, was one of the sellers of United to us in April 2014. Part of the acquisition price was payable in contingent consideration of which $0.9 million was paid in 2015. Of that amount, approximately $0.1 million was allocable to Mr. Pirie. We did not make any contingent payments during 2016. As of December 31, 2016, we estimated the fair value of future payments to be $0.8 million. On January 31, 2017, in connection with the Recapitalization, the aggregate contingent payment liability was converted into 457,494 shares of the Company’s common stock, of which Mr. Pirie controls all of the voting rights to 326,834 shares. See further discussion in “Note 2 – Recent Developments” and “Note 3 – Recapitalization”. As part of the acquisition price of United, the sellers also received Aly Centrifuge Redeemable Preferred Stock. On January 31, 2017, the outstanding Aly Centrifuge Redeemable Preferred Stock and accrued dividends were converted into 3,039,516 shares of the Company’s common stock of which Mr. Pirie controls all of the voting rights to 593,815 shares. See further discussion in “Note 2 – Recent Developments”, “Note 3 – Recapitalization” and “Note 6 –Redeemable Preferred Stock (Aly Centrifuge Redeemable Preferred Stock)”. NOTE 8 — 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 three months ended September 30, 2017 and 2016 and for the nine months ended September 30, 2016, 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 nine months ended September 30, 2017 is shown below (in thousands, except for shares): For the Nine Months Ended September 30, For the Nine Months Ended September 30, 2017 2017 (unaudited) (unaudited) Numerator: Denominator: (1) Net income from continuing operations Weighted average shares used in basic earnings per share Less: Aly Operating Redeemable Preferred Stock dividends Effect of dilutive shares: Numerator for diluted earnings per share - continuing operations Aly Centrifuge Redeemable Preferred Stock (2) Less: Loss from discontinued operations, net of income taxes Series A Convertible Preferred Stock Numerator for diluted earnings per share Stock options Weighted average shares used in diluted earnings per share Numerator for diluted earnings per share - continuing operations Less: Aly Centrifuge Redeemable Preferred Stock dividends Basic earnings per share - continuing operations Numerator for basic earnings per share - continuing operations Basic earnings per share - discontinued operations Less: Loss from discontinued operations, net of income taxes Diluted earnings per share - continuing operations Numerator for basic earnings per share Diluted earnings per share - discontinued operations __________ (1) The exchange of Aly Operating Redeemable Preferred Stock into common shares is not considered within the calculation of the numerator or denominator of diluted earnings per share because, during the month ended January 31, 2017, the Aly Operating Redeemable Preferred Stock was not exchangeable into common shares. In connection with the Recapitalization, the Aly Operating Preferred Stock was converted into common shares and is included in our weighted average shares used for basic earnings per share effective February 1, 2017. Unvested stock options are not considered within the calculation of the denominator of diluted earnings per share because the vest upon the occurrence of certain events which may or may not occur. (2) During the month ended January 31, 2017, the Aly Centrifuge Redeemable Preferred Stock was convertible into 634,000 shares. In connection with the Recapitalization, the Aly Centrifuge Preferred Stock was converted into common shares and is included in our weighted average shares used for basic earnings per share effective February 1, 2017. See further discussion in “Note 3 – Recapitalization” and “Note 6 – Redeemable Preferred Stock (Aly Centrifuge Redeemable Preferred Stock)”.
Securities excluded from the computation of basic and diluted earnings per share are shown below:
________ (1) The stock options vest upon the occurrence of certain events as defined in the Omnibus Incentive Plan. As of September 30, 2017, the stock options were unvested. (2) Prior to January 31, 2017, the Aly Operating Redeemable Preferred Stock was exchangeable only upon the occurrence of certain events, as defined in the Aly Operating Redeemable Preferred Stock Agreement. Upon occurrence of such events, the Aly Operating Redeemable Preferred Stock could have been, at the holder’s option, converted into common shares. The conversion ratio, determined by a calculation defined in the agreement of which the components included trailing twelve-month financial performance and magnitude of investment in new equipment, remained undeterminable until an event would cause the Aly Operating Redeemable Preferred Stock to become exchangeable. In connection with the Recapitalization, the Aly Operating Redeemable Preferred Stock was converted into common shares and is included in our weighted average shares used for basic earnings per share effective February 1, 2017. NOTE 9 — STOCK-BASED COMPENSATION Stock Options Effective April 4, 2017, the 2017 Stock Option Plan (the “2017 Plan”) was approved by the board of directors. On May 30, we granted approximately 16.9 million common shares under the 2017 Plan which was the maximum amount authorized. The option contract term is 10 years and the exercise price is $0.10. 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. Additionally, the valuation of stock option awards is also dependent on historical stock price volatility. In view of our being listed on the Over-the-Counter Bulletin Board, volatility was calculated based on historical stock price volatility of the Company’s peer group. As a result, we recorded share-based compensation of $0.6 million for the full value of the grant as a component of selling, general and administrative expenses during the nine months ended September 30, 2017. NOTE 10 — SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flows and non-cash investing and financing activities are as follows (in thousands): For the Nine Months Ended September 30, 2017 2016 (unaudited) Supplemental disclosure of cash flow information: Cash paid for interest Cash paid for interest - discontinued operations Cash paid for income taxes, net Non-cash investing and financing activities: Accretion of preferred stock liquidation preference, net Paid-in-kind dividends on preferred stock Returned equipment to lessor in exchange for release from capital lease obligation Principal payments financed through disposition of assets Extinguishment of redeemable preferred stock in exchange for common stock in connection with Recapitalization Extinguishment of debt and other liabilities - Pelican in exchange for Series A convertible preferred stock
For the Six Months Ended June 30, 2016 2015 (Unaudited) Supplemental disclosure of cash flow information: Cash paid for interest Cash paid for income taxes, net Non-cash investing and financing activities: Purchase of equipment through a capital lease obligation Accretion of preferred stock liquidation preference, net Paid-in-kind dividends on preferred stock Common shares issued for transaction cost of equity raise Liability for transaction cost of equity raise
In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230), Restricted Cash. This standard provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments of this ASU should be applied using a retrospective transition method and are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. Other than the revised statement of cash flows presentation of restricted cash, the adoption of ASU 2016-18 did not have an impact on our consolidated financial statements. In March 2016, the FASB Issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company will adopt the accounting guidance as of January 1, 2017. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, which eliminates the existing requirement for organizations to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet and now requires that all deferred tax assets and liabilities be classified as noncurrent. The ASU is effective for annual periods beginning after December 15, 2016, with early application permitted. We elected to early adopt the provisions of this ASU and classified our deferred tax balances as a non-current liability as of December 31, 2016 and 2015. The adoption has no effect on net income or cash flows.
In September 2015, the FASB issued ASU 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in the ASU require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments are effective for annual reporting periods beginning after December 15, 2015. The adoption of ASU 2015-16 did not have an impact on our financial condition or results of operations.
In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which adds comments from the Securities and Exchange Commission (SEC) addressing ASU 2015-03, as discussed above, and debt issuance costs related to line-of-credit arrangements. The SEC commented it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted ASU 2015-15 in connection with our adoption of ASU 2015-03 effective January 1, 2016. The adoption of ASU 2015-15 did not have an impact on our financial condition or results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in the ASU change the balance sheet presentation requirements for debt issuance costs by requiring them to be presented as a direct reduction to the carrying amount of the related debt liability. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. Transitioning to the new guidance requires retrospective application. We implemented the required change to the presentation of our debt issuance costs in the first quarter of fiscal year 2016, as expected such change did not have a material impact to our consolidated financial statements. In November 2014, the FASB issued ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity, which clarifies how to evaluate the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the ASU requires that an entity consider all relevant terms and features in evaluating the nature of the host contract and clarifies that the nature of the host contract depends upon the economic characteristics and the risks of the entire hybrid financial instrument. An entity should assess the substance of the relevant terms and features, including the relative strength of the debt-like or equity-like terms and features given the facts and circumstances, when considering how to weight those terms and features. The adoption of ASU 2014-16 did not have an impact on our financial condition or results of operations. In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to evaluate whether there is substantial doubt about the company’s ability to continue as a going concern and provides guidance on the related footnote disclosure. Management should evaluate whether there are conditions or events that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date the annual or interim financial statements are issued. We adopted these provisions in the first quarter of 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about our ability to continue as a going concern, as expected such change did not have a material impact to our consolidated financial statements. In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force). The guidance applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The adoption of ASU 2014-12 did not have an impact on our financial condition or results of operations. Accounting Standards Not Yet Adopted In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The guidance in this ASU applies to all entities that change the terms or conditions of a share-based payment award. The amendments provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718, Compensation – Stock Compensation, to the modification of the terms and conditions of a share-based payment award. The amendments in ASU 2017-09 include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The new standard is effective for the Company beginning on January 1, 2018 and should be applied prospectively to awards modified on or after the adoption date. The Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a more robust framework to use in determining when a set of assets and activities is a business. The new standard is effective for the Company beginning on January 1, 2018. The Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements.
In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which makes minor corrections and clarifications that affect a wide variety of topics in the Accounting Standards Codification, including an amendment to ASC Topic 820, Fair Value Measurement, which clarifies the difference between a valuation approach and a valuation technique when applying the guidance of that Topic. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The transition guidance for the ASC Topic 820 amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years. Early application is permitted for any fiscal year or interim period for which the entity’s financial statements have not yet been issued. We are currently evaluating the impact this ASU will have on the financial position or financial statement disclosures. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The guidance in this ASU requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. The new standard is effective for the Company beginning on January 1, 2018. The Company is evaluating the effect that ASU 2016-16 will have on its condensed consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force) (ASU 2016-15)”, that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect of ASU 2016-15 on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will replace the existing lease guidance. The standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Additional disclosure requirements include qualitative disclosures along with specific quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for the Company for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented. We are currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace most existing revenue recognition guidance in GAAP and align GAAP more closely with International Financial Reporting Standards (IFRS). The objective of this ASU is to establish the principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers. The core principle is to 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. Entities must apply a five-step process to (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 in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also mandates disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The disclosure requirements include qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 must be adopted using either a full retrospective method or a modified retrospective method. The new standard is effective for the Company beginning on January 1, 2018. The Company is in the process of determining the impacts the new standard will have on its various revenue streams. The Company’s approach includes performing a detailed review of key contracts representative of the different businesses and comparing historical accounting policies and practices to the new accounting guidance. The Company does not incur significant contract costs. The Company’s services and rental contracts are primarily short-term in nature, and therefore, based on the initial assessment, the Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements, other than the additional disclosure requirements. Remaining implementation matters include establishing new policies, procedures, controls, and quantifying any adoption date adjustments. The Company will adopt this standard on January 1, 2018 utilizing the modified retrospective method and elect to apply the revenue standard only to contracts that are not completed as of the date of initial application.
Credit Facility December 31, Pro Forma ASSETS 2016 Adjustments (i) Notes Adjustments (ii) Notes Pro Forma Current assets Cash and cash equivalents Restricted cash Receivables, net Prepaid expenses and other current assets (b) Total current assets Property and equipment, net Intangible assets, net Other assets �� Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable Accrued expenses (a) Accrued interest and other - Pelican (c) Current portion of long-term debt (a) (c) Current portion of long-term debt - Pelican (c) (d) Current portion of contingent payment liability (a) Total current liabilities Long-term debt, net Long-term debt, net - Pelican (c) (d) Other long-term liabilities Total liabilities Aly Operating redeemable preferred stock (b) Aly Centrifuge redeemable preferred stock (b) Stockholders' equity (deficit) Preferred stock (c) Common stock of $0.001 par value (a)(b) Additional paid-in-capital (a)(b) (c) Accumulated deficit (a)(b) Treasury stock, 225 shares at cost Total stockholders' equity (deficit) Total liabilities and stockholders' equity (deficit)
Aly Senior Obligations as of December 31, 2016 (c) Debt and Other Obligations Extinguished Amount Credit facility Accrued fees and interest on credit facility Capital lease obligations Accrued interest on capital lease obligations Pelican working capital line of credit Total
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations is intended to assist you in understanding our business and results of operations together with our present financial condition. Unless otherwise noted, all discussion and analysis
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 10-Q (this “Report”) contains certain statements and information that may constitute
Forward-looking statements are not assurances of future performance and actual results could differ materially from our historical experience and our present expectations or projections. These forward-looking statements are based on
Should one or more of the factors, risks or uncertainties described above materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this Report.
History of Our Business
On July 17, 2012, Munawar “Micki” Hidayatallah founded Aly Energy with the strategic objective of creating an oilfield services company that serves exploration and production companies from well planning to plug and abandonment. We have grown our business both through organic growth resulting from investment in existing operations and through the strategic acquisition of certain businesses operating in our industry.
To date, we have acquired three businesses:
Subsequent to the acquisition of each of these businesses, we have made significant investments to expand their operations and capitalize on organic growth opportunities in existing and expansion markets. We consistently seek opportunities to bundle product offerings and to cross sell services across markets and product lines, which we believe improves client retention and increases the utilization of our equipment.
Overview of Our Business
We are a provider of solids control systems and surface rental equipment. Our equipment and services are primarily designed for and used in land-based horizontal drilling. Our equipment includes centrifuges and auxiliary solids control equipment, mud circulating tanks
We derive the majority of our revenue from day rates or hourly rates charged for the rental of our equipment and for the services provided by our personnel. The price we charge for our services depends on both the level of activity within the geographic area in which we operate and also the competitive environment.
Our operating costs do not fluctuate in direct proportion to changes in revenue. Our operating
Industry Trends
We operate in the commodity-driven, cyclical oil and gas industry. From 2011 through mid-2014, the industry operated in an environment where crude oil prices were relatively stable and, except for comparatively short intervals, generally traded at prices at or in excess of $100 per barrel. However, subsequent to the third quarter of 2014, crude oil prices declined significantly due to a variety of factors, including, but not limited to, continued growth in U.S. oil production, weakened outlooks for the global economy and continued strong international crude oil supply resulting in part from
The decline in both oil prices and the U.S. land-based rig count continued during the first half of 2016. Barring a few brief rallies, the price of oil bottomed out in February 2016 at less than $30 per barrel and the U.S. land-based rig count reached its low of less than 400 rigs in July 2016. After reaching its low point, the price of oil then increased steadily for several months and has hovered between $45 per barrel and $50 per barrel since June 2016. With the price of oil fairly constant for the past twelve months at a level which is economical for exploration and production operators, the U.S. land-based rig count has increased steadily, and in July 2017, the count had increased to over 900 rigs, an increase of greater than 100% compared to its low of less than 400 rigs in July 2016.
The favorable impact of the recent increase in the U.S. land-based rig count on demand for our services has been magnified by an increase in the proportion of rigs drilling directional and horizontal wells. As illustrated in the graph below, the proportion of rigs drilling directional and horizontal wells as a percentage of total U.S. land-based rigs has increased from approximately 80% in the first quarter of 2014 to 92% in the second quarter of 2017. Rigs drilling directional and horizontal wells typically utilize oil-based or other sophisticated mud systems which creates demand for
How We Evaluate Our Operations
We disclose and discuss EBITDA as a non-GAAP financial measure in our public releases, including quarterly earnings releases, investor conference calls and other filings with the Securities and Exchange Commission.
We define EBITDA as earnings (net income) before interest, income taxes, depreciation and amortization. Our measure of EBITDA may not be comparable to similarly titled measures presented by other companies, which may limit its usefulness as a comparative measure.
We also make certain adjustments to EBITDA for (i) non-cash charges, such as reduction in value of assets, bad debt expense, share-based compensation expense, and changes in fair value of our liability for contingent payments and (ii) certain expenses, such as severance, legal settlements, and professional fees and other expenses related to transactions outside the ordinary course of business, to derive a normalized EBITDA run-rate
For the Three Months Ended June 30, For the Six Months Ended June 30, 2016 2015 2016 2015 (unaudited) (unaudited) Components of EBITDA: Net loss Less: Loss from discontinued operations, net of income taxes Net loss from continuing operations Non-GAAP adjustments: Depreciation and amortization Interest expense, net Income tax benefit EBITDA Adjustments to EBITDA: Reduction in value of assets Expenses in connection with lender negotiations and Recapitalization Employee-related reorganization expenses, including severance Bad debt expense Settlements and other losses Fair value adjustments to contingent payment liability Stock-based compensation Transaction costs Adjusted EBITDA
Because EBITDA and Adjusted EBITDA are not measures of financial performance calculated in accordance with GAAP, these metrics should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.
EBITDA and Adjusted EBITDA are widely used by investors and other users of our financial statements as supplemental financial measures that, when viewed with our GAAP results and the accompanying reconciliation, we believe provide additional information that is useful to gain an understanding of our ability to service debt, pay income taxes and fund growth and maintenance capital expenditures. We also believe the disclosure of EBITDA and Adjusted EBITDA helps investors meaningfully evaluate and compare our cash flow generating capacity from quarter-to-quarter and year-to-year.
EBITDA and Adjusted EBITDA are also financial metrics used by management as (i) supplemental internal measures for planning and forecasting and for evaluating actual results against such expectations; (ii) significant criteria for incentive compensation paid to our executive officers and management; (iii) reference points to compare to the EBITDA and Adjusted EBITDA of other companies when evaluating potential acquisitions; and, (iv) assessments of our ability to service existing fixed charges and incur additional indebtedness.
The following table provides the detailed components of EBITDA and Adjusted EBITDA as we define that term for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands): For the Three Months Ended September 30, For the Nine Month Ended September 30, 2017 2016 2017 2016 (unaudited) (unaudited) Components of EBITDA: Net income (loss) Loss (income) from discontinued operations, net of income taxes Net income (loss) from continuing operations Non-GAAP adjustments: Depreciation and amortization Interest expense, net Interest expense, net - Pelican Income tax expense (benefit) EBITDA Adjustments to EBITDA: Reduction in value of assets Gain on extinguishment of debt and other liabilities Expenses in connection with lender negotiations and Recapitalization Employee-related restructuring expenses, including severance Bad debt expense Settlements and other losses Fair value adjustments to contingent payment liability Stock-based compensation Adjusted EBITDA Set forth below are the material limitations associated with using EBITDA and Adjusted EBITDA as non-GAAP financial measures compared to cash flows provided by and used in operating, investing and financing activities:
Management compensates for the above-described limitations in using EBITDA and Adjusted EBITDA as non-GAAP financial measures by only using EBITDA and Adjusted EBITDA to supplement our GAAP results.
Business Outlook
Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and natural gas. Industry conditions are influenced by numerous factors, such as oil and natural gas prices, the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, political instability in oil producing countries and available supply of and demand for the services we provide. Oil and natural gas prices began a rapid and substantial decline in the fourth quarter of 2014. Depressed commodity price conditions persisted and worsened during 2015 and that trend continued into 2016. As a result, the rig count and demand for our products and services declined substantially, and the prices we are able to charge our customers for our products and services have also declined substantially.
Oil prices have improved off the low point of 2016 with the November 2016 decision by OPEC to curtail the cartel’s oil production, the Baker Hughes U.S. land drilling rig count has increased significantly from its low point in mid-2016, and our revenue has improved substantially during the first
Operational Restructuring
Our activity is tied directly to the rig count and, even though we instituted significant cost cutting measures beginning in 2015, we were unable to cut costs enough to match the decline in our business. As a result, as of December 31, 2015, we were in default of our credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”).
Throughout 2015, in an effort to mitigate the significant declines in pricing and utilization of our equipment, we committed to a reorganization initiative to strengthen our sales and marketing efforts, consolidate support functions, and operate more efficiently. The reorganization effort included, but was not limited to, training our salesforce to enable the cross-selling of our product lines in certain geographical markets, sharing a common support services infrastructure across all reporting units, reducing headcount and wage rates, and rebranding and launching a new web site to increase awareness of our service lines. We recognized some benefit from these measures in late 2015 resulting in increased gross margins and lower selling, general and administrative expenses when compared to the first half of 2015.
During the year ended December 31, 2016, we entered into a series of forbearance agreements with our lender. Under the forbearance agreements, among other provisions, the lenders agreed to forbear from exercising their remedies under the credit agreement. These forbearance agreements permitted us to operate within the parameters of our normal course of business despite the continuing default under the credit agreement. Without these forbearance agreements, our outstanding debt would have been immediately due and payable. Throughout 2016, we remained in default and we did not have sufficient liquidity to repay all of the outstanding debt to the lender at any point during the year ($20.1 million as of December 31, 2015). As such, we may have been forced to file for protection under Chapter 11 of the U.S. Bankruptcy Code.
In early 2016, we were hopeful that a successful operational restructuring would facilitate negotiations to modify the terms of our existing credit facility with Wells Fargo. Our operational restructuring in 2016 consisted of severe cost cuts which were incremental to the year-over-year cost cuts already achieved in 2015 when compared to 2014. In 2016, significant cost savings were primarily generated by:
We also achieved significant cost savings from the decrease in third party costs, such as sub-rental equipment and trucking, and other variable costs which declined with the decrease in activity.
In order to further support our working capital needs, we identified and sold idle and underutilized assets. During 2016, we realized aggregate proceeds from sales of approximately $0.8 million of which $0.5 million and $0.3 million was used to fund working capital needs and pay down debt,
We believe that the completion of the Recapitalization in
Capital Restructuring
Despite our successful operational restructuring efforts, particularly during the first half of 2016, the decline in our activity levels and the declines in customer pricing outpaced the impact of our cost reductions and it became evident that a capital restructuring would also be necessary to continue operations and position our business for an industry turnaround.
In the second quarter of 2016, certain of the Company’s principal stockholders (“Shareholder Group”) began negotiations with Wells Fargo with the objective of consummating a recapitalization transaction (the “Recapitalization”) whereby our obligations under the credit agreement and the outstanding capital leases in favor of Wells Fargo’s equipment finance affiliate and certain other obligations of Aly Energy (collectively the “Aly Senior Obligations”) would be restructured. In August 2016, the Shareholder Group
In September 2016, the Shareholder Group formed Permian Pelican, LLC (“Pelican”) with the objective of raising capital and executing the steps necessary to complete the restructuring, inclusive of successfully effecting the exchange of the Aly Operating redeemable preferred stock, Aly Centrifuge redeemable preferred stock, Aly Centrifuge subordinated debt and liability for a contingent payment into approximately 10% of our common stock on a fully diluted basis.
Effective January 31, 2017, the Recapitalization was completed through the execution and delivery of a Securities Exchange Agreement and a Second Amended and Restated Credit Agreement. As a result of the Recapitalization, the Company became a “Controlled Company” as defined under the listing standards of the principal national securities exchanges; however, since the Shareholder Group’s proportionate interest did not change significantly, a change in control did not occur and the transaction was accounted for at historical cost.
As a result of the Recapitalization, the credit facility, now with Pelican, consisted of a term loan of $5.1 million and a revolving facility of up to $1.0 million as of January 31, 2017. Availability under the revolving credit facility is determined by a borrowing base calculated as 80% of eligible receivables (receivables less than 90 days old).
Subsequent to the Recapitalization, we entered into several further amendments to capitalize on improved market conditions and increased activity in our business:
To the extent there is free cash flow as defined in the credit agreement, principal payments of 50% of such free cash flow are due annually. The maturity date of all remaining outstanding balances under the credit facility is December 31, 2019.
The obligations under the credit facility are guaranteed by all of our subsidiaries and secured by substantially all of our assets. The credit agreement contains customary events of default and covenants including restrictions on our ability to incur additional indebtedness,
As of
For a discussion of the accounting treatment for the Recapitalization, see “Note
Results of Operations
Results for the Three Months Ended
The following table summarizes the change in our results of operations for the three months ended
NM - Not meaningful Overview. Our results of operations depend on the demand for our services and our ability to provide high quality equipment and service to satisfy that demand while maintaining an efficient cost structure. During the three months ended September 30, 2017, the average U.S. land-based rig count was over 900 compared to approximately 450 for the three months ended September 30, 2016. The substantial increase in rig count was heavily concentrated in Texas, particularly in the Permian Basin, and our operations in Texas expanded significantly year-over-year. The increase in demand for our services in Texas was slightly offset by the decrease in revenue from the northeast region where we ceased operations during the fourth quarter of 2016. The financial results for the three months ended September 30, 2017 reflect the benefit of minimal variable and fixed costs in the northeast and increased efficiencies year-over-year due to extensive cost cuts during 2016.
Revenue. Our revenue for the three months ended
Operating Expenses. Our operating expenses for the three months ended Depreciation and Amortization. Depreciation and amortization expense decreased 28.9% to $0.9 million for the three months ended September 30, 2017 compared to $1.3 million for the three months ended September 30, 2016. The decrease is due primarily to the disposition of assets to Tiger in connection with the Recapitalization (see further discussion in “ Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $0.5 million or 12.6% of revenue, for the three months ended September 30, 2017 from $0.8 million, or 40.6% of revenue, for the three months ended September 30, 2016. The significant decline in selling, general and administrative expenses as a percentage of revenue reflects our ability to maintain an efficient and lean overhead cost structure while experiencing significant increases in activity. During the three months ended September 30, 2017, selling, general and administrative expenses were offset by an aggregate net benefit of approximately $30,000 from items that are either non-recurring or non-cash in nature. The comparable items aggregated to a net expense of $0.3 million for the three months ended September 30, 2016 (see further discussion in “How We Evaluate Our Operations” section above).
Interest Expense, net. Interest expense was reduced to approximately $2,000 for the three months ended September 30, 2017 compared to $0.6 million for the three months ended September 30, 2016. The decrease is due primarily to the impact of the Recapitalization. Interest Expense – Pelican. During the three months ended September 30, 2017, we recorded approximately $69,000 of interest expense due to Pelican, a related party. Income Taxes. The difference in the effective tax rate from the statutory rate is due to our continued full valuation allowance on net deferred tax assets. Income tax expense is from Texas Margin Tax. The Company has sufficient NOL carryforwards to offset Federal income tax and other state income taxes. Discontinued Operations. Discontinued operations include Evolution which specialized as an operator of MWD downhole tools. Income from discontinued operations, net of income taxes, was approximately $37,000 during the three months ended September 30, 2016. The operations were completely abandoned by December 31, 2016 and there was no income or loss from discontinued operations during the three months ended September 30, 2017. Results for the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016 The following table summarizes the change in our results of operations for the nine months ended September 30, 2017 when compared to the nine months ended September 30, 2016 (in thousands): For the Nine Months Ended September 30, Variance 2017 % of Revenue 2016 % of Revenue $ % (unaudited) (unaudited) Revenue Expenses: Operating expenses Depreciation and amortization % Selling, general and administrative expenses % Reduction in value of assets % Total expenses % Loss from continuing operations NM NM NM Other expense (income): Interest expense, net % Interest expense - Pelican NM Gain on extinguishment of debt and other liabilities NM NM Total other expense (income) NM NM Income (loss) from continuing operations before income taxes NM NM Income tax expense (benefit) NM NM Net income (loss) from continuing operations NM NM Loss from discontinued operations, net of income taxes NM Net income (loss) NM NM NM - Not meaningful Overview. Our results of operations depend on the demand for our services and our ability to provide high quality equipment and service to satisfy that demand while maintaining an efficient cost structure. During the nine months ended September 30, 2017, the average U.S. land-based rig count was over 800, an increase of over 300 rigs when compared to less than 500 for the nine months ended September 30, 2016. The increase in rig count was heavily concentrated in Texas, particularly in the Permian Basin, and our operations in Texas expanded throughout the first nine months of 2017 in conjunction with the increase in rig count. Revenue. Our revenue for the nine months ended September 30, 2017 was $11.2 million, an increase of 26.3%, compared to $8.8 million for the nine months ended September 30, 2016. There was a substantial increase in demand for our services during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, particularly in Texas. However, the resulting increase in revenues in 2017 was significantly offset by the elimination of revenue generated from the northeast region due to our decision to cease operations in that area in the fourth quarter of 2016. Operating Expenses. Our operating expenses for the nine months ended September 30, 2017 increased to $7.2 million, or 64.1% of revenue, from $6.9 million, or 77.8% of revenue, for the nine months ended September 30, 2016. The 4.1% increase in operating expenses was significantly less than the 26.3% increase in revenue which reflects the substantial efficiencies achieved through our cost cuts in 2016, particularly those related to labor (see further discussion of cost cuts in “Operational Restructuring” section above) and the elimination of variable and fixed costs associated with our decision to cease operations in the northeast in the fourth quarter of 2016. These decreases were partially offset by a substantial increase in third-party services as the primary surface rental products in our inventory have been fully utilized since early 2017 and the vast majority of incremental rental revenue throughout 2017 has been derived from equipment which we sub-rent.
Depreciation and Amortization. Depreciation and amortization expense decreased
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to
Interest Expense, net. Interest expense Interest Expense – Pelican. During the nine months ended September 30, 2017, we recorded $0.7 million of interest expense due to Pelican, a Gain on Extinguishment of Debt and Other Liabilities. During the nine months ended September 30, 2017, we recorded a gain on extinguishment of debt and other liabilities of $2.4 million due to our troubled debt restructuring in connection with the
Income Taxes.
Discontinued Operations. Discontinued operations include Evolution which specialized as an operator of MWD downhole tools. Losses from discontinued operations, net of income taxes, were $1.3 million during the
For the Six Months Ended June 30, Variance 2016 % of Revenue 2015 % of Revenue $ % (unaudited) (unaudited) Revenue Expenses: Operating expenses Depreciation and amortization Selling, general and administrative expenses Reduction in value of assets NM Total expenses Loss from continuing operations NM NM NM Interest expense, net Loss from continuing operations before income taxes NM NM NM Income tax benefit NM NM NM Loss from continuing operations NM NM NM Loss from discontinued operations, net of income taxes Net loss NM NM NM
Liquidity and Capital Resources
Net Cash Provided by Operating Activities.
Liquidity. As a result of the industry downturn, many customers have experienced a significant reduction in their liquidity and have faced challenges accessing the capital markets. Several energy service and equipment companies have declared bankruptcy, or have had to exchange equity for the forgiveness of debt, while others have been forced to sell assets in an effort to preserve liquidity. We faced similar challenges requiring us to undergo a capital restructuring. For a discussion of the Recapitalization and its restructuring of our credit facility, see “Note 2 – Recent Developments
While
Capital Expenditures. Capital expenditures are the main component of our investing activities. Although we do not budget acquisitions in the normal course of business, we regularly engage in discussions related to potential acquisitions of companies which provide oilfield services.
Credit Facility. As of
We have experienced significant growth during the beginning of 2017 and we believe that our cash flow from operations combined with access to capital through our lender and controlling shareholder, Pelican, will be sufficient to fund our working capital needs, contractual obligations and maintenance capital expenditures for the next twelve months. Net Operating Losses As of December 31, 2016, we had approximately $29.5 million of federal net operating loss carryforwards. As a result of the Recapitalization, it is possible that the net operating losses may be subject to limitation under Internal Revenue Code Section 382. The Company is currently in the process of completing an analysis to determine the extent, if any, of any limitation under this section. Based on the weight of all available evidence including the future reversal of existing U.S. taxable temporary differences, we believe that it is more likely than not that the benefit from certain federal and state net operating loss carryforwards and other deductible temporary differences will not be realized. In recognition of this risk, we have provided a valuation allowance on the net deferred tax asset as a result of the Company being in a cumulative three-year pre-tax book loss position and absence of other objectively verifiable positive evidence including reversal of existing taxable temporary differences in these certain state tax jurisdictions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under supervision and with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of December 31, 2016, because of the material weaknesses in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that required information to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that required information to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013. Based on its assessment, management concluded that, as of December 31, 2016, our internal control over financial reporting was not effective and that material weaknesses in ICFR existed as more fully described below.
As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of December 31, 2016:
As of December 31, 2016, management assessed the effectiveness of our internal control over financial reporting. Based on that evaluation, it was concluded that during the period covered by this report, the internal controls and procedures were not effective due to deficiencies that existed in the design or operation of our internal controls over financial reporting. However, management believes these weaknesses did not have an effect on our financial results. During the course of our evaluation, we did not discover any fraud involving management or any other personnel who play a significant role in our disclosure controls and procedures or internal controls over financial reporting.
Due to a lack of financial and personnel resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until, if ever, we acquire sufficient financing and staff to do so. We will implement further controls as circumstances, cash flows, and working capital permits. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the period ended
Management believes that the material weaknesses set forth above were the result of the scale of our operations and intrinsic to our small size.
Changes in Internal Control over Financial Reporting
During the period covered by this report, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
_____________ ** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
