EXHIBIT 99.3
NOVAMEX ENERGY INC.
COMBINED FINANCIAL STATEMENTS
(USD in thousands)
On May 20, 2015, Novamex Energy Inc., a Nevada corporation ("Novamex"), entered into and consummated a merger transaction pursuant to an Agreement and Plan of Merger (the "Merger Agreement") by and among Novamex (the “Company”), Novamex Acquisition, Inc., a Nevada corporation and wholly-owned subsidiary of the Company ("Merger Sub"), Rio Bravo Oilfield Services, Inc., a Texas corporation ("Rio Bravo"), and Gordon Payne, Jackson Payne, and Coleman Payne, the shareholders of Rio Bravo. In accordance with the terms of Merger Agreement, at closing, Merger Sub merged with and into Rio Bravo (the "Merger"), with Rio Bravo surviving the Merger as the wholly-owned subsidiary of Novamex.
Upon the closing of the merger transaction, Jackson Payne and Jose Luis Robles were elected to the Board of Directors of Novamex, with Stephen Bargo remaining as the Chairman of the Board. Jackson Payne was appointed President, Chief Executive Officer, Chief Financial Officer (interim), and Treasurer (interim) of Novamex. Coleman Payne was appointed Secretary and Kenneth Witt was appointed Assistant Secretary of Novamex.
The merger transaction resulted in a "reverse merger" rather than a business combination and the following unaudited combined pro forma financial statements, and the associated adjustments in accounting, present the combined entities after applying the principles of a reverse merger defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, as if the Merger had been effective on January 1, 2014. The basis of accounting and the explanation of all adjustments are set forth in the notes following the pro forma financial statements.
Specifically, pro forma financial information is presented for the following periods:
(a) | Unaudited Balance Sheets as of December 31, 2014 and March 31, 2015. |
(b) | Unaudited Statements of Operations for the Year Ended December 31, 2014 and for the Interim Period Ended March 31, 2015. |
In the opinion of management, all adjustments necessary to present fairly the pro forma combined balance sheet and statement of operations have been made based on the terms and structure of the Merger. The information contained in the unaudited pro forma combined statement of operations is not necessarily indicative of what actual results would have been had the transaction occurred at the beginning of the period nor do they purport to indicate the results of future operations of Novamex and Rio Bravo. The unaudited pro forma combined financial statements should be read in conjunction with (i) the accompanying notes and (ii) the historical financial statements and notes to the financial statements of Novamex and Rio Bravo.
F-1 |
NOVAMEX ENERGY INC.
PRO FORMA COMBINED BALANCE SHEET
Unaudited
(USD in thousands)
December 31, 2014 | ||||||||||||||||||
RIO BRAVO | NOVAMEX | Adjustments | Notes | NOVAMEX Pro Forma | ||||||||||||||
Assets | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 180 | $ | — | $ | — | $ | 180 | ||||||||||
Accounts receivable, net | 811 | — | (212 | ) | A | 599 | ||||||||||||
Inventories, net | 5,126 | — | — | 5,126 | ||||||||||||||
Prepaid expenses and other current assets | 943 | — | — | 943 | ||||||||||||||
Total current assets | 7,060 | — | (212 | ) | 6,848 | |||||||||||||
Long-term assets: | ||||||||||||||||||
Property and equipment, net | 441 | — | — | 441 | ||||||||||||||
Advance payments and deposits | 164 | — | — | 164 | ||||||||||||||
Total long-term assets | 605 | — | — | 605 | ||||||||||||||
Total Assets | $ | 7,665 | $ | — | $ | (212 | ) | $ | 7,453 | |||||||||
Liabilities and Stockholder's Deficit | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 1,788 | $ | — | $ | 172 | B | $ | 1,960 | |||||||||
Accrued personnel costs | 205 | — | — | 205 | ||||||||||||||
Accrued taxes | 9 | — | — | 9 | ||||||||||||||
Accrued warranty | 8 | — | — | 8 | ||||||||||||||
Other accrued expenses | 39 | 377 | — | 416 | ||||||||||||||
Accrued liabilities - related party | — | 288 | (212 | ) | A | 76 | ||||||||||||
Accrued interest | — | 213 | — | 213 | ||||||||||||||
Accrued interest - related party | — | 22 | — | 22 | ||||||||||||||
Bank lines of credit | 121 | 98 | — | 219 | ||||||||||||||
Current portion of long - term debt | 21 | 20 | — | 41 | ||||||||||||||
Customer advance payments | 6,892 | — | — | 6,892 | ||||||||||||||
Notes payable, related parties | 185 | 179 | — | 364 | ||||||||||||||
Notes payable, convertible | — | 100 | — | 100 | ||||||||||||||
Total current liabilities | 9,268 | 1,297 | (40 | ) | 10,525 | |||||||||||||
Long-term debt, net of current portion | 72 | — | — | 72 | ||||||||||||||
Total long-term liabilities | 72 | — | — | 72 | ||||||||||||||
Total liabilities | $ | 9,340 | $ | 1,297 | $ | (40 | ) | $ | 10,597 | |||||||||
Commitments and Contingencies | ||||||||||||||||||
Stockholders' deficit: | ||||||||||||||||||
Common Stock - Par Value | 1 | 17 | (1 | ) | E | 17 | ||||||||||||
Preferred Stock - Par Value | — | — | 11 | E | 11 | |||||||||||||
Common Stock - additional paid in capital | 4 | 3,739 | (3,743 | ) | E | — | ||||||||||||
Accumulated deficit | (1,591 | ) | (5,053 | ) | 3,561 | B D E | (3,083 | ) | ||||||||||
Accumulated comprehensive loss | (89 | ) | — | — | (89 | ) | ||||||||||||
Total stockholders' deficit | (1,675 | ) | (1,297 | ) | (172 | ) | (3,144 | ) | ||||||||||
Total liabilities and stockholders' deficit | $ | 7,665 | $ | — | $ | (212 | ) | $ | 7,453 |
See accompanying notes to unaudited Pro Forma combined financial statements.
F-2 |
NOVAMEX ENERGY INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
Unaudited
(USD in thousands, except per share amounts)
Year Ended December 31, 2014 | ||||||||||||||||||||
RIO BRAVO | NOVAMEX | Adjustments | Notes | NOVAMEX Pro Forma | ||||||||||||||||
Net sales of products | $ | 10,732 | $ | — | $ | — | $ | 10,732 | ||||||||||||
Cost of products sold | 7,918 | — | — | 7,918 | ||||||||||||||||
Depreciation, productive assets | 73 | — | — | 73 | ||||||||||||||||
Gross Profit | 2,741 | — | —�� | 2,741 | ||||||||||||||||
Sales, general and administrative expenses: | ||||||||||||||||||||
Personnel costs | 1,322 | — | 107 | D | 1,429 | |||||||||||||||
Professional fees | 256 | 167 | — | 423 | ||||||||||||||||
Administration, rents | 105 | — | — | 105 | ||||||||||||||||
General expenses | 640 | 1 | — | 641 | ||||||||||||||||
Depreciation, nonproductive assets | 3 | — | — | 3 | ||||||||||||||||
Total sales, general and administrative expenses: | 2,326 | 168 | 107 | 2,601 | ||||||||||||||||
Operating Income (Loss) | 415 | (168 | ) | (107 | ) | 140 | ||||||||||||||
Other income (expense) | ||||||||||||||||||||
Other income | 33 | — | — | 33 | ||||||||||||||||
Interest expense | (25 | ) | (66 | ) | — | (91 | ) | |||||||||||||
Total other income (expense) | 8 | (66 | ) | — | (58 | ) | ||||||||||||||
Net Income (Loss) Before Tax | 423 | (234 | ) | (107 | ) | 82 | ||||||||||||||
Provision for income taxes | 140 | — | — | 140 | ||||||||||||||||
Net Income (loss) | $ | 283 | $ | (234 | ) | $ | (107 | ) | $ | (58 | ) | |||||||||
Per share information | ||||||||||||||||||||
Basic loss per common share | $ | 282.61 | $ | (0.01 | ) | $ | — | $ | (0.00 | ) | ||||||||||
Fully diluted loss per common share | $ | 282.61 | $ | (0.01 | ) | $ | — | $ | (0.00 | ) | ||||||||||
Weighted average common shares outstanding | 1,000 | 16,834,415 | (1,000 | ) | 16,834,415 | |||||||||||||||
Weighted average preferred shares outstanding | — | 10,500,000 | 10,500,000 | |||||||||||||||||
Fully diluted common shares | 1,000 | 16,834,415 | (1,000 | ) | 16,834,415 |
See accompanying notes to unaudited Pro Forma combined financial statements.
F-3 |
NOVAMEX ENERGY INC.
PRO FORMA COMBINED BALANCE SHEET
Unaudited
(USD in thousands)
March 31, 2015 | ||||||||||||||||||
RIO BRAVO | NOVAMEX | Adjustments | Notes | NOVAMEX Pro Forma | ||||||||||||||
Assets | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 92 | $ | — | $ | — | $ | 92 | ||||||||||
Accounts receivable, net | 798 | — | (327 | ) | A | 471 | ||||||||||||
Inventories, net | 4,275 | — | — | 4,275 | ||||||||||||||
Prepaid expenses and other current assets | 714 | — | — | 714 | ||||||||||||||
Total current assets | 5,879 | — | (327 | ) | 5,552 | |||||||||||||
Long-term assets: | ||||||||||||||||||
Property and equipment, net | 430 | — | — | 430 | ||||||||||||||
Advance payments and deposits | 164 | — | — | 164 | ||||||||||||||
Total long-term assets | 594 | — | — | 594 | ||||||||||||||
Total Assets | $ | 6,473 | $ | — | $ | (327 | ) | $ | 6,146 | |||||||||
Liabilities and Stockholder's Deficit | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 1,389 | $ | — | $ | 152 | B | $ | 1,541 | |||||||||
Accrued personnel costs | 216 | — | — | 216 | ||||||||||||||
Accrued taxes | 11 | — | — | 11 | ||||||||||||||
Accrued warranty | 8 | — | — | 8 | ||||||||||||||
Other accrued expenses | 16 | 377 | — | 393 | ||||||||||||||
Accrued liabilities - related party | — | 402 | (327 | ) | A | 75 | ||||||||||||
Accrued interest | — | 229 | — | 229 | ||||||||||||||
Accrued interest - related party | — | 25 | — | 25 | ||||||||||||||
Bank lines of credit | 118 | 98 | — | 216 | ||||||||||||||
Current portion of long-term debt | 21 | 20 | — | 41 | ||||||||||||||
Customer advance payments | 5,946 | — | — | 5,946 | ||||||||||||||
Notes payable, related parties | 185 | 179 | — | 364 | ||||||||||||||
Notes payable, convertible | — | 100 | — | 100 | ||||||||||||||
Total current liabilities | 7,910 | 1,430 | (175 | ) | 9,165 | |||||||||||||
Long-term debt, net of current portion | 67 | — | — | 67 | ||||||||||||||
Total long-term liabilities | 67 | — | — | 67 | ||||||||||||||
Total liabilities | $ | 7,977 | $ | 1,430 | $ | (175 | ) | $ | 9,232 | |||||||||
Commitments and contingencies | ||||||||||||||||||
Stockholders' deficit: | ||||||||||||||||||
Common Stock - Par Value | 1 | 17 | (1 | ) | E | 17 | ||||||||||||
Preferred Stock - Par Value | — | — | 11 | E | 11 | |||||||||||||
Common Stock - additional paid in capital | 4 | 3,739 | (3,743 | ) | E | — | ||||||||||||
Accumulated deficit | (1,437 | ) | (5,186 | ) | 3,581 | B C D E | (3,042 | ) | ||||||||||
Accumulated comprehensive loss | (72 | ) | — | — | (72 | ) | ||||||||||||
Total stockholders' deficit | (1,504 | ) | (1,430 | ) | (152 | ) | (3,086 | ) | ||||||||||
Total liabilities and stockholders' deficit | $ | 6,473 | $ | — | $ | (327 | ) | $ | 6,146 |
See accompanying notes to unaudited Pro Forma combined financial statements.
F-4 |
NOVAMEX ENERGY INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
Unaudited
(USD in thousands, except per share amounts)
Three Months Ended March 31, 2015 | ||||||||||||||||||||
RIO BRAVO | NOVAMEX | Adjustments | Notes | NOVAMEX Pro Forma | ||||||||||||||||
Net sales of products | $ | 2,921 | $ | — | $ | — | $ | 2,921 | ||||||||||||
Cost of products sold | 2,084 | — | — | 2,084 | ||||||||||||||||
Depreciation, productive assets | 19 | — | — | 19 | ||||||||||||||||
Gross Profit | 818 | — | — | 818 | ||||||||||||||||
Sales, general and administrative expenses: | ||||||||||||||||||||
Personnel costs | 369 | — | 6 | D | 375 | |||||||||||||||
Professional fees | 91 | 114 | (20 | ) | C | 185 | ||||||||||||||
Administration, rents | 28 | — | — | 28 | ||||||||||||||||
General expenses | 123 | — | — | 123 | ||||||||||||||||
Depreciation, nonproductive assets | 1 | — | — | 1 | ||||||||||||||||
Total sales, general and administrative expenses: | 612 | 114 | (14 | ) | 712 | |||||||||||||||
Operating Income (loss) | 206 | (114 | ) | 14 | 106 | |||||||||||||||
Other income (expense) | ||||||||||||||||||||
Interest expense | (8 | ) | (19 | ) | — | (27 | ) | |||||||||||||
Total other income (expense) | (8 | ) | (19 | ) | — | (27 | ) | |||||||||||||
Net Income (loss) before tax | 198 | (133 | ) | 14 | 79 | |||||||||||||||
Provision for income taxes | 44 | — | — | 44 | ||||||||||||||||
Net Income (loss) | $ | 154 | $ | (133 | ) | $ | 14 | $ | 35 | |||||||||||
Per share information | ||||||||||||||||||||
Basic loss per common share | $ | 154.22 | $ | (0.01 | ) | $ | — | $ | 0.00 | |||||||||||
Fully diluted loss per common share | $ | 154.22 | $ | (0.01 | ) | $ | — | $ | 0.00 | |||||||||||
Weighted average common shares outstanding | 1,000 | 16,834,415 | (1,000 | ) | 16,834,415 | |||||||||||||||
Weighted average preferred shares outstanding | — | 10,500,000 | 10,500,000 | |||||||||||||||||
Fully diluted common shares | 1,000 | 16,834,415 | 10,499,000 | 27,334,415 |
See accompanying notes to unaudited Pro Forma combined financial statements.
F-5 |
NOVAMEX ENERGY INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(USD in thousands)
Basis of Accounting:
The Pro Forma financial statements were prepared using the accrual basis of accounting in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
Use of Estimates:
In the preparation of the Pro Forma financial statements, management was required to make estimates and assumptions that affect certain reported amounts in the following Pro Forma financial statements and accompanying notes. Actual results could differ from these estimates and assumptions.
Principles of Consolidation:
The Pro Forma financial statements of the Company are consolidated as Rio Bravo Oilfield Services, Inc. is the wholly-owned subsidiary of Novamex Energy Inc. and intercompany balances and transactions are eliminated in the adjustments.
Reclassification:
Certain amounts in previously issued financial statements of Novamex have been reclassified to conform to the 2014 and 2015 presentation of the combined Pro Forma statements. Future financial statements of Novamex will reflect these classifications.
Purchase Price Allocation:
Novamex Energy Inc. was a public reporting “shell company,” as defined in Rule 12b-2 of the Securities Exchange Act of 1934. The Merger resulted in a "reverse merger" rather than a business combination. Accordingly, Rio Bravo is deemed to be the accounting acquirer and the purchase price allocation resulted in the historical assets and liabilities and results of operations of Rio Bravo and its wholly-owned subsidiary, without recording any step-up in assets, goodwill or other intangible assets, consolidated with assets and liabilities of Novamex Energy Inc., measured at fair value on May 20, 2015.
The estimated fair value of accounts receivable, accounts payable, accrued expenses, accrued liabilities, notes payable and customer deposits approximate their historical carrying amounts due to the relatively short maturity of these instruments. The historical carrying value of long-term debt and notes payable, related parties also approximates fair value since these instruments bear market rates of interest.
Accordingly, the purchase price allocation and adjustments in the Pro Forma consolidated balance sheet does not include any adjustments of the historical carrying value of the assets or liabilities of Novamex or Rio Bravo.
Adjustment explanatory Notes:
Note (A)Represents related party payables between Novamex and Rio Bravo. These payables relate to third party professional services prior to the date of the Merger. Rio Bravo reported these as trade receivables in its historical Combined Balance Sheet and Novamex reported them as, Accounts Payable and accrued liabilities – related party, in its historical Balance Sheet. After the date of the Merger, these receivables and payables will be eliminated in future reporting and consolidations as an intercompany transaction.
Note (B)Represents legal and filing costs of the transaction, which are a cost of equity and adjusted to the consolidated accumulated deficit after the Merger. Transaction, registration and stock issuance costs of $152 were incurred after the historical financial date of March 31, 2015 and not previously reflected in Accounts Payable.
F-6 |
NOVAMEX ENERGY INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS(continued)
(USD in thousands)
Adjustment explanatory Notes: - continued
Note (C) Represents legal costs incurred by Novamex that related to the transaction which were included in professional fees for the three months ended March 31, 2015 and Accrued Liabilities – Related Party, as of March 31, 2015.
Note (D)Represents personnel costs of Rio Bravo executives that were paid in the form of capital distributions. These distributions will be reported as personnel costs and reflected in the employee’s reported compensation in future financial reporting. For the twelve months ended December 31, 2014 and the three months ended March 31, 2015, the owners drew $107 and $6, respectively.
Note (E)Represents the elimination of Rio Bravo outstanding capital stock, and the recording of Novamex preferred stock shares.
F-7 |