Summary Of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 |
Summary Of Significant Accounting Policies [Abstract] | |
Summary Of Significant Accounting Policies | 2 | Summary of Significant Accounting Policies | | | | | | | |
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The financial information included herein is unaudited, except for the consolidated balance sheet as of December 31, 2014, which has been derived from the Company's audited consolidated financial statements for the year ended December 31, 2014. However, such information includes all adjustments (consisting of normal recurring adjustments and changes in accounting principles), which are in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the interim period. The results of operations for interim periods are not necessarily indicative of the results to be expected for an entire year. |
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Certain information, accounting policies, and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted in this Form 10-Q pursuant to certain rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2014. |
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New Accounting Pronouncements |
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From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption. |
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In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers." The standard's core principle is that an entity shall recognize revenue when it transfers 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. The standard generally requires an entity to identify performance obligations in its contracts, estimate the amount of variable consideration to be received in the transaction price, allocate the transaction price to each separate performance obligation, and recognize revenue as obligations are satisfied. The standard will be effective for annual and interim periods beginning after December 15, 2016. The standard allows for either full retrospective adoption, meaning the standard is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company is currently evaluating the impact of the provisions of ASU 2014-09; however, the standard is not expected to have a material effect on the Company's consolidated financial position, results of operations or cash flows. |
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In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation" effective for annual periods and interim periods within those periods beginning after December 15, 2015. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The Company is currently evaluating the impact of the provisions of ASU 2014-12; however, the standard is not expected to have a material effect on the Company's consolidated financial position, results of operations or cash flows. |
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In April 2015, the FASB issued ASU 2015-03, "Interest – Imputation of Interest" effective for annual periods and interim periods within those periods beginning after December 31, 2015. The new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This new guidance will be effective for us beginning January 1, 2016. We are currently evaluating the impact of this standard on our consolidated financial statements. |
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Liquidity |
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As of March 31, 2015, we had cash and cash equivalents and trade receivables of approximately $12.6 million and our accounts payable and accrued expenses were approximately $10.7 million. In addition, we have $24.3 million aggregate principal amount of promissory notes and Operational Override liability payments due prior to March 31, 2016. |
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Under the Revolving Credit Facility with SunTrust, the Company has $6 million of available borrowings at March 31, 2015 that could be utilized to fund the payment of accounts payable and accrued expense in excess of cash and cash equivalents. The Company is currently focused on increasing the operations at the transloading facility and expects cash flows from operations to increase due to the fact that it currently owns 100% of Dakota Petroleum Transport Solutions, LLC ("DPTS") and DPTS Sand, LLC. The Company believes that the cash flows from operations and the availability under the Revolving Credit Facility will allow it to meet its current obligations in the ordinary course of business. The Company is also in discussion with SunTrus about restructuring the Tranche B portion of the Revolving Credit Facility. The Company may also need to secure financing through the capital markets, or otherwise, in order to fund future operations and satisfy obligations due. There is no guarantee that any such required financing will be available on terms satisfactory to the Company, if at all, or that the Company will be able to successfully refinance or restructure the Tranche B portion of the Revolving Credit Facility. |
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Joint Venture Equity Investment |
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The Company used the equity method to account for investments in joint ventures where it had significant influence, representing equity ownership of not more than 50%. Effective November 24, 2014, the Company sold its 50% ownership in Dakota Plains Services, LLC ("DPS"). In addition, effective November 30, 2014, the Company purchased the remaining ownership interests in DPTS, DPTS Marketing LLC ("DPTSM") and DPTS Sand, LLC from its joint venture partner (See Note 11). Prior to the aforementioned transactions, the Company accounted for its investments in DPS and DPTSM using the equity method. All of the Company's equity investments had December 31 fiscal year-ends, and the Company recorded its 50% share of the joint ventures' net income or loss based on their most recent interim financial statements, during the period the equity investments were accounted for using the equity method. The Company's share of the joint ventures' operating results for each period were adjusted for its share of intercompany transactions, which primarily related to rental agreements. Any significant unrealized intercompany profits or losses were eliminated in applying the equity method of accounting. |
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At March 31, 2015 and December 31, 2014, the Company has no investments in joint ventures where it has significant influence, representing equity ownership of not more than 50%, and is not accounting for any investments using the equity method. |
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The Company followed applicable equity method authoritative guidance whereby declines in estimated investment fair value below carrying value assessed as other than temporary were recognized as a charge to earnings to reduce carrying value to estimated fair value. The Company periodically evaluated its equity investments for possible declines in value and determined if declines were other than temporary based on, among other factors, the sufficiency and outcome of equity investee performed impairment assessments (which includes third party appraisals and other analyses), the amount and length of time that fair value may have been below carrying value, near-term and longer-term operating and financial prospects of equity investees, and the Company's intent and ability to hold the equity investments for a period of time sufficient to allow for any anticipated recovery. |
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Cash and Cash Equivalents |
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The Company considers highly liquid investments with insignificant interest rate risk and original maturities of three months or less to be cash equivalents. Cash equivalents consist primarily of interest-bearing bank accounts and money market funds. The Company's cash positions represent assets held in checking and money market accounts. These assets are generally available to the Company on a daily or weekly basis and are highly liquid in nature. Due to the balances being greater than $250,000, the Company does not have FDIC coverage on the entire amount of bank deposits. The Company believes this risk of loss is minimal. |
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Segments |
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The Company has two principal operating segments, which are the crude oil and frac sand transloading operations. These operating segments were determined based on the nature of the products and services offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company's chief executive officer and chief operating officer have been identified as the chief operating decision makers. The Company's chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment. |
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The Company has determined that there is only one reportable segment as the two segments discussed above have similar processes and purposes, customers, geographic locations and economic characteristics. |
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Accounts Receivable |
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Accounts receivable are carried on a gross basis, with no discounting. The Company regularly reviews all aged accounts receivable for collectability and establishes an allowance as necessary for individual customer balances. At March 31, 2015 and December 31, 2014 there was no allowance for doubtful accounts. |
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Property and Equipment |
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Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. |
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Estimated useful lives are as follows: | | | | | | | | |
Site development | 15 years | | | | | | | |
Terminal | 13 years | | | | | | | |
Machinery | 5 - 13 years | | | | | | | |
Tanks | 13 years | | | | | | | |
Other Property and Equipment | 3 - 5 years | | | | | | | |
Land | — | | | | | | | |
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Expenditures for replacements, renewals, and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation expense was $1,108,014 and $1,035,215 for the three months ended March 31, 2015 and 2014, respectively. The Company had fixed assets related to in-progress construction of $2,616,454 and $1,886,470 at March 31, 2015 and December 31, 2014, respectively. The Company has estimated the cost to complete construction to be approximately $3.4 million. |
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Impairment |
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FASB Accounting Standards Codification ("ASC") 360-10-35-21 requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The determination of impairment is based upon expectations of undiscounted future cash flows, before interest, of the related asset. If the carrying value of the asset exceeds the undiscounted future cash flows, the impairment would be computed as the difference between the carrying value of the asset and the fair value. There was no impairment identified during the three months ended March 31, 2015 and 2014. |
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Environmental Accrual |
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Accruals for estimated costs for environmental obligations generally are recognized no later than the date when the Company identifies what cleanup measures, if any, are likely to be required to address the environmental conditions. Included in such obligations are the estimated direct costs to investigate and address the conditions and the associated engineering, legal and consulting costs. In making these estimates, the Company considers information that is currently available, existing technology, enacted laws and regulations, and its estimates of the timing of the required remedial actions. Such accruals are initially measured on a discounted basis — and are adjusted as further information becomes available or circumstances change — and are accreted up over time. The Company has recorded no liability for environmental obligations as of March 31, 2015 and December 31, 2014. |
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Income Taxes |
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The Company accounts for income taxes under FASB ASC 740-10-30. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is "more likely than not" that some component or all of the benefits of deferred tax assets will not be realized. |
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The tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its condensed consolidated balance sheet. |
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The Company records Goodwill for income tax purposes for the amount that the purchase price paid for an asset or group of assets exceeds the fair value of the assets acquired. The Goodwill is amortized over fifteen years. |
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Stock-Based Compensation |
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The Company records expenses associated with the fair value of stock-based compensation. For fully vested, restricted stock and restricted stock unit grants, the Company calculates the stock-based compensation expense based upon estimated fair value on the date of grant. For stock warrants and options, the Company uses the Black-Scholes option valuation model to calculate stock-based compensation at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate. |
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Stock Issuance |
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The Company records the stock-based compensation awards issued to non-employees and other external entities for goods and services at either the fair market value of the goods received or services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50-30 |
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Revenue Recognition |
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DPTS and DPTS Sand, LLC recognize revenues when the related services are performed, the sales price is fixed or determinable and collectability is reasonably assured. DPTS records the gross sale of fuel-related services when the transloading of petroleum-related products is complete. DPTS Sand, LLC records the gross sale when the transloading of sand-related products is complete. |
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Earnings Per Share |
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Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income (loss) attributable to Company stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if common stock equivalents were exercised or converted to common stock. The dilutive effect of common stock equivalents is calculated using the treasury stock method. When a loss from continuing operations exists, all potentially dilutive securities are anti-dilutive and therefore excluded from the computation of diluted EPS. As the Company had a loss for the three months ended March 31, 2014, the potentially dilutive shares are anti-dilutive and thus not added into the diluted EPS calculation. |
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The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three months ended March 31, 2015 and 2014 are as follows: |
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| | Three Months Ended | |
March 31, |
| | 2015 | | | 2014 | |
Weighted average common shares outstanding – basic | | | 54,085,723 | | | | 53,598,684 | |
Plus: Potentially dilutive common shares Warrants, restricted stock and restricted stock units | | | 1,219,099 | | | | — | |
Weighted average common shares outstanding – diluted | | | 55,304,822 | | | | 53,598,684 | |
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Warrants, restricted stock and restricted stock units excluded from EPS due to the anti-dilutive effect | | | 944,128 | | | | 852,988 | |
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The following warrants, restricted stock and restricted stock units represent potentially dilutive shares as of March 31, 2015 and 2014: |
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| | March 31, | |
| | 2015 | | | 2014 | |
Restricted Stock | | | 781,149 | | | | 1,016,150 | |
Restricted Stock Units | | | 1,624,121 | | | | — | |
Stock Warrants | | | 2,771,000 | | | | 2,771,000 | |
Total Potentially Dilutive Shares | | | 5,176,270 | | | | 3,787,150 | |
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Fair Value Measures |
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The Company measures fair value using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: |
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| Level 1 – Quoted market prices in active markets that are accessible at measurement date for identical assets or liabilities; | | | | | | | |
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| Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and | | | | | | | |
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| Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and less observable from objective sources. | | | | | | | |
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Use of Estimates |
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such significant estimates include recoverability of property and equipment, depreciable lives for property and equipment, fair value of the Operational Override liability, inputs in the valuation of certain equity transactions, and accounting for income taxes. Actual results may differ from those estimates. |
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Non-Controlling Interest |
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FASB ASC 810 "Consolidation" requires that a non-controlling interest, previously referred to as a minority interest, be reported as part of equity in the consolidated financial statements and that losses be allocated to the non-controlling interest even when such allocation might result in a deficit balance, reducing the losses attributable to the controlling interest. The Company's non-controlling interest during the three months ended March 31, 2014 is due to the non-controlling member of DPTS prior to the Company's purchase of the 50% interest owned by the non-controlling member. |
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Principles of Consolidation |
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The accompanying condensed consolidated financial statements include the accounts of Dakota Plains Holdings, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. |