| Summary Of Significant Accounting Policies | 2. Summary of Significant Accounting Policies 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. 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.
New Accounting Pronouncements 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 recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption. 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, 2017. 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 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. 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 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. 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 evaluating the impact of this standard on our consolidated financial statements.
Liquidity As of September 30, 2015, we had cash and cash equivalents and trade receivables of approximately $ 9.4 4 9.7 25.7 The Company is focused on increasing the throughput and reducing the expenses at the transloading facility and expects cash flows from operations to increase due to the fact that it 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 assuming the ongoing discussions with SunTrust about restructuring the Tranche B portion of the Revolving Credit Facility are finalized as anticipated. It is the Company's expectation that the restructuring will be completed in advance of their December 5, 2015 maturity date. 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.
Joint Venture Equity Investment 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 At September 30, 2015 and December 31, 2014, the Company had no investments in joint ventures where it had significant influence, representing equity ownership of not more than 50%, and was not accounting for any investments using the equity method.
Cash and Cash Equivalents 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
Segments The Company has two one 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.
Accounts Receivable 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 September 30, 2015 and December 31, 2014 there was no
Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives.
Estimated useful lives are as follows: Site Development 15 Terminal 13 Machinery 5 13 Tanks 13 Other Property and Equipment 3 5 Land — Expenditures for replacements, renewals, and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation expense was $ 1,256,837 3,505,177 1,108,348 3,229,834
Impairment 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 nine months ended September 30, 2015 and 2014.
Environmental Accrual 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
Income Taxes The Company accounts for income taxes under FASB ASC 740-10-30 . Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company's ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results and incorporates assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses. 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. In assessing the need for a valuation allowance for the Company's deferred tax assets, a significant item of negative evidence considered was the cumulative book loss over the three-year period ended September 30, 2015. Additionally, the Company's revenue, profitability and future growth are substantially dependent upon prevailing and future crude oil prices. The markets for crude oil continue to be volatile. Changes in crude oil prices have a significant impact on the Company's cash flows. Prices for crude oil may fluctuate widely in response to relatively minor changes in the supply of and demand for crude oil and a variety of additional factors that are beyond the Company's control. Due to these factors, management has placed a lower weight on the prospect of future earnings in its overall analysis of the valuation allowance. In determining whether to establish a valuation allowance on the Company's deferred tax assets, management concluded that the objectively verifiable evidence of cumulative negative earnings for the three-year period ended September 30, 2015, is difficult to overcome with any forms of positive evidence that may exist. Accordingly, the valuation allowance against the Company's deferred tax asset at September 30, 2015 was $26.2 million. No valuation allowance was recorded at December 31, 2014. 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 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. Goodwill is amortized over fifteen
Stock-Based Compensation 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.
Stock Issuance 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.
Revenue Recognition 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 transloading revenues for fuel-related services when the transloading of petroleum-related products is complete and records other revenues related to the Pioneer Terminal as they are earned based on agreements with customers. DPTS Sand, LLC records the gross sale of sand transloading services when the transloading of sand-related products is complete.
Earnings Per Share 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 and nine months ended September 30, 2015 and the nine months ended September 30, 2014, the potentially dilutive shares are anti-dilutive and thus not added into the diluted EPS calculation. The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three and nine months ended September 30, 2015 and 2014 are as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2015 2014 2015 2014 Weighted Average Common Shares Outstanding – Basic 54,317,463 53,884,637 54,196,842 53,755,966 Plus: Potentially Dilutive Common Shares, Stock Warrants Restricted Stock and Restricted Stock Units - 1,023,731 - — Weighted Average Common Shares Outstanding – Diluted 54,317,463 54,908,368 54,196,842 53,755,966 Restricted Stock and Restricted Stock Units Excluded from EPS due to the Anti-Dilutive Effect 1,106,567 430,652 1,919,784 976,462 The following warrants, restricted stock and restricted stock units represent potentially dilutive shares as of September 30, 2015 and 2014:
September 30, 2015 2014 Restricted Stock 756,149 1,016,150 Restricted Stock Units 1,624,121 — Stock Warrants 2,771,000 2,771,000 Total Potentially Dilutive Shares 5,151,270 3,787,150
Fair Value Measures 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 as follows:
Level 1 Level 2 Level 3
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.
Non-Controlling Interest 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 and nine months ended September 30, 2014 was due to the non-controlling member of DPTS and DPTS Sand, LLC prior to the Company's purchase of the 50% interest owned by the non-controlling member.
Principles of Consolidation 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. |
