We have audited the accompanying consolidated balance sheets of JD Field Services Inc., as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the two years ended December 31, 2013 and 2012. JD Field Services Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
Except as discussed in the following paragraph, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We were unable to obtain documentation of property and equipment acquired through a purchase in 2011 in exchange for common stock, as documentation was not maintained. Property and equipment, accumulated depreciation and depreciation expense related to the property and equipment purchased are stated at $2,766,043, $827,108, and $136,021, respectively at December 31, 2013, and $2,766,043, $694,303, and $197,002, respectively at December 31, 2012. These values are reported with property and equipment, net and depreciation expense on the balance sheets and statements of operations. In November 2012, the common stock was returned for a promissory note and a loss of $936,837 recognized as of December 31, 2012. We were unable to satisfy ourselves as to the valuation and depreciation of the property and equipment and related loss upon return of the common stock by means of other auditing procedures.
In our opinion, except for the possible effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine evidence regarding the purchased property and equipment, the financial statements referred to in the first paragraph above present fairly, in all material respects, the consolidated financial position of JD Field Services Inc., as of December 31, 2013 and 2012, and its consolidated results of operations and cash flows for the two years ended December 31, 2013 and 2012, in conformity with generally accepted accounting principles in the United States.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
JD FIELD SERVICES, INC.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
JD FIELD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(audited)
NOTE 1: Organization and basis of presentation
Basis of Financial Statement Presentation
The accompanying audited consolidated financial statements include the accounts of JD Field Services, Inc. and its subsidiary Five Star Rentals, Inc. (collectively referred herein as “JD” or the “Company”).
Business Overview
On March 23, 2001, JD Field Services Inc. registered as an S-Corporation in the state of Utah. JD provides services to the oil and gas industry primarily focused around those activities that are related to oilfield services. They are licensed in all states west of the Mississippi River including Alaska to do trucking, but are focused primarily in the Rocky Mountain Region. Oilfield services provided include heavy haul, water haul, and rig moving services as well as equipment, supplies and specialty long hauling services. The Company also provides oil and gas equipment rental services, hot shot, roustabout services and construction site development services, as well as operates a fabrication division that builds special-order oil and gas equipment and trucks for customers.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit and Business Risk
Financial instruments that are potentially subject to a concentration of business risk consist of accounts receivable. Revenues in 2012 were derived from two (2) customers who comprised 55% of revenues, and in 2013 one (1) customer which comprised 32% of revenues. We generally do not require collateral, but in most cases can place liens against the property, plant or equipment constructed or terminate the contract if a material default occurs.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high credit quality financial institutions and generally limits the amount of credit exposure to the amount in excess of the Federal Deposit Insurance Corporation coverage limit of $250,000. As of December 31, 2013 and 2012, the Company did not have cash in any one banking institution that exceeded this limit.
Cash
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash. The Company has only cash for the periods presented.
Prepaid Expenses
Amounts paid in advance for a benefit not yet received. This type of expense normally includes costs paid in one fiscal year (or period) that benefits a future year (or period).
Property, Plant and Equipment
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally ten/fifteen years for heavy machinery, five years for vehicles, two to three years for computer software/hardware and office equipment and three to seven years for furniture, fixtures and office equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives. Upon the sale or retirement of property or equipment, the cost and related accumulated depreciation or amortization is removed from the Company’s balance sheet with the resulting gain or loss reflected in the Company’s results of operations. Maintenance costs are expensed as incurred. Due to the nature of the equipment, major repairs are capitalized as they reflect an adjustment to the overall value of the equipment and its useful life can be extended.
In evaluating the salvage value service equipment we use a standard of, Machinery and Equipment - Worth approximately 10 - 30% of purchase price after 10-15 years depending on the asset. Vehicles - Worth approximately 20% of purchase price after 10-15 years depending on the asset. These salvage values are based on industry averages for the type of machinery and equipment used in oilfield services.
Allowance for Doubtful Accounts
As required by the Receivables Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company is required to use a predetermined method in calculating the current value for its bad debt on overall accounts receivable.
The Company estimates its accounts receivable risks to provide allowances for doubtful accounts accordingly. We believe that our credit risk for accounts receivable is limited because of the way in which we conduct business largely in the areas of contracts. Accounts receivable includes the accrual of work in process for project contracts and field service revenue. We recognize that there is a potential of not being paid in a 12 month period. Our evaluation includes the length of time receivables are past due, adverse situations that may affect a contract’s scope to be paid, and prevailing economic conditions. We assess each and every customer to conclude whether or not remaining balances outstanding need to be placed into allowance and then re-evaluated for write-off. We review all accounts to ensure that all efforts have been exhausted before noting that a customer will not pay for services rendered. The evaluation is inherently subjective and estimates may be revised as more information becomes available.
Revenue Recognition
As required by the Revenue Recognition Topic of FASB ASC, the Company is required to use predetermined contract methods in determining the current value for revenue.
Service Contracts Service revenue is recognized on a completed project basis - the Company invoices the client when it has completed the services, thereby, ensuring the client is legally liable to the Company for payment of the invoice. On service contracts, revenue is not recognized until the services have been performed.
In all cases, revenue is recognized as earned by the Company. As the client becomes liable to the Company for services provided, as defined in the agreement, the client is then invoiced and revenue is accordingly recognized and recorded. The Company does not recognize or record any revenues for which it does not have a legal basis for invoicing or legally collecting.
Income Taxes
As of December 31, 2013, the Company, with consent of its shareholders elected under the Internal Revenue Code to be taxed as an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed based on their proportionate share of the Company’s taxable income. As such, we have not provided for any deferred tax analysis.
Sales Taxes
The Company collects sales tax. The amount received is credited to a liability account as payments are received or invoices are generated. At any point in time, this account represents the net amount owed to the taxing authority for amounts collected but not yet remitted. Sales taxes are then remitted to the appropriate taxing jurisdictions.
Fair Value Accounting
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
NOTE 2: Recently adopted and recently issued accounting guidance
Adopted
In May 2011, the FASB (“Financial Accounting Standards Board”) issued an accounting standard update that amends the accounting standard on fair value measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. generally accepted accounting principles and International Financial Reporting Standards. The accounting standard update changes certain fair value measurement principles, clarifies the application of existing fair value measurement, and expands the fair value measurement disclosure requirements, particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.
In September 2011, the FASB issued an accounting standard update that amends the accounting guidance on goodwill impairment testing. The amendments in this accounting standard update are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments in this accounting standard update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial position, result of operations or cash flows.
Issued
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.
NOTE 3: Accounts receivable, net
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| Accounts receivable | | $ | 4,760,782 | | | $ | 4,852,011 | |
| Less: allowance for doubtful accounts | | | (1,989,215 | ) | | | (1,849,215 | ) |
| Total | | $ | 2,771,567 | | | $ | 3,002,796 | |
Returns and allowance expense for the year ended December 31, 2013 and 2012 was $140,000 and $1,593,526.
NOTE 4: Property, plant and equipment
Property, plant and equipment consist of the following (audited):
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| Leasehold improvements | | $ | 137,186 | | | $ | 137,186 | |
| Vehicles | | | 10,262,795 | | | | 11,984,681 | |
| Furniture and fixtures | | | 131,412 | | | | 110,871 | |
| Machinery and equipment | | | 10,731,948 | | | | 12,888,358 | |
| Total | | | 21,263,341 | | | | 25,121,096 | |
| Less: Accumulated depreciation | | | (6,043,639 | ) | | | (5,607,413 | ) |
| Total | | $ | 15,219,702 | | | $ | 19,513,683 | |
Depreciation expense for the year ended December 31, 2013 was $2,053,978 and for the year ended December 31, 2012 was $1,870,004.
As of December 31, 2013 and 2012, the Company had a loss on sale of fixed assets in the amount of $1,213,285 and $34,000, respectively.
Property and equipment (unaudited):
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| Vehicles | | $ | 1,952,875 | | | $ | 1,952,875 | |
| Machinery and equipment | | | 813,168 | | | | 813,168 | |
| Total | | | 2,766,043 | | | | 2,766,043 | |
| Less: Accumulated depreciation | | | (827,108 | ) | | | (694,303 | ) |
| Total | | $ | 1,938,935 | | | $ | 2,071,740 | |
In January 2011, the Company received assets valued at $3,363,378 in exchange for common stock in the Company’s subsidiary, Five Star Rentals, Inc. In November 2012, the common stock was returned and a promissory note issued. As of December 2013, and 2012, assets remaining had recorded values of $2,766,043. Upon issuance of the promissory note, a loss on settlement of obligation in the amount of $936,837 was recognized as of December 31, 2012. The Company had insufficient documentation on the valuation and depreciation of the property and equipment and related loss. Therefore an audit scope limitation was issued for the valuation and depreciation of the property and equipment and associated loss on settlement of obligation as of December 31, 2013 and 2012.
NOTE 5: Loans, Capital lease
The following tables represent the outstanding balance of loans for the Company as of December 31, 2013, and 2012.
| Description | Loan date | Maturity date | Original amount of loan | Interest rate | Balance as of December 31, |
| 2013 | | 2012 |
| Ally | 01/24/2011 | 01/08/2014 | $ 44,428 | 0.00% | $ 2,468 | | $ 17,093 |
| Ally | 07/07/2011 | 07/07/2014 | 58,038 | 0.00% | 8,061 | | 28,938 |
| Ally | 04/01/2011 | 04/14/2014 | 34,635 | 0.00% | 3,849 | | 15,297 |
| Ally | 03/10/2013 | 02/10/2019 | 43,395 | 4.00% | 38,044 | | -- |
| Cat Financial | 12/09/2012 | 11/09/2016 | 186,549 | 5.95% | 140,825 | | 183,762 |
| CMI Teco | 90/20/2012 | 07/20/2013 | 525,328 | 0.00% | -- | | 437,412 |
| G Rasmussen | 01/23/2012 | 07/16/2013 | 253,748 | 7.00% | -- | | 42,867 |
| Peoples United Bank | 01/20/2012 | 01/29/2016 | 734,640 | 10.10% | 294,066 | | 416,114 |
| Phil Timothy | 11/17/2012 | 03/28/2023 | 2,650,000 | 6.00% | 2,484,608 | | 2,650,000 |
| Ford Credit | 04/16/2012 | 03/16/2016 | 23,700 | 4.34% | 16,023 | | 20,204 |
| Ford Credit | 10/28/2011 | 09/28/2015 | 28,700 | 6.39% | 18,015 | | 23,200 |
| Ford Credit | 10/28/2011 | 09/28/2016 | 44,576 | 3.74% | 18,189 | | 29,038 |
| Ford Credit | 03/05/2011 | 06/05/2016 | 88,575 | 7.89% | 59,286 | | 73,930 |
| Ford Credit | 03/30/2011 | 02/28/2015 | 56,372 | 6.49% | 24,761 | | 34,717 |
| Ford Credit | 12/15/2011 | 03/29/2017 | 73,005 | 7.89% | 52,100 | | 61,596 |
| Ford Credit | 11/29/2011 | 10/29/2015 | 36,700 | 6.54% | 16,584 | | 25,325 |
| Ford Credit | 11/29/2011 | 10/29/2015 | 34,400 | 6.54% | 15,545 | | 23,734 |
| Ford Credit | 06/15/2011 | 09/30/2015 | 94,000 | 5.74% | 35,312 | | 48,812 |
| Ford Credit | 06/04/2012 | 09/19/2016 | 45,994 | 8.29% | 34,218 | | 41,135 |
| GE Capital | 11/10/2012 | 10/10/2018 | 189,151 | 6.42% | 157,890 | | 184,827 |
| GE Capital | 08/01/2012 | 07/01/2018 | 153,944 | 7.24% | 124,130 | | 146,176 |
| John Deere Financial | 10/26/2012 | 09/26/2017 | 262,350 | 4.00% | 205,736 | | 254,427 |
| Mack Financial Services | 04/12/2011 | 03/12/2016 | 326,746 | 0.00% | 166,590 | | 230,141 |
| Mack Financial Services | 12/09/2011 | 11/09/2016 | 347,520 | 0.00% | 216,748 | | 281,805 |
| Mack Financial Services | 02/18/2012 | 01/18/2017 | 275,770 | 0.00% | 181,252 | | 232,141 |
| Mack Financial Services | 02/24/2013 | 01/24/2018 | 244,684 | 6.00% | 205,128 | | -- |
| MACU | 11/26/2013 | 10/26/2018 | 41,540 | 2.99% | 40,897 | | -- |
| Zion’s Bank | 10/12/2011 | 10/15/2026 | 150,000 | 4.86% | 133,006 | | 141,197 |
| Zion’s Bank | 11/10/2011 | 10/10/2016 | 101,091 | 4.57% | 52,701 | | 72,504 |
| Zion’s Bank | 10/30/2012 | 09/30/2017 | 7,680,000 | 4.57% | 6,091,893 | | 7,489,342 |
| Zion’s Bank | 06/13/2008 | 09/15/2013 | 800,000 | 7.52% | -- | | -- |
| Zion’s Bank | 02/16/2011 | 02/16/2016 | 1,500,000 | 5.50% | -- | | -- |
| Zion’s Bank | 05/19/2011 | 05/19/2016 | 250,000 | 6.04% | -- | | -- |
| Zion’s Bank | 06/15/2010 | 06/15/2013 | 250,000 | 5.84% | -- | | -- |
| Zion’s Bank | 02/07/2012 | 05/07/2017 | 2,500,000 | 5.01% | -- | | -- |
| Zion’s Bank | 02/07/2012 | 02/07/2013 | 500,000 | 4.52% | -- | | -- |
| H&E – Capital lease | 10/22/2011 | 10/22/2015 | 105,800 | 12.00% | 65,548 | | 71,500 |
| H&E – Capital lease | 10/22/2011 | 07/01/2015 | 105,000 | 12.00% | 65,860 | | 78,150 |
| H&E – Capital lease | 10/22/2011 | 07/01/2015 | 106,000 | 12.00% | 63,390 | | 71,700 |
| H&E – Capital lease | 10/22/2011 | 07/01/2015 | 102,000 | 12.00% | 57,735 | | 72,600 |
| H&E – Capital lease | 10/18/2011 | 07/01/2015 | 95,500 | 12.00% | 57,755 | | 61,200 |
| H&E – Capital lease | 12/01/2012 | 01/17/2014 | 95,000 | 12.00% | 43,734 | | 77,850 |
| H&E – Capital lease | 12/01/2012 | 01/17/2014 | 105,000 | 12.00% | 53,922 | | 98,600 |
| H&E – Capital lease | 12/15/2012 | 01/15/2014 | 107,550 | 12.00% | 24,168 | | 56,950 |
| H&E – Capital lease | 12/20/2012 | 01/20/2014 | 95,000 | 12.00% | 43,697 | | 77,850 |
| H&E – Capital lease | 12/20/2012 | 01/20/2014 | 95,000 | 12.00% | 41,247 | | 77,850 |
| H&E – Capital lease | 03/01/2010 | 06/30/2013 | 97,000 | 12.00% | -- | | 44,658 |
| H&E – Capital lease | 10/18/2011 | 06/30/2013 | 28,300 | 12.00% | -- | | 21,700 |
| H&E – Capital lease | 03/01/2011 | 06/30/2013 | 119,500 | 12.00% | -- | | 74,909 |
| H&E – Capital lease | 12/01/2011 | 06/30/2013 | 74,800 | 12.00% | -- | | 55,797 |
| H&E – Capital lease | 10/18/2012 | 06/30/2013 | 25,675 | 12.00% | -- | | 2,125 |
| H&E – Capital lease | 06/01/2012 | 06/30/2013 | 27,640 | 12.00% | -- | | 4,090 |
| H&E – Capital lease | 08/01/2011 | 06/30/2013 | 57,000 | 12.00% | -- | | 21,750 |
| H&E – Capital lease | 07/01/2011 | 06/30/2013 | 76,945 | 12.00% | -- | | 35,745 |
| H&E – Capital lease | 10/18/2011 | 06/30/2013 | 49,000 | 12.00% | -- | | 14,700 |
| H&E – Capital lease | 01/01/2012 | 06/30/2013 | 47,000 | 12.00% | -- | | 32,447 |
| H&E – Capital lease | 07/01/2011 | 06/30/2013 | 62,700 | 12.00% | -- | | 23,500 |
| H&E – Capital lease | 09/01/2011 | 06/30/2013 | 61,000 | 12.00% | -- | | 26,700 |
| H&E – Capital lease | 12/01/2010 | 06/30/2013 | 68,500 | 12.00% | -- | | 14,450 |
| H&E – Capital lease | 02/12/2012 | 06/30/2013 | 38,000 | 12.00% | -- | | 17,520 |
Premium Capital Insurance | -- | -- | -- | -- | 619 | | 262,095 |
| National Insurance | -- | -- | -- | -- | 216,909 | | -- |
| American Express | -- | -- | -- | -- | 221,711 | | -- |
| Total debt liabilities | | | | | $11,794,220 | | $14,602,170 |
| Less: Current portion | | | | | 3,445,219 | | 4,041,821 |
| Total long-term liabilities | | | | $ 8,349,001 | | $10,560,349 |
In October 2012, the Company entered into a debt agreement with Zion’s bank in the amount of $7,680,000. The proceeds of this loan were used to restructure the Company’s obligations on other loans for Zion’s bank, the refinancing of these loans paid off outstanding balances and brought all the loans under one payment and interest rate.
Interest expense for the year ended December 31, 2013 was $906,904 and for the year ended December 31, 2012 was $780,828.
The aggregate maturities of long-term debt for the next five (5) years ending December 31 are as follows:
| | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | Total | |
| | $ | 3,445,219 | | | $ | 2,376,597 | | | $ | 2,280,407 | | | $ | 2,010,576 | | | $ | 1,681,421 | | | $ | 11,794,220 | |
Line of credit
The Company has a $500,000 unsecured line of credit with Zion’s First National Bank. At December 31, 2013, interest was charged at LIBOR + 3.85%. The line of credit is scheduled for renewal November 16, 2015. The line of credit balance as of December 31, 2013 and 2012 was $181,163 and $499,805, respectively.
NOTE 6: Commitment and contingencies
Settlement of judgment
On June 5, 2012, the Company entered into a judgment with one of its customers over a past due balance. The period in which the revenue was recognized was in the fiscal year of 2008. The judgment outlines the facts: (1) the customer stopped payments to the Company even upon assurance that it was going to make good on its balance owed, (2) the Company did extend the terms of collecting the funds out past its normal billing cycle, (3) The Company stopped its services when it was clear that the balance owed was not going to be paid. These facts were entered into court proceedings and the court ruled in favor of the Company to be awarded a settlement in the amount of $572,174, which included attorney fees. This settlement amount paid the outstanding balance owed to the Company.
Debt restructuring
Fifteen (15) capitalized leases were settled at a lower payment, resulting in a gain on debt extinguishment which was recognized in 2013 in the amount of $181,425.
NOTE 7: Related party transactions
The following tables represent the outstanding balance of related party debt for the Company as of December 31, 2013, and 2012.
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| Jason Jensen | | $ | 616,932 | | | $ | 269,587 | |
| David Gurr | | | 553,821 | | | | -- | |
| Total related party debt | | | 1,170,753 | | | | 269,587 | |
| Less: Current portion | | | 782,784 | | | | 203,204 | |
| Total long term related party | | $ | 387,969 | | | $ | 66,383 | |
On December 31, 2012, the Company entered into a promissory note with an officer of the Company, for $269,587. The term of the loan was to repay the loan in the amount of $269,587 with a 6% annual interest to start as of December 31, 2012. Both principle and interest are to be repaid in a “balloon” payment at the end of the note term of January 31, 2016. As of December 31, 2013, the note was increased from $269,587 to $616,932 as additional assets were purchased by the officer on behalf of the Company. As of December 31, 2013, we owed $616,932 plus accrued interest in the amount of $16,175.
On January 31, 2013, the Company entered into a promissory note with an officer of the Company, for $80,000, and on March 15, 2013, the Company entered into another note agreement with the same officer in the amount of $500,000, with a maturity date of January 1, 2016. During the fiscal year the Company repaid $70,000 of the outstanding principle. The terms of the loan are to make interest payments only on the principle balance of $510,000 with a 7.05% annual interest starting December 31, 2013. As of December 31, 2013, we owed $553,821 plus accrued interest in the amount of $0.
NOTE 8: Exit costs
As a part of operations growth strategies, the Company expanded operations into Belfield, North Dakota in 2012. The expansion plans included the building of a facility for the Company to serve customers in the North Dakota region. In the third quarter of 2012, it was determined by management to forego the implementation of this expansion due to reasons out of the control of management. The Company closed down all activity, turned over its facility, and relocated its assets to other operational sites. The Company expensed all costs associated with this expansion including costs attributable to management’s efforts. This resulted in an exit cost loss of $491,266 as of December 31, 2012.
NOTE 9: Income taxes
As of December 31, 2013, the Company, with consent of its shareholders, elected under the Internal Revenue Code to be taxed as an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed based on their proportionate share of the Company’s taxable income. As such, we have not provided for any deferred tax analysis.
The Company files income tax returns in the United States federal jurisdiction and certain state jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal or state income tax examination by tax authorities on tax returns filed before December 31, 2005. The Company will file its U.S. federal return for the year ended December 31, 2013. The federal and state filing payments have not been made for 2013 as of the date of this filing. The U.S. federal returns are considered open tax years for years 2007 - 2013. There are currently no corporate tax filings under examination by IRS tax authorities.
NOTE 10: Equity
Common stock
The Company has authorized 50,000 shares common stock at $1.00 par value. As of December 31, 2013 and 2012, 1,000 shares are issued and outstanding. The principle owners of the Company own 100% of the total outstanding common stock.
In 2012, the principles of the Company issued disbursements from the Company’s proceeds in the amount of $720,792. For the year ended December 31, 2013, the principles have not issued any additional disbursements.
NOTE 11: Acquisitions, subsequent events
Acquisition of JD Field Services
On February 24, 2014, the Company entered into a purchase and sale agreement with National Automation Services, Inc. (referred herein as “NAS” or the “buyer”). JD provides services to the oil and gas industry primarily focused around those activities that are related to oilfield services. On March 21, 2014, the Company amended its purchase and sale agreement to NAS as the original PSA left a 6 month “unwinding” provision should NAS not be able to achieve its benchmarks in uplifting and repayment of JD debt in the course of 270 days. We have amended this position to the following, (1) NAS shall pay or assume all outstanding debt of JD. Payment on debt held by JD where the Sellers have executed personal guarantees shall be given priority over other non-priority debts, and payments on such personally guaranteed debt will be accelerated if NAS or JD profits are sufficient to do so. (2) Each Seller of JD shall receive six percent (6%) of the outstanding common stock of NAS, constituting approximately six percent (6%) each of the total equity of NAS, but not requiring any fractional shares, or approximately fifty-nine million (59,000,000) shares each. (3) NAS shall provide to JD a Power of Attorney representing voting rights and control over approximately eighteen percent (18%) of the equity interests in NAS; holding in reserve, one hundred fifty eight million (158,000,000) shares of NAS Class A Common Stock to be representative of this Interest. (4) NAS shall pay any broker's commission associated with the purchase of JD interests, up to five hundred thousand dollars ($500,000). NAS shall pay any remaining broker's commissions.
The following is pro forma information as as of December 31, 2013 that discloses the results of operations as though the business combination had been completed as of the beginning of the period being reported on.
NATIONAL AUTOMATION SERVICES, INC., CONSOLIDATED PRO FORMA BALANCE SHEETS | | JD | | | NAS | | | Pro-forma Adjustments | | | Pro forma | |
| | | DEC 31, 2013 | | | DEC 31, 2013 | | | DEC 31, 2013 | | | DEC 31, 2013 | |
| | | | | | | | | | | | | |
| ASSETS | | (audited) | | | (audited) | | | (unaudited) | | | (unaudited) | |
| CURRENT ASSETS | | | | | | | | | | | | |
| Cash | | $ | 4,182 | | | $ | 17,696 | | | $ | -- | | | $ | 21,878 | |
| Accounts receivable | | | 2,771,567 | | | | -- | | | | -- | | | | 2,771,567 | |
| Prepaid expenses | | | 252,026 | | | | -- | | | | -- | | | | 252,026 | |
| Total current assets | | $ | 3,027,775 | | | $ | 17,696 | | | $ | -- | | | $ | 3,045,471 | |
| Property, plant and equipment, net | | | 15,219,702 | | | | -- | | | | -- | | | | 15,219,702 | |
| Deferred financing fees, net | | | 29,402 | | | | -- | | | | -- | | | | 29,402 | |
| Goodwill | | | -- | | | | -- | | | | 12,773,886 | | | | 12,773,886 | |
| TOTAL ASSETS | | $ | 18,276,879 | | | $ | 17,696 | | | $ | 12,773,886 | | | $ | 31,068,461 | |
| | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
| Accounts payables and accrued liabilities | | | 2,301,047 | | | | 2,452,798 | | | | -- | | | | 4,753,845 | |
| Current portion of loans, capital leases and line of credit | | | 3,626,382 | | | | 94,517 | | | | -- | | | | 3,720,899 | |
Convertible debt, net of beneficial conversion feature net of $920 and $5,989, respectively | | | -- | | | | 173,580 | | | | -- | | | | 173,580 | |
| Related party payable | | | 782,784 | | | | 172,173 | | | | -- | | | | 954,957 | |
| Total current liabilities | | $ | 6,710,213 | | | $ | 2,893,068 | | | $ | -- | | | $ | 9,603,281 | |
| Long-term loans, capital leases and line of credit | | | 8,349,001 | | | | 169,500 | | | | -- | | | | 8,518,501 | |
| Long term portion of related party | | | 387,969 | | | | -- | | | | -- | | | | 387,969 | |
| Total liabilities | | $ | 15,447,183 | | | $ | 3,062,568 | | | $ | -- | | | $ | 18,509,751 | |
| STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | | | | | | | | |
Common stock $0.001 par value, 1,000,000,000 authorized, 615,986,053 issued and outstanding 2013 | | | 1,000 | | | | 615,987 | | | | (1,000 | ) | | | 615,987 | |
| Additional paid in capital | | | (720,792 | ) | | | 12,058,574 | | | | 720,792 | | | | 12,058,574 | |
| Stock payable | | | -- | | | | 375,172 | | | | 3,540,000 | | | | 3,915,172 | |
| Accumulated income (deficit) | | | 3,549,488 | | | | (16,094,605 | ) | | | 8,514,094 | | | | (4,031,023 | ) |
| Total stockholders’ equity (deficit) | | | 2,829,696 | | | | (3,044,872 | ) | | | 12,773,886 | | | | 12,558,710 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 18,276,879 | | | $ | 17,696 | | | $ | 12,773,886 | | | $ | 31,068,461 | |
NATIONAL AUTOMATION SERVICES, INC., CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (unaudited) | | YEAR ENDED DECEMBER 31, 2013 | | | YEAR ENDED DECEMBER 31, 2013 | | | YEAR ENDED DECEMBER 31, 2013 | | | YEAR ENDED DECEMBER 31, 2013 | |
| | | JD (audited) | | | NAS (audited) | | | Adjustments (unaudited) | | | Pro forma (unaudited) | |
| REVENUE | | $ | 19,554,394 | | | $ | -- | | | $ | -- | | | $ | 19,554,394 | |
| Less: returns and allowances | | | (140,000 | ) | | | -- | | | | -- | | | | (140,000 | ) |
| NET REVENUE | | | 19,414,394 | | | | -- | | | | -- | | | | 19,414,394 | |
| | | | | | | | | | | | | | | | | |
| COST OF REVENUE | | | 16,936,050 | | | | -- | | | | -- | | | | 16,936,050 | |
| GROSS PROFIT | | | 2,478,344 | | | | -- | | | | -- | | | | 2,478,344 | |
| OPERATING EXPENSES | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 1,714,958 | | | | 177,790 | | | | -- | | | | 1,892,748 | |
| Professional fees and related expenses | | | 63,843 | | | | 463,626 | | | | -- | | | | 527,469 | |
| Gain on accrued expense extinguishment | | | -- | | | | (435,446 | ) | | | -- | | | | (435,446 | ) |
| TOTAL OPERATING EXPENSES | | | 1,778,801 | | | | 205,970 | | | | -- | | | | 1,984,771 | |
| OPERATING INCOME (LOSS) | | $ | 699,543 | | | $ | (205,970 | ) | | $ | -- | | | $ | 493,573 | |
| OTHER EXPENSE, non-operating | | | | | | | | | | | | | | | | |
| Gain on debt extinguishment | | | (181,425 | ) | | | (206,835 | ) | | | -- | | | | (388,260 | ) |
| Loss on disposal of fixed asset | | | 1,213,285 | | | | -- | | | | -- | | | | 1,213,285 | |
| Interest expense, net | | | 906,904 | | | | 281,461 | | | | -- | | | | 1,188,365 | |
| TOTAL OTHER EXPENSE, non-operating | | | 1,938,764 | | | | 74,626 | | | | -- | | | | 2,013,390 | |
LOSS BEFORE PROVISION FOR INCOME TAXES | | | (1,239,221 | ) | | | (280,596 | ) | | | -- | | | | (1,519,817 | ) |
| PROVISION FOR INCOME TAXES | | | -- | | | | -- | | | | -- | | | | -- | |
| NET LOSS | | $ | (1,239,221 | ) | | $ | (280,596 | ) | | $ | -- | | | $ | (1,519,817 | ) |
| BASIC LOSS PER SHARE | | $ | -- | | | $ | (0.00 | ) | | $ | -- | | | $ | (0.00 | ) |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC & DILUTED | | | -- | | | | 432,089,766 | | | | -- | | | | 432,089,766 | |
The Company is finalizing this transaction including putting a final valuation on a customer list which will qualify for separate disclosure and accounting apart from goodwill.
None
