Exhibit 99.2
TLK PARTNERS, LLC
CONTENTS
Balance Sheets |
|
Statements of Income and Members’ Equity (Deficit) |
|
Statements of Cash Flows |
|
Notes to Financial Statements |
TLK PARTNERS, LLC
BALANCE SHEETS
| | June 30, | | December 31, | |
| | 2014 | | 2013 | |
| | (Unaudited) | | (Derived from | |
| | | | audited financial | |
| | | | statements) | |
Assets | | | | | |
Current assets: | | | | | |
Cash | | $ | 1,309,615 | | $ | 365,996 | |
Accounts receivable - natural gas sales | | 1,057,639 | | 1,240,409 | |
Prepaid expenses | | 6,400 | | 13,320 | |
| | | | | |
Total current assets | | 2,373,654 | | 1,619,725 | |
| | | | | |
Debt issue costs, net of accumulated amortization of $25,000 | | 100,000 | | — | |
| | | | | |
Natural gas properties and equipment, at cost, based on successful efforts accounting | | 28,982,136 | | 26,839,675 | |
| | | | | |
Accumulated depreciation, depletion and amortization | | (4,378,562 | ) | (3,196,193 | ) |
| | | | | |
Natural gas properties and equipment, net | | 24,603,574 | | 23,643,482 | |
| | | | | |
Total assets | | $ | 27,077,228 | | $ | 25,263,207 | |
| | | | | |
Liabilities and Members’ Equity (Deficit) | | | | | |
Current liabilities: | | | | | |
Accounts payable: | | | | | |
Affiliate | | $ | — | | $ | 198,500 | |
Trade | | 488,509 | | 975,518 | |
Accrued interest | | — | | 182,119 | |
Deposit | | 400,000 | | — | |
Notes payable to bank | | 24,767,882 | | 23,500,000 | |
| | | | | |
Total current liabilities | | 25,656,391 | | 24,856,137 | |
| | | | | |
Deposit | | — | | 400,000 | |
| | | | | |
Asset retirement obligations | | 481,554 | | 481,554 | |
| | | | | |
Members’ equity (deficit) | | 939,283 | | (474,484 | ) |
| | | | | |
Total liabilities and members’ equity (deficit) | | $ | 27,077,228 | | $ | 25,263,207 | |
See notes to financial statements.
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TLK PARTNERS, LLC
STATEMENTS OF INCOME AND MEMBERS’ EQUITY (DEFICIT)
(Unaudited)
| | Three months ended | | Six months ended | |
| | June 30, | | June 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | |
Natural gas sales | | $ | 1,962,148 | | $ | 1,314,660 | | $ | 4,327,867 | | $ | 2,648,418 | |
| | | | | | | | | |
Operating costs and expenses: | | | | | | | | | |
Lease operating costs | | 442,322 | | 110,828 | | 868,701 | | 285,709 | |
Depreciation, depletion, and amortization | | 586,094 | | 433,206 | | 1,182,369 | | 854,481 | |
General and administrative expenses: | | | | | | | | | |
Guaranteed payments to members | | — | | 50,000 | | 235,000 | | 281,000 | |
Management fees to affiliate | | — | | 150,000 | | — | | 300,000 | |
Other | | 76,599 | | 18,397 | | 97,544 | | 39,771 | |
| | | | | | | | | |
Total operating costs and expenses | | 1,105,015 | | 762,431 | | 2,383,614 | | 1,760,961 | |
| | | | | | | | | |
Income from operations | | 857,133 | | 552,229 | | 1,944,253 | | 887,457 | |
| | | | | | | | | |
Other income (expense): | | | | | | | | | |
Net gains (losses) on natural gas trading with an affiliate | | (112,000 | ) | — | | 139,072 | | 241,450 | |
Gain on sale of natural gas properties and equipment | | — | | — | | — | | 190,052 | |
Amortization of debt issue costs | | (25,000 | ) | (17,916 | ) | (25,000 | ) | (35,833 | ) |
Interest expense | | (316,871 | ) | (352,048 | ) | (618,983 | ) | (716,432 | ) |
| | | | | | | | | |
Total other income (expense) | | (453,871 | ) | (369,964 | ) | (504,911 | ) | (320,763 | ) |
| | | | | | | | | |
Net income | | 403,262 | | 182,265 | | 1,439,342 | | 566,694 | |
| | | | | | | | | |
Members’ equity (deficit), beginning of period | | 561,596 | | (722,925 | ) | (474,484 | ) | (947,854 | ) |
| | | | | | | | | |
Distributions to members | | (25,575 | ) | (113,316 | ) | (25,575 | ) | (272,816 | ) |
| | | | | | | | | |
Members’ equity (deficit), end of period | | $ | 939,283 | | $ | (653,976 | ) | $ | 939,283 | | $ | (653,976 | ) |
See notes to financial statements.
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TLK PARTNERS, LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
| | Six months ended | |
| | June 30, | |
| | 2014 | | 2013 | |
| | | | | |
Cash Flows from Operating Activities | | | | | |
Net income | | $ | 1,439,342 | | $ | 566,694 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, depletion and amortization | | 1,182,369 | | 854,481 | |
Amortization of debt issue costs | | 25,000 | | 35,833 | |
Gain on sale of natural gas properties and equipment | | — | | (190,052 | ) |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable natural gas sales | | 182,770 | | 129,992 | |
Prepaid expenses | | 6,920 | | (6,660 | ) |
Accounts payable | | (685,509 | ) | (215,439 | ) |
Accrued interest | | (182,119 | ) | (20,000 | ) |
| | | | | |
Net cash provided by operating activities | | 1,968,773 | | 1,154,849 | |
| | | | | |
Cash Flows from Investing Activities | | | | | |
Purchases of properties and equipment | | (2,142,461 | ) | (1,335,474 | ) |
Proceeds from sale of natural gas properties and equipment | | — | | 400,000 | |
| | | | | |
Net cash used in investing activities | | (2,142,461 | ) | (935,474 | ) |
| | | | | |
Cash Flows from Financing Activities | | | | | |
Debt issue costs paid | | (125,000 | ) | — | |
Borrowings | | 1,500,000 | | 900,000 | |
Principal payments on notes payable | | (232,118 | ) | (1,641,202 | ) |
Increase in deposit | | — | | 400,000 | |
Distributions to members | | (25,575 | ) | (272,816 | ) |
| | | | | |
Net cash provided by (used in) financing activities | | 1,117,307 | | (614,018 | ) |
| | | | | |
Net increase (decrease) in cash | | 943,619 | | (394,643 | ) |
Cash, beginning of period | | 365,996 | | 419,312 | |
| | | | | |
Cash, end of period | | $ | 1,309,615 | | $ | 24,669 | |
| | | | | |
Supplemental Disclosure of Cash Flow Information | | | | | |
Cash paid for interest | | $ | 801,102 | | $ | 736,432 | |
See notes to financial statements.
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TLK PARTNERS, LLC
NOTES TO FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited financial information of TLK Partners, LLC (the Company) has been prepared in accordance with Financial Accounting Standards Board Accounting Standards Codification 270 Interim Reporting. Management of the Company believes that all adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the periods have been included. All such adjustments are of a normal recurring nature. The results are not necessarily indicative of those to be expected for the full year. Certain amounts and disclosures have been condensed or omitted from these financial statements. Therefore, these financial statements should be read in conjunction with the Company’s December 31, 2013, audited financial statements and related notes thereto.
Note 2 — Income Tax Status
As a limited liability company, the Company’s taxable income or loss is allocated to members in accordance with their respective percentage ownership. Therefore, no provision or liability for income taxes has been included in the accompanying financial statements. The Company is subject to income tax examinations by the federal or state tax authorities for years 2010 (inception) through 2013.
Note 3 — Credit Facilities
| | June 30,
2014 | | December 31,
2013 | |
| | | | | |
6.25% term loan to bank | | $ | — | | $ | 21,500,000 | |
6.25% revolving line of credit to bank | | — | | 2,000,000 | |
Line of credit to bank (A) | | 24,767,882 | | — | |
| | | | | |
| | 24,767,882 | | 23,500,000 | |
Less current portion | | 24,767,882 | | 23,500,000 | |
| | | | | |
Noncurrent portion | | $ | — | | $ | — | |
(A) On May 15, 2014, the Company obtained a credit agreement with a bank (the Credit Agreement) which provided for a $25 million line of credit. Borrowings under the Credit Agreement were used to pay existing bank debt and to finance the drilling and completion of the Company’s natural gas properties and are collateralized by mortgages on all of the Company’s natural gas properties and by guarantees from all members of the Company. Monthly payments, including interest at prime plus 1% with a floor of 5.75%, of $300,000 are due from June 1, 2014 through November 1, 2014, $400,000 is due on December 1, 2014, and the balance is due on
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December 31, 2014. Mandatory prepayments are required in amounts equal to excess cash flow (as defined). The Company is required to comply with negative covenants which limit, among other things, sales of assets, additional borrowings, members’ distributions, and transactions with affiliates (see Note 6).
Note 4 — Related Party Transactions
Guaranteed payments to members constitute their salaries for services provided to the Company.
The Company does not have any employees. The employees supporting the administration and management of the Company are employees of an affiliate. The affiliate provided these services at no charge to the Company in the three months and six months ended June 30, 2014.
The Company has net gains (losses) on natural gas trading activities with an affiliate.
Note 5 — Concentrations of Credit Risk
At June 30, 2014, the Company had cash in a financial institution which exceeded federally insured limits. The members believe that credit risk related to this balance is minimal. Substantially all of the Company’s natural gas sales are to one purchaser. This purchaser comprised substantially all of accounts receivable natural gas sales at June 30, 2014.
Note 6 — Subsequent Events
On July 6, 2014, the Company entered into a Purchase and Sale Agreement to sell all of its natural gas properties and equipment for $29,633,334 in cash subject to post-closing adjustments. The sale closed on August 11, 2014. Pursuant to the Company’s Credit Agreement, sales proceeds were used to pay off the Company’s outstanding bank debt on August 11, 2014.
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