SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): April 1, 2005
ALLIS-CHALMERS ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-2199
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER)
OF INCORPORATION)
39-0126090
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
5075 WESTHEIMER, SUITE 890
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: 713-369-0550
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
[ ] Written Communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the exchange ct (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Section 9. Financial Statements and Exhibits
Item 9.01 - Financial Statements and Exhibits
(a) Financial Statements of business acquired.
(1) Financial Statements of Delta Rental Service, Inc.:
Independent Auditors' Report F-1
Balance Sheets for the Years Ended December 31, 2004
and 2003 F-2
Statements of Operations for the Years Ended December 31,
2004 and 2003 F-4
Statements of Retained Earnings for the Years Ended
December 31, 2004 and 2003 F-5
Statements of Cash Flows for the Years Ended December
31, 2004 and 2003 F-6
Notes to Financial Statements F-8
(2) Financial Statements of Capcoil Tubing Services, Inc.:
Independent Auditors' Report F-13
Balance Sheets for the Years Ended December 31, 2004
and 2003 F-14
Statements of Operations and Retained Earnings for the
Years Ended December 31, 2004 and 2003 F-16
Statements of Cash Flows for the Years Ended December
31, 2004 and 2003 F-17
Notes to Financial Statements F-18
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Condensed Financial Statements F-29
Unaudited Pro Forma Consolidated Condensed Statement of
Financial Position as of March 31, 2005 F-30
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Three Months Ended March 31, 2005 F-32
Unaudited Pro Forma Consolidated Condensed Statement of
Financial Position as of December 31, 2004 F-34
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Year Ended December 31, 2004 F-36
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements F-40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALLIS-CHALMERS ENERGY, INC.
By: /s/ Victor M. Perez
----------------------------
Victor M. Perez
Chief Financial Officer
Date: June 10, 2005
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Delta Rental Service, Inc.
Scott, Louisiana
We have audited the accompanying Balance Sheets of Delta Rental Service, Inc. (a
Louisiana corporation) as of December 31, 2004 and 2003 and the related
Statements of Income, Retained Earnings and Cash Flows for the twelve months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta Rental Service, Inc. as
of December 31, 2004 and 2003 and the results of their operations and cash flows
for the twelve months then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ WRIGHT, MOORE, DEHART,
DUPUIS & HUTCHINSON, L.L.C.
Certified Public Accountants
March 23, 2005
F-1
DELTA RENTAL SERVICE, INC.
BALANCE SHEETS
DECEMBER 31,
2004 2003
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 891,338 $ 705,553
Accounts Receivable 1,095,587 713,929
Prepaid Insurance 13,838 14,067
Prepaid Income Taxes -- 51,411
Current Deferred Tax Asset -- 77,595
------------- -------------
Employee Advances
Total Current Assets 2,000,763 1,562,555
------------- -------------
PROPERTY AND EQUIPMENT
Office Equipment 33,624 32,407
Rental Equipment 3,699,987 3,341,816
Transportation Equipment 144,260 144,260
Yard Equipment 77,211 77,211
------------- -------------
Total 3,955,082 3,595,694
Less: Accumulated Depreciation (2,610,143) (2,307,864)
------------- -------------
Net Property and Equipment 1,344,939 1,287,830
------------- -------------
OTHER ASSETS
Cash Surrender Value of Life Insurance 38,261 35,446
------------- -------------
Total Other Assets 38,261 35,446
------------- -------------
TOTAL ASSETS $ 3,383,963 $ 2,885,831
============= =============
The accompanying notes are an integral part of this statement.
F-2
DELTA RENTAL SERVICE, INC.
BALANCE SHEETS
DECEMBER 31,
2004 2003
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 53,949 $ 40,829
Payroll Liabilities Payable 17,157 16,063
Sales Tax Payable 12,308 3,487
Accrued Interest Expense 3,734 4,244
Income Taxes Payable 92,448 --
Current Portion of Stockholder Loan 93,994 87,674
------------- -------------
Total Current Liabilities 273,590 152,297
------------- -------------
LONG-TERM LIABILITIES
Stockholder Loan (Less Current Portion) 547,784 641,775
Long-Term Deferred Tax Liability 353,147 311,762
------------- -------------
Stockholder Loan
Total Long-Term Liabilities 900,931 953,537
------------- -------------
Total Liabilities 1,174,521 1,105,834
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock (No Par Value, 300,000 Shares Authorized,
27,083 Shares Issued and 8,333 Outstanding) 27,083 27,083
Additional Paid-In Capital 64,574 64,574
Retained Earnings 3,117,785 2,688,340
Less: Treasury Stock (18,750 Shares at Cost) (1,000,000) (1,000,000)
------------- -------------
Total Stockholders' Equity 2,209,442 1,779,997
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,383,963 $ 2,885,831
============= =============
The accompanying notes are an integral part of this statement.
F-3
DELTA RENTAL SERVICE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2004 2003
------------- -------------
REVENUES $ 3,249,338 $ 2,662,091
COST OF REVENUES
Direct 796,194 766,196
------------- -------------
GROSS PROFIT 2,453,144 1,895,895
ADMINISTRATIVE EXPENSES
General and Administrative 1,798,414 1,926,173
Depreciation 30,061 31,678
------------- -------------
Total Administrative Expenses 1,828,475 1,957,851
------------- -------------
INCOME (LOSS) FROM OPERATIONS 624,669 (61,956)
------------- -------------
OTHER INCOME (EXPENSES)
Interest Expense (48,503) (61,177)
Interest Income 4,064 2,234
Life Insurance Dividends 930 930
Gain on Sale of Assets 113,435 354,382
------------- -------------
Total Other Income (Expenses) 69,926 296,369
------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES 694,595 234,413
------------- -------------
PROVISION FOR INCOME TAXES
Current 146,170 --
Deferred 118,980 134,274
------------- -------------
Total Income Tax Provision 265,150 134,274
------------- -------------
NET INCOME $ 429,445 $ 100,139
============= =============
The accompanying notes are an integral part of this statement.
F-4
DELTA RENTAL SERVICE, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
2004 2003
-------------- --------------
BEGINNING BALANCE $ 2,688,340 $ 2,588,201
NET INCOME 429,445 100,139
-------------- --------------
ENDING BALANCE $ 3,117,785 $ 2,688,340
============== ==============
The accompanying notes are an integral part of this statement.
F-5
DELTA RENTAL SERVICE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 429,445 $ 100,139
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and Amortization 346,615 308,587
Gain on Sale of Assets (113,435) (354,382)
Change in Assets and Liabilities:
Accounts Receivable (381,658) (7,963)
Prepaid Expenses 51,640 62,610
Accounts Payable and Accrued Expenses 114,973 (29,129)
Deferred Taxes 118,980 134,274
------------ ------------
Total Adjustments 137,115 113,997
------------ ------------
Net Cash Provided By Operating Activities 566,560 214,136
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (480,371) (781,152)
Proceeds from Sale of Assets 190,082 522,911
Cash Surrender Value - Life Insurance (2,815) (2,816)
------------ ------------
Net Cash Used In Investing Activities (293,104) (261,057)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Treasury Stock Note -- (506,036)
Proceeds From Long-Term Debt -- --
Proceeds From Stockholder Note Payable -- 450,000
Principal Payments Stockholder Note Payable (87,671) (20,550)
------------ ------------
Net Cash Used in Financing Activities (87,671) (76,586)
------------ ------------
The accompanying notes are an integral part of this statement.
F-6
DELTA RENTAL SERVICE, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED DECEMBER 31,
2004 2003
------------- -------------
NET INCREASE (DECREASE) IN CASH 185,785 (123,507)
CASH AT BEGINNING OF YEAR 705,553 829,060
------------- -------------
CASH AT END OF YEAR $ 891,338 $ 705,553
============= =============
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 49,013 $ 84,650
============= =============
Income Taxes Paid $ 2,311 $ 37,460
============= =============
The accompanying notes are an integral part of this statement.
F-7
DELTA RENTAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Delta Rental Service, Inc. (the Company) is
incorporated in the State of Louisiana. The Company leases pipe,
tubulars and other equipment to the service companies of the petroleum
exploration and production industry. The Company's facility is located
in Scott, Louisiana, and leases equipment to companies primarily in the
Louisiana Gulf Coast Region.
REPORTING PERIOD - The Company typically reports its financial position
and results of operations based on its federal income tax fiscal year
end of March 31. The accompanying financial statements present the
Company's financial position as of December 31, and the results of
operations and cash flows for the twelve months ended December 31.
INCOME TAXES - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of
accrued taxes plus deferred taxes related primarily to the differences
between the bases of certain assets and liabilities for financial and
tax reporting. The deferred taxes represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
PROPERTY AND EQUIPMENT - Property and equipment of the Company are
stated at cost. Expenditures for property and equipment which
substantially increase the useful lives of existing assets are
capitalized at cost and depreciated. Routine expenditures for repairs
and maintenance are expensed as incurred.
Depreciation is provided principally on the straight-line method over
the estimated useful lives of the assets for financial reporting
purposes. For income tax purposes, depreciation is computed by use of
the Modified Accelerated Cost Recovery System (MACRS).
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
debt instruments purchased with an original maturity of three months or
less to be cash equivalents. The Company had no cash equivalents at
December 31, 2004 and 2003.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.
ACCOUNTS RECEIVABLE - The Company generally does not require
collateral, and the majority of its trade receivables are unsecured.
The carrying amount for accounts receivable approximates fair value.
F-8
DELTA RENTAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ADVERTISING - Advertising costs are charged to operations when
incurred. Advertising expense for the twelve month periods ended
December 31, 2004 and 2003 was $3,272 and $1,884, respectively.
(B) CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at two separate financial
institutions. Accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000 per institution. Balances in excess of
insured limits at December 31, 2004 and 2003 were $692,208 and $507,438
respectively.
(C) ACCOUNTS RECEIVABLE
The balance in Accounts Receivable is comprised of billed invoices as
well as unbilled rentals which crossed accounting periods. The
breakdown of accounts receivable at December 31, is as follows:
2004 2003
------------ ------------
Billed Accounts Receivable $ 699,442 $ 407,556
Accrued Unbilled Revenue 396,145 306,373
------------ ------------
Total $ 1,095,587 $ 713,929
============ ============
(D) INCOME TAXES
Income tax expense consists of the following at December 31:
2004 2003
------------ ------------
Current
Federal $ 128,548 $ --
States 17,622 --
------------ ------------
Total Current Income Tax Expense 146,170 --
Deferred 118,980 134,274
------------ ------------
Total Income Tax Expense $ 265,150 $ 134,274
============ ============
The effective tax on pre-taxable income is approximately 34 percent
federal and 6 percent for the various states. The primary reason for
the difference between the effective tax rates and the statutory
marginal rates is due to various book to tax timing differences, and
non-deductible expenses for income tax purposes.
F-9
DELTA RENTAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(D) INCOME TAXES - CONTINUED
Deferred income taxes are a result of timing differences between book
and taxable incomes as well as net operating loss carryforwards. The
major timing differences for deferred income taxes at December 31 are
as follows:
2004 2003
------------- -------------
Depreciation Timing Difference $ 882,867 $ 779,405
Net Operating Loss Carry-Forward -- (163,311)
Charitable Contribution Carryover -- (30,678)
------------- -------------
882,867 585,416
Blended Federal and State Rates 40% 40%
------------- -------------
Deferred Income Tax Liability (Net) $ 353,147 $ 234,167
============= =============
These amounts have been presented in the Company's financial statements
as follows:
2004 2003
------------- -------------
Current Deferred Tax Asset $ -- $ (77,595)
Long-Term Deferred Tax Liability 353,147 311,762
------------- -------------
Total $ 353,147 $ 234,167
============= =============
(E) EMPLOYEE BENEFIT PLANS
The Company adopted a profit sharing retirement plan for its employees
effective April 1, 1979. The plan was restated to update its terms,
provisions and conditions effective April 1, 2003. The restated plan
continues to be for the exclusive benefit of the employees of the
Company. An employee is eligible to participate upon the completion of
one year of eligible service and the attainment of age 21. The Company
determines annually the amount of current or accumulated profits to be
contributed to the plan. The plan vests one hundred percent (100%)
after six or more years of continuing service.
Contributions to the plan for the twelve months ended December 31, 2004
and 2003 were $147,744 and $133,382 respectively.
F-10
DELTA RENTAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(F) NOTE PAYABLE STOCKHOLDER
The Company has a note payable to the stockholder dated August 29,
2003, payable in monthly installments of $3,955, bearing interest at
6.982 % per annum, due August 1, 2010. The balance at December 31, 2004
and 2003 is $641,778 and $729,449, respectively.
Future maturities on this note are as follows:
Twelve Months Ending December 31,
2005 $ 93,994
2006 100,772
2007 108,038
2008 115,827
2009 124,178
Later 98,969
------------
Total $ 641,778
============
(G) COMPENSATED ABSENCES
Employees of the Company are entitled to paid vacation and paid sick
days, depending on length of service. No unused vacation or sick leave
is payable to an employee upon separation. The Company's policy is to
recognize the costs of compensated absences when actually paid to
employees. Accordingly, no accruals have been made.
(H) RELATED PARTY TRANSACTIONS
The Company's operations are conducted in a facility owned by its
stockholders. The Company entered into a formal lease agreement for the
facilities on June 6, 2000. The lease agreement requires rental
payments of $6,000 per month and expires on June 30, 2005. For the
twelve month periods ended December 31, 2004 and 2003, $72,000 per
period was paid to the stockholders for rent.
Minimum future lease payments under the lease are as follows:
Twelve Months Ending December 31,
2005 $ 36,000
------------
Total $ 36,000
============
F-11
DELTA RENTAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(I) MAJOR CUSTOMERS
Customers comprising ten percent (10%) or more of the Company's
revenues or accounts receivable balances for the periods ended December
31 are as follows:
For the twelve months ended December 31, 2003:
Percentage of
Sales Percentage of Total Accounts
Amount Total Revenue Receivable
------------------ ----------------- -----------------
Customer A $ 488,589 18.35% 14.39%
Customer B $ 401,265 15.07% 9.85%
Customer C $ 296,570 11.14% 11.71%
Customer D $ 269,963 10.14% 9.61%
For the year ended December 31, 2004:
Percentage of
Sales Percentage of Total Accounts
Amount Total Revenue Receivable
------------------ ----------------- -----------------
Customer A $ 549,678 16.92% 14.31%
Customer B $ 528,474 16.26% 22.51%
Customer C $ 329,160 10.13% 6.40%
Customer D $ 308,133 9.48% 13.15%
(J) SUBSEQUENT EVENTS
Subsequent to the balance sheet date, but prior to the date of this
report, the Company's stockholders entered into a purchase agreement
whereby they have agreed to sale all of their interest in the Company
to a third-party. The sale is scheduled to close in April, 2005.
F-12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Capcoil Tubing Services, Inc.
P.O. Box 2280 Kilgore, Texas
We have audited the balance sheets of Capcoil Tubing Services, Inc. (a Texas
corporation), as of December 31, 2004 and 2003, and the related statements of
operations and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes 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 Corporation's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capcoil Tubing Services, Inc.
as of December 31, 2004 and 2003, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/S/ CURTIS BLAKELY & CO., PC
- ----------------------------
Kilgore, Texas
March 16, 2005
F-13
CAPCOIL TUBING SERVICES, INC.
BALANCE SHEETS
DECEMBER 31,
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 348,674 $ 45,857
Accounts Receivable 538,658 818,736
Inventory 386,685 384,431
Prepaid Expenses 107,703 92,306
------------ ------------
TOTAL CURRENT ASSETS 1,381,720 1,341,330
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, Fixtures and Equipment 11,343 5,870
Software 3,127 3,127
Production Equipment 2,078,897 1,709,196
Vehicles 172,720 107,442
Production Equipment Under Construction 94,332 -0-
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 2,360,419 1,825,635
Less: Accumulated Depreciation (433,800) (221,451)
------------ ------------
NET PROPERTY AND EQUIPMENT 1,926,619 1,604,184
------------ ------------
OTHER ASSETS:
Organizational Costs 12,057 18,085
------------ ------------
TOTAL ASSETS $ 3,320,396 $ 2,963,599
============ ============
(The accompanying notes are an integral part of these financial statements.)
F-14
CAPCOIL TUBING SERVICES, INC.
BALANCE SHEETS
DECEMBER 31,
2004 2003
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-term Debt $ 445,924 $ 431,452
Current Portion of Obligation Under Capital Lease 447 -0-
Current Portion of Long-term Debt - Related Party 22,824 -0-
Accounts Payable - Trade 383,762 891,508
Accrued Interest Payable 4,018 -0-
Accrued Wages 6,400 -0-
Short-term Borrowings 430,314 422,321
Short-term Borrowings - Related Party 130,000 -0-
------------ ------------
TOTAL CURRENT LIABILITIES 1,423,689 1,745,281
------------ ------------
LONG-TERM DEBT, LESS CURRENT MATURITIES:
Long-term Debt 471,451 451,262
Long-term Debt - Related Party 31,213 -0-
Obligation Under Capital Lease 2,880 -0-
------------ ------------
TOTAL LONG-TERM DEBT 505,544 451,262
------------ ------------
TOTAL LIABILITIES 1,929,233 2,196,543
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock - $1 Par Value
100,000 Shares Authorized
1,000 Shares Issued and Outstanding 600,000 600,000
Additional Paid-in Capital 50,000 50,000
Retained Earnings 741,163 117,056
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,391,163 767,056
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,320,396 $ 2,963,599
============ ============
(The accompanying notes are an integral part of these financial statements.)
F-15
CAPCOIL TUBING SERVICES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
2004 2003
------------- -------------
REVENUE $ 5,774,442 $ 5,478,666
Cost of Sales and Services 4,371,316 4,523,702
------------- -------------
Gross Profit 1,403,126 954,964
------------- -------------
OPERATING EXPENSES:
General and Administrative 159,677 131,254
Depreciation 35,456 24,648
Insurance 228,112 186,125
Lease Expense 29,250 27,000
Salaries - Administration 126,520 89,287
Taxes 126,222 68,838
Interest 73,782 51,380
------------- -------------
TOTAL OPERATING EXPENSES 779,019 578,532
------------- -------------
NET INCOME 624,107 376,432
RETAINED EARNINGS (DEFICIT) - BEGINNING OF PERIOD 117,056 (259,376)
------------- -------------
RETAINED EARNINGS - END OF PERIOD $ 741,163 $ 117,056
============= =============
(The accompanying notes are an integral part of these financial statements.)
F-16
CAPCOIL TUBING SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2004 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 624,107 $ 376,432
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 218,375 170,317
Change in Assets and Liabilities:
Accounts Receivable 280,078 (595,486)
Inventory (428,090) 298,810
Prepaids (15,395) (32,465)
Accounts Payable and Accruals (42,242) 95,417
------------- -------------
TOTAL ADJUSTMENTS 12,726 (63,407)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 636,833 313,025
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment (462,998) (541,551)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (462,998) (541,551)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of Short-term Borrowings (101,736) (124,513)
Payments of Long-term Debt (519,383) (377,668)
Payments of Capital Lease Obligation (89) -0-
Proceeds From Short-term Debt Borrowing 239,729 223,578
Proceeds From Long-term Debt Borrowing 510,461 441,265
Proceeds From Additional Paid-in Capital -0- 50,000
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 128,982 212,662
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 302,817 (15,864)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 45,857 61,721
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 348,674 $ 45,857
============= =============
(The accompanying notes are an integral part of these financial statements.)
F-17
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
- ---------------------
The Corporation began business in 2001, and is engaged in the business of oil
and gas well servicing. The Corporation currently provides coil tubing services
with capabilities from 1/4" capillary tubing to 1" coil tubing. Services include
the ability to deliver and inject nitrogen into wells. Most of the work is
service work related to existing wells in the field, but some work is performed
in relation to drilling activity.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from these
estimates. Among other things, estimates are used in accounting for
depreciation.
REVENUE RECOGNITION
- -------------------
Revenues and expenses are recorded when services are rendered and expenses are
incurred and collectibility is reasonably assured. Customers are billed as
services are rendered.
CASH AND CASH EQUIVALENTS
- -------------------------
For purposes of the Statement of Cash Flows, the Corporation considers cash and
cash equivalents to include cash on hand and demand deposits.
ACCOUNTS RECEIVABLE
- -------------------
Trade receivables are reported in the balance sheets at outstanding principal
less any allowances for doubtful accounts. Trade receivables are short-term and
interest is not accrued. Trade receivables are written off at the time they are
deemed uncollectible. An allowance for uncollectible trade receivables is
recorded when deemed appropriate based on a review of aged receivables and
expected recoveries. The allowance for doubtful accounts was $-0- at December
31, 2004 and 2003.
INVENTORY
- ---------
Inventories, which consist principally of (i) products which are consumed in the
Corporation's services provided to customers, (ii) spare parts for equipment
used in providing these services and (iii) manufactured components and
attachments for equipment used in providing services, are stated primarily at
the lower of weighted-average cost or market. Cost primarily represents invoice
costs. The Corporation regularly reviews inventory quantities on hand.
F-18
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment is stated substantially at original cost. Additions,
replacements, and renewals of property determined to be units of property are
charged to the property and equipment accounts. The replacement of property and
equipment determined not to be a unit of property and the cost of maintenance
and repairs are charged to operating expense. Property and equipment is stated
at cost and when sold or retired, a gain or loss is recognized. Depreciation
expense is computed using the straight-line composite method based on estimated
service lives of the various classes of depreciable property.
Property and equipment are reviewed for impairment whenever events or
circumstances indicate their carrying value may not be recoverable. When such
events or circumstances arise, an estimate of the future undiscounted cash flows
produced by the asset, or the appropriate grouping of assets, is compared to the
asset's carrying value to determine if any impairment exists pursuant to the
requirements of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS No. 144). If the asset is determined to be impaired,
the impairment loss is measured based on the excess of its carrying value over
its fair value.
INTERNAL USE SOFTWARE
- ---------------------
In accordance with Statement of Position (SOP) 98-1, the Corporation capitalizes
software developed or obtained for internal use. These capitalized costs are
included in property and equipment. Initial operating system software is
amortized over the life of the associated hardware. Application software is
amortized over a useful life of three years.
ASSET RETIREMENT OBLIGATIONS
- ----------------------------
Effective January 1, 2003, the Corporation adopted SFAS No. 143, "Accounting for
Asset Retirement Obligations". This statement provides the accounting for the
cost of legal obligations associated with the retirement of long-lived assets.
SFAS No. 143 requires that companies recognize the fair value of a liability for
asset retirement obligations in the period in which the obligations are incurred
and capitalize that amount as part of the book value of the long-lived asset.
The Corporation has no legal obligation to remove assets. Therefore, the
adoption of SFAS No. 143 did not have a material effect on the Corporation's
financial statements.
INCOME TAXES
- ------------
The Corporation is a Subchapter S Corporation under the Internal Revenue Code.
The taxable income or losses of the Corporation are includable in the tax return
of the stockholder for federal income tax purposes. The Corporation is subject
to state income tax.
Deferred state income taxes should be recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. However,
management considers their amount to be immaterial and thus deferred state
income taxes are not recorded on the Corporation's financial statements.
NOTE 2 - ORGANIZATIONAL COSTS:
Organizational costs represent the unamortized balance of organizational costs.
The organizational costs were incurred in 2001 and are being amortized over 5
years. Amortization for both 2004 and 2003 totaled $6,028.
F-19
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 3 - PROPERTY AND EQUIPMENT:
Net property and equipment at December 31, 2004 and 2003 was composed of the
following:
DEPRECIATION
RATE (%) 2004 2003
------------ ------------ ------------
Furniture, fixtures, and equipment 20% $ 11,343 $ 5,870
Software 33% 3,127 3,127
Production equipment 10% - 20% 2,078,897 1,709,196
Vehicles 20% 172,720 107,442
Production equipment under construction N/A 94,332 -0-
------------ ------------
Total Property and Equipment 2,360,419 1,825,635
Less: Accumulated Depreciation (433,800) (221,451)
------------ ------------
Net Property and Equipment $ 1,926,619 $ 1,604,184
============ ============
Substantially all of the plant is pledged as security for long-term debt to
various lenders.
Depreciation expense was $212,347 and $164,289 for the years ended December 31,
2004 and 2003, respectively, of which $182,919 and $145,669 was included in cost
of sales in 2004 and 2003.
NOTE 4 - CAPITAL LEASE OBLIGATIONS:
The Corporation leases office equipment with a lease term through October 2007.
This obligation has been recorded in the accompanying financial statements at
the present value of future minimum lease payments, discounted at an interest
rate of 20 percent. Capitalized costs of $3,416, less accumulated depreciation
of $-0- at December 31, 2004, are included in property and equipment in the
accompanying financial statements. Depreciation expense for this equipment for
2004 was $-0-.
Obligation under capital leases consist of the following:
2004
-----------
Total $ 3,327
Less: Current portion (447)
-----------
Long-Term Portion $ 2,880
===========
The future minimum lease payments under the capital leases and the net present
value of the future minimum lease payments are as follows for the year ended
December 31, 2004:
2004
-----------
2005 $ 1,072
2006 1,072
2007 1,072
2008 1,072
2009 894
-----------
5,182
Less: Amount representing interest (1,855)
-----------
Present Value of Future Minimum Lease payments $ 3,327
===========
F-20
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 5 - SHORT-TERM BORROWINGS:
Short-term borrowings at December 31, 2004 and 2003 are comprised of the
following:
CREDITOR TERMS COLLATERAL 2004 2003
- -------- ----- ---------- ---- ----
Texas Bank & Trust $350,000 line-of-credit expiring Equipment $ 349,923 $ 350,000
December 2005 bearing interest at
prime (5.25 percent at December 31,
2004).
Texas Bank & Trust $375,000 line of credit expiring Equipment -0- 3,029
December 2004 bearing interest at prime.
AICCO, Inc. Due $11,760 per month through July None 80,391 -0-
2005 including interest at 7.15
percent.
AICCO, Inc. Due $10,114 per month through July None -0- 69,292
2004 including interest at 6.50 --------- ---------
percent.
Total Short-Term Borrowings $ 430,314 $ 422,321
========= =========
NOTE 6 - SHORT-TERM BORROWINGS - RELATED PARTY:
Short-term borrowings from related parties at December 31, 2004 and 2003 are
comprised of the following:
CREDITOR TERMS COLLATERAL 2004 2003
- -------- ----- ---------- ---- ----
M Bar Ranch, L.P. $130,000 promissory note, interest of None $ 130,000 $-0-
8 percent and principal due at
maturity date - August 2005.
A stockholder of the corporation holds an interest in M Bar Ranch, L.P.
Interest expense of $4,018 has been accrued on this short-term borrowing at
December 31, 2004.
F-21
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 7 - LONG-TERM NOTES PAYABLE:
Long-term notes payable to unrelated parties are comprised of the following:
CREDITOR TERMS COLLATERAL 2004 2003
- -------- ----- ---------- ---- ----
Texas Bank & Trust Due $6,048 per month through Equipment - $ 117,138 $ 183,232
August 2006, including interest Accounts
at prime (5.25% at December 2004)
Texas Bank & Trust Due $7,037 per month through Equipment - 176,501 251,566
March 2007, including interest Accounts
at prime (5.25% at December 2004)
Texas Bank & Trust Due $7,000 per month through Equipment - 101,957 179,620
March 2006, including interest Accounts
at prime (5.25% at December 2004)
Texas Bank & Trust Due $30,000 per month through Equipment - -0- 171,541
June 2004, including interest Accounts
at prime (Pd in full at December 2004)
Texas Bank & Trust Due $7,407 per month through Equipment - 191,125 -0-
March 2007, including interest Accounts
at prime (5.25% at December 2004)
Texas Bank & Trust Due $6,100 per month through Equipment - 195,082 -0-
October 2007, including interest Accounts
at prime (5.25% at December 2004)
Navistar Due $1,055 per month through Equipment 11,046 22,004
November 2005, including interest
at 9.95 percent.
Navistar Due $1,055 per month through Equipment 11,046 21,075
November 2005, including interest
at 9.95 percent
Navistar Due $998 per month through Equipment 24,405 -0-
June 2007, including interest at 11.50 percent.
Ford Motor Credit Due $738 per month through Vehicle 12,275 20,641
May 2006, including interest at 2.90 percent.
Ford Motor Credit Due $1,112 per month through Vehicle 21,211 33,035
August 2006, including interest at 5.50 percent.
F-22
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 7 - LONG-TERM NOTES PAYABLE: (CONTINUED)
Long-term notes payable to unrelated parties are comprised of the following: (continued)
Creditor Terms Collateral 2004 2003
-------- ----- ---------- ---- ----
Ford Motor Credit Due $1,173 per month through Vehicle 35,007 -0-
July 2007, including interest at 2.90 percent.
Ford Motor Credit Due $730 per month through Vehicle 20,582 -0-
August 2007, including interest at 7.25 percent. --------- ---------
Total Long-Term Notes Payable 917,375 882,714
Current Maturities (445,924) (431,452)
--------- ---------
Long-Term Notes Payable,
Net of Current Maturities $ 471,451 $ 451,262
========= =========
Payments on the notes are due monthly in the approximate amount of $40,453. The
maturities of long-term debt for each of the three years succeeding the balance
sheet date are as follows:
2005 $ 445,924
2006 349,064
2007 122,387
---------
Total $ 917,375
=========
NOTE 8 - LONG-TERM NOTE PAYABLE - RELATED PARTY:
Creditor Terms Collateral 2004 2003
-------- ----- ---------- ---- ----
M Bar Ranch, L.P. Due $2,194 per month through Vehicle $ 54,037 $-0-
March 2007, including interest at 8.00 percent.
Current Maturities (22,824) -0-
--------- ----
Long-Term Note Payables - Related Party,
Net of Current Maturities $ 31,213 $-0-
========= ====
The maturities of long-term debt for each of the three years succeeding the
balance sheet date are as follows:
2005 $ 22,824
2006 24,719
2007 6,494
---------
Total $ 54,037
=========
Interest of $3,779 and principal of $8,986 was paid to the related party on the
note in 2004.
F-23
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 9 - OPERATING LEASES:
The Corporation has various cancelable and noncancelable operating leases for
building space, storage facilities and equipment. The noncancelable lease
expired March 2005, but was renewed through March 2007.
Future minimum rental payments for the next five years are as follows:
2005 $ 27,000
2006 27,000
2007 5,625
Rental expense under operating leases was $29,250 in 2004 and $27,000 in 2003.
NOTE 10 - RELATED PARTY TRANSACTIONS:
The Corporation has received loans from affiliates and owners. These
transactions are described in previous footnotes to these financial statements.
NOTE 11 - CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Corporation to significant
concentrations of credit risk consists primarily of cash equivalents and trade
accounts receivable. The estimated fair value of such financial instruments at
December 31, 2004 and 2003 approximate their carrying value as reflected in the
balance sheet. At December 31, 2004, the Corporation had deposits in checking
accounts which exceed federally insured limits by $248,674. The Corporation has
not experienced any material credit losses on its financial instruments.
Revenues from one customer represent 32 percent and 47 percent of total revenues
in 2004 and 2003, respectively. A second customer represented 14 percent of
total revenues in 2004. No other customers or entity accounted for more than 10
percent of 2004 or 2003 revenues.
A majority of the Corporation's trade receivables are derived from large oil and
gas production companies. Concentration of credit risk with respect to
receivables is considered to be limited due to its customer base. However, 30
percent of trade receivables is due from one customer at December 31, 2004. The
Corporation performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral to secure accounts receivable.
The Corporation is exposed to credit loss in the event of nonperformance by
customers on trade receivables. The Corporation does not anticipate significant
nonperformance by customers on trade receivables.
The Corporation's sales are concentrated primarily in east Texas and northern
Louisiana.
Note 12 - Additional Cash Flow Information:
2004 2003
----------- -----------
Cash paid during the year:
Interest $ 69,764 $ 51,380
F-24
CAPCOIL TUBING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 13 - SIGNIFICANT NONCASH TRANSACTIONS:
The Corporation purchased equipment and vehicles in 2004 and 2003 and incurred
$97,620 and $92,463, respectively, in debt relative to these purchases.
NOTE 14 - SUBSEQUENT EVENT:
Effective April 1, 2005, the stockholders of the Corporation signed a letter of
intent to sell their interests in the Corporation to Allis-Chalmers Energy, Inc.
Effective January 1, 2005, the Corporation revoked its S Corporation election
for federal tax purposes and will be taxed as a C Corporation.
F-25
INDEPENDENT AUDITOR'S REPORT
ON ADDITIONAL INFORMATION
To the Stockholders
of Capcoil Tubing Services, Inc.
Our report on our audits of the basic financial statements of Capcoil Tubing
Services, Inc. for December 31, 2004 and 2003, appears on page 3. These audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The additional information on pages 17 and 18 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/S/ CURTIS BLAKELY & CO., PC
- ----------------------------
Longview, Texas
March 16, 2005
F-26
CAPCOIL TUBING SERVICES, INC.
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
WITH ADDITIONAL INFORMATION
YEAR ENDED
2004 2003
------------ ------------
REVENUE $ 5,774,442 $ 5,478,666
COST OF SALES AND SERVICES:
Inventory Purchases 2,684,319 3,400,025
Wages 854,041 546,858
Contract Services 153,192 152,432
Location Expenses 84,709 58,027
Repairs and Maintenance 132,846 70,024
Depreciation 182,919 145,669
Fuel and Oil 114,112 74,836
Freight 14,432 11,646
Sales Commissions 15,352 323
Sales Expense 13,307 10,827
Supplies 61,494 28,165
Other Expenses 12,082 6,676
Equipment Leases and Rentals 48,511 18,194
------------ ------------
TOTAL COST OF GOODS SOLD 4,371,316 4,523,702
------------ ------------
GROSS PROFIT 1,403,126 954,964
------------ ------------
GENERAL AND ADMINISTRATIVE:
Accounting 41,794 22,456
Telephone 26,939 19,842
Auto 17,955 15,203
Consulting 15,100 15,012
Advertising and Promotional 12,715 6,847
License and Fees 10,719 7,110
Office Supplies 7,818 7,644
Utilities 7,582 6,397
Janitorial 5,542 2,953
Office Expense 4,248 3,332
Postage 4,084 4,556
Other General and Administrative 1,643 829
Meals 1,393 1,899
Contract Service - Office 1,145 16,779
Contributions 1,000 395
------------ ------------
TOTAL GENERAL AND ADMINISTRATIVE 159,677 131,254
------------ ------------
F-27
CAPCOIL TUBING SERVICES, INC.
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
WITH ADDITIONAL INFORMATION
YEAR ENDED DECEMBER 31,
2004 2003
------------ ------------
DEPRECIATION AND AMORTIZATION:
Depreciation Expense 29,428 18,620
Amortization Expense 6,028 6,028
------------ ------------
TOTAL DEPRECIATION AND AMORTIZATION 35,456 24,648
------------ ------------
INSURANCE EXPENSE:
Insurance - General 119,039 118,023
Insurance - Health 65,583 40,792
Insurance - Workmen's Compensation 41,445 25,265
Insurance - Keyman Life 2,045 2,045
------------ ------------
TOTAL INSURANCE 228,112 186,125
------------ ------------
LEASE OF BUILDINGS AND STORAGE FACILITIES 29,250 27,000
------------ ------------
SALARIES - ADMINISTRATIVE
Salaries - Officers 89,115 77,769
Salaries - Office Employees 37,405 11,518
------------ ------------
TOTAL SALARIES - ADMINISTRATIVE 126,520 89,287
------------ ------------
TAX EXPENSE:
Taxes - Payroll 78,536 52,205
Taxes - Property 43,495 13,926
Taxes - Other 2,501 1,832
Taxes - State Franchise 1,690 875
------------ ------------
TOTAL TAX EXPENSE 126,222 68,838
------------ ------------
INTEREST 73,782 51,380
------------ ------------
TOTAL OPERATING EXPENSES 779,019 578,532
------------ ------------
NET INCOME $ 624,107 $ 376,432
============ ============
F-28
ALLIS-CHALMERS ENERGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The pro forma financial statements set forth below illustrate the
effects of the following transactions:
CAPCOIL TUBING SERVICES, INC. TRANSACTION. On May 1, 2005, the Company acquired
100% of the outstanding stock of Capcoil Tubing Services, Inc., a Texas
corporation, based in Kilgore, Texas from four shareholders for approximately
$2,750,000 in cash, 168,161 shares of Company's Common Stock and payment of
Capcoil secured debt in the amount of $1,190,783. The total investment by the
Company in Capcoil is valued at approximately $4,700,000. Capcoil is a company
headquartered in Kilgore, Texas that is engaged in the sale, installation and
service of small diameter capillary tubing and larger diameter coil tubing for
servicing producing oil and gas wells. Both types of tubing are installed in
wells and used as a delivery system for chemicals and other agents to enhance
production from existing oil and gas wells.
DELTA RENTAL SERVICE, INC. TRANSACTION. On April 1, 2005, the Company acquired
100% of the outstanding stock of Delta Rental Service, Inc., a Louisiana
corporation from three shareholders in Lafayette, Louisiana for approximately
$4,650,000 in cash, 223,114 shares of Company's Common Stock and issuance of two
promissory notes from the Company in the aggregate principal amount of $350,000.
The total investment by the Company in Delta is $6,000,000. Delta is a rental
tool company headquartered in Lafayette, Louisiana and rents specialty rental
items to the oil and gas industry such as hevi-wate spiral drill pipe, spacer
spools and assorted handling tools.
DOWNHOLE INJECTION SERVICES LLC TRANSACTION. On December 10, 2004, the Company,
through its 55% owned subsidiary, AirComp, acquired all the equity interests in
Downhole Injection Services, LLC from an investor group for approximately
$1,100,000 in cash, 508,466 shares of registrants Common Stock and payment or
assumption of approximately $950,000 of debt. Downhole is headquartered in
Midland, Texas and provides solutions to downhole chemical treating problems
through the installation of small diameter, stainless steel coiled tubing into
producing oil and gas wells.
DIAMOND AIR TRANSACTION. On November 10 2004, the Company, through its 55% owned
subsidiary, AirComp, purchased substantially all the assets of Diamond Air
Drilling Services, Inc. and Marquis Bit Co., L.L.C. for $4,600,000 in cash and
the assumption of approximately $450,000 in liabilities. The Company and its
joint-venture partner M-I L.L.C. contributed $2,530,000 and $2,070,000,
respectively, to the equity of AirComp. Diamond Air and Marquis manufacture
hammer bits and provides air hammer and hammer bits and related services
required to drill and complete oil and gas wells.
The accompanying unaudited pro forma consolidated condensed financial statements
are based on the historical statements of operations and statements of financial
position of the Company and the acquired subsidiaries as of and for the year
ended December 31, 2004 and the three months ended March 31, 2005. The unaudited
pro forma consolidated condensed financial statements illustrate the effects of
the Acquisition Transactions on our results of operations and financial position
as if the transactions had occurred as of the beginning of the periods
presented.
Certain information normally included in the financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The unaudited pro forma consolidated condensed financial
statements should be read in conjunction with our consolidated financial
statements appearing elsewhere herein.
F-29
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS OF MARCH 31, 2005
(In thousands, except per share data)
ALLIS-
CHALMERS DELTA
CONSOLIDATED DELTA PURCHASE
HISTORICAL HISTORICAL ADJUSTMENTS
------------ ---------- -------------
ASSETS
Cash and cash equivalents $ 5,999 $ 169 $ (4,650) (a)
Trade Receivables 16,402 936 --
Inventories, net 2,464 -- --
Lease receivable, net 180 -- --
Prepaids and other current assets 1,976 160 --
------------ ---------- -------------
Total Current Assets 27,021 1,265 (4,650)
Net Property, plant and equipment 39,493 1,342 3,531 (b)
(75) (c)
Goodwill 11,776 -- --
Other intangibles, net 4,891 -- --
Debt issuance costs, net 635 -- --
Lease receivable 485 -- --
Other assets 75 -- --
------------ ---------- -------------
Total Assets $ 84,376 $ 2,607 $ (1,194)
============ ========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ 4,109 $ -- $ --
Trade accounts payable 5,698 32 --
Accrued employee benefits 811 -- --
Accrued interest 460 -- --
Accrued expenses 2,300 401 --
Accounts payable, related parties 200 -- --
------------ ---------- -------------
Total Current Liabilities 13,578 433 --
Accrued postretirement benefit obligations 676 -- --
Long-term debt 28,750 -- 350 (d)
Other long-term liabilities 129 373 --
------------ ---------- -------------
43,133 806 350
Minority Interest 4,567 -- --
Shareholders' equity
Common stock 136 (973) 973 (e)
2 (f)
Capital in excess of par value 40,331 65 (65) (e)
998 (f)
Accumulated earnings (deficit) (3,791) 2,709 (2,709) (e)
(743) (g)
------------ ---------- -------------
Total Shareholders' Equity 36,676 1,801 (1,544)
------------ ---------- -------------
Total Liabilities and Shareholders' Equity $ 84,376 $ 2,607 $ (1,194)
============ ========== =============
See notes to unaudited pro forma consolidated financial statements.
F-30
(continued on next page)
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS OF MARCH 31, 2005
(In thousands, except per share data)
(continued from above)
PRO FORMA
CAPCOIL ALLIS-
CAPCOIL PURCHASE CHALMERS
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
ASSETS
Cash and cash equivalents 184 (2,750) (h)
(1,191) (i) $ (2,239)
Trade Receivables 1,021 -- 18,359
Inventories, net 334 -- 2,798
Lease receivable, net -- -- 180
Prepaids and other current assets 79 -- 2,215
----------- ----------- ------------
Total Current Assets 1,618 (3,941) 21,313
Net Property, plant and equipment 1,982 926 (j)
(99) (c) 47,100
Goodwill - 11,776
Other intangibles, net 11 1,509 (k) 6,411
Debt issuance costs, net 635
Lease receivable 485
Other assets 11 -- 86
----------- ----------- ------------
Total Assets 3,622 (1,605) $ 87,806
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt 598 (598) (i) $ 4,109
Trade accounts payable 449 -- 6,179
Accrued employee benefits 20 -- 831
Accrued interest 4 -- 464
Accrued expenses 185 -- 2,886
Accounts payable, related parties - -- 200
----------- ----------- ------------
Total Current Liabilities 1,256 (598) 14,669
Accrued postretirement benefit obligations -- -- 676
Long-term debt 794 500 (l)
(593) (i) 29,801
Other long-term liabilities 7 -- 509
------------ ----------- ------------
257 (691) 45,655
Minority Interest 4,567
Shareholders' equity
Common stock 600 (600) (e)
2 (m) 140
Capital in excess of par value 50 (50) (e)
748 (m) 42,077
Accumulated earnings (deficit) 915 (915) (e)
(99) (c) (4,633)
------------ ----------- -------------
Total Shareholders' Equity 1,565 (914) 37,584
------------ ----------- ------------
Total Liabilities and Shareholders' Equity 3,622 (1,605) $ 87,806
============ =========== ============
See notes to unaudited pro forma consolidated financial statements.
F-31
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(In thousands, except per share data)
ALLIS-
CHALMERS DELTA
CONSOLIDATED DELTA PURCHASE
HISTORICAL HISTORICAL ADJUSTMENTS
----------- ----------- -----------
Sales $ 19,334 $ 821 $ --
Cost of Sales 13,699 211 75 (c)
----------- ----------- -----------
Gross Profit 5,635 610 (75)
Marketing and
Administrative Expense 3,388 985 (665) (g)
----------- ----------- -----------
Income (Loss) from Operations 2,247 (375) 590
Other Income
Interest Income -- 3 --
Interest Expense (521) (11) 11 (n)
Settlement on lawsuit 115 -- --
Other 33 116 --
----------- ----------- -----------
Income (Loss) Before Taxes 1,874 (267) 601
Minority Interest (144) -- --
Taxes (163) (142) 142 (o)
----------- ----------- -----------
Net income/ (loss) attributed to
common shares $ 1,567 $ (409) $ 743
=========== =========== ===========
Pro forma net income (loss)
per common share
Basic $ 0.11
==========
Diluted $ 0.09
==========
Weighted average shares
outstanding
Basic 13,632
==========
Diluted 17,789
==========
See notes to unaudited pro forma consolidated financial statements.
(continued below)
F-32
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(In thousands, except per share data)
(continued from above)
PRO FORMA
CAPCOIL ALLIS-
CAPCOIL PURCHASE CHALMERS
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
Sales $ 1,534 $ 21,689
Cost of Sales 959 99 (c) 15,043
------------ ----------- ------------
Gross Profit 575 (99) 6,646
Marketing and
Administrative Expense 281 -- 3,989
------------ ----------- ------------
Income (Loss) from Operations 294 (99) 2,657
Other Income
Interest Income -- 3
Interest Expense (20) 20 (n) (521)
Settlement on lawsuit -- -- 115
Other -- -- 149
------------ ----------- ------------
Income (Loss) Before Taxes 274 (79) 2,403
Minority Interest -- -- (144)
Taxes (101) 101 (o) (163)
------------ ----------- ------------
Net income/ (loss) attributed to
common shares $ 173 $ 22 $ 2,096
============ =========== ============
Pro forma net income (loss)
per common share
Basic $ 0.15
============
Diluted $ 0.12
============
Weighted average shares
outstanding
Basic 13,632
============
Diluted 17,789
============
See notes to unaudited pro forma consolidated financial statements.
F-33
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2004
(In thousands, except per share data)
ALLIS-
CHALMERS DELTA
CONSOLIDATED DELTA PURCHASE
HISTORICAL HISTORICAL ADJUSTMENTS
------------ ---------- -------------
ASSETS
Cash and cash equivalents $ 7,344 $ 891 $ (4,650) (a)
Trade Receivables 12,986 1,096 --
Inventories, net 2,373 -- --
Lease receivable, net 180 -- --
Prepaids and other current assets 1,495 14 --
------------ ---------- -------------
Total Current Assets 24,378 2,001 (4,650)
Net Property, plant and equipment 37,679 1,345 3,541 (b)
(298) (c)
Goodwill 11,776 -- --
Other intangibles, net 5,057 -- --
(163) (q)
Debt issuance costs, net 685 -- --
Lease receivable 558 -- --
Other assets 59 38 --
------------ ---------- -------------
Total Assets $ 80,029 $ 3,384 $ (1,407)
============ ========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ 5,541 $ 94 $ (94) (p)
Trade accounts payable 5,694 54 --
Accrued employee benefits 615 17 758 (q)
Accrued interest 470 4 --
Accrued expenses 1,852 105 --
Accounts payable, related parties 740 -- --
------------ ---------- -------------
Total Current Liabilities 14,419 274 664
Accrued postretirement benefit obligations 687 -- --
Long-term debt 24,932 548 (548) (p)
Other long-term liabilities 129 353 --
------------ ---------- -------------
40,660 1,175 116
Minority Interest 4,423 -- --
524 (r)
Shareholders' equity
Common stock 136 (973) 973 (e)
2 (f)
Capital in excess of par value 40,331 65 (65) (e)
998 (f)
642 (p)
Accumulated earnings (deficit) (5,358) 3,117 (3,117) (e)
(524) (r) (956) (g)
(163) (q)
------------ ---------- -------------
Total Shareholders' Equity 33,422 2,209 (1,523)
------------ ---------- -------------
Total Liabilities and Shareholders' Equity $ 80,192 $ 3,384 $ (1,407)
============ ========== =============
See notes to unaudited pro forma consolidated financial statements.
(continued on next page)
F-34
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2004
(In thousands, except per share data)
(continued from above)
PRO FORMA
CAPCOIL ALLIS-
CAPCOIL PURCHASE CHALMERS
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
ASSETS
Cash and cash equivalents $ 349 $ (2,750) (h)
(1,191) (i) $ (7)
Trade Receivables 539 -- 14,621
Inventories, net 387 -- 2,760
Lease receivable, net -- -- 180
Prepaids and other current assets 107 -- 1,616
----------- ----------- -----------
Total Current Assets 1,382 (3,941) 19,170
Net Property, plant and equipment 1,926 926 (j)
(396) (c) 44,723
Goodwill -- -- 11,776
Other intangibles, net 12 1,509 (j)
6,415
Debt issuance costs, net -- -- 685
Lease receivable -- -- 558
Other assets -- -- 97
----------- ----------- -----------
Total Assets $ 3,320 $ (1,902) $ 83,424
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ 600 $ (600) (i) $ 4,541
Trade accounts payable 384 -- 6,132
Accrued employee benefits 6 -- 1,396
Accrued interest 4 -- 478
Accrued expenses -- -- 1,957
Accounts payable, related parties -- -- 740
----------- ----------- ---------
Total Current Liabilities 994 (600) 16,244
Accrued postretirement benefit obligations -- -- 687
Long-term debt 935 500 (l)
(591) (i) 25,776
Other long-term liabilities -- -- 482
------------ ----------- -----------
1,929 (691) 43,189
Minority Interest
4,947
Shareholders' equity
Common stock 600 (600) (e)
2 (m) 140
Capital in excess of par value 50 (50) (e)
748 (m)
(174) 42,545
Accumulated earnings (deficit) 741 (741) (e)
(396) (c)
(7,397)
------------ ----------- ------------
Total Shareholders' Equity 1,391 (1,211) 35,288
------------ ----------- ------------
Total Liabilities and Shareholders' Equity $ 3,320 $ (1,902) $ 83,424
============ =========== ============
See notes to unaudited pro forma consolidated financial statements.
F-35
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(In thousands, except per share data)
ALLIS-
CHALMERS DIAMOND
CONSOLIDATED DIAMOND PURCHASE
HISTORICAL HISTORICAL ADJUSTMENTS
----------- ----------- -----------
Sales $ 47,726 $ 5,584 $ --
Cost of Sales 35,300 3,565 --
----------- ----------- -----------
Gross Profit 12,426 2,018 --
Marketing and
Administrative Expense 8,199 664 163 (q)
----------- ----------- -----------
Income (Loss) from Operations 4,227 1,354 (163)
Other Income
Interest Income 32 - --
Interest Expense (2,808) (59) 59 (n)
Other 272 (26) --
----------- ----------- -----------
Income (Loss) Before Taxes 1,723 1,269 (104)
Minority Interest (321) -- (524)
Taxes (514) -- 265 (r)
----------- ----------- -----------
Net Income/ (Loss) 888 1,269 (628)
Preferred Dividend (124) -- --
----------- ----------- -----------
Net income/ (loss) attributed to
common shares $ 764 $ 1,269 $ (628)
=========== =========== ===========
Pro forma net income (loss)
per common share
Basic $ 0.10
==========
Diluted $ 0.06
==========
Weighted average shares
outstanding
Basic 7,930
==========
Diluted 11,959
==========
See notes to unaudited pro forma consolidated financial statements.
(continued below)
F-36
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(In thousands, except per share data)
DOWNHOLE
DOWNHOLE PURCHASE DELTA
HISTORICAL HISTORICAL HISTORICAL
----------- ----------- -----------
Sales $ 4,793 $ -- $ 3,249
Cost of Sales 3,876 -- 826
----------- ----------- -----------
Gross Profit 917 -- 2,423
Marketing and
Administrative Expense 872 83 (q) 1,798
----------- ----------- -----------
Income (Loss) from Operations 45 (83) 625
Other Income
Interest Income -- -- 4
Interest Expense (74) 74 (n) (49)
Other -- -- 114
----------- ----------- -----------
Income (Loss) Before Taxes (29) (9) 694
Minority Interest -- -- --
Taxes -- -- (265)
----------- ----------- -----------
Net Income/ (Loss) (29) (9) 429
Preferred Dividend -- -- --
----------- ----------- -----------
Net income/ (loss) attributed to
common shares $ (29) $ (9) $ 429
=========== =========== ===========
See notes to unaudited pro forma consolidated financial statements.
(continued below)
F-37
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(In thousands, except per share data)
DELTA CAPCOIL
PURCHASE CAPCOIL PURCHASE
ADJUSTMENTS HISTORICAL ADJUSTMENTS
----------- ------------ -----------
Sales $ -- $ 5,774 $ --
Cost of Sales 298 (c) 4,400 396 (c)
----------- ------------ -----------
Gross Profit (298) 1,374 (396)
Marketing and
Administrative Expense (940) (g) 676 --
----------- ------------ -----------
Income (Loss) from Operations 642 698 (396)
Other Income
Interest Income -- -- --
Interest Expense 49 (n) (74) 74 (n)
Other -- -- --
----------- ------------ -----------
Income (Loss) Before Taxes 691 674 (322)
Minority Interest -- -- --
Taxes 265 (o) -- --
----------- ------------ -----------
Net Income/ (Loss) 956 624 (322)
Preferred Dividend -- -- --
------------ ----------- -----------
Net income/ (loss) attributed to
common shares $ 956 $ 624 $ (322)
============= =========== ===========
See notes to unaudited pro forma consolidated financial statements.
(continued below)
F-38
ALLIS-CHALMERS ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(In thousands, except per share data)
(continued from above)
PRO FORMA
ALLIS-
CHALMERS
CONSOLIDATED
------------
Sales $ 67,126
Cost of Sales 48,661
------------
Gross Profit 18,464
Marketing and
Administrative Expense 11,515
------------
Income (Loss) from Operations 6,949
Other Income
Interest Income 36
Interest Expense (2.808)
Other 360
------------
Income (Loss) Before Taxes 4,537
Minority Interest (845)
Taxes (514)
------------
Net Income/ (Loss) 3,178
Preferred Dividend (124)
------------
Net income/ (loss) attributed to
common shares $ 3,054
============
Pro forma net income (loss)
per common share
Basic $ 0.39
============
Diluted $ 0.26
============
Weighted average shares
outstanding
Basic 7,930
============
Diluted 11,959
============
See notes to unaudited pro forma consolidated financial statements.
F-39
ALLIS-CHALMERS ENERGY, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical financial
statements of the Company:
a.) Reduction in cash of $4,650,000 paid to the sellers of Delta at
closing.
b.) Recognition of fair value of assets in connection with the
acquisition of Delta.
c.) Increase in depreciation due to the increase in the fair value of
assets acquired.
d.) To record sellers notes payable to former owners of Delta.
e.) Elimination of Delta's and Capcoil's equity for consolidation
purposes.
f.) Recognition of the issuance of 223,114 shares of common stock at
$4.48 per share.
g.) Elimination of the year end bonus paid to the employees of Delta.
h.) Reduction in cash of $2,750,000 paid to the sellers of Delta at
closing.
i.) Reduction in cash of $1,191,000 paid to the note holders of Capcoil
to extinguish the debt as of September 30, 2004.
j.) Recognition of fair value of assets in connection with the
acquisition of Capcoil.
k.) Recognition of goodwill and other intangible assets in connection
with the acquisition of Capcoil.
l.) To record non-compete notes payable to the former owners of
Capcoil.
m.) Recognition of the issuance of 168,161 shares of common stock at
$4.46 per share.
n.) Reduction interest expense due to the reduction on debt not
assumed.
o.) Elimination of tax provision due to the Company's net operating
losses to offset the income form operations thus reducing the
amount of federal income tax liability.
p.) Elimination of debt not assumed.
q.) Increase in amortization due to the increase in other intangible
asset value of acquired company.
r.) To record minority interest in Diamond Air's income.
F-40