10-Q 1 a12-19024_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2012

 

Commission File Number: 53915

 

NYTEX ENERGY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

84-1080045

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

12222 Merit Drive, Suite 1850

Dallas, Texas

 

75251

(Address of principal executive offices)

 

(Zip Code)

 

972-770-4700

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to section 12(b) of the Act:

None

 

Securities registered pursuant to section 12(g) of the Act:

 

 

Common Stock, $0.001 par value per share

(Title of class)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 (Do not check if a smaller reporting company)

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of October 31, 2012, the registrant had 26,653,158 shares of common stock outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements (Unaudited):

 

 

Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011

4

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011

5

 

Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2012 and 2011

6

 

Consolidated Statements of Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2012 and 2011

7

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011

8

 

Notes to Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

Signatures

 

39

 



Table of Contents

 

FORWARD-LOOKING STATEMENTS

 

The statements contained in all parts of this document relate to future events, including, but not limited to, any and all statements regarding future operations, financial results, business plans and cash needs and other statements that are not historical facts are forward looking statements.  When used in this document, the words “anticipate,” “budgeted,” “planned,” “targeted,” “potential,” “estimate,” “expect,” “may,” “project,” “believe” and similar expressions are intended to be among the statements that identify forward looking statements. Such statements involve known and unknown risks and uncertainties, including, but not limited to, those relating to the current economic downturn and credit crisis, the volatility of natural gas and oil prices, our dependence on our key personnel, factors that affect our ability to manage our growth and achieve our business strategy, technological changes, our significant capital requirements, the potential impact of government regulations, adverse regulatory determinations, litigation, competition, business and equipment acquisition risks, availability of equipment, weather, availability of financing, financial condition of our industry partners, ability of industry partners/customers to obtain permits and other factors detailed herein. Some of the factors that could cause actual results to differ from those expressed or implied in forward-looking statements are described under “Risk Factors” and in our Form 10-K for the year ended December 31, 2011 filed with the U.S. Securities and Exchange Commission.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement.

 

3



Table of Contents

 

PART I

 

Item 1.  Financial Statements

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Balance Sheets

 

 

 

September 30,
2012
(Unaudited)

 

December 31,
2011

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

2,056,060

 

$

72

 

Accounts receivable, net

 

2,335,128

 

77,159

 

Marketable securities

 

511,280

 

 

Prepaid expenses and other

 

14,550

 

31,632

 

Deferred tax asset, net

 

1,702

 

 

Assets from discontinued operations

 

 

80,733,006

 

Total current assets

 

4,918,720

 

80,841,869

 

 

 

 

 

 

 

Restricted cash

 

6,250,205

 

 

Property and equipment, net

 

421,368

 

66,112

 

Deferred financing costs

 

 

1,023,269

 

Deposits and other

 

9,296

 

9,296

 

 

 

 

 

 

 

Total assets

 

$

11,599,589

 

$

81,940,546

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,196,454

 

$

1,330,121

 

Deposits held in trust

 

3,158,650

 

 

Revenues payable

 

162,702

 

7,700

 

Wells in progress

 

89,237

 

502,106

 

Debt - current portion

 

155,022

 

2,577,484

 

Liabilities from discontinued operations

 

 

60,179,495

 

Total current liabilities

 

4,762,065

 

64,596,906

 

 

 

 

 

 

 

Other liabilities:

 

 

 

 

 

Debt

 

288,266

 

1,445,935

 

Derivative liabilities

 

3,070

 

2,740

 

Deferred tax liabilities

 

1,702

 

662,297

 

 

 

 

 

 

 

Total liabilities

 

5,055,103

 

66,707,878

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, Series A convertible, $0.001 par value; 10,000,000 shares authorized; 5,763,869 and 5,761,028 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

 

5,764

 

5,761

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 27,652,749 issued and 23,421,854 outstanding at September 30, 2012 and 27,467,723 shares issued and outstanding at December 31, 2011

 

27,653

 

27,468

 

Additional paid-in capital

 

27,234,399

 

25,974,600

 

Treasury stock, at cost: 4,230,895 and no shares at September 30, 2012 and December 31, 2011, respectively

 

(2,732,342

)

 

Accumulated deficit

 

(17,948,728

)

(10,775,161

)

Accumulated other comprehensive income

 

9,349

 

 

Total stockholders’ equity

 

6,596,095

 

15,232,668

 

 

 

 

 

 

 

Non-controlling interest

 

(51,609

)

 

 

 

 

 

 

 

Total equity

 

6,544,486

 

15,232,668

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

11,599,589

 

$

81,940,546

 

 

See accompanying Notes to Consolidated Financial Statements

 

4



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Land services

 

$

864,882

 

$

140,674

 

$

3,015,853

 

$

271,164

 

Oil and gas sales

 

54,026

 

40,796

 

78,450

 

332,022

 

Staffing services

 

11,120

 

 

14,023

 

 

Other

 

1,640

 

 

4,885

 

 

Total revenues

 

931,668

 

181,470

 

3,113,211

 

603,186

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Oil & gas lease operating expenses

 

39,214

 

9,313

 

77,542

 

66,157

 

Depreciation, depletion, and amortization

 

4,789

 

6,122

 

29,402

 

47,800

 

Selling, general, and administrative expenses

 

946,893

 

779,800

 

1,982,106

 

3,671,722

 

Loss on litigation settlement

 

 

 

 

965,065

 

(Gain) loss on sale of assets, net

 

(419,834

)

 

(419,834

)

5,004

 

Total operating expenses

 

571,062

 

795,235

 

1,669,216

 

4,755,748

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

360,606

 

(613,765

)

1,443,995

 

(4,152,562

)

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

4,022

 

843

 

5,206

 

1,229

 

Interest expense

 

(15,714

)

(213,259

)

(335,314

)

(601,286

)

Change in fair value of derivative liabilities

 

13,230

 

1,301

 

(3,070

)

1,690,561

 

Total other income (expense)

 

1,538

 

(211,115

)

(333,178

)

1,090,504

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

362,144

 

(824,880

)

1,110,817

 

(3,062,058

)

Income tax benefit (provision)

 

(118,018

)

 

267,773

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

244,126

 

(824,880

)

1,378,590

 

(3,062,058

)

Discontinued Operations

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, before taxes

 

 

(1,329,141

)

(8,728,028

)

(5,232,041

)

Loss on sale of discontinued operation

 

(811,895

)

 

(665,017

)

 

Income tax benefit

 

279,736

 

693,321

 

1,433,108

 

1,426,806

 

Loss from discontinued operations

 

(532,159

)

(635,820

)

(7,959,937

)

(3,805,235

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

(288,033

)

(1,460,700

)

(6,581,347

)

(6,867,293

)

Non-controlling interest

 

25,156

 

 

51,609

 

 

Net loss attributable to NYTEX Energy Holdings, Inc.

 

(262,877

)

(1,460,700

)

(6,529,738

)

(6,867,293

)

Preferred stock dividends

 

(385,290

)

(131,906

)

(643,829

)

(399,436

)

 

 

 

 

 

 

 

 

 

 

Net loss to common stockholders

 

$

(648,167

)

$

(1,592,606

)

$

(7,173,567

)

$

(7,266,729

)

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

0.01

 

$

(0.03

)

$

0.05

 

$

(0.12

)

Earnings (loss) from discontinued operations

 

$

(0.02

)

$

(0.02

)

$

(0.31

)

$

(0.14

)

Net income (loss)

 

$

(0.01

)

$

(0.05

)

$

(0.26

)

$

(0.26

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

(0.03

)

$

(0.06

)

$

(0.28

)

$

(0.28

)

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

0.01

 

$

(0.03

)

$

0.06

 

$

(0.12

)

Earnings (loss) from discontinued operations

 

$

(0.02

)

$

(0.02

)

$

(0.31

)

$

(0.14

)

Net income (loss)

 

$

(0.01

)

$

(0.05

)

$

(0.25

)

$

(0.26

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

0.01

 

$

(0.06

)

$

(0.23

)

$

(0.28

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

24,431,299

 

26,940,633

 

25,598,110

 

26,481,719

 

Diluted

 

24,841,171

 

26,940,633

 

26,012,852

 

26,481,719

 

 

See accompanying Notes to Consolidated Financial Statements

 

5



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended Septenber 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net loss to common stockholders

 

$

(648,167

)

$

(1,592,606

)

$

(7,173,567

)

$

(7,266,729

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

Unrealized holding gains on securities available for sale

 

9,302

 

 

9,349

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

9,302

 

 

9,349

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss to common stockholders

 

$

(638,865

)

$

(1,592,606

)

$

(7,164,218

)

$

(7,266,729

)

 

See accompanying Notes to Consolidated Financial Statements

 

6



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Series A Convertible

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Other

 

Non-

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Paid-In

 

Treasury Stock

 

Accumulated

 

Comprehensive

 

Controlling

 

 

 

 

 

Shares

 

Amounts

 

Shares

 

Amounts

 

Capital

 

Shares

 

Amounts

 

Deficit

 

Income

 

Interest

 

Total

 

Balance at December 31, 2010

 

5,580,000

 

$

5,580

 

26,219,665

 

$

26,219

 

$

24,750,200

 

 

$

 

$

(26,997,299

)

$

 

$

 

$

(2,215,300

)

Issuance of Series A Convertible Preferred Stock

 

420,000

 

420

 

 

 

 

 

369,050

 

 

 

 

 

 

 

 

 

 

 

369,470

 

Shares issued for share-based compensation and services

 

 

 

 

 

177,417

 

178

 

700,498

 

 

 

 

 

 

 

 

 

 

 

700,676

 

Shares issued for debt converted

 

 

 

 

 

76,667

 

77

 

114,922

 

 

 

 

 

 

 

 

 

 

 

114,999

 

Shares issued for warrants exercised

 

 

 

 

 

504,124

 

504

 

12,733

 

 

 

 

 

 

 

 

 

 

 

13,237

 

Issuance of warrant derivative

 

 

 

 

 

 

 

 

 

(118,440

)

 

 

 

 

 

 

 

 

 

 

(118,440

)

Shares of Preferred Stock issued for warrants exercised

 

97,523

 

97

 

 

 

 

 

(97

)

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock converted to common shares

 

(336,495

)

(336

)

336,495

 

336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(399,436

)

 

 

 

 

(399,436

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,867,293

)

 

 

 

 

(6,867,293

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2011

 

5,761,028

 

$

5,761

 

27,314,368

 

$

27,314

 

$

25,828,866

 

 

$

 

$

(34,264,028

)

$

 

$

 

$

(8,402,087

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

5,761,028

 

$

5,761

 

27,467,723

 

$

27,468

 

$

25,974,600

 

 

$

 

$

(10,775,161

)

$

 

$

 

$

15,232,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for debt

 

 

 

 

 

20,000

 

20

 

32,980

 

 

 

 

 

 

 

 

 

 

 

33,000

 

Share-based compensation

 

 

 

 

 

137,526

 

138

 

34,219

 

 

 

 

 

 

 

 

 

 

 

34,357

 

Shares issued for services

 

 

 

 

 

27,500

 

27

 

61,647

 

 

 

 

 

 

 

 

 

 

 

61,674

 

Shares for warrants exercised

 

2,841

 

3

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

Treasury Shares acquired

 

 

 

 

 

 

 

 

 

 

 

4,230,895

 

(2,732,342

)

 

 

 

 

 

 

(2,732,342

)

Stock dividend declared on Series A convertible preferred stock to be issued

 

 

 

 

 

 

 

 

 

1,130,956

 

 

 

 

 

 

 

 

 

 

 

1,130,956

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,349

 

 

 

9,349

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(643,829

)

 

 

 

 

(643,829

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,529,738

)

 

 

(51,609

)

(6,581,347

)

Comprehensive loss to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,215,827

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2012

 

5,763,869

 

$

5,764

 

27,652,749

 

$

27,653

 

$

27,234,399

 

4,230,895

 

$

(2,732,342

)

$

(17,948,728

)

$

9,349

 

$

(51,609

)

$

6,544,486

 

 

See accompanying Notes to Consolidated Financial Statements

 

7



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net Loss

 

$

(6,581,347

)

$

(6,867,293

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion, and amortization

 

3,155,353

 

6,597,544

 

Bad debt expense

 

59,906

 

159,213

 

Share-based compensation

 

96,031

 

700,676

 

Deferred income taxes

 

(1,700,881

)

(1,555,649

)

Accretion of discount on asset retirement obligations

 

 

(50,078

)

Amortization of debt discount

 

45,334

 

134,121

 

Amortization of deferred financing fees

 

163,127

 

297,364

 

Accretion of Senior Series A redeemable preferred stock liability

 

1,299,495

 

2,829,545

 

Change in fair value of derivative liabilities

 

4,270,070

 

(355,387

)

Loss on litigation settlement

 

 

965,065

 

Gain on sale of assets, net

 

(344,142

)

(16,878

)

Loss on disposal of discontinued operations

 

665,017

 

 

Change in working capital:

 

 

 

 

 

Accounts receivable

 

(243,355

)

(3,796,871

)

Inventories

 

(219,055

)

(111,487

)

Prepaid expenses and other

 

1,518,032

 

(1,587,510

)

Accounts payable and accrued expenses

 

(1,235,518

)

3,138,829

 

Deposits held in trust

 

3,127,786

 

 

Other liabilities

 

155,002

 

68,181

 

 

 

 

 

 

 

Net cash provided by operating activities

 

4,230,855

 

549,385

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property and equipment

 

(358,037

)

(4,997,362

)

Proceeds from sale of property and equipment

 

23,000

 

1,298,679

 

Investments in oil and gas properties

 

(389,618

)

 

Disposition of FDF

 

11,653,786

 

 

Restricted cash

 

(6,250,205

)

 

Purchase of marketable securities

 

(501,931

)

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

4,176,995

 

(3,698,683

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Redemption of convertible debentures

 

(3,208,014

)

 

Proceeds from the issuance of common stock and warrants

 

 

12,500

 

Proceeds from the issuance of Series A convertible preferred stock

 

 

369,470

 

Proceeds from the issuance of 9% convertible debentures

 

 

936,000

 

Borrowings under senior facility

 

29,345,714

 

63,120,440

 

Payments under senior facility

 

(31,112,386

)

(63,401,026

)

Borrowings under notes payable

 

303,051

 

3,883,773

 

Payments on notes payable

 

(1,690,972

)

(1,918,150

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

(6,362,607

)

3,003,007

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

2,045,243

 

(146,291

)

Cash and cash equivalents at beginning of period

 

10,817

 

209,498

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

2,056,060

 

$

63,207

 

 

See accompanying Notes to Consolidated Financial Statements

 

8



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1.  NATURE OF BUSINESS

 

NYTEX Energy Holdings, Inc. (“NYTEX Energy”) is an energy holding company with operations centralized in two subsidiaries, NYTEX Petroleum, Inc. (“NYTEX Petroleum”), a wholly-owned exploration and production company engaged in the acquisition, development, and production of oil and natural gas reserves from low-risk, high rate-of-return wells in shallow carbonate reservoirs, and Petro Staffing Group, LLC, (“PSG”), a full-service staffing agency formed in March 2012 providing the energy marketplace with temporary and full-time professionals.  PSG sources, evaluates, and delivers quality candidates to address the demand for personnel within the oil & gas industry.  NYTEX Energy owns 80% of PSG resulting in a non-controlling interest.

 

Prior to May 4, 2012, NYTEX Energy, through its wholly-owned subsidiary, NYTEX FDF Acquisition, Inc. (“Acquisition Inc.”), owned a 100% membership interest in New Francis Oaks, LLC (“New Francis Oaks”) and its wholly-owned operating subsidiary, Francis Drilling Fluids, Ltd. (“Francis Drilling Fluids,” or “FDF” and, together with New Francis Oaks, the “Francis Group”), a full-service provider of drilling, completion, and specialized fluids, dry drilling and completion products, technical services, industrial cleaning services, and equipment rental for the oil and gas industry.    On May 4, 2012, certain subsidiaries of ours entered into an Agreement and Plan of Merger (the “Merger Agreement”) with an unaffiliated third party, FDF Resources Holdings LLC (the “Purchaser”).  Pursuant to the Merger Agreement, New Francis Oaks was merged into the Purchaser and, as a result, FDF is now owned by an unaffiliated third party.  See below for further discussion.

 

NYTEX Energy and subsidiaries are collectively referred to herein as the “Company,” “we,” “us,” and “our.”

 

NYTEX Energy and its subsidiaries are headquartered in Dallas, Texas.

 

Disposition of FDF

 

As more fully reported on Form 8-K on May 10, 2012, on May 4, 2012, (the “Closing Date”), Acquisition Inc., together with New Francis Oaks, entered into the Merger Agreement with the Purchaser.  Pursuant to the terms of the Merger Agreement, New Francis Oaks merged with and into the Purchaser, and the Purchaser continued as the surviving entity after the merger (the “Disposition” or the “Merger”).  New Francis Oaks owns 100% of the outstanding shares of FDF, and, as a result of the Disposition, we no longer own FDF.

 

The total consideration for the Merger paid by the Purchaser on the Closing Date was $62,500,000 (the “Merger Proceeds”).  After: (i) an adjustment to the amount of the Merger Proceeds based upon the level of estimated working capital of the Francis Group on the Closing Date; (ii) the payment or provision for payment of all indebtedness of the Francis Group on the Closing Date; (iii) the payment of all indebtedness of Acquisition Inc. on the Closing Date (including under its senior secured credit facility with PNC Bank; (iv) the payment of the Put Payment Amount (as defined below) due to WayPoint Nytex, LLC (“WayPoint”) under the WayPoint Purchase Agreement (as defined below); (v) the payment of all transaction expenses relating to the Merger; (vi) the payment to the Company of $812,500 of accrued management fees and $110,279 of expense reimbursement due and payable to the Company under the Management Services Agreement, dated November 23, 2010, between the Company and FDF (the “Management Agreement”); (vii) the payment of certain transaction bonuses payable to certain FDF employees; and (viii) the Purchaser’s delivery of $6,250,000 of the Merger Proceeds (the “Escrow Fund”) to The Bank of New York Mellon Trust Company, N.A., as escrow agent, to be held in escrow under the Escrow Agreement (as defined below) and reported as restricted cash on the accompanying consolidated balance sheet at September 30, 2012, Acquisition Inc. received on the Closing Date remaining cash transaction proceeds in the amount of approximately $4,481,000.  The Merger Agreement provides that, to the extent that the final amount of working capital of the Francis Group on the Closing Date is greater than the estimated amount of working capital, as determined under the Merger Agreement, the Purchaser will pay to Acquisition Inc. the amount of such working capital surplus, provided that, pursuant to the Omnibus Agreement (as defined below), WayPoint is entitled to receive 87.5% of any such working capital surplus payment.  To the extent that the final amount of working capital of the Francis Group on the Closing Date is less than the estimated amount of working capital, Acquisition Inc. will pay to the Purchaser the amount of such working capital deficit, which payment will be made out of the Escrow Fund, provided that, pursuant to the Omnibus Agreement, WayPoint is obligated to pay to Acquisition Inc. 87.5% of the amount of any such working capital deficit.

 

As previously disclosed, on April 13, 2011, we received a letter from PNC, notifying the Company of the occurrence and continued existence of certain events of default (the “PNC Default”) under the Revolving Credit, Term Loan and Security Agreement (the “Senior Facility”).  On November 3, 2011, the Company entered into a First Amendment to Revolving Credit, Term Loan and Security Agreement and Limited Waiver (the “First Amendment”) with PNC, which was effective as of November 1, 2011.  Under the First Amendment, PNC waived each of the events of default under the Senior

 

9



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Facility.  However, as a result of the PNC Default, on April 14, 2011, the Company received a letter from WayPoint, as the holder of all of the outstanding shares of the Senior Series A Redeemable Preferred Stock of NYTEX Acquisition, stating that the Company was in default under the Preferred Stock and Warrant Purchase Agreement, by and among the Company, Acquisition Inc., and WayPoint (the “WayPoint Purchase Agreement”), for defaults similar to the PNC Default plus for our failure to pay dividends to WayPoint when due under the terms of the WayPoint Purchase Agreement.  On May 4, 2011, WayPoint demanded, pursuant to a “Put Election Notice” delivered under the WayPoint Purchase Agreement (the “Put Election Notice”), that, as a result of those defaults, the Company and Acquisition Inc. repurchase from WayPoint, for an aggregate purchase price of $30,000,000, all of the securities of Acquisition Inc. and the Company originally acquired by WayPoint pursuant to the WayPoint Purchase Agreement, which securities consisted of: (i) 20,750 shares of Senior Series A Redeemable Preferred Stock of NYTEX Acquisition (the “WayPoint Series A Shares”); (ii) one (1) share of Series B Redeemable Preferred Stock of the Company (the “WayPoint Series B Share”); (iii) the Purchaser Warrant (as defined in the WayPoint Purchase Agreement); and (iv) the Control Warrant (as defined in the WayPoint Purchase Agreement) (collectively, the “WayPoint Securities”).  Our failure to repurchase the WayPoint Securities in accordance with the Put Election Notice resulted in an additional event of default under the WayPoint Purchase Agreement.  Thereafter, pursuant to the terms of the Forbearance Agreement, dated as of September 30, 2011 (the “Forbearance Agreement”), by and among the Company, Acquisition Inc., and WayPoint, WayPoint agreed to forbear, for a period of 60 days, from exercising its rights and remedies under the WayPoint Purchase Agreement.  On November 14, 2011, WayPoint provided a formal written notice to the Company that the Company was in default under the Forbearance Agreement.  Due to cross-default provisions, the default under the Forbearance Agreement also constituted a default under the First Amendment. As a result of the defaults under the WayPoint Purchase Agreement and the Forbearance Agreement, WayPoint initiated certain remedies afforded to it under the WayPoint Purchase Agreement and the Forbearance Agreement, including the sale of FDF to a third party.  WayPoint directed the FDF sale process and, although we participated in the process, we did not control the ultimate disposition of FDF, including, but not limited to, the timing of the Merger and the Merger consideration.  As a result of the transactions associated with the Merger, we are no longer in default under the First Amendment with PNC.

 

In connection with the consummation of the Merger, we entered into an Omnibus Agreement (the “Omnibus Agreement”) with WayPoint and the Francis Group.  The Omnibus Agreement became effective upon the consummation of the Merger.

 

Pursuant to the Omnibus Agreement, upon the consummation of the Merger:

 

(i)            the Management Agreement was terminated;

 

(ii)           Waypoint paid $150,000 to the Company out of the Put Payment Amount due and payable to WayPoint;

 

(iii)          the Company was paid $812,500 from the Merger Proceeds, which sum represented accrued management fees due and payable to the Company from FDF under the Management Agreement; and

 

(iv)          the Company was paid $110,279 from the Merger Proceeds, which sum represented reimbursement by FDF of certain expenses previously incurred by the Company in respect of certain professional services provided, and which reimbursement was due and payable to the Company from FDF under the Management Agreement.

 

In the Omnibus Agreement, the Company, WayPoint, and the Francis Group also agreed to mutual releases from and to each other, and their related parties, relating to facts existing on or before the Closing Date that relate to the Merger, the WayPoint Purchase Agreement, the related documents, and the relations among the parties.  The releases also covered claims that any of the parties could assert against any employees of the FDF Group.  In addition, the parties agreed that WayPoint would bear 87.5% of any post-closing working capital deficit under the Merger Agreement and WayPoint would receive 87.5% of any post-closing working capital surplus under the Merger Agreement.

 

Further, in connection with the consummation of the Merger, we entered into a Settlement Agreement (the “Settlement Agreement”) with WayPoint, the Francis Group, and Michael G. Francis and Bryan Francis (together,  the “Francises”).  The Settlement Agreement became effective upon the consummation of the Merger.

 

Pursuant to the Settlement Agreement, upon the consummation of the Merger:

 

(i)            WayPoint paid out of the Put Payment Amount a $100,000 bonus to Michael G. Francis, the President of NYTEX Acquisition, and a $25,000 bonus to Jude N. Gregory, the Vice President and Chief Financial Officer of Acquisition Inc.;

 

(ii)           (A) the Company caused the release of the $1,800,000 of  Escrowed Cash (as defined in the Escrow Agreement, dated as of November 23, 2010, by and among Acquisition Inc., Bryan Francis and The F&M Bank &

 

10



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Trust Company (the “Francis Escrow Agreement”)) then being held in escrow pursuant to the Francis Escrow Agreement, in accordance with the terms of the Francis Escrow Agreement, and (B) Michael G. Francis transferred and assigned back to the Company 625,000 shares of common stock of the Company then owned by Michael G. Francis and originally issued to him pursuant to the Membership Interest Purchase Agreement, dated as of November 23, 2010 (the “Francis Purchase Agreement”), and then being held in escrow pursuant to the Francis Escrow Agreement;

 

(iii)          (A) Michael G. Francis transferred and assigned back to the Company all of the remaining 2,197,063 shares of common stock then owned by him and originally issued to him pursuant to the Francis Purchase Agreement, and (B) Bryan Francis transferred and assigned back to the Company all of the 381,607 shares of common stock originally issued to him pursuant to the Francis Purchase Agreement, as well as all of the 27,225 shares of NYTEX Common Stock issued to him in connection with his employment by FDF;

 

(iv)          the employment agreements of Michael G. Francis and Bryan Francis terminated and they became at-will employees of the FDF Group;

 

(v)           each of the three designees of WayPoint then serving as directors of Acquisition Inc., which included John Henry Moulton, Thomas Drechsler and Lee Buchwald, resigned as directors of Acquisition Inc., effective immediately upon the consummation of the Merger; and

 

(vi)          in exchange for receipt by WayPoint of the Put Payment Amount (which consisted of $30,000,000, less an aggregate of $306,639 of dividends previously received by WayPoint on account of the WayPoint Senior Series A Redeemable Preferred Stock, less an aggregate of $275,000 payable by WayPoint to the Company, Michael G. Francis and Jude N. Gregory pursuant to the Settlement Agreement, less an additional $449,072 (representing 87.5% of the estimated working capital deficit of the Francis Companies on the Closing Date, but subject to the right of WayPoint to subsequently receive 87.5% of any final working capital surplus of the Francis Companies on the Closing Date and the obligation of WayPoint to subsequently pay 87.5% of any final working capital deficit of the Francis Companies on the Closing Date, pursuant to the Omnibus Agreement); the “Put Payment Amount”), WayPoint transferred and assigned (A) the Senior Series A Redeemable Preferred Stock back to Acquisition Inc., (B) the Purchaser Warrant and the Control Warrant back to the Company, and (C) the WayPoint Series B Share back to the Company, and all such securities were cancelled.

 

In the Settlement Agreement, the Company, WayPoint, the Francis Group, and the Francises also agreed to mutual releases from and to each other, and their related parties, relating to facts existing on or before the Closing Date that relate to the Merger, the WayPoint Purchase Agreement, the related documents, and the relations among the parties, including in connection with any employment agreements or arrangements of the Francises.  The releases also covered claims that any of the parties could assert against any employees of the FDF Group.

 

NOTE 2.  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

 

The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.  These financial statements include the accounts of NYTEX Energy and entities in which it holds a controlling interest.  All significant intercompany accounts and transactions have been eliminated in consolidation.  Investments in non-controlled entities over which we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.  In applying the equity method of accounting, the investments are initially recognized at cost, and subsequently adjusted for our proportionate share of earnings and losses and distributions.

 

The interim financial data as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 is unaudited; in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods.  The consolidated results of operations for the three and nine months ended September 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto as filed in our Annual Report on Form 10-K for the year ended December 31, 2011.  Certain prior-period amounts have been reclassified to conform to the current-year presentation.    Land services revenues consists of fees

 

11



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

generated from analyzing land and mineral title reports, leasehold title analysis and reports, land title runsheets, sourcing, negotiating and acquiring leases, document preparation and performing title curative functions.  Such revenues had previously been reported as Other revenues on the consolidated statement of operations.

 

All references to the Company’s outstanding common shares and per share information have been adjusted to give effect to the one-for-two reverse stock split effective November 1, 2010.

 

Discontinued Operation

 

The consolidated financial statements present the operations of our former oilfield services segment (FDF) as discontinued operations in accordance with ASC 205-20-55 for all periods presented.

 

NOTE 3.  DERIVATIVE LIABILITIES

 

At September 30, 2012, we had one derivative on our consolidated balance sheet which was related to the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock.  The agreement setting forth the terms of the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock include an anti-dilution provision that requires a reduction in the instrument’s exercise price should subsequent at-market issuances of the Company’s common stock be issued below the instrument’s original exercise price of $2.00 per share.  Accordingly, we consider the warrants to be a derivative; and, as a result, the fair value of the derivative is included as a derivative liability on the accompanying consolidated balance sheets.  At September 30, 2012 and December 31, 2011, the fair value of the warrants issued to the holders of the Series A Convertible Preferred Stock was $3,070 and $0, respectively.

 

Changes in fair value of the derivative liabilities are included as a separate line item within other income (expense) in the accompanying consolidated statement of operations for the three months ended September 30, 2012 and 2011, and are not taxable or deductible for income tax purposes.

 

NOTE 4.  DEBT

 

A summary of our outstanding debt obligations as of September 30, 2012 and December 31, 2011 is presented as follows:

 

 

 

September 30,
2012

 

December 31,
2011

 

18% Demand Note due November 2011

 

$

 

$

244,000

 

6% Related Party Loan due September 2012

 

 

138,000

 

12% Convertible Debentures due October 2012

 

 

2,032,501

 

9% Convertible Debentures due February 2014

 

 

1,173,013

 

Revolving Line of Credit due July 2014

 

108,355

 

 

Francis Promissory Note (non-interest bearing) due October 2015

 

316,159

 

385,824

 

7.5% Secured Equipment Loan due February 2016

 

 

27,781

 

7.5% Secured Equipment Loan due March 2016

 

18,774

 

22,300

 

 

 

 

 

 

 

Total debt

 

443,288

 

4,023,419

 

Less: current maturities

 

(155,022

)

(2,577,484

)

 

 

 

 

 

 

Total long-term debt

 

$

288,266

 

$

1,445,935

 

 

Carrying values in the table above include net unamortized debt discount of $171,341 and $216,676 as of September 30, 2012 and December 31, 2011, respectively, which is amortized to interest expense over the terms of the related debt.

 

12



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Francis Promissory Note

 

In connection with the FDF acquisition, on November 23, 2010, we entered into a promissory note payable to a former interest holder of FDF (“Francis Promissory Note”) in the face amount of $750,000.  The Francis Promissory Note is an unsecured, non-interest bearing loan that requires quarterly payments of $37,500 and matures October 1, 2015.  At September 30, 2012 and December 31, 2011, we have recorded the Francis Promissory Note as a discounted debt of $316,159 and $385,824 respectively, using an imputed interest rate of 9%.

 

Related Party Loan

 

In September 2012, we paid in full, the outstanding balance due on the 6% Related Party loan.  During the nine months ended September 30, 2012 and 2011, interest expense related to the 6% Related Party Loan totaled $5,233 and $5,625, respectively.

 

Other Loans

 

On July 11, 2012, we entered into a revolving line of credit agreement with a commercial bank providing for loans up to $325,000.  The revolving credit line bears an annual interest rate based on the 30 day LIBOR plus 1.95% and matures on July 11, 2014.   Payments of interest only are payable monthly with any outstanding principal and interest due in full, at maturity.  The revolving line of credit is secured by our marketable securities.  We pay no fee for the unused portion of the revolving line of credit nor are there any prepayment penalties.  In September 2012, we drew $108,355 from the revolving line of credit, primarily to pay in full, the 6% Related Party Loan.  At September 30, 2012, amounts available under the revolving line of credit were $216,645.

 

In July 2012, we disposed of a company-owned automobile that secured the 7.5% secured equipment loan due February 2016 and paid in full, the outstanding balance due under the loan.  We are no longer obligated under such loan.

 

NOTE 5.  COMMITMENTS AND CONTINGENCIES

 

Leases

 

The Company leases office space under a non-cancelable operating lease which provides for minimum annual rentals.  At September 30, 2012, future minimum obligations under this lease agreement are as follows:

 

September 1, 2012 - December 31, 2012

 

$

19,829

 

2013

 

80,234

 

2014

 

81,583

 

2015

 

71,791

 

2016

 

58,283

 

Thereafter

 

 

 

 

$

311,720

 

 

Total lease rental expense related to continuing operations for the nine months ended September 30, 2012 and 2011 was $58,745 and $39,727 respectively.  Included in discontinued operations for the nine months ended September 30, 2012 and 2011 is $1,585,140 and $1,669,979, respectively, of lease rental expense related to the FDF operations.

 

Litigation

 

We may become involved from time to time in litigation on various matters, which are routine to the conduct of our business.  We believe that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial position or operations, although any adverse decision in these cases, or the costs of defending or settling such claims, could have a material adverse effect on our financial position, operations, and cash flows.

 

NOTE 6.  STOCKHOLDERS’ EQUITY

 

The authorized capital of NYTEX Energy consists of 200 million shares of common stock, par value $0.001 per share; 10 million shares of Series A Convertible Preferred Stock, par value $0.001 per share; and one share of Series B

 

13



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Preferred Stock, par value $0.001 per share.  The holders of Series A Convertible Preferred Stock have the same voting rights and powers as the holders of common stock.  Each holder of Series A Convertible Preferred Stock may, at any time, convert their shares of Series A Convertible Preferred Stock into shares of common stock at an initial conversion ratio of one-to-one.  For the three and nine months ended September 30, 2012, we did not issue any shares of common stock related to conversions of the Company’s Series A Convertible Preferred Stock.   The outstanding Series B Preferred Stock was cancelled as of May 4, 2012 in connection with the disposition of FDF.

 

Restructuring of Series A Convertible Preferred Stock

 

On August 31, 2012, NYTEX’s Amended and Restated Certificate of Designation in respect of the Series A Convertible Preferred Stock was approved by written consent of the holders of a majority of the total outstanding voting power of NYTEX’s voting securities (the “Restructuring”).  On September 12, 2012, we commenced mailing to all holders of the Company’s common stock and Series A Convertible Preferred Stock, a definitive information statement related to NYTEX’s Amended and Restated Certificate of Designation.   On October 2, 2012 (“Effective Date”), we filed the Amended and Restated Certificate of Designation with the Secretary of State of the State of Delaware.  The Amended and Restated Certificate of Designation amended the terms of our Series A Convertible Preferred Stock as follows:

 

(i)                The 9% dividend payable with respect to the shares of Series A Convertible Preferred Stock ceased to accrue effective as of June 15, 2012 (the “Termination Date”) and, thereafter, no dividends will be payable with respect to such shares unless declared by the Company’s board of directors;

 

(ii)     In exchange for all accrued and unpaid dividends as of the Termination Date, each holder of Series A Convertible Preferred Stock (a “Series A Holder”), as of the record date of July 24, 2012 (the “Record Date”), was issued shares of our common stock at a rate of one (1) share of our common stock for each $1.00 of accrued and unpaid dividends due such holder (collectively, the “Dividend Common Shares”). As a result, in October 2012 the Company issued an aggregate of approximately 768,090 Dividend Common Shares to the Series A Holders;

 

(iii)   The original terms of the Series A Convertible Preferred Stock also provided for a liquidation preference of $1.50 per share which would have been payable on a liquidation event involving the Company.   As part of the Restructuring and in consideration for reducing the liquidation preference to $1.00 per share and eliminating the right to declare a deemed liquidation event, in October 2012 the Company issued to the Series A Holders, as of the Record Date, shares of our common stock at a rate of 0.42735 shares for each share of Series A Preferred held by them, or an aggregate of approximately 2,463,214 common shares (the “Liquidation Adjustment Common Shares”);

 

(iv)           As part of the Restructuring, in October 2012 we paid to the Series A Holders as of the Record Date, a restructuring fee in the amount of 0.0075% of the original $1.00 per share purchase price of the Series A Convertible Preferred Stock, with such fee totaling approximately $43,230; and

 

(v)              At any time following the Effective Date of the Restructuring, the Company has the right to redeem any or all of the outstanding shares of Series A Convertible Preferred Stock at the original purchase price of $1.00 per share.  Further, the Company is required to redeem outstanding shares of Series A Convertible Preferred Stock, from time-to-time, upon any release to the Company of any portion of the $6,250,205 currently being held in the post-closing escrow fund (reported as restricted cash on the accompanying balance sheet at September 30, 2012) in connection with the sale of FDF on May 4, 2012, which mandatory redemption would be made by the Company out of funds legally available therefor to the extent of 100% of the amount of funds released at that time.  Each redemption would be applied pro rata among all Series A Holders.

 

In October 2012, we issued the Dividend Common Shares and Liquidation Adjustment Common Shares to the Series A Holders along with the payment of the restructuring fee were recognized as a charge to retained earnings as a dividend and a reduction to earnings available to common shareholders for the period ended September 30, 2012.  Accordingly, at September 30, 2012, the Series A Convertible Preferred Stock was carried as permanent equity.  Subsequent to the Effective Date, the Series A Convertible Preferred Stock will be presented outside of permanent equity as mezzanine equity.

 

Treasury Stock

 

As more fully discussed in Note 1, on May 4, 2012, in accordance with the Settlement Agreement effective with the disposition of FDF, we received as an assignment a total of 3,230,895 shares of the Company’s common stock.  On June 5,

 

14



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

2012, Michael K. Galvis, the Company’s President and Chief Executive Officer, surrendered one million shares of common stock pursuant to an agreement entered into with the Company on November 23, 2010.  All such shares are being held as treasury stock at cost.  In October 2012, 3,231,304 shares were re-issued from treasury to Series A Holders in connection with the Restructuring described above.

 

Warrants

 

In connection with the private placement offering of Series A Convertible Preferred Stock, during the nine months ended September 30, 2011, we issued warrants to the holders to purchase up to 126,000 shares of common stock at an exercise price of $2.00 per share.  The warrants may be exercised for a period of three years from the date of grant.  The aggregate fair value of warrants issued during the nine months ended September 30, 2011 was $118,440.  There were no warrants issued during the nine months ended September 30, 2012.

 

In addition, during the nine months ended September 30, 2011, we issued warrants to purchase up to 16,800 shares of Series A Convertible Preferred Stock to the placement agent of the private placement offering of Series A Convertible Preferred Stock.  The warrants may be exercised for a period of three years from date of grant at an exercise price of $1.00 per share.  The aggregate fair value of these warrants on the date of grant was approximately $15,792 using the Monte Carlo simulation.

 

For the nine months ended September 30, 2012, we did not issue any shares of common stock related to the exercise of warrants granted in connection with the issuance of Series A Convertible Preferred Stock.  During the first quarter 2012, we extended the exercise dates on these warrants for an additional 24 months from the original effective date of the warrant.

 

On May 4, 2012, as a condition to the disposition of FDF, the Purchaser and Control Warrants held by WayPoint were forfeited and terminated.

 

The fair value of our warrants is determined using the Black-Scholes option pricing model and the Monte Carlo simulation.  The expected term of each warrant is estimated based on the contractual term or an expected time-to-liquidity event.  The volatility assumption is estimated based on expectations of volatility over the term of the warrant as indicated by implied volatility.  The risk-free interest rate is based on the U.S. Treasury rate for a term commensurate with the expected term of the warrant.  A summary of warrant activity for the nine months ended September 30, 2012 and 2011 is as follows:

 

 

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

Warrants

 

Weighted
Average
Exercise
Price

 

Warrants

 

Weighted
Average
Exercise
Price

 

Outstanding at beginning of period

 

46,335,949

 

$

0.13

 

44,061,330

 

$

0.18

 

Issued

 

 

 

142,800

 

1.88

 

Adjustment for WayPoint Warrant

 

 

 

3,175,363

 

0.01

 

Exercised

 

(3,600

)

1.27

 

(1,072,968

)

1.87

 

Forfeited or expired

 

(41,583,659

)

0.01

 

 

 

Outstanding at end of period

 

4,748,690

 

$

1.18

 

46,306,525

 

$

0.13

 

 

NOTE 7.  FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Our financial instruments include cash and cash equivalents, accounts receivable, marketable securities, accounts payable, derivative liabilities, and long-term debt. Because of their short maturity, the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value.  The fair value of debt is the estimated amount we would have to pay to repurchase our debt, including any premium or discount attributable to the difference between the stated interest rate and market rate of interest at each balance sheet date.  Debt fair values are based on quoted market prices for identical instruments, if available, or based on valuations of similar debt instruments.  As of September 30, 2012 and December 31, 2011, we estimate the fair value of our debt to be $443,288 and $4,023,419, respectively.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs.  We utilize a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

 

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Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

·                  Level 1 — Quoted prices in active markets for identical assets or liabilities.  These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

 

·                  Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.  These are typically obtained from readily-available pricing sources for comparable instruments.

 

·                  Level 3 — Unobservable inputs, where there is little or no market activity for the asset or liability.  These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

 

As discussed in Notes 3 and 6, we consider certain of our warrants to be derivatives, and, as a result, the fair value of the derivative liabilities are reported on the accompanying consolidated balance sheets.  We value the derivative liabilities using a Monte Carlo simulation which contains significant unobservable, or Level 3, inputs.  The use of valuation techniques requires us to make various key assumptions for inputs into the model, including assumptions about the expected behavior of the instruments’ holders and expected future volatility of the price of our common stock.  At certain common stock price points within the Monte Carlo simulation, we assume holders of the instruments will convert into shares of our common stock.  In estimating the fair value, we estimated future volatility by considering the historic volatility of the stock of a selected peer group over a five year period.

 

For the nine months ended September 30, 2012 and 2011, the fair value of the derivative liabilities from continuing operations increased by an aggregate of $3,070 and $702, respectively.  These amounts were recorded within other income (expense) in the accompanying consolidated statements of operations.

 

We classify our marketable securities as available-for-sale, which are reported at fair value. Unrealized holding gains and losses, net of the related income tax effect, if any, on available-for-sale securities are excluded from income and are reported as accumulated other comprehensive income in stockholders’ equity.  Realized gains and losses from securities classified as available-for-sale are included in income.  We measure the fair value of our marketable securities based on quoted prices for identical securities in active markets, or Level 1 inputs.  As of September 30, 2012, available-for-sale securities consisted of the following:

 

 

 

Cost

 

Gross Unrealized

 

Fair

 

Available For Sale

 

Basis

 

Gains

 

Losses

 

Value

 

Fixed-income mutual funds

 

$

490,000

 

$

9,349

 

$

 

$

499,349

 

Money-market funds

 

11,931

 

 

 

11,931

 

 

 

 

 

 

 

 

 

 

 

 

 

$

501,931

 

$

9,349

 

$

 

$

511,280

 

 

The realized earnings from our marketable securities portfolio include realized gains and losses, based upon specific identification, and dividend and interest income.  Realized earnings were $3,865 and $4,595 respectively, for the three and nine months ended September 30, 2012. We did not have any marketable securities during the three and nine month periods ended September 30, 2011.

 

In accordance with ASC Topic 320, Investments — Debt and Equity Securities, we review our marketable securities to determine whether a decline in fair value of a security below the cost basis is other than temporary. Should the decline be considered other than temporary, we write down the cost basis of the security and include the loss in current earnings as opposed to an unrealized holding loss. No losses for other than temporary impairments in our marketable securities portfolio were recognized during the three and nine months ended September 30, 2012.

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

 

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Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

September 30, 2012

 

Carrying
Amount

 

Level 1

 

Level 2

 

Level 3

 

Marketable securities

 

$

511,280

 

$

511,280

 

$

 

$

 

Derivative liabilities

 

$

3,070

 

$

 

$

 

$

3,070

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2011

 

Carrying
Amount

 

Level 1

 

Level 2

 

Level 3

 

Derivative liabilities

 

$

702

 

$

 

$

 

$

702

 

 

Included below is a summary of the changes in our Level 3 fair value measurements:

 

Balance, December 31, 2011

 

$

5,343,000

 

Change in derivative liabilities

 

(5,339,930

)

Issuance of warrant derivative

 

 

Balance, September 30, 2012

 

$

3,070

 

 

 

 

 

Balance, December 31, 2010

 

$

1,510,000

 

Change in derivative liabilities

 

(1,509,298

)

Issuance of warrant derivative

 

 

Balance, September 30, 2011

 

$

702

 

 

NOTE 8.  INCOME TAXES

 

Income tax provision from continuing operations for the three months ended September 30, 2012 was $118,018 and the income tax benefit from continuing operations for the nine months ended September 30, 2012 was $267,773.  The income tax benefit for continuing operations for the three and nine months ended September 30, 2011 was $0.  The change in income tax benefit in the third quarter of 2012, compared to the third quarter of 2011, was primarily the result of the differences in the mix of our pre-tax earnings and losses.  At September 30, 2012, we had deferred income tax assets of $4,275,576 and a valuation allowance of $4,130,071 resulting in an estimated recoverable amount of deferred income tax assets of $145,505.  This reflects a net increase of the valuation allowance of $1,207,984 from the December 31, 2011 balance of $2,922,087.  At September 30, 2012, we had deferred income tax liabilities of $147,207.

 

The balances of the valuation allowance as of September 30, 2012 and December 31, 2011 were $4,130,071 and $2,922,087, respectively.  The anticipated effective income tax rate is expected to continue to differ from the Federal statutory rate primarily due to the effect of state income taxes, permanent differences between book and taxable income, changes to the valuation allowance, and certain discrete items.

 

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Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 9.  EARNINGS PER SHARE

 

Net loss per common share is calculated by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding.  The following table reconciles net loss and common shares outstanding used in the calculations of basic and diluted net loss per share.

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Basic net income (loss) per share:

 

 

 

 

 

 

 

 

 

Net earnings (loss) from continuing operations

 

$

244,126

 

$

(824,880

)

$

1,378,590

 

$

(3,062,058

)

Net earnings (loss) from discontinued operations

 

(532,159

)

(635,820

)

(7,959,937

)

(3,805,235

)

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

(288,033

)

$

(1,460,700

)

$

(6,581,347

)

$

(6,867,293

)

Noncontrolling interest

 

25,156

 

 

51,609

 

 

Attributable to preferred stockholders

 

(385,290

)

(131,906

)

(643,829

)

(399,436

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

(648,167

)

$

(1,592,606

)

$

(7,173,567

)

$

(7,266,729

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

24,431,299

 

26,940,633

 

25,598,110

 

26,481,719

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.01

 

$

(0.03

)

$

0.05

 

$

(0.12

)

Discontinued operations

 

(0.02

)

(0.02

)

(0.31

)

(0.14

)

Net income (loss)

 

$

(0.01

)

$

(0.05

)

$

(0.26

)

$

(0.26

)

Net loss attirbutable to noncontrolling interest

 

0.00

 

0.00

 

0.00

 

0.00

 

Attributable to preferred shareholders

 

(0.02

)

(0.01

)

(0.02

)

(0.02

)

Net income (loss) attributable to common stockholders

 

$

(0.03

)

$

(0.06

)

$

(0.28

)

$

(0.28

)

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

Net earnings (loss) from continuing operations

 

$

244,126

 

$

(824,880

)

$

1,378,590

 

$

(3,062,058

)

Net earnings (loss) from discontinued operations

 

(532,159

)

(635,820

)

(7,959,937

)

(3,805,235

)

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

(288,033

)

$

(1,460,700

)

$

(6,581,347

)

$

(6,867,293

)

Noncontrolling interest

 

25,156

 

 

51,609

 

 

Plus: income impact of assumed conversions

 

 

 

 

 

 

 

 

 

Attributable to preferred stockholders

 

385,290

 

131,906

 

643,829

 

399,436

 

Convertible debenture interest, net of tax

 

 

100,121

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

122,413

 

$

(1,228,673

)

$

(5,885,909

)

$

(6,467,857

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

24,431,299

 

26,940,633

 

25,598,110

 

26,481,719

 

Plus: incremental shares from assumed conversions

 

 

 

 

 

 

 

 

 

Effect of dilutive warrants

 

409,872

 

 

414,742

 

 

Effect of dilutive convertible preferred stock

 

 

 

 

 

Effect of dilutive convertible debentures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in calcuating diluted loss per share

 

24,841,171

 

26,940,633

 

26,012,852

 

26,481,719

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.01

 

$

(0.03

)

$

0.06

 

$

(0.12

)

Discontinued operations

 

(0.02

)

(0.02

)

(0.31

)

(0.14

)

Net income (loss)

 

$

(0.01

)

$

(0.05

)

$

(0.25

)

$

(0.26

)

Net loss attirbutable to noncontrolling interest

 

0.00

 

0.00

 

0.00

 

0.00

 

Attributable to preferred shareholders

 

0.02

 

(0.01

)

0.02

 

(0.02

)

Convertible debenture interest, net of tax

 

0.00

 

0.00

 

0.00

 

0.00

 

Net income (loss) attributable to common stockholders

 

$

0.01

 

$

(0.06

)

$

(0.23

)

$

(0.28

)

 

 

 

 

 

 

 

 

 

 

Earnings per share amounts may not foot due to rounding

 

 

 

 

 

 

 

 

 

 

Basic earnings per share amounts are computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share amounts are computed by dividing net income or loss by the weighted average number of common shares and dilutive common share equivalents outstanding during the period.  Diluted earnings per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive, thereby reducing the loss or increasing the income per common share.

 

18



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

For the three and nine months ended September 30, 2012, certain common share equivalents were excluded from the calculation of diluted earnings per share as their effect on earnings per share was antidilutive.  These excluded shares totaled 10,089,315 for the three and nine months ended September 30, 2012.  Because a net loss was incurred during the nine months ended September 30, 2011, dilutive instruments including the warrants produce an antidilutive net loss per share result.  These excluded shares totaled 48,440,448 for the nine months ended September 30, 2011.

 

NOTE 10.  DISCONTINUED OPERATIONS

 

On May 4, 2012, Acquisition Inc., together with New Francis Oaks, a wholly-owned subsidiary of Acquisition Inc., entered into the Merger Agreement with an unaffiliated third party, FDF Resources Holdings LLC, a Delaware limited liability company (“FDF Resources”).  Pursuant to the terms of the Merger Agreement, New Francis Oaks merged with and into FDF Resources, and FDF Resources continued as the surviving entity after the Disposition.  New Francis Oaks owns 100% of the outstanding shares of FDF, and, as a result of the disposition, we no longer own FDF.

 

We recognized a net after-tax loss of approximately $665,000 from the sale transaction during the second quarter of 2012, which represents the excess of the sale price over the book value of the assets sold.

 

We determined that the disposition of FDF met the definition of a discontinued operation.  As a result, this business has been presented as a discontinued operation for all periods.  Financial information for the discontinued operation was as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2012 (1)

 

2011

 

2012 (1)

 

2011

 

Revenues

 

 

 

 

 

 

 

 

 

Oilfield Services

 

$

 

$

20,718,655

 

$

24,077,027

 

$

56,121,485

 

Drilling Fluids

 

 

2,707,156

 

3,576,111

 

7,333,898

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

23,425,811

 

27,653,138

 

63,455,383

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Cost of goods sold - drilling fluids

 

 

679,728

 

1,325,674

 

2,148,044

 

Depreciation and amortization

 

 

2,229,991

 

3,126,243

 

6,549,744

 

Selling, general, and administrative expenses

 

 

19,760,009

 

24,605,436

 

52,744,242

 

(Gain) loss on sale of assets

 

 

5,772

 

75,692

 

(21,882

)

Interest expense

 

 

1,162,254

 

1,687,504

 

3,120,840

 

Change in fair value of derivative liabilities

 

 

10,000

 

4,267,000

 

2,829,545

 

Accretion of preferred stock liability

 

 

943,182

 

1,299,495

 

1,335,174

 

Other

 

 

(35,983

)

(5,878

)

(18,283

)

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

24,754,953

 

36,381,166

 

68,687,424

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

$

 

$

(1,329,142

)

$

(8,728,028

)

$

(5,232,041

)


(1) Activity for 2012 is through May 4, 2012, the date of the FDF disposition.

 

NOTE 11.  SEGMENT INFORMATION

 

Our primary business segments are vertically integrated within the oil and gas industry. These segments are separately managed due to distinct operational differences and unique technology, distribution, and marketing requirements.  Our two reportable operating segments are oil and gas exploration and professional staffing services. The oil and gas exploration and production segment explores for and produces natural gas, crude oil, condensate, and NGLs.  The energy staffing segment consists of our Petro Staffing Group business, which is a full-service staffing agency providing the energy marketplace with temporary and full-time professionals.  The oilfield services segment, which consisted solely of the operations of FDF, was disposed of on May 4, 2012, and is no longer reflected within segment information.

 

The following tables present selected financial information of our operating segments for the three and nine months ended September 30, 2012 and 2011.  Information presented below as “Corporate, Other, and Intersegment Eliminations” includes results from operating activities that are not considered operating segments, as well as corporate and certain financing activities.

 

19



Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

For the three months ended September 30, 2012, we had two customers that accounted for more than 10% of our total consolidated revenues at a rate of 39% and 38% respectively. For the nine months ended September 30, 2012, we had one customer that accounted for more than 10% of our total consolidated revenues at a rate of 89%.

 

 

 

Oil & Gas

 

Energy
Staffing

 

Corporate and
Intersegment
Eliminations

 

Total

 

As of September 30, 2012:

 

 

 

 

 

 

 

 

 

Current Assets

 

$

4,271,573

 

$

5,478

 

$

641,669

 

$

4,918,720

 

Restricted cash

 

 

 

6,250,205

 

6,250,205

 

Property, plant, and equipment, net

 

411,988

 

4,395

 

4,985

 

421,368

 

Other assets

 

9,296

 

 

 

9,296

 

Total assets

 

$

4,692,857

 

$

9,873

 

$

6,896,859

 

$

11,599,589

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

3,467,312

 

$

 

$

1,294,753

 

$

4,762,065

 

Long-term debt

 

13,752

 

 

274,514

 

288,266

 

Derivative liabilities

 

 

 

3,070

 

3,070

 

Deferred income taxes

 

1,702

 

 

 

1,702

 

Stockholder’s equity

 

1,210,091

 

9,873

 

5,324,522

 

6,544,486

 

Total liabilities and stockholder’s deficit

 

$

4,692,857

 

$

9,873

 

$

6,896,859

 

$

11,599,589

 

 

 

 

 

 

 

 

 

 

 

Additions to long-lived assets

 

$

389,618

 

$

2,186

 

$

392

 

$

392,196

 

 

 

 

Oil & Gas

 

Energy
Staffing

 

Corporate and
Intersegment
Eliminations

 

Total

 

Three Months Ended September 30, 2012: 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Land services

 

$

864,882

 

$

 

$

 

$

864,882

 

Oil & gas sales

 

55,666

 

 

 

55,666

 

Staffing services

 

 

11,120

 

 

11,120

 

Total Revenues