File
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
NYTEX ENERGY HOLDINGS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other
jurisdiction
of incorporation or organization)
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84-1080045
(I.R.S. Employer
Identification Number)
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1311
(Primary Standard Industrial
Classification Code Number)
12222 Merit Drive, Suite 1850
Dallas, Texas 75251
972-770-4700
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
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Michael K. Galvis
President and Chief Executive Officer
NYTEX Energy Holdings, Inc.
12222 Merit Drive, Suite 1850
Dallas, Texas 75251
972-770-4700
(Name, address, including
zip code, and telephone
number, including area code, of agent for service)
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Copies to:
Kevin Woltjen
Strasburger & Price, LLP
901 Main Street, Suite 4400
Dallas, Texas 75202
214-651-4300
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Approximate dates of commencement of proposed sale to
public: From time to time after this registration
statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the
following
box: þ
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
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. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company þ
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(Do not check if a smaller
reporting company)
Calculation
of Registration Fee
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class
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Amount to be
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Offering
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Aggregate
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Registration
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of Securities to be Registered
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Registered
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Price Per Unit(1)(2)
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Offering Price
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Fee
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Common Stock, par value $.001 (Common
Stock) issuable upon conversion of 12% convertible
debenture (Debentures)
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1,433,333
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$
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$
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$
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Common Stock issuable upon exercise of warrants issued to
investors in conjunction with the Debentures
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430,000
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$
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$
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$
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Common Stock issuable upon conversion of Series A preferred
stock, par value $.001 (Series A Preferred
Stock)
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6,000,000
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$
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$
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$
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Common Stock issuable upon exercise of warrants issued to
investors in conjunction with the Series A Preferred Stock
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1,800,000
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$
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$
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$
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Total
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9,663,333
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$
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$
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$
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(1)
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The proposed maximum offering price
per share is estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) under the
Securities Act.
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(2)
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Based on the average of the bid and
ask price of the Companys Common Stock as of
April , 2011.
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The Registrant may amend this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant files a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement becomes effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this Registration Statement is not complete and
may be changed. The Selling Security Holders may not sell these
securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
an offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED
APRIL 15, 2011
NYTEX ENERGY HOLDINGS,
INC.
Up to 9,663,333 Shares of
Common Stock
This prospectus relates to the sale solely by the Selling
Security Holders or their transferees (Selling
Security Holders) identified in this prospectus of
up to 9,663,333 shares of common stock, $.001 par
value (Common Stock), of NYTEX Energy
Holdings, Inc., a Delaware corporation, which includes:
(i) 1,433,333 shares of Common Stock issuable upon
conversion of 12% convertible debentures
(Debentures),
(ii) 430,000 shares of Common Stock issuable upon the
exercise of warrants issued in conjunction with the Debentures
with an exercise price of $2.00 per share (Debenture
Warrants), (iii) 6,000,000 shares of
Common Stock issuable upon conversion of shares of our
Series A preferred stock, $.001 par value
(Series A Preferred Stock), and
(iv) 1,800,000 shares of Common Stock issuable upon
the exercise of warrants issued in conjunction with the
Series A Preferred Stock, with an exercise price of $2.00
per share (Series A Warrants).
We are not selling the shares of Common Stock pursuant to this
prospectus and will not receive any proceeds from the sales of
the securities registered herein by the Selling Security
Holders, except for proceeds received from the exercise of the
Debenture Warrants and Series A Warrants. The Selling
Security Holders may sell all or a portion of the shares of
Common Stock issuable upon conversion of the Debentures,
Series A Preferred Stock or exercise of the Debenture
Warrants and Series A Warrants from time to time in market
transactions, in negotiated transactions or otherwise, and at
prices and on terms that will be determined by the prevailing
market price or at negotiated prices. We will bear all costs
relating to the registration of these shares of Common Stock,
other than any Selling Security Holders legal or
accounting costs or commissions. For more information regarding
the sales of our Common Stock by the Selling Security Holders
pursuant to this prospectus, please read Plan of
Distribution on page of this
prospectus.
There is currently a minimum market for our Common Stock. We
retained the services of a Financial Industry Regulatory
Authority (FINRA) member who recently
received clearance from FINRA for quotation of our Common Stock
on the
over-the-counter
bulletin board OTCQB.
Investing in our securities involves a high degree of risk.
Certain risks associated with an investment in our securities
are described in this prospectus and certain of our filings with
the Securities and Exchange Commission, as described under
Risk Factors, on page 2 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of our
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
THE DATE OF THIS PROSPECTUS
IS ,
2011
TABLE OF
CONTENTS
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Page
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PROSPECTUS SUMMARY
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1
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RISK FACTORS
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2
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
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10.1
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USE OF PROCEEDS
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11
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DETERMINATION OF OFFERING PRICE
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11
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MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK
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11
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BUSINESS
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13
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PROPERTIES
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21
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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26
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EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
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38
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TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
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44
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SELLING SECURITY HOLDERS
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45
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DESCRIPTION OF CAPITAL STOCK
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49
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PLAN OF DISTRIBUTION
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50
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INTERESTS OF NAMED EXPERTS AND COUNSEL
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52
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LEGAL PROCEEDINGS
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52
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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52
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
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WHERE YOU CAN FIND MORE INFORMATION
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56
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FINANCIAL STATEMENTS
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F-1
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PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in this
prospectus or incorporated herein by reference. This summary is
not complete and does not contain all of the information that
you should consider before deciding to invest in our common
stock, $.001 par value (Common
Stock). We urge you to read this entire prospectus
carefully, including the Risk Factors section. In
this prospectus, unless the context indicates otherwise, the
terms NYTEX Company,
we, us, and our refer to
NYTEX Energy Holdings, Inc., a Delaware corporation, and its
subsidiaries.
Our
Company
NYTEX Energy Holdings, Inc. is a Delaware corporation which
currently conducts its operations through two primary operating
wholly-owned subsidiaries. Our principal offices are located at
12222 Merit Drive, Suite 1850, Dallas, Texas 75251;
telephone
(972) 770-4700.
Our businesses are organized into two operating segments,
conducted through our two primary subsidiaries:
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Fluid Drilling Services This segment
conducted by our wholly owned subsidiary, Francis Drilling
Fluids, Ltd. (FDF) (through our
subsidiary NYTEX FDF Acquisition, Inc. (Acquisition
Inc.)), consists of full service drilling,
completion, and specialized fluids, dry drilling and completion
products, technical services, industrial cleaning services and
equipment rental for the oil & gas industry. Since the
acquisition of FDF (FDF Acquisition),
this segment represents substantially all of our revenues from
operations.
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Oil and Gas Operations This segment conducted
by our wholly owned subsidiary, NYTEX Petroleum, Inc.
(NYTEX Petroleum), represents our oil
and gas business. Prior to the FDF Acquisition,
this segment generated virtually all of our revenues from
operations.
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The
Offering
The selling security holders (Selling Security
Holders) identified in this prospectus may sell up
to 9,663,333 shares of our Common Stock, which includes:
(i) 1,433,333 shares of Common Stock issuable upon
conversion of 12% convertible debentures
(Debentures),
(ii) 430,000 shares of Common Stock issuable upon the
exercise of warrants issued in conjunction with the Debentures
with an exercise price of $2.00 per share (Debenture
Warrants), (iii) 6,000,000 shares of
Common Stock issuable upon conversion of our Series A preferred
stock, $.001 par value (Series A Preferred
Stock), and (iv) 1,800,000 shares of
Common Stock issuable upon the exercise of warrants issued in
conjunction with the Series A Preferred Stock, with an
exercise price of $2.00 per share (Series A
Warrants).
The Selling Security Holders may offer all or part of their
shares for resale from time to time through public or private
transactions, at either prevailing market prices or at privately
negotiated prices.
We will not receive any of the proceeds from the sale of those
shares of Common Stock being offered by the Selling Security
Holders except the proceeds, if any, from the exercise of the
Debenture Warrants and the Series A Warrants held by the
Selling Security Holders, which could total $4,460,000 and are
payable to us.
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RISK
FACTORS
An
investment in our Common Stock involves a high degree of risk.
Before making an investment decision, you should carefully
consider all of the risks described or incorporated by reference
in this prospectus. If any of the risks discussed in this report
actually occur, our business, financial condition and results of
operations could be materially and adversely affected. If this
were to happen the value of our Common Stock could decline
significantly and you may lose all or a part of your
investment.
RISK
FACTORS RELATING TO OUR OPERATIONS
Our
indebtedness could restrict our operations and make us more
vulnerable to adverse economic conditions.
We now have, and expect to continue to have, a significant
amount of indebtedness. Our outstanding indebtedness consists of
a senior credit facility, the Debentures, our Series A
Preferred Stock, which are described in this prospectus in the
section titled Liabilities and Capital
Resources on page of this
prospectus. Our current and future indebtedness could have
important consequences. For example, it could:
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impair our ability to make investments and obtain additional
financing for working capital, capital expenditures,
acquisitions or other general corporate purposes;
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limit our ability to use operating cash flow in other areas of
our business because we must dedicate a substantial portion of
these funds to make principal and interest payments on our
indebtedness; and
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make us more vulnerable to a downturn in our business, our
industry or the economy in general as a substantial portion of
our operating cash flow will be required to make principal and
interest payments.
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Our
business depends on domestic spending by the oil and gas
industry, and this spending and our business have been, and may
continue to be, adversely affected by industry and financial
market conditions that are beyond our control.
We depend on our customers willingness to make operating
and capital expenditures to explore for, develop and produce oil
and gas in the United States. Customers expectations of
lower market prices for oil and gas, as well as the availability
of capital for operating and capital expenditures, may cause
them to curtail spending, thereby reducing demand for our
services and equipment.
Industry conditions are influenced by numerous factors over
which we have no control, such as the supply of and demand for
oil and gas, domestic and worldwide economic conditions,
political instability in oil and gas producing countries and
merger and divestiture activity among oil and gas producers. The
volatility of the oil and gas industry and the consequent impact
on exploration and production activity could adversely impact
the level of drilling and workover activity by some of our
customers. This reduction may cause a decline in the demand for
our services or adversely affect the price of our services.
Reduced discovery rates of new oil and gas reserves in our
market areas also may have a negative long-term impact on our
business, even in an environment of stronger oil and gas prices,
to the extent existing production is not replaced and the number
of producing wells for us to service declines. In addition,
recent market conditions and the existence of excess equipment
have resulted in lower utilization rates.
Recent deterioration in the global economic environment has
caused the oilfield services industry to cycle into a downturn,
and the rate at which it may continue to slow, or return to
former levels, is uncertain. Recent adverse changes in capital
markets and declines in prices for oil and gas have caused many
oil and gas producers to announce reductions in capital budgets
for future periods. Limitations on the availability of capital,
or higher costs of capital, for financing expenditures have
caused and may continue to cause these and other oil and gas
producers to make additional reductions to capital budgets in
the future even if commodity prices increase from current
levels. These cuts in spending may curtail drilling programs as
well as discretionary spending on well services, which could
result in a reduction in the demand for our services, the rates
we can charge and our utilization. In addition, certain of our
customers could become unable to pay their suppliers, including
us. As a result of these conditions, our customers
spending patterns have become
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increasingly unpredictable, making it difficult for us to
predict our future operating results. Accordingly, our results
may differ significantly from those of the investment community.
Any of these conditions or events could adversely affect our
operating results.
If oil
and gas prices remain volatile, or decline further, the demand
for our services could be adversely affected.
The demand for our services is primarily determined by current
and anticipated oil and gas prices and the related general
production spending and level of drilling activity in the areas
in which we have operations. Volatility or weakness in oil and
gas prices (or the perception that oil and gas prices will
decrease) affects the spending patterns of our customers and may
result in the drilling of fewer new wells or lower production
spending on existing wells. This, in turn, could result in lower
demand for our services and may cause lower rates and lower
utilization of our well service equipment. Continued volatility
in oil and gas prices or a reduction in drilling activities
could materially and adversely affect the demand for our
services and our results of operations.
Competition
within the well services industry may adversely affect our
ability to market our services.
The well services industry is highly competitive and fragmented
and includes numerous small companies capable of competing
effectively in our markets on a local basis, as well as several
large companies that possess substantially greater financial and
other resources than we do. Our larger competitors greater
resources could allow those competitors to compete more
effectively than we can. The amount of equipment available
currently exceeds demand, which has resulted in active price
competition. Many contracts are awarded on a bid basis, which
may further increase competition based primarily on price.
We
depend on several significant customers, and a loss of one or
more significant customers could adversely affect our results of
operations.
Our customers consist primarily of major and independent oil and
gas companies. During 2010, our top five customers accounted for
41% of our revenues. The loss of any one of our largest
customers or a sustained decrease in demand by any of such
customers could result in a substantial loss of revenues and
could have a material adverse effect on our results of
operations.
We may
not be able to grow successfully through future acquisitions or
successfully manage future growth, and we may not be able to
effectively integrate the businesses we do
acquire.
Our business strategy includes growth through the acquisitions
of other businesses. This strategy may require external
financing, which we may not be able to secure at all, or on
favorable conditions, and which are governed by and subject to
restrictive covenants under our existing financial obligations
including with WayPoint Nytex, LLC
(WayPoint) and PNC Bank, National
Association (PNC).
We may not be able to continue to identify attractive
acquisition opportunities or successfully acquire identified
targets. In addition, we may not be successful in integrating
our current or future acquisitions into our existing operations,
which may result in unforeseen operational difficulties or
diminished financial performance or require a disproportionate
amount of our managements attention. Even if we are
successful in integrating our current or future acquisitions
into our existing operations, we may not derive the benefits,
such as operational or administrative synergies, that we
expected from such acquisitions, which may result in the
commitment of our capital resources without the expected returns
on such capital. Furthermore, competition for acquisition
opportunities may escalate, increasing our cost of making
further acquisitions or causing us to refrain from making
additional acquisitions.
Our
industry has experienced a high rate of employee turnover. Any
difficulty we experience replacing or adding personnel could
adversely affect our business.
We may not be able to find enough skilled labor to meet our
needs, which could limit our growth. Our business activity
historically decreases or increases with the price of oil and
gas. We may have problems
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finding enough skilled and unskilled laborers in the future if
the demand for our services increases. If we are not able to
increase our service rates sufficiently to compensate for wage
rate increases, we may not be able to hire and retain the
necessary skilled labor to perform our services.
Other factors may also inhibit our ability to find enough
workers to meet our employment needs. Our services require
skilled workers who can perform physically demanding work. As a
result of our industry volatility and the demanding nature of
the work, workers may choose to pursue employment in fields that
offer a more desirable work environment at wage rates that are
competitive with ours. We believe that our success is dependent
upon our ability to continue to employ and retain skilled
technical personnel. Our inability to employ or retain skilled
technical personnel may adversely affect our ability to complete
our ongoing projects or engage new business in the future, which
generally could have a material adverse effect on our operations.
Our
success depends on key members of our management, the loss of
any of whom could disrupt our business operations.
We depend to a large extent on the services of some of our
executive officers. The loss of the services of Michael K.
Galvis, our President and Chief Executive Officer, Kenneth K.
Conte, our Executive Vice President and Chief Financial Officer,
and Michael G. Francis, President and Chief Executive Officer of
FDF, or other key personnel could disrupt our operations.
Although we have entered into employment agreements with the
executives mentioned above, and certain other executive officers
that contain, among other provisions, non-compete agreements, we
may not be able to retain the executives past the terms of their
employment agreements or enforce the non-compete provisions in
the employment agreements.
Our
operations are subject to inherent risks, some of which are
beyond our control. These risks may be self-insured, or may not
be fully covered under our insurance policies.
Our operations are subject to hazards inherent in the oil and
gas industry, such as, but not limited to, accidents, blowouts,
explosions, craterings, fires and oil spills. These conditions
can cause:
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personal injury or loss of life;
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damage to or destruction of property and equipment (including
the collateral securing our indebtedness) and the
environment; and
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suspension of our operations.
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The occurrence of a significant event or adverse claim in excess
of the insurance coverage that we maintain or that is not
covered by insurance could have a material adverse effect on our
financial condition and results of operations. In addition,
claims for loss of oil and gas production and damage to
formations can occur in the well services industry. Litigation
arising from a catastrophic occurrence at a location where our
equipment and services are being used may result in our being
named as a defendant in lawsuits asserting large claims.
We maintain insurance coverage that we believe to be customary
in the industry against these hazards. However, we do not have
insurance against all foreseeable risks, either because
insurance is not available or because of the high premium costs.
As such, not all of our property is insured. We maintain
accruals in our consolidated balance sheets related to
self-insurance retentions by using third-party data and
historical claims history. The occurrence of an event not fully
insured against, or the failure of an insurer to meet its
insurance obligations, could result in substantial losses. In
addition, we may not be able to maintain adequate insurance in
the future at rates we consider reasonable. Insurance may not be
available to cover any or all of the risks to which we are
subject, or, even if available, it may be inadequate, or
insurance premiums or other costs could rise significantly in
the future so as to make such insurance prohibitively expensive.
It is likely that, in the future our insurance renewals, our
premiums and deductibles will be higher, and certain insurance
coverage either will be unavailable or considerably more
expensive than it has been in the recent past. In addition, our
insurance is subject to coverage limits, and some policies
exclude coverage for damages resulting from environmental
contamination.
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We are
subject to federal, state and local regulations regarding issues
of health, safety and protection of the environment. Under these
regulations, we may become liable for penalties, damages or
costs of remediation. Any changes in these laws and government
regulations could increase our costs of doing
business.
Our operations are subject to federal, state and local laws and
regulations relating to protection of natural resources and the
environment, health and safety, waste management, and
transportation of waste and other materials. Our fluid services
segment includes disposal operations into injection wells that
pose some risks of environmental liability, including leakage
from the wells to surface or subsurface soils, surface water or
groundwater. Liability under these laws and regulations could
result in cancellation of well operations, fines and penalties,
expenditures for remediation, and liability for property damage
and personal injuries. Sanctions for noncompliance with
applicable environmental laws and regulations also may include
assessment of administrative, civil and criminal penalties,
revocation of permits and issuance of corrective action orders.
RISK
FACTORS RELATING TO AN INVESTMENT IN OUR SECURITIES
Our
independent auditors have expressed doubt about our ability to
continue our activities as a going concern, which may hinder our
ability to obtain future financing and continue our
operation.
Our continuation as a going concern is dependent upon our
attaining and maintaining profitable operations, resolving the
defaults under certain of our financing arrangements, and
raising additional capital. Due to the uncertainty of our
ability to meet our current operating expenses and certain
defaults under our financing arrangements, in their report on
the annual financial statements for the years ended
December 31, 2010 and 2009, our independent auditors
included an explanatory paragraph regarding the doubt about our
ability to continue as a going concern. Our financial statements
contain additional note disclosures describing the status of the
company.
The continuation of our business is dependent upon us resolving
the defaults under our financing agreements, raising additional
financial support, and attaining profitable operations.
Obtaining additional financing, assuming there can be no
assurance that we will be able to resolve the defaults under our
current financing arrangements or obtain new financing if
needed. If we should fail to continue as a going concern, you
may lose the value of your investment in us.
The
WayPoint Warrants possess full anti-dilution provisions; and may
result in a duplication of dilution.
The warrant we issued to WayPoint in connection with the
financing of the FDF Acquisition to purchase up to 35% of the
outstanding shares of our Common Stock (Purchaser
Warrant) provides anti-dilution protection so that
the number of shares that may be purchased pursuant to the
Purchaser Warrant shall be equal to 35% of the then outstanding
shares of our Common Stock on a fully-diluted basis, as measured
at the time of full exercise of the Purchaser Warrant. WayPoint
also holds an additional warrant (Control
Warrant and collectively with the Purchaser
Warrant, the WayPoint Warrants) to
purchase a sufficient number of shares of our Common Stock so
that, measured at the time of exercise, the number of shares of
Common Stock issued or issuable pursuant to the WayPoint
Warrants represents 51% of our outstanding Common Stock on a
fully-diluted basis. The Control Warrant is exercisable only if
certain default conditions exist. Because of these anti-dilution
provisions, each time we issue additional shares of its Common
Stock, for whatever reason, the number of shares of Common Stock
issuable upon exercise of the WayPoint Warrants automatically
increases. In the event one or both of the WayPoint Warrants is
exercised, it will substantially dilute the ownership interests
of all other holders of our Common Stock, from both a voting and
economic perspective.
The Control Warrant may also become exercisable after the
Purchaser Warrant has been fully exercised and WayPoint has
disposed of all shares of Common Stock acquired pursuant to that
warrant. Based on the
5
current number of shares outstanding, the Purchaser Warrant
could be exercised for approximately 14,000,000 shares.
Assuming that the Control Warrant becomes exercisable and all of
the shares acquired upon exercise of the Purchaser Warrant are
disposed of by the holder before the Control Warrant is
exercised, the Control Warrant would be exercisable for 51% of
our Common Stock, which currently would result in the issuance
of approximately an additional 41,600,000 shares to
WayPoint and result in the total number of shares of Common
Stock outstanding exceeding 80,000,000 shares. Thus, the
Purchaser Warrant and the Control Warrant could result in
duplicative dilution.
The
WayPoint Control Warrant, if it becomes exercisable, will allow
for a change in control.
The Control Warrant becomes exercisable at an exercise price of
$0.01 per share, upon the earliest to occur of (i) the
occurrence of a default that remains uncured for seventy-five
days; provided, that payment to the holders of Senior
Series A Redeemable Preferred Stock of our subsidiary
Acquisition Inc. of all amounts owing to them as a result of a
default shall be considered a cure of a default; (ii) the
date on which a change of control occurs, if Acquisition Inc. is
not able to redeem all of the Senior Series A Redeemable
Preferred Stock in accordance with its terms;
(iii) seventy-five days after the date on which the third
default has occurred within a consecutive twelve-month period;
and (iv) May 23, 2016, if Acquisition Inc. is not able
to redeem all of the Senior Series A Redeemable Preferred
Stock in accordance with its terms (the Default
Conditions). The term default
includes 14 categories of events, which are listed in
Section 11.1 of the WayPoint Purchase Agreement and which
list includes, among other events, (i) the failure of
Acquisition Inc. to timely make a redemption payment to holders
of the Senior Series A Redeemable Preferred Stock,
(ii) the failure of Acquisition Inc. to timely make a
dividend payment to holders of the Senior Series A
Redeemable Preferred Stock, (iii) our failure or
Acquisition Inc. to perform covenants in the WayPoint Purchase
Agreement, (iv) our failure to meet a fixed-charge coverage
ratio, leverage ratio or minimum EBITDA test in the WayPoint
Purchase Agreement; (v) we or any of our subsidiaries
becomes in default on other indebtedness, individually or in the
aggregate, in excess of $250,000; (v) we, Acquisition Inc.
or any of the Francis Group entities becomes subject to
bankruptcy or receivership proceedings, (vi) a judgment or
judgments is entered against is entered against us, Acquisition
Inc. or any of the Francis Group entities in excess of
$1,000,000, and such judgment is not satisfied; (vii) we,
Acquisition Inc. or any of the Francis Group entities breaches a
representation or warranty in the WayPoint Purchase Agreement or
the documents related thereto; (ix) a Change of Control
occurs; and (x) certain liabilities in excess of $250,000
arise under ERISA. Change of Control means
(i) a sale of shares of our stock, Acquisition Inc. or any
Francis Group entity, or a merger involving any of them, as a
result of which holders of the voting capital stock of the
applicable entity immediately prior to such transaction do not
hold at least 50% of the voting power of the applicable entity
or the resulting or surviving entity or the acquiring entity;
(ii) a disposition of all or substantially all of our
assets, Acquisition Inc. or any Francis Group entity;
(iii) a voluntary or involuntary liquidation, dissolution
or winding up by us, Acquisition Inc. or any Francis Group
entity; (iv) either Michael K. Galvis or Michael G. Francis
shall sell at least five percent (5%) of our equity held by them
immediately prior to such sale; (v) Michael K. Galvis
ceases to be our Chief Executive Officer and is not replaced by
a candidate suitable to WayPoint within 30 days or any such
replacement Chief Executive Officer ceases to be our Chief
Executive Officer and is not replaced by a candidate suitable to
WayPoint within 30 days; or (vi) Michael G. Francis
ceases to be the Chief Executive Officer of FDF and is not
replaced by a candidate suitable to WayPoint within 30 days
or any such replacement Chief Executive Officer ceases to be the
Chief Executive Officer of the FDF and is not replaced by a
candidate suitable to WayPoint within 30 days.
On April 13, 2011, we received a letter from PNC, as
lender, notifying us of the existence of certain events of
default under our senior revolving credit and term loan facility
(Senior Facility). Similarly, on
April 14, 2011 we received a similar notice of default from
WayPoint, stating we are in default of the Preferred Stock and
Warrant Purchase Agreement among us, Acquisition Inc. and
WayPoint (WayPoint Purchase
Agreement), and, therefore, that WayPoint now has
the right to exercise the Control Warrant. If WayPoint exercises
the Control Warrant, they would own 51% of our outstanding
Common Stock. We are currently in negotiations with WayPoint to
obtain a waiver and modify the WayPoint Purchase Agreement.
However, there are no assurances that we will be successful in
our negotiations with WayPoint.
6
The
issuance of shares upon conversion of the Debentures, Series A
Preferred Stock and the NYTEX Petroleum Convertible Debentures
as well as exercise of outstanding warrants may cause immediate
and substantial dilution to our existing
stockholders.
If the market price per share of our Common Stock at the time of
conversion of our Debentures or Series A Preferred Stock, and
exercise of any warrants, options, or any other convertible
securities is in excess of the various conversion or exercise
prices of these derivative securities, conversion or exercise of
these convertible securities would have a dilutive effect on our
Common Stock. As of April 1, 2011, we had (i) outstanding
Debentures which are convertible into an aggregate of
1,433,333 shares of our Common Stock at a conversion price
of $1.50 per share, (ii) 6,000,000 shares of Series A
Preferred Stock which are convertible into an aggregate of
6,000,000 shares of our Common Stock, (iii) warrants to
purchase 2,230,000 shares of our Common Stock at an
exercise price of $2.00 per share of our Common Stock and
(iv) outstandings 9% convertible debentures issued by NYTEX
Petroleum which are convertible into an aggregate 600,000 shares
of any common stocks at a conversion price of $2.00 per share
the NYTEX Petroleum Convertible Debentures. Further, any
additional financing that we secure may require the granting of
rights, preferences or privileges senior to those of our Common
Stock and which result in additional dilution of the existing
ownership interests of our Common Stockholders.
We are
required to register various securities with the SEC under
agreements with certain of our security holders.
This prospectus relates to our obligation to file a registration
statement with the SEC registering for sale
9,663,333 shares of Common Stock issuable upon conversion
of (i) the Debentures and (ii) Series A Preferred Stock, and
upon exercise of both the Debenture Warrants and Series A
Warrants. Pursuant to a registration rights agreement with the
holders of the securities, we were required to file the
registration statement on or before 60 days of the final closing
of the Series A Preferred Stock offering, which was
April 10, 2011. The holders of Series A Preferred Stock may
demand a penalty equal to two percent of the amount of their
investment, or $120,000, for each month after that date that the
registration statement is not filed. Additionally, if the SEC
does not declare the registration statement effective within 120
days of the final closing of the Series A Preferred Stock
offering, which
is ,
2011 we face an additional penalty equal to two percent of the
amount of their investment, or $120,000, for each month after
that date that the registration statement is not effective.
After this registration statement becomes effective, we may be
required to file a registration statement with the SEC
registering for sale those shares of Common Stock held by Diana
Francis that were issued to her in the FDF Acquisition. If such
shares held by Diana Francis are eligible to be resold in
reliance on Rule 144 of the Act, our registration requirements
with respect to her lapse.
After November 23, 2011, but only upon request, we are
obligated to file a registration statement with the SEC
registering for sale the shares of Common Stock that may be
issued upon exercise of the WayPoint Warrants. After such time,
WayPoint is also entitled to piggyback registration rights, if
we register other securities.
The
terms of our indebtedness to PNC and our transaction with
WayPoint restrict our operations.
We need consent from PNC and WayPoint to engage in certain
activities, including, but not limited to, issuing additional
shares of our Common Stock, incurring further indebtedness,
granting any liens on our assets, disposing of our assets,
entering into mergers, or conducting acquisitions. If
appropriate consents cannot be obtained PNC and WayPoint, we may
not be able to pursue capital-raising transactions or
acquisitions that we believe are in our best interests and those
of our stockholders.
We are
subject to the reporting requirements of federal securities
laws, compliance with which is expensive.
We are a public reporting company in the U.S. and,
accordingly, subject to the information and reporting
requirements of the Exchange Act and other federal securities
laws, and the compliance obligations of the
7
Sarbanes-Oxley Act of 2002. The costs of preparing and filing
annual and quarterly reports, proxy statements and other
information with the SEC and furnishing audited reports to
stockholders will cause our expenses to be higher than they
would be if we were a private held company.
7.1
Our
compliance with the Sarbanes Oxley Act and SEC rules concerning
internal controls will be time consuming, difficult, and
costly.
As a reporting company, it will be time consuming, difficult and
costly for us to develop and implement the internal controls and
reporting procedures required by the Sarbanes-Oxley Act. We will
need to hire additional financial reporting, internal control,
and other finance staff in order to develop and implement
appropriate internal controls and reporting procedures. If we
are unable to comply with the Sarbanes-Oxley Acts
requirements regarding internal controls, we may not be able to
obtain the independent accountant certifications that
Sarbanes-Oxley Act requires publicly traded companies to obtain.
If we
fail to maintain the adequacy of our internal controls, our
ability to provide accurate financial statements and comply with
the requirements of the Sarbanes-Oxley Act could be impaired,
which could cause the market price of our Common Stock to
decrease substantially.
We have committed limited personnel and resources to the
development of the external reporting and compliance obligations
that are required of a public company. We have taken measures to
address and improve our financial reporting and compliance
capabilities and we are in the process of instituting changes to
satisfy our obligations in connection with being a public
company, when and as such requirements become applicable to us.
We plan to obtain additional financial and accounting resources
to support and enhance our ability to meet the requirements of
being a public company. We will need to continue to improve our
financial and managerial controls, reporting systems and
procedures, and documentation thereof. If our financial and
managerial controls, reporting systems, or procedures fail, we
may not be able to provide accurate financial statements on a
timely basis or comply with the Sarbanes-Oxley Act as it applies
to us. Any failure of our internal controls or our ability to
provide accurate financial statements could cause any trading
price of our Common Stock to decrease substantially.
Our
stock price may be volatile, which may result in losses to our
stockholders.
Domestic and international stock markets often experience
significant price and volume fluctuations especially in times of
economic uncertainty. In particular, the market prices of
companies quoted on the
Over-The-Counter
Bulletin Board, where our shares of Common Stock are
quoted, generally have been very volatile and have experienced
sharp share-price and trading-volume changes. The public trading
price of our Common Stock is likely to be volatile and could
fluctuate widely in response to the following factors, some of
which are beyond our control:
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variations in our operating results;
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changes in expectations of our future financial performance,
including financial estimates by securities analysts and
investors;
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changes in operating and stock price performance of other
companies in our industry;
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WayPoints exercise of the Purchase Warrant or the Control
Warrant;
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additions or departures of key personnel;
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future sales of our Common Stock; and
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general economic and political conditions.
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The market price for our Common Stock may be particularly
volatile given our status as a smaller reporting company with a
presumably small and thinly-traded float. You may be
unable to sell your Common Stock at or above your purchase price
if at all, which may result in substantial losses to you.
The market for our Common Stock may be characterized by
significant price volatility when compared to seasoned issuers,
and we expect that our share price will be more volatile than a
seasoned issuer for the indefinite future. The potential
volatility in our share price is attributable to a number of
factors. As noted above, our Common Stock may be sporadically
and/or
thinly traded. As a consequence of this lack of liquidity, the
trading of relatively small quantities of shares by our
stockholders may disproportionately
8
influence the price of those shares in either direction. The
price for our shares could, for example, decline precipitously
in the event that a large number of our common shares are sold
on the market without commensurate demand, as compared to a
seasoned issuer that could better absorb those sales without
adverse impact on its share price.
Our
Common Stock has only recently begun trading. We expect our
Common Stock to be thinly-traded. You may be unable to sell at
or near ask prices or at all if you need to sell your shares to
raise money or otherwise desire to liquidate such
shares.
We cannot predict the extent to which an active public trading
market for our Common Stock will develop or be sustained due to
a number of factors, including the fact that we are a smaller
reporting company that is relatively unknown to stock analysts,
stock brokers, institutional investors, and others in the
investment community that generate or influence sales volume.
Even if we come to the attention of such persons, they tend to
be risk-averse and would be reluctant to follow an unproven
company as currently constituted such as ours or purchase or
recommend the purchase of our shares until such time as we
became more seasoned and viable. As a consequence, there may be
periods of several days or more when trading activity in our
Common Stock is minimal or non-existent, as compared to a
seasoned issuer which has a large and steady volume of trading
activity that will generally support continuous sales without an
adverse effect on share price. We cannot give you any assurance
that a broader or more active public trading market for our
Common Stock will develop or be sustained, or that current
trading levels will be sustained.
We do
not anticipate paying any dividends.
We presently do not anticipate that we will pay any dividends on
any of our capital stock in the foreseeable future. The payment
of dividends, if any, would be contingent upon our revenues,
earnings, capital requirements, and our general financial
condition. The payment of any dividends will be within the
discretion of our board of directors. We presently intend to
retain all earnings, if any, to implement our business plan;
accordingly, we do not anticipate the declaration of any
dividends in the foreseeable future.
Our
Common Stock may be subject to penny stock rules, which may make
it more difficult for our stockholders to sell their Common
Stock.
Broker-dealer practices in connection with transactions in
penny stocks are regulated by certain penny stock
rules adopted by the Securities and Exchange Commission. Penny
stocks generally are equity securities with a price of less than
$5.00 per share. The penny stock rules require a broker-dealer,
prior to a purchase or sale of a penny stock not otherwise
exempt from the rules, to deliver to the customer a standardized
risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each
penny stock held in the customers account. In addition,
the penny stock rules generally require that prior to a
transaction in a penny stock, the broker-dealer make a special
written determination that the penny stock is a suitable
investment for the purchaser and receive the purchasers
written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that
becomes subject to the penny stock rules.
We may
need additional capital, and the sale of additional shares or
other equity securities could result in additional dilution to
our stockholders.
We believe that our current cash and cash equivalents and
anticipated cash flow from operations will be sufficient to meet
our anticipated cash needs for the near future. We may, however,
require additional cash resources due to changed business
conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If our
resources are insufficient to satisfy our cash requirements, we
may seek to sell additional equity or debt securities or obtain
an additional credit facility. The sale of additional equity
securities could result in additional dilution to our
stockholders and result in a significant reduction of your
percentage interest in us. The incurrence of additional
indebtedness would result in increased
9
debt service obligations and could result in additional
operating and financing covenants that would further restrict
our operations. We cannot assure you that financing will be
available in amounts or on terms acceptable to us, if at all.
We
have a substantial number of authorized common shares available
for future issuance that could cause dilution of our
stockholders interest and adversely impact the rights of
holders of our Common Stock.
We have a total of 200,000,000 shares of Common Stock
authorized for issuance. As of April 1, 2011, we had
173,913,671 shares of Common Stock available for issuance.
We have reserved 1,433,333 shares for conversion of our
Debentures, 6,000,000 shares for conversion of our
Series A Preferred Stock and 2,230,000 shares for
issuance upon the exercise of outstanding warrants held by the
Selling Security Holders. Additionally, our wholly-owned
subdivision NYTEX Petroleum, has issued debenture convertible
into 600,000 shares of our Common Stock if fully converted.
We may seek financing that could result in the issuance of
additional shares of our capital stock
and/or
rights to acquire additional shares of our capital stock. We may
also make acquisitions that result in issuances of additional
shares of our capital stock. Furthermore, the book value per
share of our Common Stock may be reduced.
The addition of a substantial number of shares of our Common
Stock into the market or by the registration of any of our other
securities under the Securities Act may significantly and
negatively affect the prevailing market price for our Common
Stock. The future sales of shares of our Common Stock issuable
upon the exercise of outstanding warrants and options may have a
depressive effect on the market price of our Common Stock, as
such warrants and options would be more likely to be exercised
at a time when the price of our Common Stock is greater than the
exercise price.
OTHER
RISK FACTORS
Reserve
data of our oil and gas operations are estimates based on
assumptions that may be inaccurate.
There are uncertainties inherent in estimating natural gas and
oil reserves and their estimated value, including many factors
beyond our control as producer. Reservoir engineering is a
subjective and inexact process of estimating underground
accumulations of natural gas and oil that cannot be measured in
an exact manner and is based on assumptions that may vary
considerably from actual results.
Accordingly, reserve estimates and actual production, revenue
and expenditures likely will vary, possibly materially, from
estimates. Additionally, there recently has been increased
debate and disagreement over the classification of reserves,
with particular focus on proved undeveloped reserves. Changes in
interpretations as to classification standards or disagreements
with our interpretations could cause us to write down these
reserves.
The extent to which we can benefit from successful acquisition
and development activities or acquire profitable oil and natural
gas producing properties with development potential is highly
dependent on the level of success in finding or acquiring
reserves.
We are
in default on our Senior Facility. If we are unable to reach an
agreement with PNC to resolve the defaults, PNC could exercise
its remedies under the Senior Facility, which ultimately could
require us to curtail or cease our operations.
On April 13, 2011, we received a letter from PNC, as
lender, notifying us of the existence of certain events of
default under our Senior Facility. We are currently in
negotiations with PNC to obtain a waiver of the defaults.
However, there are no assurances that we will be successful in
our negotiations with PNC. Because we are in default under the
Senior Facility PNC may at any time exercise any of its remedies
under the Senior Facility, which include acceleration of the
amounts owed, which we may not have the ability to pay. If the
debt is accelerated and we are unable to pay, we could
experience materially higher interest expenses, and PNC could
seek to satisfy the debt by foreclosing on its liens on some or
all of our assets or pursuing other legal action. Any such
action may require us to curtail or cease our operations.
10
SPECIAL
NOTE REGARDING 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
10.1
of our industry partners, ability 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 other sections of this prospectus. 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.
USE OF
PROCEEDS
We will not receive any of the proceeds from the sale of the
shares of Common Stock offered under this prospectus by the
Selling Security Holders. Rather, the Selling Security Holders
will receive those proceeds directly.
We will, however, receive the exercise price with respect to
warrants to purchase 2,230,000 shares of our Common Stock,
when and if exercised by the Selling Security Holders who hold
them. If all the warrants are exercised, we estimate our net
proceeds would be approximately $4,460,000, which are expected
to be used for general working capital purposes.
DETERMINATION
OF OFFERING PRICE
Our Common Stock has recently began very thinly trading on the
OTCQB under the symbol NYTE. The Selling Security Holders may
sell their shares of Common Stock issuable upon conversion of
the Debentures and Series A Preferred Stock or the exercise
of the Debenture Warrants or the Series A Warrants at the
prevailing market prices at the time of the sale or at privately
negotiated prices. See Plan of
Distribution on page of this
prospectus.
The conversion prices of the Debentures and Series A
Preferred Stock and the exercise prices of the Debenture
Warrants and Series A Warrants were determined by our Board
of directors following negotiations with the holders thereof and
may not bear any relationship to our past, current or future
operations, cash flows, net income, current financial condition,
the book value of our assets or any other established criteria
for value. As a result, the conversion and exercise prices
thereof, respectively, should not be considered as reflective of
the actual value of our Common Stock.
MARKET
PRICE OF OUR COMMON STOCK
Market
Information
Our Common Stock began trading on April 1, 2011 on the
OTCQB under the symbol NYTE. As of April 11, 2011, the
price of our Common Stock was $2.10.
Holders
As of April 1, 2011, we had approximately
26,086,329 shares of Common Stock outstanding held by a
total of 287 stockholders of record.
Warrants,
Convertible Debenture Shares and Restricted Stock
Grants
As of April 1, 2011, we had convertible debentures and
warrants convertible into up
to
of our Common Stock, including 3,663,000 shares of Common
Stock being registered for sale by the Selling Security Holders
pursuant to the registration statement to which this prospectus
relates and 600,000 shares of Common Stock issuable upon
conversion of the NTTEX Petroleum Convertible Debenture.
However, if all of our derivative securities, including
WayPoints Purchase Warrant and Control Warrant, were
exercised or
11
converted, we would
have shares
of Common Stock outstanding, on a fully diluted basis.
Furthermore, there are 400,000 shares of our Common Stock
reserved for issuance pursuant to restricted stock grants to our
employees and employees of FDF.
Rule 144 Shares
Under Rule 144 of the Securities Act, a person who has
beneficially owned restricted shares of our Common Stock for at
least six months is entitled to sell their securities provided
that (i) such person is not deemed to have been one of our
affiliates at the time of, or at any time during the three
months preceding the sale and (ii) we have been subject to
the Exchange Act periodic reporting requirements for at least
three months before the sale.
Persons who have beneficially owned restricted shares of our
Common Stock for at least six months but who are our affiliates
at the time of, or at any time during the three months preceding
the sale, are subject to additional restrictions as more fully
set forth in Rule 144.
As of April 1, 2011 we believe 3,112,301 of our shares of
Common Stock are eligible for non-affiliate resale pursuant to
Rule 144.
Shares to
be Registrable Pursuant to Registration Rights
Agreements
We have entered into registration rights agreements with various
holders of our securities, including the Selling Security
Holders, Diana Francis and WayPoint. As of April 1, 2011,
those registration rights agreements cover: (i)
2,058,125 shares of Common Stock held by Diane Francis a
and is, (ii) 9,663,333 shares of Common Stock issuable upon
conversion of the Debentures and Series A Preferred Stock and
exercise of the Debenture Warrants and the Series A Warrants
held by the Selling Security Holders and
(iii) shares
of Common Stock issuable upon exercise of the Purchaser Warrant
and Control Warrant.
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BUSINESS
Dallas-based NYTEX Energy Holdings, Inc., through our
wholly-owned subsidiary, FDF
(website: http://www.fdfltd.com),
is one of the leading distributors of oil and gas well
fracturing proppants and suppliers of drilling fluids in the
United States. FDF is a 34 year-old full-service provider
of drilling, completion and specialized fluids and specialty
additives; technical and environmental support services,
industrial cleaning services; equipment rentals; and
transportation, handling and storage of fluids and dry products
for the oil and gas industry. Headquartered in Crowley,
Louisiana, FDF serves oilfield service companies; notably
Halliburton, BJ Services, Cudd and Weatherford; major and
independent oil companies such as Shell, EnCana, Apache and
Chesapeake; and proppant suppliers including St. Gobain, Santrol
and CMC Cometals, among over 160 clients, delivering to oilfield
operations in thirty-nine states. Through our other wholly-owned
subsidiary, NYTEX Petroleum, which has been in operations for
five years, we develop oil and gas reserves and buy and sell
leasehold acreage and oil and gas properties.
On September 8, 2010, we completed the disposition of our
noncontrolling interest in Supreme Vacuum Services, Inc.
(Supreme Vacuum), an oilfield fluid
service company specializing in drilling and production fluids
transportation, sales, and storage. On November 23, 2010,
through our newly-formed and wholly-owned subsidiary,
Acquisition Inc., we acquired 100% of the membership interests
of Francis Oaks, LLC (Oaks) and its
wholly-owned operating subsidiary, FDF (together with Oaks, the
Francis Group). The Francis Group has
no other assets or operations other than FDF. See Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Overview Oilfield Services on page
of this prospectus for further discussion of the acquisition
of FDF. We were originally incorporated in 1988, as Kismet,
Inc., which conducted no operations until October 31, 2008,
at which time the our name was changed to NYTEX Energy Holdings,
Inc. and its newly-formed and wholly-owned subsidiary, NYTEX
Petroleum, acquired the business and operations of NYTEX
Petroleum, LLC, a Texas limited liability company. From October
2008 until our FDF acquisition, our operations were effected
through NYTEX Petroleum, and, to a lesser extent, through a
since sold subsidiary, Supreme Vacuum.
Strategy
Our primary objective is to provide our stockholders with above
average returns on their investment through income growth by
1) securing a distinct and sustainable competitive position
as a full-service provider of products and services to the
energy industry, and 2) pursuing profitable oil and gas
activities. Principal components of our strategy include:
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Continuously improving the efficiency, productivity and quality
of our products and services and their respective delivery in
order to grow revenues and operating margins in all of our
geographic markets at a rate exceeding underlying market
activity;
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Further extending our infrastructure and U.S. leadership
position throughout North America by acquiring, consolidating
and integrating other oilfield fluid service and fracture
proppant distribution companies at competitive acquisition costs;
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Preserving our dynamic, long tenured workforce by attracting,
developing, and retaining the best talent; and
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Upholding our ethical and business standards and maintaining the
highest standards of health, safety, and environmental
performance.
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Oilfield
Services FDF
Founded in 1977 and headquartered in Crowley, Louisiana, FDF
delivers its diversified range of products and services to
39 states from 21 facilities located in Louisiana, Texas,
Oklahoma, Wyoming, and North Dakota. FDF has a current fleet of
over 200 dry material pneumatic tank, fluid tank and industrial
cleaning trucks and service rigs, 13 owned and leased rail spurs
and over 150,000 barrels of liquid mud storage capacity.
FDF is a full-service provider of drilling, completion and
specialized fluids and specialty additives; technical and
environmental support services, industrial cleaning services;
equipment rental; and transportation,
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transloading, and contract warehousing of frac sand
and ceramic proppant. Ceramic proppant is a sintered
semi-crystalline alumina silicate, made from bauxite clay that
is tumbled and fired into non-poisonous, odorless, inflammable,
insoluble spheres used in hydraulic fracturing of subterranean
formations surrounding wells to increase oil and gas output. We
refer to proppant material to mean all of the forms
of frac sands and ceramic proppants being used in the oil and
gas industry for hydraulic fracture stimulations of oil and gas
wells.
FDF
Product Offerings
Specialized
fluids and specialty additive products
FDFs suite of drilling and specialized fluids and
specialty additive products includes water-based and oil-based
liquid drilling mud, emulsifiers and wetting agents, alkalinity
control agents, lost circulation & sealing products,
corrosion inhibitors, casing scrubbers as well as lubricants,
detergents and defoamers. FDF offers a complete range of high
quality, field-proven products with the
24-hour
dispatch and on-spot delivery including the following:
Liquid
Water-Based Mud
FDF offers a complete range of 10.0 lb. to 19.0 lb. liquid muds
for every application. From bulk barite to a variety of
specialty additives, FDF offers
24-hour
delivery and 150,000 barrels of storage capacity across the
Gulf Coast region.
Oil
Water-Based Mud
FDF offers liquid oil-based mud such as Invert Emulsion, Oil
Base Spot and Environment Spot, all sold in 42 gallon barrels,
with primary and secondary emulsifiers and wetting agents sold
in five and 55 gallon barrels. Our bagged oil-based and related
products sold in 50 lb. sacks are Oil Soluble Asphalt, Amine
Treated Lignite, Organophilic Clay, and Hectorite Clay.
Completion
Fluids
Our completion fluids include various solutions of:
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sodium chloride (NaCl Solutions);
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potassium chloride (KCl Solutions);
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ammonium chloride;
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calcium chloride; and
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zinc bromide.
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FDF offers a variety of related products including FDF branded
products such as FDF Perfseal calcium carbonate sized
pellets; FDF Liquid HEC and HEC 10
(Hydroxyethcellulose); pellets and powder sacks of calcium
chloride, potassium chloride ammonium chloride, sodium chloride
and calcium bromide; FDF Supersweep 298 water-based
casing scrub; FDF Supersweep OB oil-based casing scrub;
FDF Supertron 62, Supertron 87, and FDF
Supertron 6200 corrosion inhibitors; and FDF DEFOAM CF
alcohol-based defoamer.
Specialized
Mixing
Developed for a wide range of demanding applications, FDF offers
some of the most advanced specialized drilling fluids systems in
the world.
Barite &
Hematite
FDF offers FDF brand sacks of barium sulfate and hematite
including FDF Barite Bulk, FDF Barite Sack, FDF
Hematite Bulk, and FDF Hematite Sack.
14
Viscosifiers
FDF offers FDF brand sacks of bentonite salt gels and polymers
including FDF Benex, FDF Bentonite, FDF
Bentonite NT, FDF Bentonite Bulk, FDF
Attipulgite, FDF Vistek II, FDF XCD Polymer,
and a mixed metal hydroxide.
Fluid
Conditioners
FDF offers FDF brand fluid conditioners including D/FLOC-L
liquid thinner, FDF CLS chrome lignosulfonate, FDF
CLS Chrome Free, Desco modified tannin, FDF
Lignite, FDF Sapp pyrophosphate, FDF Envirocal
calcium lignin, and FDF Polyplex.
Filtration
Control Agents
FDF offers starch and FDF brand filtration control agents
including CM Starch and Starlose treated starch,
FDF Pac Regular and FDF Pac S/L polyanionic
cellulose, FDF CMC High Vis and FDF CMC Low Vis
carboxymethylcellulose.
Shale
Stabilizers
FDF offers FDF brand shale stabilizers including FDF NO-PHALT
and Soltex sulfonated asphalt, and FDF PHPA
liquid and FDF PHPA dry.
Lubricants,
Detergents, & Defoamers
FDF offers FDF brand lubricants, detergents and defoamers for
drilling operations including FDF Detergent drilling
detergent, FDF DMS drilling mud surfactant, FDF LUBE
II environmental lubricant, FDF DEFOAM environmental
defoamers, and aluminum stearate.
Alkalinity
Control
FDF offers FDF brand alkalinity control dry products including
FDF KOH potassium hydroxide, FDF Caustic Soda
sodium hydroxide, FDF Gypsum, FDF Lime calcium
chloride, soda ash, sodium bicarbonate, and potassium acetate.
Lost
Circulation & Sealing Products
FDF offers FDF brand and other lost circulation and sealing
products including Diaseal M.D.E., Kwik-Seal,
FDF Mica (F.M.C.), DELTA P cellulose fiber, FDF
NUT PLUG (F.M.C.) ground walnut hulls, VENLUBE II
treated cellulose fiber, MAGNAFIBER REGULAR and
MAGNAFIBER FINE acid soluble cellulose, and FDF
VISPLUG crosslink polymer.
FDF
Service Offerings
Equipment
Rentals
FDFs equipment rentals division rents frac tanks (super
tanks), liquid mud barges, mud pumps, portable mixing units, gas
busters, hoses and fittings, hydro blasters (hot/cold), and air
movers.
Transportation
We believe FDFs transportation fleet is unequaled in
reliability and supports timely delivery of proppant materials,
cement, barite, fly ash and cement. With
24-hour
dispatching from our strategic stock points, FDFs truck
fleet delivers in 39 states, and our barges deliver
offshore to the Gulf of Mexico.
FDF has developed strategic alliances with its customers to
provide warehouse management, logistic support and pneumatic and
other specialized hauling. Materials can be accepted via
standard shipment or railcar, stored at key locations, and
ultimately delivered by our extensive transportation fleet.
15
FDF utilizes the latest communications technology to provide our
customers with timely and efficient logistical support through
our:
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Vacuum Trucks
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Warehouse Management
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Winch Trucks
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Logistical Support
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Pneumatic Hauling
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Super Vacs
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Specialized Hauling
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Transloading
Services
When FDFs customers need to load and unload, warehouse,
control inventory, and handle sand, cement, barite, fly ash and
ceramic proppants, we are well equipped to serve our customers
in our service areas. Our transloading services department
provides the personnel, process, and equipment to help ensure
the accuracy and integrity of our customers products. We
feature:
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Faster Transit Times
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Timely Delivery of Products
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Reliable Delivery
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Product Integrity
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Online Reporting
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Contract Warehousing
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Inventory Control
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Railcar Loading/Unloading
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Single Point Accountability
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Computerized Inventory Control
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FDF has rail facilities at the following locations:
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Clinton, OK
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Alice, TX
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Odessa, TX
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Weatherford, OK
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Kermit, TX
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Rock Springs, WY
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Weatherford, OK
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Jefferson, TX
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Plaza, ND
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Lake Charles, LA
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Technical
Services
FDF offers a full range of technical assistance and support
services for every stage of the drilling project. Our
on-site
technical representatives provide water-base, oil-base and
completion services. We believe our highly trained staff of
fluid engineers offers practical knowledge and experience as
required by our customers. We offer:
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Drilling Fluids Engineering
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In-House Tech Support
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Completion Fluids Engineering
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Certified Tankerman
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Fluid Auditing
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Environmental
Support
With tough environmental regulations now affecting every phase
of operations, understanding and complying with environmental
law is of critical importance. We believe FDF has been and
continues to be a leader in safe and responsible fluids handling
and disposal. In every phase of safety, training and operations,
FDF is dedicated to the support of our customers and the
protection of our environment.
Fluids
Services
FDF offers a full range of high quality fluid products and
services with 24 hour dispatch and
on-site
delivery. Whatever the customer fluid needs, FDF stands ready
with a solution for any application. Our fluid services
offerings include:
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Water-based Liquid Mud
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Completion Fluids
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Liquid Mud Storage
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Completion Fluids Chemicals
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Specialized Mixing
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Casing Scrubs
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Water-Based Chemicals
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Corrosion Inhibitors
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16
Cleaning
Services
FDF offers a wide range of cleaning services as an attempt to
meet our customers cleaning services needs. Our
dockside facilities have personnel and equipment stationed to
readily and promptly respond. With the use of our mobile
recycling system we can accommodate location based cleaning jobs
in our service area.
Through the utilization of our fluids recycling system, there is
effectively no waste disposal associated with the cleaning of
supply vessels that contain remnants of water-based,
diesel-based, and synthetic-based muds, and selective completion
fluids. Our process utilizes recycled products and allows the
recycling of barite, cement, and gel. As a result, significant
cost savings are obtained along with a lower impact on of our
environment. Cleaning services include:
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Industrial Cleaning
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Barge Cleaning
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Rig Cleaning
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Vessel Cleaning
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Tank Cleaning
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Equipment Cleaning
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Specialized
Cleaning Equipment
With specialized mobile equipment and well trained personnel,
FDF offers a very wide range of oil and gas industrial cleaning
services able to reach the customers specific locations,
in our ongoing attempts to meet the demands of the oil and gas
industry. The following is a list of the specialized cleaning
equipment we utilize:
FDF Hydro
Excavator HV-56 GapVax Industrial Vacuum Loader w/
Hydro Excavation Package
The FDF Hydro Excavator is a truck mounted, high performance,
industrial vacuum loader designed to pneumatically convey
virtually any dry material, sludge, liquids from remote and
inaccessible locations through suction lines 8 inches in
diameter and smaller. With the help of the hydraulic boom and
hydro blaster, the FDF Hydro Excavator can excavate all
sensitive areas where a typical excavator cannot.
FDF
SuperVac VTX-820 GAPVAX Tractor Mounted
Vacuum System
The FDF SuperVac is a truck mounted high performance blower
designed to pneumatically convey any sludge, slurries and
liquids through a 6 inch line. With a 130 barrel load
vacuum bottle and the capability to blow-off product, the FDF
SuperVac is a highly effective cleaning machine.
FDF
SuperVac II HV-57 GAPVAX Vacuum Loader
Airmover
A single mode, high performance, low maintenance, truck mounted,
industrial vacuum loader designed to pneumatically convey
virtually any dry material, sludge, slurries, or liquids from
remote and inaccessible locations through suction lines
8 inches in diameter and smaller.
FDF Hot
Water Washer
The FDF Hot Water Washer unit is a high pressure, diesel
powered, steam combination mobile cleaning trailer. This unit
includes four wands with hose reels for simultaneous washing
along with confined-space entry equipment with breathing air and
essential tools.
FDF Hydro
Blaster
The FDF Hydro Blaster unit is a high pressure/high volume mobile
washing unit. Features include a water pressure actuated
throttle control that monitors operator demand and adjusts
output accordingly. When the operator pulls the trigger, the
pumping system responds instantaneously providing high pressure
water at a pre-selected pressure and volume. Upon release of the
trigger, pressure is relieved and the system returns to idle.
17
FDF Super
Wash II
A single mode, high performance, trailer mounted cleaning unit
designed to be set up on location, either land or barge, to
perform cleaning at the job site. The FDF SUPERWASH II is
designed to wash with water or any type of drilling mud with
either low pressure/high volume or high pressure/low volume.
Fluids can be recycled during washing to minimize or eliminate
disposal. This unit comes with a variety of equipment and
connections making it totally self-contained, including air
compressor, high-pressure triplex pump, 5x6 centrifugal pump,
diaphragm pumps, pressure washers and all confined space entry
safety equipment needed to tackle the toughest jobs. This unit
also has a Peterbilt tractor with a crew compartment on board to
transport cleaning technicians to the job site.
FDF
Mobile Cleaning Unit
The FDF mobile cleaning trailer is an all-inclusive cleaning
package to address land and inland rigs and support dockside
vessel cleaning. All equipment is well-organized and
strategically located on the trailer for easy access and quick
startup. The mobile cleaning trailer is pulled with a crew cab
truck which also transports the cleaning personnel to the job
site.
Oil
and Gas NYTEX Petroleum
NYTEX Petroleums predecessor, NYTEX Petroleum LLC, was
engaged in fee-based administrative and management services
related to crude oil and natural gas properties. It also engaged
in the acquisition, generation, promotion, development,
exploration and participation in the drilling and production of
oil and gas properties directly, through affiliations with
independent operating partners and by acquiring participations
in properties that are potential resources for the production of
oil and gas.
Beginning in 2009, we became more engaged in the acquisition,
generation and participation in drilling prospects and
production acquisitions. Our growth initiative focuses primarily
on early stage acquisition, geological and engineering
high-grading and sale of leasehold acreage and producing oil and
gas wells within minor oil and gas resource plays. A minor oil
and gas resource play is defined herein as an oil
and/or gas
reservoir, other than the known major shale plays such as the
Barnett, Haynesville, Eagle Ford, Bakken, Marcellus,
Fayetteville and Woodford. We believe these minor plays exist
and can be developed uniformly over an expansive geographical
area with a high rate of success due to the recent advancements
in horizontal drilling and multi-stage fracturing technologies.
Our oil and gas assets consist of non-operated working interests
in oil and gas properties and a 73% operated working interest in
the Panhandle Field consisting of 320 acres with six wells
producing approximately 23 barrels of oil equivalent per
day from the Red Cave and Panhandle Lime formations at between
2,200 and 3,400 depths.
On May 19, 2010, NYTEX Petroleum entered into an Oil
Containment Rental Agreement (Simpson
Agreement) with Simpson Environmental Resources,
Inc. (Simpson) to rent segments of oil
containment boom (Boom) to Simpson to
be used in the Gulf of Mexico waters to contain the BP Global
oil spill under Simpsons master service or rental
agreements with general contractors of BP Global, state
governments or other entities. NYTEX Petroleum has also entered
into binding agreements with manufacturers representatives
to deliver Boom from Boom manufacturing plants to Simpson in
mutually agreed amount of linear footages, at mutually agreed
delivery locations and at mutually agreed time periods. The
terms of the agreement between NYTEX Petroleum and Simpson
required Simpson to pay NYTEX Petroleum 100% of the rental
payment amounts Simpson collected from the contractors for the
NYTEX Boom until such point and time that NYTEX Petroleum
received 100% of its cost of the delivered NYTEX Boom from said
rental payments, referred to as payout. After payout, the rental
payment income was split 50% to Simpson and 50% to NYTEX
Petroleum for the remaining period that the Boom was in service
under such rental contracts.
To fund the purchases of Boom, NYTEX Petroleum entered into
agreements with outside participants (Participants
Agreements) to purchase and rent Boom pursuant to
the terms of the Simpson Agreement. The Participants Agreements
provided for the participants to receive 100% of the Contractor
Payments remitted by
18
Simpson to NYTEX Petroleum until such time that the participant
recovered 100% of their cost of the delivered Boom (referred to
as Participant Payout). After
Participant Payout was achieved, subsequent Contractor Payments
received by Simpson and remitted to NYTEX Petroleum were split
as follows: 60% to the participant, 20% to NYTEX Petroleum, and
20% to DMCG, Inc., who brought the project, Simpson and Boom
manufacturers representatives to NYTEX Petroleum.
Supreme
Vacuum
From August 2008 to September 2010, through our wholly-owned
subsidiary, Supreme Oilfield, Inc., we had a noncontrolling
interest in Supreme Vacuum. Supreme Vacuums fleet of
vacuum pump installed tank trucks and trailer mounted tanks
provided
on-site
removal of salt water and other fluids that are generated as a
by-product of normal drilling operations during the post
fracture stimulation flowback operations and as a by-product of
oil and gas production and their removal to state-approved
disposal locations. It also provided fluids such as fresh and
salt water for downhole drilling and workover operations as well
as facilities for onsite fluid storage and then removal of the
spent fluids to state-approved disposal facilities.
In June 2009, Supreme Vacuum completed construction of its mud
reconditioning facility with sales of reconditioned drilling mud
commencing shortly thereafter. The facilitys feed stock of
used drilling mud is collected by Supreme Vacuum by either
getting paid to haul off used drilling mud from drillsites after
wells are drilled, or sometimes hauls off used drilling mud at
no cost and delivering the mud to the facilitys holding
tanks. As oil and gas operators or drilling contractors request
reconditioned drilling mud at various mud weights (viscosities),
Supreme Vacuum prepared the requested amounts of reconditioned
mud at the requested weights, by adding more dry mud to the
mixtures, and then delivering to the customer in its tank trucks.
In September 2010, we disposed of our noncontrolling interest in
Supreme Vacuum.
Other
Business Data
FDF
Locations
FDFs 21 facilities are specifically located in Ada,
Clinton, and Sallisaw, Oklahoma; Alice, Jefferson, Odessa,
Kermit, and Victoria, Texas; Intracoastal City, Berwick,
Fourchon, Lake Charles, Cameron, Coushatta, Shreveport, and
Crowley, Louisiana; Fort Smith, Arkansas; Rock Springs,
Wyoming; and Plaza, North Dakota.
Competitive
Edge
FDF is the oldest continuously operating drilling fluids company
on the Gulf Coast. We believe FDF employees have the longest
average tenure of any Gulf Coast fluids company and are
empowered to satisfy our customers. We believe that our growth
and long-term success would not have been possible without the
commitment and hard work of our people. Many of our core
processes are supported by personnel that have demonstrated
their loyalty to our company over the years and have contributed
their energy, ideas and their enthusiasm for our work. We
believe that this allegiance and dedication are a source of our
competitive edge and the foundation for our future.
Our fleet size is one of the largest within the transportation
segment of the oilfield services industry we operate in. When
our fleet size is combined with our growing amount of warehouse
and storage capacity, transloading facilities, and rail spurs
located in or deliverable to the major shale plays, we believe
we possess a competitive edge for the inland distribution of
proppant material, cement, barite, and flyash.
Our
state-of-the-art
equipment assists us in maintaining highly-qualified and
motivated employees to facilitate superior customer service. We
believe we are the industry pacesetter in providing innovative
environmental solutions. Based on storage capacity, our liquid
mud storage program is a leader in the Gulf Coast with
150,000 barrels of capacity. We also utilize the latest
communication technology to provide our customers with timely
and efficient logistical support.
19
Environmental
Regulations
Our operations routinely involve the storage, handling,
transport and disposal of bulk waste materials, some of which
contain oil, contaminants and other regulated substances.
Various environmental laws and regulations require prevention,
and when necessary, cleanup, of spills and leaks of such
materials, and some of our operations must obtain permits that
limit the discharge of materials. Failure to comply with such
environmental requirements or permits may result in fines and
penalties, remediation orders and revocation of permits.
Seasonality
Weather and natural phenomena can temporarily affect the
performance of our services, but we believe the widespread
geographical locations of our operations serve to mitigate those
effects. Examples of how weather can impact our business include
the severity and duration of the winter in North America, which
can have a significant impact on natural gas storage levels and
drilling activity for natural gas, and hurricanes, which can
disrupt our coastal and offshore operations in the Gulf of
Mexico.
Government
Regulations
Our operations are subject to various federal, state and local
laws and regulations pertaining to health, safety and the
environment. We cannot predict the level of enforcement of
existing laws or regulations or how such laws and regulations
may be interpreted by enforcement agencies or court rulings in
the future. We also cannot predict whether additional laws and
regulations affecting our business will be adopted, or the
effect such changes might have on us, our financial condition or
our business.
Competition
and Other External Factors
The markets in which we operate are highly competitive.
Competition is influenced by such factors as price, capacity,
and reputation and experience of the service provider. We
believe that an important competitive factor in establishing and
maintaining long-term customer relationships is having an
experienced, skilled and well-trained work force. We devote
substantial resources toward employee safety and training
programs. We believe many of our larger customers place
increased emphasis on the safety, performance and quality of the
crews, equipment and services provided by their service
providers. Although we believe customers consider all of these
factors, price is often the primary factor in determining which
service provider is awarded the work. However, in numerous
instances, we secure and maintain work for large customers for
which efficiency, safety, technology, size of fleet and
availability of other services are of equal importance to price.
The demand for our products and services fluctuates, primarily
in relation to the price (or anticipated price) of oil and gas,
which, in turn, is driven by the supply of, and demand for, oil
and gas. Generally, as supply of those commodities decreases and
demand increases, demand for our products and services increase
as oil and gas producers attempt to maximize the productivity of
their wells in a higher priced environment. However, in a lower
oil and gas price environment, demand for our products and
services generally decreases as oil and natural gas producers
decrease their activity. In particular, the demand for new or
existing field drilling and completion work is driven by
available investment capital for such work.
The level of our revenues, earnings and cash flows are
substantially dependent upon, and affected by, the level of
U.S. oil and gas exploration and development, as well as
the equipment capacity in any particular region.
Raw
materials
Raw materials that are essential to our business are generally
readily available. We purchase a wide variety of raw materials,
parts, and components that are made by other manufacturers and
suppliers for our use. We are not dependent on any single source
of supply for those parts, supplies, or materials.
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Customers
Our customers include major international oilfield service
companies, major oil companies, independent oil and gas
production companies, frac sand suppliers, ceramic proppant
manufacturers, and proppant retailers. Of our consolidated
revenues during the year ended December 31, 2010, BJ
Services accounted for approximately 14%.
Employees
As of March 31, 2011, we had 450 employees within our
Oilfield Services business and 11 employees between our Oil
and Gas business and at the corporate holding company level. Our
employees are not represented by a labor union and are not
covered by collective bargaining agreements.
PROPERTIES
Our corporate headquarters comprises approximately
2,400 square feet of leased office space, and is located at
12222 Merit Drive, Suite 1850, Dallas, Texas. Our primary
administrative office for FDF is located in Crowley, Louisiana
and includes approximately 12,250 square feet of office and
approximately 78,000 square feet of warehouse and
production space on approximately 32 acres of land.
The following is a summary of our leased and owned properties:
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Leased or
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Approximate
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Approximate
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Location
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Owned
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Sq. Ft.
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Acreage
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Facility Type
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Ada, OK
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Leased
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100
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1.00
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Trucking Terminal, Office
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Alice, TX
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Leased
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53,700
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8.87
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Office, Warehouses, Mud Plant, Tanks, Silos
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Mixing Pits, Trucking Terminal, Wash Rack,
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Alice, TX
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Owned
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100,000
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20.00
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Warehouse
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Berwick, LA
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Leased
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18,984
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2.25
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Warehouse, Office, Mobile Residences, Docks,
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Mud Plant, Tanks, Mixing Pits, Wash Rack
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Cameron, LA
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Leased
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11,841
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3.50
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Mud Plant, Office Building, Tanks, Mixing Pits
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Docks, Residential Quarters
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Clinton, OK
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Owned
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9,600
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6.26
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Office, Mechanics Garage, Silos, Weigh Station
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Rail Spur, Trucking Terminal
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Coushatta, LA
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Owned
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3,510
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17.00
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Rail Spur, Wash Rack, Mud Plant
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Crowley, LA
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Owned
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65,542
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31.60
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Office Building, Warehouses, Mechanics Garage,
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Mud Plant, Tanks, Mixing Pits, Wash Rack,
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Blasting Shed
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Crowley, LA
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Leased
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12,800
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2.08
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Airstrip and hangar
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Dayton, TX
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Owned
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8,200
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6.00
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Mud Plant, Warehouse, Mixing Pits, Wash Rack,
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Mobile Residence/Office, Mixing Pits, Tanks
|
Fourchon, LA
|
|
|
Leased
|
|
|
|
18,593
|
|
|
|
3.70
|
|
|
Mud Plant, Office building, Mud Plant, Tanks,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Residences, Mixing Pits, Docks
|
Intracoastal City, LA
|
|
|
Leased
|
|
|
|
5,109
|
|
|
|
2.38
|
|
|
Warehouse, Mud Plants, Mud Tanks, Dock,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mixing Pits
|
Jefferson, TX
|
|
|
Santrol
|
|
|
|
300
|
|
|
|
3.50
|
|
|
Trucking Terminal, Rail Spur, Weigh Station
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased or
|
|
|
Approximate
|
|
|
Approximate
|
|
|
|
Location
|
|
Owned
|
|
|
Sq. Ft.
|
|
|
Acreage
|
|
|
Facility Type
|
|
Kermit, TX
|
|
|
Leased
|
|
|
|
300
|
|
|
|
5.50
|
|
|
Rail Spur, Weigh Station, Silos
|
Lake Charles, LA
|
|
|
Leased
|
|
|
|
5,109
|
|
|
|
2.38
|
|
|
Office and Warehouse, Trucking Terminal
|
Lake Charles Port, LA
|
|
|
Leased
|
|
|
|
140,000
|
|
|
|
|
|
|
Warehouse, Docks, Silos
|
Lafayette, LA
|
|
|
Leased
|
|
|
|
9,000
|
|
|
|
|
|
|
Office space
|
Odessa, TX
|
|
|
Owned
|
|
|
|
12,750
|
|
|
|
43.44
|
|
|
Office and Warehouse, Rail Spur, Weigh Station,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silos, Trucking Terminal
|
Plaza, ND
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
Rail Spur, Yard
|
Rock Springs, WY
|
|
|
Owned
|
|
|
|
12,800
|
|
|
|
5.58
|
|
|
Office and Warehouse, Silos, Weigh Station,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail Spur, Trucking Terminal
|
Rock Springs, WY
|
|
|
Leased
|
|
|
|
40
|
|
|
|
5.90
|
|
|
Rail Spur, Weigh Station
|
Sallisaw, OK
|
|
|
Owned
|
|
|
|
11,140
|
|
|
|
6.00
|
|
|
Office and Warehouse, Trucking Terminal,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mechanics Garage
|
Victoria, TX
|
|
|
Owned
|
|
|
|
11,300
|
|
|
|
3.83
|
|
|
Office and Warehouse, Mud Plant, Wash Rack,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tanks, Mixing Pits, Residential Quarters
|
Weatherford, OK
|
|
|
Leased
|
|
|
|
|
|
|
|
3.60
|
|
|
Rail Spur, Yard
|
Dallas, TX
|
|
|
Leased
|
|
|
|
2,415
|
|
|
|
|
|
|
Corporate office space
|
Our interests in oil and natural gas properties are located in
Texas. See Oil and Natural Gas
Reserves on page below for
additional discussion.
We own our administrative offices in Crowley, Louisiana, subject
to a mortgage on them in favor of PNC, as well as the majority
of our other facilities. We also lease a number of facilities,
and we do not believe that any one of the leased facilities is
individually material to our operations. We believe that our
existing facilities are suitable and adequate to meet our needs.
Reserve
Rule Changes
During 2009, the SEC issued its final rule on the modernization
of oil and gas reporting (the Reserve
Ruling) and the Financial Accounting Standards
Board (the FASB) issued Accounting
Standards Update
No. 2010-03
(ASU
2010-03)
Extractive Industries Oil and Gas, which
aligns the estimation and disclosure requirements of FASB
Accounting Standards Codification Topic 932 with the Reserve
Ruling. The Reserve Ruling and ASU
2010-03 are
effective for Annual Reports on
Form 10-K
for fiscal years ending on or after December 31, 2009. The
key provisions of the Reserve Ruling and ASU
2010-03 are
as follows:
|
|
|
|
|
Expanding the definition of oil- and gas-producing activities to
include the extraction of saleable hydrocarbons, in the solid,
liquid or gaseous state, from oil sands, coalbeds, or other
nonrenewable natural resources that are intended to be upgraded
into synthetic oil or gas, and activities undertaken with a view
to such extraction;
|
|
|
|
Amending the definition of proved oil and gas reserves to
require the use of an average of the
first-day-of-the-month
commodity prices during the
12-month
period ending on the balance sheet date rather than the
period-end commodity prices;
|
|
|
|
Adding to and amending other definitions used in estimating
proved oil and gas reserves, such as reliable
technology and reasonable certainty;
|
|
|
|
Broadening the types of technology that a reporter may use to
establish reserves estimates and categories; and
|
|
|
|
Changing disclosure requirements and providing formats for
tabular reserve disclosures.
|
22
Oil
and Natural Gas Reserves
The following table summarizes our oil and gas production
revenue and costs, our productive wells and acreage, undeveloped
acreage and drilling activities for each of the last three years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
Average gas sales price per mcf
|
|
$
|
4.10
|
|
|
$
|
5.61
|
|
|
$
|
9.28
|
|
Average oil sales price per bbl
|
|
$
|
73.79
|
|
|
$
|
66.71
|
|
|
$
|
91.65
|
|
Average production cost per boe
|
|
$
|
27.82
|
|
|
$
|
39.97
|
|
|
$
|
5.90
|
|
Net oil production (bbl)
|
|
|
3,751
|
|
|
|
1,666
|
|
|
|
251
|
|
Net gas production (mcf)
|
|
|
8,709
|
|
|
|
8,468
|
|
|
|
4,212
|
|
Productive wells oil
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
12
|
|
|
|
12
|
|
|
|
2
|
|
Net
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
Productive wells gas
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
21
|
|
|
|
21
|
|
|
|
17
|
|
Net
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
Developed acreage
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
5,605
|
|
|
|
5,485
|
|
|
|
5,157
|
|
Net
|
|
|
541
|
|
|
|
541
|
|
|
|
301
|
|
Undeveloped acreage
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
12,000
|
|
|
|
12,000
|
|
Net
|
|
|
|
|
|
|
2,400
|
|
|
|
2,400
|
|
Drilling activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Net productive exploratory wells drilled
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Net dry exploratory wells drilled
|
|
|
|
|
|
|
|
|
|
|
1
|
|
The reserve data, present value, and engineering report with
respect to our proved developed producing oil and gas reserves
as of December 31, 2010 was prepared by a third party
petroleum consulting firm, LaRoche Petroleum Consultants, Ltd.,
who meets the requirements regarding qualifications,
independence, objectivity, and confidentiality set forth in the
Standards Pertaining to the Estimating and Auditing of Oil and
Gas Reserves Information promulgated by the Society of Petroleum
Engineers. We did not perform any recompletions to place proved
developed non-producing (PDnP)
reserves it reported as of December 31, 2009 into
production during 2010. After performing a review of
recompletions and new drills in the area surrounding our PDnP
reserves and finding no new data to make its 2009 PDnP reserve
calculations invalid, the 2009 PDnP reserve volumes were updated
with the 2010 SEC pricing and revised differentials as provided
by LaRoche Petroleum Consultants were used to calculate the PDnP
reserves as of December 31, 2010.
The PDnP reserves as of December 31, 2009 were derived from
an in-house reserve study by Jason Lacewell, a petroleum
engineer, who at the time was NYTEX Petroleums Vice
President of Exploration and Production. Mr. Lacewell has
over 15 years of experience in the oil and gas industry.
Mr. Lacewell began his oil and gas career in 1995 when he
was employed by Marathon Oil where he worked in drilling,
production and reservoir engineering. Mr. Lacewell has a
Masters Degree in Petroleum Engineering from Texas A&M
University, a Masters Degree in Environmental Science from North
Texas University and undergraduate degrees in Biology and
Chemistry. Mr. Lacewell has direct and ongoing operational
and prospect development experience in the following reservoir
types of producing basins: Bakkan Shale, Barnett Shale,
Haynesville Shale, Woodford Shale, Coalbed-Methane Plays,
Permian Basin, continental and offshore Gulf of Mexico, and
others. Mr. Lacewell, responsible for preparing the reserve
estimates, meets the requirements regarding qualifications,
objectivity and confidentiality set forth in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas
Reserves Information promulgated by the Society of Petroleum
Engineers.
23
Mr. Lacewell has no equity ownership in any our oil and gas
properties, nor does he receive any compensation based on the
volume of reserves that he projects in his reservoir studies.
The Panhandle Field Producing Property containing the PDnP
reserves consists of ten producing wells on 328 acres in
Moore and Hutchinson counties in the Texas Panhandle. We hold
73% working interest and is the operator of the producing oil
and gas leaseholds. The PDnP reserves are based on the ten
existing wells being refraced in the Red Cave formation
with seven successes and three dry holes. Initial production
used in the PDnP reserve study for each of the successful wells
was estimated at 16.67 bopd and 20 mcfd with total cumulative
production per successful well, net to us, estimated to be
11,820 barrels oil and 21,190 mcf gas. In October 2009,
NYTEX Petroleum successfully performed one modern style refrac
in the Red Cave formation on an existing well and has
commercially produced continuously since such time.
The PV-10
value was prepared using constant prices as of the calculation
date, discounted at 10% per annum on a pretax basis, and is not
intended to represent the current market value of the estimated
oil and natural gas reserves owned by NYTEX Petroleum. For
further information concerning the present value of future net
revenues from these proved reserves, see
Supplemental Oil & Gas Data to the Notes
to Consolidated Financial Statements on page
F- .
Management maintains internal controls designed to provide
reasonable assurance that the estimates of proved reserves are
computed and reported in accordance with the rules and
regulations provided by the SEC. Michael Galvis, our CEO, is
primarily responsible for overseeing the preparation of the
reserve estimates and has over 26 years of experience in
the oil and gas industry. Numerous uncertainties exist in
estimating quantities of proved reserves. Reserve estimates are
imprecise and subjective and may change at any time as
additional information becomes available. Furthermore, estimates
of oil and gas reserves are projections based on engineering
data. There are uncertainties inherent in the interpretation of
this data as well as the projection of future rates of
production. The accuracy of any reserve estimate is a function
of the quality of available data and of engineering and
geological interpretation and judgment.
We believe NYTEX Petroleum has taken all necessary steps to
fully comply with
Rule 4-10(a)
of
Regulation S-X
for oil and gas reserves.
The following tables set forth our estimated net proved oil and
natural gas reserves and the
PV-10 value
of such reserves as of December 31, 2010. Table 1 shows
NYTEXs net proved oil and gas reserves and future
discounted net revenues. This table includes the NYTEX
non-operated properties and the Panhandle Field Producing
Properties. Table 1A shows the same reserves but with a barrel
of oil equivalent calculation (BOE equals 6 Mcf to
1 Bbl).
Table
1
TOTAL PROVED RESERVES
(12/31/2010
as of date)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Proved Developed
|
|
|
Net Proved Undeveloped
|
|
|
Net Total Proved
|
|
|
|
PDP & PDnP
|
|
|
PUD
|
|
|
PDP, PDnP & PUD
|
|
|
|
|
|
|
|
|
|
PV 10
|
|
|
|
|
|
|
|
|
PV 10
|
|
|
|
|
|
|
|
|
PV 10
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
|
|
|
|
|
($)
|
|
|
|
Oil (bbl)
|
|
|
Gas (mcf)
|
|
|
(1)(2)
|
|
|
Oil (bbl)
|
|
|
Gas (mcf)
|
|
|
(1)(2)
|
|
|
Oil (bbl)
|
|
|
Gas (mcf)
|
|
|
(1)(2)
|
|
|
Misc. Non-Operated
|
|
|
1,911
|
|
|
|
2,181
|
|
|
|
43,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,911
|
|
|
|
2,181
|
|
|
|
43,250
|
|
Panhandle Field
|
|
|
114,190
|
|
|
|
172,180
|
|
|
|
4,108,339
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
114,190
|
|
|
|
172,180
|
|
|
|
4,108,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTALS:
|
|
|
116,101
|
|
|
|
174,361
|
|
|
|
4,151,589
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
116,101
|
|
|
|
174,361
|
|
|
|
4,151,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
TABLE
1A
TOTAL PROVED RESERVES WITH BOE
(12/31/2010
as of date, 6 mcf per barrel of oil)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Proved Developed
|
|
|
Net Proved Undeveloped
|
|
|
Net Total Proved
|
|
|
|
PDP & PDnP
|
|
|
PUD
|
|
|
PDP, PDnP & PUD
|
|
|
|
Oil (bbl)
|
|
|
Gas (mcf)
|
|
|
BOE
|
|
|
Oil (bbl)
|
|
|
Gas (mcf)
|
|
|
BOE
|
|
|
Oil (bbl)
|
|
|
Gas (mcf)
|
|
|
BOE
|
|
|
Misc. Non-Operated
|
|
|
1,911
|
|
|
|
2,181
|
|
|
|
2,275
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,911
|
|
|
|
2,181
|
|
|
|
2,275
|
|
Panhandle Field
|
|
|
114,190
|
|
|
|
172,180
|
|
|
|
142,887
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
114,190
|
|
|
|
172,180
|
|
|
|
142,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTALS:
|
|
|
116,101
|
|
|
|
174,361
|
|
|
|
145,162
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
116,101
|
|
|
|
174,361
|
|
|
|
145,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The PV-10
value as of December 31, 2010 is pre-tax and was determined
utilizing the twelve-month
un-weighted
arithmetic average of the first day of the month price for the
period January through December 2010. Gas prices are
referenced to a Henry Hub (HH) price of $4.38 per MMBtu, as
published in Platts Gas Daily, and are adjusted for energy
content, transportation fees, and regional price differentials.
Oil and NGL prices are referenced to a West Texas Intermediate
(WTI) crude oil price of $75.96 per barrel, as posted by Plains
Marketing, L.P., and are adjusted for gravity, crude quality,
transportation fees, and regional price differentials. These
reference prices are held constant in accordance with SEC
guidelines. The weighted average prices after adjustments over
the life of the properties are $75.15 per barrel for oil, $4.37
per mcf for gas, and $52.66 per barrel for NGL. Management
believes that the presentation of
PV-10 value
may be considered a non-GAAP financial measure as defined in
Item 10(e) of
Regulation S-K.
Therefore, we have included a reconciliation of the measure to
the most directly comparable GAAP financial measure
(standardized measure of discounted future net cash flows in
footnote (2) below). Management believes that the
presentation of
PV-10 value
provides useful information to investors because it is widely
used by professional analysts and sophisticated investors in
evaluating oil and gas companies. Because many factors that are
unique to each individual company may impact the amount of
future income taxes to be paid, the use of the pre-tax measure
provides greater comparability when evaluating companies. It is
relevant and useful to investors for evaluating the relative
monetary significance of NYTEX Petroleums oil and natural
gas properties. Further, investors may utilize the measure as a
basis for comparison of the relative size and value of NYTEX
Petroleums reserves to other companies. Management also
uses this pre-tax measure when assessing the potential return on
investment related to its oil and natural gas properties and in
evaluating acquisition candidates. The
PV-10 value
is not a measure of financial or operating performance under
GAAP, nor is it intended to represent the current market value
of the estimated oil and natural gas reserves owned by NYTEX
Petroleum.
PV-10 value
should not be considered in isolation or as a substitute for the
standardized measure of discounted future net cash flows as
defined under GAAP. |
|
(2) |
|
Future income taxes and present value discounted (10%) future
income taxes were $1,064,010 and $930,029, respectively.
Accordingly, the after-tax
PV-10 value
of Net Total Proved Reserves (or Standardized Measure of
Discounted Future Net Cash Flows) is $3,221,560. |
25
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the accompanying consolidated financial
statements and the notes thereto.
Overview
Our strategy is to enhance value for our shareholders through
the acquisition of oilfield fluid service companies at
below-market acquisition prices and development of a
well-balanced portfolio of natural resource-based assets at
discounted acquisition and development costs.
We are an energy holding company consisting of two operating
segments:
Oilfield Services consisting of our
wholly-owned subsidiary, FDF, 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; and
Oil and Gas consisting of our
wholly-owned subsidiary, NYTEX Petroleum, an exploration and
production company concentrating on the acquisition and
development of oil and natural gas reserves.
Demand for services offered by our industry is a function of our
customers willingness to make operating and capital
expenditures to explore for, develop and produce hydrocarbons in
the United States, which in turn is affected by current and
expected levels of oil and gas prices. As oil and gas prices
increased from 2006 through most of 2008, oil and gas companies
increased their drilling activities. In the last part of 2008,
oil and gas prices declined rapidly, resulting in decreased
drilling activities. During the second half of 2009, oil prices
began to increase and remained relatively stable through the
latter half of 2010, which resulted in increases in drilling
activities, and have been increasingly expanding in the
oil-driven markets. However, natural gas prices continued to
decline significantly through most of 2009 and remained
depressed throughout 2010, which resulted in decreased activity
in the natural gas-driven markets. Despite natural gas prices
remaining below the levels seen in recent years, several markets
that produce significant natural gas liquids, such as the Eagle
Ford shale and those that have other advantages like proximity
to key consuming markets, such as the Marcellus shale, have
continued to see increased activity. The Bakken Shale area in
North Dakota and Montana has rapidly expanded as a major oil
producing resource play with an increasing number of drilling
rigs and service companies operating in the area since 2007.
Oilfield
Services
Acquisition
of FDF
On November 23, 2010, through our newly-formed and
wholly-owned subsidiary, Acquisition Inc., we acquired 100% of
the membership interests of Oaks and its wholly-owned operating
subsidiary, FDF. The Francis Group has no other assets or
operations other than FDF. Total consideration transferred was
$51.8 million and consisted of cash of $41.3 million,
5,400,000 shares of our Common Stock at an estimated fair
value of $1.86 per share, or $10 million, and a
non-interest bearing promissory note payable to the seller in
the principal amount of $0.7 million with a fair value of
$0.5 million.
FDF is 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 & gas industry. Headquartered in
Crowley, Louisiana, FDF operates out of 21 locations in Texas,
Oklahoma, Wyoming, North Dakota, and Louisiana including three
coastal Louisiana facilities which provide services on land and
off-shore Gulf of Mexico. FDFs suite of fluid products
includes water based, oil based and synthetic liquid drilling
mud, oil based and hematite products, viscosifiers, fluid
conditioners, as well as lubricants, detergents, defoamers and
completion fluids. FDFs completion fluids include calcium,
sodium, zinc bromide, salt water, calcium chloride and potassium
chloride. FDFs dry products include frac sand, proppants,
cement and fly ash and sack drilling mud. As part of its total
solution, FDF offers transportation, technical and support
services, environmental support services and industrial cleaning
of drilling rigs, tanks, vessels and barges and offers
26
rental equipment in the form of tanks, liquid mud barges, mud
pumps, etc. FDF is a distributor, warehouser and transloader of
frac sand, proppants and liquid drilling mud authorized to
distribute in 39 states. The customers include exploration
and production companies, oilfield and drilling service
companies and frac sand and proppant manufacturers and
international brokerage companies of proppants.
Oil
and Gas
NYTEX Petroleum engages in the acquisition, promotion of, and
participation in the drilling of crude oil and natural gas wells
and also provides fee-based administration and management
services related to oil and gas properties.
In mid-2008, NYTEX Petroleum purchased, from an unaffiliated
third party, a 20% non-operating working interest in the
Lakeview Shallow Prospect (Lakeview Shallow
Prospect), a 12,000 acre coalbed methane
(CBM) gas field drilling project in
southeastern Oklahoma. The first nine wells in the Lakeview
Shallow Prospect were drilled in mid-2008 when costs for
drilling and tubular goods were at peak prices. The actual cost
exceeded the budgeted amount by 37% resulting in a reported
non-cash impairment of $499,219 for the year ended
December 31, 2008. In September 2010, we elected to sell
our 20% share in the Lakeview Shallow Prospect to the operator
in exchange for the outstanding balance due of $161,706
resulting in the recognition of loss of $111,970 for the year
ended December 31, 2010.
In August 2009, we acquired a 75% ownership in the Panhandle
Field Producing Property, a 320 acre producing oil and gas
property in the Texas panhandle consisting of 18 wells. As
the new operator, we performed technically proven fracture
stimulations known as refracs on approximately ten
of the existing wells. We successfully completed the first
refrac and have put it into commercial oil production. The
property lies within the vast Panhandle Field that extends into
Oklahoma and Kansas, which since its discovery in 1918, has
produced approximately 1.1 billion barrels of oil and 36
trillion cubic feet of gas, all at depths above 3,000 feet.
Currently, ten of our wells are in production with an average
combined rate of 25 barrels of oil per day and 45 MCF
of gas per day. Beginning in the first quarter 2010 and through
the third quarter of 2010, we sold or transferred a portion of
our 75% working interest in the Panhandle Field Producing
Property for $859,408 in cash, recognized a gain on sale of
$578,872, and retained a 28.16% working interest.
In December 2010, we re-acquired all but a 2.0% share of the
45.33% share sold earlier in the year for total consideration
transferred of approximately $1,451,858. The total consideration
transferred consisted of approximately $26,063 cash,
616,291 shares of NYTEX Energy Common Stock at an estimated
fair value of $1.86 per share, or approximately $1,146,301, 9%
demand notes totaling approximately $237,458, and interests in
existing NYTEX Petroleum properties with an estimated fair value
of $42,036. At December 31, 2010, we had an aggregate 73%
ownership interest in the Panhandle Field Producing Property.
On May 19, 2010, NYTEX Petroleum entered into the Simpson
Agreement with Simpson to rent segments of oil containment boom
(Boom) to Simpson to be used in the Gulf of Mexico
waters to contain the BP Global oil spill under Simpsons
master service or rental agreements with general contractors of
BP Global, state governments or other entities.
To fund the purchases of Boom, NYTEX Petroleum entered into the
Participants Agreements with outside participants to act as
agent on behalf of the participant to purchase and rent Boom
pursuant to the terms of the Simpson Agreement. The Participant
Agreements provided for the participant to receive 100% of the
Contractor Payments remitted by Simpson to NYTEX Petroleum until
such time that the participant received its full Participant
Payout of 100% of its cost of the delivered Boom. After
Participant Payout was achieved, subsequent Contractor Payments
remitted by Simpson to NYTEX Petroleum were split as follows:
60% to the participant, 20% to NYTEX Petroleum, and 20% to DMBC,
Inc., who facilitated the transactions.
NYTEX Petroleum also entered into Gulf Oil Spill Boom Sales
Agreements (Purchaser Agreements) with
outside participants to purchase Boom and resell at a profit to
buyers including, but not limited to, coastal cities, counties,
parishes and BP Global (collectively, the Boom
Buyers) pursuant to the terms of the Simpson
Agreement. The Purchaser Agreements provided that immediately
upon NYTEX Petroleums receipt of funds
27
for the sale of Boom, NYTEX Petroleum would remit to each
purchaser 100% of the purchasers purchase price of the
Boom together with 40% of the profit, less shipping and handling
and insurance costs.
Supreme
Vacuum
Beginning on August 26, 2008, we made a series of equity
investments in Supreme Vacuum, an oilfield fluid sales and
transportation service company in South Texas, as a result of
which we maintained a 71.18% ownership interest in Supreme
Vacuum. On September 8, 2010, we completed the disposition
of all Supreme Vacuum Shares and a promissory note
payable by Supreme Vacuum to Supreme Oilfield in the original
principal amount of $31,250. We have historically reported our
interest in Supreme Vacuum as an unconsolidated subsidiary
because we did not possess majority voting control and
accordingly, the ability to exercise significant influence over
Supreme Vacuum. Losses attributable to our interest in Supreme
Vacuum were $308,408 and $828,169 for the years ended
December 31, 2010 and 2009, respectively. We considered the
continuing losses a significant contributor to our decision to
dispose of the Supreme Vacuum Shares. We recognized a loss of
$870,750 as a result of our sale of our interest in Supreme
Vacuum.
Results
of Operations
On November 23, 2010, we acquired FDF for total
consideration of $51.8 million. The results of FDF are
included in our consolidated statement of operations from the
acquisition date. Accordingly, nearly all of the line items
reported in our consolidated statement of operations for the
year ended December 31, 2010 have increased significantly
as a result of acquiring FDF compared to the amounts reported in
our consolidated statement of operations for the year ended
December 31, 2009.
Selected
Data
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Financial Results
|
|
|
|
|
|
|
|
|
Revenues Oilfield Services
|
|
$
|
7,090,463
|
|
|
$
|
|
|
Revenues Oil and Gas
|
|
|
781,887
|
|
|
|
567,559
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,872,350
|
|
|
|
567559
|
|
Total operating expenses
|
|
|
11,806,228
|
|
|
|
2,857,421
|
|
Total other (income) expense
|
|
|
15,713,688
|
|
|
|
1,067,634
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(19,647,566
|
)
|
|
$
|
(3,357,496
|
)
|
Income tax benefit (provision)
|
|
|
(3,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,650,865
|
)
|
|
$
|
(3,357,496
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(0.98
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic and diluted
|
|
|
20,149,999
|
|
|
|
18,688,976
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Oilfield Services
|
|
$
|
918,869
|
|
|
|
(2
|
)
|
Adjusted EBITDA Oil and Gas
|
|
|
(1,443,047
|
)
|
|
|
(2
|
)
|
Adjusted EBITDA Corporate and Intersegment
Eliminations
|
|
|
(3,818,411
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated Adjusted EBITDA(1)
|
|
$
|
(4,342,589
|
)
|
|
$
|
(2,956,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Results of Operations Adjusted EBITDA on
page of this prospectus for a description of
Adjusted EBITDA, which is not a U.S. Generally Accepted
Accounting Principles measure, and a reconciliation of Adjusted
EBITDA to net loss, which is presented in accordance with GAAP. |
|
(2) |
|
We operated as a single segment for the year ended
December 31, 2009. |
28
Year
ended December 31, 2010 compared to the year ended
December 31, 2009
Revenues. Revenues increased over the prior
year period primarily as a result of our acquisition of FDF in
November 2010. Other revenues increased $215,448, or 60%,
primarily due to the Gulf Coast rental boom/sales boom income of
$468,291, offset by a decrease in administrative fee income and
accounting/management fees of $270,573 attributable to a shift
in our strategy to acquiring proved properties and producing
operations and away from managing investment projects within the
oil and gas industry. We expect revenues to increase in the
future as we include the operations of FDF for a full period and
we acquire additional operating companies.
Oil & gas lease operating
expenses. Lease operating expenses decreased
$188,532, or 57%, in the current year ended December 31,
2010 compared to the prior year ended December 31, 2009 due
principally to the partial sale of our interest in the Panhandle
Field Producing Property in the first half of 2010 and a general
reduction in drilling activities during 2010.
Depreciation, depletion, and
amortization. Depreciation, depletion, and
amortization (DD&A) increased
over the prior year period primarily as a result of our
acquisition of FDF in November 2010 and resultant significant
increase in depreciable long-lived assets. We expect
depreciation, depletion, and amortization to increase in the
future as we include the operations of FDF for a full year and
we acquire additional operating companies.
Selling, general, and administrative
expenses. Selling, general, and administrative
(SG&A) expenses increased for the
year ended December 31, 2010 compared to the prior year
ended December 31, 2009 due principally to our acquisition
of FDF in November 2010. SG&A consists primarily of salary
and wages, contract labor, professional fees, lease rental
costs, fuel, and insurance costs. We expect SG&A to
increase in the future as we include the operations of FDF for a
full year and we acquire additional operating companies.
Gain on sale of assets, net. Gain on sale of
assets, net consists of the aggregate gain recognized on the
sale of the Panhandle Field Producing Property totaling
$578,872, offset by the loss on the disposal of the Lakeview
Shallows property totaling $111,970. We did not recognize any
such gains or losses in 2009.
Interest expense. Interest expense increased
over the prior year period due primarily to the acquisition of
FDF in November 23, 2010 and the resultant increase in
outstanding debt as compared to the amount of debt outstanding
in 2009. We expect interest expense to increase in the near term
as we include interest expense associated with the increased
outstanding debt for a full year.
Change in fair value of derivative
liabilities. The increase in the current year as
compared to no amount in the prior year is due to the issuance
of warrants associated with the WayPoint Transaction, the
issuance of the Debentures due January 2014, and the warrants
issued to the holders of our Series A Preferred Stock, as
these instruments were deemed to be derivatives. We recognize
changes in the respective fair values in the consolidated
statements of operations.
Accretion of preferred stock
liability. Reflects the accretion of the face
amount of $20,750,000 related to the Senior Series A
Redeemable Preferred Stock issued by Acquisition Inc. in
connection with the WayPoint Transaction in November 2010 over
the term of the instruments of approximately 5.5 years.
Equity in loss of unconsolidated
subsidiaries. The loss of unconsolidated
subsidiaries of $317,158 for the year ended December 31,
2010 as compared to $897,834 loss recorded for the prior year
ended December 31, 2009 is due primarily to the sale of our
interest in Supreme Vacuum in September 2010. We expect losses
related to unconsolidated subsidiaries to decrease in the future
as we no longer have an interest in Supreme Vacuum.
Loss on sale of unconsolidated subsidiary. We
recognized a loss for the year ended December 31, 2010 due
to the sale of Supreme Vacuum in September 2010.
29
Adjusted
EBITDA
To assess the operating results of our segments, the chief
operating decision maker analyzes net income (loss) before
income taxes, interest expense, DD&A, impairments, changes
in fair value attributable to derivative liabilities, and
accretion of preferred stock liability (Adjusted
EBITDA). Our definition of Adjusted EBITDA, which
is not a GAAP measure, excludes interest expense to allow for
assessment of segment operating results without regard to our
financing methods or capital structure. Similarly, DD&A and
impairments are excluded from Adjusted EBITDA as a measure of
segment operating performance because capital expenditures are
evaluated at the time capital costs are incurred. In addition,
changes in fair value attributable to derivative liabilities and
the accretion of preferred stock liability are excluded from
Adjusted EBITDA since these unrealized (gains) losses are not
considered to be a measure of asset-operating performance.
Management believes that the presentation of Adjusted EBITDA
provides information useful in assessing our financial condition
and results of operations and that Adjusted EBITDA is a widely
accepted financial indicator of a companys ability to
incur and service debt, fund capital expenditures and make
distributions to stockholders.
Adjusted EBITDA, as we define it, may not be comparable to
similarly titled measures used by other companies. Therefore,
our consolidated Adjusted EBITDA should be considered in
conjunction with net income (loss) and other performance
measures prepared in accordance with GAAP, such as operating
income or cash flow from operating activities. Adjusted EBITDA
has important limitations as an analytical tool because it
excludes certain items that affect net income (loss) and net
cash provided by operating activities. Adjusted EBITDA should
not be considered in isolation or as a substitute for an
analysis of our results as reported under GAAP. Below is a
reconciliation of consolidated Adjusted EBITDA to consolidated
net loss to Common Stockholders as reported on our consolidated
statements of operations.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Reconciliation of Adjusted EBITDA to GAAP Net Loss:
|
|
|
|
|
|
|
|
|
Net loss to common stockholders
|
|
$
|
(19,650,865
|
)
|
|
$
|
(3,357,496
|
)
|
Income tax provision
|
|
|
3,299
|
|
|
|
|
|
Interest expense
|
|
|
832,164
|
|
|
|
170,486
|
|
DD&A
|
|
|
772,826
|
|
|
|
83,457
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
147,474
|
|
Change in fair value of derivative liabilities
|
|
|
13,301,755
|
|
|
|
|
|
Accretion of preferred stock liability
|
|
|
398,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Adjusted EBITDA
|
|
$
|
(4,342,589
|
)
|
|
$
|
(2,956,079
|
)
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
Our working capital needs have historically been satisfied
through equity and debt investments from private investors,
loans with financial institutions, and through the sale of
assets. Historically, our primary use of cash has been to pay
for acquisitions and investments such as FDF, Supreme Vacuum,
the Lakeview Shallow Prospect, and the Panhandle Field Producing
Property, service our debt, and for general working capital
requirements.
As of December 31, 2010, we had cash and cash equivalents
of $209,498, and a working capital deficit (measured by current
assets less current liabilities) at December 31, 2010 of
$[ ].
Defaults
Under Financing Arrangements
Our loan agreements and the agreements relating to our other
financing arrangements generally require that we comply with
certain reporting and financial covenants. These covenants
include among other things, providing the lender, within set
time periods, with financial information, notifying the lender
of any change in management, limitations on the amount of
capital expenditures, and maintaining certain financial ratios.
As a
30
result of the challenges incurred in integrating the FDF
operations and due to higher than anticipated capital
expenditures at FDF, we were unable to meet several
30.1
reporting and financial covenants under our Senior Facility with
PNC measured as of November 30, 2010 and February 28,
2011. Failure to meet the loan covenants under the Senior
Facility loan agreement constitutes a default and on
April 13, 2011, PNC, as lender, provided us with a formal
written notice of default. PNC has not commenced the exercise of
any of their respective other rights and remedies, but has
expressly reserved all such rights. At December 31, 2010,
the outstanding principal balance of the amounts owed under the
Senior Facility was $17,752,723, and is, because of this
default, reported within current liabilities on the consolidated
balance sheet as of December 31, 2010. We are currently in
negotiations with PNC to obtain a waiver of the defaults.
However, there are no assurances that we will be successful in
our negotiations with PNC. If we are unsuccessful.
In addition, due to cross-default provisions and other covenant
requirements, we are also in default under the WayPoint Purchase
Agreement. As a result, WayPoint may exercise certain remedies
afforded to it under the WayPoint Purchase Agreement including
(i) exercise their Control Warrant, or (ii) exercise
its put right. The amounts reported on our consolidated balance
sheet as of December 31, 2010 related to the WayPoint
Purchase Agreement include a derivative liability totaling
$32,554,826 and the accrued balance on the Senior Series A
Redeemable Preferred Stock totaling $398,232, both of which are
reported as current liabilities on our consolidated balance
sheet. We are currently in negotiations with WayPoint to remedy
the events of noncompliance and modify the WayPoint Purchase
Agreement. However, there are no assurances that we will be
successful in our negotiations with WayPoint.
Notwithstanding recent workforce reductions and the defaults
under our financial arrangement, we may not have sufficient
funds to pursue our business priorities. As a result, we are
limited in our ability to remain current in making payments to
trade vendors and other unsecured creditors when such payments
are due and, with regard to solvency, rights that may be
exercised by PNC regarding the defaults under the Senior
Facility. These workforce reductions, as well as curtailed
financial resources, may further impact our ability to implement
our business priorities. However, management has implemented
plans to improve liquidity through slowing or stopping certain
planned capital expenditures and through the sale of selected
assets deemed unnecessary to our business. Although these
constraints have caused us to significantly scale back the rate
at which we implement our business strategy, we believe that
these actions will preserve our viability and provide additional
time to execute our business priorities.
Our future capital requirements will depend on many factors and
we may require additional capital beyond our currently
anticipated amounts. Any such required additional capital may
not be available on reasonable terms, if at all, given our
prospects, the current economic environment and restricted
access to capital markets. The continued depletion of our
resources may make future funding more difficult or expensive to
attain. Additional equity financing may be dilutive to our
stockholders; debt financing, if available, may involve
significant cash payment obligations and covenants that restrict
our ability to operate as a business; and strategic partnerships
may result in terms which reduce our economic potential from any
adjustments to our existing long-term strategy. The continuation
of our company as a going concern is dependent upon our company
attaining and maintaining profitable operations, resolving the
defaults under certain of our financial arrangement agreements
discussed above, and raising additional capital. The financial
statements for the fiscal years ended December 31, 2010 and
2009, do not include any adjustment relating to the recovery and
classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should our
company discontinue operations.
The following represents a summary of our capital raises during
2010.
$2.15
Million Debenture Offering
In August 2010, we initiated a $2.15 million offering of
the Debentures fund our ongoing working capital needs. Terms of
the Debentures were as follows: (i) $100,000 per unit with
interest at a rate of 12% per annum payable monthly with a
maturity of 180 days from the date of issuance;
(ii) convertible at any time prior to maturity at $1.50 per
share of our Common Stock; and, (iii) each unit includes a
three-year Debenture Warrant to purchase up to
20,000 shares of our Common Stock at an exercise price of
$2.00 per share for a
31
period of three years from the effective date of the warrant. As
of October 12, 2010, we had raised the full
$2.15 million under the Debenture offering including the
Debenture Warrants to purchase up to 430,000 shares of the
our Common Stock. In addition, we also issued 45,000 shares
of our Common Stock to certain Debenture holders as an
inducement to acquire the Debenture. During the first quarter of
2011, the Debentures were amended such that the maturity date
was extended to October 2011.
WayPoint
Transaction
In connection with the FDF acquisition, on November 23,
2010, we, through our wholly-owned subsidiary, Acquisition Inc.,
entered into the WayPoint Purchase Agreement with WayPoint, an
unaffiliated third party, whereby, in exchange for
$20 million cash, we issued to WayPoint
(i) 20,750 shares of Acquisition Inc. 14% Senior
Series A Redeemable Preferred Stock, par value of $0.001
and an original stated amount of $1,000 per share, (ii) one
share of our Series B Preferred Stock, par value of $0.001
per share, (iii) the Purchaser Warrant, and (iv) the
Control Warrant. The Control Warrant may be exercised only if
certain conditions, as defined in the WayPoint Purchase
Agreement, are met.
The Control Warrant is exercisable at an exercise price of $0.01
per share, upon the earliest to occur of (i) the occurrence
of a default that remains uncured for seventy-five days;
provided, that payment to the holders of Senior Series A
Redeemable Preferred Stock of all amounts owing to them by
Acquistion Inc., as a result of a default shall be considered a
cure of a default, (ii) the date on which a change of
control occurs, if Acquisition Inc. is not able to redeem all of
the Senior Series A Redeemable Preferred Stock in
accordance with its terms, (iii) seventy-five days after
the date on which the third Default has occurred within a
consecutive twelve-month period, however, on
April , 2011, we entered into a First Amendment
and Waiver with WayPoint regarding the Purchase Agreement under
which WayPoint waived to exercise the Control Warrant because
there were at least three events of default but amended the
Purchase Agreement such that, upon the occurrence of a further
default, WayPoint may exercise the Control Warrant, and
(iv) May 23, 2016, if Acquisition Inc. is not able to
redeem all of the Senior Series A Redeemable Preferred
Stock in accordance with its terms (the Default
Conditions). The term
default includes 14 categories of
events, which are listed in Section 11.1 of the WayPoint
Purchase Agreement and which list includes, among other events,
(i) the failure of Acquisition Inc. to timely make a
redemption payment to holders of the Senior Series A
Redeemable Preferred Stock, (ii) the failure of Acquisition
Inc. to timely make a dividend payment to holders of the Senior
Series A Redeemable Preferred Stock, (iii) our or
Acquisition Inc.s failure to perform covenants in the
WayPoint Purchase Agreement, (iv) our failure to meet a
fixed-charge coverage ratio, leverage ratio or minimum EBITDA
test in the WayPoint Purchase Agreement; (v) we or any of
our subsidiaries becomes in default on other indebtedness,
individually or in the aggregate, in excess of $250,000;
(v) We, Acquisition Inc. or any of the Francis Group
entities becomes subject to bankruptcy or receivership
proceedings, (vi) a judgment or judgments is entered
against is entered against us, Acquisition Inc. or any of the
Francis Group entities in excess of $1,000,000, and such
judgment is not satisfied; (vii) we, Acquisition Inc. or
any of the Francis Group entities breaches a representation or
warranty in the WayPoint Purchase Agreement or the documents
related thereto; (ix) a change of control occurs; and
(x) certain liabilities in excess of $250,000 arise under
ERISA. change of control means
(i) a sale of shares of our stock, Acquisition Inc. or any
Francis Group entity, or a merger involving any of them, as a
result of which holders of the voting capital stock of the
applicable entity immediately prior to such transaction do not
hold at least 50% of the voting power of the applicable entity
or the resulting or surviving entity or the acquiring entity;
(ii) a disposition of all or substantially all of our,
Acquisition Inc.s or any Francis Group entitys
assets; (iii) a voluntary or involuntary liquidation,
dissolution or winding up by us, Acquisition Inc. or any Francis
Group entity; (iv) either Michael K. Galvis or Michael G.
Francis shall sell at least five percent (5%) of our equity held
by him immediately prior to such sale; (v) Michael K.
Galvis ceases to be our Chief Executive Officer and is not
replaced by a candidate suitable to WayPoint within 30 days
or any such replacement Chief Executive Officer ceases to be our
Chief Executive Officer and is not replaced by a candidate
suitable to WayPoint within 30 days; or (vi) Michael
G. Francis ceases to be the Chief Executive Officer of FDF and
is not replaced by a candidate suitable to WayPoint within
30 days or any such replacement Chief Executive Officer
ceases to be the Chief Executive Officer of the FDF and is not
replaced by a candidate suitable to WayPoint within 30 days.
32
On April 13, 2011, we received a letter from PNC, as
lender, notifying us of the existence of certain events of
default under our Senior Facility. Similarly, on April 14,
2011, we received a similar notice of default from WayPoint,
stating we are in default of the WayPoint Purchase Agreement,
and, therefore, that WayPoint now has the right to exercise the
Control Warrant. If WayPoint exercises the Control Warrant,
they would own 51% of our outstanding Common Stock. We are
currently in negotiations with WayPoint to obtain a waiver and
modify the WayPoint Purchase Agreement. However, there are no
assurances that we will be successful in our negotiations with
WayPoint.
Senior
Revolving Credit and Term Loan Facility
In connection with the FDF Acquisition, we entered into the
Senior Facility with PNC providing for loans up to
$24 million. The Senior Facility consists of a term loan in
the amount of $12 million and a revolving credit facility
in an amount up to $12 million. The term loan bears an
annual interest rate based on the higher of (i) the
30 day LIBOR plus 1%, or (ii) the Federal Funds rate
plus 0.5%, plus a margin of 2.5%. The term loan requires monthly
payments of principal and interest based on a seven-year
amortization of $142,857 with the remaining principal and any
unpaid interest due in full at maturity on November 23,
2015. The revolving credit facility bears an annual interest
rate based on the higher of (i) the 30 day LIBOR plus
1%, or (ii) the Fed Funds rate plus 0.5%, plus a margin of
1.75% and payments of interest only due monthly with the then
outstanding principal and any unpaid interest due in full at
maturity on November 23, 2015. Advances under the revolving
credit facility may not exceed 85% of FDFs eligible
accounts receivable as defined in the Senior Facility agreement.
The Senior Facility is subject to financial and other covenants
and is secured by a first lien on all of the assets of
Acquisition Inc., including its interests in FDF and all of the
assets of FDF.
On April 13, 2011, we received a letter from PNC, as
lender, notifying us of the existence of certain events of
default under our Senior Facility. We are currently in
negotiations with the lender to remedy the defaults which
include managements plans to enhance our current liquidity
through delaying or stopping capital expenditures through the
first half of 2011 and improvements to our results of
operations. However, there are no assurances that we will be
successful in our negotiations with PNC.
Private
Placement Series A Preferred
Stock
In contemplation of the acquisition of FDF, in October 2010, we
initiated a private placement of units, with each unit
consisting of (i) 100,000 shares of our Series A
Preferred Stock, and (ii) the Series A Warrants. Each unit was
priced at $100,000. For the year ended December 31, 2010,
we issued 5,580 units for gross proceeds of $5,580,000
consisting of 5,580,000 shares of Series A Convertible
Preferred Stock and warrants to purchase up to
1,674,000 shares of Common Stock. At the conclusion of the
private placement offering in January 2011, we had issued a
total of 6,000 units for aggregate gross proceeds of
$6,000,000.
The holders of the Series A Preferred Stock are entitled to
payment of dividends at 9% of the purchase price per share of
$1.00, with such dividends payable quarterly. Dividends are
payable out of any assets legally available, are cumulative, and
in preference to any declaration or payment of dividends to the
holders of Common Stock. Each holder of Series A 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.
9%
Convertible Debenture of NYTEX Petroleum
As of April 1, 2011, our
wholly-owned
subsidiary, NYTEX Petroleum, has raised $1,170,000 in connection
with the offering of the NYTEX Petroleum Convertible
Debentures. The NYTEX Petroleum
33
Convertible Debentures are due on February 14, 2014 and been an
interest rate of 9% per annum, payable on the first business day
of each month, in cash.
The NYTEX Petroleum Convertible Debentures are convertible into
shares of our Common Stock at a conversion price of $2.00 per
share of Common Stock. Assuming a pull conversion of all NYTEX
Petroleum Convertible Debentures all debt associated with the
conversion will be extinguished.
Other
Financings
In March 2006, NYTEX Petroleum LLC entered into a $400,000
revolving credit facility (Facility)
with one of its founding members to be used for operational and
working capital needs. In August 2008, the revolving nature of
the Facility was terminated, with the then unpaid principal
balance of $295,000 on the Facility effectively becoming a note
payable to the non-executive founding member. The Facility
continued to bear interest, payable monthly, at 6% per annum, be
secured by the assets of NYTEX Petroleum LLC (now NYTEX
Petroleum) and be personally guaranteed by NYTEX Petroleum
LLCs two founding members. In May 2009, the Facility was
further amended pursuant to a letter agreement such that
principal and any unpaid interest on the note payable to the
non-executive founding member was to be paid in full upon
completion of our $5,850,000 private placement of Common Stock,
which had not occurred as of February 18, 2010. At that
time the letter agreement was further amended, requiring monthly
principal payments of $3,000 plus interest for eighteen months
beginning March 1, 2010 and ending September 1, 2011.
At the end of the eighteen-month period, the remaining principal
balance and any unpaid interest are due in a lump sum. There is
no penalty for early payment of principal. As of
December 31, 2010, the amount outstanding under the
Facility was $168,000.
In July 2009, we entered into various bridge loans totaling
$950,000 (Bridge Loans), the proceeds
of which were used for the acquisition of the Panhandle Field
Producing Property, its initial development costs, and working
capital purposes. The Bridge Loans originally matured on
January 31, 2010, with 12.5% cash interest for the
six-month period, or 25% per annum, payable at maturity. The
Bridge Loans have been amended multiple times to extend the
maturity date. On August 23, 2010, the agreement with the
Bridge Loan holders extended the maturity date of principal and
interest to September 1, 2010, with no penalties for
prepayment. Interest was payable at rates of 25% and 18% per
annum. On September 1, 2010, the remaining Bridge Loans
(all at an interest rate of 18% per annum) were further amended
to extend the maturity date to December 1, 2010, with one
option to extend the maturity date to July 1, 2011. As of
December 31, 2010, one Bridge Loan remains outstanding with
a principal balance due of $234,919 and matures on July 1,
2011.
In April and June 2010, we entered into short-term unsecured
advance agreements with an unrelated party which accrued
interest at 18% per annum, utilizing the funds for operational
and working capital purposes. As of December 31, 2010, we
had repaid in full all of the total borrowings of $180,000.
In addition, during the year ended December 31, 2010, we
raised an additional $181,100 from the sale of
91,200 shares of Common Stock, $400,000 from the
disposition of our interest in Supreme Vacuum, and $833,300, net
of cash paid, to re-acquire the interests in December 2010,
through the sale of a portion of our interest in the Panhandle
Field Producing Property. These proceeds were used for general
working capital purposes and the repayment of notes payable.
34
Cash
Flows
The following table summarizes our cash flows and has been
derived from our audited financial statements for the years
ended December 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash flow used in operating activities
|
|
$
|
(1,063,089
|
)
|
|
$
|
(2,096,089
|
)
|
Cash flow used in investing activities
|
|
|
(41,566,581
|
)
|
|
|
(1,156,031
|
)
|
Cash flow provided by financing activities
|
|
|
42,821,032
|
|
|
|
2,970,172
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
191,362
|
|
|
|
(281,948
|
)
|
Beginning cash and cash equivalents
|
|
|
18,136
|
|
|
|
300,084
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
209,498
|
|
|
$
|
18,136
|
|
|
|
|
|
|
|
|
|
|
34.1
Cash flows from operating activities improved from a cash
outflow of $2,096,089 for the year ended December 31, 2009
to a cash outflow of $1,063,088 for the year ended
December 31, 2010 due to increases in non-cash adjustments
affecting earnings including $689,369 increase in DD&A,
$1,015,525 increase in share-based compensation, $125,139 of
amortization of debt discount related to financings associated
with the FDF acquisition, $398,232 of accretion of the Senior
Series A Redeemable Preferred Stock related to the FDF
acquisition, $13,301,755 related to the change in fair value of
the derivative liabilities, and a net gain on disposal of assets
of $403,848. In addition, we had a net cash inflow related to
working capital totaling $2,234,601 for the year ended
December 31, 2010 as compared to a net cash inflow of
$46,209 for the year ended December 31, 2009.
Cash flows used in investing activities increased by $40,410,551
for the year ended December 31, 2010 compared to the year
ended December 31, 2009 primarily as a result of cash used
to acquire FDF in November 2010.
Cash flows provided by financing activities increased by
$39,850,860 for the year ended December 31, 2010 compared
to the year ended December 31, 2009 primarily as a result
of financing arrangements in connection with the FDF acquisition
including net proceeds totaling $5,029,011 from the issuance of
the Series A Preferred Stock; proceeds totaling $2,150,000
from the issuance of the Debentures; proceeds from the WayPoint
Transaction accounted for as a derivative liability totaling
$19,253,071; and, borrowings under notes payable including the
revolving facility totaling $27,680,862, offset by payments on
notes payable totaling $10,201,454 and issuance costs totaling
$1,271,558.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements that are
reasonably likely to have a material current or future effect on
our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures, or capital
resources.
Contractual
Obligations
The following table summarizes our contractual obligations for
the repayment of debt and payment of other contractual
obligations as of December 31, 2010. The contractual
obligations we will actually pay in future periods may vary from
those reflected in the table because the estimates and
assumptions are subjective.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
|
|
1 Year
|
|
|
2 -3 Years
|
|
|
4 -5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Total Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal current borrowings
|
|
$
|
6,477,962
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,477,962
|
|
Principal long-term borrowings
|
|
|
|
|
|
|
3,920,962
|
|
|
|
13,601,878
|
|
|
|
20,750,000
|
|
|
|
38,272,840
|
|
Interest on borrowings
|
|
|
3,900,599
|
|
|
|
7,114,162
|
|
|
|
6,793,620
|
|
|
|
1,153,931
|
|
|
|
18,962,312
|
|
Operating lease obligations
|
|
|
1,648,276
|
|
|
|
2,025,132
|
|
|
|
1,347,655
|
|
|
|
1,004,991
|
|
|
|
6,026,054
|
|
Asset retirement obligations
|
|
|
|
|
|
|
9,060
|
|
|
|
|
|
|
|
41,018
|
|
|
|
50,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,026,837
|
|
|
$
|
13,069,316
|
|
|
$
|
21,743,153
|
|
|
$
|
22,949,940
|
|
|
$
|
69,789,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies
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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. On an
ongoing basis, we review these estimates based on information
that is currently available. Changes in facts and circumstances
may cause us to revise our estimates. The most significant
estimates relate
35
to revenue recognition, depreciation, depletion and
amortization, the assessment of impairment of long-lived assets
and oil and gas properties, income taxes, and fair value. Actual
results could differ from estimates under different assumptions
and conditions, and such results may affect operations,
financial position, or cash flows.
Accounts
Receivable
We provide credit in the normal course of business to our
customers and perform ongoing credit evaluations of those
customers. We maintain an allowance for doubtful accounts based
on factors surrounding the credit risk of specific customers,
historical trends, and other information. A portion of our
receivables are from the operators of producing wells in which
we maintain ownership interests. These operators market our
share of crude oil and natural gas production. The ability to
collect is dependent upon the general economic conditions of the
purchasers/participants and the oil and gas industry.
Inventory
Inventory consists of dry materials used in mixing oilfield
drilling fluids and liquid drilling fluids mixed and ready for
delivery to the drilling rig location. The dry materials are
carried at the lower of cost or market, principally on the
first-in,
first-out basis. The liquid drilling materials are valued at
standard cost which approximates actual cost on a
first-in,
first-out basis and which does not exceed market value.
Property,
plant, and equipment
Property, plant, and equipment are recorded at cost less
accumulated DD&A. Costs of improvements that appreciably
improve the efficiency or productive capacity of existing
properties or extend their lives are capitalized. Maintenance
and repairs are expensed as incurred. Upon retirement or sale,
the cost of properties and equipment, net of the related
accumulated DD&A, is removed and, if appropriate, gain or
loss is recognized in the respective periods consolidated
statement of operations.
For our oil and gas properties, we follow the successful efforts
method of accounting for oil and gas exploration and development
costs. Under this method of accounting, all property acquisition
costs and costs of exploratory wells are capitalized when
incurred, pending determination of whether additional proved
reserves are found. If an exploratory well does not find
additional reserves, the costs of drilling the well are charged
to expense. The costs of development wells, whether productive
or nonproductive, are capitalized. Geological and geophysical
costs on exploratory prospects and the costs of carrying and
retaining unproved properties are expensed as incurred.
Long-lived
Assets
Long-lived assets are reviewed whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets held and used is
generally measured by a comparison of the carrying amount of an
asset to undiscounted future net cash flows expected to be
generated by the asset. If it is determined that the carrying
amount may not be recoverable, an impairment loss is recognized
for the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Fair value is the estimated value
at which the asset could be bought or sold in a transaction
between willing parties. We consider projected future
undiscounted cash flows, trends, strategic decisions regarding
future development plans, and other factors in our assessment of
whether impairment conditions exist. While we believe our
estimates of future cash flows are reasonable, different
assumptions regarding factors such as the price of oil and gas,
production volumes and costs, drilling activity, and economic
conditions could significantly affect these estimates.
We evaluate impairment of our oil and gas properties on a
property-by-property
basis and estimate the fair value based on discounted cash flows
expected to be generated from the production of proved reserves.
36
Wells
in Progress
We record a liability for funds held on behalf of outside
investors in oil and gas exploration projects, which are to be
paid to the project operator as capital expenditures are billed.
The liability is reduced as we make payments on behalf of those
outside investors to the operator of the project.
Goodwill
and Acquired Intangible Assets
We record the difference between the purchase price and the fair
value of the net assets acquired in a business combination as
goodwill. Goodwill is not amortized; rather, it is measured for
impairment annually, or more frequently if conditions indicate
an earlier review is necessary. If the estimated fair value of
goodwill is less than the carrying value, goodwill is impaired
and written down to its estimated fair value.
Acquired intangibles are recorded at fair value as of the date
acquired and consist of non-compete agreements, customer
relationships, and the FDF trade name. We amortize acquired
intangibles with finite lives on a straight-line basis over
estimated useful lives of 5 to 20 years, and we include the
amortization in DD&A. We evaluate the recoverability of
intangible assets annually or whenever events or changes in
circumstances indicate that an intangible assets carrying
value may not be recoverable.
Asset
Retirement Obligations
We recognize liabilities for retirement obligations associated
with tangible long-lived assets, such as producing well sites
when there is a legal obligation associated with the retirement
of such assets and the amount can be reasonably estimated. The
initial measurement of an asset retirement obligation is
recorded as a liability at its fair value, with an offsetting
asset retirement cost recorded as an increase to the associated
property and equipment on the consolidated balance sheet. If the
fair value of a recorded asset retirement obligation changes, a
revision is recorded to both the asset retirement obligation and
the asset retirement cost. The asset retirement cost is
depreciated using a systematic and rational method similar to
that used for the associated property and equipment.
Fair
Value Measurements
Certain of our assets and liabilities are measured at fair value
at each reporting date. Fair value represents the price that
would be received to sell the asset or paid to transfer the
liability in an orderly transaction between market participants.
This price is commonly referred to as the exit price.
Fair value measurements are classified according to a hierarchy
that prioritizes the inputs underlying the valuation techniques.
This hierarchy consists of three broad levels. Level 1
inputs on the hierarchy consist of unadjusted quoted prices in
active markets for identical assets and liabilities and have the
highest priority. Level 2 measurements are based on inputs
other than quoted prices that are generally observable for the
asset or liability. Common examples of Level 2 inputs
include quoted prices for similar assets and liabilities in
active markets or quoted prices for identical assets and
liabilities in markets not considered to be active. Level 3
measurements have the lowest priority and are based upon inputs
that are not observable from objective sources. The most common
Level 3 fair value measurement is an internally developed
cash flow model. We use appropriate valuation techniques based
on the available inputs to measure the fair values of our assets
and liabilities. When available, we measure the fair value using
Level 1 inputs because they generally provide the most
reliable evidence of fair value.
Revenue
Recognition
Revenues from the sale of drilling fluid products and oilfield
services are recorded at the time products are sold or services
are provided to third parties at a fixed or determinable price,
delivery or performance has occurred, title has transferred, and
collectability of the revenue is probable. We recognize revenues
for promoting certain oil and gas exploration projects and
administering the ownership interests of investors in those
projects. Administration fees are deferred on the balance sheet
as the project is undertaken. As administration services are
performed, deferred administration fees are recognized as
revenue when each discrete phase of a project is completed and
the services have been completed.
37
Revenues from the sales of natural gas and crude oil are
recorded when product delivery occurs and title and risk of loss
pass to the customer, the price is fixed or determinable, and
collection is reasonably assured.
Share
Based Compensation
We grant share-based awards, in the form of Common Stock, to
acquire goods
and/or
services, to members of our Board of directors, and to selected
employees. All such awards are measured at fair value on the
date of grant and are recognized as a component of selling,
general, and administrative expenses in the accompanying
statements of operations over the applicable requisite service
periods.
Income
Taxes
We are subject to current income taxes assessed by the federal
and various state jurisdictions in the United States. In
addition, we account for deferred income taxes related to these
jurisdictions using the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and
liabilities and their respective tax bases. Deferred tax assets
are also recognized for the future tax benefits attributable to
the expected utilization of existing tax net operating loss
carryforwards and other types of carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences and carryforwards are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations
in the period that includes the enactment date.
We recognize the financial statement effects of tax positions
when it is more likely than not, based on the technical merits,
that the position will be sustained upon examination by a taxing
authority. Recognized tax positions are initially and
subsequently measured as the largest amount of tax benefit that
is more likely than not of being realized upon ultimate
settlement with a taxing authority. We have not taken a tax
position that, if challenged, would have a material effect on
the consolidated financial statements or the effective tax rate
for the years ended December 31, 2010 and 2009.
EXECUTIVE
OFFICERS AND EXECUTIVE COMPENSATION
Executive
Officers
The following table provides information regarding persons who
served as executive officers during 2010 and those as of
April 1, 2011:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Michael K. Galvis
|
|
|
54
|
|
|
President, Chief Executive Officer and Director of NYTEX;
Chairman of FDF
|
Kenneth K. Conte
|
|
|
52
|
|
|
Executive Vice President and Chief Financial Officer of NYTEX
|
Michael G. Francis
|
|
|
63
|
|
|
Director of NYTEX; President and Chief Executive Officer of FDF
|
William G. Brehmer
|
|
|
52
|
|
|
Former Chief Operating Officer and Director
|
Georgianna Hanes
|
|
|
57
|
|
|
Treasurer and Controller and Former Chief Financial Officer of
NYTEX
|
Jude Gregory
|
|
|
43
|
|
|
Chief Financial Officer of FDF
|
Michael K. Galvis has been the President and Chief
Executive Officer and our director since October 31, 2008.
He has also been the President and Chief Executive Officer and a
director of NYTEX Petroleum, Inc., ou wholly-owned subsidiary,
since October 31, 2008, and the Chairman of FDF, our
wholly-owned subsidiary, since November 23, 2010. From
March 2006 through October 2008, he was President, Treasurer and
Secretary of NYTEX Petroleum, LLC, the predecessor to NYTEX
Petroleum. From 1994 through February 2006 he was a Consultant
for PetroQuest Exploration, Inc., a privately held Texas
corporation engaged in the acquisition
38
and development of oil and natural gas reserves in the
U.S. He has been in the oil and gas industry since 1983
with extensive experience in the drilling, operating and
participating in onshore and offshore oil and gas wells in
Texas, Louisiana, Arkansas, Oklahoma, Colorado, Mississippi,
Illinois, North Dakota, and New Mexico. During that period his
experience included generating and funding drilling prospects
and evaluating and acquiring drill-ready prospects, producing
oil and gas properties, oil and gas service companies and
facilities, including managing and providing consulting services
regarding such assets.
Kenneth K. Conte was appointed our Executive Vice
President and Chief Financial Officer on June 1, 2010.
Prior to joining us and since December 2005, Mr. Conte
served as Managing Director and Head of Mergers &
Acquisitions for National Securities Corporation, New York, NY.
From September 2003 to December 2005, Mr. Conte served as
CEO and CFO of Windsor Technology, LLC, Rochester, NY. From
April 2001 to December 2005, Mr. Conte also served as
Managing Partner of Argilus Investment Banking, Rochester, NY.
Prior to that, from December 1998 to April 2001, Mr. Conte
served as Senior Vice President Investment Banking
for McDonald Investments, Inc., in Cleveland, Ohio.
Mr. Conte also held management positions at the Corporate
Banking and Finance Group for Key Bank in Rochester, at
Shawmuts LBO fund, and at The Chase Manhattan Bank.
Mr. Conte obtained his MBA in Finance at the William E.
Simon Graduate School of Business Administration at the
University of Rochester; a BBA in Accounting from Niagara
University; and holds a FINRA Series 24
Securities Principal license, a
Series 7-General
Securities Representative license, and a Series 63 General
Securities Law license.
Michael G. Francis was appointed President and Chief
Executive Officer of FDF effective November 23, 2010. On
April 14, 2011, Mr. Francis was appointed as a member
of our board of directors. Previously and for the past
34 years, Mr. Francis acted as Director, President and
Chief Executive Officer of FDF prior to our acquisition of FDF.
A native of Jena, LA, Francis has been in the oilfield all of
his adult life. Mr. Francis began FDF in 1977, and has
overseen its growth to where it now employs over 400 people
and operates nearly 200 trucks. He and his wife Marcia are
members of the East Bayou Baptist Church in Lafayette,
Louisiana. He is the past Louisiana Republican Party State
Chairman
(1995-2001)
and Finance Chairman
(1993-94);
he is a former member of the Executive Board for the Boy Scouts
of America Acadia Parish and currently serves on the
Executive Boards of the Welcome House of Acadia Parish and the
Community Outreach Corporation. Mr. Francis also serves on
the Louisiana College Board of Trustees. He has received awards
for his volunteerism and business success such as Business Man
of the Year, The Distinguished Citizen Award and the Silver
Beaver Award from the Boy Scouts of America.
William G. Brehmer has been a member of our board of
directors since October 31, 2008. Mr. Brehmer acted as
our Chief Operating Officer and Vice President from
October 31, 2008 to March 24, 2010, and also has
served in such capacities for NYTEX Petroleum since
October 31, 2008. Mr. Brehmer has over 25 years
of experience in the oil and gas industry in the areas of
contract administration, natural gas marketing, natural gas
processing, natural gas liquids marketing, business planning,
funding and implementation of oil and gas drilling projects,
technology marketing and sales and commercial fuel marketing and
operations. From April 1, 2006, through October 31,
2008, he was a Consulting Analyst and Contract Administrator for
NYTEX Petroleum, LLC. From November 1, 2005, through
March 31, 2006, he was an Analyst and Contract
Administrator for Petro-Quest Exploration, Inc., a privately
held Texas corporation engaged in the acquisition and
development of oil and natural gas reserves in the
U.S. From December 12, 2003, through October 31,
2005, he was President of Petro-Frac Corporation, a privately
held Texas corporation focused on identifying, acquiring and
developing shallow (above 4,000 feet) Austin Chalk oil
reserves in east Texas.
Georgianna Hanes has been our Secretary and Treasurer
since October 31, 2008. From October 31, 2008 to
June 1, 2010 she acted as our Chief Financial Officer,
Secretary and Treasurer, and in the same capacities for NYTEX
Petroleum. Ms. Hanes acted as controller and revenue
accountant for NYTEX Petroleum, LLC, the predecessor to NYTEX
Petroleum, Inc., from its inception in April 2006 through
October 2008. From 1996 through March 2006, Ms. Hanes was a
Contract Accountant for PetroQuest Exploration, Inc., a
privately held Texas corporation engaged in the acquisition and
development of oil and natural gas reserves in the
U.S. Ms. Hanes has 35 years of oil and gas
accounting and revenue distribution experience. She has an
extensive background in oil and gas accounting, revenue
distribution, partnership accounting, and tax returns
39
and experience with oil and gas accounting software including
WolfePak, OGYS, Petro-Ware, as well as Quick Books.
Jude N. Gregory was named Vice President and Chief
Financial Officer of FDF on November 23, 2010 as part of
our acquisition of FDF. Mr. Gregory has served as CFO of
FDF since September, 2002 having served the seven prior years as
the companys Controller. Prior to his years at FDF, he
held several management positions with Albertsons
Food & Drug. Mr. Gregory earned his Bachelor of
Science in Business Administration (Accounting) from the
University of Southwestern Louisiana, now the University of
Louisiana-Lafayette. In 1985, he was presented with his Eagle
Scout Award by the Boy Scouts of America. Mr. Gregory
continues to be active with the scouts as well as many other
church and civic organizations.
Summary
Compensation Table
The following table summarizes the compensation of our named
executive officers for the years ended December 31, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
All Other
|
|
|
Name and Principal Position(1)
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)(2)
|
|
Awards ($)(3)
|
|
Compensation ($)(8)
|
|
Total ($)
|
|
Michael K. Galvis,
|
|
|
2010
|
|
|
$
|
407,217
|
|
|
$
|
205,000
|
|
|
$
|
52,000
|
|
|
$
|
36,975
|
|
|
$
|
701,192
|
|
President and CEO(4)
|
|
|
2009
|
|
|
$
|
478,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
37,800
|
|
|
$
|
515,800
|
|
Georgianna Hanes,
|
|
|
2010
|
|
|
$
|
152,900
|
|
|
$
|
35,000
|
|
|
$
|
0
|
|
|
$
|
4,800
|
|
|
$
|
192,700
|
|
CFO, Treasurer & Secretary(5)
|
|
|
2009
|
|
|
$
|
168,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,800
|
|
|
$
|
172,800
|
|
Kenneth K. Conte,
|
|
|
2010
|
|
|
$
|
91,666
|
|
|
$
|
20,000
|
|
|
$
|
312,000
|
|
|
$
|
2,586
|
|
|
$
|
423,666
|
|
EVP & CFO(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William G. Brehmer,
|
|
|
2010
|
|
|
$
|
35,467
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,800
|
|
|
$
|
40,267
|
|
VP & COO(7)
|
|
|
2009
|
|
|
$
|
168,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,800
|
|
|
$
|
172,800
|
|
|
|
|
(1) |
|
On November 23, 2010 we consummated the FDF Acquisition. In
connection therewith, FDF entered into an employment agreement
with Michael G. Francis to act as President and CEO of FDF.
Under his employment agreement Mr. Francis will receive an
annual base salary of $200,000 and a $2,500 bonus for each key
employee FDF retains for one year from the date of execution.
Had we acquired FDF at the beginning of the fiscal year,
Mr. Francis would have been considered a named executive
officer. In addition to his base annual salary and bonus set
forth above, Mr. Francis is eligible to receive stock
grants, bonus awards and deferred compensation. |
|
|
|
Also in connection with the FDF Acquisition, FDF entered into an
employment agreement with Jude Gregory to remain as Chief
Financial Officer of FDF. Like Mr. Francis, had the FDF
Acquisition taken place at the beginning of the fiscal year,
Mr. Gregory would have been considered a named executive
officer. Mr. Gregorys annual base salary is $150,000
as well as is eligible to receive quarterly and annual bonuses
as well as stock grants under performance based criteria set by
the management of FDF. |
|
(2) |
|
All bonuses are discretionary based on each individual
executives performance as determined by us. |
|
(3) |
|
Stock awards are valued at $1.04 per share of Common Stock for
purposes of this annual report. |
|
(4) |
|
Michael Galvis base salary is comprised of $275,000 under
an employment agreement with us for his role as our President
and CEO, and another $275,000 under an employment agreement with
FDF for his role as Chairman of FDF. |
|
(5) |
|
Georgianna Hanes ceased being our CFO on June 1, 2010. |
|
(6) |
|
Kenneth K. Conte became our Executive Vice President and CFO on
June 1, 2010. |
|
(7) |
|
William Brehmer ceased being our COO on March 24, 2010 but
remains as a Director. |
|
(8) |
|
Michael K. Galviss NYTEX Employment Agreement contemplates
a car and health insurance allowance which equals in the
aggregate $2,375 per month. Georgianna Hanes and William G.
Brehmer received a health insurance allowance of approximately
$400 per month. Kenneth K. Contes employment agreement
provides for car allowance which in 2010 was equal to $431 per
month. |
40
Executive
Employment Agreements
The following is a summary of the material terms of the
employment agreements we have with our named executive officers:
Agreements with Michael K. Galvis. On
April 28, 2009, we entered into an employment agreement
with Mr. Galvis (the NYTEX Employment
Agreement). On November 22, 2010, the NYTEX
Employment Agreement was amended to modify
Mr. Galviss compensation. The NYTEX Employment
Agreement provides for an annual base salary of $250,000 per
year, an auto allowance of $875 per month, health insurance
allowance of $1,500 per month and incentive compensation to be
determined from time to time by our board of directors.
Additionally, Mr. Galvis has an employment agreement with
FDF (the FDF Employment Agreement) for
his position as Chairman of FDF. The FDF Employment Agreement
provides for an annual base salary of $275,000, quarterly
bonuses of $5,000 based upon achievement of goals and objectives
of FDF, and an annual bonus of $20,000 based upon achievement of
goals and objectives of FDF. In addition to the base and bonus
compensation set forth above, the FDF Employment Agreement
provides for restricted stock awards of 50,000 shares of
our Common Stock upon execution of the FDF Employment Agreement,
75,000 shares of our Common Stock on each of
November 22, 2011 and November 22, 2012, provided
Mr. Galvis meets certain performance criteria set forth by
our management. Any award of restricted stock made to
Mr. Galvis is subject to non-transferability and
forfeitability, but vests over a three year period in equal
amounts per year.
In the event of a termination of the FDF Employment Agreement
without cause by FDF prior to the termination of the term, FDF
must pay Mr. Galvis (i) the portion of the then
current base annual salary earned and unpaid through the date of
termination, (ii) any bonuses or stock awards otherwise due
to Mr. Galvis through the date of the termination and
(iii) the value of any accrued but unused vacation,
holiday, or personal leave time in accordance with FDFs
policies. In the event of a termination for cause,
Mr. Galvis is entitled to receive only the portion of the
then current base annual salary earned and unpaid through the
date of termination. For purposes of the FDF Employment
Agreement, cause includes (i) death or
disability for more than 90 days, (ii) being grossly
negligent in the performance of his job duties or breaches of
duty of loyalty or fiduciary duty, (iii) conviction of any
crime involving fraud, theft or dishonesty, (iv) dishonesty
or any act that injures the reputation, business, goodwill or
our business relationships or (v) breach of the FDF
Employment Agreement.
The FDF Employment Agreement is for a two year term with
automatic renewal for two consecutive one year periods. The FDF
Employment Agreement provides for typical non-disclosure of
confidential information provisions, as well as non-competition
during the term of the agreement and for a six month period
thereafter. Furthermore, the FDF Employment Agreement restricts
Mr. Galvis from soliciting employees or customers of FDF.
Agreement with Kenneth K. Conte. On
November 22, 2010, we entered into an employment agreement
with Mr. Conte that superseded a previous employment
agreement dated June 1, 2010. The employment agreement with
Mr. Conte provides for an annual base compensation of
$200,000. Additionally, Mr. Conte receives a vehicle and
all expenses associated with such vehicle. Mr. Conte may
also receive additional compensation as determined from time to
time by our board of directors. Mr. Contes employment
agreement has a term of two years from the date of execution
with automatic one year extensions unless either party elects
not to renew. Mr. Contes employment agreement
contains typical confidentiality provisions as well as a
non-competition clause for a period from the date of execution
during his employment and for a three year period thereafter. In
the event of termination without cause, Mr. Conte is
entitled to receive a severance payment determined by dividing
his base salary by 257 to compute a daily base salary
rate and then multiplying the daily base salary rate by
the product of multiplying the number of full months of his
employment with us by 84%, less taxes and Social Security
required to be withheld.
Agreement with William G. Brehmer. On
April 28, 2009, we entered into an employment agreement
with Mr. Brehmer. The employment agreement with
Mr. Brehmer provides for an annual base compensation of
$168,000 (subsequently amended and reduced to $75,000 per annum
in March 2011). Additionally, Mr. Brehmer receives $400 per
month towards medical insurance benefits. Mr. Brehmer may
also receive
41
additional compensation as determined from time to time by our
board of directors. Mr. Brehmers employment agreement
has a term of two years from the date of execution with
automatic one year extensions unless either party elects not to
renew. Mr. Brehmers employment agreement contains
typical confidentiality provisions as well as a non-competition
clause for a period from the date of execution during his
employment and for a three year period thereafter.
Agreement with Georgianna Hanes. On
April 28, 2009, we entered into an employment agreement
with Ms. Hanes. The employment agreement with
Ms. Hanes provides for an annual base compensation of
$168,000 (subsequently amended and reduced to $75,000 per annum
in March 2011). Additionally, Ms. Hanes receives $400 per
month towards medical insurance benefits. Ms. Hanes may
also receive additional compensation as determined from time to
time by our board of directors. Ms. Haness employment
agreement has a term of two years from the date of execution
with automatic one year extensions unless either party elects
not to renew. Ms. Haness employment agreement
contains typical confidentiality provisions as well as a
non-competition clause for a period from the date of execution
during his employment and for a three year period thereafter.
Outstanding Equity Awards at Fiscal Year-End:
As of December 31, 2010, the following restricted stock
awarded granted have not vested:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
Number of
|
|
Market or Payout
|
|
|
|
|
Market Value of
|
|
Unearned Shares,
|
|
Value of Unearned
|
|
|
Number of Shares or
|
|
Shares or Units of
|
|
Units or Other
|
|
Shares, Units or
|
|
|
Units That Have
|
|
Stock That Have
|
|
Rights That Have
|
|
Other Rights That
|
Name
|
|
Not Vested
|
|
Not Vested
|
|
Not Vested
|
|
Have Not Vested
|
|
Michael K. Galvis,
|
|
|
33,333
|
|
|
$
|
61,999
|
|
|
|
150,000
|
|
|
$
|
279,000
|
|
President and CEO of NYTEX(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On November 23, 2010, Mr. Galvis was awarded
50,000 shares of Common Stock which vest over three years
in equal installments. In November 23, 2011,
Mr. Galvis is eligible to receive a grant for
75,000 shares of Common Stock and another
75,000 shares of Common Stock in November 23, 2012.
For more information see the description of the FDF Employment
Agreement under Executive Employment
Agreements on page of this prospectus. |
Option Exercises and Stock Vested:
During 2010, the following stock awards have been granted to
named executive officers and have vested:
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized
|
Name
|
|
Acquired on Vesting
|
|
on Vesting
|
|
Michael K. Galvis,
|
|
|
16,667
|
|
|
$
|
31,001
|
|
President & CEO
|
|
|
|
|
|
|
|
|
Kenneth K. Conte,
|
|
|
300,000
|
|
|
$
|
312,000
|
|
EVP & CFO
|
|
|
|
|
|
|
|
|
42
Board
of Directors
The following persons serve on our board of directors:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Michael K. Galvis
|
|
|
54
|
|
|
President, Chief Executive Officer and Director of NYTEX;
Chairman of FDF
|
William G. Brehmer
|
|
|
52
|
|
|
Director
|
Jonathan Rich
|
|
|
42
|
|
|
Director
|
Thomas W. Drechsler
|
|
|
33
|
|
|
Director
|
John Henry Moulton
|
|
|
41
|
|
|
Director
|
Michael G. Francis
|
|
|
63
|
|
|
Director
|
Michael K. Galvis. See Executive
Officers on page of this prospectus
for biographical information about Mr. Galvis.
William G. Brehmer. See Executive
Officers on page of this prospectus
for biographical information about Mr. Brehmer.
Jonathan Rich has served as director since November 2010.
Mr. Rich was appointed as director per the terms of our
Series A Preferred Stock. Mr. Rich has been the
Executive Vice President and Head of Investment Banking of
National Securities Corporation, a full-service investment
banking firm, since July 2008. Mr. Rich had been the
Executive Vice President and Director of Investment Banking of
vFinance Investments, Inc. since July 2005, and assumed his
current position with National Securities when vFinance was
acquired by National Holdings Corporation, the parent of
National Securities Corporation in July 2008. Mr. Rich had
previously served as Senior Vice President and Managing Director
of Corporate Finance at First Colonial Financial Group since
January 2001. First Colonial Financial was, in turn, acquired by
vFinance in July 2005. Mr. Rich graduated from Tulane
University with an interdisciplinary major in economics,
political science, history and philosophy and received a joint
J.D. / M.B.A. degree from Fordham University with a
concentration in corporate finance.
Thomas W. Drechsler has served as director since November
2010. Mr. Drechsler was appointed as director per the terms
of the Series B Preferred Stock (see the discussion on
WayPoint in Transactions with Related
Persons on page of this prospectus).
Since 2005, Mr. Drechsler has worked at WayPoint Capital
Partners, LLC, an affiliate of WayPoint, and since 2009, has
been one of its managing partners. Prior to that, he held
principal investing and investment banking roles with Veronis
Suhler Stevenson from and with Bear Stearns. Mr. Drechsler
earned a bachelor of science degree in business administration
from The University of North Carolina at Chapel Hill.
John Henry Moulton has served as director since November
2010. Mr. Moulton was appointed as director per the terms
of the Series B Preferred Stock (see the discussion on
WayPoint in Transactions with Related
Persons on page of this prospectus).
Mr. Moulton has served as Managing Partner of WayPoint
Capital Partners, LLC since 2004. Prior to that,
Mr. Moulton spent seven years at Veronis Suhler Stevenson
focused on investment banking. Previously, he worked as an
attorney for Hewlett Packard. Mr. Moulton holds a J.D. from
Santa Clara University with a specialty in Technology Law
and a B.S. from the University of California at Berkeley in
Legal Studies.
Michael G. Francis. Mr. Francis was appointed and
accepted such appointment as director on April 14, 2011.
See Executive Officers on
page of this prospectus for biographical
information about Mr. Francis.
2010 Director
Compensation
During the year ended December 31, 2010, our directors
neither received nor accrued compensation for their services as
directors other than reimbursement of expenses relating to
attending meetings of our board of directors.
43
Director
Independence
The standards relied upon in determining whether a director is
independent are those of the NASDAQ Stock Market,
which include the following objective standards: (a) a
director who is an employee, or whose immediate family member
(defined as a spouse, parent, child, sibling, father- and
mother-in-law,
son- and
daughter-in-law
and anyone, other than a domestic employee, sharing the
directors home) is our executive officer, would not be
independent for a period of three years after termination of
such relationship; (b) a director who receives, or whose
immediate family member receives, compensation of more than
$120,000 during any period of twelve consecutive months from us,
except for certain permitted payments, would not be independent
for a period of three years after ceasing to receive such
amount; (c) a director who is or who has an immediate
family member who is, a current partner of our outside auditor
or who was, or who has an immediate family member who was, a
partner or employee of our outside auditor who worked on our
audit at any time during any of the past three years would not
be independent until a period of three years after the
termination of such relationship; (d) a director who is, or
whose immediate family member is, employed as an executive
officer of another company where any of our present executive
officers serve on the other companys compensation
committee would not be independent for a period of three years
after the end of such relationship; and (e) a director who
is, or who has an immediate family member who is, a partner in,
or a controlling stockholder or an executive officer of any
organization that makes payments to, or receives payments from,
the Company for property or services in an amount that, in any
single fiscal year, exceeds the greater of $200,000, or 5% of
such other companys consolidated gross revenues, would not
be independent until a period of three years after falling below
such threshold.
In applying the above-referenced standards, we have determined
that Jonathan Rich is currently our only independent director.
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
Thomas
W. Drechsler and John Henry Moulton
On November 23, 2010, in connection with the FDF
Acquisition, we entered into the WayPoint Purchase Agreement
pursuant to which we issued WayPoint one share of our
Series B Preferred Stock. As the holder of Series B
Preferred Stock, WayPoint is entitled to nominate two members to
our board of directors. WayPoint nominated Thomas W. Drechsler
and John Henry Moulton.
Pursuant to the terms of the WayPoint Purchase Agreement and the
Control Warrant, we need consent from WayPoint to engage in
certain activities, including, but not limited to, issuing
additional shares of our Common Stock, incurring further
indebtedness, granting any liens on our assets, disposing of our
assets, entering into mergers, or conducting acquisitions.
Furthermore, if WayPoint exercised the Control Warrant, such
exercise would result in a change of control of us in that the
WayPoint would hold enough shares to elect all of the members of
our board of directors and to approve any action requiring
stockholder approval, including certain mergers and sales of
substantially all of the our assets, regardless of the votes
cast by any other stockholder.
The Control Warrant is exercisable at an exercise price of $0.01
per share, upon the earliest to occur of (i) the occurrence
of a default that remains uncured for seventy-five days;
provided, that payment to the holders of Senior Series A
Redeemable Preferred Stock of all amounts owing to them as a
result of a default shall be considered a cure of a default;
(ii) the date on which a change of control occurs, if
Acquisition Inc. is not able to redeem all of the Senior
Series A Redeemable Preferred Stock in accordance with its
terms; (iii) seventy-five days after the date on which the
third Default has occurred within a consecutive twelve-month
period; and (iv) May 23, 2016, if Acquisition Inc. is
not able to redeem all of the Senior Series A Redeemable
Preferred Stock in accordance with its terms (the
Default Conditions). The term
default includes 14 categories of events,
which are listed in Section 11.1 of the WayPoint Purchase
Agreement and which list includes, among other events,
(i) the failure of Acquisition Inc. to timely make a
redemption payment to holders of the Senior Series A
Redeemable Preferred Stock, (ii) the failure of Acquisition
Inc. to timely make a dividend payment to holders of the Senior
Series A Redeemable Preferred Stock, (iii) the
44
failure of ours or Acquisition Inc. to perform covenants in the
WayPoint Purchase Agreement, (iv) the failure of us to meet
a fixed-charge coverage ratio, leverage ratio or minimum EBITDA
test in the WayPoint Purchase Agreement; (v) we or any of
its subsidiaries becomes in default on other indebtedness,
individually or in the aggregate, in excess of $250,000;
(v) us, Acquisition Inc. or any of the Francis Group
entities becomes subject to bankruptcy or receivership
proceedings, (vi) a judgment or judgments is entered
against is entered against us, Acquisition Inc. or any of the
Francis Group entities in excess of $1,000,000, and such
judgment is not satisfied; (vii) we, Acquisition Inc. or
any of the Francis Group entities breaches a representation or
warranty in the WayPoint Purchase Agreement or the documents
related thereto; (ix) a Change of Control occurs; and
(x) certain liabilities in excess of $250,000 arise under
ERISA. change of control means (i) a
sale of shares of our stock, Acquisition Inc. or any Francis
Group entity, or a merger involving any of them, as a result of
which holders of the voting capital stock of the applicable
entity immediately prior to such transaction do not hold at
least 50% of the voting power of the applicable entity or the
resulting or surviving entity or the acquiring entity;
(ii) a disposition of all or substantially all of our
assets, Acquisition Inc. or any Francis Group entity;
(iii) a voluntary or involuntary liquidation, dissolution
or winding up by us, Acquisition Inc. or any Francis Group
entity; (iv) either Michael K. Galvis or Michael G. Francis
shall sell at least five percent (5%) of our equity held by him
immediately prior to such sale; (v) Michael K. Galvis
ceases to be our Chief Executive Officer and is not replaced by
a candidate suitable to WayPoint within 30 days or any such
replacement Chief Executive Officer ceases to be our Chief
Executive Officer and is not replaced by a candidate suitable to
WayPoint within 30 days; or (vi) Michael G. Francis
ceases to be the Chief Executive Officer of FDF and is not
replaced by a candidate suitable to WayPoint within 30 days
or any such replacement Chief Executive Officer ceases to be the
Chief Executive Officer of the FDF and is not replaced by a
candidate suitable to WayPoint within 30 days.
On April 13, 2011, we received a letter from PNC, as
lender, notifying us of the existence of certain events of
default under our Senior Facility. Similarly, on April 14,
2011 we received a similar notice of Default from WayPoint,
stating we are in Default of the WayPoint Purchase Agreement,
and, therefore, that WayPoint possesses the right to exercise
the Control Warrant. If WayPoint exercises the Control Warrant,
they would own 51% of our outstanding Common Stock. We are
currently in negotiations with WayPoint to remedy the Events of
Default and modify the WayPoint Purchase Agreement. However,
there are no assurances that we will be successful in our
negotiations with WayPoint.
44.1
SELLING
SECURITY HOLDERS
The following tables set forth information concerning each of
the Selling Security Holders including:
|
|
|
|
|
the number of shares owned by the Selling Security Holders prior
to this offering; and
|
|
|
|
the total number of shares of Common Stock that are to be
offered by the Selling Security Holders.
|
With the exception of Ronnie Lewis, TDB Associates, Inc., Myrtis
Outlar and Charles Davis which own 20,000 shares of Common
Stock, 134,375 shares of Common Stock, 5,000 shares of
Common Stock and 5,000 shares of Common Stock,
respectively, representing less than one percent of the issued
and outstanding shares of our Common Stock, the shares offered
for sale under this prospectus constitute all of the shares
known to us to be beneficially owned by each of the Selling
Security Holders, and upon completion of this offering none of
the Selling Security Holders will own any shares of Common
Stock. The shares of Common Stock being offered under this
prospectus may be offered for sale from time to time during the
period the registration statement to which this prospectus
relates remains effective, by or for the accounts of the Selling
Security Holders listed below.
None of the Selling Security Holders have a position or office
with us nor have had any material relationship with us within
the past three years. None of the Selling Security Holders are
broker-dealers or affiliates of broker-dealers to our knowledge.
The shares of Common Stock being offered under this prospectus
may be offered for sale from time to time during the period the
registration statement to which this prospectus relates remains
effective, by or for the accounts of the Selling Security
Holders listed below.
Series A Preferred Stockholders:
|
|
|
|
|
|
|
|
|
|
|
Amount of Shares of
|
|
Amount of Shares of
|
|
|
Common Stock Owned
|
|
Common Stock to be
|
|
|
by Selling Security
|
|
Offered by the
|
|
|
Holder Prior To
|
|
Selling Security
|
Name of Selling Security Holder
|
|
Offering
|
|
Holder
|
|
Applebaum Family LTD Partnership(1)
|
|
|
32,500
|
|
|
|
32,500
|
|
Alan and Lois Bauer
|
|
|
130,000
|
|
|
|
130,000
|
|
Alfred L. Bell
|
|
|
32,500
|
|
|
|
32,500
|
|
NFS/FMTC FBO Robin M. Bell IRA
|
|
|
32,500
|
|
|
|
32,500
|
|
John J. Blum Jr.
|
|
|
65,000
|
|
|
|
65,000
|
|
Eliot Brown
|
|
|
32,500
|
|
|
|
32,500
|
|
Dwight Burton IRA
|
|
|
65,000
|
|
|
|
65,000
|
|
Wayland Dwight Burton Jr. and Edie M. Burton
|
|
|
32,500
|
|
|
|
32,500
|
|
Gary and Roxanne Case
|
|
|
32,500
|
|
|
|
32,500
|
|
Chuck and Jane Cazett
|
|
|
78,000
|
|
|
|
78,000
|
|
Douglas P. Cerretti
|
|
|
32,500
|
|
|
|
32,500
|
|
William Coney
|
|
|
45,500
|
|
|
|
45,500
|
|
Marilyn Ann Daniels Davis
|
|
|
130,000
|
|
|
|
130,000
|
|
Greg Dawe
|
|
|
130,000
|
|
|
|
130,000
|
|
Derm Surgery Associates, Dr. Leonard Goldberg(2)
|
|
|
97,500
|
|
|
|
97,500
|
|
Robert S. Duncan IRA
|
|
|
32,500
|
|
|
|
32,500
|
|
Arthur D. Dunkin
|
|
|
32,500
|
|
|
|
32,500
|
|
Charles and Sibyl Eckert
|
|
|
130,000
|
|
|
|
130,000
|
|
Edward & Elaine Epstein
|
|
|
32,500
|
|
|
|
32,500
|
|
Chester W. Fox
|
|
|
65,000
|
|
|
|
65,000
|
|
Thomas James Giftos
|
|
|
78,000
|
|
|
|
78,000
|
|
Ralph Gitz
|
|
|
260,000
|
|
|
|
260,000
|
|
Glendenning Investment Group(3)
|
|
|
130,000
|
|
|
|
130,000
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Amount of Shares of
|
|
Amount of Shares of
|
|
|
Common Stock Owned
|
|
Common Stock to be
|
|
|
by Selling Security
|
|
Offered by the
|
|
|
Holder Prior To
|
|
Selling Security
|
Name of Selling Security Holder
|
|
Offering
|
|
Holder
|
|
Baiju Gohil
|
|
|
32,500
|
|
|
|
32,500
|
|
Marc Goldstein
|
|
|
32,500
|
|
|
|
32,500
|
|
Edward A. Grimm and Iris J.M. Grimm
|
|
|
260,000
|
|
|
|
260,000
|
|
Robert and Judy Harder
|
|
|
65,000
|
|
|
|
65,000
|
|
Thomas and Lily Hauke
|
|
|
650,000
|
|
|
|
650,000
|
|
Martin Herman
|
|
|
32,500
|
|
|
|
32,500
|
|
John A. Jaecker
|
|
|
65,000
|
|
|
|
65,000
|
|
Robert Kaufman
|
|
|
260,000
|
|
|
|
260,000
|
|
Brian Gregory Kiernan
|
|
|
32,500
|
|
|
|
32,500
|
|
Gregory P Kusnick & Karen Jo Gustafson
|
|
|
130,000
|
|
|
|
130,000
|
|
Veronica & William Kwake
|
|
|
32,500
|
|
|
|
32,500
|
|
Moe H. Leichter
|
|
|
65,000
|
|
|
|
65,000
|
|
M. Butte Ltd.(4)
|
|
|
390,000
|
|
|
|
390,000
|
|
Earl & Gloria Martin
|
|
|
260,000
|
|
|
|
260,000
|
|
Lender Rev. Liv. Trust of Karl & Lillian R. Martinez
U/A 7/20/89(5)
|
|
|
97,500
|
|
|
|
97,500
|
|
Alex Mayers
|
|
|
130,000
|
|
|
|
130,000
|
|
Richard McClowry
|
|
|
39,000
|
|
|
|
39,000
|
|
The Charles and Bettye L. Middleton Revocable Living Trust(6)
|
|
|
65,000
|
|
|
|
65,000
|
|
Don Morgenroth
|
|
|
97,500
|
|
|
|
97,500
|
|
Jeremiah Murphy
|
|
|
65,000
|
|
|
|
65,000
|
|
Carol R. Nagy and Edwin E. Meyer
|
|
|
97,500
|
|
|
|
97,500
|
|
George W. Naylor IRA
|
|
|
65,000
|
|
|
|
65,000
|
|
NFS/FMTC FBO Roger Nesbitt IRA
|
|
|
65,000
|
|
|
|
65,000
|
|
Roger D. Nesbitt
|
|
|
130,000
|
|
|
|
130,000
|
|
Michael Padgett
|
|
|
130,000
|
|
|
|
130,000
|
|
Ranjan Pai
|
|
|
65,000
|
|
|
|
65,000
|
|
David R Parker and Sunny H. Parker
|
|
|
130,000
|
|
|
|
130,000
|
|
Ashar Qureshi
|
|
|
130,000
|
|
|
|
130,000
|
|
Maurice Robson
|
|
|
65,000
|
|
|
|
65,000
|
|
Dyke Rogers
|
|
|
130,000
|
|
|
|
130,000
|
|
Samuel Rosenberg
|
|
|
65,000
|
|
|
|
65,000
|
|
Steven D. Schmeichel
|
|
|
19,500
|
|
|
|
19,500
|
|
John E. Schuler
|
|
|
32,500
|
|
|
|
32,500
|
|
SE Scrap Investments, Inc.(7)
|
|
|
65,000
|
|
|
|
65,000
|
|
Jagesh Jack Sharma
|
|
|
65,000
|
|
|
|
65,000
|
|
Paul Smolk
|
|
|
32,500
|
|
|
|
32,500
|
|
Bernice Staub
|
|
|
32,500
|
|
|
|
32,500
|
|
Wayne Tackabury IRA
|
|
|
32,500
|
|
|
|
32,500
|
|
Avraham and Susan Tahari
|
|
|
650,000
|
|
|
|
650,000
|
|
Greer C. Tidwell
|
|
|
65,000
|
|
|
|
65,000
|
|
John Y. Trent
|
|
|
32,500
|
|
|
|
32,500
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Amount of Shares of
|
|
Amount of Shares of
|
|
|
Common Stock Owned
|
|
Common Stock to be
|
|
|
by Selling Security
|
|
Offered by the
|
|
|
Holder Prior To
|
|
Selling Security
|
Name of Selling Security Holder
|
|
Offering
|
|
Holder
|
|
Elston Tsuda
|
|
|
32,500
|
|
|
|
32,500
|
|
Theo Vafakos
|
|
|
32,500
|
|
|
|
32,500
|
|
David Dahl Walter
|
|
|
39,000
|
|
|
|
39,000
|
|
Peter Weiss
|
|
|
32,500
|
|
|
|
32,500
|
|
Trust U/W Renee Weiss(8)
|
|
|
65,000
|
|
|
|
65,000
|
|
Joan Wolf Loving Trust(9)
|
|
|
32,500
|
|
|
|
32,500
|
|
Steven Wallitt
|
|
|
65,000
|
|
|
|
65,000
|
|
Herbert Y. Aiwohi Revocable Trust(10)
|
|
|
32,500
|
|
|
|
32,500
|
|
Robert S. Hanley Trust DTD 1/20/2006(11)
|
|
|
32,500
|
|
|
|
32,500
|
|
Shawn R. McAllister
|
|
|
65,000
|
|
|
|
65,000
|
|
Dennis Terry
|
|
|
65,000
|
|
|
|
65,000
|
|
Brent Womack & Martha Womack
|
|
|
130,000
|
|
|
|
130,000
|
|
William F. Adkins/Mary Ellen Adkins
|
|
|
58,500
|
|
|
|
58,500
|
|
TDB Associates, Inc.(12)
|
|
|
199,375
|
|
|
|
65,000
|
|
Richard T. Grimm Revocable Living Trust(13)
|
|
|
32,500
|
|
|
|
32,500
|
|
Robert MacGillivray
|
|
|
195,000
|
|
|
|
195,000
|
|
Rocking W Investments, Inc.(14)
|
|
|
65,000
|
|
|
|
65,000
|
|
Wharton Turf-Grass, Inc.(15)
|
|
|
65,000
|
|
|
|
65,000
|
|
Joe A. and Judy L. Bryant
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
(1) |
|
Irving Applebum has sole voting and investment control of the
shares of Common Stock. |
|
(2) |
|
Dr. Leonard Goldberg has sole voting and investment control
of the shares of Common Stock. |
|
(3) |
|
William Glendenning has sole voting and investment control of
the shares of Common Stock. |
|
(4) |
|
Donald G. Moes has sole voting and investment control of the
shares of Common Stock. |
|
(5) |
|
Kay Leslie, Trustee of the Trust, has sole voting and investment
control of the shares of Common Stock. |
|
(6) |
|
Charles and Betty Middleton, Trustees of the Trust, have shared
voting and investment control of the shares of Common Stock. |
|
(7) |
|
Morris Heider has sole voting and investment control of the
shares of Common Stock. |
|
(8) |
|
Peter Weiss, Trustee of the Trust, has sole voting and
investment control of the shares of Common Stock. |
|
(9) |
|
Joan and John Wolf, Trustees of the Trust, have shared voting
and investment control of the shares of Common Stock. |
|
(10) |
|
Herbert Y. Aiwohi, Trustee of the Trust, has sole voting and
investment control of the shares of Common Stock. |
|
(11) |
|
Robert S. Hanley, Trustee of the Trust, has sole voting and
investment control of the shares of Common Stock. |
|
(12) |
|
Thomas B. Doolan has sole voting and investment control of the
shares of Common Stock. |
|
(13) |
|
Richard T. Grimm, Trustee of the Trust, has sole voting and
investment control of the shares of Common Stock. |
|
(14) |
|
Lynn A. Barringer has sole voting and investment control of the
shares of Common Stock. |
|
(15) |
|
Charles A. Davis, Jr. has sole voting and investment control of
the shares of Common Stock. |
47
Debenture
Holders:
|
|
|
|
|
|
|
|
|
|
|
Amount of Shares of
|
|
Amount of Shares of
|
|
|
Common Stock Owned
|
|
Common Stock to be
|
|
|
by Selling Security
|
|
Offered by the
|
|
|
Holder Before the
|
|
Selling Security
|
Name of Selling Security Holder
|
|
Offering
|
|
Holder
|
|
Rodger Maechtlen
|
|
|
21,667
|
|
|
|
21,667
|
|
Walter Kittrell
|
|
|
21,667
|
|
|
|
21,667
|
|
Ronnie Lewis
|
|
|
193,334
|
|
|
|
173,334
|
|
Sandra Schaffer
|
|
|
52,000
|
|
|
|
52,000
|
|
Rich Pecunia
|
|
|
65,000
|
|
|
|
65,000
|
|
Dr. Paul Clayman/Sterling Trust(1)
|
|
|
43,334
|
|
|
|
43,334
|
|
Gjermund Kvalem
|
|
|
86,667
|
|
|
|
86,667
|
|
Harold Pecunia
|
|
|
86,667
|
|
|
|
86,667
|
|
Wayne Schrock
|
|
|
43,334
|
|
|
|
43,334
|
|
Lenny Friedman
|
|
|
48,334
|
|
|
|
43,334
|
|
Doug Capra
|
|
|
48,334
|
|
|
|
43,334
|
|
George Evans
|
|
|
48,334
|
|
|
|
43,334
|
|
Myrtus Outlaw
|
|
|
108,334
|
|
|
|
108,334
|
|
Jay Olansen
|
|
|
86,667
|
|
|
|
86,667
|
|
Charles Davis
|
|
|
108,334
|
|
|
|
108,334
|
|
Stewart Lee Entrust IRA
|
|
|
21,667
|
|
|
|
21,667
|
|
Bailey C. Moseley, Jr.
|
|
|
43,334
|
|
|
|
43,334
|
|
Brent Womack
|
|
|
43,334
|
|
|
|
43,334
|
|
Wayne Jones
|
|
|
43,334
|
|
|
|
43,334
|
|
Bailey C Moseley
|
|
|
43,334
|
|
|
|
43,334
|
|
Mike Adams
|
|
|
26,000
|
|
|
|
26,000
|
|
Billy Nolan
|
|
|
26,000
|
|
|
|
26,000
|
|
Glen Adams
|
|
|
26,000
|
|
|
|
26,000
|
|
John Christianson
|
|
|
21,667
|
|
|
|
21,667
|
|
Roger Jungemann-Entrust IRA
|
|
|
21,667
|
|
|
|
21,667
|
|
Madison Moseley
|
|
|
43,334
|
|
|
|
43,334
|
|
Sam Moseley
|
|
|
43,334
|
|
|
|
43,334
|
|
Carey Joy Moseley
|
|
|
43,334
|
|
|
|
43,334
|
|
Scott McCleskey
|
|
|
21,667
|
|
|
|
21,667
|
|
Stan Conley/Conley Business Pension Plan
|
|
|
86,667
|
|
|
|
86,667
|
|
Bert Belk
|
|
|
86,667
|
|
|
|
86,667
|
|
Myrtis Outlar
|
|
|
48,334
|
|
|
|
43,334
|
|
Charles Davis
|
|
|
48,334
|
|
|
|
43,334
|
|
Wayne Schrock
|
|
|
21,667
|
|
|
|
21,667
|
|
Lynn Barringer
|
|
|
43,334
|
|
|
|
43,334
|
|
Don Tredtin
|
|
|
21,667
|
|
|
|
21,667
|
|
|
|
|
(1) |
|
Dr. Paul Clayman, Trustee, holds voting and investment
control of the shares of Common Stock. |
48
DESCRIPTION
OF CAPITAL STOCK
Below is a general description of our capital stock.
Common
Stock
We are authorized to issue 200,000,000 shares of our Common
Stock. As of April 1, 2011, 26,086,329 shares of our
Common Stock were issued and outstanding. All outstanding shares
of Common Stock are fully paid and not subject to further calls
or assessments.
Each stockholder of our Common Stock is entitled to one vote for
each share of Common Stock held on all matters to be voted on by
stockholders. Our certificate of incorporation precludes
cumulative voting in elections of directors. However, the holder
of one outstanding share of our Series B Preferred Stock
issued in connection with our acquisition of FDF has the right
to designate two members of our board of directors.
We have not historically and do not currently anticipate that we
will declare or pay cash dividends on our Common Stock in the
foreseeable future. We will pay dividends on our Common Stock
only if and when declared by our Board of directors. The ability
of our Board of directors to declare a dividend is subject to
restrictions imposed by Delaware law and under our financing
arrangements, including our Series A and Series B
Preferred Stock. In determining whether to declare dividends,
our Board of directors will consider these restrictions as well
as our financial condition, results of operations, working
capital requirements, future prospects and other factors it
considers relevant.
The holder of our Series B Preferred Stock may exercise
certain warrants that would have an immediate and substantial
dilutive effect to existing and future holders of our Common
Stock. The holder of our Series B Preferred Stock possesses
(i) the Purchaser Warrant and (ii) the Control Warrant, so
that, measured at the time of exercise, the number of shares of
Common Stock issued or issuable pursuant to the Purchaser
Warrant and the Control Warrant represents 51% of our
outstanding Common Stock on a fully-diluted basis. The Control
Warrant becomes exercisable only if certain default conditions
are met.
On April 13, 2011, we received a letter from PNC, as
lender, notifying us of the existence of certain events of
default under our Senior Facility. Similarly, on April 14,
2011 we received a similar notice of default from WayPoint,
stating we are in default of the WayPoint Purchase Agreement,
and, therefore, that WayPoint now has the right to exercise the
Control Warrant. If WayPoint exercises the Control Warrant, they
would own 51% of our outstanding Common Stock. We are currently
in negotiations with WayPoint to obtain a waiver and modify the
WayPoint Purchase Agreement. However, there are no assurances
that we will be successful in our negotiations with WayPoint.
If we were to liquidate, dissolve, or wind up, the holders of
the Common Stock would be entitled to receive, pro rata, our net
assets remaining after we satisfy our obligations to creditors
and preferred equity holders, if any. Under our Certificate of
Incorporation, as amended, we have eliminated the potential
liability of our directors to us, and we are also required to
indemnify our directors against any liability for monetary
damages, to the extent allowed by Delaware law and subject to
additional contractual obligations. See Disclosure
of Commission Position on Indemnification For Securities Act
Liabilities on page of this prospectus.
The transfer agent and registrar for our Common Stock is
Continental Stock Transfer & Trust Company. Its
telephone number is
(212) 509-4000.
Preferred
Stock
We are authorized to issue 10,000,000 shares of preferred
stock, $0.001 par value per share. Our certificate of
incorporation, authorizes our board of directors to issue
preferred stock from time to time with such designations,
preferences, conversion or other rights, voting powers,
restrictions, dividends or limitations as to dividends or other
distributions, qualifications or terms or conditions of
redemption as shall be determined by the board of directors for
each class or series of stock subject to the provisions of our
certificate of incorporation.
49
Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of Common
Stock.
Series A
Preferred Stock
On November 19, 2010, our board of directors designated
6,300,000 shares of preferred stock as Series A
Preferred Stock. As of April 1, 2011, 6,000,000 shares
of Series A Preferred Stock were issued and outstanding,
provided, however, certain outstanding warrants entitle holders
thereof to purchase 240,000 shares of Series A
Preferred Stock at an exercise price of
$ per share.
The Series A Preferred Stock is convertible into shares of
our Common Stock based on a one to one conversion ratio, at an
initial conversion price of $1.00 per share, subject to
adjustment. The holders of our Series A Preferred Stock
have voting rights on an as-if-converted basis with our Common
Stock, except as otherwise required by Delaware law. In
addition, so long as any shares of Series A Preferred Stock
are outstanding, we cannot, without the written consent of the
holders of 66.66% of the then outstanding Series A
Preferred Stock: (i) alter or change adversely the powers,
preferences or rights given to the Series A Preferred Stock
or alter or amend the Certificate of Designation in respect of
the Series A Preferred Stock, (ii) authorize or create
any class of stock ranking as to dividends or distribution of
assets upon our liquidation senior to or otherwise pari passu
with the Series A Preferred Stock, or any series of
preferred stock possessing greater voting rights or the right to
convert at a more favorable price than the Series A
Preferred Stock, (iii) amend our Certificate of
incorporation or other charter documents in breach of any of the
provisions hereof, (iv) increase the authorized number of
shares of Series A Preferred Stock or the number of
authorized shares of Preferred Stock, or (v) enter into any
agreement with respect to the foregoing. In the event of our
liquidation, dissolution or winding up, holders of our
Series A Preferred Stock shall be entitled to be paid out
of our assets available therefore, an amount in cash equal to
$1.50 per share of Series A Preferred Stock plus accrued
and unpaid dividends. No distribution shall be made on any
junior securities by reason of our liquidation unless each
holder of Series A Preferred Stock shall have received all
amounts in full to which such holder shall be entitled. The
Series A Preferred Stock holders shall be entitled to
receive dividends payable at the rate of 9% of the purchase
price of each share of Series A Preferred Stock, payable
quarterly. The Series A Preferred Stock also contains
limitations on exercise, including the limitation that the
holders may not convert their shares to the extent that upon
exercise the holder, together with its affiliates, would own in
excess of 4.9% of our outstanding shares of Common Stock.
Series B
Preferred Stock
Our Series B Preferred Stock consists of one authorized
share, that was issued to WayPoint, and provides the holder
thereof the right to designate two members of our board of
directors. In addition, upon the occurrence of a default of the
Control Warrant, the holder may cause us to expand the number of
members of our board of directors, and elect such additional
directors, so that the holder is able to designate a majority of
our board of directors.
PLAN
OF DISTRIBUTION
The offering by the Selling Security Holders may start as soon
as the registration statement to which this prospectus relates
is declared effective. The Selling Security Holders may offer
all or part of their shares for resale from time to time through
public or private transactions, at either prevailing market
prices or at privately negotiated prices. The Selling Security
Holders may sell our Common Stock in the
over-the-counter
market, or on any securities exchange on which our Common Stock
becomes listed or traded, in negotiated transactions or
otherwise. The shares will not be sold in an underwritten public
offering. The shares may be sold directly or through brokers or
dealers. The methods by which the shares may be sold include:
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|
|
|
|
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
|
|
|
|
block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
|
50
|
|
|
|
|
purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
|
|
|
|
an exchange distribution in accordance with the rules of the
applicable exchange;
|
|
|
|
privately negotiated transactions;
|
|
|
|
short sales;
|
|
|
|
broker-dealers may agree with the Selling Security Holders to
sell a specified number of such shares at a stipulated price per
share;
|
|
|
|
a combination of any such methods of sale; and
|
|
|
|
any other method permitted pursuant to applicable law.
|
The Selling Security Holders may also sell shares of our Common
Stock under Rule 144 under the Securities Act, if
available, rather than under this prospectus.
Broker-dealers engaged by the Selling Security Holders may
arrange for other brokers-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the
Selling Security Holders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to
be negotiated. Any profits on the resale of shares of Common
Stock by a broker-dealer acting as principal might be deemed to
be underwriting discounts or commissions under the Securities
Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be
borne by the Selling Security Holders. The Selling Security
Holders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales
of the shares if liabilities are imposed on that person under
the Securities Act.
The Selling Security Holders and any broker-dealers or agents
that are involved in selling the shares of Common Stock may be
deemed to be underwriters within the meaning of the
Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any
profit on the resale of the shares of Common Stock purchased by
them may be deemed to be underwriting commissions or discounts
under the Securities Act.
The Selling Security Holders may from time to time pledge or
grant a security interest in some or all of the shares of Common
Stock owned by them. If they default in the performance of their
secured obligations, the pledgees or secured parties may offer
and sell the shares of Common Stock from time to time under this
prospectus after we have filed a supplement to this prospectus
under Rule 424(b)(3) or other applicable provision of the
Securities Act supplementing or amending the list of Selling
Security Holders to include the pledgees, transferees or other
successors in interest as Selling Security Holders under this
prospectus.
The Selling Security Holders also may transfer the shares of
Common Stock, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for
purposes of this prospectus and may sell the shares of Common
Stock from time to time under this prospectus after we have
filed a supplement to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act
supplementing or amending the list of Selling Security Holders
to include the pledgees, transferees or other successors in
interest as Selling Security Holders under this prospectus.
We are required to pay all fees and expenses incident to the
registration of the shares of Common Stock issuable pursuant to
the conversion of the securities held by the Selling Security
Holders. We have agreed to indemnify the Selling Security
Holders against certain losses, claims, damages and liabilities,
including liabilities relating the registration of their shares
of Common Stock under the Securities Act.
We are not aware of any Selling Security Holders entering into
any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their
shares of Common Stock, nor are we aware of an underwriter or
coordinating broker acting in connection with a proposed sale of
shares of Common Stock. If we are notified by any Selling
Security Holder that any material arrangement has been entered
into with a broker-dealer for the sale of shares of Common
Stock, if required, we will file a
51
supplement to this prospectus. If the Selling Security Holders
use this prospectus for any sale of the shares of Common Stock,
they will be subject to the prospectus delivery requirements of
the Securities Act.
The anti-manipulation rules of Regulation M under the
Exchange Act may apply to sales of our Common Stock and
activities of the Selling Security Holders.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert or our counsel was hired on a
contingent basis, or will receive a direct or indirect interest
in us, or was a promoter, underwriter, voting trustee, director,
officer, or employee of the company, at any time prior to the
filing of this registration statement.
LEGAL
PROCEEDINGS
Other than ordinary routine litigation incidental to our
business, a description of certain additional material
litigation follows:
On August 26, 2010, two suits were filed by Kevin Audrain
and Lori Audrain d/b/a Drain Oil Company
(Plaintiffs) against us, one as Cause
No. 39360 in the
84th
District Court in Hutchinson County, Texas, and the other as
Cause
No. 10-122
in the
69th
District Court in Moore County, Texas. Both suits were filed by
the same plaintiffs and both relate to 75.0% of certain
producing oil and gas leaseholds in those counties of the Texas
panhandle (the Panhandle Property). On
August 1, 2009, NYTEX Petroleum acquired and assumed
operations of the Panhandle Property from Plaintiffs. The
Plaintiffs allege that NYTEX Petroleum did not engage in a well
re-completion (refrac) operation as required by the purchase
document between Plaintiffs and NYTEX Petroleum (the
Purchase Document). As a result of
this alleged lack of performance, Plaintiffs believe they are
entitled to pursue repurchase of the Panhandle Property in
accordance with a buyback provision set forth in the Purchase
Document. We believe that NYTEX Petroleum has performed as
required, and that these lawsuits are wholly without merit and
frivolous. We have filed answers to both suits and intend to
vigorously defend these actions.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the ownership of our securities,
as of April 1, 2011, by (i) each person known to us to
beneficially own more than 5% of any class of our securities,
(ii) each of our directors and executive officers who
beneficially own shares of our securities and (iii) all
directors and executive officers as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature
|
|
|
|
|
Name and Address of
|
|
of Beneficial
|
|
Percent
|
Title of Class
|
|
Beneficial Owner
|
|
Ownership
|
|
of Class
|
|
Beneficial Owners of More than 5% of Companys Equity
|
Common Stock
|
|
WayPoint Nytex, LLC
555 Theodore Fremd Ave.,
Suite C207
Rye, NY 10580
|
|
|
19,809,245
|
(1)
|
|
|
35.0
|
%
|
Series B Redeemable
Preferred Stock
|
|
WayPoint Nytex, LLC
555 Theodore Fremd Ave.,
Suite C207
Rye, NY 10580
|
|
|
1
|
|
|
|
100
|
%
|
Common Stock
|
|
Diana Istre Francis
416 North Avenue K
Crowley, LA 70526
|
|
|
2,058,125
|
|
|
|
7.8
|
%
|
Common Stock
|
|
Richard Buccellato
9 Hidden Hollow Terrace
Holmdel, NJ 07733
|
|
|
1,976,179
|
(2)
|
|
|
7.5
|
%
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature
|
|
|
|
|
Name and Address of
|
|
of Beneficial
|
|
Percent
|
Title of Class
|
|
Beneficial Owner
|
|
Ownership
|
|
of Class
|
|
Executive Officers and Directors of the Company
|
Common Stock
|
|
Michael K. Galvis
Director, President and CEO of
NYTEX
12222 Merit Drive
Suite 1850
Dallas, TX 75251
|
|
|
9,016,667
|
|
|
|
34.4
|
%
|
Common Stock
|
|
Michael G. Francis
Director of NYTEX,
President and CEO of FDF
240 Jasmine Road
Crowley, LA 70526
|
|
|
2,822,063
|
|
|
|
10.8
|
%
|
Common Stock
|
|
William Brehmer
Director of NYTEX
12222 Merit Drive
Suite 1850
Dallas, TX 75251
|
|
|
1,013,425
|
|
|
|
3.9
|
%
|
Common Stock
|
|
John Henry Moulton
Director of NYTEX
555 Theodore Fremd Ave.
Suite C207
Rye, NY 10580
|
|
|
19,809,245
|
(3)
|
|
|
35.0
|
%
|
Common Stock
|
|
Thomas W. Drechsler
Director of NYTEX
555 Theodore Fremd Ave.
Suite C207
Rye, NY 10580
|
|
|
0
|
|
|
|
0
|
%
|
Common Stock
|
|
Jonathan Rich
Director of NYTEX
330 Madison Ave., 18th Floor
New York, NY 10017
|
|
|
0
|
|
|
|
0
|
%
|
Common Stock
|
|
Georgianna Hanes
Controller, Secretary and Treasurer of
NYTEX
12222 Merit Drive
Suite 1850 Dallas, TX 75251
|
|
|
1,013,425
|
|
|
|
3.9
|
%
|
Common Stock
|
|
Kenneth K. Conte
Executive Vice
President and CFO of
NYTEX
12222 Merit Drive
Suite 1850
Dallas, TX 75251
|
|
|
300,000
|
|
|
|
1.1
|
%
|
|
|
All officers and
directors as a group
(8 persons)
|
|
|
33,974,825
|
|
|
|
65.8
|
%
|
|
|
|
(1) |
|
WayPoint Nytex, LLC, holds a warrant to purchase up to 35% of
the outstanding shares of our Common Stock, measured at the time
of exercise of such warrant. WayPoint Nytex, LLC has shared
voting power of the shares issuable upon exercise of the
warrants with John Henry Moulton, Director of NYTEX. |
|
(2) |
|
The shares are held of record by Buccel, LLC, a wholly owned
company of Richard Buccellato. |
|
(3) |
|
John Henry Moulton has shared voting power of the WayPoint Nytex
LLC shares of common stock issuable upon the conversion of the
warrants held by WayPoint Nytex, LLC. |
53
Changes
In Control
In connection with the WayPoint Transaction, WayPoint may
exercise a Control Warrant to purchase the amount of shares of
our Common Stock necessary for it to be the beneficial owner of
51% of the shares of Common Stock issued and outstanding at the
time of exercise. The Control Warrant is exercisable at an
exercise price of $0.01 per share, upon the earliest to occur of
(i) the occurrence of a default that remains uncured for
seventy-five days; provided, that payment to the holders of
Senior Series A Redeemable Preferred Stock of all amounts
owing to them as a result of a default shall be considered a
cure of a default; (ii) the date on which a change of
control occurs, if Acquisition Inc. is not able to redeem all of
the Senior Series A Redeemable Preferred Stock in
accordance with its terms; (iii) seventy-five days after
the date on which the third default has occurred within a
consecutive twelve-month period, and (iv) May 23,
2016, if Acquisition Inc. is not able to redeem all of the
Senior Series A Redeemable Preferred Stock in accordance
with its terms. The term default
includes 14 categories of events, which are listed in
Section 11.1 of the WayPoint Purchase Agreement and which
list includes, among other events, (i) the failure of
Acquisition Inc. to timely make a redemption payment to holders
of the Senior Series A Redeemable Preferred Stock,
(ii) the failure of Acquisition Inc. to timely make a
dividend payment to holders of the Senior Series A
Redeemable Preferred Stock, (iii) the failure of ours or
Acquisition Inc. to perform covenants in the WayPoint Purchase
Agreement, (iv) the failure of us to meet a fixed-charge
coverage ratio, leverage ratio or minimum EBITDA test in the
WayPoint Purchase Agreement; (v) we or any of its
subsidiaries becomes in default on other indebtedness,
individually or in the aggregate, in excess of $250,000;
(v) us, Acquisition Inc. or any of the Francis Group
entities becomes subject to bankruptcy or receivership
proceedings, (vi) a judgment or judgments is entered
against is entered against us, Acquisition Inc. or any of the
Francis Group entities in excess of $1,000,000, and such
judgment is not satisfied; (vii) we, Acquisition Inc. or
any of the Francis Group entities breaches a representation or
warranty in the WayPoint Purchase Agreement or the documents
related thereto; (ix) a Change of Control occurs; and
(x) certain liabilities in excess of $250,000 arise under
ERISA. change of control means
(i) a sale of shares of our stock, Acquisition Inc. or any
Francis Group entity, or a merger involving any of them, as a
result of which holders of the voting capital stock of the
applicable entity immediately prior to such transaction do not
hold at least 50% of the voting power of the applicable entity
or the resulting or surviving entity or the acquiring entity;
(ii) a disposition of all or substantially all of our
assets, Acquisition Inc. or any Francis Group entity;
(iii) a voluntary or involuntary liquidation, dissolution
or winding up by us, Acquisition Inc. or any Francis Group
entity; (iv) either Michael K. Galvis or Michael G. Francis
shall sell at least five percent (5%) of our equity held by him
immediately prior to such sale; (v) Michael K. Galvis
ceases to be our Chief Executive Officer and is not replaced by
a candidate suitable to WayPoint within 30 days or any such
replacement Chief Executive Officer ceases to be our Chief
Executive Officer and is not replaced by a candidate suitable to
WayPoint within 30 days; or (vi) Michael G. Francis
ceases to be the Chief Executive Officer of FDF and is not
replaced by a candidate suitable to WayPoint within 30 days
or any such replacement Chief Executive Officer ceases to be the
Chief Executive Officer of the FDF and is not replaced by a
candidate suitable to WayPoint within 30 days.
On April 13, 2011, we received a letter from PNC, as
lender, notifying us of the existence of certain events of
default under our Senior Facility. Similarly, on April 14,
2011 we received a similar notice of default from WayPoint,
stating we are in default of the WayPoint Purchase Agreement,
and, therefore, that WayPoint now has the right to exercise the
Control Warrant. If WayPoint exercises the Control Warrant, they
would own 51% of our outstanding Common Stock. We are currently
in negotiations with WayPoint to obtain a warning and modify the
WayPoint Purchase Agreement. However, there are no assurances
that we will be successful in our negotiations with WayPoint.
54
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Limitations
on Liability and Indemnification of Directors and
Officers
Section 102 of the Delaware General Corporation Law (the
DGCL) authorizes Delaware
corporations, like us, to limit or eliminate the personal
liability of directors to corporations and their stockholders
for monetary damages for breaches of directors fiduciary
duties. Our bylaws include a provision that eliminates the
personal liability of our directors and officers for losses
sustained by us, except to the extent such losses have resulted
from such directors or officers own willful
misconduct, willful neglect or negligence.
Section 145 of the DGCL provides that a corporation may
indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any
threatened, pending or completed action, suit or proceeding in
which such person is made a party or who is threatened to be
made a party by reason of such person being or having been a
director, officer, employee of or agent to the corporation. The
statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Our certificate of incorporation includes a provision that
requires us to indemnify each of our directors and officers to
the fullest extent allowed by the Delaware law. Our bylaws also
include a provision that requires us to indemnify each of our
directors and officers against all reasonable costs, expenses
and liabilities (including reasonable attorneys fees)
actually and necessarily incurred by such person in connection
with any claim, action, suit, proceeding, investigation or
inquiry by reason of such person being or having been our
director or officer, except in relation to matters as to which
such person is adjudged to be liable for willful misconduct,
willful neglect or negligence in the performance of such
persons duties.
In addition, we have entered into indemnification agreements
with each of our directors. The indemnification agreements
provide for indemnification of each director to the fullest
extent permitted by applicable law against all expenses,
judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred in connection with any claim,
action, suit, proceeding, investigation or inquiry, by reason of
such person being our director, including, without limitation,
all liability arising out of the negligence or active or passive
wrongdoing of such person. The only limitation under the
indemnification agreements is that we are not obligated to make
any payments to a director that are determined to not be
permitted by law.
We also carry directors and officers insurance
providing indemnification for our directors, officers and
certain employees for some liabilities. We believe that these
indemnification provisions and insurance are useful to attract
and retain qualified directors and executive officers.
Insofar as the foregoing provisions may permit indemnification
for liabilities arising under the Securities Act of 1933 for our
directors or officers or other persons who control us, we have
been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
The limitation of liability and indemnification provisions in
our certificate of incorporation and bylaws and the
indemnification agreements that we have entered into with our
directors may discourage stockholders from bringing a lawsuit
against our directors and officers for breach of their fiduciary
duty. These provisions may also have the effect of reducing the
likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. In addition, your
investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and
officers pursuant to the above indemnification provisions.
55
WHERE
YOU CAN FIND MORE INFORMATION
Our headquarters is located at 12222 Merit Drive,
Suite 1850, Dallas, Texas, 75251, and our telephone number
is
972-770-4700.
Our internet address is www.nytexenergyholdings.com.
General information about us, including our corporate governance
policies can be found on our website. On our website, we make
available, free of charge, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file or furnish
them to the Securities and Exchange Commission
(SEC). The public may read and copy any materials we
have filed with the SEC at the SECs Public Reference Room
at 100 F Street, NE, Room 1580, Washington, DC
20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet site that contains our reports,
proxy and information statements, and our other filings. The
address of that site is www.sec.gov.
56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
Financial Statements |
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
NYTEX Energy Holdings, Inc.
We have audited the accompanying consolidated balance sheets of NYTEX Energy Holdings, Inc. and
subsidiaries (the Company), as of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity (deficit), and cash flows for the years
then ended. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. 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
Companys 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 consolidated 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 consolidated financial statements referred to above present fairly, in all
material respects, the financial position of NYTEX Energy Holdings, Inc. and subsidiaries, as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue
as a going concern. As more fully described in Note 1, the Company is not in compliance with certain loan
covenants related to two debt agreements. These conditions raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets, or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ Whitley Penn LLP
Dallas, Texas
April 15, 2011
F-2
NYTEX ENERGY HOLDINGS, INC.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
209,498 |
|
|
$ |
18,136 |
|
Accounts receivable, net |
|
|
12,230,782 |
|
|
|
82,124 |
|
Inventories |
|
|
1,237,149 |
|
|
|
|
|
Prepaid expenses and other |
|
|
2,028,968 |
|
|
|
|
|
Deferred tax asset, net |
|
|
13,487 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
15,719,884 |
|
|
|
100,260 |
|
Property,
plant, and equipment, net |
|
|
45,156,873 |
|
|
|
1,075,468 |
|
Other assets: |
|
|
|
|
|
|
|
|
Deferred financing costs |
|
|
2,014,561 |
|
|
|
|
|
Intangible assets |
|
|
14,322,604 |
|
|
|
|
|
Goodwill |
|
|
4,558,394 |
|
|
|
|
|
Investments in unconsolidated subsidiaries |
|
|
|
|
|
|
1,479,159 |
|
Deposits and other |
|
|
169,752 |
|
|
|
68,640 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
81,942,068 |
|
|
$ |
2,723,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit) |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,907,001 |
|
|
$ |
511,624 |
|
Accrued expenses |
|
|
3,327,030 |
|
|
|
131,201 |
|
Revenues payable |
|
|
36,345 |
|
|
|
33,684 |
|
Wells in progress |
|
|
403,415 |
|
|
|
163,891 |
|
Deferred revenue |
|
|
46,665 |
|
|
|
46,665 |
|
Derivative liability-current portion |
|
|
32,554,826 |
|
|
|
|
|
Debt current portion |
|
|
22,516,398 |
|
|
|
1,148,363 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
66,791,680 |
|
|
|
2,035,428 |
|
Other liabilities: |
|
|
|
|
|
|
|
|
Debt |
|
|
1,127,980 |
|
|
|
9,807 |
|
Senior Series A redeemable preferred stock |
|
|
398,232 |
|
|
|
|
|
Derivative liabilities |
|
|
1,573,560 |
|
|
|
|
|
Asset retirement obligations |
|
|
50,078 |
|
|
|
40,883 |
|
Deferred tax liabilities |
|
|
14,215,838 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
84,157,368 |
|
|
|
2,086,118 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
Stockholders equity (deficit): |
|
|
|
|
|
|
|
|
Preferred
stock, Series A convertible, $0.001 par value; 10,000,000 shares
authorized; 5,580,000 and no shares issued and outstanding at
December 31, 2010 and 2009, respectively |
|
|
5,580 |
|
|
|
|
|
Preferred stock, Series B, $0.001 par value; 1 share authorized; 1 and no
shares issued and outstanding at December 31, 2010 and 2009,
respectively |
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 200,000,000 shares authorized; 26,219,665
and 19,129,123 shares issued and outstanding at December 31,
2010 and
2009, respectively |
|
|
26,219 |
|
|
|
19,129 |
|
Additional paid-in capital |
|
|
24,750,200 |
|
|
|
7,911,434 |
|
Accumulated deficit |
|
|
(26,997,299 |
) |
|
|
(7,293,154 |
) |
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(2,215,300 |
) |
|
|
637,409 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
81,942,068 |
|
|
$ |
2,723,527 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-3
NYTEX ENERGY HOLDINGS, INC.
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
Oilfield services |
|
$ |
6,031,455 |
|
|
$ |
|
|
Drilling fluids |
|
|
1,059,008 |
|
|
|
|
|
Oil and gas |
|
|
204,906 |
|
|
|
206,026 |
|
Other |
|
|
576,981 |
|
|
|
361,533 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
7,872,350 |
|
|
|
567,559 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Cost of goods sold drilling fluids |
|
|
437,230 |
|
|
|
|
|
Oil & gas lease operating expenses |
|
|
143,361 |
|
|
|
331,893 |
|
Depreciation, depletion, and amortization |
|
|
772,826 |
|
|
|
83,457 |
|
Selling, general, and administrative expenses |
|
|
10,919,713 |
|
|
|
2,294,597 |
|
Impairment of long-lived assets |
|
|
|
|
|
|
147,474 |
|
Gain on sale of assets, net |
|
|
(466,902 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
11,806,228 |
|
|
|
2,857,421 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(3,933,878 |
) |
|
|
(2,289,862 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
1,230 |
|
|
|
686 |
|
Interest expense |
|
|
(832,164 |
) |
|
|
(170,486 |
) |
Change in fair value of derivative liabilities |
|
|
(13,301,755 |
) |
|
|
|
|
Accretion of preferred stock liability |
|
|
(398,232 |
) |
|
|
|
|
Equity in loss of unconsolidated subsidiaries |
|
|
(317,158 |
) |
|
|
(897,834 |
) |
Loss on sale of unconsolidated subsidiary |
|
|
(870,750 |
) |
|
|
|
|
Other |
|
|
5,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(15,713,688 |
) |
|
|
(1,067,634 |
) |
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(19,647,566 |
) |
|
|
(3,357,496 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit (provision) |
|
|
(3,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(19,650,865 |
) |
|
|
(3,357,496 |
) |
Preferred
stock dividends |
|
|
(53,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to common stockholders |
|
$ |
(19,704,145 |
) |
|
$ |
(3,357,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted |
|
$ |
(0.98 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted |
|
|
20,149,999 |
|
|
|
18,688,976 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-4
NYTEX ENERGY HOLDINGS, INC.
Consolidated
Statement of Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amounts |
|
|
Shares |
|
|
Amounts |
|
|
Shares |
|
|
Amounts |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
Balance at December 31, 2008 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
18,068,372 |
|
|
$ |
18,068 |
|
|
$ |
5,734,956 |
|
|
$ |
(3,935,658 |
) |
|
$ |
1,817,366 |
|
Issuance of common stock and
warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,060,751 |
|
|
|
1,061 |
|
|
|
2,105,941 |
|
|
|
|
|
|
|
2,107,002 |
|
Shares to be issued at maturity
of loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,537 |
|
|
|
|
|
|
|
70,537 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,357,496 |
) |
|
|
(3,357,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,129,123 |
|
|
|
19,129 |
|
|
|
7,911,434 |
|
|
|
(7,293,154 |
) |
|
|
637,409 |
|
Issuance of common stock and
warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,200 |
|
|
|
91 |
|
|
|
181,009 |
|
|
|
|
|
|
|
181,100 |
|
Shares issued for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
871,337 |
|
|
|
871 |
|
|
|
1,014,654 |
|
|
|
|
|
|
|
1,015,525 |
|
Shares and warrants issued with
12% convertible debenture |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
45 |
|
|
|
207,661 |
|
|
|
|
|
|
|
207,706 |
|
Shares issued in connection with
acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,023,630 |
|
|
|
6,024 |
|
|
|
11,197,928 |
|
|
|
|
|
|
|
11,203,952 |
|
Shares issued at maturity of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,375 |
|
|
|
59 |
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
Warrants issued to private
placement agent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
778,769 |
|
|
|
|
|
|
|
778,769 |
|
Warrants issued for short-term
loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,934 |
|
|
|
|
|
|
|
8,934 |
|
Issuance of Series A Convertible
Preferred Stock |
|
|
5,580,000 |
|
|
|
5,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,449,869 |
|
|
|
|
|
|
|
3,455,449 |
|
Issuance of Series B preferred
stock in connection with
acquistion |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Dividends on Series A
convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,280 |
) |
|
|
(53,280 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,650,865 |
) |
|
|
(19,650,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
5,580,000 |
|
|
$ |
5,580 |
|
|
|
1 |
|
|
$ |
|
|
|
|
26,219,665 |
|
|
$ |
26,219 |
|
|
$ |
24,750,200 |
|
|
$ |
(26,997,299 |
) |
|
$ |
(2,215,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-5
NYTEX ENERGY HOLDINGS, INC.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(19,650,865 |
) |
|
$ |
(3,357,496 |
) |
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization |
|
|
772,826 |
|
|
|
83,457 |
|
Equity in loss of unconsolidated subsidiaries |
|
|
317,158 |
|
|
|
897,834 |
|
Impairment of long-lived assets |
|
|
|
|
|
|
147,474 |
|
Bed debt expense |
|
|
21,272 |
|
|
|
|
|
Share-based compensation |
|
|
1,015,525 |
|
|
|
|
|
Deferred
income taxes |
|
|
(10,311 |
) |
|
|
|
|
Accretion of discount on asset retirement obligations |
|
|
4,080 |
|
|
|
27,652 |
|
Amortization of debt discount |
|
|
134,073 |
|
|
|
|
|
Amortization of deferred financing fees |
|
|
35,766 |
|
|
|
58,781 |
|
Accretion of Senior Series A redeemable preferred stock liability |
|
|
398,232 |
|
|
|
|
|
Change in fair value of derivative liabilities |
|
|
13,301,755 |
|
|
|
|
|
(Gain)/loss on disposal, net |
|
|
403,848 |
|
|
|
|
|
Change in working capital: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,111,958 |
|
|
|
(47,629 |
) |
Inventories |
|
|
103,050 |
|
|
|
|
|
Prepaid expenses and other |
|
|
10,305 |
|
|
|
(52,529 |
) |
Accounts payable and accrued expenses |
|
|
827,136 |
|
|
|
523,380 |
|
Other liabilities |
|
|
150,037 |
|
|
|
(377,013 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,054,155 |
) |
|
|
(2,096,089 |
) |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(40,802,873 |
) |
|
|
|
|
Investments in oil and gas properties |
|
|
(28,161 |
) |
|
|
(855,168 |
) |
Investments in unconsolidated subsidiaries |
|
|
(108,750 |
) |
|
|
(283,796 |
) |
Additions to property, plant, and equipment |
|
|
(1,886,205 |
) |
|
|
(17,067 |
) |
Proceeds from divestitures |
|
|
1,259,408 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(41,566,581 |
) |
|
|
(1,156,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock and warrants |
|
|
181,100 |
|
|
|
2,107,002 |
|
Proceeds from the issuance of Series A convertible preferred stock |
|
|
5,029,011 |
|
|
|
|
|
Proceeds from the issuance of 12% convertible debentures |
|
|
2,150,000 |
|
|
|
|
|
Proceeds from the issuance of derivative liability |
|
|
19,253,071 |
|
|
|
|
|
Borrowings under notes payable |
|
|
27,684,343 |
|
|
|
963,450 |
|
Payments on notes payable |
|
|
(10,213,869 |
) |
|
|
(100,280 |
) |
Issuance costs |
|
|
(1,271,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
42,812,098 |
|
|
|
2,970,172 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
191,362 |
|
|
|
(281,948 |
) |
Cash and cash equivalents at beginning of year |
|
|
18,136 |
|
|
|
300,084 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
209,498 |
|
|
$ |
18,136 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-6
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 1. NATURE OF BUSINESS
NYTEX Energy Holdings, Inc. (NYTEX Energy) is an energy holding company with operations
centralized in two wholly-owned subsidiaries, NYTEX Petroleum, Inc. (NYTEX Petroleum), an
exploration and production company concentrating on the acquisition and development of crude oil
and natural gas reserves, and Francis Drilling Fluids, Ltd., (Francis Drilling Fluids, or FDF),
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 September 8, 2010, we completed the disposition of our noncontrolling
interest in Supreme Vacuum Services, Inc., an oilfield fluid service company specializing in
drilling and production fluids transportation, sales, and storage. On November 23, 2010, through
our newly-formed and wholly-owned subsidiary, NYTEX FDF Acquisition, Inc. (Acquisition Inc.), we
acquired 100% of the membership interests of Francis Oaks, LLC (Oaks) and its wholly-owned
operating subsidiary, FDF (together with Oaks, the Francis Group). The Francis Group has no
other assets or operations other than FDF (See Note 6).NYTEX Energy and subsidiaries are
collectively referred to herein as the Company, we, us, and our.
NYTEX Energy, formerly known as Clear Sight Holdings, Inc. (Clear Sight), is a Delaware
corporation originally incorporated on January 19, 1988 as Kismet, Inc. (Kismet); Kismet was
renamed Clear Sight on October 16, 2006. NYTEX Energy conducted no operations until October 31,
2008, at which time its newly-formed and wholly-owned subsidiary, NYTEX Petroleum, a Delaware
corporation, acquired the business and operations of NYTEX Petroleum, LLC (NYTEX Petroleum LLC),
a Texas limited liability company. In the exchange, all of the NYTEX Petroleum LLC members
transferred their membership units of NYTEX Petroleum LLC to NYTEX Petroleum in exchange for common
stock shares of NYTEX Energy (parent company of NYTEX Petroleum). For accounting purposes this
combination was treated as a reverse acquisition, with NYTEX Petroleum LLC treated as the
acquiring company. After the exchange, the former NYTEX Petroleum LLC members owned 25,979,207
shares and two executives owned 4,053,700 shares (collectively 93%) of the outstanding common stock
of NYTEX Energy. The remaining 2,254,087 shares (7%) were owned by the pre-stock exchange NYTEX
Energy shareholders and are reflected as an exchange of common stock shares.
NYTEX Petroleum LLC, originally formed on March 21, 2006, focused on fee-based administration
and management services related to oil and gas properties, while also engaging in the acquisition,
promotion of and participation in the drilling of crude oil and natural gas wells. NYTEX Petroleum
will continue its fee-based energy services for existing and future energy funds, with the planned
growth focusing primarily on exploration and production.
As
more fully described in Note 6, through our wholly-owned subsidiary Supreme Oilfield
Services, Inc. (Supreme Oilfield), a holding company for our investment in Supreme Vacuum
Services, Inc. (Supreme Vacuum), we disposed of our noncontrolling interest in Supreme Vacuum on
September 8, 2010.
NYTEX Energy and its wholly owned subsidiaries are headquartered in Dallas, Texas.
Liquidity and Events of Default
Our loan agreements
generally stipulate that we comply with certain reporting and financial covenants. These covenants include among other things, providing
the lender, within set time periods, with financial information, notifying the lender of any change in management, limitations on the
amount of capital expenditures, and maintaining certain financial ratios. As a result of the challenges incurred in integrating the
FDF operations and due to higher than anticipated capital expenditures at FDF, we were unable to meet several reporting and financial
covenants under our senior revolving credit and term loan facility (Senior Facility) with PNC Bank measured as of November 30, 2010
and February 28, 2011. Failure to meet the loan covenants under the loan agreement constitutes a default and on April 13, 2011, PNC
Bank, as lender, provided us with a formal written notice of default. PNC Bank did not commence the exercise of any of their respective
other rights and remedies, but expressly reserved all such rights. At December 31, 2010, the outstanding principal balance of the amounts
owed under the Senior Facility was $17,752,723, and is, because of this default, reported within current liabilities on the consolidated
balance sheet. We are currently in negotiations with the lender to remedy the defaults which include managements plans to enhance our
current liquidity through delaying or stopping capital expenditures through the first half of 2011 and improvements to the results of
operations. However, there are no assurances that we will be successful in our negotiations with PNC Bank.
In addition,
due to cross-default provisions and other covenant requirements, we are also in default under the WayPoint Purchase Agreement.
On April 14, 2011, WayPoint provided us with a formal written notice
of default under the WayPoint Purchase Agreement.
The amount
reported on our consolidated balance sheet as of December 31, 2010 related to the WayPoint Purchase Agreement includes a derivative
liability totaling $32,554,826, which is reported within current liabilities on our consolidated balance sheet. As a result, WayPoint
may seek certain remedies afforded to them under the WayPoint
Purchase Agreement including (i) declare the entire unpaid principal
amount of the Senior Series A Redeemable Preferred Stock due and
payable, (ii) exercise their Control Warrant, or (iii)
exercise their put right. We are currently in negotiations with WayPoint to remedy the events of noncompliance and modify the loan
agreement. However, there are no assurances that we will be
successful in our negotiations with WayPoint.
To the extent we are not successful in our negotiations with WayPoint and should WayPoint
declare the entire unpaid principal amount of the Senior Series A Preferred Stock due and
payable, we would accelerate the accretion of the Senior Series A Preferred Stock to its face amount of $20,750,000
in the period such declaration occurred.
We cannot be
certain that our existing sources of cash will be adequate to meet our liquidity requirements including cash requirements that may be
due under either the Senior Facility or the WayPoint Purchase Agreement. However, management has implemented plans to improve liquidity
through slowing or stopping certain planned capital expenditures, through the sale of selected assets deemed unnecessary to our business,
and improvements to results from operations. There can be no assurance that we will be successful with our plans or that our results of
operations will materially improve in either the short-term or long-term and accordingly, we may be unable to meet our obligations as they
become due.
A fundamental
principle of the preparation of financial statements in accordance with generally accepted accounting principles is the assumption that an
entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and
settlement of liabilities occurring in the ordinary course of business.
This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent.
In accordance with this requirement, our policy is to prepare our consolidated financial statements on a going concern basis unless
we intend to liquidate or have no other alternative but to liquidate. Our consolidated financial statements have been prepared on
a going concern basis and do not reflect any adjustments that might specifically result from the outcome of this uncertainty.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States. The consolidated financial statements include
the accounts of NYTEX Energy and entities in which it holds a controlling interest. All
intercompany transactions have been eliminated.
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. Certain
prior-period amounts have been reclassified to conform to the
current-year presentation.
All references to the Companys 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.
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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. On an ongoing basis, we review these estimates
based on information that is currently available. Changes in facts and circumstances may cause us
to revise our estimates. The most significant estimates relate to revenue recognition,
depreciation, depletion and amortization, the assessment of
F-7
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
impairment of long-lived assets and oil and gas properties, income taxes, and fair value.
Actual results could differ from estimates under different assumptions and conditions, and such
results may affect operations, financial position, or cash flows.
Cash and Cash Equivalents
We consider all demand deposits, money market accounts, and highly liquid investments with
original maturities of three months or less to be cash equivalents. The carrying amount of cash
and cash equivalents reported on the consolidated balance sheet approximates fair value.We maintain
funds in bank accounts which, from time to time, exceed federally insured limits.
Accounts Receivable
We provide credit in the normal course of business to our customers and perform ongoing credit
evaluations of those customers. We maintain an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends, and other information. A
portion of our receivables are from the operators of producing wells in which we maintain ownership
interests. These operators market our share of crude oil and natural gas production. The ability
to collect is dependent upon the general economic conditions of the purchasers/participants and the
oil and gas industry. At December 31, 2010, accounts receivable are shown net of allowance for
doubtful accounts of $21,272. We did not have an allowance for doubtful accounts as of December
31, 2009.
Inventory
Inventory consists of dry materials used in mixing oilfield drilling fluids and liquid
drilling fluids mixed and ready for delivery to the drilling rig location. The dry materials are
carried at the lower of cost or market, principally on the first-in, first-out basis. The liquid
drilling materials are valued at standard cost which approximates actual cost on a first-in,
first-out basis,not to exceed market value. Inventories amounted to $1,237,149 at December 31,
2010 and are attributable to our FDF business. We did not have any inventory at December 31,
2009.
Property, plant, and equipment
Property, plant, and equipment are recorded at cost less accumulated depreciation, depletion,
and amortization (DD&A). Costs of improvements that appreciably improve the efficiency or
productive capacity of existing properties or extend their lives are capitalized. Maintenance and
repairs are expensed as incurred. Upon retirement or sale, the cost of properties and equipment,
net of the related accumulated DD&A, is removed and, if appropriate, gain or loss is recognized in
the respective periods consolidated statement of operations.
For our oil and gas properties, we follow the successful efforts method of accounting for oil
and gas exploration and development costs. Under this method of accounting, all property
acquisition costs and costs of exploratory wells are capitalized when incurred, pending
determination of whether additional proved reserves are found. If an exploratory well does not
find additional reserves, the costs of drilling the well are charged to expense. The costs of
development wells, whether productive or nonproductive, are
capitalized. Geological and geophysical
costs on exploratory prospects and the costs of carrying and retaining unproved properties are
expensed as incurred.
Long-lived Assets
Long-lived assets are reviewed whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets held and used is
generally measured by a comparison of the carrying amount of an asset to undiscounted future net
cash flows expected to be generated by the asset. If it is determined that the carrying amount may
not be recoverable, an impairment loss is recognized for the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Fair value is the estimated value at which the
asset could be bought or sold in a transaction between willing parties. We consider projected
future undiscounted cash flows, trends, strategic decisions regarding future development plans, and
other factors in our assessment of whether impairment conditions exist. While we believe our
estimates of future cash flows are reasonable, different assumptions
regarding factors such as the
price of oil and gas, production volumes and costs,drilling activity, and economic conditions could
significantly affect these estimates.
We evaluate impairment of our oil and gas properties on a property-by-property basis and
estimate the fair value based on discounted cash flows expected to be generated from the production
of proved reserves. At December 31, 2009, the analysis indicated that certain proved properties
were impaired, in that their carrying value was greater than fair value. As a result, for the year
ended December 31, 2009, the Company reduced its proved properties value by $147,474 by recording a
non-cash impairment charge in operating expenses. We did not have any impairment charges for the
year ended December 31, 2010.
F-8
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
Wells in Progress
We record a liability for funds held on behalf of outside investors in oil and gas exploration
projects, which are to be paid to the project operator as capital expenditures are billed. The
liability is reduced as we make payments on behalf of those outside investors to the operator of
the project.
Goodwill and Acquired Intangible Assets
We record the difference between the purchase price and the fair value of the net assets
acquired in a business combination as goodwill. Goodwill is not amortized; rather, it is measured
for impairment annually, or more frequently if conditions indicate an earlier review is necessary.
If the estimated fair value of goodwill is less than the carrying
value, goodwill is impaired and
written down to its estimated fair value.
Acquired intangibles are recorded at fair value as of the date acquired and consist of
noncompete agreements, customer relationships, and the FDF trade name. We amortize acquired
intangibles with finite lives on a straight-line basis over estimated useful lives of 5 to 20
years, and we include the amortization in DD&A. We evaluate the recoverability of intangible
assets annually or whenever events or changes in circumstances indicate that an intangible assets
carrying value may not be recoverable.
Asset Retirement Obligations
We recognize liabilities for retirement obligations associated with tangible long-lived
assets, such as producing well sites when there is a legal obligation associated with the
retirement of such assets and the amount can be reasonably estimated. The initial measurement of an
asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset
retirement cost recorded as an increase to the associated property and equipment on the
consolidated balance sheet. If the fair value of a recorded asset retirement obligation changes, a
revision is recorded to both the asset retirement obligation and the asset retirement cost. The
asset retirement cost is depreciated using a systematic and rational method similar to that used
for the associated property and equipment.
Fair Value Measurements
Certain of our assets and liabilities are measured at fair value at each reporting date. Fair
value represents the price that would be received to sell the asset or paid to transfer the
liability in an orderly transaction between market participants. This price is commonly referred
to as the exit price.
Fair value measurements are classified according to a hierarchy that prioritizes the inputs
underlying the valuation techniques. This hierarchy consists of three broad levels. Level 1 inputs
on the hierarchy consist of unadjusted quoted prices in active markets for identical assets and
liabilities and have the highest priority. Level 2 measurements are based on inputs other than
quoted prices that are generally observable for the asset or liability. Common examples of Level
2 inputs include quoted prices for similar assets and liabilities in active markets or quoted
prices for identical assets and liabilities in markets not considered to be active. Level 3
measurements have the lowest priority and are based upon inputs that are not observable from
objective sources. The most common Level 3 fair value measurement is an internally developed cash
flow model. We use appropriate valuation techniques based on the available inputs to measure the
fair values of our assets and liabilities. When available, we measure the fair value using Level 1
inputs because they generally provide the most reliable evidence of fair value.
The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable,
and accrued expenses reported on the accompanying consolidated balance sheets approximates fair
value due to their short-term nature. 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 December 31, 2010 and 2009, we estimate the fair
value of our debt to be $23,729,511 and $1,158,170, respectively. We estimate the fair value of
our Senior Series A Redeemable Preferred Stock to be $20,750,000 as of December 31, 2010.
Non-financial assets and liabilities initially measured at fair value include certain assets
and liabilities acquired in a business combination, intangible assets and goodwill, and asset
retirement obligations.
See Note 14 for fair value measurements included in our accompanying consolidated balance
sheets.
F-9
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
Revenue Recognition
Revenues from the sale of drilling fluid products and oilfield services are recorded at the
time products are sold or services are provided to third parties at a fixed or determinable price,
delivery or performance has occurred, title has transferred and collectability of the revenue is
probable. We recognize revenues for promoting certain oil and gas exploration projects and
administering the ownership interests of investors in those projects. Administration fees are
deferred on the balance sheet as the project is undertaken. As administration services are
performed, deferred administration fees are recognized as revenue when each discrete phase of a
project is completed and the services have been completed.
Revenues from the sales of natural gas and crude oil are recorded when product delivery occurs
and title and risk of loss pass to the customer, the price is fixed or determinable, and collection
is reasonably assured.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses are summarized below for the years ended
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Salary, wages, and benefits |
|
$ |
4,051,119 |
|
|
$ |
1,114,674 |
|
Legal, accounting, and professional fees |
|
|
1,945,787 |
|
|
|
659,356 |
|
Acquisition
- related expenses |
|
|
1,247,997 |
|
|
|
|
|
Contract labor |
|
|
254,917 |
|
|
|
72,490 |
|
Rent and operating lease expenses |
|
|
253,957 |
|
|
|
60,113 |
|
Insurance |
|
|
326,461 |
|
|
|
28,274 |
|
Fuel |
|
|
806,752 |
|
|
|
|
|
Other |
|
|
2,032,723 |
|
|
|
359,690 |
|
|
|
|
|
|
|
|
|
|
$ |
10,919,713 |
|
|
$ |
2,294,597 |
|
|
|
|
|
|
|
|
Share Based Compensation
We grant share-based awards to acquire goods and/or services, to members of our Board of
Directors, and to selected employees. All such awards are measured at fair value on the date of
grant and are recognized as a component of selling, general, and administrative expenses in the
accompanying consolidated statements of operations over the applicable requisite service periods.
Income Taxes
We are subject to current income taxes assessed by the federal and various state jurisdictions
in the United States. In addition, we account for deferred income taxes related to these
jurisdictions using the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets are also recognized for the future tax benefits attributable to the expected
utilization of existing tax net operating loss carryforwards and other types of carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences and carryforwards are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment date.
We recognize the financial statement effects of tax positions when it is more likely than not,
based on the technical merits, that the position will be sustained upon examination by a taxing
authority. Recognized tax positions are initially and subsequently measured as the largest amount of
tax benefit that is more likely than not of being realized upon ultimate settlement with a taxing
authority. We have not taken a tax position that, if challenged, would have a material effect on
the consolidated financial statements or the effective tax rate for the years ended December 31,
2010 and 2009. There were no interest and penalties related to
unrecognized tax positions for the years ended December 31, 2010 and
2009. The tax years subject to examination by tax jurisdictions in the
United States are 2007 to 2010.
Net Loss Per Common Share
Basic loss per share amounts have been computed based on the average number of shares of
common stock outstanding for the period. Diluted loss per share is calculated using the treasury
stock method to reflect the potential dilution that could occur if dilutive share-based instruments
were exercised.
On November 1, 2010, we effected a one-for-two reverse stock split to common shareholders. All
share and per share information referenced and presented within this filing has been retroactively
adjusted to reflect the reverse stock split.
F-10
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
Recently Issued Accounting Standards
In December 2010, the FASB issued guidance to improve disclosures of supplementary pro forma
information for business combinations. The guidance specifies that if an entity presents
comparative financial statements, the entity should disclose revenue and earnings of the combined
entity as though the business combination(s) that occurred during the current year had occurred as
of the beginning of the comparable prior annual reporting period only. This guidance also expands
the supplemental pro forma disclosures required to include a description of the nature and amount
of material nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. The guidance is effective prospectively
for business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2010. In the event that we acquire
companies significant to our operations in the future, we expect that the adoption of the guidance
will have an impact on the disclosures within our consolidated financial statements.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 2010 and 2009 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Trade receivables |
|
$ |
11,833,532 |
|
|
$ |
4,342 |
|
Other |
|
|
418,522 |
|
|
|
77,782 |
|
|
|
|
|
|
|
|
Total accounts receivable |
|
|
12,252,054 |
|
|
|
82,124 |
|
Allowance for doubtful accounts |
|
|
(21,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
12,230,782 |
|
|
$ |
82,124 |
|
|
|
|
|
|
|
|
NOTE 4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 2010 and 2009 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
2,180,000 |
|
|
$ |
|
|
Plant, machinery & equipment |
|
|
36,587,798 |
|
|
|
50,055 |
|
Construction in progress |
|
|
5,165,424 |
|
|
|
|
|
Oil and gas properties |
|
|
1,951,312 |
|
|
|
1,133,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant, & equipment |
|
|
45,884,534 |
|
|
|
1,183,425 |
|
Accumulated DD&A |
|
|
(727,661 |
) |
|
|
(107,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, & equipment, net |
|
$ |
45,156,873 |
|
|
$ |
1,075,468 |
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization related to our property, plant, and equipment was
$648,430 and $77,011 for the years ended December 31, 2010 and 2009, respectively.
F-11
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 5. BUSINESS COMBINATIONS
Francis Drilling Fluids
On November 23, 2010, we acquired 100% of the Francis Group, including its wholly-owned
operating subsidiary, FDF (herein, referred to as FDF). Total consideration transferred was
$51,833,686 and consisted of cash of $41,299,891, 5,407,339 shares of NYTEX Energy common stock at
an estimated fair value of $1.86 per share, or $10,057,651, and a non-interest bearing promissory
note payable to the seller in the principal amount of $750,000 with a
fair value of $476,144. The
sources of the $41,299,891 cash portion of the total consideration consisted of the following:
|
|
|
|
|
Proceeds
from the issuance of Series A Convertible Preferred Stock of NYTEX Energy(1) |
|
$ |
2,887,597 |
|
Proceeds from the issuance of Series B Preferred Stock of NYTEX Energy |
|
|
1 |
|
Proceeds
from the issuance of Senior Series A Redeemable Preferred Stock of Acquisition Inc.(2) |
|
|
19,253,071 |
|
Proceeds
from long-term debt(3) |
|
|
19,159,222 |
|
|
|
|
|
|
|
|
|
|
Total cash consideration |
|
$ |
41,299,891 |
|
|
|
|
|
|
|
|
(1) |
|
Represents a portion of the proceeds, net of offering costs and
fair value of the embedded warrant, from the private placement of our Series A
Convertible Preferred Stock concluded in January 2011 for gross proceeds of
$6,000,000. See Note 13. |
|
(2) |
|
Along with Acquisition Inc., we entered into a Preferred Stock
and Warrant Purchase Agreement with a third party (WayPoint), whereby, in exchange for
$20,000,001 (net of offering costs), we issued to them 20,750 shares of
Acquisition Inc. 14% Senior Series A Redeemable Preferred Stock, one share of
Series B Preferred Stock of NYTEX Energy, a warrant
(Purchaser Warrant) to purchase up to 35% of
the then outstanding shares of our common stock, and a warrant
(Control Warrant) to
purchase additional shares of our outstanding common stock such that
when combined with the Purchaser Warrant, provides WayPoint with an
aggregate 51% of the total outstanding common stock. Further, such warrant
becomes exercisable only if certain conditions of default are met as
set forth in
the Preferred Stock and Warrant Purchase Agreement. See Note 9. |
|
(3) |
|
Acquisition Inc. and FDF, as co-borrowers, entered into a
revolving credit and term loan facility with a third-party lender providing
for loans up to $24,000,000. |
FDF is 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. Headquartered in Crowley, Louisiana, FDF
operates out of 21 locations in
five U.S. states. Our acquisition of FDF makes us a more diversified energy company by providing a
broader range of products and services to the oil & gas
industry. FDF contributed revenues totaling
$7,090,463 and earnings before income taxes of $119,339 to our consolidated statement of operations
for the period from November 23, 2010 through December 31, 2010.
The following unaudited pro forma summary presents consolidated information as if the business
combination had occurred on January 1, 2010 for the year ended December 31, 2010 and on January 1,
2009 for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Pro Forma for the Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Revenue |
|
$ |
75,853,294 |
|
|
$ |
53,451,289 |
|
Net loss |
|
$ |
(7,608,055 |
) |
|
$ |
(10,723,311 |
) |
Net loss per share, basic and diluted |
|
$ |
(0.31 |
) |
|
$ |
(0.47 |
) |
The unaudited pro forma consolidated results were prepared using the acquisition method of
accounting and are based on the historical financial information of NYTEX Energy and FDF,
reflecting both in 2010 and 2009 NYTEX Energy and FDF results of operations for a 12 month period.
The historical financial information has been adjusted to give effect to the pro forma events that
are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to
have a continuing impact on the combined results. The unaudited pro forma consolidated results are
not necessarily indicative of what our consolidated results of operations actually would have been
had we completed the acquisition on January 1, 2010 and on January 1, 2009. In addition, the
unaudited pro forma consolidated results do not purport to project the future results of operations
of the combined company nor do they reflect the expected realization of any cost savings associated
with the acquisition. The unaudited pro forma consolidated results reflect primarily the following
pro forma pre-tax adjustments:
|
|
|
Additional depreciation and amortization expense of approximately $8,325,000 and
$8,241,000 for the years ended December 31, 2010 and 2009, respectively; |
F-12
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
|
|
|
Additional interest expense of approximately $3,046,000 and $3,243,000 for the years
ended December 31, 2010 and 2009, respectively, related to the incremental debt we
incurred to finance the acquisition; |
|
|
|
|
Accretion expense of approximately $3,773,000 for each of the years ended December
31, 2010 and 2009, related to the $20,750,000 face amount of
Acquisition Inc. redeemable preferred
stock over the term of the instrument of approximately 5.5 years; and |
|
|
|
|
Elimination of approximately $4,839,000 and $4,972,000 of lease expenses incurred
for the years ended December 31, 2010 and 2009, respectively, related to operating
leases that were terminated and paid-in-full at acquisition. |
The transaction has been accounted for using the acquisition method of accounting which
requires, among other things, that assets acquired and liabilities assumed be recognized at their
fair values as of the acquisition date. While most assets and liabilities were measured at fair
value, a single estimate of fair value results from a complex series of judgments about future
events and uncertainties and relies heavily on estimates and assumptions. Our judgments used to
determine the estimated fair value assigned to each class of assets acquired and liabilities
assumed, as well as asset lives, can materially impact our results of operations.
During
the year ended December 31, 2010, we incurred $1,199,262 in acquisition expenses related
to acquiring FDF. The following table summarizes the amounts of identified assets acquired and
liabilities assumed at the acquisition date.
|
|
|
|
|
Estimated fair value of assets aquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
497,018 |
|
Accounts receivable |
|
|
13,281,888 |
|
Inventory |
|
|
1,340,199 |
|
Prepaid expenses and other |
|
|
2,273,834 |
|
Property and equipment |
|
|
38,692,890 |
|
Construction in Progress |
|
|
3,308,270 |
|
Identifiable intangible assets |
|
|
14,447,000 |
|
Other assets acquired |
|
|
112,868 |
|
Accounts payable |
|
|
(7,065,761 |
) |
Accrued expenses |
|
|
(2,912,987 |
) |
Francis Group debt assumed |
|
|
(2,240,949 |
) |
Deferred tax liability |
|
|
(14,458,978 |
) |
|
|
|
|
Subtotal of estimated fair value of net assets acquired |
|
$ |
47,275,292 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
4,558,394 |
|
|
|
|
|
In determining fair value, we obtained appraisals and utilized assumptions including estimated
cash flows, discount rates, and capitalization rates. As of the acquisition date, the fair value
of accounts receivable approximated book value acquired. The gross contractual amount receivable
was $13,281,888, all of which is expected to be collected.
The goodwill is attributable to the intangible assets that do not qualify for separate
recognition including the FDF trade name, customer relationships, and the noncompete agreements
entered into by FDFs management; the value of the going-concern element of FDFs existing
businesses (the higher rate of return on the assembled collection of net assets versus if we had
acquired all of the net assets separately); and, the significant synergies expected to arise after
our acquisition of FDF. The goodwill is not expected to be deductible for tax purposes and was
assigned to our oilfield services segment.
We are in the process of finalizing our acquisition allocations, which are subject to change
until our information is finalized, no later than twelve months from the acquisition date.
Panhandle Field Producing Property
In August 2009, we acquired a 75% working interest in the Panhandle Field Producing Property
for consideration consisting of $700,000 cash, which was financed by a part of the $950,000
borrowed under six-month bridge loans (see Note 11). The Panhandle Field Producing Property assets
encompass producing oil and gas leaseholds consisting of 18 wells on 320 acres in the Texas
panhandle. Effective with the acquisition, we became the operator of record in actively managing
the production and project development plans.
F-13
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
Under the acquisition method of accounting, the total purchase price was allocated to the net
tangible and intangible assets acquired and liabilities assumed, based on various estimates of
their respective fair values. The allocation of the purchase price was determined utilizing
recognized valuation techniques and was based upon estimates and assumptions that are subject to
change within the purchase price allocation period. The following table summarizes the amounts of
identified assets acquired and liabilities assumed at the acquisition date.
|
|
|
|
|
Lease and well equipment |
|
$ |
41,000 |
|
Proved properties |
|
|
672,231 |
|
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
713,231 |
|
Asset retirement obligation |
|
|
(13,231 |
) |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
700,000 |
|
|
|
|
|
The following unaudited pro forma summary presents consolidated information as if the business
combination had occurred on January 1, 2009 for the year ended December 31, 2009:
|
|
|
|
|
|
|
Pro Forma |
|
|
|
for the |
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2009 |
|
Revenue |
|
$ |
678,047 |
|
Net loss |
|
$ |
(3,336,731 |
) |
Net loss per share, basic and diluted |
|
$ |
(0.18 |
) |
The above unaudited pro forma financial information includes adjustments for depreciation and
depletion, along with interest expense related to the Bridge Loans. In managements opinion, the
unaudited pro forma combined results of operations are not necessarily indicative of the actual
results that would have occurred had the acquisition been consummated at the beginning of 2009 nor
are they indicative of future operations of the combined companies.
From January through May 26, 2010, we disposed of a total 45.33% share of our working interest
in the Panhandle Field Producing Property for $859,408 in cash and a $62,388 reduction in principal
of a bridge loan. We recognized a gain on disposal totaling $578,872.
In December 2010, we re-acquired all but a 2.0% share of the 45.33% share sold earlier in the
year for total consideration transferred of approximately $1,451,858. The total consideration
transferred consisted of approximately $26,063 cash, 616,291 shares of NYTEX Energy common stock at
an estimated fair value of $1.86 per share, or approximately
$1,146,301, 9% demand notes totaling approximately $237,458, and interests in existing NYTEX Petroleum properties with an
estimated fair value of $42,036. At December 31, 2010, we had an aggregate 73% ownership interest
in the Panhandle Field Producing Property.
Under the acquisition method of accounting, the total purchase price was allocated to the net
tangible and intangible assets acquired and liabilities assumed, based on various estimates of
their respective fair values. The allocation of the purchase price was determined utilizing
recognized valuation techniques and was based upon estimates and assumptions that are subject to
change within the purchase price allocation period. The purchase price allocation for the
Panhandle Field Producing Property acquisition is as follows:
|
|
|
|
|
Lease and well equipment |
|
$ |
93,536 |
|
Proved properties |
|
|
1,389,040 |
|
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
1,482,576 |
|
Asset retirement obligation |
|
|
(30,718 |
) |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
1,451,858 |
|
|
|
|
|
F-14
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
The following unaudited pro forma summary presents consolidated information as if the business
combination had occurred on January 1, 2010 for the year ended December 31, 2010:
|
|
|
|
|
|
|
Pro Forma |
|
|
|
for the |
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
Revenue |
|
$ |
8,014,070 |
|
Net loss |
|
$ |
(20,150,727 |
) |
Net loss per share, basic and diluted |
|
$ |
(0.97 |
) |
NOTE 6. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
Waterworks
As of December 31, 2010, we have a 14.31% ownership interest in Waterworks, LP (Waterworks),
a salt-water disposal facility in Wise County, Texas. We are responsible for managing the
interests of the other limited partners and thus, exercise significant influence over the
operations of Waterworks. Accordingly, we account for our investment in Waterworks under the
equity method of accounting. Losses attributable to our interest in
Waterworks were $8,750 and
$69,665 for the years ended December 31, 2010 and 2009, respectively. The carrying value of our
investment in Waterworks was $0 for each of the years ended December 31, 2010 and 2009.
Supreme Vacuum
Supreme Vacuum provides oilfield fluid services in South Texas, specializing in drilling and
production fluids handling, sales, and storage. Beginning in August 2008, we, through our wholly
owned subsidiaries as well as NYTEX Petroleums predecessor entity NYTEX Petroleum LLC, made a
series of equity investments in Supreme Vacuum, after which we maintained an approximate 71.18%
ownership interest in Supreme Vacuum. The total amount of these
investments was $2,272,177. We
have historically reported Supreme Vacuum as an unconsolidated subsidiary accounted for under the
equity method as we did not possess majority voting control over Supreme Vacuum. Losses
attributable to our interest in Supreme Vacuum were $308,408 and $828,169 for the years ended
December 31, 2010 and 2009, respectively.
On September 8, 2010, we, through our wholly-owned subsidiary Supreme Oilfield, completed the
disposition of all of our shares (Supreme Vacuum Shares) of common stock of Supreme Vacuum along
with a promissory note payable by Supreme Vacuum to Supreme Oilfield in the original principal
amount of $31,250. The Supreme Vacuum Shares and the promissory note were sold to an unrelated
third party in exchange for a cash purchase price of $400,000. We recognized a loss of
approximately $870,750 upon the sale of our investment in Supreme Vacuum.
F-15
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, the carrying value of our investment in Supreme Vacuum
was $1,479,159. Accordingly, the aggregated summarized financial information of Supreme Vacuum
was as follows:
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2009 |
|
Operaing results: |
|
|
|
|
Service revenue |
|
$ |
2,780,613 |
|
Operating expenses |
|
|
3,666,556 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(885,943 |
) |
|
|
|
|
Net loss |
|
$ |
(1,170,122 |
) |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
Balance Sheet: |
|
|
|
|
Current assets |
|
$ |
668,506 |
|
Non-current assets |
|
|
4,078,930 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,747,436 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
1,559,880 |
|
Non-current liabilities |
|
|
2,111,605 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,671,485 |
|
Equity |
|
|
1,075,951 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
4,747,436 |
|
|
|
|
|
NOTE 7. GOODWILL AND ACQUIRED INTANGIBLE ASSETS
At
December 31, 2010, we had $4,558,394 of goodwill allocated to our oilfield services segment
as a result of the acquisition of FDF in November 2010. Prior to the acquisition of FDF, we did
not have any goodwill.
Intangible assets subject to amortization at December 31, 2010 and associated amortization
expense for the year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Amortization |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Expense |
|
Non-compete agreements |
|
$ |
6,033,000 |
|
|
$ |
(109,171 |
) |
|
$ |
5,923,829 |
|
|
$ |
109,171 |
|
Customer relationships |
|
|
3,654,000 |
|
|
|
(15,225 |
) |
|
|
3,638,775 |
|
|
|
15,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,687,000 |
|
|
$ |
(124,396 |
) |
|
$ |
9,562,604 |
|
|
$ |
124,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The non-compete agreement and customer relationship intangible assets have been allocated to
our oilfield services segment and have estimated useful lives of 2.5 to 7 years for non-compete
agreements and 20 years for the customer relationships. We also have trade name intangible assets
associated with FDF that are not subject to amortization, which have a carrying balance of
$4,760,000 as of December 31, 2010. We did not have any such intangible assets in 2009.
F-16
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
The estimated amortization for the current and each of the next five fiscal years is as
follows:
|
|
|
2011 |
|
$1,492,757 |
2012 |
|
1,492,757 |
2013 |
|
1,086,057 |
2014 |
|
795,557 |
2015 |
|
795,557 |
2016 and thereafter |
|
3,899,919 |
NOTE 8. ASSET RETIREMENT OBLIGATION
Our asset retirement obligation primarily represents the estimated present value of the amount
it will incur to plug, abandon, and remediate our producing properties at the end of their
productive lives, in accordance with applicable state laws. We determine the asset retirement
obligation by calculating the present value of estimated cash flows related to the liability. The
following represents a reconciliation of the asset retirement obligations for the years ended
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Asset retirement obligation as of beginning of year |
|
$ |
40,883 |
|
|
$ |
|
|
Liabilities incurred |
|
|
30,718 |
|
|
|
38,780 |
|
Liabilities settled |
|
|
(25,603 |
) |
|
|
(25,549 |
) |
Revision of estimated obligation |
|
|
|
|
|
|
|
|
Accretion expense |
|
|
4,080 |
|
|
|
27,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation as of end of year |
|
$ |
50,078 |
|
|
$ |
40,883 |
|
|
|
|
|
|
|
|
NOTE 9. WAYPOINT TRANSACTION
In connection with the FDF acquisition, on November 23, 2010, we, through our wholly-owned
subsidiary, Acquisition Inc., entered into a Preferred Stock and Warrant Purchase Agreement
(WayPoint Purchase Agreement) with WayPoint Nytex, LLC (WayPoint,), an unaffiliated third
party, whereby, in exchange for $20,000,001 cash, we issued to WayPoint (collectively, the
WayPoint Transaction) (i) 20,750 shares of Acquisition Inc. 14% Senior Series A Redeemable
Preferred Stock, par value of $0.001 and an original stated amount of $1,000 per share (Senior
Series A Redeemable Preferred Stock), (ii) one share of NYTEX Energy Series B Preferred Stock, par
value of $0.001 per share, (iii) a warrant to purchase up to 35% of the then outstanding shares of
the Companys common stock (Purchaser Warrant), and (iv) a warrant to purchase an additional
number of the Companys common stock so that, measured at the time of exercise, the number of
shares of common stock issued to WayPoint represents 51% of the Companys outstanding common stock
on a fully-diluted basis (Control Warrant). The Control Warrant may be exercised only if certain
conditions, as defined in the WayPoint Purchase Agreement, are met.
14% Senior Series A Redeemable Preferred Stock
The holder of the Senior Series A Redeemable Preferred Stock is entitled to receive dividends
at a rate equal to 14% of the original stated amount, with such dividends payable quarterly and in
preference to any declaration or payment of any dividend to the holders of common stock of
Acquisition Inc. Such dividends shall accrue day-to-day, whether or not declared, and are
cumulative.
We have the right to redeem the Senior Series A Redeemable Preferred Stock (i) after the third
anniversary of issuance at a redemption price equal to 104% of the original stated amount, and (ii)
after the fourth anniversary of issuance at a redemption price equal to 103% of the original stated
amount, to May 23, 2016, the maturity date of the Senior Series A Redeemable Preferred Stock. On
the maturity date, we are required to redeem the Senior Series A Redeemable Preferred Stock at 100%
of the original stated amount, together with all accrued and unpaid dividends as of the redemption
date in cash. Further, we are required to redeem the Senior Series A Redeemable Preferred Stock at
100% after the earliest to occur of (a) a change of control, as defined, or (b) an event of
default, as defined, that remains uncured for 75 days.
F-17
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
Series B Preferred Stock
We issued one share of Series B Preferred Stock to WayPoint, a new class of NYTEX Energy
preferred stock consisting of one authorized share. The Series B Preferred Stock provided the
holder the right to designate two members to the Companys board of directors, and upon the
occurrence of a default under the WayPoint Purchase Agreement, the holder may require us to expand
the number of board members providing WayPoint the ability to designate a majority of the Companys
board.
Warrants
The Purchaser Warrant is exercisable at any time at an exercise price of $0.01 per share and
expires on the tenth anniversary from the date of issuance. The Purchaser Warrant provides
anti-dilution protection so that the number of shares that may be purchased shall be equal to 35%
of the then outstanding shares of the Companys common stock, as measured at the time of exercise.
The Control Warrant is exercisable at an exercise price of $0.01 per share, upon the earliest
to occur of (i) the date on which a change of control occurs, as defined, if we are unable to
redeem all of the Senior Series A Redeemable Preferred Stock, (ii) the date on which an event of
default occurs, as defined, provided that payment to the holders of the Senior Series A Redeemable
Preferred Stock of all amounts owing to them as a result of the default will be considered a cure
of the default, (iii) 75 days after the date on which a third default, as defined, has occurred
within a consecutive 12-month period, and (iv) May 23, 2016, which is the maturity date of the
Senior Series A Redeemable Preferred Stock and we are unable to redeem all of the Senior Series A
Redeemable Preferred Stock in accordance with the WayPoint Purchase Agreement.
The term default includes 14 categories of events as listed in the WayPoint Purchase Agreement including the
failure of the Company to meet a fixed-charge coverage ratio, leverage ratio, or minimum EBITDA test.
Other Obligations
After November 23, 2011, we may be required by WayPoint to file a registration statement with
the Securities and Exchange Commission (SEC), registering for resale all shares of our common
stock issuable upon exercise of the Purchaser Warrant and Control Warrant. In addition, WayPoint
was granted piggyback registration rights for any registration statement filed with the SEC
following (i) a registration statement filed with the SEC concerning the Companys Series A
Convertible Preferred Stock (see Note 13) and (ii) a registration statement filed with the SEC
concerning a registration rights agreement regarding shares of our common stock issued to a former
FDF interest holder in connection with the FDF acquisition. If we are required to file a
registration statement with the SEC registering securities for resale by WayPoint and the
registration statement is not timely filed, does not become effective within a certain time period,
or ceases to be available for sales thereunder for certain time periods, then we must pay to all
holders of registrable securities an amount in cash equal to 1% of the value of such holders
registrable securities on the date of such event and each monthly anniversary thereof until cured,
subject to a cap of 10% of the value of such holders registrable securities.
In addition, under the WayPoint Purchase Agreement, WayPoint was granted a put right that
could require us to repurchase the Purchaser Warrant and Control Warrant from WayPoint at any time
on or after the earlier of (i) the date on which a change of control occurs,as defined, (ii) the
date on which an event of default occurs, as defined, (iii) the date on which we elect to redeem
the Senior Series A Redeemable Preferred Stock, and (iv) the maturity date of the Senior Series A
Redeemable Preferred Stock. The repurchase price is equal to the greater of (a) WayPoints
aggregate equity ownership percentage in the Company as of the date the put right is exercised,
multiplied by the fair value of the Companys common stock and (b)(1) in the event that the put
right is exercised before November 23, 2013, $30,000,000, or (2) in the event that the put right is
exercised on or after November 23, 2013, $40,000,000.
Initial Accounting
Under the initial accounting, we separated the instruments issued under the WayPoint Purchase
Agreement into component parts of the Senior Series A Redeemable Preferred Stock, the Series B
Preferred Stock, the Purchaser Warrant, and the Control Warrant. We considered the put right to
be inseparable from the Purchaser Warrant and Control Warrant and deemed them to be a derivative
(each, a WayPoint Warrant Derivative). We estimated the fair value of each component as of the
date of issuance. We assigned no value to the Control Warrant as it is contingently exercisable
and the conditions for exercising have not been met. Since the WayPoint Warrant Derivative related
to the Purchaser Warrant had a fair value in excess of the net proceeds we received in the WayPoint
Transaction at the date of issuance, no amounts have been assigned to Senior Series A Redeemable
Preferred Stock in the allocation of proceeds. The WayPoint Warrant Derivative is included in
derivative liabilities on the accompanying consolidated balance sheet as of December 31, 2010.
Changes in fair value of the WayPoint Warrant Derivative are included in other income (expense) in
the consolidated statements of operations and are not taxable or deductible for income tax
purposes. See Note 10.
Although no amounts were initially assigned to the Senior Series A Redeemable Preferred Stock,
we will accrete the
F-18
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
total face
amount, or $20,750,000, over the term of the instrument of 5.5 years as a liability on
the consolidated balance sheet and a corresponding charge to accretion expense on the consolidated
statement of operations. For the year ended December 31, 2010, we recognized $398,232 of accretion
expense related to the Senior Series A Redeemable Preferred Stock.
Default Under WayPoint Purchase Agreement
Due to cross-default
provisions with our Senior Facility and other covenant requirements, we are currently in default under the WayPoint Purchase Agreement.
On April 14, 2011, WayPoint provided us with a formal written notice
of default under the WayPoint Purchase Agreement.
The amount reported on our consolidated balance sheet as of December 31, 2010 related to the WayPoint Purchase Agreement includes a
derivative liability totaling $32,554,826, which is reported within current liabilities on our consolidated balance sheet. As a result,
WayPoint may seek certain remedies afforded to them under the
WayPoint Purchase Agreement including (i) declare the entire unpaid
principal amount of the Senior Series A Redeemable Preferred Stock due
and payable, (ii) exercise their Control Warrant,
or (iii) exercise their put right. We are currently in negotiations with WayPoint to remedy the events of noncompliance and modify the
loan agreement. However, there are no assurances that we will be successful in our negotiations with WayPoint.
NOTE 10. DERIVATIVE LIABILITIES
The following summarizes our derivative liabilities at December 31, 2010. We did not have any
derivatives for the year ended December 31, 2009.
|
|
|
|
|
WayPoint Warrant Derivative |
|
$ |
32,554,826 |
|
Warrrants Series A Convertible Preferred Stock |
|
|
1,573,560 |
|
|
|
|
|
Total derivative liabilities at December 31, 2010 |
|
$ |
34,128,386 |
|
|
|
|
|
The WayPoint Warrant Derivative was initially recorded at its fair value of $19,253,071
on the date of issuance, November 23, 2010. At December 31, 2010, the carrying amount of the
WayPoint Warrant Derivative was adjusted to its fair value of $32,554,826 with a corresponding
charge to operations. The WayPoint Warrant Derivative is reported as a derivative liability-current portion on the accompanying consolidated balance sheet as of December 31, 2010.
The agreement setting forth the terms of the warrants issued to the holders of the Companys
Series A Convertible Preferred Stock include an anti-dilution provision that require a reduction in
the instruments exercise price should subsequent at-market issuances of the Companys common stock
be issued below the instruments 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 sheet as of December
31, 2010.
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 year
ended December 31, 2010,and are not taxable or deductible for income tax purposes.
F-19
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 11. DEBT
A summary of our outstanding debt obligations at December 31, 2010 and 2009 is presented as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
25% Bridge Loan due January 2010 |
|
$ |
|
|
|
$ |
100,000 |
|
25% Bridge Loan due July 2011 |
|
|
|
|
|
|
100,000 |
|
18% Bridge Loan due December 2010 |
|
|
|
|
|
|
150,000 |
|
18% Bridge Loan due July 2011 |
|
|
234,919 |
|
|
|
600,000 |
|
9% Demand Notes due February 2011 |
|
|
237,458 |
|
|
|
|
|
0% Secured Equipment Loan due March 2011 |
|
|
2,098 |
|
|
|
|
|
3.75% Secured Equipment Loan due June 2011 |
|
|
1,388,807 |
|
|
|
|
|
6% Related Party Loan due September 2011 |
|
|
168,000 |
|
|
|
195,000 |
|
12% Convertible Debentures due October 2011 |
|
|
2,064,867 |
|
|
|
|
|
5.5% Mortgage Note due July 2012 |
|
|
343,696 |
|
|
|
|
|
7.41% Secured Equipment Loan due November 2013 |
|
|
10,149 |
|
|
|
13,170 |
|
5.75% Secured Equipment Loan due November 2013 |
|
|
43,086 |
|
|
|
|
|
7.41% Secured Equipment Loan due July 2015 |
|
|
19,765 |
|
|
|
|
|
Francis Promissory Note (non-interest bearing) due October 2015 |
|
|
478,710 |
|
|
|
|
|
Senior Facility Term Loan due November 2015 |
|
|
11,857,144 |
|
|
|
|
|
Senior Facility Revolver due November 2015 |
|
|
5,895,579 |
|
|
|
|
|
6% Secured Equipment Loan due December 2015 |
|
|
900,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
23,644,378 |
|
|
|
1,158,170 |
|
Less: current maturities |
|
|
(22,516,398 |
) |
|
|
(1,148,363 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
1,127,980 |
|
|
$ |
9,807 |
|
|
|
|
|
|
|
|
Carrying values in the table above include net unamortized debt discount of $356,423 and
$0 at December 31, 2010 and 2009, respectively, which is amortized to interest expense over the
terms of the related debt.
Debt maturities as of December 31, 2010, excluding discounts, are as follows:
|
|
|
|
|
2011 |
|
|
22,516,398 |
|
2012 |
|
|
244,032 |
|
2013 |
|
|
248,358 |
|
2014 |
|
|
235,364 |
|
2015 |
|
|
756,650 |
|
2016 and thereafter |
|
|
|
|
Unamortized Discount |
|
|
(356,424 |
) |
|
|
|
|
|
|
$ |
23,644,378 |
|
|
|
|
|
Senior Revolving Credit and Term Loan Facility
In connection with the FDF acquisition, on November 23, 2010, we entered into a senior secured
revolving credit and term loan agreement (Senior Facility) with a bank providing for loans up to
$24,000,000. The Senior Facility consists of a term loan in the amount of $12,000,000 and a
revolving credit facility in an amount up to $12,000,000. The term loan bears an annual interest
rate based on the higher of (i) the 30 day LIBOR plus 1%, or (ii) the
Fed Funds rate plus 0.5%, plus a margin of 2.5% (3.76% at December 31, 2010). The term loan requires monthly
payments of principal and interest based on a seven-year amortization of $142,857 with the
remaining principal and any unpaid interest due in full at maturity on November 23, 2015. The
revolving credit facility bears an annual interest rate based
F-20
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
on the
higher of (i) the 30 day LIBOR plus 1%, or (ii) the Fed Funds rate
plus 0.5%, plus a margin of 1.75% (3.01% at December 31, 2010) and payments of interest only due monthly with the
then outstanding principal and any unpaid interest due in full at maturity on November 23, 2015.
Advances under the revolving credit facility may not exceed 85% of FDFs eligible accounts
receivable as defined in the Senior Facility agreement.
Our loan agreements
generally stipulate that we comply with certain reporting and financial covenants. These covenants include among other things, providing
the lender, within set time periods, with financial information, notifying the lender of any change in management, limitations on the
amount of capital expenditures, and maintaining certain financial ratios. As a result of the challenges incurred in integrating the
FDF operations and due to higher than anticipated capital expenditures at FDF, we were unable to meet several reporting and financial
covenants under our Senior Facility with PNC Bank measured as of November 30, 2010
and February 28, 2011. Failure to meet the loan covenants under the loan agreement constitutes a default and on April 13, 2011, PNC
Bank, as lender, provided us with a formal written notice of default. PNC Bank did not commence the exercise of any of their respective
other rights and remedies, but expressly reserved all such rights. At December 31, 2010, the outstanding principal balance of the amounts
owed under the Senior Facility was $17,752,723, and is, because of this default, reported within current liabilities on the consolidated
balance sheet. We are currently in negotiations with the lender to remedy the defaults which include managements plans to enhance our
current liquidity through delaying or stopping capital expenditures through the first half of 2011 and improvements to our results of
operations. However, there are no assurances that we will be successful in our negotiations with PNC Bank.
$2.15
Million 12% Convertible Debentures
In August 2010, we initiated a $2,150,000 offering of convertible debt (12% Convertible
Debenture) to fund our ongoing working capital needs. Terms of the 12% Convertible Debenture were
as follows: (i) $100,000 per unit with interest at a rate of 12% per annum payable monthly with a
maturity of 180 days from the date of issuance; (ii) convertible at any time prior to maturity at
$1.50 per share of the Companys common stock; and, (iii) each unit includes a three-year warrant
to purchase up to 20,000 shares of the Companys common stock at an exercise price of $2.00 per
share for a period of three years from the effective date of the warrant. As of December 31,
2010, we had raised the full $2,150,000 under the 12% Convertible Debenture offering including
warrants to purchase up to 430,000 shares of the Companys common stock. In addition, we also
issued 45,000 shares of the Companys common stock to certain 12% Convertible Debenture holders.
During the first quarter of 2011, the 12% Convertible Debentures were amended such that the
maturity date was extended to October 2011.
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. We have recorded the Francis Promissory
Note as a discounted debt of $478,710, using an imputed interest rate
of 9%.
Related Party Loan
In March 2006, NYTEX Petroleum LLC entered into a $400,000 revolving credit facility (Related
Party Loan) with one of its founding members to be used for operational and working capital needs.
Effective with the execution of an amended letter agreement on August 25, 2008, the revolving
nature of the Facility was terminated, with the then unpaid principal balance of $295,000 on the
Related Party Loan effectively becoming a note payable to the founding member. The Related Party
Loan continues to bear interest, to be paid monthly, at 6% per annum, to be secured by the assets
of NYTEX Petroleum LLC (now NYTEX Petroleum), and be personally guaranteed by NYTEX Petroleum LLCs
two founding members. The terms of the Related Party Loan have been further amended, requiring
monthly principal payments of $3,000 plus interest for eighteen months beginning March 1, 2010 and
ending September 1, 2011. At the end of the eighteen month period, the remaining principal balance
and any unpaid interest are due in a lump sum. There is no penalty for early payment of principal.
As of December 31, 2010 and 2009, amounts outstanding under the Related Party Loan were
$168,000 and $195,000, respectively. In addition, during the years ended December 31, 2010 and
2009, interest expense related to the Related Party Loan totaled $11,025 and $12,700, respectively.
Other Debentures and Loans
In July 2009, the Company entered into various Bridge Loans totaling $950,000, the proceeds of
which were used for the acquisition of the Panhandle Field Producing Property, its initial
development costs, and working capital purposes. The Bridge Loans
originally matured on January 31,
2010, with 12.5% cash interest for the six-month period, or 25% per annum, payable at maturity. The
Bridge Loans have been amended multiple times to extend the maturity date. On August 23, 2010, the
agreement with the Bridge Loan holders extended the maturity date of principal and interest to
September 1, 2010, with no penalties for prepayment. Interest
was payable at rates of 25% and 18%
per annum. On September 1, 2010, the remaining Bridge Loans (all at an interest rate of 18%
per annum) were further amended to extend the maturity date to December 1, 2010, with one option to
extend the maturity date to July 1, 2011. As of December 31, 2010, one Bridge Loan remains
outstanding with a principal balance due of $234,919 and matures on July 1, 2011.
In
December 2010, we issued two demand notes totaling $237,000 related
to our re-acquisition of the Panhandle Field Producing Property. The
demand notes are due and payable on February 14, 2011 or upon demand
by the holder and bear interest at a fixed rate of 9%. Subsequently,
on February 14, 2011, we issued 9% Convertible Debentures (9%
Convertible Debentures) due January 2014 in exchange for the demand
notes due February 14, 2011. Interest only is
payable monthly at the annual rate of 9% with any accrued and unpaid interest along with the unpaid
principal due at maturity. The 9% Convertible Debenture is convertible to the Companys common
stock at any time at the fixed conversion price of $2.50 per share, subject to certain adjustments
including stock dividends and stock splits. We have the option, at any time, to redeem the
outstanding 9% Convertible Debentures in cash equal to 100% of the original principal amount plus
accrued and unpaid interest.
F-21
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
We also have various property, plant, and equipment loans outstanding that generally require
monthly principal and interest payments based on fixed interest rates ranging from 0% to 7.4% and
have maturity dates ranging from March 2011 to July 2015.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain trucks, automobiles, equipment, and office space under
non-cancelable operating leases which provide for minimum annual rentals. Future minimum
obligations under these lease agreements at December 31, 2010 are as follows:
|
|
|
|
|
2011 |
|
$ |
1,634,670 |
|
2012 |
|
|
1,120,121 |
|
2013 |
|
|
905,011 |
|
2014 |
|
|
845,498 |
|
2015 |
|
|
612,258 |
|
Thereafter |
|
|
971,247 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,088,805 |
|
|
|
|
|
Total lease rental expense for the years ended December 31, 2010 and 2009 was $253,957 and
$60,113, respectively.
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.
On August 26, 2010, two suits were filed by Kevin Audrain and Lori Audrain d/b/a Drain Oil
Company (Plaintiffs) against NYTEX Energy, one as Cause No. 39360 in the 84th District
Court in Hutchinson County, Texas, and the other as Cause No. 10-122 in the 69th
District Court in Moore County, Texas. Both suits were filed by the same plaintiffs and both
relate to 75.0% of certain producing oil and gas leaseholds in those counties of the Texas
panhandle (the Panhandle Property). On August 1, 2009, NYTEX Petroleum acquired and assumed
operations of the Panhandle Property from Plaintiffs. The Plaintiffs allege that NYTEX Petroleum
did not engage in a well re-completion (refrac) operation as required by the purchase document
between Plaintiffs and NYTEX Petroleum (the Purchase Document). As a result of this alleged lack
of performance, Plaintiffs believe they are entitled to pursue repurchase of the Panhandle Property
in accordance with a buyback provision set forth in the Purchase Document. The Company believes
that NYTEX Petroleum has performed as required, and that these lawsuits are wholly without merit
and frivolous. The Company has filed answers to both suits and intends to vigorously defend itself
in these actions.
Environmental
We are subject to extensive federal, state, and local environmental laws and regulations.
These laws, which are constantly changing, regulate the discharge of materials into the environment
and may require us to remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental expenditures are expensed or
capitalized depending on their future economic benefit. Expenditures that relate to an existing
condition caused by past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a non-capital nature are recorded when environmental assessment
and/or remediation is probable, and the costs can be reasonably estimated.
F-22
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 13. 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 Preferred Stock, par value $0.001 per share. The holders of
the Series A Convertible Preferred Stock are entitled to receive cumulative quarterly dividends
equal to 9%of $1.00 per share, with such dividends in preference to the declaration or payment of
any dividends to the holders of common stock. Further, dividends on the Series A Convertible
Preferred Stock are cumulative so that if any previous or current dividend shall not have been
paid, the deficiency shall first be fully paid before any dividend is to be paid on or declared on
common stock. The holders of Series A Convertible Preferred Stock have the same voting rights and
powers as the holders of common stock.
The holder of the Series B Preferred Stock is not entitled to receive dividends and is not
entitled to any voting rights. However, the holder of the Series B Preferred Stock is entitled to
elect two members of the Companys board of directors.
Private Placement Common Stock
In August 2008, we initiated a private placement of our common stock, offering 2,200,000
common shares at $2.00 per share along with a three-year warrant exercisable at $1.00 per share.
In April 2009, the private placement offering of our common stock was expanded to $5,900,000 and
further expanded in February 2010 to $8,000,000. On July 22, 2010, we concluded the sale of
2,966,551 shares of our common stock pursuant to the private placement for total net proceeds of
$5,900,000. In addition, 110,275 shares of common stock were issued to certain holders as an
inducement to purchase our common stock. For the year ended December 31, 2010, we issued a total
of 91,200 common shares under the private placement for net proceeds of approximately $181,100,
along with warrants to purchase up to 91,200 shares of our common stock. The warrants are
exercisable at $1.00 per share for a period of three years from the effective date of the warrant.
Other Common Stock Issuances
In January 2010, upon the maturity of the Bridge Loans, we paid an accommodation fee to the
Bridge Loan holders in the form of 59,375 shares of our common stock.
In connection with the acquisition of FDF in November 2010, we issued 5,407,339 shares of our
common stock to the former owners as part of the consideration paid to acquire FDF. The aggregate
fair value of the common stock issued was $10,057,651. See Note 5.
In connection with the re-acquisition of the Panhandle Field Producing Property in December
2010,we issued 616,291 shares of our common stock to the former owners as part of the consideration
paid to re-acquire the Panhandle Field Producing Property. The aggregate fair value of the common
stock issued was $1,146,301. See Note 5.
For the year ended December 31, 2010, we issued
871,337 shares of our common stock to certain
employees and individuals. The fair value of the shares of approximately $1,015,525 was recorded as
stock-based compensation in the accompanying statements of operations.
Private Placement Series A Convertible Preferred Stock
In contemplation of the acquisition of FDF, in October 2010, we initiated a private placement
of units each consisting of (i) 100,000 shares of our Series A Convertible Preferred Stock, and (ii) a
warrant to purchase 30,000 shares of our common stock at an exercises price of $2.00 per share.
Each unit is priced at $100,000. For the year ended December 31, 2010, we issued 5,580 units for
gross proceeds of $5,580,000 consisting of 5,580,000 shares of Series A Convertible Preferred Stock
and warrants to purchase up to 1,674,000 shares of common stock. At the conclusion of the private
placement offering in January 2011, we had issued a total of 6,000 units for aggregate gross
proceeds of $6,000,000.
The holders of the Series A Convertible Preferred Stock are entitled to payment of dividends
at 9% of the purchase price per share of $1.00, with such dividends payable quarterly. Dividends
are payable out of any assets legally available, are cumulative, and in preference to any
declaration or payment of dividends to 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.
Warrant Issuances
In August 2010, we issued warrants to purchase up to 20,000 shares of common stock to an
unsecured third-party creditor. The unsecured third-party creditor was paid in full in September
2010. The warrants may be exercised for a period of three years from date of grant at an exercise
price of $1.50 per share. The fair value of the warrants on the date of grant was approximately
$9,000 using the Black-Scholes option pricing model.
F-23
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
In connection with the offering of the 12% Convertible Debentures, we issued warrants to
purchase up to 430,000 shares of common stock at an exercise price of $2.00 per share. The
aggregate fair value of the warrants on the date of grant was approximately $161,000 using the
Black-Scholes option pricing model. The warrants are exercisable for a period of three years from
the date of grant. In addition, 45,000 shares of common stock were issued to certain holders as an
inducement to purchase the 12% Convertible Debentures. The aggregate fair value of the common
stock issued was approximately $46,800.
In connection with the private placement offering of Series A Convertible Preferred Stock, we
issued warrants to the holders to purchase up to 1,674,000 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 the warrants on the date of grant was approximately
$1,573,500 using the Black-Scholes option pricing model and was accounted for as a derivative
liability on the accompanying consolidated balance sheets.
In connection with the WayPoint Transaction, we issued warrants to purchase up to 423,244
shares of common stock at an exercise price of $0.01 per share to an unaffiliated investment group
that facilitated the transaction. The warrants may be exercised for a period of five years from
the date of grant. The aggregate fair value of the warrants on the date of grant was approximately
$779,000 using the Black-Scholes option pricing model and was
recorded as deferred financing costs on the accompanying consolidated
balance sheets.
In connection with the WayPoint Transaction, we issued warrants (the Purchaser Warrant see
Note 9) to purchase up to19,809,245 shares of common stock at an exercise price of $0.01 per share
to WayPoint, subject to certain adjustments as set forth in the warrant agreement such that at the
time of exercise, the total number of warrants exercisable is equal to 35% of the then outstanding
shares of common stock. The Purchaser Warrant is exercisable at any time and expires on the tenth
anniversary from the date of issuance.
In connection with the WayPoint Transaction, we issued warrants (the Control Warrant see
Note 9) to purchase up to 18,491,190 shares of common stock at an exercise price of $0.01 per share
to WayPoint. The Control Warrant is exercisable at an exercise price of $0.01 per share, upon the
earliest to occur of (i) the date on which a change of control occurs, as defined, if we are unable
to redeem all of the Senior Series A Redeemable Preferred Stock, (ii) the date on which an event of
default occurs, as defined, provided that payment to the holders of the Senior Series A Redeemable
Preferred Stock of all amounts owing to them as a result of the default will be considered a cure
of the default, (iii) 75 days after the date on which a third default, as defined, has occurred
within a consecutive 12-month period, and (iv) May 23, 2016, which is the maturity date of the
Senior Series A Redeemable Preferred Stock and we are unable to redeem all of the Senior Series A
Redeemable Preferred Stock in accordance with the WayPoint Purchase Agreement.
In addition, we issued warrants to purchase up to 223,200 shares of Series A Convertible
Preferred Stock to the underwriter 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 the warrants on the date of grant
was approximately $283,500 using the Black-Scholes option pricing model.
The fair value of warrants was determined using the Black-Scholes option pricing model. The
expected term of the 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. The aggregate fair value of the warrants issued in 2010 totaled approximately $29,856,000
and was determined using the following weighted average attributes and assumptions: risk-free
interest rate of 1.61%, expected dividend yield of 0%, expected term of 5.5 years, and expected
volatility of 55%. A summary of warrant activity for the year ended December 31, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Warrants |
|
|
Exercise Price |
|
Outstanding at December 31, 2009 |
|
|
2,899,251 |
|
|
$ |
1.00 |
|
Issued |
|
|
41,162,079 |
|
|
|
0.12 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
44,061,330 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
F-24
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 14. FAIR VALUE MEASURMENTS
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.
|
|
|
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 entitys 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 9 and 10, 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 year ended December 31, 2010, the fair value of the
derivative
liability increased $13,301,755 and was recorded
within other income (expense) in theaccompanying consolidated statements of operations.
Financial assets and liabilities measured at fair value on a recurring basis are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Derivative liabilities |
|
$ |
34,128,386 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
34,128,386 |
|
Included below is a summary of the changes in our Level 3 fair value measurements:
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
|
|
Issuance of derivative instruments |
|
|
20,826,631 |
|
Change in derivative liabilities |
|
|
13,301,755 |
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
34,128,386 |
|
|
|
|
|
NOTE 15. OIL CONTAINMENT BOOM ACTIVITIES
On May 19, 2010, NYTEX Petroleum entered into an Oil Containment Boom Rental Agreement
(Simpson Agreement) with Simpson Environmental Resources, Inc. (Simpson) to rent segments of oil
containment boom (Boom) to Simpson to be used in the Gulf of Mexico waters to contain the BP plc
(BP) global oil spill under Simpsons master service
or rental agreements with general contractors
of BP, state governments, or other entities. Under the Simpson Agreement, Simpson was to pay NYTEX
Petroleum 100% of the rental payment amounts Simpson collects from the general contractors
(Contractor Payments) for the Boom until such time that
NYTEX Petroleum had recovered 100% of its
cost of the delivered Boom from said rental payments (referred to as Payout). After Payout
was achieved, subsequent Contractor Payments were split 50% to
Simpson and 50% to NYTEX Petroleum for
the remaining period that the Boom was in service under such rental contracts.
To fund the purchases of Boom, NYTEX Petroleum entered into Oil Containment Boom
Purchase/Rental Agreements (Participant Agreements) with outside participants to act as agent on
behalf of the participant to purchase Boom and rent it pursuant to the terms of the Simpson
Agreement. The Participant Agreements provide for the participant to
F-25
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
receive
100% of the Contractor Payments remitted by Simpson to NYTEX Petroleum until such time that
the participant has recovered 100% of their cost of the delivered Boom (referred to as Participant
Payout). After Participant Payout was achieved, subsequent Contractor Payments remitted by Simpson
to NYTEX Petroleum was split as follows: 60% to the participant, 20% to NYTEX Petroleum, and 20% to
DMBC, Inc., who facilitated the transactions. As of December 31, 2010, NYTEX Petroleum had received
$1,790,625 from participants under Participant Agreements, had made payments towards rental Boom
purchases totaling $1,005,303, and transferred $678,710 of funds collected under Participant
Agreements to the Purchaser Agreement program (defined below) due to limited opportunities to
purchase and deploy additional rental Boom.
NYTEX Petroleum also entered into Gulf Oil Spill Boom Sales Agreements (Purchaser
Agreements) with outside participants to purchase Boom and resell at a profit to buyers including,
but not limited to, coastal cities, counties, parishes and BP (collectively, the Boom Buyers)
pursuant to the terms of the Simpson Agreement. The Purchaser Agreements provide that immediately
upon NYTEX Petroleums receipt of funds for the sale of Boom,
NYTEX Petroleum would remit to
Purchaser 100% of Purchasers purchase price of the Boom together with 40% of the profit, less
shipping and handling and insurance costs. As of December 31, 2010, NYTEX Petroleum had received
$2,409,500 from participants under Purchaser Agreements, transferred $678,710 of funds collected
under Participant Agreements to the Purchaser Agreement program as noted earlier, and had made
payments towards Boom purchases under the sales program totaling $2,874,150.
On July 1, 2010, NYTEX Petroleum and Simpson entered into an Oil Spill Containment and
Absorbent Boom Sales Agreement (Boom Sales Agreement) to include the purchase of various sizes
and types of containment and absorbent Boom and to resell the Boom to the Boom Buyers. Simpson
sourced the Boom products that met BP specifications and, upon approval of each order by NYTEX
Petroleum, shipped direct from suppliers to the Boom Buyers or to Simpsons warehouse. Furthermore,
Simpson agreed that for any Boom which remained unsold after 30 days from being warehoused and upon
receipt of written notice from NYTEX Petroleum, then Simpson shall purchase the unsold Boom from
NYTEX Petroleum at the delivered price paid by NYTEX Petroleum, including warehousing, insurance,
and other costs incurred during this 30 day period. As of December 31, 2010, Boom, representing a
delivered cost of $877,150, was repurchased by Simpson under the Boom Sales Agreement, with
$877,150 having been paid by Simpson as of December 31, 2010.
Relative to oil containment boom activities, we recorded administration fee revenue of
$486,291 for the year ended December 31, 2010. Revenue and accounts receivable associated with the
oil containment boom activities are recorded net of amounts paid or owed under the Participant
Agreements and Purchaser Agreements. As such, only the net fee earned is recognized in
our consolidated statement of operations for
the year ended December 31, 2010.
NOTE 16. INCOME TAXES
For
the years ended December 31, 2010 and 2009, we had losses before
income taxes of $19,647,566 and $3,357,496, respectively. The tax
provision for the year ended December 31, 2010 consists of taxes
incurred related to the Texas margin tax. For the year ended December
31, 2009, no benefit or provision for income taxes was recorded due
to the uncertainty of the realization of any tax assets.
At
December 31, 2010, we have accumulated net operating losses totaling
$9,300,885. The net operating loss carryforwards will begin to
expire in 2028 if not utilized. We have recorded net
losses in each year since inception and through December 31, 2010.
Based upon all available objective evidence the Companys loss
history, management believes it is more likely than not that the net
deferred tax assets related to our net operating losses will not be
fully realized. Accordingly we have provided a valuation allowance
against those deferred tax assets at December 31, 2010 and 2009.
Total income taxes differed from the amounts computed by applying the statutory income tax
rate to income (loss) from before income taxes. The sources of these differences are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Expected income tax benefit based on U.S. statutory
rate of 34% |
|
$ |
(6,680,172 |
) |
|
$ |
(1,141,549 |
) |
State income taxes (net of federal income tax benefit) |
|
|
13,609 |
|
|
|
|
|
Net book/tax differences on unconsolidated subsidiaries |
|
|
(308,981 |
) |
|
|
281,577 |
|
Acquisition
costs |
|
|
407,749 |
|
|
|
|
|
Other |
|
|
5,502 |
|
|
|
2,997 |
|
Valuation allowance |
|
|
6,565,592 |
|
|
|
856,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) |
|
$ |
3,299 |
|
|
$ |
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that gave rise to significant portions of the
deferred tax assets and liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
3,667,779 |
|
|
$ |
1,361,839 |
|
Impairment of oil and gas properties |
|
|
249,099 |
|
|
|
219,876 |
|
Intangible assets |
|
|
383,048 |
|
|
|
|
|
Fair value of derivative |
|
|
5,123,679 |
|
|
|
|
|
Accretion expense |
|
|
|
|
|
|
13,900 |
|
Deferred revenue |
|
|
|
|
|
|
15,866 |
|
Other |
|
|
367,074 |
|
|
|
|
|
Valuation allowance on deferred tax
assets |
|
|
(9,124,025 |
) |
|
|
(1,455,496 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
666,654 |
|
|
|
155,985 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant, and equipment |
|
|
(9,094,577 |
) |
|
|
(155,985 |
) |
Intangible assets |
|
|
(5,691,850 |
) |
|
|
|
|
Other |
|
|
(82,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(14,869,005 |
) |
|
|
(155,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(14,202,351 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
Deferred
tax assets and liabilities included in the consolidated balance
sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current deferred tax asset, net |
|
$ |
13,487 |
|
|
$ |
155,985 |
|
Non-current deferred tax liability, net |
|
|
(14,215,838 |
) |
|
|
(155,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(14,202,351 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
F-26
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 17. LOSS PER SHARE
Loss per common share is calculated by dividing the loss applicable to common stockholders
by the weighted average number of common shares outstanding. We have determined that the Series A
Convertible Preferred Stock represents a participating security because holders of the Series A
Convertible Preferred Stock have rights to participate in any dividends on an as-converted
basis;therefore, basic earnings per common share is calculated consistent with the provisions of
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC or the
Codification) Subtopic 260-45 Participating Securities and the Two Class Method.
The following table reconciles net loss and common shares outstanding used in the calculations
of basic and diluted loss per share. Because holders of the Series A Convertible Preferred Stock do
not participate in losses, 2,580,000 shares of common stock equivalents were excluded from the
calculation of basic and diluted earnings per share for the year ended December 31, 2010. Further,
because a net loss was incurred during 2010 and 2009, dilutive instruments including the warrants
and convertible debentures produce an antidilutive net loss per share result. These excluded
shares totaled 24,193,465 and 5,798,502 for the years ended December 31, 2010 and 2009,
respectively. Therefore, the diluted loss per share reported in the accompanying consolidated
statements of operations for the years ended December 31, 2010 and 2009 are the same as the basic
loss per share amounts.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(19,650,865 |
) |
|
$ |
(3,357,496 |
) |
Attributable to participating securities |
|
|
(53,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss used in calculating basic and diluted loss per share |
|
$ |
(19,704,145 |
) |
|
$ |
(3,357,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic |
|
|
20,149,999 |
|
|
|
18,688,976 |
|
Attributable to participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calcuating basic and diluted loss per share |
|
|
20,149,999 |
|
|
|
18,688,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(0.98 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
F-27
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 18. 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 production and oilfield services. The oil and gas exploration and production
segment explores for and produces natural gas, crude oil,condensate, and NGLs. The oilfield
services segment, which consists solely of the operations of FDF, provides drilling, completion,
and specialized fluids, dry drilling and completion products, technical services, industrial
cleaning services, and equipment rental for the oil and gas industry.
The following tables present selected financial information of our operating segments for the
year ended December 31, 2010. Information presented below as Corporate and Intersegment
Eliminations includes results from operating activities that are not considered operating segments,
as well as corporate and certain financing activities. Prior to the acquisition of FDF, we
operated as a single segment enterprise. Accordingly, we do not present segment information for
the year ended December 31, 2009.
For
the year ended December 31, 2010, we had one customer who accounted for more than 10%
of our total consolidated revenues: BJ Services 14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
Oil Field |
|
|
|
|
|
|
Intersegment |
|
|
|
|
|
|
Services |
|
|
Oil and Gas |
|
|
Eliminations |
|
|
Total |
|
Year Ended December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil field services |
|
$ |
6,031,455 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,031,455 |
|
Drilling fluids |
|
|
1,059,008 |
|
|
|
|
|
|
|
|
|
|
|
1,059,008 |
|
Oil & gas |
|
|
|
|
|
|
204,906 |
|
|
|
|
|
|
|
204,906 |
|
Other |
|
|
|
|
|
|
576,981 |
|
|
|
|
|
|
|
576,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
7,090,463 |
|
|
|
781,887 |
|
|
|
|
|
|
|
7,872,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses and other, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold drilling fluids |
|
|
437,230 |
|
|
|
|
|
|
|
|
|
|
|
437,230 |
|
Production cost oil & gas |
|
|
|
|
|
|
14,489 |
|
|
|
|
|
|
|
14,489 |
|
Lease operating expenses |
|
|
|
|
|
|
128,872 |
|
|
|
|
|
|
|
128,872 |
|
Depreciation, depletion, and amortization |
|
|
690,369 |
|
|
|
82,457 |
|
|
|
|
|
|
|
772,826 |
|
Selling, general and administrative expenses |
|
|
5,739,505 |
|
|
|
2,539,725 |
|
|
|
2,640,483 |
|
|
|
10,919,713 |
|
Gain on sale of assets |
|
|
|
|
|
|
(466,902 |
) |
|
|
|
|
|
|
(466,902 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
(1,230 |
) |
|
|
(1,230 |
) |
Interest expense |
|
|
427,117 |
|
|
|
21,687 |
|
|
|
383,360 |
|
|
|
832,164 |
|
Accretion of preferred stock |
|
|
398,232 |
|
|
|
|
|
|
|
|
|
|
|
398,232 |
|
Equity in loss of unconsolidated subsidiaries |
|
|
|
|
|
|
8,750 |
|
|
|
308,408 |
|
|
|
317,158 |
|
Loss on sale of unconsolidated subsidiary |
|
|
|
|
|
|
|
|
|
|
870,750 |
|
|
|
870,750 |
|
Change in fair value of derivative |
|
|
13,301,755 |
|
|
|
|
|
|
|
|
|
|
|
13,301,755 |
|
Other income |
|
|
(5,141 |
) |
|
|
|
|
|
|
|
|
|
|
(5,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses and other, net |
|
$ |
20,989,067 |
|
|
|
2,329,078 |
|
|
|
4,201,771 |
|
|
|
27,519,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(13,898,604 |
) |
|
|
(1,547,191 |
) |
|
|
(4,201,771 |
) |
|
|
(19,647,566 |
) |
Income tax benefit (provision) |
|
|
(3,299 |
) |
|
|
|
|
|
|
|
|
|
|
(3,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(13,901,903 |
) |
|
$ |
(1,547,191 |
) |
|
$ |
(4,201,771 |
) |
|
$ |
(19,650,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
Oil Field |
|
|
|
|
|
|
Intersegment |
|
|
|
|
|
|
Services |
|
|
Oil & Gas |
|
|
Eliminations |
|
|
Total |
|
As of December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
$ |
15,311,299 |
|
|
$ |
243,185 |
|
|
$ |
165,400 |
|
|
$ |
15,719,884 |
|
Property, plant, and equipement, net |
|
|
43,295,611 |
|
|
|
1,861,262 |
|
|
|
|
|
|
|
45,156,873 |
|
Goodwill / intangible assets |
|
|
18,880,998 |
|
|
|
|
|
|
|
|
|
|
|
18,880,998 |
|
Deferred financing cost |
|
|
735,612 |
|
|
|
|
|
|
|
1,278,949 |
|
|
|
2,014,561 |
|
Other assets |
|
|
112,868 |
|
|
|
56,884 |
|
|
|
|
|
|
|
169,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
78,336,388 |
|
|
$ |
2,161,331 |
|
|
$ |
1,444,349 |
|
|
$ |
81,942,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
62,694,911 |
|
|
$ |
1,183,510 |
|
|
$ |
2,913,259 |
|
|
$ |
66,791,680 |
|
Long-term debt |
|
|
861,581 |
|
|
|
22,822 |
|
|
|
243,577 |
|
|
|
1,127,980 |
|
Senior Series A redeemable preferred stock |
|
|
398,232 |
|
|
|
|
|
|
|
|
|
|
|
398,232 |
|
Warrant derivative |
|
|
|
|
|
|
|
|
|
|
1,573,560 |
|
|
|
1,573,560 |
|
Asset retirement obligation |
|
|
|
|
|
|
50,078 |
|
|
|
|
|
|
|
50,078 |
|
Deferred income taxes |
|
|
14,215,838 |
|
|
|
|
|
|
|
|
|
|
|
14,215,838 |
|
Stockholders equity (deficit) |
|
|
165,826 |
|
|
|
904,921 |
|
|
|
(3,286,047 |
) |
|
|
(2,215,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
78,336,388 |
|
|
$ |
2,161,331 |
|
|
$ |
1,444,349 |
|
|
$ |
81,942,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
$ |
1,864,622 |
|
|
$ |
|
|
|
$ |
21,583 |
|
|
$ |
1,886,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of proved properties |
|
$ |
|
|
|
$ |
1,451,858 |
|
|
$ |
|
|
|
$ |
1,451,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized below.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Interest paid |
|
$ |
362,940 |
|
|
$ |
13,747 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Additions to property and asset retirement obligations |
|
$ |
5,115 |
|
|
$ |
38,780 |
|
|
|
|
|
|
|
|
Additions to property and equipment through issuance
of common stock and debt |
|
$ |
1,425,795 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Exchange of interests in oil and gas properties |
|
$ |
42,036 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Common stock issued in connection with acquisitions |
|
$ |
11,203,951 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Debt issued/assumed in acquisitions |
|
$ |
3,228,407 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Common stock issued for debt |
|
$ |
|
|
|
$ |
70,537 |
|
|
|
|
|
|
|
|
Issuance of derivative liability |
|
$ |
1,573,560 |
|
|
$ |
|
|
|
|
|
|
|
|
|
NOTE 20. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
In connection with our acquisition of FDF, on November 23, 2010, we entered into the Senior
Facility with a bank to provide for loans up to $24,000,000. The Senior Facility is secured by a
first lien on all of the assets of Acquisition Inc., including the interests in and all of the
assets of FDF. In addition, on November 23, 2010, we entered into the WayPoint Purchase Agreement
with WayPoint, whereby, in exchange for $20,000,001 cash, we issued to WayPoint (i) 20,750 shares
of Acquisition Inc. Senior Series A Redeemable Preferred Stock, (ii) one share of NYTEX Energy
Series B Preferred Stock, (iii) the Purchaser Warrant, and (iv) the Control Warrant. The Senior
Facility and the WayPoint Purchase Agreement contain various covenants and restrictions, including
the payment of distributions and dividends. With respect to distributions and dividends, our
principal operating subsidiary, FDF, is restricted from declaring dividends or otherwise make any
distributions, loans or advances to us, other than an agreed upon nominal monthly management fee.
The following condensed financial statements present our financial position as of December 31,
2010 and 2009 and our results of operations and cash flows for the two years in the period ended
December 31, 2010 on a parent-only basis.
In the parent company only financial statements, the investment in subsidiaries is stated at
cost plus equity in undistributed earnings of subsidiaries since the date of formation. Our share
of income or loss is recorded as equity in loss of subsidiaries. The parent company only financial
statements should be read in conjunction with our consolidated financial statements.
F-29
NYTEX ENERGY HOLDINGS, INC.
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
165,400 |
|
|
$ |
1,407 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
165,400 |
|
|
|
1,407 |
|
Deferred financing costs |
|
|
1,278,949 |
|
|
|
|
|
Investment in subsidiaries |
|
|
1,136,542 |
|
|
|
221,748 |
|
Investments in unconsolidated subsidiaries |
|
|
|
|
|
|
1,479,159 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,580,891 |
|
|
$ |
1,702,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit) |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
444,135 |
|
|
$ |
126,661 |
|
Debt current portion |
|
|
2,534,919 |
|
|
|
938,244 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,979,054 |
|
|
|
1,064,905 |
|
Debt |
|
|
243,577 |
|
|
|
|
|
Derivative liabilities |
|
|
1,573,560 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,796,191 |
|
|
|
1,064,905 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, Series A |
|
|
5,580 |
|
|
|
|
|
Preferred stock, Series B |
|
|
|
|
|
|
|
|
Common stock |
|
|
26,219 |
|
|
|
19,129 |
|
Additional paid-in capital |
|
|
24,750,200 |
|
|
|
7,911,434 |
|
Accumulated deficit |
|
|
(26,997,299 |
) |
|
|
(7,293,154 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
(2,215,300 |
) |
|
|
637,409 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,580,891 |
|
|
$ |
1,702,314 |
|
|
|
|
|
|
|
|
F-30
NYTEX ENERGY HOLDINGS, INC.
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
62,500 |
|
|
$ |
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general, and administrative
expenses |
|
|
2,640,483 |
|
|
|
27,850 |
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
2,640,483 |
|
|
|
27,850 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(2,577,983 |
) |
|
|
(27,850 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
1,230 |
|
|
|
600 |
|
Interest expense |
|
|
(383,360 |
) |
|
|
(157,739 |
) |
Equity in loss of subsidiaries |
|
|
(15,511,594 |
) |
|
|
(2,344,338 |
) |
Equity in loss of unconsolidated
subsidiaries |
|
|
(308,408 |
) |
|
|
(828,169 |
) |
Loss on sale of unconsolidated subsidiary |
|
|
(870,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(17,072,882 |
) |
|
|
(3,329,646 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(19,650,865 |
) |
|
$ |
(3,357,496 |
) |
|
|
|
|
|
|
|
F-31
NYTEX ENERGY HOLDINGS, INC.
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(19,650,865 |
) |
|
$ |
(3,357,496 |
) |
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated
subsidiaries |
|
|
308,408 |
|
|
|
828,169 |
|
Equity in loss of subsidiaries |
|
|
15,511,594 |
|
|
|
2,344,338 |
|
Share-based compensation |
|
|
1,015,525 |
|
|
|
|
|
Amortization of deferred financing fees |
|
|
35,766 |
|
|
|
|
|
Loss on disposal, net |
|
|
870,750 |
|
|
|
|
|
Change in working capital: |
|
|
|
|
|
|
|
|
Accounts payable
and accrued
expenses |
|
|
276,694 |
|
|
|
126,661 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,632,128 |
) |
|
|
(58,328 |
) |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
(4,621,335 |
) |
|
|
(3,303,001 |
) |
Investments in unconsolidated subsidiaries |
|
|
(99,999 |
) |
|
|
|
|
Proceeds from divestitures |
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4,321,334 |
) |
|
|
(3,303,001 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock and warrants |
|
|
181,100 |
|
|
|
2,177,538 |
|
Proceeds from the issuance of Series A convertible
preferred stock |
|
|
5,029,011 |
|
|
|
|
|
Proceeds from the issuance of 12% convertible debentures |
|
|
2,150,000 |
|
|
|
|
|
Borrowings under notes payable |
|
|
|
|
|
|
938,244 |
|
Payments on notes payable |
|
|
(706,710 |
) |
|
|
|
|
Issuance costs |
|
|
(535,946 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
6,117,455 |
|
|
|
3,115,782 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
163,993 |
|
|
|
(245,547 |
) |
Cash and cash equivalents at beginning of year |
|
|
1,407 |
|
|
|
246,954 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
165,400 |
|
|
$ |
1,407 |
|
|
|
|
|
|
|
|
F-32
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 21. SUPPLEMENTAL DISCLOSURE OF OIL & GAS OPERATIONS (Unaudited)
The following tables set forth supplementary disclosures for oil and gas producing activities
in accordance with FASB ASC Topic 932, Extractive Activities Oil and Gas.
Costs Incurred
A summary of costs incurred in oil and gas property acquisition, development, and exploration
activities (both capitalized and charged to expense) for the years ended December 31, 2010 and
2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Acquisition of proved properties |
|
$ |
1,451,858 |
|
|
$ |
714,995 |
|
|
|
|
|
|
|
|
Development costs |
|
$ |
|
|
|
$ |
178,953 |
|
|
|
|
|
|
|
|
Exploration costs |
|
$ |
|
|
|
$ |
47,744 |
|
|
|
|
|
|
|
|
Results of Operations for Producing Activities
The following table presents the results of operations for our oil and gas producing
activities for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Revenues |
|
$ |
204,906 |
|
|
$ |
206,026 |
|
Production costs |
|
|
(143,361 |
) |
|
|
(284,149 |
) |
Exploration expenses |
|
|
|
|
|
|
(47,744 |
) |
Depreciation, depletion, and valuation provisions |
|
|
(61,865 |
) |
|
|
(224,485 |
) |
|
|
|
|
|
|
|
|
|
|
(320 |
) |
|
|
(350,352 |
) |
Income tax expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations from producing activities |
|
$ |
(320 |
) |
|
$ |
(350,352 |
) |
|
|
|
|
|
|
|
Reserve Quantity Information
Reserve information for 2010 related to our proved developed producing properties is based on
estimates prepared by LaRoche Petroleum Consultants, Ltd. (LPC), independent petroleum engineers.
The technical persons responsible for preparing these reserve estimates meet the requirements
regarding qualifications, independence, objectivity, and confidentiality set forth in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the
Society of Petroleum Engineers. LPC is an independent firm of petroleum engineers, geologists, and
geophysicists; and are not employed on a contingent fee basis. Reserve information for 2010
related to our proved developed non-producing and proved undeveloped properties is based on
estimates prepared internally by NYTEXs staff petroleum engineer who, prior to February 2010, also
served as the Vice President of Exploration & Production for the Company. We did not perform any
recompletions to place proved developed non-producing (PDnP) reserves we reported as of December
31, 2009 into production during 2010. After performing a review of recompletions and new drills in
the area surrounding our PDnP reserves and finding no new data that would require revisions to our
2009 PDnP reserve calculations, the 2009 PDnP reserve volumes were
updated with the 2010 SEC pricing
and revised differentials as provided by LPC to calculate the PDnP reserves as of December 31,
2010.
Proved reserves are the estimated quantities that geologic and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are the quantities expected to be
recovered through existing wells with existing equipment and operating methods. Due to the inherent
uncertainties and the limited nature of reservoir data, such estimates are subject to change as
additional information becomes available. The reserves actually recovered and the timing of
production of these reserves may be substantially different from the original estimate. Revisions
result primarily from new information obtained from development drilling and production history,
and changes in economic factors. Oil reserves, which include condensate and natural gas liquids,
are stated in barrels and gas reserves are stated in thousands of cubic feet.
F-33
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
The following table presents our estimate of proved oil and gas reserves, all of which are
located in the United States. Such estimates have been prepared in accordance with guidelines
established by the SEC.
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
Gas |
|
|
|
(Bbls) |
|
|
(Mcf) |
|
Proved developed and undeveloped reserves: |
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
4,940 |
|
|
|
155,090 |
|
Revisions of previous estimates |
|
|
(10,150 |
) |
|
|
65,282 |
|
Purchase of minerals in place |
|
|
129,730 |
|
|
|
239,990 |
|
Production |
|
|
(1,610 |
) |
|
|
(6,702 |
) |
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
122,910 |
|
|
|
453,660 |
|
Revisions of previous estimates |
|
|
5,565 |
|
|
|
(34,469 |
) |
Purchase of minerals in place |
|
|
64,688 |
|
|
|
105,761 |
|
Sales of minerals in place |
|
|
(75,081 |
) |
|
|
(340,306 |
) |
Production |
|
|
(1,981 |
) |
|
|
(10,285 |
) |
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
116,101 |
|
|
|
174,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves: |
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
121,620 |
|
|
|
453,660 |
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
116,101 |
|
|
|
174,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved undeveloped reserves: |
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
1,290 |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to
Proved Oil and Gas Reserves
The following table, which presents a standardized measure of discounted future net cash flows
(standardized measure) and changes in such cash flows, is presented pursuant to ASC 932. In
computing this data, assumptions other than those required by the FASB could produce different
results. Accordingly, the standardized measure should not be construed as being representative of
managements estimate of the Companys future cash flows or the value of the Companys proved oil
and gas reserves. Probable and possible reserves, which may become proved in the future, are
excluded from the calculations. Furthermore, prices used to determine the standardized measure of
discounted cash flows are influenced by seasonal demand and other factors and may not be the most
representative in estimating future revenues or reserve data.
Our reserve calculations and future cash inflows as of December 31, 2010 and 2009 have been
prepared and presented under new SEC rules. These new rules are effective for fiscal years ending
on or after December 31, 2009, and require SEC reporting companies to prepare their reserves
estimates using revised reserve definitions and revised pricing based on a 12-month unweighted
average of the first-day-of-the-month pricing. The previous rules required that reserve estimates
be calculated using last-day-of-the-period pricing. The average prices used for 2009 and 2010 under
these new rules were $75.96 and $61.08, respectively, per Bbl for oil and $4.38 and $4.24,
respectively, per Mcf for natural gas, each as adjusted for location, grade and quality. Future
price changes were considered only to the extent provided by contractual arrangements in existence
at year-end. Future development and production costs were computed by estimating the expenditures
to be incurred in developing and producing the proved oil and gas reserves at the end of the year,
based on year-end costs. Future income tax expenses were computed by applying the year-end
statutory tax rate, with consideration of future tax rates already legislated as well as tax
credits and allowances relating to our proved oil and gas reserves, to the future pre-tax net cash
flows relating to our proved oil and gas reserves.
F-34
NYTEX ENERGY HOLDINGS, INC.
Notes to Consolidated Financial Statements
The standardized measure of our proved oil and gas reserves at December 31, 2010 and 2009,
which represents the present value of estimated future cash flows using a discount rate of 10% a
year, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Future cash inflows |
|
$ |
9,621,827 |
|
|
$ |
9,386,770 |
|
Future production and development costs |
|
|
(3,923,945 |
) |
|
|
(4,233,130 |
) |
Future income taxes |
|
|
(1,064,010 |
) |
|
|
(1,122,580 |
) |
|
|
|
|
|
|
|
Future net cash flows |
|
|
4,633,872 |
|
|
|
4,031,060 |
|
10% annual discount for estimated timing of cash flows |
|
|
(1,412,312 |
) |
|
|
(1,297,540 |
) |
|
|
|
|
|
|
|
Standardized measure of discounted net cash flows |
|
$ |
3,221,560 |
|
|
$ |
2,733,520 |
|
|
|
|
|
|
|
|
Changes in the standardized measure of our proved oil and gas reserves for the years
ended December 31, 2010 and 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Beginning of year |
|
$ |
2,733,520 |
|
|
$ |
379,050 |
|
Sales of oil and gas produced, net of operating costs |
|
|
(61,545 |
) |
|
|
78,123 |
|
Net change in prices and production costs |
|
|
1,859,690 |
|
|
|
(1,204,160 |
) |
Purchases and sales of minerals in place |
|
|
(198,690 |
) |
|
|
3,126,030 |
|
Estimated future development costs |
|
|
(132,990 |
) |
|
|
118,870 |
|
Revisions of previous estimates |
|
|
(729,963 |
) |
|
|
(445,173 |
) |
Accretion of discount |
|
|
(261,193 |
) |
|
|
373,240 |
|
Net change in income taxes |
|
|
12,731 |
|
|
|
307,540 |
|
|
|
|
|
|
|
|
End of year |
|
$ |
3,221,560 |
|
|
$ |
2,733,520 |
|
|
|
|
|
|
|
|
F-35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
|
|
|
|
|
Securities and Exchange Commission Registration Fee*
|
|
$
|
|
|
Legal Fees and Expenses*
|
|
|
|
|
Accounting Fees and Expenses*
|
|
|
|
|
Printing Expenses*
|
|
|
|
|
Trustee Fees and Expenses*
|
|
|
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|
Total Expenses*
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|
|
|
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* |
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To be provided by amendment. |
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
As permitted by Section 102 of the DGCL, our bylaws include
a provision that eliminates the personal liability of our
directors and officers for losses sustained by us, except to the
extent such losses have resulted from such directors or
officers own willful misconduct, willful neglect or
negligence.
Section 145 of the DGCL provides that a corporation may
indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any
threatened, pending or completed action, suit or proceeding in
which such person is made a party or who is threatened to be
made a party by reason of such person being or having been a
director, officer, employee of or agent to the corporation. The
statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
As permitted by Section 145 of the DGCL, we have provided
for indemnification of our directors and officers. First, our
certificate of incorporation includes a provision that requires
us to indemnify each of our directors and officers to the
fullest extent allowed by the Delaware law. Second, our bylaws
include a provision that requires us to indemnify each of our
directors and officers against all reasonable costs, expenses
and liabilities (including reasonable attorneys fees)
actually and necessarily incurred by such person in connection
with any claim, action, suit, proceeding, investigation or
inquiry by reason of such person being or having been a director
or officer of our company, except in relation to matters as to
which such person is adjudged to be liable for willful
misconduct, willful neglect or negligence in the performance of
such persons duties. Third, we have entered into
indemnification agreements with each of our directors. The
indemnification agreements provide for indemnification of each
director to the fullest extent permitted by applicable law
against all expenses, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred in
connection with any claim, action, suit, proceeding,
investigation or inquiry, by reason of such person being a
director or officer of our company, including, without
limitation, all liability arising out of the negligence or
active or passive wrongdoing of such person. The only limitation
under the indemnification agreements is that we are not
obligated to make any payments to a director that is determined
to not be permitted by law.
We also carry directors and officers insurance
providing indemnification for our directors, officers and
certain employees for some liabilities. We believe that these
indemnification provisions and insurance are useful to attract
and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in
our certificate of incorporation and bylaws and the
indemnification agreements that we have entered into with our
directors may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood
of derivative litigation against directors and officers, even
though such an action, if successful, might otherwise benefit us
and our stockholders. In addition, an investment in us may be
adversely affected to the extent we pay the costs of settlement
and damage awards against directors and officers pursuant to the
above indemnification provisions.
II-1
|
|
Item 15.
|
Recent
Sales of Unregistered Securities
|
During the past year, we have issued unregistered securities as
described below. We believe that each of these transactions was
exempt from registration requirements pursuant to Rule 506
of the Securities Act because all investors in our securities
were at the time of such unregistered sales accredited investor
as that term is defined inside Regulation D.
|
|
1.
|
Francis
Group Transaction
|
On November 23, 2010, Acquisition Inc. acquired 100% of the
membership interests of Oaks. Oaks is the owner of all of the
issued and outstanding shares of common stock of FDF. FDF is 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 & gas industry. Headquartered in Crowley,
Louisiana, FDF operates out of 20 locations in Texas, Oklahoma,
Wyoming, North Dakota, including three coastal Louisiana
facilities which provide services on land and off-shore Gulf of
Mexico. FDFs suite of fluid products includes water based,
oil based and synthetic liquid drilling mud, oil based and
hematite products, viscosifiers, fluid conditioners, as well as
lubricants, detergents, defoamers and completion fluids.
FDFs completion fluids include calcium, sodium, zinc
bromide, salt water, calcium chloride and potassium chloride.
FDFs dry products include frac sand, proppants, cement and
fly ash and sack drilling mud. As part of its total solution,
FDF offers transportation, technical and support services,
environmental support services and industrial cleaning of
drilling rigs, tanks, vessels and barges and offers rental
equipment in the form of tanks, liquid mud barges, mud pumps,
etc. FDF is a distributor, warehouser and transloader of frac
sand, proppants and liquid drilling mud authorized to distribute
in 39 states. FDFs customers include exploration and
production companies, oilfield and drilling service companies
and frac sand and proppant manufacturers and international
brokerage companies of proppants.
As consideration for the acquisition of the Francis Group we
paid $52,677,466 consisting of (i) $21,500,000 in cash,
(ii) 5,407,339 shares of our Common Stock, valued at
$2.00 per share, equaling $10,814,678 at closing, (iii) a
Promissory Note payable to Diana Istre Francis in the original
principal amount of $750,000 and (iv) the payoff of
$19,612,788 in Francis Groups debt.
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|
2.
|
WayPoint
Preferred Stock and Warrant Transaction
|
In order to finance the FDF Acquisition, we and Acquisition Inc.
entered into WayPoint Purchase Agreement, whereby, in exchange
for $20,000,000 cash from WayPoint (a) Acquisition Inc.
issued to WayPoint 20,750 shares of Acquisition Inc.s
Senior Series A Redeemable Preferred Stock, and (b) we
(i) issued to WayPoint (A) one share of the
Companys Series B Preferred Stock, (B) the
Purchase Warrant and (C) the Control Warrant, and
(ii) granted WayPoint certain registration rights.
A.
Company Rights and Obligations
In connection with the WayPoint Transaction, we authorized the
creation of a new class of Series B Preferred Stock,
constituting of one authorized share and with the rights,
preferences and obligations set forth in the Series B
Preferred Stock Certificate of Designation filed with the
Secretary of State of the State of Delaware. The one authorized
share of Series B Preferred Stock was issued to WayPoint.
The Series B Redeemable Preferred Stock provides the holder
thereof the right to designate two members to the Board of
directors of the Company, and upon the occurrence of a Default,
the holder may cause us to increase the number of directors of
our board of directors, and elect such additional members, so
that the holder is able to designate a majority of our board of
directors.
The Purchaser Warrant is exercisable until the tenth anniversary
from the issuance thereof at an exercise price of $0.01 per
share. The Purchaser Warrant provides anti-dilution protection
so that the number of shares that may be purchased pursuant to
the Purchase Warrant shall be equal to 35% of the then
outstanding shares of Common Stock of the Company, as measured
at the time of exercise.
II-2
The Control Warrant is exercisable at an exercise price of $0.01
per share, upon the earliest to occur of (i) the occurrence
of a Default that remains uncured for seventy-five days;
provided, that payment to the holders of Senior Series A
Redeemable Preferred Stock of all amounts owing to them as a
result of a Default
II-2.1
shall be considered a cure of a Default; (ii) the date on
which a Change of Control, if Acquisition Inc. is not able to
redeem all of the Senior Series A Redeemable Preferred
Stock in accordance with its terms; (iii) seventy-five days
after the date on which the third Default has occurred within a
consecutive twelve-month period, however, on April 1, 2011,
the Company entered into a First Amendment and Waiver with
WayPoint regarding the Purchase Agreement under which WayPoint
waived to exercise the Control Warrant because there were at
least three event of default but amended the Purchase Agreement
such that, upon the occurrence of on further default, WayPoint
may exercise the Control Warrant; and (iv) May 23,
2016, if Acquisition Inc. is not able to redeem all of the
Senior Series A Redeemable Preferred Stock in accordance
with its terms.
Additionally, after November 23, 2011, WayPoint can require
the Company to file a registration statement, registering for
resale all shares of Common Stock issuable upon exercise of the
WayPoint Warrants. WayPoint was also granted piggyback
registration rights for any registration statement after this
registration statement and any registration statement we file
with respect to Common Stock held by Diana Francis. If we are
required to file a registration statement registering securities
for resale by WayPoint and the registration statement is not
timely filed, does not become effective within a certain time
period, or ceases to be available for sales thereunder for
certain time periods, then we must pay WayPoint an amount in
cash equal to one percent (1%) of the value of WayPoints
securities on the date of such event and each monthly
anniversary thereof until cured, subject to a cap of ten percent
(10%) of the value of WayPoints registrable securities.
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|
3.
|
Private
Placement of Series A Preferred Stock
|
A.
Private Placement
On November 23, 2010, the Company concluded the Offering of
its Series A Preferred Stock.
The holders of Series A Preferred Stock are entitled to
payment of dividends from us of 9% of the purchase price per
share of $1.00, with such dividends payable quarterly. Dividends
are payable out of any assets legally available therefor prior
and in preference to any declaration or payment of any dividend
to the holders of our Common Stock. Such dividends accrue from
the date of issuance of the Series A Preferred Stock and
accrue day to day, whether or not declared. Such dividends are
cumulative so that if such dividends in respect of any previous
or current annual dividend period shall not have been paid, the
deficiency shall first
II-3
be fully paid before any dividend or other distribution shall be
paid on or declared and set apart for the Common Stock.
Additionally, each holder of Series A Preferred has the
right, at the option of the holder at any time, to convert
shares of Series A Preferred into shares of Common Stock at
an initial conversion ratio of
one-to-one.
The Series A Preferred Stock matures at the end of
72 months from the date of issuance, at which time the
Series A holders will sell their shares back to Company at
face value.
The Series A Warrants are exercisable for three years at an
exercise price equal $2.00 per share. The Series A Warrants
provide for full ratchet price protection for a two year period,
followed by weighted average price protection for the balance of
the warrant term. The Series A Warrants contain customary
anti-dilution adjustments in the event of stock splits, stock
dividends and other similar corporate events. The Series A
Warrants may also be exercised on a cashless-exercise basis by
investors if a resale registration statement covering the shares
underlying the Series A Warrants has not been declared effective
within six months after their issuance. In addition, if a
registration statement registering for resale all shares of
Common Stock issuable upon conversion of the Series A
Preferred Stock and issuable upon exercise of the Series A
Warrants is not declared effective within 120 days of February
9, 2011, we must pay to each holder of registrable securities an
amount in cash equal to two percent of such holders
investment amount on every 30 day anniversary of such
failure until such failure is cured, up to a maximum amount of
12% of each holders investment amount.
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|
Item 16.
|
Exhibits
and Financial Statement Schedules
|
See the Exhibit Index, which is incorporated herein by
reference.
The undersigned registrant hereby undertakes:
(a) to file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement:
(1) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933.
(2) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement.
(3) to include any additional material information on the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement; provided, however,
that paragraphs (a)(1) and (a)(2) do not apply if the
information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Securities and Exchange
Commission by the Company pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(b) that, for determining liability under the Securities
Act of 1933, the Company will treat each post-effective
amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be
the initial bona fide offering.
(c) to remove from registration by means of a
post-effective amendment any of the securities that remain
unsold at the end of the offering.
II-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NYTEX Energy Holdings, Inc.
|
|
|
|
By: /s/
|
Michael K. Galvis
|
Michael K. Galvis
President and Chief Executive Officer
April 15, 2011
We, the undersigned officers and directors of NYTEX Energy
Holdings, Inc., hereby severally constitute and appoint Michael
K. Galvis and Kenneth K. Conte, and each of them singly (with
full power to each of them to act alone), our true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution in each of them for him and in his name,
place and stead, and in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this
registration statement (or any other registration statement for
the same offering that is to be effective upon filing pursuant
to Rule 462(b) under the Securities Act of 1933), and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as each
of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
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|
/s/ Michael
K. Galvis
Michael
K. Galvis
|
|
President, Chief Executive Officer, and Director
(Principal Executive Officer)
|
|
April 15, 2011
|
|
|
|
|
|
/s/ Kenneth
K. Conte
Kenneth
K. Conte
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
April 15, 2011
|
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|
|
|
|
/s/ William
G. Brehmer
William
G. Brehmer
|
|
Director
|
|
April 15, 2011
|
|
|
|
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|
/s/ Thomas
Drechsler
Thomas
Drechsler
|
|
Director
|
|
April 15, 2011
|
|
|
|
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|
/s/ John
Henry Moulton
John
Henry Moulton
|
|
Director
|
|
April 15, 2011
|
|
|
|
|
|
/s/ Jonathan
Rich
Jonathan
Rich
|
|
Director
|
|
April 15, 2011
|
II-5
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
Document
|
|
|
2
|
.1
|
|
Membership Interests Purchase Agreement by and among NYTEX
Energy Holdings, Inc. (the Company),
Francis Drilling Fluids, Ltd., Francis Oaks, L.L.C. and the
Members of Francis Oaks, L.L.C. dated November 23, 2010
(filed as Exhibit 10.1 to the Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
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3
|
.1
|
|
Certificate of Incorporation of the Company, as amended (filed
as Exhibit 3.1 to the Companys
Form 10-12G/A
filed August 12, 2010 and incorporated herein by reference)
|
|
3
|
.2
|
|
Bylaws of the Company, as amended (filed as Exhibit 3.2 to
the Companys
Form 10-12G/A
filed August 12, 2010 and incorporated herein by reference)
|
|
4
|
.1*
|
|
Form of stock certificate for shares of Common Stock of the
Company
|
|
4
|
.2*
|
|
Form of stock certificate for Series A Preferred Stock of
the Company
|
|
4
|
.3*
|
|
Form of stock certificate for Series B Preferred Stock of the
Company
|
|
4
|
.4
|
|
Form of purchaser warrant (filed as Exhibit 10.7 to the
Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
|
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4
|
.5
|
|
Form of control warrant (filed as Exhibit 10.7 to the
Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
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4
|
.6
|
|
Form of Registration Rights Agreement between WayPoint Nytex,
LLC and the Company dated November 23, 2010 (filed as
Exhibit 10.8 to the Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
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4
|
.7*
|
|
Form of warrant issued in connection with the issuance of
Series A Preferred Stock dated November 23, 2010
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4
|
.8
|
|
Form of warrant issued in connection with the issuance of
12% Convertible Debentures of the Company dated
November 23, 2010 (filed as Exhibit 10.2 to the
Companys
Form 8-K
filed November 10, 2010 and incorporated herein by
reference)
|
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4
|
.9*
|
|
Form of Registration Rights Agreement between the Company and
the holders of Series A Preferred Stock dated
November 23, 2010
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4
|
.10
|
|
Form of Registration Rights Agreement between the Company and
the holders of the Debentures dated August 13, 2010 (filed
as Exhibit 10.4 to the Companys
Form 8-K
filed November 10, 2010 and incorporated herein by
reference)
|
|
4
|
.11
|
|
Amended and Restated Certificate of Designation in respect of
Senior Series A Preferred Stock (filed as Exhibit 10.9
to the Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
|
|
4
|
.12
|
|
Amended and Restated Certificate of Designation in respect of
Senior Series B Redeemable Preferred Stock (filed as
Exhibit 10.10 to the Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
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5
|
.1*
|
|
Legal Opinion of Strasburger & Price, LLP
|
|
10
|
.1
|
|
Revolving Credit, Term Loan and Security Agreement among the
Company, Francis Oaks, L.L.C., Francis Drilling Fluids, Ltd. and
PNC Bank, National Association, dated November 23, 2010
(filed as Exhibit 10.5 to the Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
|
|
10
|
.2
|
|
Preferred Stock and Warrant Purchase Agreement among the
Company, NYTEX FDF Acquisition, Inc. and WayPoint NYTEX, LLC,
dated November 23, 2010 (filed as Exhibit 10.6 to the
Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
|
|
10
|
.3*
|
|
Placement Agency Agreement between the Company and National
Securities Corporation, dated October 8, 2010.
|
|
10
|
.4
|
|
Form of Securities Purchase Agreement between the Company and
holders of 12% Convertible Debentures dated
October 12, 2010 (filed as Exhibit 10.3 to the
Companys
Form 8-K
filed November 10, 2010 and incorporated herein by
reference)
|
|
10
|
.5
|
|
Form of 12% Convertible Debenture issued by the Company to
holders thereof dated October 12, 2010 (filed as
Exhibit 10.3 to the Companys
Form 8-K
filed November 10, 2010 and incorporated herein by
reference)
|
|
10
|
.6*
|
|
Lease with Capital One Bank, N.A., Account Number 3109321057
|
|
|
|
|
|
Exhibit
|
|
Document
|
|
|
10
|
.7*
|
|
Lease with Capital One Bank, N.A., Account Number 3109321058
|
|
10
|
.8*
|
|
Lease with Capital One Bank, N.A., Account Number 3109321059
|
|
10
|
.9*
|
|
Lease with Capital One Bank, N.A., Account Number 3109321061
|
|
10
|
.10*
|
|
Lease with Capital One Bank, N.A., Account Number 3109321063
|
|
10
|
.11*
|
|
Lease with PACCAR Financial Services, LLC, Account Number
900-651-600-00006063374
|
|
10
|
.12*
|
|
Lease with PACCAR Financial Services, LLC, Account Number
900-651-600-00006068985
|
|
10
|
.13*
|
|
Lease with PACCAR Financial Services, LLC, Account Number
900-681-600-00006070502
|
|
10
|
.14
|
|
Employment Agreement between the Company and Michael K. Galvis,
dated April 28, 2009 (filed as Exhibit 10.1 to the
Companys
Form 10-12G/A
filed August 12, 2010 and incorporated herein by reference)
|
|
10
|
.15*
|
|
Employment Agreement between Francis Drilling Fluids, Ltd. and
Michael K. Galvis, dated November 23, 2010.
|
|
10
|
.16
|
|
Employment Agreement between the Company and Kenneth K. Conte,
dated June 1, 2010 (filed as Exhibit 10.1 to the
Companys
Form 8-K
filed on October 8, 2010 and incorporated herein by
reference)
|
|
10
|
.17
|
|
Employment Agreement between the Company and Georgianna Hanes,
dated April 28, 2009 (filed as Exhibit 10.2 to the
Companys
Form 10-12G/A
filed August 12, 2010 and incorporated herein by reference)
|
|
10
|
.18
|
|
Employment Agreement between the Company and William G. Brehmer,
dated April 28, 2009 (filed as Exhibit 10.3 to the
Companys
Form 10-12G/A
filed August 12, 2010 and incorporated herein by reference)
|
|
10
|
.19
|
|
Employment Agreement between Francis Drilling Fluids, Ltd. and
Michael G. Francis, dated November 23, 2010 (filed as
Exhibit 10.3 to the Companys
Form 8-K
filed November 30, 2010 and incorporated herein by
reference)
|
|
10
|
.20*
|
|
Employment Agreement between Francis Drilling Fluids, Ltd. and
Jude Gregory, dated November 23, 2010
|
|
10
|
.21*
|
|
Indemnification Agreement between the Company and Thomas
Dreschler, dated November 23, 2010
|
|
10
|
.22*
|
|
Indemnification Agreement between the Company and John Henry
Moulton, dated November 23, 2010
|
|
10
|
.23*
|
|
Indemnification Agreement between the Company and Jonathan Rich,
dated April 1, 2011
|
|
10
|
.24*
|
|
Indemnification Agreement between the Company and Michael K.
Galvis, dated April 1, 2011
|
|
10
|
.25*
|
|
Indemnification Agreement between the Company and William
Brehmer, dated April 1, 2011
|
|
10
|
.26*
|
|
Indemnification Agreement between the Company and Michael G.
Francis, dated April 14, 2011
|
|
10
|
.27*
|
|
Form of Amendment to 12% Convertible Debenture issued by the
Company to holders thereof
dated
|
|
10
|
.28
|
|
Form of 9% Convertible Debentures of NYTEX Petroleum
|
|
21
|
.1*
|
|
List of Subsidiaries of Company
|
|
23
|
.1*
|
|
Consent of Whitley Penn, LLP
|
|
23
|
.2*
|
|
Consent of Strasburger & Price, LLP (included in
Exhibit 5.1)
|
|
23
|
.3*
|
|
Consent of LaRoche Petroleum Consultants, Ltd.
|
|
24
|
.1
|
|
Power of Attorney (included in Signature Page)
|
|
99
|
.1
|
|
Report of LaRoche Petroleum Consultants, Ltd.
dated (filed
as Exhibit 99 to the Companys
Form 10-K
for period ended December 31, 2010 filed on April 15,
2011 and incorporated herein by reference)
|
|
|
|
* |
|
To be filed by amendment |