Sable Natural Resources Corp - FORM 10-Q

Sable Natural Resources Corp - FORM 10-Q - May 15, 2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

Commission File Number: 53915

NYTEX ENERGY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-1080045

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12222 Merit Drive, Suite 1850

Dallas, Texas

75251

(Address of principal executive offices)

(Zip Code)

972-770-4700

(Registrant’s telephone number, including area code)

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

None

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

Common Stock, $0.001 par value per share

(Title of class)

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

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

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

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

As of May 7, 2012, the registrant had 24,341,292 shares of common stock outstanding.

TABLE OF CONTENTS


		Page
	PART I
	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited):

	Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		4

	Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011		5

	Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2012 and 2011		6

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011		7

	Notes to Consolidated Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		34

Item 4.	Controls and Procedures		34

	PART II
	OTHER INFORMATION

Item 1.	Legal Proceedings		36

Item 1A.	Risk Factors		36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42

Item 3.	Defaults Upon Senior Securities		42

Item 4.	(Removed and Reserved)		42

Item 5.	Other Information		42

Item 6.	Exhibits		44

Signatures			45

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 potential sale of our Oilfield Services business, the volatility of natural gas and oil prices, our dependence on our key personnel, factors that affect our ability to manage our growth and achieve our business strategy, technological changes, our significant capital requirements, the potential impact of government regulations, adverse regulatory determinations, litigation, competition, business and equipment acquisition risks, availability of equipment, weather, availability of financing, financial condition of our industry partners, ability of industry partners/customers to obtain permits and other factors detailed herein. Some of the factors that could cause actual results to differ from those expressed or implied in forward-looking statements are described under “Risk Factors” and in our Form 10-K for the year ended December 31, 2011 filed with the U.S. Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement.

PART I

Item 1. Financial Statements

NYTEX ENERGY HOLDINGS, INC.

Consolidated Balance Sheets


	March 31, 2012 (Unaudited)			December 31, 2011
Assets
Current assets:
Cash and cash equivalents	$	39,925		$	10,817
Accounts receivable, net		13,588,412			15,795,637
Inventories		1,683,402			1,497,066
Prepaid expenses and other		2,287,962			3,159,255
Deferred tax asset, net		248,608			224,326

Total current assets		17,848,309			20,687,101

Property, plant, and equipment, net		39,326,839			41,034,740
Other assets:
Deferred financing costs		1,523,954			1,623,076
Intangible assets, net		12,456,657			12,829,846
Goodwill		5,643,618			5,643,618
Deposits and other		122,164			122,165

Total assets	$	76,921,541		$	81,940,546

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	9,889,214		$	11,485,958
Accrued expenses		6,180,863			5,186,417
Revenues payable		8,986			7,700
Wells in progress		502,106			502,106
Derivative liabilities		9,610,000			5,343,000
Debt - current portion		19,974,221			22,538,080

Total current liabilities		46,165,390			45,063,261

Other liabilities:
Debt		2,548,311			2,715,263
Senior Series A redeemable preferred stock		5,114,141			4,170,959
Deferred tax liabilities		14,475,181			14,758,395

Total liabilities		68,303,023			66,707,878

Commitments and contingencies (Note 8)

Stockholders’ equity:
Preferred stock, Series A convertible, $0.001 par value; 10,000,000 shares authorized; 5,761,028 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		5,761			5,761
Preferred stock, Series B, $0.001 par value; 1 share authorized; 1 share issued and outstanding at March 31, 2012 and December 31, 2011, respectively		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized; 27,487,723 and 27,467,723 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively		27,488			27,468
Additional paid-in capital		26,057,713			25,974,600
Accumulated deficit		(17,467,427	)		(10,775,161	)

Total NYTEX Energy Holdings, Inc. stockholders’ equity		8,623,535			15,232,668

Non-controlling interest		(5,017	)		—

Total equity		8,618,518			15,232,668

Total liabilities and stockholders’ equity	$	76,921,541		$	81,940,546

See accompanying Notes to Consolidated Financial Statements

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Operations

(Unaudited)


	For the Three Months Ended March 31,
	2012			2011
Revenues:
Oilfield services	$	17,730,316		$	16,532,098
Drilling fluids		2,319,900			2,019,804
Oil and gas		12,430			78,345
Other		950,110			76,425

Total revenues		21,012,756			18,706,672

Operating expenses:
Cost of goods sold - drilling fluids		778,968			510,700
Oil & gas lease operating expenses		6,566			37,764
Depreciation, depletion, and amortization		2,291,432			2,164,667
Selling, general, and administrative expenses		18,166,162			17,259,552
Loss on litigation settlement		—			965,065
(Gain) loss on sale of assets, net		63,732			(61,758	)

Total operating expenses		21,306,860			20,875,990

Loss from operations		(294,104	)		(2,169,318	)

Other income (expense):
Interest income		—			284
Interest expense		(1,308,340	)		(1,220,613	)
Change in fair value of derivative liabilities		(4,267,000	)		(12,866,174	)
Accretion of preferred stock liability		(943,182	)		(943,182	)
Other		4,422			(13,665	)

Total other expense		(6,514,100	)		(15,043,350	)

Loss before income taxes		(6,808,204	)		(17,212,668	)

Income tax benefit		240,193			412,284

Net loss		(6,568,011	)		(16,800,384	)
Non-controlling interest		5,017			—

Net loss attributable to NYTEX Energy Holdings, Inc.		(6,562,994	)		(16,800,384	)
Preferred stock dividends		(129,272	)		(132,900	)

Net loss to common stockholders	$	(6,692,266	)	$	(16,933,284	)

Net loss per share, basic and diluted	$	(0.24	)	$	(0.65	)

Weighted average shares outstanding, basic and diluted		27,472,558			26,224,480

See accompanying Notes to Consolidated Financial Statements

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)


	Series A Convertible Preferred Stock				Series B Preferred Stock				Common Stock				Additional Paid-In Capital			Accumulated Deficit			Non- Controlling Interest			Total
	Shares		Amounts		Shares		Amounts		Shares		Amounts		Additional Paid-In Capital			Accumulated Deficit			Non- Controlling Interest			Total
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	)

Issuance of Series A Convertible Preferred Stock		420,000		420										369,050									369,470
Shares issued for share-based compensation and services										16,667		17		80,584									80,601
Issuance of warrant derivative														(118,440	)								(118,440	)
Dividend declared																	(132,900	)					(132,900	)
Net loss																	(16,800,384	)		—			(16,800,384	)

Balance at March 31, 2011		6,000,000	$	6,000		1	$	—		26,236,332	$	26,236	$	25,081,394		$	(43,930,583	)	$	—		$	(18,816,953	)

Balance at December 31, 2011		5,761,028	$	5,761		1	$	—		27,467,723	$	27,468	$	25,974,600		$	(10,775,161	)				$	15,232,668

Shares issued for debt										20,000		20		32,980									33,000
Share-based compensation														50,133									50,133
Dividends declared																	(129,272	)					(129,272	)
Net loss		—		—		—		—		—		—		—			(6,562,994	)		(5,017	)		(6,568,011	)

Balance at March 31, 2012		5,761,028	$	5,761		1	$	—		27,487,723	$	27,488	$	26,057,713		$	(17,467,427	)	$	(5,017	)	$	8,618,518

See accompanying Notes to Consolidated Financial Statements

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Three Months Ended March 31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(6,568,011	)	$	(16,800,384	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, and amortization		2,291,432			2,164,667
Bad debt expense		(80,943	)		48,570
Share-based compensation		50,133			80,601
Deferred income taxes		(307,496	)		(483,047	)
Accretion of discount on asset retirement obligations		—			2,607
Amortization of debt discount		15,028			39,819
Amortization of deferred financing fees		99,122			99,121
Accretion of Senior Series A redeemable preferred stock liability		943,182			943,182
Change in fair value of derivative liabilities		4,267,000			12,866,174
Loss on litigation settlement		—			965,065
(Gain) loss on sale of assets		63,732			(61,758	)
Change in working capital:
Accounts receivable		2,288,168			686,199
Inventories		(186,336	)		(59,570	)
Prepaid expenses and other		871,293			598,073
Accounts payable and accrued expenses		(731,569	)		975,761
Other liabilities		1,286			94,067

Net cash provided by operating activities		3,016,021			2,159,147

Cash flows from investing activities:
Additions to property, plant, and equipment		(300,687	)		(2,575,155	)
Proceeds from sale of property, plant, and equipment		26,613			220,776

Net cash used in investing activities		(274,074	)		(2,354,379	)

Cash flows from financing activities:
Proceeds from the issuance of Series A convertible preferred stock		—			369,470
Proceeds from the issuance of 9% convertible debentures		—			973,471
Borrowings under senior facility		21,600,264			20,450,082
Payments under senior facility		(23,178,807	)		(21,195,868	)
Payments on notes payable		(1,134,296	)		(600,734	)

Net cash used in financing activities		(2,712,839	)		(3,579	)

Net increase (decrease) in cash and cash equivalents		29,108			(198,811	)
Cash and cash equivalents at beginning of year		10,817			209,498

Cash and cash equivalents at end of year	$	39,925		$	10,687

See accompanying Notes to Consolidated Financial Statements

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1. NATURE OF BUSINESS

NYTEX Energy Holdings, Inc. (“NYTEX Energy”) is an energy holding company with operations centralized in two 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 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 5). On May 4, 2012, certain subsidiaries of ours entered into an Agreement and Plan of Merger (the “Merger Agreement”) with an unaffiliated third party, FDF Resources Holdings LLC (the “Purchaser”). Pursuant to the Merger Agreement, Oaks was merged into the Purchaser and, as a result, FDF is now owned by an unaffiliated third party. See below for further discussion.

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

NYTEX Energy, 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 is engaged in the acquisition, development, and resale of oil and gas leasehold properties in Texas. NYTEX Petroleum also acquires overriding royalty and working interests in the leasehold properties’ production of oil and gas reserves.

Petro Staffing Group, LLC (“PSG”), a subsidiary of the Company formed in March 2012, is a full-service staffing agency providing the energy marketplace with temporary and full-time professionals. PSG sources, evaluates, and delivers quality candidates to address the demand for personnel within the oil & gas industry. NYTEX Energy owns 80% of PSG resulting in a non-controlling interest.

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

Disposition of FDF and Liquidity

As more fully reported on Form 8-K on May 10, 2012, on May 4, 2012, (the “Closing Date”), Acquisition Inc., together with New Francis Oaks, LLC, a Delaware limited liability company (“New Francis Oaks”, formerly Francis Oaks, LLC ) and a wholly-owned subsidiary of Acquisition Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”) with an unaffiliated third party, FDF Resources Holdings LLC, a Delaware limited liability company (the “Purchaser”). Pursuant to the terms of the Merger Agreement, New Francis Oaks merged with and into the Purchaser, and the Purchaser continued as the surviving entity after the merger (the “Disposition” or the “Merger”). New Francis Oaks owns 100% of the outstanding shares of FDF, and, as a result of the Disposition, we no longer own FDF.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

2010, between the Company and FDF (the “Management Agreement”); (vii) the payment of certain transaction bonuses payable to certain FDF employees; and (viii) the Purchaser’s delivery of $6,250,000 of the Merger Proceeds (the “Escrow Fund”) to The Bank of New York Mellon Trust Company, N.A., as escrow agent, to be held in escrow under the Escrow Agreement (as defined below), Acquisition Inc. received on the Closing Date remaining cash transaction proceeds in the amount of approximately $4,481,000. The Merger Agreement provides that, to the extent that the final amount of working capital of the Francis Group on the Closing Date is greater than the estimated amount of working capital, as determined under the Merger Agreement, the Purchaser will pay to Acquisition Inc. the amount of such working capital surplus, provided that, pursuant to the Omnibus Agreement (as defined below), WayPoint is entitled to receive 87.5% of any such working capital surplus payment. To the extent that the final amount of working capital of the Francis Group on the Closing Date is less than the estimated amount of working capital, Acquisition Inc. will pay to the Purchaser the amount of such working capital deficit, which payment will be made out of the Escrow Fund, provided that, pursuant to the Omnibus Agreement, WayPoint is obligated to pay to Acquisition Inc. 87.5% of the amount of any such working capital deficit.

As previously disclosed, on April 13, 2011, we received a letter from PNC, notifying the Company of the occurrence and continued existence of certain events of default (the “PNC Default”) under the Revolving Credit, Term Loan and Security Agreement (the “Senior Facility”). On November 3, 2011, the Company entered into a First Amendment to Revolving Credit, Term Loan and Security Agreement and Limited Waiver (the “First Amendment”) with PNC, which was effective as of November 1, 2011. Under the First Amendment, PNC waived each of the events of default under the Senior Facility Agreement. However, as a result of the PNC Default, on April 14, 2011, the Company received a letter from WayPoint, as the holder of all of the outstanding shares of the Senior Series A Redeemable Preferred Stock of NYTEX Acquisition, stating that the Company was in default under the Preferred Stock and Warrant Purchase Agreement, by and among the Company, Acquisition Inc., and WayPoint (the “WayPoint Purchase Agreement”), for defaults similar to the PNC Default plus for our failure to pay dividends to WayPoint when due under the terms of the WayPoint Purchase Agreement. On May 4, 2011, WayPoint demanded, pursuant to a “Put Election Notice” delivered under the WayPoint Purchase Agreement (the “Put Election Notice”), that, as a result of those defaults, the Company and Acquisition Inc. repurchase from WayPoint, for an aggregate purchase price of $30,000,000, all of the securities of Acquisition Inc. and the Company originally acquired by WayPoint pursuant to the WayPoint Purchase Agreement, which securities consisted of: (i) 20,750 shares of Senior Series A Redeemable Preferred Stock of NYTEX Acquisition (the “WayPoint Series A Shares”); (ii) one (1) share of Series B Redeemable Preferred Stock of the Company (the “WayPoint Series B Share”); (iii) the Purchaser Warrant (as defined in the WayPoint Purchase Agreement); and (iv) the Control Warrant (as defined in the WayPoint Purchase Agreement) (collectively, the “WayPoint Securities”). Our failure to repurchase the WayPoint Securities in accordance with the Put Election Notice resulted in an additional event of default under the WayPoint Purchase Agreement. Thereafter, pursuant to the terms of the Forbearance Agreement, dated as of September 30, 2011 (the “Forbearance Agreement”), by and among the Company, Acquisition Inc., and WayPoint, WayPoint agreed to forbear, for a period of 60 days, from exercising its rights and remedies under the WayPoint Purchase Agreement. On November 14, 2011, WayPoint provided a formal written notice to the Company that the Company was in default under the Forbearance Agreement. Due to cross-default provisions, the default under the Forbearance Agreement also constituted a default under the First Amendment. As a result of the defaults under the WayPoint Purchase Agreement and the Forbearance Agreement, WayPoint initiated certain remedies afforded to it under the WayPoint Purchase Agreement and the Forbearance Agreement, including the sale of FDF to a third party. WayPoint directed the FDF sale process and, although we participated in the process, we did not control the ultimate disposition of FDF, including, but not limited to, the timing of the Merger and the Merger consideration. As a result of the transactions associated with the Merger, we are no longer in default under the First Amendment with PNC.

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

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

(i) the Management Agreement was terminated;

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

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

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

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

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

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

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

(ii) (A) the Company caused the release of the $1,800,000 of Escrowed Cash (as defined in the Escrow Agreement, dated as of November 23, 2010, by and among Acquisition Inc., Bryan Francis and The F&M Bank & Trust Company (the “Francis Escrow Agreement”)) then being held in escrow pursuant to the Francis Escrow Agreement, in accordance with the terms of the Francis Escrow Agreement, and (B) Michael G. Francis transferred and assigned back to the Company 625,000 shares of common stock of the Company (“NYTEX Common Stock”) then owned by Michael G. Francis and originally issued to him pursuant to the Membership Interest Purchase Agreement, dated as of November 23, 2010 (the “Francis Purchase Agreement”), and then being held in escrow pursuant to the Francis Escrow Agreement, and such shares were cancelled;

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

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

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

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

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

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

our obligations under the WayPoint Purchase Agreement and Senior Facility. Management has also implemented plans to improve liquidity through cash flows generated from development of new business initiatives within the oil & gas segment as well as the initiation of our new temporary staffing and permanent placement venture, through the sale of selected assets deemed unnecessary to our business, and improvements to results from existing 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. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

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

The interim financial data as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 is unaudited; in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods. The consolidated results of operations for the three months ended March 31, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year.

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

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

NOTE 3. 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 $1,683,402 and $1,497,066 at March 31, 2012 and December 31, 2011, respectively, and are attributable to our Oilfield Services business.

NOTE 4. GOODWILL AND ACQUIRED INTANGIBLE ASSETS

At March 31, 2012 and December 31, 2011, we had $5,643,618 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.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Intangible assets subject to amortization at March 31, 2012 and associated amortization expense for the three months then ended is as follows:


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amortization Expense
Non-compete agreements	$	6,033,000	$	(1,746,743	)	$	4,286,257	$	327,515
Customer relationships		3,654,000		(243,600	)		3,410,400		45,675

	$	9,687,000	$	(1,990,343	)	$	7,696,657	$	373,190

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 March 31, 2012 and December 31, 2011. We did not have any such intangible assets prior to our acquisition of FDF.

Prior to the disposition of FDF, the estimated amortization for the remainder of 2012 and each of the next five fiscal years is as follows:


April 1—December 31, 2012	$	1,119,568
2013		1,086,057
2014		795,557
2015		795,557
2016		795,557
2017 and thereafter		3,104,361

NOTE 5. 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 Company’s common stock (“Purchaser Warrant”), and (iv) a warrant to purchase an additional number of the Company’s common stock so that, measured at the time of exercise, the number of shares of common stock issued to WayPoint represents 51% of the Company’s outstanding common stock on a fully-diluted basis (“Control Warrant”). The Control Warrant could be exercised only if certain conditions, as defined in the WayPoint Purchase Agreement, were 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. As part of the disposition of FDF and settlement of the disputes with WayPoint in May 2012, the 20,750 shares of Series A Redeemable Preferred Stock held by WayPoint were cancelled.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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 Company’s board of directors, and upon the occurrence of a default under the WayPoint Purchase Agreement, the holder could require us to expand the number of board members providing WayPoint the ability to designate a majority of the Company’s board. As part of the disposition of FDF and settlement of the disputes with WayPoint in May 2012, the outstanding share of Series B Preferred Stock was cancelled.

Warrants

The Purchaser Warrant was exercisable at an exercise price of $0.01 per share and expired on the tenth anniversary from the date of issuance.

The Control Warrant was 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) seventy-five days after the date on which the third Default has occurred within a consecutive twelve-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 included 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.

Both the Purchaser Warrant and Control warrant were cancelled as part of the disposition of FDF and settlement of the disputes with WayPoint in May 2012.

Other Obligations

Under the original 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 would have been equal to the greater of (a) WayPoint’s aggregate equity ownership percentage in the Company as of the date the put right was exercised, multiplied by the fair value of the Company’s common stock and (b)(1) in the event that the put right was exercised before November 23, 2013, $30,000,000, or (2) in the event that the put right was exercised on or after November 23, 2013, $40,000,000. Due to the subsequent Merger Agreement, as of May 4, 2012, we are no longer obligated under the original WayPoint Purchase Agreement.

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 sheets as of March 31, 2012 and 2011. 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 9.

Although no amounts were initially assigned to the Senior Series A Redeemable Preferred Stock, we will accrete the 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. Should events and conditions exist such that the settlement date of the Senior Series A Redeemable Preferred Stock is accelerated, the subsequent measurement of the instrument will be based on the amount of cash (undiscounted) that will be paid under the conditions

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

specified if a settlement had occurred on the reporting date. Accordingly, the change in amount as compared to the amount from the previous reporting date will be recognized as accretion expense. For the three months ended March 31, 2012 and 2011, we recognized $943,182 of accretion expense related to the Senior Series A Redeemable Preferred Stock.

Default Under WayPoint Purchase Agreement

As a result of the April 2011 defaults under our Senior Facility, on April 14, 2011, we received a letter from WayPoint, our mezzanine lender, stating we were in default of the WayPoint Purchase Agreement, for defaults similar to the PNC defaults plus our failure to pay dividends when due. Because of these defaults WayPoint had the right to exercise the Control Warrant. If WayPoint exercised the Control Warrant, it would own 51% of our outstanding Common Stock. In addition to being in default under the WayPoint Purchase Agreement, on May 4, 2011, WayPoint provided us with the Put Notice regarding its election to cause us to repurchase all securities that WayPoint acquired in connection with the WayPoint Purchase Agreement for an aggregate purchase price of $30,000,000 within five business days following the date of the Put Notice. We did not and do not have the funds available to repurchase these securities.

On September 30, 2011, pursuant to the terms of a Forbearance Agreement we entered into with WayPoint, WayPoint agreed to forbear for a period of 60 days from exercising its rights and remedies resulting from (i) events of default under the WayPoint Purchase Agreement and (ii) the NYTEX Parties’ failure to repurchase the WayPoint Securities, as demanded by WayPoint in the Put Notice. This failure resulted in an additional event of default under the WayPoint Purchase Agreement.

To induce WayPoint to enter into the Forbearance Agreement, we agreed to, among other things, within 60 days after September 29, 2011, recapitalize the Company. This recapitalization was to be accomplished by repurchasing the WayPoint Securities for $32,371,264 as of September 30, 2011 (which sum reflected the $30,000,000 amount set forth in the Put Notice plus accrued interest on other WayPoint Securities), plus interest accruing at the default rate set forth in the WayPoint Purchase Agreement through the closing date of the Recapitalization. We also agreed to pay reasonable legal fees and disbursements incurred by WayPoint.

On November 14, 2011, WayPoint provided a formal Forbearance Default notice that the Company was in default of Section 1(f)(iii) the Forbearance Agreement. This provision required the Company to (i) either identify a lead investor in connection with the Recapitalization that would, among other things, fund the purchase of the WayPoint Securities, or (ii) provide WayPoint with evidence, satisfactory to WayPoint, in its sole discretion, of progress toward the proposed recapitalization. As a result, WayPoint initiated certain remedies afforded to it under the Forbearance Agreement and the WayPoint Purchase Agreement including the marketing for sale of FDF to a third party. This process culminated on May 4, 2012 with the entry into the Merger Agreement and the resulting disposition of FDF.

Disposition of FDF and Settlement of WayPoint Obligations

As a result of the process initiated by WayPoint pursuant to the Forbearance Agreement, on May 4, 2012, Acquisition Inc., together with New Francis Oaks, entered into a Merger Agreement with an unaffiliated third party, FDF Resources Holdings LLC (the “Purchaser”). Pursuant to the terms of the Merger Agreement, New Francis Oaks merged with and into the Purchaser, and the Purchaser continued as the surviving entity after the merger. New Francis Oaks owns 100% of the outstanding shares of FDF, and, as a result of the Disposition, we no longer own FDF. Pursuant to its agreements, WayPoint directed the sale process and, although we participated in such process, we did not control the ultimate disposition of FDF including the timing of the sale and the plan of sale. Due to these uncertainties regarding the plan and timing of the sale and other factors, at March 31, 2012 and to the Closing Date, we concluded that FDF did not meet the criteria as assets held for sale.

Further, in connection with the consummation of the Merger, we entered into a Settlement Agreement with WayPoint such that in exchange for receipt by WayPoint of the Put Payment Amount, WayPoint transferred and assigned (A) the Senior Series A Redeemable Preferred Stock back to Acquisition Inc., (B) the Purchaser Warrant and the Control Warrant back to the Company, and (C) the WayPoint Series B Share back to the Company, and all such securities were cancelled.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 6. DERIVATIVE LIABILITIES

The following summarizes our derivative liabilities at March 31, 2012 and December 31, 2011.


	March 31, 2012		December 31, 2011
WayPoint Warrant Derivative	$	9,610,000	$	5,343,000

The WayPoint Warrant Derivative was initially recorded at its fair value of $19,253,071 on the date of issuance, November 23, 2010. At March 31, 2012, the carrying amount of the WayPoint Warrant Derivative was $9,610,000 which represents a change from its adjusted value of $5,343,000 as of December 31, 2011 of $4,267,000. The WayPoint Warrant Derivative is reported as a derivative liability – current portion on the accompanying consolidated balance sheets as of March 31, 2012 and December 31, 2011.

The agreement setting forth the terms of the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock include an anti-dilution provision that requires a reduction in the instrument’s exercise price should subsequent at-market issuances of the Company’s common stock be issued below the instrument’s original exercise price of $2.00 per share. Accordingly, we consider the warrants to be a derivative; and, as a result, the fair value of the derivative is included as a derivative liability on the accompanying consolidated balance sheets as of March 31, 2012 and December 31, 2011. Pursuant to the Omnibus Agreement with WayPoint, the WayPoint warrant derivatives associated with the warrants have been terminated.

Changes in fair value of the derivative liabilities are included as a separate line item within other income (expense) in the accompanying consolidated statement of operations for the three months ended March 31, 2012 and 2011, and are not taxable or deductible for income tax purposes.

NOTE 7. DEBT

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

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)


	March 31, 2012			December 31, 2011
18% Demand Note due November 2011	$	—		$	244,000
5.5% Mortgage Note due July 2012		323,885			327,968
2.49% Unsecured Term Loan due Aug 2012		1,373,915			2,191,381
6% Related Party Loan due September 2012		129,000			138,000
12% Convertible Debentures due October 2012		2,033,251			2,032,501
5.75% Secured Equipment Loan due November 2013		25,499			29,118
9% Convertible Debentures due February 2014		1,173,013			1,173,013
Francis Promissory Note (non-interest bearing) due October 2015		362,603			385,824
Senior Facility—Term Loan due November 2015		9,443,959			9,872,530
Senior Facility—Revolver due November 2015		6,211,504			7,361,475
6% Secured Equipment Loan due December 2015		809,090			826,733
7.5% Secured Equipment Loan due February 2016		26,346			27,781
7.5% Secured Equipment Loan due March 2016		21,147			22,301
6.34% Secured Equipment Loan due April 2016		249,885			263,491
6.34% Secured Equipment Loan due June 2016		277,741			291,855
Secured Equipment Loan due December 2016		32,077			33,795
4.36% Secured Equipment Loan due December 2016		29,617			31,577

Total debt		22,522,532			25,253,343
Less: current maturities		(19,974,221	)		(22,538,080	)

Total long-term debt	$	2,548,311		$	2,715,263

Carrying values in the table above include net unamortized debt discount of $201,647 and $216,676 as of March 31, 2012 and December 31, 2011, respectively, which is amortized to interest expense over the terms of the related debt.

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% (3.74% at March 31, 2012). 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% (2.99% at March 31, 2012) 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 FDF’s 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.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

On November 3, 2011, we entered into a First Amendment to Revolving Credit, Term Loan and Security Agreement and Limited Waiver with PNC Bank. The effective date of the Amendment and Waiver was November 1, 2011. The First Amendment amended the existing Senior Facility with PNC Bank. Pursuant to the First Amendment, PNC Bank waived each of the existing events of default under the Senior Facility, including the breach of the fixed charge coverage ratio and the breach of the reporting requirement covenant. The First Amendment also amended the Senior Facility, to, among other things:

•

Require the Company to obtain third-party financing for certain unencumbered real property of FDF no later than 180 days following the First Amendment Effective Date;

•

Modify the calculation of the fixed charge coverage ratio covenant;

•

Set monthly limitations on capital expenditures;

•

Modify the limitations on distributions;

•

Modify the limitations on certain indebtedness;

•

Modify the limitations on certain transactions with affiliates and

•

Modify the timing and amount of any early termination fee.

Due to cross-default provisions, the default under the Forbearance Agreement also constituted a default under the First Amendment with PNC. At March 31, 2012, and December 31, 2011, the outstanding principal balance of the amounts owed under the Senior Facility was $15,655,463 and $17,234,005, respectively, and was, because of the default, reported within current liabilities on the consolidated balance sheet at March 31, 2012 and December 31, 2011. As a result of the transactions associated with the Merger Agreement, we are no longer in the default under the First Amendment with PNC and we are no longer obligated under the Senior Facility.

$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 Company’s common stock; and, (iii) each unit includes a three-year warrant to purchase up to 20,000 shares of the Company’s 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, 2011, 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 Company’s common stock. In addition, we also issued 45,000 shares of the Company’s common stock to certain 12% Convertible Debenture holders. During 2011, the 12% Convertible Debentures were amended twice, ultimately extending the maturity date to October 2012.

Francis Promissory Note

In connection with the FDF acquisition, on November 23, 2010, we entered into a promissory note payable to a former interest holder of FDF (“Francis Promissory Note”) in the face amount of $750,000. The Francis Promissory Note is an unsecured, non-interest bearing loan that requires quarterly payments of $37,500 and matures October 1, 2015. At March 31, 2012 and December 31, 2011, we have recorded the Francis Promissory Note as a discounted debt of $362,603 and $385,824 respectively, 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 was amended to provide for interest, payable monthly, at 6% per annum, a security interest in the assets of NYTEX Petroleum LLC (now NYTEX Petroleum), and a personal guarantee by NYTEX Petroleum LLC’s 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. In August 2011, the facility was further amended, extending the maturity date to September 1, 2012. There is no penalty for early payment of principal.

As of March 31, 2012 and December 31, 2011, amounts outstanding under the Related Party Loan were $129,000 and $138,000, respectively. In addition, during the three months ended March 31, 2012 and 2011, interest expense related to the Related Party Loan totaled $1,935 and $2,430, respectively.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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% 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 remained outstanding with a principal balance due of $234,919 and matured on July 1, 2011. During the second quarter of 2011, this loan was paid in full.

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 Debenture”) 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 Company’s common stock at any time at the fixed conversion price of $2.00 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.

In August 2011, we entered into a $200,000 promissory note with a third party. The promissory note payable was due in full along with accrued, unpaid interest at the fixed rate of 18% at maturity, on November 24, 2011. As an inducement to enter into the promissory note, we agreed to pay the holder of the promissory note payable a one-time fee of $11,000 and 20,000 shares of our common stock, which would be paid on maturity. Both of these items are accounted for as a premium to the promissory note. During the first quarter of 2012, the promissory note payable was paid in full and the corresponding shares were issued.

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 July 2012 to December 2016.

NOTE 8. 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. At March 31, 2012 and prior to the disposition of FDF, future minimum obligations under these lease agreements at March 31, 2012 are as follows:


April 1, 2012—December 31, 2012	$	1,803,656
2013		2,066,969
2014		1,715,802
2015		1,233,075
2016		403,471
Thereafter		684,067

	$	7,907,040

Total lease rental expense for the three months ended March 31, 2012 and 2011 was $924,373 and $613,098, respectively.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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 Plaintiffs and both relate to 75.0% of certain producing oil and gas leaseholds in those counties of the Texas panhandle (the “Panhandle Field Producing Property”). On August 1, 2009, NYTEX Petroleum acquired and assumed operations of the Panhandle Field Producing 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 that they were entitled to pursue repurchase of the Panhandle Field Producing Property in accordance with a buyback provision set forth in the Purchase Document. The Company had filed answers to both suits. On May 9, 2011, effective May 1, 2011, the Company entered into a Compromise Settlement Agreement and Release of All Claims agreement (the “Settlement”) with the Plaintiffs whereby both parties reached a full and final settlement of all claims to both suits. In exchange for the release of all claims to both suits, concurrent with the Settlement, the Company entered into a Purchase and Sale Agreement whereby the Company sold its entire interest in the Panhandle Field Producing Property to the Plaintiffs for the purchase price of $782,000, resulting in a loss on litigation settlement totaling $965,065 for the three months ended March 31, 2011.

NOTE 9. 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 outstanding Series B Preferred Stock was cancelled as of May 4, 2012 in connection with the disposition of FDF.

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 exercise price of $2.00 per share. Each unit was priced at $100,000. During the three months ended March 31, 2011, we issued 4.2 units for gross proceeds of $420,000 consisting of 420,000 shares of Series A Convertible Preferred Stock and warrants to purchase up to 126,000 shares of common stock. For the year ended December 31, 2010, we issued 55.8 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 60 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. Dividends payable related to the Series A Convertible Preferred Stock totaled $659,626 and $530,354 at March 31, 2012 and December 31, 2011, respectively, and are reported in accounts payable on the consolidated balance sheet.

For the three months ended March 31, 2012, we did not issue any shares of common stock related to conversions of the Company’s Series A Convertible Preferred Stock.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Warrants

In connection with the private placement offering of Series A Convertible Preferred Stock, during the three months ended March 31, 2011, we issued warrants to the holders to purchase up to 126,000 shares of common stock at an exercise price of $2.00 per share. The warrants may be exercised for a period of three years from the date of grant. The aggregate fair value of warrants issued during the three months ended March 31, 2011 was $118,440. There were no warrants issued during the three months ended March 31, 2012.

In addition, during the three months ended March 31, 2011, we issued warrants to purchase up to 16,800 shares of Series A Convertible Preferred Stock to the placement agent of the private placement offering of Series A Convertible Preferred Stock. The warrants may be exercised for a period of three years from date of grant at an exercise price of $1.00 per share. The aggregate fair value of the warrants on the date of grant was approximately $15,792 using the Monte Carlo simulation.

For the three months ended March 31, 2012, we did not issue any shares of common stock related to the exercise of warrants granted in connection with the issuance of Series A Convertible Preferred Stock. During the first quarter 2012, we extended the exercise dates on these warrants for an additional 24 months from the original effective date of the warrant.

The fair value of warrants was determined using the Black-Scholes option pricing model and the Monte Carlo simulation. 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. A summary of warrant activity for the three months ended March 31, 2012 and 2011 is as follows:


	Three Months Ended March 31,
	2012					2011
	Warrants			Weighted Average Exercise Price		Warrants		Weighted Average Exercise Price
Outstanding at beginning of period		46,335,949		$	0.13		44,061,330	$	0.18
Issued		—			—		142,800		1.88
Adjustment for WayPoint Warrant		(9,068	)		0.01		—		—
Exercised		—			—		—		—
Forfeited or expired		—			—		—		—

Outstanding at end of period		46,326,881		$	0.13		44,204,130	$	0.18

NOTE 10. FAIR VALUE MEASUREMENTS

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 entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

As discussed in Notes 5, 6, and 9, 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

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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 three months ended March 31, 2012 and 2011, the fair value of the derivative liabilities increased by an aggregate of $4,267,000 and increased by an aggregate of $12,866,174, respectively. These amounts were recorded within other income (expense) in the accompanying consolidated statements of operations.

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


March 31, 2012	Carrying Amount		Level 1		Level 2		Level 3
Derivative liabilities	$	9,610,000	$	—	$	—	$	9,610,000


March 31, 2011	Carrying Amount		Level 1		Level 2		Level 3
Derivative liabilities	$	47,113,000	$	—	$	—	$	47,113,000

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


Balance, December 31, 2011	$	5,343,000
Change in derivative liabilities		4,267,000
Issuance of warrant derivative		—

Balance, March 31, 2012	$	9,610,000

Balance, December 31, 2010	$	34,128,386
Change in derivative liabilities		12,866,174
Issuance of warrant derivative		118,440

Balance, March 31, 2011	$	47,113,000

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 March 31, 2012 and December 31, 2011, we estimate the fair value of our debt to be $23,344,081 and $25,247,343, respectively. We estimate the fair value of our Senior Series A Redeemable Preferred Stock to be $23,600,000 and $22,700,000, respectively, as of March 31, 2012 and December 31, 2011. The outstanding Senior Series A Redeemable Preferred Stock was cancelled as of May 4, 2012.

NOTE 11. INCOME TAXES

Income tax benefit for the three months ended March 31, 2012 and March 31, 2011 was $240,193 and $412,284 respectively. The change in income tax benefit in the first quarter of 2012, compared to the first quarter of 2011, was primarily the result of differences in the mix of our pre-tax earnings and losses. At March 31, 2012, we had deferred income tax assets of $9,269,964 and a valuation allowance of $5,132,327 resulting in an estimated recoverable amount of deferred income tax assets of $4,137,637. This reflects a net increase of the valuation allowance of $2,210,240 from the December 31, 2011 balance of $2,922,087.

The balances of the valuation allowance as of March 31, 2012 and December 31, 2011 were $5,132,327 and $2,922,087, respectively. The anticipated effective income tax rate is expected to continue to differ from the Federal statutory rate primarily due to the effect of state income taxes, permanent differences between book and taxable income, changes to the valuation allowance, and certain discrete items.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 12. EARNINGS PER SHARE

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


	For the Three Months Ended March 31,
	2012			2011
Numerator:
Net loss attributable to NYTEX Energy Holdings, Inc.	$	(6,562,994	)	$	(16,800,384	)
Attributable to preferred stockholders		(129,272	)		(132,900	)

Net loss used in calculating basic and diluted loss per share	$	(6,692,266	)	$	(16,933,284	)

Denominator:
Weighted average common shares outstanding, basic		27,472,558			26,224,480
Attributable to preferred stockholders		—			—

Shares used in calculating basic and diluted loss per share		27,472,558			26,224,480

Basic and diluted loss per share	$	(0.24	)	$	(0.65	)

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

Because a net loss was incurred during the three months ended March 31, 2012 and 2011, dilutive instruments including the warrants produce an antidilutive net loss per share result. These excluded shares totaled 41,398,718 for the three months ended March 31, 2012, and 24,672,845 for the three months ended March 31, 2011. Therefore, the diluted loss per share reported in the accompanying consolidated statements of operations for the three months ended March 31, 2012 and 2011 are the same as the basic loss per share amounts.

NOTE 13. 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 consisted solely of the operations of FDF, provided drilling, completion, and specialized fluids, dry drilling and completion products, technical services, industrial cleaning services, transportation, storage and handling of liquid and dry drilling products, and equipment rental for the oil and gas industry.

The following tables present selected financial information of our operating segments for the three months ended March 31, 2012 and 2011. Information presented below as “Corporate, Other, and Intersegment Eliminations” includes results from operating activities that are not considered operating segments, as well as corporate and certain financing activities.

For the three months ended March 31, 2012, we had two customers that accounted for more than 10% of our total consolidated revenues: Baker Hughes – 16% and Cudd Pumping Services – 11%. For the three months ended March 31, 2011, we had two customers that accounted for more than 10% of our total consolidated revenues: BJ Services — 17% and Halliburton Energy Services — 13%.

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)


As of March 31, 2012:	Oil Field Services		Oil & Gas			Corporate, Other, and Intersegment Eliminations			Total
Current Assets	$	17,741,862	$	67,896		$	38,551		$	17,848,309
Property, plant, and equipment, net		39,279,063		42,621			5,155			39,326,839
Goodwill / intangible assets		18,100,275		—			—			18,100,275
Deferred financing cost		565,855		—			958,099			1,523,954
Other assets		112,868		9,296			—			122,164

Total assets	$	75,799,923	$	119,813		$	1,001,805		$	76,921,541

Current liabilities	$	41,345,950	$	705,218		$	4,114,222			46,165,390
Long-term debt		1,127,633		1,209,825			210,853			2,548,311
Senior Series A redeemable preferred stock		5,114,141		—			—			5,114,141
Deferred income taxes		13,737,800		143,642			593,739			14,475,181
Stockholder’s equity (deficit)		14,474,399		(1,938,872	)		(3,911,992	)		8,623,535
Non-controlling interest		—		—			(5,017	)		(5,017	)

Total liabilities and stockholder’s equity	$	75,799,923	$	119,813		$	1,001,805		$	76,921,541

Additions to long-lived assets	$	300,687	$	—		$	—		$	300,687


As of March 31, 2011:	Oil Field Services			Oil & Gas			Corporate, Other, and Intersegment Eliminations			Total
Current Assets	$	13,993,847		$	249,667		$	—		$	14,243,514
Property, plant, and equipment, net		43,924,813			891,655			—			44,816,468
Goodwill / intangible assets		18,507,808			—			—			18,507,808
Deferred financing cost		701,661			—			1,213,779			1,915,440
Other assets		112,868			59,296			—			172,164

Total assets	$	77,240,997		$	1,200,618		$	1,213,779		$	79,655,394

Current liabilities	$	76,693,563		$	1,224,284		$	2,612,988		$	80,530,835
Long-term debt		1,084,017			637,115			322,364			2,043,496
Senior Series A redeemable preferred stock		1,341,414			—			—			1,341,414
Warrant derivative		—			—			773,000			773,000
Asset retirement obligation		—			52,685			—			52,685
Deferred income taxes		14,350,927			—			(620,010	)		13,730,917
Stockholder’s deficit		(16,228,924	)		(713,466	)		(1,874,563	)		(18,816,953	)

Total liabilities and stockholder’s deficit	$	77,240,997		$	1,200,618		$	1,213,779		$	79,655,394

Additions to long-lived assets	$	2,501,974		$	73,181		$	—		$	2,575,155

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)


Three Months Ended March 31, 2012:	Oil Field Services			Oil and Gas			Corporate, Other, and Intersegment Eliminations			Total
Revenues:
Oil field services	$	17,730,316		$	—		$	—		$	17,730,316
Drilling fluids		2,319,900			—			—			2,319,900
Oil & gas		—			12,430			—			12,430
Other		—			950,110			—			950,110

Total Revenues		20,050,216			962,540			—			21,012,756
Expenses and other, net:
Cost of goods sold—drilling fluids		778,968			—			—			778,968
Lease operating expenses		—			6,566			—			6,566
Depreciation, depletion, and amortization		2,273,096			18,055			281			2,291,432
Selling, general and administrative expenses		17,661,924			15,167			489,071			18,166,162
Loss on sale of assets		63,732			—			—			63,732
Interest expense		1,129,459			30,288			148,593			1,308,340
Accretion of preferred stock		943,182			—			—			943,182
Change in fair value of derivative		4,267,000			—			—			4,267,000
Other		(4,422	)		—			—			(4,422	)

Total expenses and other, net		27,112,939			70,076			637,945			27,820,960

Income (loss) before income taxes		(7,062,723	)		892,464			(637,945	)		(6,808,204	)
Income tax (provision) benefit		84,273			(9,547	)		165,467			240,193

Net income (loss)		(6,978,450	)		882,417			(472,478	)		(6,568,011	)
Non-controlling interest		—			—			5,017			5,017

Net income (loss) attributable to NYTEX Energy Holdings, Inc.	$	(6,978,450	)	$	882,917		$	(467,461	)	$	(6,562,994	)


Three Months Ended March 31, 2011:	Oil Field Services			Oil and Gas			Corporate, Other, and Intersegment Eliminations			Total
Revenues:
Oil field services	$	16,532,098		$	—		$	—		$	16,532,098
Drilling fluids		2,019,804			—			—			2,019,804
Oil & gas		—			78,345			—			78,345
Other		—			76,425			—			76,425

Total Revenues		18,551,902			154,770			—			18,706,672
Expenses and other, net:
Cost of goods sold—drilling fluids		510,700			—			—			510,700
Lease operating expenses		—			37,764			—			37,764
Depreciation, depletion, and amortization		2,131,699			32,968			—			2,164,667
Selling, general and administrative expenses		16,076,970			661,142			521,440			17,259,552
Loss on litigation settlement		—			965,065			—			965,065
(Gain) loss on sale of assets		(64,862	)		3,104			—			(61,758	)
Interest income		—			—			(284	)		(284	)
Interest expense		1,007,815			16,358			196,440			1,220,613
Accretion of preferred stock		943,182			—			—			943,182
Change in fair value of derivative		13,785,174			—			(919,000	)		12,866,174
Other		13,665			—			—			13,665

Total expenses and other, net		34,404,343			1,716,401			(201,404	)		35,919,340

Income (loss) before income taxes		(15,852,441	)		(1,561,631	)		201,404			(17,212,668	)
Income tax benefit		412,284			—			—			412,284

Net income (loss)	$	(15,440,157	)	$	(1,561,631	)	$	201,404		$	(16,800,384	)

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Additional cash flow information was as follows for the three months ended March, 2012 and 2011:


	2012		2011
Supplemental disclosures of cash flow information:
Total cash paid for interest	$	378,048	$	353,030

Cash paid for interest — related party	$	2,670	$	2,475

Supplemental disclosure of non-cash information:
Shares issued to retire debt	$	33,000	$	—

Issuance of dervivative liability	$	—	$	118,440

Dividend declared	$	129,272	$	132,900

Item 2. Management’s 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:

Oil and Gas—

consisting of our wholly-owned subsidiary, NYTEX Petroleum, Inc. (“NYTEX Petroleum”), an exploration and production company concentrating on the acquisition and development of oil and natural gas reserves; and

Oilfield Services—

consisting of our wholly-owned subsidiary, Francis Drilling Fluids, Ltd. (“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. FDF was sold as of May 4, 2012 to an unrelated third party. See Oilfield Services – Acquisition and Disposition of FDF for further discussion.

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

General Industry Overview

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. 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 U.S. Energy Information Administration’s (“EIA”) report on U.S. shale gas and shale oil plays released in July 2011 indicates that 86% of the total 750 trillion cubic feet of technically recoverable shale gas resources are located in the Northeast, Gulf Coast, and Southwest regions of the United States, which account for 63%, 13%, and 10% of the total, respectively. In the three regions, the largest shale gas play is the Marcellus (410.3 trillion cubic feet, 55% of the total), a shale play in which we do business. The Bakken Shale area in North Dakota and Montana has become major oil producing resource play with an increasing number of drilling rigs and service companies operating in the area since 2007. By combining horizontal wells and hydraulic fracturing (the same technologies used to significantly boost U.S. shale gas production), operators increased Bakken oil production from less than 3,000 barrels per day in 2005 to over 230,000 barrels per day in 2010. Further, because of technological advances associated with horizontal drilling and hydraulic fracturing, the time required to drill and complete a horizontal well has significantly been reduced (25 days in 2010 compared to 65 days in 2008, according to the North Dakota’s Department of Mineral Resources).

The EIA’s report also summarizes the assessment of technically recoverable shale oil resources, which amount to 23.9 billion barrels in the onshore lower 48 U.S. states. The second and third largest shale oil plays are the Bakken and Eagle Ford, which are assessed to hold approximately 3.6 billion barrels and 3.4 billion barrels of oil, respectively, and are shale oil plays in which we do business.

Sustained high oil prices continue to positively impact the number of active rigs drilling in North America. The EIA expects the price of West Texas Intermediate (WTI) crude oil to average about $106 per barrel in 2012, $11 per barrel higher than the average price last year. Further, the EIA expects that natural gas consumption will increase 3.1% from 2011 with large gains in electric power use offsetting declines in residential and commercial use. According to Baker-Hughes, active domestic rigs averaged 1,990 in the first quarter of 2012 compared to 1,721 rigs in the first quarter of 2011. This represents a greater than 16% increase in active domestic rigs for first quarter of 2012 compared to 2011. As a result of these industry developments, we believe that the current high level of drilling will continue and near-term demand for our oil and gas revenues and oilfield products and services will remain favorable.

LOGO

Hydraulic Fracturing

Hydraulic fracturing, a technique in use for over 60 years, is commonly applied to wells drilled in low permeability reservoir rock. A hydraulic fracture is formed by pumping fracturing fluid into the wellbore at a rate sufficient to cause the formation to crack, allowing the fracturing fluid to enter and extend the crack farther into the formation. To keep this fracture open after the injection stops, a solid proppant, primarily sand, is added to the fracture fluid. The propped hydraulic fracture then becomes a high permeability conduit through which the oil and/or gas can flow to the well.

The fluid injected into the rock is mostly water. Various types of proppant are added, such as silica sand, resin-coated sand, and fired bauxite clay (man-made ceramics), depending on the type of permeability or grain strength needed. Chemical additives are sometimes applied by the driller/well operator to tailor the injected material to the specific geological situation, protect the well, and improve its operation, though chemical additives typically make up less than 1% of the total composition of the injected fluid, varying slightly based on the type of well.

None of our businesses directly provide nor perform hydraulic fracturing services. In addition, we do not take title to customers’ frac sand or proppants as our Oilfield Services business limits its involvement with hydraulic fracturing to distributing, warehousing, and transloading these products for our customers.

Oil and Gas

NYTEX Petroleum, Inc. is an exploration and production company focusing on early stage development of minor oil and gas resource plays.

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 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. 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. In May 2011, in connection with a settlement of claims against the Company, the Company sold its entire interest in the Panhandle Field Producing Property for the purchase price of $782,000. As of March 31, 2012 and December 31, 2011, we no longer have an interest in the Panhandle Field Producing Property.

With our recent focus more on the acquisition, development, and resale of oil and gas leasehold properties in Texas, we have acquired overriding and working interests in nearly 40,000 leasehold acres in Young, Jack, Palo Pinto, Throckmorton, and Stephens Counties of Texas. We believe these plays can be developed uniformly over expansive geographical areas with a high rate of success due to the recent advancements in horizontal drilling and multi-stage hydraulic fracturing technologies.

Oilfield Services

Acquisition and Disposition 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 (together with Oaks, the “Francis Group”). 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, 5.4 million shares of NYTEX Energy 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.

Prior to its sale in May 2012, FDF was 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 operated out of 22 locations in Texas, Oklahoma, Wyoming, North Dakota, and Louisiana including three coastal Louisiana facilities providing services on land and off-shore Gulf of Mexico. FDF’s 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. FDF’s completion fluids include calcium, sodium, zinc bromide, salt water, calcium chloride and potassium chloride. FDF’s dry products include frac sand, proppants, cement and fly ash and sack drilling mud. FDF offered 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 was a distributor, warehouser and transloader of frac sand, proppants and liquid drilling mud authorized to distribute in 39 states. Its customers include exploration and production companies, oilfield and drilling service companies and frac sand and proppant manufacturers and international brokerage companies of proppants.

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

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

(i) the Management Agreement was terminated;

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

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

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

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

Results of Operations

Selected Data


	Three Months Ended March 31,
	2012			2011
Financial Results
Revenues—Oilfield Services	$	20,050,216		$	18,551,902
Revenues—Oil and Gas		962,540			154,770

Total revenues		21,012,756			18,706,672

Total operating expenses		21,306,860			20,875,990
Total other expense		6,514,100			15,043,350

Loss before income taxes	$	(6,808,204	)	$	(17,212,668	)
Income tax benefit		240,193			412,284

Net loss	$	(6,568,011	)	$	(16,800,384	)
Non-controlling interest		5,017			—

Net loss attributable to NYTEX Energy Holdings, Inc.	$	(6,562,994	)	$	(16,800,384	)

Loss per share—basic and diluted	$	(0.24	)	$	(0.65	)

Weighted average shares outstanding - basic and diluted		27,472,558			26,224,480

Operating Results
Adjusted EBITDA—Oilfield Services	$	1,550,014		$	2,015,429
Adjusted EBITDA—Oil and Gas		940,807			(1,512,305	)
Adjusted EBITDA—Corporate and Intersegment Eliminations		(484,054	)		443,909

Consolidated Adjusted EBITDA⁽¹⁾	$	2,006,767		$	947,033

⁽¹⁾	See Results of Operations—Adjusted EBITDA for a description of Adjusted EBITDA, which is not a U.S. Generally Accepted Accounting Principles (“GAAP”) measure, and a reconciliation of Adjusted EBITDA to net loss, which is presented in accordance with GAAP.

Three months ended March 31, 2012 compared to the three months ended March 31, 2011

As discussed above under Oilfield Services – Acquisition and Disposition of FDF, as of May 4, 2012, our subsidiary, FDF, was sold to an unaffiliated third party. As a result, all financial information included in this report and all Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read and considered in such context.

Revenues. Revenues increased over the prior year period by $2,306,084 represented by an increase in Oilfield Services revenue of $1,498,314 and an increase in Oil and Gas revenues of $807,770. The increase in Oilfield Services revenue is due to an increase in equipment rental revenues of $1,000,731 along with an increase in handling fee revenue of $1,154,236. The increase in both of these line items is due to a new contract at the port of Lake Charles location. The Oilfield Services segment also experienced an increase in revenue from the sale of water-based fluids of $419,475 due to a pick-up in activity within the Gulf of Mexico subsequent to the Deepwater Horizon oil spill of 2010. These increases were offset by a decrease in frac material transportation of approximately $1 million due principally to a reduction in drilling for natural gas related to depressed natural gas prices. The increase in Oil and Gas revenues is directly related to increased activity in the purchase and sale of oil and gas leasehold properties in Texas. We anticipate this revenue line item to increase over time as the Company continues to focus on opportunities in newly discovered resource plays in Texas.

Oil & gas lease operating expenses. Lease operating expenses decreased $31,198, in the three months ended March 31, 2012 compared to the prior three months ended March 31, 2011. The decrease is due principally to general reduction in drilling activities during 2011, which has carried over to 2012.

Depreciation, depletion, and amortization. Depreciation, depletion, and amortization (“DD&A”) increased over the prior period primarily as a result of the acquisition of additional plant and equipment in our Oilfield Services business during 2011. The result of which was an increase in depreciable long-lived assets.

Selling, general, and administrative expenses. Selling, general, and administrative (“SG&A”) expenses increased for the three months ended March 31, 2012 compared to the prior three months ended March 31, 2011 due principally to a general increase in activity at FDF and is consistent with the increase in revenue. SG&A consists primarily of salary and wages, contract labor, professional fees, lease rental costs, fuel, and insurance costs.

Litigation loss on settlement. The litigation loss on settlement for the three months ended March 31, 2011 is a result of the settlement of two lawsuits related to the Panhandle Field Producing Property. In exchange for the release of all claims to these two suits by the plaintiffs, concurrent with entering into a Compromise Settlement Agreement and Release of All Claims, the Company entered into a Purchase and Sale Agreement whereby the Company sold its entire interest in the Panhandle Field Producing Property to the plaintiffs for the purchase price of $782,000, resulting in a loss on litigation settlement totaling $965,065 for the three months ended March 31, 2011. There was no such activity that occurred for the three months ended March 31, 2012.

Interest expense. Interest expense increased $87,727 during the three months ended March 31, 2012 compared to the prior year period due to increases in the interest rate on the Series A Redeemable Preferred Stock and the Senior Facility.

Change in fair value of derivative liabilities. The decrease in the current period as compared to the prior period ended March 31, 2011, is due to the re-valuation of the Purchaser and Control Warrant held by a third party, both deemed to be derivatives, and the change in value of the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock, also deemed to be derivative. For the three months ended March 31, 2012, the fair value of the derivative liabilities increased by an aggregate $4,267,000 due to an increase in the valuation of the Purchaser Warrant put feature coupled with a decrease in the valuation of the Purchaser and Control Warrants. We recognize changes in the respective fair values in the consolidated statements of operations. Each of the Purchaser and Control Warrants were cancelled in connection with the sale of FDF and the settlement of the matters with WayPoint.

Accretion of preferred stock liability. Amount reflects the accretion of the face amount of $20,750,000 related to the Senior Series A Redeemable Preferred Stock issued in connection with the WayPoint Transaction in November 2010 over the term of the instruments of approximately 5.5 years. This preferred stock is more fully described below under, “Defaults Under Financing Arrangements.” The Senior Series A Redeemable Preferred Stock held by WayPoint was cancelled in connection with the sale of FDF and the settlement of the matters with WayPoint.

Income tax benefit. Income tax benefit for the three months ended March 31, 2012 of $240,193 is the result of utilizing existing and current net operating losses to offset taxable income generated by our oilfield services business.

Adjusted EBITDA

To assess the operating results of our segments, our chief operating decision maker analyzes net income (loss) before income taxes, interest expense, DD&A, impairments, gains or losses resulting from the sale of assets or resolution of commercial disputes, 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 the Company’s financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s 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.


	Three Months Ended March 31,
	2012			2011
Reconciliation of Adjusted EBITDA to GAAP Net Loss:
Net loss attributable to NYTEX Energy Holdings, Inc.	$	(6,562,994	)	$	(16,800,384	)
Income tax benefit		(240,193	)		(412,284	)
Interest expense		1,308,340			1,220,613
DD&A		2,291,432			2,164,667
Change in fair value of derivative liabilities		4,267,000			12,866,174
Loss on litigation		—			965,065
Accretion of preferred stock liability		943,182			943,182

Consolidated Adjusted EBITDA	$	2,006,767		$	947,033

Liquidity and Capital Resources

Our working capital needs have historically been satisfied through operations, 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, service our debt, and for general working capital requirements.

As of March 31, 2012, we had cash and cash equivalents of $39,925, and a net working capital deficit of $28,528,847 (measured by current assets less current liabilities) principally due to (i) reporting the outstanding principal balance of amounts owed under the Senior Facility of $15,655,463 within current liabilities, and (ii) reporting the WayPoint derivative liability totaling $9,610,000 within current liabilities. See Defaults Under Financing Arrangements below for further discussion.

Defaults Under Financing Arrangements, Forbearance Agreement, and Waiver

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. Due to the Merger Agreement and disposition of FDF, we are no longer obligated under the Senior Facility.

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 our remaining debt obligations and dividends payable under the Series A Convertible Preferred Stock. Our requirements under the WayPoint Purchase Agreement were satisfied pursuant to two agreements entered into with certain WayPoint entities as well as Michael Francis and Bryan Francis. Also, as a result of the transactions associated with the Merger Agreement, we have satisfied all of our obligations under the Senior Facility. In addition to the recently completed sale of FDF to a third party, management has implemented plans to improve liquidity through cash flows generated from development of new business initiatives within the oil & gas segment as well as the initiation of our new temporary staffing and permanent placement venture, through the sale of selected assets deemed unnecessary to our business, and improvements to results from existing 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.

Cash Flows

The following table summarizes our cash flows and has been derived from our unaudited financial statements for the nine months ended March 31, 2012 and 2011.


	Three Months Ended March 31,
	2012			2011
Cash flow provided by operating activities	$	3,016,021		$	2,159,147
Cash flow used in investing activities		(274,074	)		(2,354,379	)
Cash flow used in financing activities		(2,712,839	)		(3,579	)

Net increase (decrease) in cash and cash equivalents		29,108			(198,811	)
Beginning cash and cash equivalents		10,817			209,498

Ending cash and cash equivalents	$	39,925		$	10,687

Cash flows from operating activities improved for the three months ended March 31, 2012 by $856,874 compared to cash flows from operating activities for the three months ended March 31, 2011. This was mainly due to a reduction in the three month to date net loss of approximately $10 million. This decrease in the net loss was offset by non-cash adjustments affecting earnings including a reduction in the change in fair value of derivative liabilities of $8,599,174 and a $126,765 increase in DD&A. Further, for the three months ended March 31, 2012, cash inflows in working capital totaling approximately $2.2 million. This is due primarily to cash inflows from the collection of accounts receivable of approximately $2.3 million. This cash inflow was offset by approximately $700,000 of cash outflows as we reduced accounts payable and accrued expenses.

Cash flows used in investing activities for the three months ended March 31, 2012 were $274,074 compared to cash used of $2,354,379 for the three months ended March 31, 2011. Both of these amounts consisted primarily of cash used to acquire property, plant, and equipment within our Oilfield Services segment. The change represents a planned reduction in the purchase of property, plant, and equipment implemented within our Oilfield Services segment.

Cash flows used in financing activities were $2,712,839 and $3,579 for the three months ended March 31, 2012 and 2011, respectively. For the three months ended March 31, 2012, the financing activity consisted primarily of borrowings on notes payable, which was offset by repayment of financing arrangements. For the three months ended March 31, 2011, the financing activity consisted primarily of borrowings on notes payable, which was offset by repayment of financing arrangements and the issuance of warrants related to the PPM. In addition, during the three months ended March 31, 2011, we received proceeds totaling $369,470 from the sale of additional shares of the Series A Convertible Preferred Stock. We also received proceeds totaling $936,000 from the issuance of 9% convertible debentures.

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.

Critical Accounting Policies

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011, describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the first three months of 2012.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information is not required under Regulation S-K for “smaller reporting companies.”

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management performed an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and

forms of the Securities and Exchange Commission, and to ensure that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, management has concluded that the Company’s disclosure controls and procedures are effective as of March 31, 2012.

Remediation and Changes in Internal Controls

We developed and are in the process of implementing remediation plans to address our material weaknesses as reported in our Form 10-K for the year ended December 31, 2011. In the three months ended March 31, 2012, the following specific remedial actions have been put in place:

•

Engaged a third-party accounting firm to assist us in tax accounting and reporting and to support and assist in the execution of our remediation plans.

As a result, we believe that there are no material inaccuracies or omissions of material fact and, to the best of our knowledge, believe that the consolidated financial statements as of and for the three months ended March 31, 2012, fairly present in all material respects the financial condition and results of operations in conformity with accounting principles generally accepted in the United States of America.

Other than as described above, there have not been any other changes in our internal control over financial reporting in the three months ended March 31, 2012, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II

Item 1. Legal Proceedings

At March 31, 2012, the Company was a party to lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the Company’s consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments, or asserted claims.

Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk. In evaluating our business, you should carefully consider all of the risks described or incorporated by reference in this Quarterly Report. 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. These risk factors are provided for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to identify or predict all such factors and, therefore, you should not consider these risks to be a complete statement of all the uncertainties we face.

Our business model may substantially change as a result of the sale of FDF.

Prior to its sale on May 4, 2012, FDF accounted for approximately 99 percent of our current revenues and approximately 97 percent of our assets and the provision of drilling fluids and oil and gas well fracturing proppants through FDF had been our primary business strategy since we acquired FDF. As a result of the sale of FDF, we will need to consider either further acquisitions in the oilfield services arena, expand our development of oil and gas reserves, or consider other potential business opportunities. In exploring different opportunities, some may prove not to be viable or advisable and we will not develop every business we evaluate. Further, exploring new business models and opportunities can be time consuming, result in significant expenses that may never be recouped and may divert management’s attention from our existing businesses. Even if we determine to further develop a business, the integration of any new business into our existing structure will likely be complex, time consuming and potentially expensive and could disrupt business operations if not completed in a timely and efficient manner. Any failure to identify new business opportunities, successfully integrate any new businesses with our current structure or receiving the anticipated benefits of any new business could have a material adverse effect on our business, financial condition and operating results.

Our historical financial results will not be indicative of future results as a result of the sale of FDF.

Prior to its sale on May 4, 2012, FDF represented the most significant proportion of our assets and revenues. Because FDF was sold to satisfy our obligations to WayPoint, our historical financial results will provide only a limited basis for you to assess our business and our historical financial results are not indicative of future financial results.

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.

The continuation of our business is dependent upon us resolving the defaults under our loan agreements, raising additional financial support, and maintaining profitable operations. In addition, the sale of FDF will significantly impact our operations and our ability to continue as a going concern. If we should fail to continue as a going concern, you may lose all or a part of the value of your entire investment in us.

Due to the uncertainty of our ability to meet our current operating expenses and the defaults under our loan agreements noted above, in their report on the annual financial statements for the years ended December 31, 2011and 2010, our independent auditors included an explanatory paragraph regarding the doubt about our ability to continue as a going concern. This “going concern” opinion could impair our ability to access certain types of financing or may prevent us from obtaining financing.

Our continuation as a going concern is dependent upon our attaining and maintaining profitable operations, resolving the defaults under certain of our loan agreements, and raising additional capital. The issuance of additional equity securities by us could result in a substantial dilution in the equity interests of our current stockholders. The financial statements 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.

Our indebtedness and other payment obligations 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. Subsequent to the disposition of FDF, our outstanding indebtedness includes two secured equipment loans, the convertible debentures, related party loan, and the Francis promissory note. In addition, we are obligated to accrue dividends payable on our Series A Preferred Stock. We currently do not have the funds available to satisfy these obligations.

Our current and future indebtedness could have important consequences. For example, those levels of indebtedness and obligations could:

•

impair our ability to make investments and obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes;

•

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 payments on our indebtedness and obligations; and

•

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 payments.

We need additional capital, and the sale of additional shares or other equity securities would result in additional dilution to our stockholders.

We cannot be certain that our existing sources of cash will be adequate to meet our liquidity requirements, including the cash requirements that may be due under our Preferred Stock. 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. 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. We cannot assure you that any additional equity sales or financing will be available in amounts or on terms acceptable to us, if at all. The sale of additional equity securities would result in additional dilution to our stockholders and, depending on the amount of securities sold, could result in a significant reduction of your percentage interest in us. The incurrence of additional indebtedness would result in increased debt service obligations and could result in additional operating and financing covenants that would further restrict our 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.

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 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 and into 2011, which has resulted in increased drilling activities and an expansion of oil-driven markets. However, natural gas prices continued to decline significantly through most of 2009 and remained depressed throughout 2010 and 2011, which resulted in decreased activity in the natural gas-driven markets. Limitations on the availability of capital, or higher costs of capital, for financing expenditures have caused, and may continue to cause, 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 increasingly unpredictable, making it difficult for us to predict our future operating results. Additionally, any of these conditions or events could adversely affect our operating results.

We cannot control activities on properties that we do not operate and are unable to control their proper operation and profitability.

We do not operate the properties in which we own an ownership interest. As a result, we have limited ability to exercise influence over, and control the risks associated with, the operations of these properties. The failure of an operator on these properties to adequately perform operations, an operator’s breach of the applicable agreements or an operator’s failure to act in ways that are in our best interests could negatively impact our operations. The success and timing of drilling and development activities on properties operated by others therefore depend upon a number of factors outside of our control, including:

•

the nature and timing of the operator’s drilling and other activities;

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the timing and amount of required capital expenditures;

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the operator’s geological and engineering expertise and financial resources;

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the approval of other participants in drilling wells; and

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the operator’s selection of suitable technology.

If oil and gas prices remain volatile, or decline, 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.

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. We may not be able to identify attractive acquisition opportunities or successfully acquire identified targets. Furthermore, competition for acquisition opportunities may escalate, increasing our cost of making further acquisitions or causing us to refrain from making additional acquisitions. 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 and PNC.

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 management’s 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.

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 or other key personnel could disrupt our operations. Although we have entered into employment agreements with Mr. Galvis, 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. As part of the disposition of FDF in May 2012, the employment agreements with Michael Francis and Bryan Francis were terminated and they, along with Jude Gregory, a former FDF officer, exchanged mutual release with us.

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;

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suspension of our operations; and

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lost profits.

The occurrence of a significant event or adverse claim in excess of the insurance coverage we maintain or which 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.

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.

We maintain insurance coverage 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 a result, 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 we are exposed to, or, even if available, it may be inadequate, or 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. Our insurance program is administered by an officer of the Company, is reviewed not less than annually with our insurance brokers and underwriters, and is reviewed by our Board of Directors on an annual basis.

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

The issuance of shares of Common Stock upon conversion of the Debentures and Series A Preferred Stock, as well as upon 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 convertible 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 derivative securities would have a dilutive effect on our Common Stock.

As of March 31, 2012, we had (i) outstanding Convertible Debentures which are convertible into an aggregate of 1,356,667 shares of our Common Stock at a conversion price of $1.50 per share, (ii) 5,761,028 shares of Series A Preferred Stock which are convertible into an aggregate of 5,761,028 shares of our Common Stock at $1.00 per share, (iii) warrants to purchase 1,291,000 shares of our Common Stock at an exercise price of $2.00 per share of our Common Stock and (iv) outstanding 9% convertible debentures issued by NYTEX Petroleum which are convertible into an aggregate 586,507 shares of Common Stock at a conversion price of $2.00 per share (the “NYTEX Petroleum Convertible Debentures”).

Further, any additional financing we may secure could require the granting of rights, preferences or privileges senior to those of our Common Stock, which may result in additional dilution of the existing ownership interests of our Common 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 Securities Exchange Act of 1934, as amended and other federal securities laws, and the compliance obligations of the 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 privately held company.

Our compliance with the Sarbanes Oxley Act and SEC rules concerning internal controls are time consuming, difficult, and costly.

As a reporting company, it is time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. In order to comply with our obligations, we hired 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 Act’s 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. 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 the trading price of our Common Stock to decline 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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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.

The market price for our Common Stock may be particularly volatile given our status as a smaller reporting company with a relatively 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 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 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 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.

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 SEC. 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 customer’s 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 purchaser’s 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 do not anticipate paying any dividends.

We presently do not anticipate we will pay any dividends on our Common Stock in the foreseeable future. The payment of dividends on our Common Stock, if any, would be contingent upon our revenues, earnings, capital requirements, and our general financial condition. 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. Additionally, we may not pay a dividend on our Common Stock until we are current in dividends payable on our Series A Preferred Stock, as discussed more fully above under the Risk Factor, “Our indebtedness and other payment obligations could restrict our operations and make us more vulnerable to adverse economic conditions.” 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.

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 March 31, 2012, we had 172,512,277 shares of Common Stock available for issuance. We have reserved 1,356,667 shares for conversion of our 12% convertible debentures, 5,761,028 shares for conversion of our Series A Preferred Stock, and 1,331,095 shares for issuance upon the exercise of outstanding warrants held by these security holders. Subsequent to the Merger Agreement, we have also reserved approximately 17,000 shares of Common Stock in connection with stock grants to our employees. Additionally, our wholly-owned subsidiary NYTEX Petroleum, has issued debentures convertible into 586,507 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 introduction 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 are likely to be exercised only 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None

Item 4.(Removed and Reserved)

Item 5. Other Information

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

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

(i) the Management Agreement was terminated;

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

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

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

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

Item 6. Exhibits

The exhibits set forth on the accompanying Exhibit Index have been filed as part of this Form 10-Q.

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

May 15, 2012

EXHIBIT INDEX


Exhibit		Document

3.1		Certificate of Incorporation of the Registrant, as amended (filed as Exhibit 3.1 to the Registrant’s Form 10-12G/A filed August 12, 2010 and incorporated herein by reference)

3.2		Bylaws of Registrant, as amended (filed as Exhibit 3.2 to the Registrant’s Form 10-12G/A filed August 12, 2010 and incorporated herein by reference)

4.1		Amended and Restated Certificate of Designation in respect of Senior Series A Redeemable Preferred Stock (filed as Exhibit 10.9 to the Registrant’s Form 8-K filed November 30, 2010 and incorporated herein by reference)

4.2		Amended and Restated Certificate of Designation in respect of Senior Series B Redeemable Preferred Stock (filed as Exhibit 10.10 to the Registrant’s Form 8-K filed November 30, 2010 and incorporated herein by reference)

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002***

101.INS**		XBRL Instance Document.

101.SCH**		XBRL Taxonomy Extension Schema.

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF**		XBRL Taxonomy Extension Definition Linkbase.

101.LAB**		XBRL Taxonomy Extension Label Linkbase.

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase.

* Filed herewith

** Furnished herewith

*** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company