Exhibit 99.2

 

5J TRUCKING, LLC

 

FINANCIAL STATEMENTS

 

YEARS ENDED DECEMBER 31, 2018 AND 2017

 

 

 

CONTENTS

  

	Page
INDEPENDENT AUDITORS’ REPORT	1-2
FINANCIAL STATEMENTS
Balance Sheets	3-4
Statements of Income	5
Statements of Members’ Equity	6
Statements of Cash Flows	7-8
Notes to Financial Statements	9-14

 

 

 

 

  

INDEPENDENT AUDITORS’ REPORT

 

  

 

To the Members

 

5J Trucking, LLC

 

 

We have audited the accompanying financial statements of 5J Trucking, LLC (the Company), which comprise the balance sheets as of December 31, 2018 and 2017, and the related statements of income, members’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

 

Page 2

 

To the Members

 

5J Trucking, LLC

 

 

Opinion

 

In our opinion, the financial statements referred to on page 1 present fairly, in all material respects, the financial position of 5J Trucking, LLC as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

 

/s/ Bolton, Sullivan, Taylor & Weber, L.L.P.

  

  

Palestine, Texas

 

July 5, 2019

 

 

 

5J TRUCKING, LLC 

BALANCE SHEETS 

DECEMBER 31, 2018 AND 2017

  

		2018				2017
ASSETS
CURRENT ASSETS
Cash		$	187,098			$	193,758
Accounts receivable
Trade, net			52,616				18,115
Related party			348,501				351,097
Notes receivable - current portion			423,277				50,855
Prepaid expenses			278,447				263,653
TOTAL CURRENT ASSETS			1,289,939				877,478
PROPERTY AND EQUIPMENT (at cost)
Buildings			715,921				715,921
Cranes			10,536,569				10,822,280
Trucks, trailers and winches			33,099,446				31,261,224
Machinery and equipment			4,246,967				4,701,085
Total property and equipment			48,598,903				47,500,510
Less accumulated depreciation			(31,827,065	)			(33,402,710	)
TOTAL NET PROPERTY AND EQUIPMENT			16,771,838				14,097,800
OTHER ASSETS
Notes receivable, net of current portion			669,478				83,059
TOTAL OTHER ASSETS			669,478				83,059
TOTAL ASSETS		$	18,731,255			$	15,058,337

  

The accompanying notes are an integral part of these financial statements.

 

 

5J TRUCKING, LLC 

BALANCE SHEETS 

DECEMBER 31, 2018 AND 2017

  

		2018				2017
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	694,835			$	659,436
Accrued expenses			74,958				85,707
State income taxes payable			140,500				105,000
Current portion of long-term debt			3,707,721				3,810,698
TOTAL CURRENT LIABILITIES			4,618,014				4,660,841
LONG-TERM DEBT, net of current portion			19,901,173				17,827,568
TOTAL LIABILITIES			24,519,187				22,488,409
MEMBERS' EQUITY (DEFICIT)			(5,787,932	)			(7,430,072	)
TOTAL LIABILITIES AND MEMBERS' EQUITY (DEFICIT)		$	18,731,255			$	15,058,337

  

The accompanying notes are an integral part of these financial statements.

 

 

5J TRUCKING, LLC

STATEMENTS OF INCOME 

YEARS ENDED DECEMBER 31, 2018 AND 2017

 

 

		2018				2017
OPERATING REVENUES		$	25,919,903			$	21,512,855
OPERATING EXPENSES
Commissions and contract services			80,059				57,326
Depreciation			3,671,684				3,417,887
Equipment expenses			516,060				410,275
Insurance			1,367,962				1,240,222
Licenses and permits			2,142,414				1,639,160
Miscellaneous			31,100				20,209
Rent			144,000				205,000
Repairs			76,252				53,683
Payroll and benefits			9,023,088				7,243,831
Rigging supplies			246,640				135,834
Safety expenses			24,039				13,453
Taxes			206,226				202,400
Travel			803,447				781,605
Trucking expenses			4,842,777				4,290,289
Vehicle expenses			87,324				90,283
Shop expenses			141,505				103,659
TOTAL OPERATING EXPENSES			23,404,577				19,905,116
GROSS PROFIT (LOSS)			2,515,326				1,607,739
GENERAL AND ADMINISTRATIVE			569,167				1,020,834
INCOME (LOSS) FROM OPERATIONS			1,946,159				586,905
OTHER INCOME (EXPENSE)
Gain on sale of fixed assets			2,294,386				264,280
Other income			64,662				781
Interest expense			(743,820	)			(618,880	)
NET OTHER INCOME (EXPENSE)			1,615,228				(353,819	)
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES			3,561,387				233,086
STATE INCOME TAX EXPENSE			(132,597	)			(96,326	)
NET INCOME (LOSS)		$	3,428,790			$	136,760

  

The accompanying notes are an integral part of these financial statements.

 

 

5J TRUCKING, LLC 

STATEMENTS OF MEMBERS' EQUITY

YEARS ENDED DECEMBER 31, 2018 AND 2017

  

		2018				2017
MEMBERS' EQUITY (DEFICIT) AT BEGINNING OF YEAR		$	(7,430,072	)		$	(7,902,832	)
Net income (loss)			3,428,790				136,760
Contributions (Distributions) from/to Members			(1,786,650	)			336,000
MEMBERS' EQUITY (DEFICIT) AT END OF YEAR		$	(5,787,932	)		$	(7,430,072	)

  

The accompanying notes are an integral part of these financial statements.

 

5J TRUCKING, LLC

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 AND 2017

 

		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	3,428,790			$	136,760
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation			3,671,684				3,417,887
Amortization			-				12,136
Gain on sale of fixed assets			(1,427,171	)			(264,280	)
Gain on distribution of property			(867,215	)			-
Bad debt expense			161,598				666,302
Decrease (Increase) in accounts receivable			(471,653	)			(610,993	)
Decrease (Increase) in prepaid expenses			(14,794	)			115,064
(Decrease) Increase in accounts payable			18,925				(42,073	)
(Decrease) Increase in accrued expenses			24,751				102,914
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES			4,524,915				3,533,717
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment			(1,200,854	)			(603,982	)
Proceeds from disposal of equipment			460,752				237,435
Payments received from equipment sold on contract			439,159				16,586
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES			(300,943	)			(349,961	)
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction in long-term debt			(3,889,632	)			(3,260,658	)
Member contributions (distributions)			(341,000	)			336,000
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES			(4,230,632	)			(2,924,658	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(6,660	)			259,098
CASH (OVERDRAFT) AND CASH EQUIVALENTS AT
BEGINNING OF YEAR			193,758				(65,340	)
CASH (OVERDRAFT) AND CASH EQUIVALENTS  AT END OF YEAR		$	187,098			$	193,758

 

The accompanying notes are an integral part of these financial statements.                

 

 

5J TRUCKING, LLC

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 AND 2017

 

		2018				2017
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest		$	743,820			$	606,744
State income taxes			97,097				46,326
Noncash investing and financing transactions:
Acquisition of property and equipment:
Cost of property and equipment			7,077,588				7,237,255
Property and equipment loans			(5,876,734	)			(6,633,273	)
Cash down payments		$	1,200,854			$	603,982
Sale of property and equipment:
Equipment sold on contract		$	1,398,000			$	230,500
Property distributions:
Fair value of property distributed			1,175,000				-
Cost basis			(307,785	)			-
Gain on distribution		$	867,215			$	-

 

The accompanying notes are an integral part of these financial statements. 

 

  

5J TRUCKING, LLC 

 

NOTES TO FINANCIAL STATEMENTS

 

YEARS ENDED DECEMBER 31, 2018 AND 2017

 

  

ORGANIZATION

 

5J Trucking, LLC (the Company) is a limited liability company organized under the laws of the State of Texas on January 20, 2004, and headquartered in Palestine, Texas.

 

NATURE OF OPERATIONS

 

The Company provides rig mobilization, heavy hauling, compressor and production hauling and hotshot services to the oil and gas industry. Substantially all of these services are provided through 5J Oilfield Services, LLC, a related party.

 

SIGNIFICANT ACCOUNTING POLICIES

 

The summary of significant accounting policies is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are representations of the Company’s management who is responsible for the integrity and objectivity of the financial statements.

 

Use of Estimates. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassification. Certain accounts relating to the prior year have been reclassified to conform to the 2018 presentation.

 

Concentration of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. As of December 31, 2018 and December 31, 2017, the Company had no deposits in excess of federally insured limits at financial institutions. Substantially all (86%) of accounts receivable at December 31, 2018 and (92%) at December 31, 2017 was due from 5J Oilfield Services, LLC. Credit risk with respect to the accounts receivable is derived from 5J Oilfield Services, LLC granting credit to customers located throughout the United States.

 

Accounts Receivable. Accounts receivable are recorded net of the allowance for doubtful accounts of $618,864 at December 31, 2018 and $457,600 at December 31, 2017. The allowance for doubtful accounts is based on historical experience and an evaluation of the outstanding receivables at year end. Bad debt expense for the years ended December 31, 2018 and 2017, was $161,598 and $666,302, respectively.

 

 

SIGNIFICANT ACCOUNTING POLICIES (concluded)

 

Property and Equipment. Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful life of each class as follows:

 

	Buildings	7-39 years
	Cranes	10 years
	Trucks, trailers and winches	7 years
	Machinery and equipment	5-7 years

 

Maintenance and repairs are charged to expense as incurred and expenditures for major renewals and betterments are capitalized.

 

When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the results of operations.

 

Depreciation expense for 2018 and 2017, was $3,671,684 and $3,417,887, respectively.

 

Cash and Cash Equivalents. For purposes of the statement of cash flows, the Company considers all demand deposits, money market funds and cash on hand to be cash equivalents.

 

Income Taxes. The Company is a disregarded entity for Federal income tax purposes. Therefore, no provision for Federal income tax has been included in the financial statements.

 

The Company is subject to various state income taxes and a state income tax provision of $132,597 and $96,326, has been recorded for the years ended December 31, 2018 and 2017, respectively.

 

For federal and state income tax purposes, the tax returns essentially remain open for possible examination for a period of three years after the respective filing deadlines of those returns.

 

Members’ Liability. As a limited liability company, each member’s liability is limited to amounts reflected in their respective member equity accounts in accordance with the Operating Agreement.

 

Subsequent Events. Management has evaluated subsequent events through July 5, 2019, the date the financial statements were available to be issued.

  

 

LONG-TERM DEBT -less current portion

 

Long-term debt at December 31, 2018 and 2017 consists of the following :

 

				Date of		Maturity		Interest		Original				Payment		Balance				2018				2018				Balance				2019
Notes Payable		Collateral		Inception		Date		Rate		Amount				Method		12/31/2017				Additions				Reductions				12/31/2018				Prin. Due
Citizens National Bank		2014 Kobelco Crane		Dec-14		Nov-18		4.90%			700,000			Monthly			187,163				-				187,163				-				-
Equity		various equipment		Aug-15		Jun-18		8.21%			7,269,913			Monthly			1,027,027				-				1,027,027				-				-
Equity		(4) Manitowoc Cranes		Aug-15		Mar-19		6.00%			1.353,514			Monthly			733,951				-				552,331				181,620				181,620
5J Oilfield Services, LLC		Miscellaneous Loan Fd Cash Ace.		Dec-13		Jun-26		2.00%			13,887,658			Quarterly			12,387,658				-				250,000				12,137,658				400,000
Citizens National Bank		2017 Holden & 2007 Aspen Trailers		Nov- 16		Nov-19		5.00%			92,100			Monthly			60,424				-				30,836				29,588				29,588
Scott Financial		2014 Kobelco Crane		Apr-16		Apr-20		5.75%			516,127			Monthly			334,567				-				137,796				196,771				145,974
Scott Financial		2006 Manitowoc Crane		Apr-16		Jan-20		5.75%			335,246			Monthly			195,418				-				90,808				104,610				96,206
Scott Financial		2013 Kobelco Crane		Apr-16		Apr-20		5.75%			531,500			Monthly			344,533				-				141,979				202,554				150,323
ALLY		2017 GMC Truck		Mar-17		Mar-20		4.69%			28,443			Monthly			21,688				-				9,383				12,305				9,833
ALLY		2017 GMC Truck		Mar-17		Mar-20		4.76%			30,368			Monthly			23,162				-				10,017				13,145				10,504
ALLY		2017 GMC Truck		Apr-17		Apr-20		4.59%			33,665			Monthly			26,564				-				11,066				15,498				11,585
ALLY		2017 GMC Truck		Apr-17		Apr-20		4.59%			42,762			Monthly			33,742				-				14,057				19,685				14,716
ALLY		2017 GMC Truck		Jun-17		Jun-20		4.59%			26,148			Monthly			22,719				-				8,497				14,222				8,895
ALLY		2017 GMC Truck		Jul-17		Jul-20		3.39%			18,380			Monthly			15,933				-				6,013				9,920				6,220
A LLY		2017 Chevrolet Truck		Sep-17		Sep-20		4.40%			30,996			Monthly			28,56 1				-				10,011				18,550				10,461
ALLY		2018 Chevrolet Truck		Oct-1 7		Oct-20		4.59%			29,318			Monthly			27,790				-				9,421				18,369				9,862
Citizens National Bank		13 Trailers		Aug-17		Aug-22		5.50%			448,000			Monthly			416,508				-				80,376				336,132				84,615
Scott Financial		Kobelco Crane		Aug-17		Aug-21		5.75%			550,500			Monthly			500,033				-				131,173				368,860				136,647
Scott Financial		2017 Kobelco Crane		Dec-17		Dec-22		5.75%			784,877			Monthly			784,877				-				139,357				645,520				147,623
Triumph		9 Trucks and 3 Trailers		Oct-17		Oct-20		5.50%			1,162,749			Monthly			1,018,881				-				368,540				650,341				389,625
De Lage Landen		2017 Grove Crane		Dec-17		Jan-24		5.48%			3,447,067			Monthly			3,447,067				-				455,923				2,991,144				524,904
Citizens Bank of Crockett		2 Trailers		Jan-18		Jan-21		6.5% floating			144,810			Monthly			-				144,810				41,145				103,665				47,888
Mercedes-Benz		1 Western Star Truck		Feb-18		Jul-21		6.15%			100,000			Monthly			-				100,000				22,061				77,939				27,625
Citizens National Bank		2 Kenworths		Jun-18		May-22		5.75%			319,120			Monthly			-				319,120				36,079				283,041				75,338
Citizens National Bank		2 Trailers		Jul-18		Jul-22		5.49%			368,000			Monthly			-				368,000				34,754				333,246				86,719
Mercedes-Benz		8 Western Star Trucks		Aug- 18		Sep-23		5.50%			1,344,961			Monthly			-				1,344,961				55,998				1,288,963				244,171
Volvo Financial		4 Volvo Trucks		Oct-18		Oct-22		5.50%			596,565			Monthly			-				596,565				22,331				574,234				138,358
Volvo Financial		2 Volvo Trucks		Dec-18		Nov-22		5.50%			309,993			Monthly			-				309,993				5,789				304,204				71,567
Mercedes-Benz		2 Western Star Trucks		Dec-18		Dec-23		5.84%			334,047			Monthly			-				334,047				-				334,047				58,771
Triumph		5 Kenworth Trucks		Nov-18		Jan-22		6.00%			1,000,750			Monthly			-				1,000,750				-				1,000,750				280,792
Citizens National Bank		2018 Cat Crane		Dec-18		Dec-22		6.00%			900,000			Monthly			-				900,000				-				900,000				205,641
Volvo Financial		3 Volvo Trucks		Dec-18		Dec-22		5.50%			442,313			Monthly			-				442,313				-				442,313				101,650
		Totals								$	37,179,890					$	21,638,266			$	5,860,559			$	3,889,931			$	23,608,894			$	3,707,721
										Total Long-Term Debt														$	23,608,894
										Less current portion														$	3,707,721
										Total Long-Term Debt, net of current portion														$	19,901,173

 

Maturities of long-term debt in each of the next five years are as follows :

 

December 31,2019		$	3,707,721
December 31,2020			3,815,387
December 31,2021			4,417,512
December 31,2022			3,928,609
December 31,2023			2,957,173
Thereafter		$	4,782,492
		$	23,608,894

 

Total interest expense for the years ended December 31, 20 18 and 2017, was $743,820 and $618,880, respectively.

 

 

COMMITMENTS AND CONTINGENCIES

 

The Company has guaranteed 5J Oilfield Services, LLC’s Line of Credit with VeraBank with a balance of $3,064,696 as of December 31, 2018. The line of credit matures on October 4, 2019, and has a maximum borrowing amount of $8,000,000. The Company would be obligated to perform under the guarantee if the related entity failed to pay principal and interest payments to the lender when due. As of December 31, 2018, the related party is current with its debt payments.

 

The Company has guaranteed two of Certified Crane and Rigging Services, LLC’s notes payable due to Equify Financial, LLC with balances of $2,941,079 and $2,476,773 as of December 31, 2018. Payments on the debts are due monthly with final payments due during the year ending December 31, 2022. The Company would be obligated to perform under the guarantee if the related entity failed to pay principal and interest payments to the lender when due. At December 31, 2018, including accrued interest, the maximum potential amount of future payments under the guarantees would be $6,114,949. As of December 31, 2018, the related party is current with its debt payments.

 

The Company has also guaranteed a Line of Credit for Certified Crane and Rigging Services, LLC with a balance of $1,312,552 as of December 31, 2018. The line of credit matures on February 16, 2020, and has a maximum borrowing amount of $2,020,000. The Company would be obligated to perform under the guarantee if the related entity failed to pay principal and interest payments to the lender when due. As of December 31, 2018, the related party is current with its debt payments.

 

The Company is contingently liable in respect to lawsuits and other claims arising from the ordinary course of its operations. The Company believes that either there are meritorious defenses to substantially all such actions or that any liability that may finally be determined, net of insurance, should not have a material affect on the Company’s financial position.

 

RELATED PARTY TRANSACTIONS

 

During 2018 and 2017, the Company had transactions with 5J Oilfield Services, LLC (Oilfield Services), 5J Properties, LLC (Properties), Certified Crane and Rigging Services, LLC (Certified Crane), 903 Industries, and Schwab Trucking, LLC (Schwab) related through common ownership and management. The Company rents a crane to Certified Crane under a cancelable five year lease. The lease requires Certified Crane to pay the Company rent for the use of the equipment. The following is a description of the transactions with these entities for the years ended December 31, 2018 and 2017:

 

5J Oilfield Services, LLC

 

-

The Company rents a substantial portion of its trucks, cranes and other equipment to Oilfield Services under cancelable five year leases. The leases require Oilfield Services to pay the Company rent for the use of the equipment, equivalent to a percentage of the revenue generated by the equipment. In addition, the rent will be reduced by:

 

the gross amount paid by or on behalf of Oilfield Services to any driver of the leased equipment for wages

 

a percentage of the driver’s gross wages to cover payroll taxes and operations and administrative expenses

 

other miscellaneous expenses such as driver physicals, drug and alcohol screens, fines, etc.

 

 

RELATED PARTY TRANSACTIONS (concluded)

 

5J Oilfield Services, LLC (concluded)

 

-

The Company also receives revenue from Oilfield Services for the use of its terminal facilities and from commissions related to job performance.

 

-

Accounts receivable includes $346,331 and $340,098 due from Oilfield Services as of December 31, 2018 and 2017, respectively.

 

-

Accounts payable includes $0 and $1,208 due to Oilfield Services as of December 31, 2018 and 2017, respectively.

 

-

Long-Term Debt includes $12,137,658 and $12,387,658 due to Oilfield Services as of December 31, 2018 and 2017, respectively. Interest expenses incurred on the debt was $250,260 in 2018 and $253,342 in 2017. See the long-term debt information on page 11 for more details.

 

-

The Company reported gross revenue of $24,862,942 reduced by $10,985,253 of expenses during 2018 and gross revenue of $20,665,691 reduced by $8,878,796 of expenses during 2017 from Oilfield Services.

 

The Company’s transactions with other related parties are summarized below:

  

		2018				2017
Accounts Receivable due from Certified Crane		$	-			$	4,454
Accounts Receivable due from Schwab			2,170				6,544
Accounts Payable due to Properties			17,000				17,000
Operating Revenue from Certified Crane			780,392				651,291
Operating Revenue from Schwab			81,286				85,294
Operating Revenue from 903 Industries			27,932				11,654
Contract service expense to Certified Crane			-				9,126
Rental expense to 5J Properties			102,000				102,000
Truck expense to 903 Industries			4,198				2,122
Bad Debt expense from Certified Crane			156,810				685,147
(included in General and Administrative expense)
Gain on sale of fixed assets from Certified Crane			867,215				-

 

 

NOTES RECEIVABLE

  

Notes receivable consisted of the following at December 31:

 

		2018				2017
Matthew Solt, with interest at 8%		$	165,643			$	-
Antero M. Zulueta, with interest at 8%			160,645				-
A-Starr Logistics, LLC, with interest at 8.5%			148,861				-
Banks Heavy Haul, with interest at 8%			131,811				-
Boyd Farner Jr., with interest at 8%			93,651				-
PCN Transportation, with interest at 7.5%			86,407				121,893
2J Trucking, LLC, with interest at 8%			78,263				-
PCN Transportation, with interest at 8%			59,448				-
Donna K. Slinker, with interest at 7.5%			58,250				-
Danny DelAngel, with interest at 8%			55,833				-
William Corley, with interest at 7.5%			53,943				-
Dean Cole, with no interest			-				6,702
Urbano Elizando, with no interest			-				5,319
			1,092,755				133,914
Less current portion			(423,277	)			(50,855	)
Notes receivable - less current portion		$	669,478			$	83,059

 

All Notes Receivable are secured by equipment.