The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTE 1
— NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Aly Energy Services, Inc., together with its subsidiaries (“Aly Energy” or the “Company”), is a provider of oilfield services to leading oil and gas exploration and production (“E&P”) companies operating in major basins in the United States (“U.S.”). Generally, the services we offer fall within two broad categories: surface rental and solids control. Our surface rental equipment includes a wide variety of large capacity tanks with circulating systems, associated pumps, separators, gas busters, mud mix plants and ancillary equipment. We also provide environmental containment berms to safeguard against spills from mud systems on the drilling rig site. Our solids control equipment includes large centrifuges, shakers, cuttings dryers and ancillary components that can be integrated into a closed loop mud system. We operate in the U.S., primarily in Texas, Oklahoma, and New Mexico.
Throughout this report, we may also refer to Aly Energy and its subsidiaries as “we”, “our” or “us”.
Basis of Presentation
Aly Energy has two wholly-owned subsidiaries with continuing operations: Aly Operating, Inc. and Aly Centrifuge Inc. Aly Operating, Inc. has one wholly-owned subsidiary, Austin Chalk Petroleum Services Corp. We operate as one business segment which services customers within the U.S.
The unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Aly Energy and each of its subsidiaries in the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, in the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 (restated), in the condensed consolidated statement of changes in stockholders’ equity for the three and six months ended June 30, 2019 and 2018 (restated), and in the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 (restated). All significant intercompany transactions and account balances have been eliminated upon consolidation.
Reverse Stock Split
On August 7, 2018, the Company effected a 1-for-20 reverse stock split of its common stock (“Reverse Split”), as approved by its Board of Directors and stockholders. All information in this Quarterly Report on Form 10-Q relating to the number of common shares, price per share and per share amounts, including such information related to options and the conversion feature of the Series A convertible preferred stock, have been retroactively restated to give effect to the Reverse Split. See
Note 5 – Stockholders’ Equity
for further detail.
Interim Financial Information
The condensed consolidated balance sheet as of December 31, 2018 has been derived from our audited financial statements and the unaudited condensed consolidated financial statements of the Company are prepared in conformity with U.S. GAAP for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Therefore, these unaudited condensed consolidated financial statements should be read along with the annual audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the three and six months ended June 30, 2019 may not be indicative of results that will be realized for the full year ending December 31, 2019.
Reclassifications
Certain reclassifications have been made to prior period condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on our consolidated financial position, results of operations or cash flows.
Merger with Related Party
On January 28, 2019, we executed an Agreement and Plan of Merger (“Merger Agreement”) with Permian Pelican Inc. (“Pelican”), a related party, pursuant to which Pelican merged with and into the Company (the “Merger”). By virtue of the Merger, each issued and outstanding share of Pelican common stock, 7,429 shares in aggregate, was converted into 387.858 shares of our common stock and each share of Series A convertible preferred stock was canceled. We issued an aggregate of 2,881,411 new shares of our common stock, representing approximately 75.4% of our outstanding common stock, with a value of approximately $14.4 million in consideration for all of the shares of Pelican common stock outstanding as of the Merger on January 28, 2019. The new shares of our common stock were issued directly to the individual shareholders of Pelican and, as a result, effective January 28, 2019, we no longer had a controlling shareholder. See
Note 6 – Related Party Transactions
for further detail.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the amounts of revenue and expenses recognized during the reporting period. Areas where critical accounting estimates are made by management include:
·
|
Revenue recognition,
|
·
|
Allowance for doubtful accounts,
|
·
|
Depreciation and amortization of property and equipment and intangible and other assets,
|
·
|
Impairment of property and equipment and intangible and other assets,
|
·
|
Litigation settlement accruals,
|
·
|
Stock-based compensation, and
|
·
|
Income taxes.
|
The Company analyzes its estimates based on historical experience and various other indicative assumptions it believes to be reasonable under the circumstances. Under different assumptions or conditions, the actual results could differ, possibly materially, from those previously estimated. Many of the conditions impacting these assumptions are outside of the Company’s control.
NOTE 2
— RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which we adopt as of the specified effective date. Unless otherwise discussed, management believes the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
Accounting Standard Adopted in 2019
Leases.
On January 1, 2019, the Company adopted accounting standards update (“ASU”) 2016-02, Leases and all the related amendments (“New Lease Standard” or “ASC 842”) and used the effective date as the date of initial application. Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with the Company’s historical accounting policy. The standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months.
The standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients,” which, among other things, allows the Company to carry forward its historical lease classification.
The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities of approximately $0.3 million as of January 1, 2019, with no material related impact on the Company’s condensed consolidated statement of equity or condensed consolidated statement of operations. Short-term leases have not been recorded on the balance sheet.
Accounting Policy for Leases
The Company determines if an arrangement is a lease with a term longer than twelve months at inception. All existing arrangements identified by the Company as leases are operating and are included in operating ROU assets, accounts payable and accrued expenses and operating lease liabilities in the unaudited condensed consolidated balance sheet as of June 30, 2019.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease.
Overview
The Company’s operating leases are primarily for real estate and office equipment. The terms and conditions for these leases vary by the type of underlying asset. Total rent expense was (in thousands):
|
|
For the Three Months
Ended June 30,
|
|
|
For the Six Months
Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating right-of-use assets
|
|
$
|
39
|
|
|
$
|
-
|
|
|
$
|
77
|
|
|
$
|
-
|
|
Long-term operating leases
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
29
|
|
Month-to-month operating leases
|
|
|
10
|
|
|
|
8
|
|
|
|
20
|
|
|
|
22
|
|
Operating leases maturing within twelve months and other
|
|
|
8
|
|
|
|
14
|
|
|
|
16
|
|
|
|
29
|
|
Total rent expense
|
|
$
|
57
|
|
|
$
|
37
|
|
|
$
|
113
|
|
|
$
|
80
|
|
The Company has entered into several leases with Permian Pelican Rentals, LLC (“PPR”) for the long-term rental of 500bbl round-bottom tanks at fixed day rates which are more favorable than the day rates charged by existing vendors for comparable equipment. As a part of this arrangement, any costs required to refurbish equipment will be paid by the Company and reimbursed by PPR. Aggregate refurbishment costs during the three and six months ended June 30, 2019 were approximately $91,000 of which approximately $41,000 remained in receivables as of June 30, 2019. The Company intends to continue entering into similar leases for flat-bottom tanks and diesel mud pumps, in addition to incremental round-bottom tanks, for the remainder of 2019 and beyond. PPR is a wholly-owned subsidiary of Permian Pelican Financial, LLC (“PPF”) which is the Company’s lender and a related party due to the common ownership of PPF and the Company.
Supplemental Balance Sheet Information
Operating leases were as follows (in thousands):
|
|
June 30,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Operating right-of-use assets
|
|
$
|
258
|
|
|
|
|
|
|
Operating lease liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
127
|
|
Operating lease liabilities, net
|
|
|
135
|
|
Total operating lease liabilities
|
|
$
|
262
|
|
Weighted average remaining lease term
|
|
2 years
|
|
Weighted average discount rate
|
|
|
5.50
|
%
|
Supplemental Cash Flow Information
The following table summarizes the supplemental cash flow information related to leases:
|
|
For the Six Months Ended
June 30,
2019
|
|
|
|
(unaudited)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
80
|
|
|
|
|
|
|
Non-cash activities from adoption of ASC 842 as of January 1, 2019:
|
|
|
|
|
Operating lease assets
|
|
$
|
327
|
|
Operating lease liabilities
|
|
|
334
|
|
Other long-term liabilities
|
|
|
13
|
|
Retained earnings
|
|
|
6
|
|
Maturities of operating lease liabilities are as follows (in thousands):
|
|
June 30,
2019
|
|
|
|
(unaudited)
|
|
Remainder of 2019
|
|
$
|
80
|
|
2020
|
|
|
106
|
|
2021
|
|
|
68
|
|
2022
|
|
|
26
|
|
Total lease payments
|
|
|
280
|
|
Less: imputed interest
|
|
|
(18
|
)
|
Total
|
|
$
|
262
|
|
Accounting Standards Adopted in 2018
Revenue recognition.
On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers and all the related amendments (“New Revenue Standard” or “ASC 606”) to all contracts using the full retrospective method. Revenue is recognized when performance obligations are satisfied in accordance with contractual terms in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered or rentals provided. Taxes collected from customers and remitted to governmental authorities are not included in revenue in the Company’s financial statements.
Performance Obligations
A performance obligation arises under contracts with customers to render services or provide rentals and is the unit of account under ASC 606. The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices that the Company charges for its services rendered and rentals provided. The majority of the Company’s performance obligations are satisfied over time, generally over a period measured in days or months. The Company’s payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days. We invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our revenue contracts do not give rise to contract assets or liabilities under ASC 606.
Rentals revenue
consists of fees charged to customers for use of the Company’s rental equipment and, in certain cases, fees charged to customers for the use of personnel supplied by the Company to operate its solids control equipment over the term of the rental period, which is generally less than twelve months. These fees are primarily charged on a per day, per hour or similar basis.
Services revenue
, including transportation of equipment and rig-up/rig-down charges, primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rates for these services vary depending on the type of services provided and can be based on a per job, per hour or per day basis.
The Company expenses sales commissions when incurred because the relevant amortization period would be one year or less.
The following table presents our revenue disaggregated by revenue source (in thousands):
|
|
For the Three Month
Ended June 30,
|
|
|
For the Six Months
Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Rental services
|
|
$
|
2,760
|
|
|
$
|
3,243
|
|
|
$
|
5,333
|
|
|
$
|
6,248
|
|
Transportation services
|
|
|
783
|
|
|
|
589
|
|
|
|
1,520
|
|
|
|
1,280
|
|
Rig-up/rig-down services
|
|
|
750
|
|
|
|
527
|
|
|
|
1,335
|
|
|
|
1,153
|
|
Other
|
|
|
10
|
|
|
|
29
|
|
|
|
34
|
|
|
|
43
|
|
Total
|
|
$
|
4,303
|
|
|
$
|
4,388
|
|
|
$
|
8,222
|
|
|
$
|
8,724
|
|
Accounting Standards Issued But Not Yet Adopted
Fair Value Measurement Disclosure
. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (topic 820) – Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement. This new guidance eliminated, modified and added certain disclosure requirements related to fair value measurements. The amended disclosure requirements are effective for all entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. We are evaluating the impact of adopting this guidance. However, we currently expect that the adoption of this guidance will not have a material impact on our consolidated financial statements.
Financial Instruments—Credit Losses.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326), which introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. It requires an entity to estimate credit losses expected over the life of an exposure based on historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This guidance will take effect for public companies with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.
NOTE 3
— DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Property and Equipment
Major classifications of property and equipment are as follows (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(unaudited)
|
|
|
|
|
Machinery and equipment
|
|
$
|
36,628
|
|
|
$
|
33,503
|
|
Vehicles, trucks and trailers
|
|
|
4,279
|
|
|
|
4,242
|
|
Office furniture, fixtures and equipment
|
|
|
567
|
|
|
|
567
|
|
Buildings
|
|
|
212
|
|
|
|
212
|
|
Leasehold improvements
|
|
|
63
|
|
|
|
63
|
|
|
|
|
41,749
|
|
|
|
38,587
|
|
Less: Accumulated depreciation and amortization
|
|
|
(14,804
|
)
|
|
|
(13,490
|
)
|
|
|
|
26,945
|
|
|
|
25,097
|
|
Assets not yet placed in service
|
|
|
2
|
|
|
|
711
|
|
Property and equipment, net
|
|
$
|
26,947
|
|
|
$
|
25,808
|
|
Depreciation and amortization expense related to property and equipment for the three months ended June 30, 2019 and 2018 (restated) was $0.7 million. Depreciation and amortization expense related to property and equipment for the six months ended June 30, 2019 and 2018 (restated) was $1.3 million and $1.4 million, respectively.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consists of the following (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(unaudited)
|
|
|
|
|
Accounts payable
|
|
$
|
1,827
|
|
|
$
|
1,098
|
|
Insurance payable
|
|
|
174
|
|
|
|
366
|
|
Sales tax payable
|
|
|
215
|
|
|
|
211
|
|
Accrued compensation
|
|
|
301
|
|
|
|
384
|
|
Current portion of operating lease liabilities
|
|
|
127
|
|
|
|
-
|
|
Accrued severance
|
|
|
-
|
|
|
|
281
|
|
Other accrued expenses
|
|
|
379
|
|
|
|
262
|
|
Total accrued expenses
|
|
$
|
3,023
|
|
|
$
|
2,602
|
|
NOTE 4 — LONG-TERM DEBT – RELATED PARTY
Long-term debt – related party consists of the following (in thousands):
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
Current
|
|
|
Long-Term
|
|
|
Current
|
|
|
Long-Term
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan
|
|
$
|
1,000
|
|
|
$
|
3,685
|
|
|
$
|
1,000
|
|
|
$
|
4,185
|
|
Revolving credit facility
|
|
|
-
|
|
|
|
1,675
|
|
|
|
-
|
|
|
|
1,000
|
|
Total
|
|
$
|
1,000
|
|
|
$
|
5,360
|
|
|
$
|
1,000
|
|
|
$
|
5,185
|
|
On June 30, 2018, the Company entered into the Third Amended and Restated Credit Agreement with Pelican (“Related Party Credit Facility”) which, among other things, (i) combined the outstanding balances on the delayed draw term loan and the term loan and initiated a required monthly principal payment of approximately $83,000 on the aggregate outstanding balance of the term loan, (ii) expanded availability on the revolving credit facility by $0.7 million while simultaneously reducing the aggregate availability under the other lines of the facility by the same amount, and (iii) extended the maturity date of the facility to June 30, 2021. Borrowings under the Related Party Credit Facility are subject to monthly interest payments at an annual base rate of the six-month LIBOR rate on the last day of the calendar month plus a margin of 3.0%. The obligations under the Related Party Credit Facility are guaranteed by all our subsidiaries and secured by substantially all our assets. The Related Party Credit Facility contains customary events of default and covenants including restrictions on our ability to incur additional indebtedness, pay dividends or make other distributions, grant liens and sell assets. The Related Party Credit Facility does not include any financial covenants.
Effective June 30, 2018, Pelican assigned and transferred its rights under the Related Party Credit Facility to an affiliated entity, PPF. Due to the common ownership interests of PPF and the Company, PPF is a related party.
Under the revolving credit facility, the Company has the ability to borrow the lesser of 80% of eligible receivables, as defined in the credit agreement, and $1.7 million. As of June 30, 2019, the Company had $1.7 million of borrowings outstanding and had no further borrowing availability under the facility.
NOTE 5 – STOCKHOLDERS’ EQUITY
Common Shares
On August 7, 2018, the Company effected the Reverse Split, a 1-for-20 reverse stock split of its common stock, as approved by its Board of Directors and stockholders. Under the terms of the Reverse Split, each 20 shares of common stock issued and outstanding as of such effective date was automatically reclassified and changed into one share of common stock without further action by the stockholder. In lieu of issuing fractional shares in connection with the Reverse Split, holders received the proportionate fraction of $7.00 per share in cash. The aggregate payment for all fractional shares was $231.35. Shares of common stock previously issued and held as treasury shares were escheated to applicable governmental authorities and, in connection with the Reverse Split, were reinstated as outstanding shares of common stock. All share and per share amounts in these unaudited condensed consolidated financial statements, including such amounts related to options and the conversion feature of the Series A convertible preferred stock, have been retroactively restated to reflect the Reverse Split.
On August 7, 2018, we filed an amendment to our certificate of formation reducing our authorized common shares from 25,000,000 to 15,000,000.
On August 20, 2018, our former Chief Executive Officer, Shauvik Kundagrami, exercised options to purchase 250,000 shares of common stock for an exercise price of $2.00 per share, or $500,000 in aggregate.
On January 28, 2019, in connection with the Merger, we issued an aggregate of 2,881,411 new shares of our common stock, representing approximately 75.4% of our outstanding common stock, in consideration for all of the shares of Pelican common stock outstanding as of the effective date of the Merger. Please see
Note 1 – Nature of Operations and Basis of Presentation
and
Note 6 – Related Party Transactions
for additional detail.
Preferred Shares
On August 7, 2018, we filed an amendment to our certificate of formation reducing our aggregate authorized preferred stock from 10,000,000 to 5,000,000 shares. Previously, the Company allocated 20,000 of the authorized preferred shares to be authorized Series A convertible preferred shares. Authorized preferred shares, with a par value of $0.001 per share, total 4,980,000 as of June 30, 2019 and December 31, 2018, respectively, of which, none were issued and outstanding as of June 30, 2019 and December 31, 2018.
On January 28, 2019, by virtue of the Merger, each issued and outstanding share of our Series A convertible preferred stock was canceled. Please see
Note 1 – Nature of Operations and Basis of Presentation
and
Note 6 – Related Party Transactions
for additional detail.
NOTE 6 —
RELATED PARTY TRANSACTIONS
Former Controlling Shareholder – Pelican
Beginning on January 31, 2017, Pelican had the power to vote the substantial majority of the Company’s outstanding common stock. Five of our seven board members, including two of our executive officers, and our chief financial officer held an ownership interest in Pelican.
As of December 31, 2018, Pelican owned 17,292 shares of Series A convertible preferred stock which was convertible into 2,881,400 common shares. On an as-if-converted basis, Pelican owned approximately 75.4% of our common stock (excluding the impact of options) as of December 31, 2018. The shares of Series A convertible preferred stock carried a liquidation preference of $1,000 per share or $17.3 million.
On January 28, 2019, we executed the Merger with Pelican pursuant to which Pelican merged with and into the Company and, as a result, effective January 28, 2019, we no longer have a controlling shareholder. See
Note 1 – Nature of Operations and Basis of Presentation
for further detail.
Related Party Lender – PPF
In January 2017, we entered into the Related Party Credit Facility with Pelican. Effective June 30, 2018, Pelican assigned and transferred its rights under the Related Party Credit Facility to PPF. Due to the common ownership interests of PPF and the Company, PPF is a related party. See
Note 4 – Long-Term Debt – Related Party
for further detail on the Related Party Credit Facility.
In connection with our Related Party Credit Facility, during the three months ended June 30, 2019, we recorded principal payments and interest expense of $0.3 million and approximately $88,000, respectively. During the three months ended June 30, 2018, we did not make any principal payments and we recorded interest expense of approximately $92,000.
In connection with our Related Party Credit Facility, during the six months ended June 30, 2019, we recorded principal payments and interest expense of $0.5 million and $0.2 million, respectively, and we borrowed an additional $0.7 million under the revolving credit facility thereby reducing availability under the facility to zero. During the six months ended June 30, 2018, we did not make any principal payments and we recorded interest expense of approximately $0.2 million.
Our consolidated balance sheet includes accrued interest under the Related Party Credit Facility of approximately $27,000 and $31,000 as of June 30, 2019 and December 31, 2018, respectively.
Related Party Vendor – Permian Pelican Rentals, LLC
PPR is a wholly-owned subsidiary of PPF, a related party. On April 30, 2019, PPR executed a bill of sale to purchase 40 tanks with the intent to sub-rent the tanks to Aly Energy. As a part of this arrangement, any costs required to refurbish equipment will be paid by the Company and reimbursed by PPR. Aggregate refurbishment costs during the three and six months ended June 30, 2019 were approximately $91,000 of which approximately $41,000 remained in receivables as of June 30, 2019. See
Note 2 – Recent Accounting Pronouncements
for further detail on the leases.
NOTE 7 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional shares of common stock that could have been outstanding assuming the exercise of outstanding stock options and restricted stock or other convertible instruments, as appropriate.
Due to the net loss incurred by the Company for the three months ended June 30, 2018 and the six months ended June 30, 2019 and 2018, the effect of incremental shares is antidilutive so the diluted earnings per share will be the same as the basic earnings per share. The calculations of basic and diluted earnings per share for the three months ended June 30, 2019 are shown below (unaudited and in thousands, except for shares and per share data):
|
|
For the Three Months Ended
|
|
|
|
June 30,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Numerator:
|
|
|
|
Net income available to common stockholders
|
|
$
|
59
|
|
Denominator:
|
|
|
|
|
Weighted average shares used in basic earnings per share
|
|
|
3,822,329
|
|
Stock options issued under the 2017 Plan
|
|
|
590,166
|
|
Weighted average shares used in diluted earnings per share
|
|
|
4,412,495
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.02
|
|
Diluted earnings per share
|
|
$
|
0.01
|
|
Unvested stock options under the 2013 Plan are excluded from the computation of basic and diluted earnings per share because they vest upon the occurrence of certain events as defined in the 2013 Plan. As of June 30, 2019, there were 11,706 stock options outstanding and unvested under the 2013 Plan.
Please see our Annual Report on Form 10-K for the year ended December 31, 2018 for additional detail on the options issued under the 2013 Plan and for detail on options issued under the 2017 Plan.
NOTE 8 – RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
Prior to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2018, the Company concluded that its previously issued consolidated financial statements for the years ended December 31, 2017 and 2016 and for the quarters ending March 31, 2018 and 2017, June 30, 2018 and 2017 and September 30, 2018 and 2017 should be restated due to accounting errors discovered in conjunction with certain remediation activities for our internal controls over financial reporting.
During the first quarter of 2019, we reviewed our existing fixed asset inventory, our current and historical fixed asset records, and the accounting for a significant transaction in 2016 in which we sold assets with a net book value of $18.6 million to Tiger Finance, LLC (“Tiger”). As a result of this review, we (i) identified certain assets which were included in the asset purchase agreement with Tiger and had not been written off in connection with the sale, and (ii) identified certain other assets which had been disposed of on or prior to December 31, 2016 which had not been written off at the time of disposal.
We determined it would be necessary to restate the financial statements for the years ended December 31, 2017 and 2016 and the quarters ended March 31, 2018 and 2017, June 30, 2018 and 2017 and September 30, 2018 and 2017. The adjustments to the consolidated statements of operations consist of an increased impairment and increased loss on disposal of assets in 2016 and a reduction in depreciation expense during all periods from November 1, 2016 through September 30, 2018. The adjustments to the consolidated balance sheets consist of a reduction of property and equipment, net in all periods to reflect the write-off of certain assets in 2016. The Company’s consolidated statements of cash flows had no changes to net cash flows from operating, investing or financing activities as a result of the restatement. The impact of the restatement to the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2018 was as follows (in thousands, except per share data):
|
|
Condensed Consolidated Statements of Operations
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2018 (unaudited)
|
|
|
June 30, 2018 (unaudited)
|
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Depreciation and amortization
|
|
$
|
888
|
|
|
$
|
(21
|
)
|
|
$
|
867
|
|
|
$
|
1,779
|
|
|
$
|
(42
|
)
|
|
$
|
1,737
|
|
Total expenses
|
|
|
4,572
|
|
|
|
(21
|
)
|
|
|
4,551
|
|
|
|
8,808
|
|
|
|
(42
|
)
|
|
|
8,766
|
|
Loss from operations
|
|
|
(184
|
)
|
|
|
21
|
|
|
|
(163
|
)
|
|
|
(84
|
)
|
|
|
42
|
|
|
|
(42
|
)
|
Loss before income taxes
|
|
|
(279
|
)
|
|
|
21
|
|
|
|
(258
|
)
|
|
|
(271
|
)
|
|
|
42
|
|
|
|
(229
|
)
|
Net loss
|
|
$
|
(300
|
)
|
|
$
|
21
|
|
|
$
|
(279
|
)
|
|
$
|
(313
|
)
|
|
$
|
42
|
|
|
$
|
(271
|
)
|
Loss per common share - basic and diluted
|
|
$
|
(0.43
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.39
|
)
|