APACHE ENERGY SERVICES, LLC

NOTES TO FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Description of Business. Apache Energy Services, LLC (“we”, “our”, “the Company”, or “AES”) provides water transfer services in connection with the hydraulic fracturing (“fracing”) of oil and gas reservoirs. The Company arranges for up to millions of gallons to be delivered to frac pads and drill sites. The water transfer services can range from drilling water wells and digging water storage pits to arranging for miles of above ground temporary pipe and high volume pumps to address all of the logistics needs of water during fracing for an oilfield operator.  Once a frac job is completed, the Company transfers the pipe, pumps and other temporary infrastructure to another location at the request of its customers.

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash equivalents.  Cash equivalents include all highly liquid investments with original maturities of three months or less.

Accounts Receivable.  Accounts receivable are comprised of unsecured amounts due from customers. The Company carries it accounts receivable at their face amounts less an allowance for bad debts.  The allowance for bad debts is recognized based on management’s estimate of likely losses per year, based on past experience and review of customer profiles and the aging of receivable balances.  As of September 27, 2012, no allowance for bad debts was required for the Company’s receivable accounts.

Revenue recognition.  Revenue is recognized when all of the following criteria are met:  1) persuasive evidence of an arrangement, 2) delivery has occurred, 3) the price is fixed and determinable, and 4) collectability is reasonably assured.  

Property and equipment.  Property and equipment is valued at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred.  Gains and losses on dispositions of equipment are reflected in operations.  Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which ranges from three to five years.

Impairment of Long-lived assets.  The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate.  The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition.  If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value.

Income taxes.  The Company operates as a limited liability company and is a disregarded entity for federal and state income tax purposes.  The Company is not liable for U.S. federal income taxes as its members recognize their share of income and loss in their respective tax return.  Accordingly, no provision for U.S. federal income taxes is recorded.

Fair Value of Financial Instruments.  The carrying value of short-term instruments, including cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to the short maturities of these instruments. 

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment at September 27, 2012 consists of the following:

A truck was purchased in February 2012, and was subsequently sold in September 2012 for $52,500 resulting in a net gain of $2,386.   The purchase of the truck was funded through standard commercial financing.  The financing was paid in full from the proceeds of the sale.  Depreciation expense for the period amounted to $19,652.

NOTE 3 – CUSTOMER CONCENTRATION

The Company provides its services to relatively few oil and gas companies that have accounted for a substantial portion of the Company’s revenues.  For the period ended September, 2012, two customers accounted for 85% of the Company’s total net sales.

The Company’s customers generally do not enter into long-term agreements obligating them to future services. The Company may not continue to receive significant revenues from any of these or from other large customers. A reduction or delay in orders from any of the Company’s significant customers, or a delay or default in payment by any significant customer could materially impact the Company’s business and prospects. Because of the Company’s significant customer concentration, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss, reduction of business, or less favorable terms for any of the Company's significant customers.

NOTE 4 – MEMBERS’ EQUITY

AES was formed on January 4, 2012, by two members.  Each member has a 50% ownership in the Company.  During the period ended September 27, 2012, the members contributed $36,350.  During the same period, the members received distributions totaling $70,000 from the net earnings of the Company.

NOTE 5 – CONTINGENCIES

From time to time, AES may be subject to routine litigation, claims, or disputes in the ordinary course of business. In the opinion of management; no pending or known threatened claims, actions or proceedings against AES are expected to have a material adverse effect on AES’s financial position, results of operations or cash flows.   AES cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters. There can be no assurance as to the ultimate outcome of these lawsuits and investigations.

NOTE 6 – SUBSEQUENT EVENTS

AES did not have any other subsequent events through December 6, 2012, which is the date the financial statements were available to be issued for events requiring recording or disclosure in the financial statements for the period ended September 27, 2012.