Attached files
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EX-99.3 - EX-99.3 - U.S. SILICA HOLDINGS, INC. | d277939dex993.htm |
EX-99.2 - EX-99.2 - U.S. SILICA HOLDINGS, INC. | d277939dex992.htm |
EX-23.1 - EX-23.1 - U.S. SILICA HOLDINGS, INC. | d277939dex231.htm |
8-K/A - 8-K/A - U.S. SILICA HOLDINGS, INC. | d277939d8ka.htm |
EXHIBIT 99.1
Independent Auditors Report
Board of Directors and Members
Sandbox Enterprises, LLC
Houston, Texas
We have audited the accompanying consolidated financial statements of Sandbox Enterprises, LLC and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, changes in members equity and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementing and maintenance of internal control relevant to the preparation and fair presentation of the consolidated 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 consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are fee from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated 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 entitys 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sandbox Enterprises, LLC and its subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ BKD, LLP
March 3, 2016
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Sandbox Enterprises, LLC
Consolidated Balance Sheets
December 31, 2015 and 2014
2015 | 2014 | |||||||
Assets |
||||||||
Current Assets |
||||||||
Cash |
$ | 595,098 | $ | 434,097 | ||||
Accounts receivable |
8,025,809 | 5,009,466 | ||||||
Accounts receivable, other |
35,536 | 37,886 | ||||||
Prepaid expenses and other |
2,959,126 | 3,543,164 | ||||||
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Total current assets |
11,615,569 | 9,024,613 | ||||||
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Property and Equipment, At Cost |
||||||||
Trucks and trailers |
17,994,945 | 6,130,532 | ||||||
Warehouse and plant equipment |
16,203,589 | 7,166,553 | ||||||
Office and computer equipment |
897,271 | 50,237 | ||||||
Leasehold improvements |
195,562 | | ||||||
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35,291,367 | 13,347,322 | |||||||
Less accumulated depreciation and amortization |
(5,344,847 | ) | (1,285,895 | ) | ||||
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29,946,520 | 12,061,427 | |||||||
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Other Assets |
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Deferred financing costs |
117,861 | 11,979 | ||||||
Intellectual property, net of amortization; 2015 - $171,802, 2014 - $71,841 |
2,069,631 | 836,782 | ||||||
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Total assets |
$ | 43,749,581 | $ | 21,934,801 | ||||
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Liabilities and Members Equity |
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Current Liabilities |
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Current maturities of long-term debt |
$ | 300,000 | $ | 900,000 | ||||
Accounts payable |
3,371,726 | 2,643,034 | ||||||
Related-party payables |
1,337 | 698,666 | ||||||
Accrued expenses |
1,080,227 | 1,941,658 | ||||||
Current portion of deferred revenue |
1,651,463 | 678,604 | ||||||
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Total current liabilities |
6,404,753 | 6,861,962 | ||||||
Long-term Debt |
600,000 | 900,000 | ||||||
Line of Credit |
1,300,000 | 1,750,000 | ||||||
Subordinated Debt |
8,705,189 | | ||||||
Note Payable to Related Party |
| 1,631,253 | ||||||
Customer Deposits |
| 1,150,000 | ||||||
Deferred Revenue |
5,390,095 | 1,472,141 | ||||||
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Total liabilities |
22,400,037 | 13,765,356 | ||||||
Members Equity |
21,349,544 | 8,169,445 | ||||||
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Total liabilities and members equity |
$ | 43,749,581 | $ | 21,934,801 | ||||
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See Notes to Consolidated Financial Statements
2
Sandbox Enterprises, LLC
Consolidated Statements of Income
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Net Sales |
$ | 69,518,915 | $ | 18,617,659 | ||||
Costs of Operations |
42,511,646 | 13,002,034 | ||||||
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Gross Income |
27,007,269 | 5,615,625 | ||||||
Selling, General and Administrative Expenses |
8,782,469 | 2,475,675 | ||||||
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Operating Income |
18,224,800 | 3,139,950 | ||||||
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Other Income (Expense) |
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Interest expense |
(1,870,273 | ) | (291,678 | ) | ||||
Gain (loss) on sale of equipment |
44,258 | (65,377 | ) | |||||
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(1,826,015 | ) | (357,055 | ) | |||||
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Income Before Provision for State Income Taxes |
16,398,785 | 2,782,895 | ||||||
Provision for State Income Taxes |
93,686 | 23,192 | ||||||
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Net Income |
$ | 16,305,099 | $ | 2,759,703 | ||||
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See Notes to Consolidated Financial Statements
3
Sandbox Enterprises, LLC
Consolidated Statements of Changes in Members Equity
Years Ended December 31, 2015 and 2014
Balance (Deficit), January 1, 2014 |
$ | (1,499,583 | ) | |
Members contributions |
6,905,625 | |||
Net income |
2,763,403 | |||
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Balance, December 31, 2014 |
8,169,445 | |||
Paid-in capital, warrants issued |
1,875,000 | |||
Members distributions |
(5,000,000 | ) | ||
Net income |
16,305,099 | |||
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Balance, December 31, 2015 |
$ | 21,349,544 | ||
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See Notes to Consolidated Financial Statements
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Sandbox Enterprises, LLC
Consolidated Statements of Cash Flows
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Operating Activities |
||||||||
Net income |
$ | 16,305,099 | $ | 2,763,403 | ||||
Items not requiring (providing) cash: |
||||||||
Depreciation and amortization |
4,502,476 | 1,113,256 | ||||||
(Gain) loss on sale of equipment |
(44,258 | ) | 65,377 | |||||
Amortization of subordinated debt discount |
580,189 | | ||||||
Amortization of deferred financing costs |
53,545 | | ||||||
Changes in: |
||||||||
Accounts receivable and other receivables |
(3,013,993 | ) | (4,515,395 | ) | ||||
Prepaid expenses and other |
(44,756 | ) | (3,483,534 | ) | ||||
Accounts payable and accrued expenses |
336,629 | 1,190,020 | ||||||
Related-party payables |
(697,329 | ) | 315,681 | |||||
Deferred revenue |
3,740,813 | 3,085,745 | ||||||
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Net cash provided by operating activities |
21,718,415 | 534,553 | ||||||
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Investing Activities |
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Proceeds from sale of property and equipment |
450,600 | 36,400 | ||||||
Purchase of property and equipment |
(22,693,951 | ) | (8,470,836 | ) | ||||
Purchase of intellectual property |
(1,332,810 | ) | (413,853 | ) | ||||
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Net cash used in investing activities |
(23,576,161 | ) | (8,848,289 | ) | ||||
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Financing Activities |
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Principal payments on long-term debt |
(900,000 | ) | (900,000 | ) | ||||
Net borrowings (repayments) on line of credit |
(450,000 | ) | 1,750,000 | |||||
(Payments to) borrowings from related party |
(1,631,253 | ) | 771,545 | |||||
Proceeds from issuance of subordinated debt |
10,000,000 | | ||||||
Members (distributions) contributions |
(5,000,000 | ) | 6,905,625 | |||||
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Net cash provided by financing activities |
2,018,747 | 8,527,170 | ||||||
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Increase in Cash |
161,001 | 213,434 | ||||||
Cash, Beginning of Year |
434,097 | 220,663 | ||||||
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Cash, End of Year |
$ | 595,098 | $ | 434,097 | ||||
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Supplemental Cash Flows Information |
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Interest paid |
$ | 1,875,934 | $ | 291,678 | ||||
Income taxes paid |
29,947 | | ||||||
Property and equipment purchased through accounts payable |
| 1,947,434 |
See Notes to Consolidated Financial Statements
5
Sandbox Enterprises, LLC
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Sandbox Enterprises, LLC (Sandbox Enterprises) was formed on July 31, 2013, as a limited liability company under State of Texas, by purchasing Sandbox Holdings, LLC, a Texas limited liability company, which was a sole member of, and owns all of the membership interests in, Sandbox Logistics, LLC and Sandbox Transportation, LLC. Under the terms of the LLC Operating Agreement, the period of duration of the Company is perpetual. Sandbox Enterprises is a holding company for Sandbox Logistics, LLC and Sandbox Transportation, LLC that earn revenues predominately from providing transportation services to companies in the oil and gas industry. Sandbox Logistics, LLC and Sandbox Transportation, LLC have operations in Houston, and Midland/Odessa, Texas, Morgantown, West Virginia, western North Dakota, northeast of Denver, Colorado, and south of San Antonio, Texas, where its major customers are located. Sandbox Enterprises extends unsecured credit to its customers.
There are two classes of Membership Interests consisting of Class A and B Units. The Class A Membership Interests share proportionately in their respective share of earnings or loss of the Company. Class B Membership Interests only share in the earnings or loss of the Company after a certain book value of the Company has been met.
Principles of Consolidation
The consolidated financial statements include the accounts of Sandbox Enterprises, LLC; Sandbox Logistics, LLC; Sandbox Transportation, LLC; Sandbox Leasing, LLC; and Oren Technologies, LLC (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash
At December 31, 2015, the Companys cash accounts exceeded federally insured limits by approximately $421,000.
Accounts Receivable
Accounts receivable are stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection
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information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts receivable past due more than 60 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. Management determined that no allowance was necessary at December 31, 2015 and 2014.
Property and Equipment
Property and equipment acquisitions are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is charged to expense on the straight-line basis over the estimated useful life of each asset.
The estimated useful lives for each major depreciable classification of property and equipment are as follows:
Trucks and trailers |
5-10 years | |
Warehouse and plant equipment |
5-10 years | |
Office and computer equipment |
5-7 years | |
Leasehold improvements |
5-7 years |
Intellectual Property
Intellectual property is considered an intangible asset with a finite life and is being amortized on the straight-line basis over 15 years. The asset is periodically evaluated as to the recoverability of their carrying values.
Long-lived Asset Impairment
The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
No asset impairment was recognized during the years ended December 31, 2015 and 2014.
Income Taxes
As a limited liability company, the Company is not a taxpaying entity for federal income tax purposes. Accordingly, the Companys taxable income or loss is allocated to its members in accordance with their respective percentage ownership. Therefore, no provision or liability for federal income taxes has been included in the accompanying consolidated financial statements.
The Company files income tax returns in the U.S. Federal jurisdiction and franchise tax returns in the State of Texas. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities for all years since 2013.
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Revenue Recognition
Revenue from the sale of the Companys services is recognized as services are completed and products are delivered.
The Company received prepayments during 2015 and 2014 from five customers representing the prepayment of equipment set rental charges and license fees for terms of four to five years. All customer prepayments are recorded as deferred revenue which is recognized as revenues over time as the term of the service period is completed. As of December 31, 2015, the Company had a net deferred revenue balance of $7,041,558, which will be recognized as revenue as follows:
2016 |
$ | 1,651,463 | ||
2017 |
1,626,632 | |||
2018 |
1,626,632 | |||
2019 |
1,551,414 | |||
2020 |
585,417 |
Note 2: Line of Credit
The Company has a $5,000,000 revolving line of credit (line) expiring in 2017. At December 31, 2015 and 2014, there was $1,300,000 and $1,750,000, respectively, borrowed against this line. The line is collateralized by substantially all of the Companys assets and, until January 2015, guaranteed by certain officers of the Company. Interest varies with the banks prime rate, which was 3.75 percent and 3.5 percent on December 31, 2015 and 2014, respectively, and is payable monthly.
In connection with these loans, the Company is required, among other things, to maintain certain financial conditions, including:
| Fixed charge coverage ratio of not less than 1.25 to 1.00 |
| Debt-to-tangible net worth ratio of not more than 3.5 to 1.00 |
Note 3: Long-term Debt
2015 | 2014 | |||||||
Note payable, bank (A) |
$ | 900,000 | $ | 1,200,000 | ||||
Note payable, bank (B) |
| 600,000 | ||||||
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900,000 | 1,800,000 | |||||||
Less current maturities |
300,000 | 900,000 | ||||||
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$ | 600,000 | $ | 900,000 | |||||
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(A) | Due January 1, 2019; payable $25,000 monthly, including principal and interest at 4.00 percent, until January 1, 2019, at which time remaining unpaid principal is due; secured by all assets of the Company and, until January 2015, guaranteed by certain officers of the Company. |
(B) | Due January 1, 2016; payable $50,000 monthly, including principal and interest at 4.00 percent, until January 1, 2016, at which time remaining unpaid principal is due; secured by all assets of the Company and, until January 2015, guaranteed by certain officers of the Company. |
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Aggregate annual maturities of long-term debt are:
2016 |
$ | 300,000 | ||
2017 |
300,000 | |||
2018 |
300,000 | |||
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$ | 900,000 | |||
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Note 4: Subordinated Debt
In February 2015, the Company sold $10 million of subordinated secured notes with warrants to a group of individual investors in private placement. The notes have an interest rate of 12 percent which can be paid with cash or in kind during 2015. No principal payments are due until March 31, 2016, when minimum principal payments of $1 million per quarter plus accrued interest are due quarterly, with escalated amounts potentially due based on the Companys financial performance. The notes included warrants for 2.5 percent of the Companys outstanding unit ownership at an initial exercise price of $0.01 per Class A Unit and $0.00 per Class B Unit and could escalate up to 4.5 percent of the Companys ownership if certain financial performance thresholds are not exceeded. The officers of the Company were also released from their personal guarantees of the Companys commercial bank debt obligations by the bank with the closing of sale of these subordinated notes.
Total proceeds received of $10 million were allocated $1,875,000 to the warrants and $8,125,000 to the notes based on their relative fair values at the time of issuance. The relative fair value of the warrants of $1,875,000 at the time of issuance was recorded as paid-in capital and reduced the carrying value of the notes as a debt discount. The discount on the notes is being amortized to interest expense over the terms of the notes. For the year ended December 31, 2015, debt discount amortization of approximately $580,000 was recorded. At December 31, 2015, the unamortized discount on the notes is approximately $1,295,000.
The Company paid all interest currently during 2015 for these subordinated secured notes. Additionally, the warrant agreements financial performance threshold was exceeded by the 2015 actual results and no additional warrants are required to be issued pursuant to this agreement.
Note 5: Operating Lease
The Company has noncancellable operating leases for tractors, heavy equipment, and office and field locations that expire in various months through 2019.
Future minimum lease payments at December 31, 2015, were:
2016 |
$ | 4,175,962 | ||
2017 |
3,489,492 | |||
2018 |
938,845 | |||
2019 |
249,664 | |||
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$ | 8,853,963 | |||
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Note 6: Related-party Transactions
The Company has a credit agreement with an affiliate sharing common owners, which expired on December 31, 2014. The Company amended the agreement on January 1, 2015, to extend the maturity date to December 31, 2017 with and interest rate of 15 percent. At December 31, 2015 and 2014, the Company owed the affiliate $0 and $1,631,253, respectively. This amount is shown as a long-term note payable to related party in the accompanying consolidated balance sheets.
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At December 31, 2015 and 2014, advances from affiliates sharing common owners for operating expenses totaled approximately $0 and $190,000, respectively. These amounts are included in accounts payable in the accompanying consolidated balance sheets.
At December 31, 2015 and 2014, advances from affiliates sharing common owners for operating expenses including commissions, fuel and overhead, totaled approximately $0 and $699,000, respectively. These amounts are presented as related-party payables in the accompanying consolidated balance sheets.
At December 31, 2015 and 2014, the Company owed an affiliate sharing common owners for management services and rent totaling $0 and $176,000, respectively. These amounts are presented as accrued expenses in the accompanying consolidated balance sheets.
Note 7: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. The matters include those shown on the following page.
Significant Customer
The Company had sales to five customers and three customers that exceeded 95 percent and 99 percent of total sales for the years ended December 31, 2015 and 2014, respectively. Accounts receivables from three of these customers exceeded 89 percent and 99 percent of total accounts receivable at December 31, 2015 and 2014, respectively.
Significant Vendor
The Company had payables to three vendors and two vendors of approximately $1,400,000 and $1,800,000, which represents 40 percent and 68 percent of total accounts payable at December 31, 2015 and 2014, respectively.
Note 8: Subsequent Events
Subsequent events have been evaluated through the date of the Independent Auditors Report, which is the date the consolidated financial statements were available to be issued.
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