Attached files
file | filename |
---|---|
EX-99.3 - EX-99.3 - U.S. SILICA HOLDINGS, INC. | d277939dex993.htm |
EX-99.1 - EX-99.1 - U.S. SILICA HOLDINGS, INC. | d277939dex991.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 99.2
Sandbox Enterprises, LLC
Consolidated Balance Sheets
June 30, 2016 and December 31, 2015
(Unaudited)
2016 | 2015 | |||||||
Assets |
||||||||
Current Assets |
||||||||
Cash |
$ | 40,712 | $ | 595,098 | ||||
Accounts receivable |
8,993,432 | 8,025,809 | ||||||
Accounts receivable, other |
33,040 | 35,536 | ||||||
Prepaid expenses and other |
1,532,503 | 2,959,126 | ||||||
|
|
|
|
|||||
Total current assets |
10,599,687 | 11,615,569 | ||||||
|
|
|
|
|||||
Property and Equipment, At Cost |
||||||||
Trucks and trailers |
20,576,611 | 17,994,945 | ||||||
Warehouse and plant equipment |
17,068,251 | 16,203,589 | ||||||
Office and computer equipment |
1,177,336 | 897,271 | ||||||
Leasehold improvements |
195,562 | 195,562 | ||||||
|
|
|
|
|||||
39,017,760 | 35,291,367 | |||||||
Less accumulated depreciation and amortization |
(8,723,542 | ) | (5,344,847 | ) | ||||
|
|
|
|
|||||
30,294,218 | 29,946,520 | |||||||
|
|
|
|
|||||
Other Assets |
||||||||
Deferred financing costs |
87,257 | 117,861 | ||||||
Intellectual property, net of amortization; 2016 - $260,515, 2015 - $171,802 |
2,784,112 | 2,069,631 | ||||||
|
|
|
|
|||||
2,871,369 | 2,187,492 | |||||||
|
|
|
|
|||||
Total assets |
$ | 43,765,274 | $ | 43,749,581 | ||||
|
|
|
|
|||||
Liabilities and Members Equity |
||||||||
Current Liabilities |
||||||||
Outstanding checks in excess of bank balance |
811,155 | | ||||||
Current maturities of long-term debt |
300,000 | 300,000 | ||||||
Accounts payable |
3,233,885 | 3,371,726 | ||||||
Related-party payables |
1,347 | 1,337 | ||||||
Accrued expenses |
1,791,120 | 1,080,227 | ||||||
Current portion of deferred revenue |
1,626,632 | 1,651,463 | ||||||
|
|
|
|
|||||
Total current liabilities |
7,764,139 | 6,404,753 | ||||||
Long-term Debt |
450,000 | 600,000 | ||||||
Line of Credit |
1,837,900 | 1,300,000 | ||||||
Subordinated Debt |
7,028,891 | 8,705,189 | ||||||
Deferred Revenue |
4,576,779 | 5,390,095 | ||||||
|
|
|
|
|||||
Total liabilities |
21,657,709 | 22,400,037 | ||||||
Members Equity |
22,107,565 | 21,349,544 | ||||||
|
|
|
|
|||||
Total liabilities and members equity |
$ | 43,765,274 | $ | 43,749,581 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements
1
Sandbox Enterprises, LLC
Consolidated Statements of Income
Six-month Periods Ended June 30, 2016 and 2015
(Unaudited)
2016 | 2015 | |||||||
Net Sales |
$ | 28,089,227 | $ | 31,582,465 | ||||
Costs of Operations |
20,357,540 | 18,264,320 | ||||||
|
|
|
|
|||||
Gross Income |
7,731,687 | 13,318,145 | ||||||
Selling, General and Administrative Expenses |
5,677,744 | 3,441,247 | ||||||
|
|
|
|
|||||
Operating Income |
2,053,943 | 9,876,898 | ||||||
|
|
|
|
|||||
Other Income (Expense) |
||||||||
Interest expense |
(964,035 | ) | (895,625 | ) | ||||
Gain (loss) on sale of equipment |
8,028 | (17,171 | ) | |||||
Other income |
1,362 | 738 | ||||||
|
|
|
|
|||||
(954,645 | ) | (912,058 | ) | |||||
|
|
|
|
|||||
Income Before Provision for State Income Taxes |
1,099,298 | 8,964,840 | ||||||
Provision for State Income Taxes |
50 | 30,000 | ||||||
|
|
|
|
|||||
Net Income |
$ | 1,099,248 | $ | 8,934,840 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements
2
Sandbox Enterprises, LLC
Consolidated Statements of Changes in Members Equity
Six-month Periods Ended June 30, 2016 and 2015
(Unaudited)
Balance, January 1, 2015 |
$ | 8,169,445 | ||
Paid-in capital, warrants issued |
1,875,000 | |||
Net income |
8,934,840 | |||
|
|
|||
Balance, June 30, 2015 |
$ | 18,979,285 | ||
|
|
|||
Balance, January 1, 2016 |
$ | 21,349,544 | ||
Members distributions |
(341,227 | ) | ||
Net income |
1,099,248 | |||
|
|
|||
Balance, June 30, 2016 |
$ | 22,107,565 | ||
|
|
See Notes to Consolidated Financial Statements
3
Sandbox Enterprises, LLC
Consolidated Statements of Cash Flows
Six-month Periods Ended June 30, 2016 and 2015
(Unaudited)
2016 | 2015 | |||||||
Operating Activities |
||||||||
Net income |
$ | 1,099,248 | $ | 8,934,840 | ||||
Items not requiring (providing) cash: |
||||||||
Depreciation and amortization |
3,482,690 | 1,764,328 | ||||||
(Gain) loss on sale of equipment |
(8,028 | ) | 17,171 | |||||
Amortization of subordinated debt discount |
323,702 | 256,486 | ||||||
Amortization of deferred financing costs |
30,604 | 22,941 | ||||||
Changes in: |
||||||||
Accounts receivable and other receivables |
(965,127 | ) | (5,831,409 | ) | ||||
Prepaid expenses and other |
1,426,623 | 685,609 | ||||||
Accounts payable and accrued expenses |
573,062 | 1,768,170 | ||||||
Related-party payables |
| (690,147 | ) | |||||
Deferred revenue |
(838,147 | ) | 3,361,448 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
5,124,627 | 10,289,437 | ||||||
|
|
|
|
|||||
Investing Activities |
||||||||
Proceeds from sale of property and equipment |
12,000 | 24,600 | ||||||
Purchase of property and equipment |
(3,745,648 | ) | (12,317,432 | ) | ||||
Purchase of intellectual property |
(803,193 | ) | (399,725 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(4,536,841 | ) | (12,692,557 | ) | ||||
|
|
|
|
|||||
Financing Activities |
||||||||
Outstanding checks in excess of bank balance |
811,155 | | ||||||
Principal payments on long-term debt |
(150,000 | ) | (450,000 | ) | ||||
Net borrowings (repayments) on line of credit |
537,900 | (1,750,000 | ) | |||||
Payments to related party |
(2,000,000 | ) | (1,631,253 | ) | ||||
Proceeds from issuance of subordinated debt and warrants |
| 10,000,000 | ||||||
Members distributions |
(341,227 | ) | | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
(1,142,172 | ) | 6,168,747 | |||||
|
|
|
|
|||||
Increase (Decrease) in Cash |
(554,386 | ) | 3,765,627 | |||||
Cash, Beginning of Period |
595,098 | 434,097 | ||||||
|
|
|
|
|||||
Cash, End of Period |
$ | 40,712 | $ | 4,199,724 | ||||
|
|
|
|
|||||
Supplemental Cash Flows Information |
||||||||
Interest paid |
$ | 962,714 | $ | 903,358 | ||||
Income taxes paid |
54,883 | 25,000 | ||||||
Property and equipment purchased through accounts payable |
93,550 | 2,176,507 |
See Notes to Consolidated Financial Statements
4
Sandbox Enterprises, LLC
Notes to Consolidated Financial Statements
June 30, 2016 and December 31, 2015
(Unaudited)
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 the 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 threshold value of the Company has been met. Upon satisfying the threshold value, Class B Membership Interests will share in the earnings, losses and distributions of the Company as defined in the Company Agreement.
Interim Financial Information
The unaudited condensed consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read along with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2015. The balances as of December 31, 2015, were derived from the audited consolidated financial statements. In managements opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the six months ended June 30, 2016 may not be indicative of results that will be realized for the full year ending December 31, 2016.
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.
5
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 June 30, 2016, the Companys cash accounts did not exceed federally insured limits.
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 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 June 30, 2016 and December 31, 2015.
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.
6
No asset impairment was recognized during the six-month periods ended June 30, 2016 and 2015.
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.
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 June 30, 2016, the Company had a net deferred revenue balance of $6,203,411, which will be recognized as revenue as follows:
2017 |
$ | 1,626,632 | ||
2018 |
1,626,632 | |||
2019 |
1,626,632 | |||
2020 |
$ | 1,323,515 |
Note 2: Line of Credit
The Company has a $5,000,000 revolving line of credit (line) expiring in 2017. At June 30, 2016 and December 31, 2015, there was $1,837,900 and $1,300,000, respectively, borrowed against this line. The line is collateralized by substantially all of the Companys assets. Interest varies with the banks prime rate, which was 3.75 percent on June 30, 2016 and December 31, 2015, 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 3.50 to 1.00 |
7
Note 3: Long-term Debt
2016 | 2015 | |||||||
Note payable, bank (A) |
$ | 750,000 | $ | 900,000 | ||||
Less current maturities |
300,000 | 300,000 | ||||||
|
|
|
|
|||||
$ | 450,000 | $ | 600,000 | |||||
|
|
|
|
(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. |
Aggregate annual maturities of long-term debt are:
Year Ending June 30 |
Amount | |||
2017 |
$ | 300,000 | ||
2018 |
300,000 | |||
2019 |
150,000 | |||
|
|
|||
$ | 750,000 | |||
|
|
Note 4: Subordinated Debt
In February 2015, the Company sold $10,000,000 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. Principal payments are due beginning March 31, 2016, when minimum principal payments of $1,000,000 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 $10,000,000 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 six-month periods ended June 30, 2016 and 2015, debt discount amortization of approximately $324,000 and $256,000, respectively, was recorded. At June 30, 2016 and December 31, 2015, the unamortized discount on the notes is approximately $970,000 and $1,295,000, respectively.
The Company paid all interest currently due during 2016 and 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 2020.
8
Future minimum lease payments at June 30, were:
2017 |
$ | 4,700,455 | ||
2018 |
2,870,800 | |||
2019 |
951,694 | |||
2020 |
58,004 | |||
|
|
|||
$ | 8,580,953 | |||
|
|
Note 6: 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. Those matters include the following:
General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.
Significant Customer
The Company had sales to three customers and five customers that exceeded 76 percent and 99 percent of total sales for the six-month periods ended June 30, 2016 and 2015, respectively. Accounts receivables from three of these customers exceeded 87 percent and 89 percent of total accounts receivable at June 30, 2016 and December 31, 2015, respectively.
Significant Vendor
The Company had payables to two vendors totaling approximately $580,000 and $1,400,000, which represents 28 percent and 40 percent of total accounts payable at June 30, 2016 and December 31, 2015, respectively.
Note 7: Subsequent Events
On August 1, 2016, the Company entered into a purchase and sale agreement by which U.S. Silica will acquire all of the outstanding membership units of the Company. The consideration includes 4,200,000 shares of U.S. Silica common stock and approximately $75,000,000 in cash and liabilities assumed, subject to customary adjustments at closing. The transaction is expected to close in August 2016, subject to receiving regulatory approvals.
Subsequent events have been evaluated through August 19, 2016, which is the date the consolidated financial statements were available to be issued.
******
9