Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2012

 

Commission File Number: 53915

 

NYTEX ENERGY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

972-770-4700

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to section 12(b) of the Act:

None

 

Securities registered pursuant to section 12(g) of the Act:

 

 

Common Stock, $0.001 par value per share

(Title of class)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of October 31, 2012, the registrant had 26,653,158 shares of common stock outstanding.

 

 

Table of Contents

 

TABLE OF CONTENTS

 

		Page
PART I
FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited):
	Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	4
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011	5
	Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2012 and 2011	6
	Consolidated Statements of Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2012 and 2011	7
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		39

 

Table of Contents

 

FORWARD-LOOKING STATEMENTS

 

The statements contained in all parts of this document relate to future events, including, but not limited to, any and all statements regarding future operations, financial results, business plans and cash needs and other statements that are not historical facts are forward looking statements.  When used in this document, the words “anticipate,” “budgeted,” “planned,” “targeted,” “potential,” “estimate,” “expect,” “may,” “project,” “believe” and similar expressions are intended to be among the statements that identify forward looking statements. Such statements involve known and unknown risks and uncertainties, including, but not limited to, those relating to the current economic downturn and credit crisis, the volatility of natural gas and oil prices, our dependence on our key personnel, factors that affect our ability to manage our growth and achieve our business strategy, technological changes, our significant capital requirements, the potential impact of government regulations, adverse regulatory determinations, litigation, competition, business and equipment acquisition risks, availability of equipment, weather, availability of financing, financial condition of our industry partners, ability of industry partners/customers to obtain permits and other factors detailed herein. Some of the factors that could cause actual results to differ from those expressed or implied in forward-looking statements are described under “Risk Factors” and in our Form 10-K for the year ended December 31, 2011 filed with the U.S. Securities and Exchange Commission.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement.

 

3

Table of Contents

 

PART I

 

Item 1.  Financial Statements

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Balance Sheets

 

		September 30, 2012 (Unaudited)			December 31, 2011
Assets
Current assets:
Cash and cash equivalents		$	2,056,060		$	72
Accounts receivable, net		2,335,128			77,159
Marketable securities		511,280			—
Prepaid expenses and other		14,550			31,632
Deferred tax asset, net		1,702			—
Assets from discontinued operations		—			80,733,006
Total current assets		4,918,720			80,841,869
Restricted cash		6,250,205			—
Property and equipment, net		421,368			66,112
Deferred financing costs		—			1,023,269
Deposits and other		9,296			9,296
Total assets		$	11,599,589		$	81,940,546
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses		$	1,196,454		$	1,330,121
Deposits held in trust		3,158,650			—
Revenues payable		162,702			7,700
Wells in progress		89,237			502,106
Debt - current portion		155,022			2,577,484
Liabilities from discontinued operations		—			60,179,495
Total current liabilities		4,762,065			64,596,906
Other liabilities:
Debt		288,266			1,445,935
Derivative liabilities		3,070			2,740
Deferred tax liabilities		1,702			662,297
Total liabilities		5,055,103			66,707,878
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, Series A convertible, $0.001 par value; 10,000,000 shares authorized; 5,763,869 and 5,761,028 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		5,764			5,761
Common stock, $0.001 par value; 200,000,000 shares authorized; 27,652,749 issued and 23,421,854 outstanding at September 30, 2012 and 27,467,723 shares issued and outstanding at December 31, 2011		27,653			27,468
Additional paid-in capital		27,234,399			25,974,600
Treasury stock, at cost: 4,230,895 and no shares at September 30, 2012 and December 31, 2011, respectively		(2,732,342		)	—
Accumulated deficit		(17,948,728		)	(10,775,161		)
Accumulated other comprehensive income		9,349			—
Total stockholders’ equity		6,596,095			15,232,668
Non-controlling interest		(51,609		)	—
Total equity		6,544,486			15,232,668
Total liabilities and stockholders’ equity		$	11,599,589		$	81,940,546

 

See accompanying Notes to Consolidated Financial Statements

 

4

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Operations

(Unaudited)

 

		For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2012			2011			2012			2011
Revenues:
Land services		$	864,882		$	140,674		$	3,015,853		$	271,164
Oil and gas sales		54,026			40,796			78,450			332,022
Staffing services		11,120			—			14,023			—
Other		1,640			—			4,885			—
Total revenues		931,668			181,470			3,113,211			603,186
Operating expenses:
Oil & gas lease operating expenses		39,214			9,313			77,542			66,157
Depreciation, depletion, and amortization		4,789			6,122			29,402			47,800
Selling, general, and administrative expenses		946,893			779,800			1,982,106			3,671,722
Loss on litigation settlement		—			—			—			965,065
(Gain) loss on sale of assets, net		(419,834		)	—			(419,834		)	5,004
Total operating expenses		571,062			795,235			1,669,216			4,755,748
Income (loss) from operations		360,606			(613,765		)	1,443,995			(4,152,562		)
Other income (expense):
Interest and dividend income		4,022			843			5,206			1,229
Interest expense		(15,714		)	(213,259		)	(335,314		)	(601,286		)
Change in fair value of derivative liabilities		13,230			1,301			(3,070		)	1,690,561
Total other income (expense)		1,538			(211,115		)	(333,178		)	1,090,504
Income (loss) from continuing operations before income taxes		362,144			(824,880		)	1,110,817			(3,062,058		)
Income tax benefit (provision)		(118,018		)	—			267,773			—
Income (loss) from continuing operations		244,126			(824,880		)	1,378,590			(3,062,058		)
Discontinued Operations
Loss from discontinued operations, before taxes		—			(1,329,141		)	(8,728,028		)	(5,232,041		)
Loss on sale of discontinued operation		(811,895		)	—			(665,017		)	—
Income tax benefit		279,736			693,321			1,433,108			1,426,806
Loss from discontinued operations		(532,159		)	(635,820		)	(7,959,937		)	(3,805,235		)
Net loss		(288,033		)	(1,460,700		)	(6,581,347		)	(6,867,293		)
Non-controlling interest		25,156			—			51,609			—
Net loss attributable to NYTEX Energy Holdings, Inc.		(262,877		)	(1,460,700		)	(6,529,738		)	(6,867,293		)
Preferred stock dividends		(385,290		)	(131,906		)	(643,829		)	(399,436		)
Net loss to common stockholders		$	(648,167	)	$	(1,592,606	)	$	(7,173,567	)	$	(7,266,729	)
Basic earnings per share:
Earnings (loss) from continuing operations		$	0.01		$	(0.03	)	$	0.05		$	(0.12	)
Earnings (loss) from discontinued operations		$	(0.02	)	$	(0.02	)	$	(0.31	)	$	(0.14	)
Net income (loss)		$	(0.01	)	$	(0.05	)	$	(0.26	)	$	(0.26	)
Net income (loss) attributable to common stockholders		$	(0.03	)	$	(0.06	)	$	(0.28	)	$	(0.28	)
Diluted earnings per share:
Earnings (loss) from continuing operations		$	0.01		$	(0.03	)	$	0.06		$	(0.12	)
Earnings (loss) from discontinued operations		$	(0.02	)	$	(0.02	)	$	(0.31	)	$	(0.14	)
Net income (loss)		$	(0.01	)	$	(0.05	)	$	(0.25	)	$	(0.26	)
Net income (loss) attributable to common stockholders		$	0.01		$	(0.06	)	$	(0.23	)	$	(0.28	)
Weighted average shares outstanding
Basic		24,431,299			26,940,633			25,598,110			26,481,719
Diluted		24,841,171			26,940,633			26,012,852			26,481,719

 

See accompanying Notes to Consolidated Financial Statements

 

5

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

		For the Three Months Ended September 30,						For the Nine Months Ended Septenber 30,
		2012			2011			2012			2011
Net loss to common stockholders		$	(648,167	)	$	(1,592,606	)	$	(7,173,567	)	$	(7,266,729	)
Other comprehensive income
Unrealized holding gains on securities available for sale		9,302			—			9,349			—
Other comprehensive income		9,302			—			9,349			—
Comprehensive loss to common stockholders		$	(638,865	)	$	(1,592,606	)	$	(7,164,218	)	$	(7,266,729	)

 

See accompanying Notes to Consolidated Financial Statements

 

6

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

																							Accumulated
		Series A Convertible										Additional											Other			Non-
		Preferred Stock					Common Stock					Paid-In			Treasury Stock					Accumulated			Comprehensive			Controlling
		Shares		Amounts			Shares		Amounts			Capital			Shares		Amounts			Deficit			Income			Interest			Total
Balance at December 31, 2010		5,580,000		$	5,580		26,219,665		$	26,219		$	24,750,200		—		$	—		$	(26,997,299	)	$	—		$	—		$	(2,215,300	)
Issuance of Series A Convertible Preferred Stock		420,000		420								369,050																	369,470
Shares issued for share-based compensation and services							177,417		178			700,498																	700,676
Shares issued for debt converted							76,667		77			114,922																	114,999
Shares issued for warrants exercised							504,124		504			12,733																	13,237
Issuance of warrant derivative												(118,440		)															(118,440		)
Shares of Preferred Stock issued for warrants exercised		97,523		97								(97		)															—
Preferred Stock converted to common shares		(336,495	)	(336		)	336,495		336																				—
Dividend declared																				(399,436		)							(399,436		)
Net loss																				(6,867,293		)							(6,867,293		)
Balance at September 30, 2011		5,761,028		$	5,761		27,314,368		$	27,314		$	25,828,866		—		$	—		$	(34,264,028	)	$	—		$	—		$	(8,402,087	)
Balance at December 31, 2011		5,761,028		$	5,761		27,467,723		$	27,468		$	25,974,600		—		$	—		$	(10,775,161	)	$	—		$	—		$	15,232,668
Shares issued for debt							20,000		20			32,980																	33,000
Share-based compensation							137,526		138			34,219																	34,357
Shares issued for services							27,500		27			61,647																	61,674
Shares for warrants exercised		2,841		3								(3		)															—
Treasury Shares acquired															4,230,895		(2,732,342		)										(2,732,342		)
Stock dividend declared on Series A convertible preferred stock to be issued												1,130,956																	1,130,956
Comprehensive income (loss):
Unrealized gain on marketable securities																							9,349						9,349
Dividends declared																				(643,829		)							(643,829		)
Net loss																				(6,529,738		)				(51,609		)	(6,581,347		)
Comprehensive loss to common stockholders																													(7,215,827		)
Balance at September 30, 2012		5,763,869		$	5,764		27,652,749		$	27,653		$	27,234,399		4,230,895		$	(2,732,342	)	$	(17,948,728	)	$	9,349		$	(51,609	)	$	6,544,486

 

See accompanying Notes to Consolidated Financial Statements

 

7

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the Nine Months Ended September 30,
		2012			2011
Cash flows from operating activities:
Net Loss		$	(6,581,347	)	$	(6,867,293	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, and amortization		3,155,353			6,597,544
Bad debt expense		59,906			159,213
Share-based compensation		96,031			700,676
Deferred income taxes		(1,700,881		)	(1,555,649		)
Accretion of discount on asset retirement obligations		—			(50,078		)
Amortization of debt discount		45,334			134,121
Amortization of deferred financing fees		163,127			297,364
Accretion of Senior Series A redeemable preferred stock liability		1,299,495			2,829,545
Change in fair value of derivative liabilities		4,270,070			(355,387		)
Loss on litigation settlement		—			965,065
Gain on sale of assets, net		(344,142		)	(16,878		)
Loss on disposal of discontinued operations		665,017			—
Change in working capital:
Accounts receivable		(243,355		)	(3,796,871		)
Inventories		(219,055		)	(111,487		)
Prepaid expenses and other		1,518,032			(1,587,510		)
Accounts payable and accrued expenses		(1,235,518		)	3,138,829
Deposits held in trust		3,127,786			—
Other liabilities		155,002			68,181
Net cash provided by operating activities		4,230,855			549,385
Cash flows from investing activities:
Additions to property and equipment		(358,037		)	(4,997,362		)
Proceeds from sale of property and equipment		23,000			1,298,679
Investments in oil and gas properties		(389,618		)	—
Disposition of FDF		11,653,786			—
Restricted cash		(6,250,205		)	—
Purchase of marketable securities		(501,931		)	—
Net cash provided by (used in) investing activities		4,176,995			(3,698,683		)
Cash flows from financing activities:
Redemption of convertible debentures		(3,208,014		)	—
Proceeds from the issuance of common stock and warrants		—			12,500
Proceeds from the issuance of Series A convertible preferred stock		—			369,470
Proceeds from the issuance of 9% convertible debentures		—			936,000
Borrowings under senior facility		29,345,714			63,120,440
Payments under senior facility		(31,112,386		)	(63,401,026		)
Borrowings under notes payable		303,051			3,883,773
Payments on notes payable		(1,690,972		)	(1,918,150		)
Net cash provided by (used in) financing activities		(6,362,607		)	3,003,007
Net increase (decrease) in cash and cash equivalents		2,045,243			(146,291		)
Cash and cash equivalents at beginning of period		10,817			209,498
Cash and cash equivalents at end of period		$	2,056,060		$	63,207

 

See accompanying Notes to Consolidated Financial Statements

 

8

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1.  NATURE OF BUSINESS

 

NYTEX Energy Holdings, Inc. (“NYTEX Energy”) is an energy holding company with operations centralized in two subsidiaries, NYTEX Petroleum, Inc. (“NYTEX Petroleum”), a wholly-owned exploration and production company engaged in the acquisition, development, and production of oil and natural gas reserves from low-risk, high rate-of-return wells in shallow carbonate reservoirs, and Petro Staffing Group, LLC, (“PSG”), a full-service staffing agency formed in March 2012 providing the energy marketplace with temporary and full-time professionals.  PSG sources, evaluates, and delivers quality candidates to address the demand for personnel within the oil & gas industry.  NYTEX Energy owns 80% of PSG resulting in a non-controlling interest.

 

Prior to May 4, 2012, NYTEX Energy, through its wholly-owned subsidiary, NYTEX FDF Acquisition, Inc. (“Acquisition Inc.”), owned a 100% membership interest in New Francis Oaks, LLC (“New Francis Oaks”) and its wholly-owned operating subsidiary, Francis Drilling Fluids, Ltd. (“Francis Drilling Fluids,” or “FDF” and, together with New Francis Oaks, the “Francis Group”), a full-service provider of drilling, completion, and specialized fluids, dry drilling and completion products, technical services, industrial cleaning services, and equipment rental for the oil and gas industry.    On May 4, 2012, certain subsidiaries of ours entered into an Agreement and Plan of Merger (the “Merger Agreement”) with an unaffiliated third party, FDF Resources Holdings LLC (the “Purchaser”).  Pursuant to the Merger Agreement, New Francis Oaks was merged into the Purchaser and, as a result, FDF is now owned by an unaffiliated third party.  See below for further discussion.

 

NYTEX Energy and subsidiaries are collectively referred to herein as the “Company,” “we,” “us,” and “our.”

 

NYTEX Energy and its subsidiaries are headquartered in Dallas, Texas.

 

Disposition of FDF

 

As more fully reported on Form 8-K on May 10, 2012, on May 4, 2012, (the “Closing Date”), Acquisition Inc., together with New Francis Oaks, entered into the Merger Agreement with the Purchaser.  Pursuant to the terms of the Merger Agreement, New Francis Oaks merged with and into the Purchaser, and the Purchaser continued as the surviving entity after the merger (the “Disposition” or the “Merger”).  New Francis Oaks owns 100% of the outstanding shares of FDF, and, as a result of the Disposition, we no longer own FDF.

 

The total consideration for the Merger paid by the Purchaser on the Closing Date was $62,500,000 (the “Merger Proceeds”).  After: (i) an adjustment to the amount of the Merger Proceeds based upon the level of estimated working capital of the Francis Group on the Closing Date; (ii) the payment or provision for payment of all indebtedness of the Francis Group on the Closing Date; (iii) the payment of all indebtedness of Acquisition Inc. on the Closing Date (including under its senior secured credit facility with PNC Bank; (iv) the payment of the Put Payment Amount (as defined below) due to WayPoint Nytex, LLC (“WayPoint”) under the WayPoint Purchase Agreement (as defined below); (v) the payment of all transaction expenses relating to the Merger; (vi) the payment to the Company of $812,500 of accrued management fees and $110,279 of expense reimbursement due and payable to the Company under the Management Services Agreement, dated November 23, 2010, between the Company and FDF (the “Management Agreement”); (vii) the payment of certain transaction bonuses payable to certain FDF employees; and (viii) the Purchaser’s delivery of $6,250,000 of the Merger Proceeds (the “Escrow Fund”) to The Bank of New York Mellon Trust Company, N.A., as escrow agent, to be held in escrow under the Escrow Agreement (as defined below) and reported as restricted cash on the accompanying consolidated balance sheet at September 30, 2012, Acquisition Inc. received on the Closing Date remaining cash transaction proceeds in the amount of approximately $4,481,000.  The Merger Agreement provides that, to the extent that the final amount of working capital of the Francis Group on the Closing Date is greater than the estimated amount of working capital, as determined under the Merger Agreement, the Purchaser will pay to Acquisition Inc. the amount of such working capital surplus, provided that, pursuant to the Omnibus Agreement (as defined below), WayPoint is entitled to receive 87.5% of any such working capital surplus payment.  To the extent that the final amount of working capital of the Francis Group on the Closing Date is less than the estimated amount of working capital, Acquisition Inc. will pay to the Purchaser the amount of such working capital deficit, which payment will be made out of the Escrow Fund, provided that, pursuant to the Omnibus Agreement, WayPoint is obligated to pay to Acquisition Inc. 87.5% of the amount of any such working capital deficit.

 

As previously disclosed, on April 13, 2011, we received a letter from PNC, notifying the Company of the occurrence and continued existence of certain events of default (the “PNC Default”) under the Revolving Credit, Term Loan and Security Agreement (the “Senior Facility”).  On November 3, 2011, the Company entered into a First Amendment to Revolving Credit, Term Loan and Security Agreement and Limited Waiver (the “First Amendment”) with PNC, which was effective as of November 1, 2011.  Under the First Amendment, PNC waived each of the events of default under the Senior

 

9

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Facility.  However, as a result of the PNC Default, on April 14, 2011, the Company received a letter from WayPoint, as the holder of all of the outstanding shares of the Senior Series A Redeemable Preferred Stock of NYTEX Acquisition, stating that the Company was in default under the Preferred Stock and Warrant Purchase Agreement, by and among the Company, Acquisition Inc., and WayPoint (the “WayPoint Purchase Agreement”), for defaults similar to the PNC Default plus for our failure to pay dividends to WayPoint when due under the terms of the WayPoint Purchase Agreement.  On May 4, 2011, WayPoint demanded, pursuant to a “Put Election Notice” delivered under the WayPoint Purchase Agreement (the “Put Election Notice”), that, as a result of those defaults, the Company and Acquisition Inc. repurchase from WayPoint, for an aggregate purchase price of $30,000,000, all of the securities of Acquisition Inc. and the Company originally acquired by WayPoint pursuant to the WayPoint Purchase Agreement, which securities consisted of: (i) 20,750 shares of Senior Series A Redeemable Preferred Stock of NYTEX Acquisition (the “WayPoint Series A Shares”); (ii) one (1) share of Series B Redeemable Preferred Stock of the Company (the “WayPoint Series B Share”); (iii) the Purchaser Warrant (as defined in the WayPoint Purchase Agreement); and (iv) the Control Warrant (as defined in the WayPoint Purchase Agreement) (collectively, the “WayPoint Securities”).  Our failure to repurchase the WayPoint Securities in accordance with the Put Election Notice resulted in an additional event of default under the WayPoint Purchase Agreement.  Thereafter, pursuant to the terms of the Forbearance Agreement, dated as of September 30, 2011 (the “Forbearance Agreement”), by and among the Company, Acquisition Inc., and WayPoint, WayPoint agreed to forbear, for a period of 60 days, from exercising its rights and remedies under the WayPoint Purchase Agreement.  On November 14, 2011, WayPoint provided a formal written notice to the Company that the Company was in default under the Forbearance Agreement.  Due to cross-default provisions, the default under the Forbearance Agreement also constituted a default under the First Amendment. As a result of the defaults under the WayPoint Purchase Agreement and the Forbearance Agreement, WayPoint initiated certain remedies afforded to it under the WayPoint Purchase Agreement and the Forbearance Agreement, including the sale of FDF to a third party.  WayPoint directed the FDF sale process and, although we participated in the process, we did not control the ultimate disposition of FDF, including, but not limited to, the timing of the Merger and the Merger consideration.  As a result of the transactions associated with the Merger, we are no longer in default under the First Amendment with PNC.

 

In connection with the consummation of the Merger, we entered into an Omnibus Agreement (the “Omnibus Agreement”) with WayPoint and the Francis Group.  The Omnibus Agreement became effective upon the consummation of the Merger.

 

Pursuant to the Omnibus Agreement, upon the consummation of the Merger:

 

(i)            the Management Agreement was terminated;

 

(ii)           Waypoint paid $150,000 to the Company out of the Put Payment Amount due and payable to WayPoint;

 

(iii)          the Company was paid $812,500 from the Merger Proceeds, which sum represented accrued management fees due and payable to the Company from FDF under the Management Agreement; and

 

(iv)          the Company was paid $110,279 from the Merger Proceeds, which sum represented reimbursement by FDF of certain expenses previously incurred by the Company in respect of certain professional services provided, and which reimbursement was due and payable to the Company from FDF under the Management Agreement.

 

In the Omnibus Agreement, the Company, WayPoint, and the Francis Group also agreed to mutual releases from and to each other, and their related parties, relating to facts existing on or before the Closing Date that relate to the Merger, the WayPoint Purchase Agreement, the related documents, and the relations among the parties.  The releases also covered claims that any of the parties could assert against any employees of the FDF Group.  In addition, the parties agreed that WayPoint would bear 87.5% of any post-closing working capital deficit under the Merger Agreement and WayPoint would receive 87.5% of any post-closing working capital surplus under the Merger Agreement.

 

Further, in connection with the consummation of the Merger, we entered into a Settlement Agreement (the “Settlement Agreement”) with WayPoint, the Francis Group, and Michael G. Francis and Bryan Francis (together,  the “Francises”).  The Settlement Agreement became effective upon the consummation of the Merger.

 

Pursuant to the Settlement Agreement, upon the consummation of the Merger:

 

(i)            WayPoint paid out of the Put Payment Amount a $100,000 bonus to Michael G. Francis, the President of NYTEX Acquisition, and a $25,000 bonus to Jude N. Gregory, the Vice President and Chief Financial Officer of Acquisition Inc.;

 

(ii)           (A) the Company caused the release of the $1,800,000 of  Escrowed Cash (as defined in the Escrow Agreement, dated as of November 23, 2010, by and among Acquisition Inc., Bryan Francis and The F&M Bank &

 

10

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Trust Company (the “Francis Escrow Agreement”)) then being held in escrow pursuant to the Francis Escrow Agreement, in accordance with the terms of the Francis Escrow Agreement, and (B) Michael G. Francis transferred and assigned back to the Company 625,000 shares of common stock of the Company then owned by Michael G. Francis and originally issued to him pursuant to the Membership Interest Purchase Agreement, dated as of November 23, 2010 (the “Francis Purchase Agreement”), and then being held in escrow pursuant to the Francis Escrow Agreement;

 

(iii)          (A) Michael G. Francis transferred and assigned back to the Company all of the remaining 2,197,063 shares of common stock then owned by him and originally issued to him pursuant to the Francis Purchase Agreement, and (B) Bryan Francis transferred and assigned back to the Company all of the 381,607 shares of common stock originally issued to him pursuant to the Francis Purchase Agreement, as well as all of the 27,225 shares of NYTEX Common Stock issued to him in connection with his employment by FDF;

 

(iv)          the employment agreements of Michael G. Francis and Bryan Francis terminated and they became at-will employees of the FDF Group;

 

(v)           each of the three designees of WayPoint then serving as directors of Acquisition Inc., which included John Henry Moulton, Thomas Drechsler and Lee Buchwald, resigned as directors of Acquisition Inc., effective immediately upon the consummation of the Merger; and

 

(vi)          in exchange for receipt by WayPoint of the Put Payment Amount (which consisted of $30,000,000, less an aggregate of $306,639 of dividends previously received by WayPoint on account of the WayPoint Senior Series A Redeemable Preferred Stock, less an aggregate of $275,000 payable by WayPoint to the Company, Michael G. Francis and Jude N. Gregory pursuant to the Settlement Agreement, less an additional $449,072 (representing 87.5% of the estimated working capital deficit of the Francis Companies on the Closing Date, but subject to the right of WayPoint to subsequently receive 87.5% of any final working capital surplus of the Francis Companies on the Closing Date and the obligation of WayPoint to subsequently pay 87.5% of any final working capital deficit of the Francis Companies on the Closing Date, pursuant to the Omnibus Agreement); the “Put Payment Amount”), WayPoint transferred and assigned (A) the Senior Series A Redeemable Preferred Stock back to Acquisition Inc., (B) the Purchaser Warrant and the Control Warrant back to the Company, and (C) the WayPoint Series B Share back to the Company, and all such securities were cancelled.

 

In the Settlement Agreement, the Company, WayPoint, the Francis Group, and the Francises also agreed to mutual releases from and to each other, and their related parties, relating to facts existing on or before the Closing Date that relate to the Merger, the WayPoint Purchase Agreement, the related documents, and the relations among the parties, including in connection with any employment agreements or arrangements of the Francises.  The releases also covered claims that any of the parties could assert against any employees of the FDF Group.

 

NOTE 2.  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

 

The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.  These financial statements include the accounts of NYTEX Energy and entities in which it holds a controlling interest.  All significant intercompany accounts and transactions have been eliminated in consolidation.  Investments in non-controlled entities over which we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.  In applying the equity method of accounting, the investments are initially recognized at cost, and subsequently adjusted for our proportionate share of earnings and losses and distributions.

 

The interim financial data as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 is unaudited; in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods.  The consolidated results of operations for the three and nine months ended September 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto as filed in our Annual Report on Form 10-K for the year ended December 31, 2011.  Certain prior-period amounts have been reclassified to conform to the current-year presentation.    Land services revenues consists of fees

 

11

Table of Contents

 

NYTEX ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

generated from analyzing land and mineral title reports, leasehold title analysis and reports, land title runsheets, sourcing, negotiating and acquiring leases, document preparation and performing title curative functions.  Such revenues had previously been reported as Other revenues on the consolidated statement of operations.

 

All references to the Company’s outstanding common shares and per share information have been adjusted to give effect to the one-for-two reverse stock split effective November 1, 2010.

 

Discontinued Operation

 

The consolidated financial statements present the operations of our former oilfield services segment (FDF) as discontinued operations in accordance with ASC 205-20-55 for all periods presented.

 

NOTE 3.  DERIVATIVE LIABILITIES

 

At September 30, 2012, we had one derivative on our consolidated balance sheet which was related to the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock.  The agreement setting forth the terms of the warrants issued to the holders of the Company’s Series A Convertible Preferred Stock include an anti-dilution provision that requires a reduction in the instrument’s exercise price should subsequent at-market issuances of the Company’s common stock be issued below the instrument’s original exercise price of $2.00 per share.  Accordingly, we consider the warrants to be a derivative; and, as a result, the fair value of the derivative is included as a derivative liability on the accompanying consolidated balance sheets.  At September 30, 2012 and December 31, 2011, the fair value of the warrants issued to the holders of the Series A Convertible Preferred Stock was $3,070 and $0, respectively.

 

Changes in fair value of the derivative liabilities are included as a separate line item within other income (expense) in the accompanying consolidated statement of operations for the three months ended September 30, 2012 and 2011, and are not taxable or deductible for income tax purposes.

 

NOTE 4.  DEBT

 

A summary of our outstanding debt obligations as of September 30, 2012 and December 31, 2011 is presented as follows:

 

		September 30, 2012			December 31, 2011
18% Demand Note due November 2011		$	—		$	244,000
6% Related Party Loan due September 2012		—			138,000
12% Convertible Debentures due October 2012		—			2,032,501
9% Convertible Debentures due February 2014		—			1,173,013
Revolving Line of Credit due July 2014		108,355			—
Francis Promissory Note (non-interest bearing) due October 2015		316,159			385,824
7.5% Secured Equipment Loan due February 2016		—			27,781
7.5% Secured Equipment Loan due March 2016		18,774			22,300
Total debt		443,288			4,023,419
Less: current maturities		(155,022		)	(2,577,484		)
Total long-term debt		$	288,266		$	1,445,935

 

Carrying values in the table above include net unamortized debt discount of $171,341 and $216,676 as of September 30, 2012 and December 31, 2011, respectively, which is amortized to interest expense over the terms of the related debt.

 

12