ENGY Central Energy Partners LP (CE)

Item 2 . Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of Central's liquidity and capital resources should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere herein.

Current Assets and Operations

Regional

On July 27 2007, we acquired the business of Regional Enterprises, Inc., a Virginia corporation. Regional has provided liquid bulk storage, transportation and railcar trans-loading of bulk liquids, including hazardous chemicals and petroleum products, to its customers for over 40 years. Regional’s facilities are located on the James River in Hopewell, Virginia, where it receives bulk chemicals and petroleum products from ships and barges into approximately 10 million gallons of available storage tanks for delivery throughout the mid-Atlantic region of the United States. Regional also receives product from a rail spur which is capable of receiving 18 rail cars at any one time for the trans-loading of chemical and petroleum liquids. In addition to its facility-based services, Regional also provides transportation services to customers for products which don’t originate at any of Regional’s terminal facilities. Certain customers for whom Regional provides storage services also use its transportation services. The hazardous materials and petroleum products stored, trans-loaded and transported by Regional are owned by its customers at all times.

Prior to March 31, 2013, Regional also operated a trans-loading facility in Johnson City, Tennessee, with 6 rail car slots. This facility was closed effective March 31, 2013 due to Regional’s sole customer for this facility not renewing its agreement (which expired on March 31, 2013) as a result of the shut-down of a nearby processing plant for which that customer was supplying product out of the Johnson City site.

Regional’s revenues for the three months ended March 31, 2013 and 2014 were divided as set forth below. All dollar amounts are in thousands.

Recent Developments

CEGP Investment

On November 26, 2013 (“ Closing ”), the Partnership, the General Partner and CEGP Acquisition, LLC (“ CEGP ”) executed a definitive Purchase and Sale Agreement (“ PSA ”) and certain other transaction documents (“ Other Transaction Documents ”) providing for the sale of a 55% interest in the General Partner to CEGP through the purchase of newly-issued membership interests of the General Partner by CEGP and the issuance of 3,000,000 Common Units by the Partnership to CEGP for $2,750,000 (the “ Purchase Price ”), In addition, the Partnership issued performance warrants for $500 each to affiliates of CEGP that provide the holders thereof with the opportunity, but not the obligation, to acquire, in the aggregate, an additional 3,000,000 Common Units by the partnership at an exercise price of $0.093478, subject to adjustment, in the event the Partnership successfully completes one or more asset acquisition transactions with an aggregate gross purchase price of at least $20 million within 12 months after closing (“ Performance Warrants ”). In connection with the purchase of the equity securities by CEGP and the issuance of the Performance Warrants, the Partnership amended and restated (1) its Registration Rights Agreement to include the Common Units purchased by CEGP and issuable upon exercise of the Performance Warrants, (2) the General Partner Company Agreement, and (3) its Limited Partnership Agreement. At the Closing, net proceeds of $2,350,000 (“ Net Proceeds ”) were delivered to the General Partner and the Partnership (the Purchase Price less credits for prior payments of $400,000 made to the General Partner in connection with stand-still agreements in place until the execution of the PSA) (“ Stand-Still Payments ”). Of the total Purchase Price, the amount of $280,434 was allocated to the price paid for the 3,000,000 Common Units. CEGP paid $240,434 to the Partnership at Closing from the Net Proceeds, with the $40,000 balance of the purchase price for the 3,000,000 Common Units being a portion of the Stand-Still Payments. The remaining amount of the Purchase Price, or $2,469,566, was allocated to the value of the 55% Membership Interest of the General Partner, represented by 136,888.89 Units issued to CEGP, and $2,109,566 was paid to the General Partner at Closing from the Net Proceeds with the balance of $360,000 being the attributed portion of the Stand-Still Payments.

With the completion of the CEGP Investment, CEGP now holds 55% of the issued and outstanding membership interests in the General Partner, and appoints five (5) of the nine (9) members of the Board of the General Partner. As a result, CEGP controls the General Partner. In addition, CEGP holds 3,000,000 Common Units, which represent 15.7% of the issued and outstanding Common Units of the Partnership. The Cushing MLP Opportunity Fund I, L.P. (the “ Cushing Fund ”), which holds 39.9% of the Common Units of the Partnership, and CEGP control the Partnership. CEGP is a newly-formed Texas limited liability company controlled by John L. Denman, Jr. and G. Thomas Graves III. Upon completion of the CEGP Investment, Mr. Denman replaced Mr. Anbouba as CEO and President of the General Partner and Mr. Graves was appointed as the Chairman of the Board replacing Mr. Jerry V. Swank. JLD Services, Ltd., a company controlled by Mr. Denman, and Mr. Graves were each granted a Performance Warrant. Assuming exercise of the Performance Warrants, Messrs. Denman and Graves would be deemed the beneficial owners of 27.1% of the issued and outstanding Common Units of the Partnership.

Executive Officers

Effective May 1, 2014, Mr. Douglas W. Weir was appointed to be Chief Financial Officer and Chief Accounting Officer of the General Partner. Ian T. Bothwell was appointed as Senior Vice President of the General Partner and President of Regional in recognition of Mr. Bothwell’s new focus on identifying potential asset investment opportunities for the Partnership and growing and expanding Regional’s existing business.

Results of Operations

The unaudited consolidated results of operations from continuing operations during the three months ended March 31, 2013 and 2014, reflect the results associated with Regional’s storage, trans-loading and transportation business of refined petroleum and petrochemical products and all indirect income and expenses of the Partnership.

Revenues . Our revenues for the three months ended March 31, 2014 were substantially the same as the revenues for the three months ended March 31, 2013.

Cost of Goods Sold . Our cost of goods sold for the three months ended March 31, 2014 were $1.0 million compared with $1.1 million for the three months ended March 31, 2013, a decrease of $0.1 million (9.0%). The variance was minimal and in line with our forecast.

Selling, General and Administrative Expenses . Selling, general and administrative expenses (“ SG&A” ) during the three months ended March 31, 2014 were $0.5 million compared to $0.6 million for the three months ended March 31, 2012, a decrease of $0.1 million (16.7%). The decrease was the result of higher professional fees in connection with the closing of the Hopewell Loan and compliance costs during the three months ended March 31, 2013 compared with the three months ended March 31, 2014.

Liquidity and Capital Resources

Since May 2009, our sole operating subsidiary has been Regional. In November 2010, the then owner of the General Partner sold all of its membership interests in the General Partner to Central Energy, LP, an affiliate of Mr. Imad Anbouba, a member of the Board of Directors of the General Partner. At that time, Central Energy, LP also acquired 12,724,019 Common Units for $3,950,291. These proceeds were used to pay obligations of the Partnership and for working capital. At that time, we anticipated this cash would be sufficient to allow us to regain compliance with our delinquent tax and financial reporting requirements and to fund corporate overhead for a reasonable period of time while we identified and completed the acquisition of additional assets that would provide sufficient liquidity to fund our future operations and the various compliance costs associated with being a publicly-registered entity) and acquisition costs (including costs associated with identifying and valuing acquisition targets, performing due diligence reviews and documenting a potential transaction). Those funds were exhausted by September 2012. To continue the funding of our operations, the General Partner sold additional membership interests to its members in September 2012 (the “ GP Sale ”) and raised an additional $507,000 (after the deduction of $93,000 in advances made by Messrs. Anbouba and Carter R. Montgomery). These funds were believed sufficient to cover our general overhead for an additional six months with the intent of completing an acquisition within that time frame. By June 2013, we were unsuccessful in identifying an acquisition and had exhausted all available cash resources.

On November 26, 2013 (the “ Closing ”), the Partnership, the General Partner and CEGP executed a definitive Purchase and Sale Agreement (“ PSA ”) and certain other transaction documents (“ Other Transaction Documents ”) providing for the sale of a 55% interest in the General Partner to CEGP through the purchase of newly issued membership interests of the General Partner by CEGP and the issuance of 3,000,000 Common Units to CEGP for $2,750,000 (the “ Purchase Price ”). In addition, the Partnership issued performance warrants for $500 each to affiliates of CEGP that provide the holders thereof with the opportunity, but not the obligation, to acquire, in the aggregate, an additional 3,000,000 Common Units at an exercise price of $0.093478, subject to adjustment, in the event the Partnership successfully completes one or more asset acquisition transactions with an aggregate gross purchase price of at least $20 million within 12 months after closing (“ Performance Warrants ”). In connection with the purchase of the equity securities by CEGP and the issuance of the Performance Warrants, the Partnership amended and restated (1) its Registration Rights Agreement to include the Common Units purchased by CEGP and issuable upon exercise of the Performance Warrants, (2) the General Partner Company Agreement and (3) its Limited Partnership Agreement. At the Closing, net proceeds of $2,350,000 (“ Net Proceeds ”) were delivered to the General Partner and the Partnership (the Purchase Price less credits totaling $400,000 for prior payments received on July 19, 2013 and August 19, 2013 in connection with stand-still agreements in place until the execution of the PSA (“ Stand-Still Payments ”). Of the total Purchase Price, the amount of $280,434 of the Purchase Price was allocated to the price paid for the 3,000,000 Common Units and the remaining amount of the Purchase Price, or $2,469,566, was allocated to the value of the 55% Membership Interest of the General Partner, represented by 136,888.89 Units issued to CEGP.

Effective November 26, 2013, CEGP holds 55% of the issued and outstanding membership interests in the General Partner, and appoints five (5) of the nine (9) Members of the Board of the General Partner. As a result, CEGP controls the General Partner. In addition, CEGP holds 3,000,000 Common Units, which represent 15.7% of the issued and outstanding Common Units of the Partnership.

Tax Liabilities

Failure to File Electronically and Delivery of Schedules K-1 to Unitholders

During November 2013, we received a notice from the IRS that we were liable for penalties (“ 2012 IRS Penalties ”) of approximately $296,000 in connection with the late filing of the 2012 federal partnership tax return (“ 2012 Tax Return ”), and approximately $142,000 in connection with failing to file the 2012 Tax Return electronically. During January 2014, we submitted an appeal to the IRS to have the 2012 IRS Penalties removed. On February 25, 2014, we received written notice from the IRS that the appeal of the late filing penalty was approved, and the appeal of the failure to file the 2012 Tax Return electronically was denied. We believe that there existed reasonable cause for the Partnership’s failure to file the 2012 Tax Return electronically and as a result we intend to appeal the decision to deny. During the year ended December 31, 2013, we have accrued a reserve of $142,000 in connection with the remaining 2012 IRS Penalties. There can be no assurance that our request for relief from the remaining outstanding 2012 IRS Penalties will be approved by the IRS or that we will have adequate financial resources to pay the remaining outstanding 2012 IRS Penalties.

Disputes

We may be involved with other proceedings, lawsuits and claims in the ordinary course of its business. We believe that the liabilities, if any, ultimately resulting from such proceedings, lawsuits and claims should not materially affect our consolidated financial results.

Debt Obligations

Hopewell Note

On March 20, 2013, we entered into a Term Loan and Security Agreement (“ Hopewell Loan Agreement ”) with Hopewell Investment Partners, LLC (“ Hopewell ”) pursuant to which Hopewell would loan Regional up to $2,500,000 (“ Hopewell Loan ”), of which $1,998,000 was advanced on such date and an additional $252,000 was advanced on March 26, 2013. William M. Comegys, III, a member of the Board of Directors of the General Partner, is a member of Hopewell. As a result of this affiliation, the terms of the Hopewell Loan were reviewed by the Conflicts Committee of the Board of Directors of the General Partner. The committee determined that the Hopewell Loan was on terms better than could be obtained from a third-party lender.

In connection with the Hopewell Loan, we issued Hopewell a promissory note (“ Hopewell Note ”) along with a security interest in all of Regional’s assets, including a first lien mortgage on the real property owned by Regional and an assignment of rents and leases and fixtures on the remaining assets of Regional. In connection with the Hopewell Loan, we delivered to Hopewell a pledge of the outstanding capital stock of Regional and the Partnership entered into an unlimited guaranty for the benefit of Hopewell. In addition, we entered into an Environmental Certificate with Hopewell representing as to the environmental condition of the property owned by Regional, agreeing to clean up or remediate any hazardous substances from the property, and agreeing, jointly and severally, to indemnify Hopewell from and against any claims whatsoever related to any hazardous substance on, in or impacting the property of Regional.

The principal purpose of the Hopewell Loan was to repay the entire amounts due by Regional to our previous lender. The remaining amounts provided under the Hopewell Loan were used for working capital.

The Hopewell Loan matures in three years and carries a fixed annual rate of interest of 12%. Under the terms of the Hopewell Loan, we are required to make interest payments only for the six months beginning April 2013 through September 2013 and then 29 equal monthly payments of $56,000 (principal and interest) from the seventh month through the 35 ^th month with a balloon payment due on March 19, 2016. The Hopewell Loan was subsequently amended to provide for the extension of the interest only period through June 2014. As a result, we are required to make interest payments only through June 2014 and then 20 equal monthly payments of $56,000 (principal and interest) from the 16th month through the 35 ^th month with a balloon payment of $1,844,000 due on March 19, 2016.

We are also required to provide annual audited and certified quarterly financial statements to Hopewell. The failure to provide those financial statements as prescribed is an event of default, and Hopewell may, by written notice to us, declare the Hopewell Note immediately due and payable.

Advances from General Partner

All funds advanced to the Partnership by the General Partner since November 17, 2010 have been treated as a loan pursuant to the terms of an intercompany demand promissory note effective March 1, 2012. The intercompany demand note provides for advances from time to time by the General Partner to the Partnership of up to $4,000,000. Repayment of such advances, together with accrued and unpaid interest, is to be made in 12 substantially equal quarterly installments starting with the quarter ended March 31, 2016. The note bears interest at the imputed rate of the IRS for medium term notes. The rate at March 1, 2014 is 1.82% per annum and such rate is adjusted monthly by the IRS under IRB 625. At March 31, 2014, the total amount owed to the General Partner by the Partnership, including accrued interest, was $3,531,000.

Intercompany Notes

Regional . In connection with the Regional acquisition, on July 26, 2007 Regional issued to the Partnership a promissory note in the amount of $2,500,000 (“ Central Promissory Note ”) in order to provide the remaining funding needed to complete the acquisition of Regional. Interest on the Central Promissory Note is 10% annually and such interest is payable quarterly. The Central Promissory Note is due on demand. Regional has not made an interest payment on the Central Promissory Note since its inception. Interest is accruing but unpaid. The balance on the note at March 31, 2014 is $4,171,000. The payment of this amount is subordinated to the payment of the Hopewell Note by Regional.

Other Advances . In addition to the Central Promissory Note, there have been other intercompany net advances made from time to time from the Partnership and/or RVOP to Regional. These intercompany amounts were historically evidenced by book entries. Effective March 1, 2012, Regional and the Partnership entered into an intercompany demand promissory note incorporating all advances made as of December 31, 2010 and since that date. The note bears interest at the rate of 10% annually from January 1, 2011. At March 31, 2014, the intercompany balance owed by Regional to the Partnership and/or RVOP is approximately $2,577,000, which includes interest. This amount is due to the Partnership and RVOP on demand; however, as is the case with the Central Promissory Note, payment of these amounts is also subordinated to payment of the Hopewell Note by Regional.

Material Agreements

Employment Agreement

During March 2013, we entered into an employment agreement with Ian T. Bothwell, Senior Vice President of the General Partner and President of Regional (the “ Executive ”). The general provisions of the employment agreement (“ Agreement ”) include:

In the event the General Partner does not extend this Agreement after the second anniversary date of this Agreement for any reason other than as provided in the Agreement, the Partnership shall issue to Executive the number of Common Units of the Partnership determined by dividing (1) the amount calculated by multiplying three-quarters of one percent (0.75%) times the sum determined by subtracting the gross amount paid for each of the Acquisitions completed by the Partnership and/or an affiliate of the Partnership during the term of Executive’s employment by the General Partner from $100 million by (2) the average value per Common Unit assigned to the equity portion of any consideration issued by the Partnership and/or an Affiliate of the Partnership to investors in connection with each Acquisition including any provisions for adjustment to equity as offered to investors, if applicable. The Common Units subject to issuance under this bullet point will be issued pursuant to a Unit Grant Agreement, which grant will be governed by the terms and conditions of the 2005 Plan (or its successor) and the Unit Grant Agreement.

On December 19, 2013, we approved an amendment to the Agreement which provided for the following:

Tank Storage and Terminal Services Agreement

Regional currently has approximately 10 million gallons of storage capacity at its Hopewell facility. Of this amount, approximately 9 million gallons were leased at March 31, 2014. Active negotiations are ongoing to lease approximately 1,000,000 gallons of capacity, and it is expected that these negotiations will be completed successfully during the second quarter of 2014.

On November 30, 2000, we renewed a Storage and Product Handling Agreement with a customer with an effective date of December 1, 2000, and amended the agreement on October 15, 2002 with an effective date of December 1, 2002 (“ Amended Asphalt Agreement ”). The term of the Amended Asphalt Agreement was five years with an option by the customer for an additional five-year renewal term, which the customer exercised in July 2007. After the additional five-year term, the Amended Asphalt Agreement was renewed automatically for successive one-year terms through November 30, 2013. On March 19, 2012, one of the storage tanks (“ Storage Tank ”) leased under the Amended Asphalt Agreement was discovered to have a leak. During April 2012, after removal of the existing product from the Storage Tank, the customer of the Storage Tank was notified by us that the Storage Tank was no longer available for use until necessary repairs were completed. During the year ended December 31, 2012 and December 31, 2013, we recorded losses of approximately $238,000 and $75,000, respectively (“ Asphalt Loss ”) in connection with the leak. Lost revenue with respect to the Storage Tank totaled approximately $200,000 and $250,000 during the years ended December 31, 2012 and 2013, respectively. Repairs to the Storage Tank of $313,000 were completed and the tank became operational during November 2013. Our insurance providers have notified us that the incident did not fall within insurance coverage limits.

On October 31, 2013, we entered into an agreement (“ New Asphalt Agreement ”) with a new customer with a commencement date of January 1, 2014. In connection with the New Asphalt Agreement, we are required to fund during the first nine months of the New Asphalt Agreement up to $465,000 for refurbishments of certain assets currently idle and modifications to the existing facilities to provide for greater efficiencies and extended logistical capabilities for the new customer. The term of the New Asphalt Agreement is four years from the commencement date and automatically extends for additional 2-year periods unless either party provides 180 days written notice to cancel. During the term of the New Asphalt Agreement, we agreed to provide up to five storage tanks and certain related equipment. At March 31, 2014, we had expended $224,000 to complete a portion of the upgrade requirements, and expect to spend an additional $634,000 during the second quarter of 2014, an increase of $393,000 over the original budget.

On November 16, 1998, we renewed a Terminal Agreement with a customer with an effective date of November 1, 1998, as amended on April 5, 2001, October 11, 2001 and August 1, 2003 (“ Fuel Oil Agreement ”). Pursuant to the Fuel Oil Agreement, we agreed to provide three storage tanks, certain related pipelines and equipment, and at least two tractor tankers to the customer on an exclusive basis. During December 2008, we negotiated a new Fuel Oil Agreement whereby we were only required to provide two storage tanks through May 2009 and one storage tank through November 30, 2011, which was subsequently extended through February 28, 2014 and has now expired.

On September 27, 2007, we entered into a terminal agreement with a customer with an effective date of June 1, 2008 and an expiration date of May 30, 2013 (“ Hydroxide Agreement ”). On May 21, 2013, the Hydroxide Agreement was extended to August 31, 2013. On July 11, 2013, the parties entered into a new terminal agreement effective June 28, 2013 and an expiration date of June 27, 2016, subject to being automatically renewed in one-year increments unless terminated upon 120 days advance written notice by either party (“ New Hydroxide Agreement ”). Under the terms of the New Hydroxide Agreement, either party may cancel the agreement at any time by providing 120 days advance written notice after the one year anniversary of the effective date. In exchange for use of our facilities and services, the customer pays an annual fixed tank rental fee and variable fees based on excess of certain minimum levels of thru-put, plus a product transportation fee calculated on a per run basis, each subject to annual adjustment for inflation. We also contract with this customer to provide other transportation and trans-loading services of specialty chemicals.

During January 1, 2013, we entered into a services agreement with a customer with an effective date of January 1, 2013 and a termination date of December 31, 2015 (“ Asphalt Additive Agreement ”). The customer has the sole discretion to extend the term of the Asphalt Additive Agreement prior to expiration for up to two successive one-year terms upon providing Regional 90 days advance written notice prior to expiration of the Asphalt Additive Agreement.

During November 2013, we entered into a services agreement with a customer with an effective date of November 1, 2013 and a termination date of April 30, 2014 (“ Second Asphalt Additive Agreement ”). The Second Asphalt Additive Agreement automatically renews for 90 days unless either party provides 60 days written notice to terminate prior to expiration. The contract was automatically renewed and currently expires on April 30, 2015, unless renewed by the parties.

Equipment Leases

Effective January 18, 2012, we entered into a Vehicle Maintenance Agreement (“ Maintenance Agreement ”) with Penske Truck Leasing Co., L. P. (“ Penske ”) for the maintenance of our owned tractor and trailer fleet. The Maintenance Agreement provides for (i) fixed servicing as described in the agreement, which is basically scheduled maintenance, at the fixed monthly rate for tractors and for trailers and (ii) additional requested services, such as tire replacement, mechanical repairs, physical damage repairs, towing and roadside service and the provision of substitute vehicles, at hourly rates and discounts set forth in the agreement. Pricing for the fixed services is subject to upward adjustment for each rise of at least one percent (1%) for the Consumer Price Index for All Urban Consumers for the United States published by the United States Department of Labor. The term of the agreement is 36 months. Regional is obligated to maintain liability insurance coverage on all vehicles naming Penske as a co-insured and indemnify Penske for any loss it or its representatives may incur in excess of the insurance coverage. Penske has the right to terminate the Maintenance Agreement for any breach by Regional upon 60 days written notice, including failure to pay timely all fees owing Penske, maintenance of Regional’s insurance obligation or any other breach of the terms of the agreement.

On February 17, 2012, we entered into a seven-year Vehicle Lease Service Agreement with Penske for the outsourcing of 20 new Volvo tractors (“ New Tractors ”) to be acquired by Penske and leased to us for seven years, and the outsourcing of the maintenance of the New Tractors to Penske (“ Lease Agreement ”). Under the terms of the Lease Agreement, we made a $90,000 deposit, the proceeds for which were obtained from the sale of six of Regional’s owned tractors, and will pay a monthly lease fee per tractor and monthly maintenance charge (“ Maintenance Charge ”) which is based on the actual miles driven by each New Tractor during each month. The Maintenance Charge covers all scheduled maintenance, including tires, to keep the New Tractors in good repair and operating condition. Any replacement parts and labor for repairs which are not ordinary wear and tear shall be in accordance with Penske fleet pricing, and such costs are subject to upward adjustment on the same terms as set forth in the Maintenance Agreement. Penske is also obligated to provide roadside service resulting from mechanical or tire failure. Penske will obtain all operating permits and licenses with respect to the use of the New Tractors by Regional. In connection with the delivery of the New Tractors, we sold our remaining owned tractor fleet, except for several owned tractor units which were retained to be used for terminal site logistics.

Under the terms of the Lease Agreement, Regional (i) may acquire any or all of the New Tractors after the first anniversary date of the Lease Agreement based on the non-depreciated value of the tractor, and (ii) has the option after the first anniversary date of the Lease Agreement to terminate the lease arrangement with respect to as many as five of the New Tractors based on a documented downturn in business. On May 31, 2013, Regional notified Penske of its intent to terminate the lease arrangement effective June 15, 2013, for five New Tractors as provided in the Lease Agreement due to a decline in Regional’s transportation business. As a result of this partial termination, Regional now leases 15 New Tractors pursuant to the Lease Agreement. Regional is obligated to maintain liability insurance coverage on all vehicles covered by the Lease Agreement on the same basis as in the Lease Agreement.

Reimbursement Agreements

Effective November 17, 2010, we moved our principal executive offices to Dallas, Texas. Pursuant to a month-to-month Reimbursement Agreement, from November 2010 through December 2013, we reimbursed AirNow Compression Systems, LTD (“ Airnow ”), an affiliate of Imad K. Anbouba, the General Partner’s Chief Executive Officer and President until November 2013 for the monthly payment of allocable “overhead costs,” which included rent, utilities, telephones, office equipment and furnishings attributable to the space utilized by employees of the General Partner. Effective December 1, 2013, in connection with the CEGP Investment and the resulting change in control of the General Partner, the Partnership moved its principal executive offices to another office location within Dallas, Texas that is leased from Katy Resources LLC (“ Katy ”), an entity controlled by G. Thomas Graves III, the Chairman of the Board of the General Partner. As a result, the Reimbursement Agreement with Airnow was terminated and the Partnership entered into a new reimbursement agreement with Katy on a month to month basis for reimbursement of allocable “overhead costs” and can be terminated by either party on 30 day’s advance written notice. Effective January 1, 2011, the Partnership entered into an identical agreement with Rover Technologies LLC, a limited liability company affiliated with Ian Bothwell, the General Partner’s Executive Vice President, Chief Financial Officer and Secretary, located in Manhattan Beach, California. Mr. Bothwell is a resident of California and lives in Manhattan Beach. Since June 2012, Regional has been directly charged for its allocated portion of Rover Technologies LLC’s expenses. In connection with the CEGP Investment, the Partnership reimbursed Rover Technologies LLC for the outstanding unpaid overhead costs as of the date of the CEGP Investment. For the three months ended March 31, 2013 and 2014, expenses billed in connection with the Katy and Rover Technologies LLC agreements were $17,000 and $22,000, respectively.

Allocated Expenses Charged to Subsidiary

Regional is charged for direct expenses paid by the Partnership on its behalf, as well as its share of allocable overhead for expenses incurred by the Partnership which are indirectly attributable to Regional related activities. For the three months ended March 31, 2013 and 2014, Regional recorded allocable expenses of $58,000 and $65,000, respectively.

Registration Rights Agreement

Effective as of August 1, 2011, the Partnership and the limited partners of Central Energy, LP executed a Registration Rights Agreement. The Registration Rights Agreement was prepared and signed by the parties as a part of the transaction consummated on November 17, 2010 pursuant to which Central Energy, LP, an affiliate of the General Partner, acquired 12,724,019 Common Units of the Partnership. On May 26, 2011, Central Energy, LP distributed 12,724,019 Common Units to its limited partners pursuant to the terms of the Central Energy, LP partnership agreement. As a result, Central Energy, LP no longer holds any Common Units of the Partnership. The limited partners of Central Energy, LP are referred to below as “ Holders .”

In connection with the CEGP Investment, CEGP and each holder of Performance Warrants were added as parties to the Registration Rights Agreement. In order to include CEGP and the holders of the Performance Warrants as parties, the Registration Rights Agreement was amended and restated in its entirety effective November 26, 2013. Such amendment and restatement was approved by the needed majority of Holders party to the agreement.

The Amended and Restated Registration Rights Agreement provides the Holders with two demand registration rights and piggyback registration rights, with certain restrictions, with respect to the Common Units held by them (“ Registrable Securities ”). The Partnership is required to file a shelf registration statement with the SEC on behalf of the Holders within 180 days after it becomes eligible to use Form S-3 and maintain an effective shelf registration statement with respect to the Registrable Securities until the earlier to occur of (1) all securities registered under the shelf registration statement have been distributed as contemplated in the shelf registration statement, (2) there are no Registrable Securities outstanding or (3) three years from the date on which the shelf registration statement was first filed. At the present time the Partnership is not eligible to file a registration statement on Form S-3 since its market capitalization does not meet minimum requirements. The piggyback registration rights permit a Purchaser to elect to participate in an underwritten offering of the Partnership’s securities other than a registration statement filed in connection with the registration of the Partnership’s securities relating solely to (1) employee benefit plans or (2) a Rule 145 transaction. The amount of Registrable Securities that the Purchasers can offer for sale in a piggyback registration is subject to certain restrictions as set forth in the Registration Rights Agreement.

The Partnership is required to pay all costs associated with the demand registrations, any piggyback registration or an underwritten offer except for the underwriting fees, discounts and selling commission, transfer taxes (if any) applicable to the sale of the Registrable Securities, and fees and disbursements of legal counsel for any Holder. The Partnership is also indemnifying each Holder and their respective directors, officers, employees, agents, managers and underwriters, pursuant to an applicable underwriting agreement with such underwriter, from any losses, claims, damages, expenses or liabilities (1) arising from any untrue statement or alleged untrue statement of a material fact contained in the shelf registration statement or any other registration statement relating to the Registrable Securities or (2) the omission or alleged omission to state in such registration statement a material fact required to be stated therein or necessary to make the statements therein not misleading.

The Registration Rights Agreement also prohibits us from entering into a similar agreement which would be inconsistent with the rights granted in the Registration Statement or provide any other holder of the Partnership’s securities rights that are more favorable than those granted to Purchasers without the prior written approval of Purchasers holding a majority of the Registrable Securities.

Given our current financial condition, as well as the current bid/ask price of the Common Units, we do not anticipate filing the shelf registration statement for the foreseeable future. We will seek to amend the Registration Rights Agreement to extend such filing requirement to a later date.

Realization of Assets

Our unaudited consolidated balance sheets have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. We had a loss from operations for the year ended December 31, 2013 and the three months ended March 31, 2014 of $521,000 and $312,000, respectively.

During the year ended December 31, 2013 and the three months ended March 31, 2014, we improved our overall liquidity. Our deficit in working capital, excluding current maturities of long term debt, totaled $1,087,000 at March 31, 2014 compared with $3,163,000 at December 31, 2012, a reduction of $2,076,000. In addition, we were successful in reducing our obligations owing under the Penske Lease Agreement and extending the interest only payment period under the Hopewell Loan Agreement. During 2013, we also satisfactorily resolved the contingencies associated with the late filing tax matters, and paid down and/or obtained payment arrangements with critical accounts payable vendors.

During November 2013, we completed the CEGP Investment, which provided working capital of $2.75 million to the General Partner and Central Energy. We also recently amended the note agreement with the General Partner which provides for an increase in the amount of advances from the General Partner from $2.0 million to $4.0 million and extends the commencement date for amortization of the note with the General Partner to the quarter ended March 2017.

In addition, Regional has taken steps towards expanding its capabilities and services and improving its operating costs. During November 2013, one storage tank that had been out of service since April 2012 was placed back into service. Lost revenues during the time the Storage Tank was out of service and the cost to repair the storage tank were approximately $475,000 and $313,000, respectively. During February 2014, Regional began providing for the off-loading of asphalt products via rail cars, a capability it did not have previously.

Currently the General Partner’s cash reserves are limited and the remaining available amounts (approximately $0.5 million at May 1, 2014) are intended to be used to fund the Partnership’s ongoing working capital requirements, including necessary funding of working capital for Regional. In connection with the Hopewell Note, Regional is currently required to make interest payments only of $25,000 per month until June 2014 and then equal monthly payments of $56,000 (principal and interest) each month thereafter until March 2016 at which time a balloon payment of $1,844,000 will be due. Regional also is required to make minimum monthly payments under the Penske Lease Agreement of approximately $30,000 until May 2019. Payments under the Hopewell Note and the Penske Lease Agreement could be accelerated in the event of a default. Regional is required to fund upgrades to its Hopewell facility totaling $465,000 during the first nine months of 2014 in connection with the New Asphalt Agreement. The amount of penalties related to the remaining 2012 Tax Return are $142,000 and will be required to be paid if our appeal is unsuccessful. Since the closing of the CEGP Investment, Messrs. Denman, Graves and Weir have agreed to forego receipt of any compensation as a result of concerns over the available cash resources. In addition, during December 2013, the President of Regional agreed to have a portion of his annual salary paid on each anniversary of his employment agreement.

Substantially all of our assets are pledged as collateral for the Hopewell Loan, and therefore, we are unable to obtain additional financing collateralized by those assets without repayment of the Hopewell Loan. In addition, we have obligations under existing registrations rights agreements. These rights may be a deterrent to any future equity financings.

In view of the matters described in the preceding paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet assumes that: (1) the expected increase in revenues from recent contracts entered into by Regional; (2) we do not experience any significant disruptions in storage revenues resulting from the timing of termination of storage tank lease agreements and identifying replacement customers and/or disruptions resulting from the performance of maintenance on its facilities,;(3) our hauling revenues remain at current levels; (4) obligations to creditors are not accelerated; (5) there is adequate funding available for us to complete required maintenance and upgrades to our facilities; (6)our pending facility upgrades are completed timely and within estimated budgets; (7) our operating expenses remain at current levels; (8) we obtain additional working capital to meet our contractual commitments through future intercompany advances or a refinancing of the Hopewell Loan; and/or (9) the Partnership is able to receive future distributions from Regional or future advances from the General Partner in amounts necessary to fund working capital until an acquisition transaction is completed.

There is no assurance that we will have sufficient working capital to cover ongoing cash requirements for the period of time we believe is necessary to complete an acquisition that will provide additional working capital for us. If we do not have sufficient cash reserves, our ability to pursue additional acquisition transactions will be adversely impacted. Furthermore, despite significant effort, we have thus far been unsuccessful in completing an acquisition transaction. There can be no assurance that we will be able to complete an accretive acquisition or otherwise find additional sources of working capital. If an acquisition transaction cannot be completed or if additional funds cannot be raised and cash flow is inadequate, we would be required to seek other alternatives which could include the sale of assets, closure of operations and/or protection under the U.S. bankruptcy laws.

It is our intention to acquire additional assets during 2014 on terms that will enable us to expand our assets and generate additional cash from operations. We are also seeking to obtain additional funding through a refinancing of the Hopewell Loan or from a funding transaction. The audited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to obtain adequate funding to maintain operations and to continue in existence.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recently Issued Financial Accounting Standards

The Accounting Standards Codification is the single source of authoritative generally accepted accounting principles (“ GAAP” ) recognized by the Financial Accounting Standards Board to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC, under authority of federal securities laws, are also sources of authoritative GAAP for SEC registrants. The Codification became effective for interim and annual periods ending after September 15, 2009 and superseded all previously existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification is non-authoritative. All of Central’s references to GAAP now use the specific Codification Topic or Section rather than prior accounting and reporting standards. The Codification did not change existing GAAP and therefore, did not affect Central’s consolidated financial position or results of operations.

Critical Accounting Policies

Our unaudited consolidated financial statements reflect the selection and application of accounting policies which require us to make significant estimates and judgments. See note B to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, “Summary of Significant Accounting Policies”.