UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly
period ended September 30, 2014
OR
| ¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number: 000-50394
Central Energy Partners LP
(Exact Name of Registrant as Specified
in Its Charter)
| Delaware |
20-0153267 |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| |
|
| 4809 Cole Ave., Suite 108, Dallas, TX |
75205 |
| (Address of Principal Executive Offices) |
(Zip Code) |
Registrant's Telephone Number, Including
Area Code: (214) 526-9700
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 ¨
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 during the preceding 12 months (or for such shorter period that the Registrant
was required to submit and post such files.) Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See the definitions
of “accelerated filer” and “large accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large Accelerated Filer
¨ |
Accelerated Filer
¨ |
Non-Accelerated Filer
¨ |
Smaller Reporting Company
x |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of common units outstanding
on November 7, 2014 was 19,591,482.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
The statements contained in this Quarterly
Report of Central Energy Partners LP (the “Partnership”), that are not historical facts are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Exchange
Act). These forward-looking statements are identified as any statement that does not relate strictly to historical or current
facts. Statements using words such as “may,” “could,” “should,” “expect,” “plan,”
“project,” “strategy,” “forecast,” “intend,” “anticipate,” “believe,”
“estimate,” “predict,” “potential,” “pursue,” “target,” “continue,”
or similar expressions help identify forward-looking statements.
The forward-looking statements contained
in this Quarterly Report are largely based on our expectations, which reflect estimates and assumptions made by our management.
These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although
we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties
that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management
cautions all readers that the forward-looking statements contained in this Quarterly Report are not guarantees of future performance,
and management cannot assure any reader that such statements will be realized or the forward-looking events and circumstances
will in fact occur. The Partnership’s actual results may differ materially from those anticipated, estimated, projected
or expected by management. When considering forward-looking statements, please read “Item 1A. Risk Factors” and “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Partnership’s
Annual Report on Form 10-K for the year ended December 31, 2013, which is incorporated by reference.
AVAILABLE INFORMATION
The Partnership is a reporting company
pursuant to Section 12(g) of the Exchange Act. As a result, it files Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K
and Current Reports on Form 8-K, and amendments to these reports, with the SEC pursuant to Section 13(a) or 15(d) of the Exchange
Act. These reports are available on the Partnership’s website at www.centralenergylp.com. These reports are also
available on the SEC’s website at www.SEC.gov. In addition, the Partnership will provide copies of these reports
free of charge upon request addressed to Douglas Weir, Central Energy Partners LP, 4809 Cole Ave., Suite 108, Dallas, Texas 75205.
The public may also read a copy of any
materials filed by the Partnership with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
All forward-looking statements speak only
as of the date of this Quarterly Report. We do not intend to publicly update or revise any forward-looking statements as a result
of new information, future events or otherwise.
Part I – FINANCIAL INFORMATION
Item 1.
Report of Independent Registered Public
Accounting Firm
To the Board of Directors of Central Energy GP LLC,
General Partner of Central Energy Partners LP and Unitholders
of Central Energy Partners LP
We have reviewed the unaudited consolidated
balance sheet of Central Energy Partners LP and Subsidiaries (“Central”) as of September 30, 2014, the unaudited
consolidated statement of operations for the three months and nine months ended September 30, 2013 and 2014 and the unaudited
consolidated statements of cash flows and of partners’ deficit for the nine months ended September 30, 2014. These interim
unaudited consolidated financial statements are the responsibility of Central’s management.
We conducted our review in accordance
with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware
of any material modifications that should be made to the accompanying unaudited consolidated financial statements for them to
be in conformity with United States generally accepted accounting principles.
As
indicated in Note K to the accompanying unaudited interim consolidated financial statements, conditions continue to exist which
raise substantial doubt about Central’s ability to continue as a going concern due to its insufficient cash flow
to pay its current obligations and contingencies as they become due.
The unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification
of recorded amounts that might be necessary should Central be unable to continue in existence.
| |
/s/ MONGOMERY COSCIA GREILICH, LLP |
Plano, Texas
November 14, 2014
Central Energy Partners LP and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
| | |
December 31, | | |
September 30, | |
| | |
2013 | | |
2014 | |
| Current Assets | |
| | | |
| | |
| Cash | |
$ | 103,000 | | |
$ | 66,000 | |
| Trade accounts receivable (less allowance for doubtful accounts of $0 at 2013 and 2014) | |
| 312,000 | | |
| 371,000 | |
| Prepaid expenses and other current assets | |
| 427,000 | | |
| 200,000 | |
| Total current assets | |
| 842,000 | | |
| 637,000 | |
| Property, plant and equipment – net | |
| 3,158,000 | | |
| 3,545,000 | |
| Other assets | |
| 128,000 | | |
| 128,000 | |
| Goodwill | |
| 3,941,000 | | |
| 3,941,000 | |
| Total assets | |
$ | 8,069,000 | | |
$ | 8,251,000 | |
LIABILITIES AND PARTNERS’ DEFICIT
| | |
December 31,
2013 | | |
September 30,
2014 | |
| Current Liabilities | |
| | | |
| | |
| Current maturities of long-term debt | |
$ | 188,000 | | |
$ | 287,000 | |
| Accounts payable | |
| 1,418,000 | | |
| 1,078,000 | |
| Taxes payable | |
| 40,000 | | |
| 16,000 | |
| Unearned revenue | |
| 168,000 | | |
| 176,000 | |
| Accrued liabilities | |
| 424,000 | | |
| 265,000 | |
| Total current liabilities | |
| 2,238,000 | | |
| 1,822,000 | |
| | |
| | | |
| | |
| Long-term debt obligations | |
| 2,312,000 | | |
| 2,213,000 | |
| Due to General Partner | |
| 3,000,000 | | |
| 4,177,000 | |
| Deferred income taxes | |
| 845,000 | | |
| 845,000 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| - | | |
| - | |
| | |
| | | |
| | |
| Partners’ deficit | |
| | | |
| | |
| Common units | |
| (319,000 | ) | |
| (789,000 | ) |
| General Partner’s deficit | |
| (7,000 | ) | |
| (17,000 | ) |
| Total partners’ deficit | |
| (326,000 | ) | |
| (806,000 | ) |
| Total liabilities and partners’ deficit | |
$ | 8,069,000 | | |
$ | 8,251,000 | |
The accompanying notes are an integral
part of these consolidated financial statements.
Central Energy Partners LP and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | |
Three Months
Ended
September 30,
2013 | | |
Three Months
Ended
September 30,
2014 | | |
Nine Months
Ended
September 30,
2013 | | |
Nine Months
Ended
September 30,
2014 | |
| Revenues | |
$ | 1,044,000 | | |
$ | 1,456,000 | | |
$ | 3,480,000 | | |
$ | 4,004,000 | |
| Cost of goods sold | |
| 838,000 | | |
| 1,061,000 | | |
| 2,946,000 | | |
| 3,073,000 | |
| Gross profit | |
| 206,000 | | |
| 395,000 | | |
| 534,000 | | |
| 931,000 | |
| Selling, general and administrative expenses and other | |
| | | |
| | | |
| | | |
| | |
| Legal and professional fees | |
| 182,000 | | |
| 61,000 | | |
| 430,000 | | |
| 146,000 | |
| Salaries and payroll related expenses | |
| 180,000 | | |
| 141,000 | | |
| 633,000 | | |
| 478,000 | |
| Other | |
| (211,000 | ) | |
| 156,000 | | |
| (669,000 | ) | |
| 480,000 | |
| | |
| 151,000 | | |
| 358,000 | | |
| 394,000 | | |
| 1,104,000 | |
| Operating income (loss) from continuing operations | |
| 55,000 | | |
| 37,000 | | |
| 140,000 | | |
| (173,000 | ) |
| Other expense | |
| | | |
| | | |
| | | |
| | |
| Interest expense, net | |
| (106,000 | ) | |
| (170,000 | ) | |
| (272,000 | ) | |
| (367,000 | ) |
| Loss before taxes | |
| (51,000 | ) | |
| (133,000 | ) | |
| (132,000 | ) | |
| (540,000 | ) |
| Provision for income taxes | |
| (62,000 | ) | |
| - | | |
| (67,000 | ) | |
| - | |
| Net Loss | |
$ | (113,000 | ) | |
$ | (133,000 | ) | |
$ | (199,000 | ) | |
$ | (540,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net Loss allocable to the partners | |
$ | (113,000 | ) | |
$ | (133,000 | ) | |
$ | (199,000 | ) | |
$ | (540,000 | ) |
| Less General Partner’s interest in net loss | |
| (2,000 | ) | |
| (3,000 | ) | |
| (4,000 | ) | |
| (11,000 | ) |
| Net loss allocable to the common units | |
$ | (111,000 | ) | |
$ | (130,000 | ) | |
$ | (195,000 | ) | |
$ | (529,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss per common unit | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.03 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average common units outstanding | |
| 16,066,482 | | |
| 19,591,482 | | |
| 16,066,482 | | |
| 19,299,815 | |
The accompanying notes are an integral
part of these consolidated financial statements.
Central Energy Partners LP and Subsidiaries
CONSOLIDATED STATEMENT OF PARTNERS’
DEFICIT
(Unaudited)
| | |
Common Units | | |
| | |
| |
| | |
Units | | |
Amount | | |
General
Partner’s
Deficit | | |
Total
Partners’
Deficit | |
| | |
| | |
| | |
| | |
| |
Balance as of December 31, 2013 | |
| 19,066,482 | | |
$ | (319,000 | ) | |
$ | (7,000 | ) | |
$ | (326,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Unit based compensation | |
| 525,000 | | |
| 59,000 | | |
| 1,000 | | |
| 60,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| (529,000 | ) | |
| (11,000 | ) | |
| (540,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Balance as of September 30, 2014 | |
| 19,591,482 | | |
$ | (789,000 | ) | |
$ | (17,000 | ) | |
$ | (806,000 | ) |
The accompanying notes are an integral
part of these consolidated financial statements.
Central Energy Partners LP and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | |
Nine Months Ended September 30, | |
| | |
2013 | | |
2014 | |
| Cash flows from operating activities: | |
| | | |
| | |
| Net loss | |
$ | (199,000 | ) | |
$ | (540,000 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 402,000 | | |
| 413,000 | |
| Reduction in accrued tax penalties assessed | |
| (1,119,000 | ) | |
| - | |
| Unit based compensation | |
| 16,000 | | |
| 60,000 | |
| Changes in current assets and liabilities: | |
| | | |
| | |
| Trade accounts receivable | |
| 286,000 | | |
| (59,000 | ) |
| Prepaid and other current assets | |
| 479,000 | | |
| 227,000 | |
| Due to/from General Partner, net | |
| 445,000 | | |
| 1,177,000 | |
| Trade accounts payable | |
| (924,000 | ) | |
| (340,000 | ) |
| Unearned revenue | |
| (33,000 | ) | |
| 8,000 | |
| Accrued liabilities and other | |
| 126,000 | | |
| (159,000 | ) |
| U.S. and foreign taxes payable | |
| (25,000 | ) | |
| (24,000 | ) |
| Net cash provided by (used in) operating activities | |
| (546,000 | ) | |
| 763,000 | |
| | |
| | | |
| | |
| Cash flows from investing activities: | |
| | | |
| | |
| Capital expenditures | |
| (6,000 | ) | |
| (800,000 | ) |
| Proceeds from sale of assets | |
| 31,000 | | |
| - | |
| Net cash provided by (used in) investing activities | |
| 25,000 | | |
| (800,000 | ) |
| | |
| | | |
| | |
| Cash flows from financing activities: | |
| | | |
| | |
| Issuance of debt | |
| 2,500,000 | | |
| - | |
| Payment of debt | |
| (1,970,000 | ) | |
| - | |
| Net cash provided by financing activities | |
| 530,000 | | |
| - | |
| Net (decrease) increase in cash | |
| 9,000 | | |
| (37,000 | ) |
| Cash at beginning of period | |
| 22,000 | | |
| 103,000 | |
| Cash at end of period | |
$ | 31,000 | | |
$ | 66,000 | |
| | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | |
| Cash paid during the year for: | |
| | | |
| | |
| Interest | |
$ | 222,000 | | |
$ | 240,000 | |
| Taxes | |
$ | 84,000 | | |
$ | 35,000 | |
The accompanying notes are an integral
part of these consolidated financial statements.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A –BASIS OF
PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
Central Energy Partners LP, a publicly
traded Delaware limited partnership, was formed in July 2003. As used in this report, the terms “Central Energy” and
“the Partnership” refer to Central Energy Partners LP, and the terms “Central,” “the Company,”
“we,” “our” and “us” are used in this report to refer to Central Energy, its sole general
partner Central Energy GP LLC, and its consolidated subsidiaries as a whole.
We conduct our operations through our
wholly-owned subsidiary, Regional Enterprises, Inc. (“Regional”). The principal business of Regional is the
storage, transportation and railcar trans-loading of bulk liquids, including hazardous chemicals and petroleum products owned
by its customers. 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 trans-loading of chemical and petroleum liquids for delivery throughout the mid-Atlantic region
of the United States. Regional operated a trans-loading facility in Johnson City, Tennessee, with 6 rail car slots until March
31, 2013. Regional also provides transportation services to customers for products which don’t originate at any of Regional’s
terminal facilities.
The limited partnership interests in the
Partnership (“Common Units”) represent 98% of the Partnership’s outstanding capital and 100% of the Partnership’s
limited partnership interests. We are controlled by our general partner, Central Energy GP LLC (“General Partner”),
which holds the remaining 2% interest in the Partnership. The General Partner is entitled to receive distributions from the Partnership
on its General Partner interest and additional incentive distributions as provided in the partnership agreement. The General Partner
does not receive a management fee in connection with its management of the Partnership’s business, but is entitled to be
reimbursed for all direct and indirect expenses incurred on the Partnership’s behalf.
Effective November 26, 2013, CEGP Acquisition,
LLC (“CEGP”) acquired 55% of the issued and outstanding membership interests in the General Partner and 3,000,000
Common Units, which represents 15% of the issued and outstanding Common Units of the Partnership (the “CEGP Investment”).
CEGP appoints five (5) of the nine (9) members of the Board of Directors of the General Partner. As a result, CEGP controls the
General Partner. CEGP is a 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. Imad K. Anbouba as CEO and President of the General Partner, and Mr. Graves was
appointed as the Chairman of the Board of Directors replacing Mr. Jerry V. Swank, a principal of the controlling entity of The
Cushing MLP Opportunity Fund, L.P. which holds 39.1% of the Common Units of the Partnership (the “Cushing Fund”).
JLD Services, Ltd., a company controlled by Mr. Denman, and Mr. Graves were each granted a Performance Warrant which, when exercised
and combined with the Common Units acquired by CEGP in connection with the CEGP Investment, would represent 26.6% of the issued
and outstanding Common Units of the Partnership. The Performance Warrants expire on November 25, 2014 and it is unlikely that
the performance requirements will be satisfied.
Basis of Presentation
The accompanying consolidated financial
statements include the Partnership and its only operating subsidiary, Regional. We have two other subsidiaries that have no operations
– Rio Vista Operating Partnership, LP (“RVOP”) and Rio Vista Operating GP LLC. All significant intercompany
accounts and transactions are eliminated.
The unaudited consolidated balance sheet
as of September 30, 2014, the unaudited consolidated statements of operations for the three months and nine months ended September
30, 2013 and 2014 and the unaudited consolidated statements of cash flows and of partners’ deficit for the nine months ended
September 30, 2014, have been prepared by us without audit. In our opinion, the unaudited consolidated financial statements include
all adjustments (which include only normal recurring adjustments) necessary to present fairly the unaudited consolidated financial
position as of September 30, 2014, the unaudited consolidated results of operations for the three months and nine months ended
September 30, 2013 and 2014 and the unaudited consolidated statements of cash flows and of partners’ deficit for the nine
months ended September 30, 2014.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in
the United States of America have been omitted pursuant to the rules and regulations of the Securities Exchange Commission, although
we believe that the disclosures made are adequate to make the information not misleading. These unaudited consolidated financial
statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the
Securities and Exchange Commission.
Certain reclassifications have been made
to prior period balances to conform in the current presentation. All reclassifications have been consistently applied to the periods
presented.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such
differences could be material.
Cash Equivalents
We consider all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.
Financial Instruments
The fair values of our financial instruments,
which may include cash, accounts receivable, accounts payable and long-term debt, approximate their carrying amounts.
Distributions of Available Cash
In March 2012, the General Partner and
Unitholders holding more than a majority in interest of the Common Units of the Partnership voted to amend the Partnership Agreement
to change the commencement of the payment of “Common Unit Arrearages” or “Cumulative Common Unit Arrearages”
from the quarter beginning October 1, 2011 until an undetermined future quarter to be established by the General Partner. The
impact of this amendment is that the Partnership is not obligated to Unitholders for unpaid minimum quarterly distributions until
such time as the General Partner reinstates the obligation to make minimum quarterly distributions. Unitholders will only be entitled
to minimum quarterly distributions arising from and after the date established by the General Partner for making such distributions.
Environmental Obligations
We are subject to various federal, state
and local laws and regulations relating to the protection of the environment. We have established procedures for the ongoing evaluation
of our operations, to identify potential environmental exposures, and to comply with regulatory policies and procedures. We account
for environmental contingencies in accordance with ASC 450. Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute
to current or future revenue generation, are expensed. Liabilities for environmental contingencies are recorded when environmental
assessments and/or clean-ups are probable and the costs can be reasonably estimated. We maintain insurance which may cover in
whole or in part certain types of environmental contingencies. For the quarters ended September 30, 2013 and 2014, we had no environmental
contingencies requiring specific disclosure or the recording of a liability.
Unit Based Compensation
We may issue options, warrants, rights
or appreciation rights with respect to Common Units for any Partnership purpose, including to non-employees for goods and services
and to acquire or extend debt, without approval of the Limited Partners. We apply the provisions of ASC 505 to account for such
transactions. ASC 505 requires that such transactions be accounted for at fair value. If the fair value of the goods and services
or debt related transactions are not readily measurable, the fair value of the options, warrants, rights or appreciation rights
is used to account for such transactions. We did not record any costs for unit-based payment costs for non-employees for the nine
months ended September 30, 2013 and 2014, respectively under the fair-value provisions of ASC 505.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Partnership applies ASC 718 for options,
Common Units or other equity-based grants to our employees and directors of the General Partner. ASC 718 requires measurement
of all employee unit-based payment awards using a fair-value method and recording of such expense in the consolidated financial
statements over the requisite service period. The fair value concepts have not changed significantly in ASC 718; however, in adopting
this standard, companies must choose among alternative valuation models and amortization assumptions. After assessing alternative
valuation models and amortization assumptions, we will continue using both the Black-Scholes valuation model and straight-line
amortization of compensation expense over the requisite service period for each separately vesting portion of the grant. We recorded
$16,000 and $60,000 for unit-based payment costs for employees and directors for the nine months ended September 30, 2013 and
2014, respectively, under the fair-value provisions of ASC 718. See “Note F – Unit Options and Equity Incentive Plan
– Incentive Plans” below for information regarding equity-based grants made during the nine months ended September
30, 2014.
NOTE B – PARTNERS’ DEFICIT
The number of Common Units outstanding
at September 30, 2014 was 19,591,482. The Common Units represent 98% of the Partnership’s outstanding capital and 100% of
the Partnership’s limited partnership interests. We are controlled by our general partner, Central Energy GP LLC, which
holds a 2% interest in the Partnership. At September 30, 2014, the Partners’ deficit was $806,000, of which $17,000 is attributable
to the General Partner’s interest in the Partnership.
NOTE C – Loss
Per Common UNIT
Net loss per Common Unit is computed on
the weighted average number of Common Units outstanding in accordance with ASC 260. During periods in which we incur losses, giving
effect to common unit equivalents is not included in the computation as it would be antidilutive. The following tables present
reconciliations from net loss per Common Unit to net loss per Common Unit assuming dilution (see Note F – Unit Options and
Equity Incentive Plan):
| | |
For the three months ended September 30, 2013 | |
| | |
(Loss)
(Numerator) | | |
Units
(Denominator) | | |
Per-Unit
Amount | |
| | |
| | |
| | |
| |
| Net (loss) available to the Common Units | |
$ | (111,000 | ) | |
| | | |
| | |
| Basic EPS | |
| | | |
| | | |
| | |
| Net (loss) available to the Common Units | |
| (111,000 | ) | |
| 16,066,482 | | |
$ | (0.01 | ) |
| Effect of Dilutive Securities | |
| | | |
| | | |
| | |
| Options | |
| — | | |
| — | | |
| | |
| Diluted EPS | |
| | | |
| | | |
| | |
| Net (loss) available to the Common Units | |
| N/A | | |
| N/A | | |
| N/A | |
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | |
For the three months ended September 30, 2014 | |
| | |
(Loss)
(Numerator) | | |
Units
(Denominator) | | |
Per-Unit
Amount | |
| Net (loss) available to the Common Units | |
$ | (130,000 | ) | |
| | | |
| | |
| Basic EPS | |
| | | |
| | | |
| | |
| Net (loss) available to the Common Units | |
| (130,000 | ) | |
| 19,591,482 | | |
$ | (0.01 | ) |
| Effect of Dilutive Securities | |
| | | |
| | | |
| | |
| Options | |
| — | | |
| — | | |
| | |
| Diluted EPS | |
| | | |
| | | |
| | |
| Net income available to the Common Units | |
| N/A | | |
| N/A | | |
| N/A | |
| | |
For the nine months ended September 30, 2013 | |
| | |
(Loss)
(Numerator) | | |
Units
(Denominator) | | |
Per-Unit
Amount | |
| Net (loss) available to the Common Units | |
$ | (195,000 | ) | |
| | | |
| | |
| Basic EPS | |
| | | |
| | | |
| | |
| Net (loss) available to the Common Units | |
| (195,000 | ) | |
| 16,066,482 | | |
$ | (0.01 | ) |
| Effect of Dilutive Securities | |
| | | |
| | | |
| | |
| Options | |
| — | | |
| — | | |
| | |
| Diluted EPS | |
| | | |
| | | |
| | |
| Net income available to the Common Units | |
| N/A | | |
| N/A | | |
| N/A | |
| | |
For the nine months ended September 30, 2014 | |
| | |
(Loss)
(Numerator) | | |
Units
(Denominator) | | |
Per-Unit
Amount | |
| Net (loss) available to the Common Units | |
$ | (529,000 | ) | |
| | | |
| | |
| Basic EPS | |
| | | |
| | | |
| | |
| Net (loss) available to the Common Units | |
| (529,000 | ) | |
| 19,299,815 | | |
$ | (0.03 | ) |
| Effect of Dilutive Securities | |
| | | |
| | | |
| | |
| Options | |
| — | | |
| — | | |
| | |
| Diluted EPS | |
| | | |
| | | |
| | |
| Net (loss) available to the Common Units | |
| N/A | | |
| N/A | | |
| N/A | |
Allocation of Net Income
Our net loss is allocated to partners’
capital accounts in accordance with the provisions of the partnership agreement.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - PROPERTY, PLANT AND EQUIPMENT
| | |
December 31,
2013 | | |
September 30,
2014 | |
| | |
| | |
| |
| Land | |
$ | 512,000 | | |
$ | 512,000 | |
| Terminal and improvements | |
| 4,955,000 | | |
| 5,755,000 | |
| Automotive equipment | |
| 1,297,000 | | |
| 1,297,000 | |
| | |
| 6,764,000 | | |
| 7,564,000 | |
| Less: accumulated depreciation and amortization | |
| (3,606,000 | ) | |
| (4,019,000 | ) |
| | |
$ | 3,158,000 | | |
$ | 3,545,000 | |
Depreciation expense of property, plant
and equipment totaled $134,000 and $140,000 for the three months ended September 30, 2013 and 2014 and $402,000 and $413,000 for
the nine months ended September 30, 2013 and 2014, respectively.
NOTE E — DEBT OBLIGATIONS
| | |
December 31,
2013 | | |
September 30,
2014 | |
| Long-term debt obligations were as follows: | |
| | | |
| | |
| Hopewell Note | |
$ | 2,500,000 | | |
$ | 2,500,000 | |
| | |
| - | | |
| - | |
| | |
| 2,500,000 | | |
| 2,500,000 | |
| Less current portion | |
| 188,000 | | |
| 287,000 | |
| | |
$ | 2,312,000 | | |
$ | 2,213,000 | |
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”), all of which was advanced
in 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 also 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 in the amount of $1,970,000. The remaining amounts
provided under the Hopewell Loan were used for working capital.
The Hopewell Loan matures March 19, 2016
and carries a fixed annual rate of interest of 12%. Under the terms of the Hopewell Loan, as amended, we are required to make
interest payments only through December 2014 and then 14 equal monthly payments of $56,000 (principal and interest) from January
2015 through February 2016 with a balloon payment of approximately $2 million 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. We have
provided all required financial statements to Hopewell.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F – UNIT OPTIONS AND EQUITY
INCENTIVE PLAN
Performance Warrants
On November 26, 2013, we issued Performance
Warrants to JLD Services, Ltd., a company controlled by Mr. Jack Denman, the Chief Executive Officer and President of the General
Partner, and Mr. G. Thomas Graves III, the Chairman of the General Partner, for consideration of $500 each. Each Performance Warrant,
grants the holder thereof the right, but not the obligation, to acquire up to 1,500,000 Common Units at a price of $0.093478,
which was the average closing bid price for a Common Unit as reported by the “Pink Sheets” published by OTC Pink for
the 30-day period ended November 22, 2013, in the event the Partnership successfully completes one or more asset acquisition transactions,
approved by the General Partner, with an aggregate gross purchase price of at least $20 million within 12 months after the closing
of the CEGP Investment. The Performance Warrants provide certain anti-dilution protections in the event of a distribution of additional
Common Units or subdivision of outstanding Common Units, a capital reorganization of the Partnership, a reclassification of the
units of the Partnership, the consolidation or merger of the Partnership with or into another entity, or other similar transaction.
Each holder or its assigns is granted registration rights with respect to the Common Units issuable upon exercise of a Performance
Warrant. It is not anticipated that these performance milestones will be achieved prior to the expiration of the Performance Warrants.
Incentive Plans
On March 9, 2005, we established the 2005
Equity Incentive Plan of Rio Vista Energy Partners L.P. (“2005 Plan”). The 2005 Plan permits the grant of options,
appreciation rights, restricted common units and phantom units of Common Units of the Partnership to any person who is an employee
or director of, or consultant to, the Partnership or the General Partner or any affiliate of the Partnership (the “Partnership
Entities”). The plan provides anti-dilution protection as determined by the Compensation Committee for a combination,
exchange or extra-ordinary distribution of Common Units, or reorganization, recapitalization or any similar event affecting the
Common Units or other securities of the Partnership. There were 750,000 Common Units authorized for issuance as awards under the
2005 Plan. The 2005 Plan remains available for the grant of awards until March 9, 2015, or such earlier date as the Board of the
General Partner may determine. As the result of the grant of Common Units to non-executive directors of the General Partner as
described below, there are 47,310 Common Units remaining for issuance under the 2005 Plan as of September 30, 2014.
On March 26, 2014, the Board of Directors
of the General Partner authorized and approved the 2014 Long-Term Incentive Plan of Central Energy Partners, LP (“2014
Plan”). The 2014 Plan permits the grant of incentive and non-incentive Common Unit Options, Common Unit Appreciation
Rights, Restricted Common Unit Grants, Common Units, Common Unit Value Equivalents and Substitute Awards to employees and directors
of the Partnership Entities. The Compensation Committee may grant the recipient of an award, other than a Common Unit grant, the
right to receive an amount equal to the minimum quarterly distributions associated with the Common Units which are the subject
of an award. All awards, except an outright grant of Common Units, are subject to forfeiture upon termination of an executive
officer, employee or director for any reason unless the Compensation Committee establishes other criteria in the award grant.
The 2014 Plan provides anti-dilution protection for the recipient of an award in the case of a reorganization, combination, exchange
or extra-ordinary distribution of Common Units, a merger, consolidation or combination of the Partnership with another entity,
or a “change of control” of the Partnership or the General Partner. The 2014 Plan remains in effect until December
31, 2023, unless sooner terminated by the Board of Directors of the General Partner in accordance with its terms. The 2014 Plan
authorizes the issuance of up to 3,300,000 Common Units, subject to amendment to increase the amount of authorized Common Units.
As a result of the grant of Common Units to executive officers of the General Partner, Regional, and directors of the General
Partner as summarized below, there are 1,950,000 Common Units remaining for issuance under the 2014 Plan as of September 30, 2014.
Grant of Restricted Common Unit Options
to Executive Officers
On March 26, 2014, the Board of Directors
of the General Partner approved the recommendation of the Board’s Compensation Committee to grant restricted Common Units
(the “Restricted Units”) to the executive officers of the General Partner and Regional. The Compensation Committee
finalized the terms of the Restricted Common Unit Restricted Unit Agreement, the form of which is attached to this Report (the
“Restricted Unit Agreement”), and delivered such Restricted Unit Agreements to each of the executive officers
on May 16, 2014, granting the number of Restricted Units as set forth in the following table:
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| Award Recipient | |
Number of Restricted Units | |
| | |
| |
| John L. Denman, Jr. | |
| 500,000 | |
| G. Thomas Graves | |
| 300,000 | |
| Douglas W. Weir | |
| 250,000 | |
| Ian T. Bothwell | |
| 75,000 | |
| Daniel P. Matthews | |
| 75,000 | |
The grant of the Restricted Units is made
in consideration of the services to be rendered by an executive officer to the Partnership Entities. The Restricted Unit Agreement
provides the award recipient the right to purchase the designated number of Common Units at an exercise price established by the
final trade price of a Common Unit on the date of grant (May 16, 2014) or, if no trade occurred on the date of grant, the average
bid and asked price on that date as quoted by OTC Pink. There was no trade in the Common Units on May 16, 2014, and the average
bid and asked price on that date was $0.09. Each grant of Restricted Units expires on May 16, 2019.
The Restricted Units are awards of Common
Units that are subject to restrictions on transferability and a substantial risk of forfeiture and are intended to retain and
motivate members of management of the Partnership Entities. Award recipients have all the rights of a Unitholder in the Partnership
with respect to the Restricted Units, including the right to receive distributions thereon if and when distributions are made
by the Partnership to other Unitholders. The Restricted Units vest and the forfeiture restrictions lapse in substantially equal
one-third (1/3) increments on each of May 16, 2015, May 16, 2016, and May 16, 2017.
If an award recipient’s service
with the Partnership Entities is terminated prior to full vesting of the Restricted Units due to death or “disability”
(as defined in the Restricted Unit Agreement) or if the award recipient’s employment with the Partnership Entities is terminated
for “good reason” (as defined in the Restricted Unit Agreement) or by a Partnership Entity without “cause”
(as defined in the Restricted Unit Agreement), then all Restricted Units will immediately vest in full as of the date of such
termination. If an award recipient’s service with a Partnership Entity is terminated prior to full vesting of the Restricted
Units for any other reason, then the award recipient will forfeit all unvested Restricted Units to the Partnership. In the event
of an award recipient’s termination from service without “cause” or for “good reason” within two
(2) years following the occurrence of a change of control, all unvested Restricted Units will become immediately vested in
full. The Restricted Units are subject to anti-dilution protections as provided in the Restricted Unit Agreement. The Partnership
is obligated to register the Restricted Units with the U.S. Securities and Exchange Commission (the “Commission”)
pursuant to a Form S-8 registration statement.
Grant of Common Units to Directors
under the 2005 Plan
At meetings held on December 19, 2013
and March 26, 2014, the Board of Directors of the General Partner approved the recommendation of its Compensation Committee to
grant 375,000 Common Units to its non-executive directors under the 2005 Plan. The Compensation Committee finalized the terms
of the Common Unit Grant Agreement (the “Grant Agreement”) and delivered such Grant Agreements to each of the
non-executive directors on May 16, 2014, granting the number of Common Units as set forth in the following table:
| Award Recipient | |
Number of Common Units | |
| | |
| |
| Alan D. Bell | |
| 75,000 | |
| Alexander C. Chae | |
| 75,000 | |
| William M. Comegys III | |
| 75,000 | |
| Robert H. Lutz | |
| 75,000 | |
| Michael T. Wilhite | |
| 75,000 | |
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Common Units have been awarded to
each of the directors for their service to the Partnership Entities in lieu of cash compensation. The Common Units awarded to
each director have the value per Common Unit as established by the final trade price of a Common Unit on May 16, 2014 or, if no
trade occurred on that date, the average bid and asked price on such date. The award recipient is the owner of the Common Units
effective May 16, 2014 until such date as the Common Units are sold by such recipient and shall have all of the rights of a Unitholder
of the Partnership. The Common Units are subject to anti-dilution protections as provided in the Restricted Unit Agreements. The
Partnership is obligated to register the Common Units with the Commission pursuant to a Form S-8 registration statement.
Grant of Common Units to Directors
under the 2014 Plan
On March 26, 2014, the Board of Directors
of the General Partner approved the recommendation of its Compensation Committee to grant 75,000 Common Units to each of Imad
K. Anbouba, a director of the General Partner and its former Chief Executive Officer, and Swank Investment Partners LP, an affiliate
of The Cushing MLP Opportunity Fund I, L.P., which is the largest holder of Common Units and for which Daniel L. Spears, one of
the directors of the General Partner, serves as portfolio manager. The Compensation Committee finalized the terms of the Common
Unit Grant Agreements for such awards, the form of which is attached to this Report, and delivered such grant agreements to each
of Mr. Anbouba and Swank Investment Partners on May 16, 2014. These grant agreements have the same terms and conditions as the
Grant Agreements issued under the 2005 Plan.
Each of the 2005 Plan and the 2014 Plan
are administered by the Compensation Committee of the Board. In addition, the Board may exercise any authority of the Compensation
Committee under the 2005 Plan. The Compensation Committee has broad discretion in issuing awards under either plan and amending
or terminating either plan. Under the terms of the Partnership Agreement, no approval of either the 2005 Plan or the 2014 Plan
by the Limited Partners of the Partnership is required.
NOTE G - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are involved with legal proceedings,
lawsuits and claims in the ordinary course of our business. We believe that the liabilities, if any, ultimately resulting from
such proceedings, lawsuits and claims should not materially affect its consolidated financial results.
Leases
Penske Truck Lease
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 to Penske, maintenance
of Regional’s insurance obligation, or any other breach of the terms of the agreement.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On February 17, 2012, we entered into
a seven-year Vehicle Lease Service Agreement with Penske for the outsourcing of 20 new Volvo tractors (“Leased Tractors”)
to be acquired by Penske and leased to us for seven years, and the outsourcing of the maintenance of the Leased 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 Leased Tractors in good repair
and operating condition. Any replacement parts and labor for repairs which are not ordinary wear and tear are to be charged to
Regional 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 has obtained all operating permits and licenses with respect to the use of the Leased Tractors by Regional. In connection
with the delivery of the Leased 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 Leased 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 Leased 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 Leased 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 operates 15 Leased Tractors pursuant to the Lease Agreement. Regional is obligated to maintain liability insurance
coverage on all Leased Tractors.
NOTE H – MAJOR CUSTOMERS AND
CONCENTRATIONS OF CREDIT RISK
Major Customers
For the three months ended September 30,
2014, Rubicon Energy LLC, Suffolk Sales, and MeadWestvaco Specialty Chemicals, Inc., accounted for approximately 29%, 17% and
14% of Regional’s revenues, respectively, and approximately 20%, 22% and 25% of its account receivables, respectively.
For the nine months ended September 30,
2014, Associated Asphalt Hopewell LLC, Suffolk Sales, and MeadWestvaco Specialty Chemicals, Inc., accounted for approximately
20%, 20% and 16% of Regional’s revenues, respectively, and approximately 0%, 16% and 21% of Regional’s accounts receivable,
respectively.
Concentrations of Credit Risk
The balance sheet items that potentially
subject us to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable. We maintain cash
balances in different financial institutions. Balances in accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”)
limits of $250,000 per institution. At September 30, 2014, we did not have any cash balances in financial institutions in excess
of FDIC insurance coverage. Concentrations of credit risk with our accounts receivable are mitigated by our ongoing credit evaluations
of our customers.
NOTE I — INCOME TAXES
Federal 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. We timely filed the 2012 Tax Return manually. 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 we have notified the IRS that we are appealing their decision subject to the IRS completing its
review of the matter, which remains pending. As of September 30, 2014, we have accrued a reserve of $142,000 in connection with
the remaining 2012 IRS Penalties.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
NOTE J — RELATED PARTY TRANSACTIONS
The General Partner has a legal duty to
manage the Partnership in a manner beneficial to the Partnership’s Unitholders. However, the General Partner also has a
legal duty to manage its affairs in a manner that benefit its members. This can create a conflict of interest between the Unitholders
of the Partnership and the members of the General Partner. The Partnership Agreement provides certain requirements for the resolution
of conflicts, but also limits the liability and reduces the fiduciary duties of the General Partner to the Unitholders. The Partnership
Agreement also restricts the remedies available to Unitholders for actions that might otherwise constitute breaches of the General
Partner’s fiduciary duty.
Advances from General Partner
All funds
advanced to the Partnership by the General Partner since November 17, 2010 have been treated as a loan. Effective March
1, 2012, the Genreal Partner and the Partnership executed an Intercompany Demand Promissory Note to evidence the indebtedness,
which note was amended during March 2014 and November 2014. The intercompany demand note provides for advances from time to time
by the General Partner to the Partnership of up to $5,000,000 to fund working capital needs of the Partnership and its subsidiaries.
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 bore interest at the imputed rate of the IRS for medium-term notes. The
November 2014 amendment increased the interest rate to a flat 10% per annum for all periods from and after July 1, 2014. At September
30, 2014, the total amount owed to the General Partner by the Partnership, including accrued interest, was $4,177,000.
Intercompany Loans and Receivables
Regional Acquisition Funding
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 September 30, 2014 is $4,296,000. 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 September 30, 2014, the intercompany balance owed by Regional
to the Partnership and/or RVOP is approximately $2,957,000, 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.
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 and nine months ended September 30, 2013 and
2014, Regional recorded allocable expenses of $64,000, $45,000, $177,000 and $165,000, respectively.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Reimbursement Agreements
Effective December 31, 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, we 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
Senior Vice President 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 and nine months ended September 30, 2013 and 2014, expenses
billed in connection with the reimbursement agreements were $12,000, $12,000, $42,000 and $47,000, respectively.
NOTE K — 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 nine months
ended September 30, 2014 of $521,000 and $540,000, respectively.
During the period since December 31, 2012,
we improved our overall liquidity. Our deficit in working capital, excluding current maturities of long-term debt, totaled $898,000
at September 30, 2014 compared with $3,163,000 at December 31, 2012, a reduction of $2,265,000. 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 TransMontaigne Dispute, 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.
At September 30, 2014, we had cash available
to fund ongoing working capital requirements of $66,000. In August 2014, the Board of Directors of the General Partner recommended
a capital call of $750,000 to fund working capital needs. This recommendation was approved by the requisite percentage of members
on August 7, 2014. As of November 14, 2014, the capital call was fully subscribed and funded. We anticipate that this amount,
together with cash flow from operations, will be sufficient to meet the Company’s working capital requirements for approximately
12 months.
In connection with the Hopewell Note,
Regional is currently required to make interest payments only of $25,000 per month until December 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 approximately
$2 million 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. The amount of penalties related to the remaining 2012 Tax Return is $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 available cash resources.
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.
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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) 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
our facilities; (2) our hauling revenues remain at current levels; (3) obligations to creditors are not accelerated; (4) our pending
facility upgrades are completed timely and within estimated budgets; (5) our operating expenses remain at current levels; (6)
we obtain additional working capital to meet our contractual commitments through future intercompany advances or a refinancing
of the Hopewell Loan; and/or (7) 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 by the Partnership.
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 2015 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 an alternative funding transaction. The
accompanying 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.
NOTE L - 401K
Regional sponsors a defined contribution
retirement plan (“401(k) Plan”) covering all eligible employees effective November 1, 1988. The 401(k) Plan
allows eligible employees to contribute, subject to Internal Revenue Service limitations on total annual contributions, up to
60% of their compensation as defined in the 401(k) Plan, to various investment funds. Regional matches, on a discretionary basis,
50% of the first 6% of employee contributions. Furthermore, Regional may make additional contributions on a discretionary basis
at the end of the Plan year for all eligible employees.
NOTE M - SEGMENT INFORMATION
We report segment information in accordance
with ASC 280. Under ASC 280, all publicly-traded companies are required to report certain information about the operating segments,
products, services and geographical areas in which they operate and their major customers. Operating segments are components of
a company for which separate financial information is available that is evaluated regularly by management in deciding how to allocate
resources and assess performance. This information is reported on the basis that it is used internally for evaluating segment
performance. We had only one operating segment (the transportation and terminaling business of Regional) during the three months
and nine months ended September, 2013 and 2014.
The following are amounts related to the
Regional transportation and terminaling business included in the accompanying consolidated financial statements for the three
months and nine months ended September 30, 2013 and 2014 and at December 31, 2013 and September 30, 2014:
CENTRAL ENERGY PARTNERS LP AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | |
Three months
ended
September 30,
2013 | | |
Three months
ended
September 30,
2014 | | |
Nine months
ended
September 30,
2013 | | |
Nine months
ended
September 30,
2014 | |
| | |
| | | |
| | | |
| | | |
| | |
| Revenue from external customers | |
$ | 1,044,000 | | |
$ | 1,456,000 | | |
$ | 3,480,000 | | |
$ | 4,003,000 | |
| Interest expense | |
| 99,000 | | |
| 202,000 | | |
| 257,000 | | |
| 539,000 | |
| Depreciation and amortization | |
| 134,000 | | |
| 140,000 | | |
| 402,000 | | |
| 413,000 | |
| Income tax expense (benefit) | |
| (62,000 | ) | |
| - | | |
| 67,000 | | |
| - | |
| Net (loss) | |
$ | (256,000 | ) | |
$ | (203,000 | ) | |
$ | (879,000 | ) | |
$ | (356,000 | ) |
| | |
December 31,
2013 | | |
September 30,
2014 | | |
| | |
| |
| | |
| | | |
| | | |
| | | |
| | |
| Total assets | |
$ | 8,069,000 | | |
$ | 8,218,000 | | |
| | | |
| | |
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 and nine months ended September 30, 2013 and 2014 were divided as set forth below. All dollar amounts are
in thousands.
| | |
Three Months Ended September 30, | |
| | |
2013 | | |
2014 | |
| | |
Revenue | | |
% | | |
Revenue | | |
% | |
| | |
| | |
| | |
| | |
| |
| Hauling | |
$ | 498 | | |
| 48 | % | |
$ | 744 | | |
| 51 | % |
| Storage | |
| 446 | | |
| 43 | % | |
| 606 | | |
| 42 | % |
| Terminal | |
| 95 | | |
| 9 | % | |
| 106 | | |
| 7 | % |
| Other | |
| 5 | | |
| 0 | % | |
| - | | |
| 0 | % |
| Total | |
$ | 1,044 | | |
| 100 | % | |
$ | 1,456 | | |
| 100 | % |
| | |
Nine Months Ended September 30, | |
| | |
2013 | | |
2014 | |
| | |
Revenue | | |
% | | |
Revenue | | |
% | |
| | |
| | |
| | |
| | |
| |
| Hauling | |
$ | 1,841 | | |
| 53 | % | |
$ | 1,764 | | |
| 44 | % |
| Storage | |
| 1,329 | | |
| 38 | % | |
| 1,656 | | |
| 41 | % |
| Terminal | |
| 294 | | |
| 8 | % | |
| 584 | | |
| 15 | % |
| Other | |
| 16 | | |
| 1 | % | |
| - | | |
| 0 | % |
| Total | |
$ | 3,480 | | |
| 100 | % | |
$ | 4,004 | | |
| 100 | % |
Recent Developments
Executive Officers
Effective May 1, 2014,
Mr. Douglas W. Weir was appointed 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 September 30, 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.
Three Months Ended September 30, 2014 and 2013 (all amounts
in thousands)
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Change Three Months Ended | |
| | |
Three Months Ended | | |
Three Months Ended | | |
September 30, 2014 versus | |
| | |
September 30, 2014 | | |
September 30, 2013 | | |
September 30, 2013 | |
| | |
Regional | | |
Corporate | | |
Total | | |
Regional | | |
Corporate | | |
Total | | |
Regional | | |
Corporate | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 1,456 | | |
$ | - | | |
$ | 1,456 | | |
$ | 1,044 | | |
$ | - | | |
$ | 1,044 | | |
$ | 412 | | |
$ | - | | |
$ | 412 | |
| Costs Of Goods Sold | |
| 1,061 | | |
| - | | |
| 1,061 | | |
| 838 | | |
| - | | |
| 838 | | |
| 223 | | |
| - | | |
| 223 | |
| Gross Profit | |
| 395 | | |
| - | | |
| 395 | | |
| 206 | | |
| - | | |
| 206 | | |
| 189 | | |
| - | | |
| 189 | |
| Selling, General and Administrative Expenses | |
| 267 | | |
| 91 | | |
| 358 | | |
| 300 | | |
| (149 | ) | |
| 151 | | |
| (33 | ) | |
| 240 | | |
| 207 | |
| Operating Income (Loss) | |
| 128 | | |
| (91 | ) | |
| 37 | | |
| (94 | ) | |
| 149 | | |
| 55 | | |
| 222 | | |
| (240 | ) | |
| (18 | ) |
| Interest Expense, net | |
| (67 | ) | |
| (103 | ) | |
| (170 | ) | |
| (99 | ) | |
| (7 | ) | |
| (106 | ) | |
| 32 | | |
| (96 | ) | |
| (64 | ) |
| Income (Loss) Before Taxes | |
| 61 | | |
| (194 | ) | |
| (133 | ) | |
| (193 | ) | |
| 142 | | |
| (51 | ) | |
| 254 | | |
| (336 | ) | |
| (82 | ) |
| Provision (Benefit) For Income Taxes | |
| - | | |
| - | | |
| - | | |
| 62 | | |
| - | | |
| 62 | | |
| (62 | ) | |
| - | | |
| (62 | ) |
| Net Income (Loss) | |
$ | 61 | | |
$ | (194 | ) | |
$ | (133 | ) | |
$ | (255 | ) | |
$ | 142 | | |
$ | (113 | ) | |
$ | 316 | | |
$ | (336 | ) | |
$ | (20 | ) |
Revenues. Our revenues for the three
months ended September 30, 2014 increased by $0.412 million over the revenues for the three months ended September 30, 2013. The
increase was due to adding a new customer in May that has taken Regional to full capacity for the entire quarter.
Cost of Goods Sold. Our cost of
goods sold for the three months ended September 30, 2014 increased by 27% from the same period in 2013, but was still accretive
to the profit margin relative to the revenue added. The increase was entirely due to being at full capacity. The resulting gross
profit margin increased to 27% for the 2014 quarter versus 20% for the 2013 quarter.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses (“SG&A”) during the three months ended September
30, 2014 were $0.358 million compared to $0.151 million for the three months ended September 30, 2013, an increase of approximately
$0.2 million (137%). The increase was the result of recording $0.3 million for the abatement of California tax penalties during
the three months ended September 30, 2013. Disregarding the effect of the abatement, overall SG&A decreased by $0.1 million
during the same period.
Nine Months Ended September 30, 2014 and 2013 (all amounts
in thousands)
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Change Nine Months Ended | |
| | |
Nine Months Ended | | |
Nine Months Ended | | |
September 30, 2014 versus | |
| | |
September 30, 2014 | | |
September 30, 2013 | | |
September 30, 2013 | |
| | |
Regional | | |
Corporate | | |
Total | | |
Regional | | |
Corporate | | |
Total | | |
Regional | | |
Corporate | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 4,004 | | |
$ | - | | |
$ | 4,004 | | |
$ | 3,480 | | |
$ | - | | |
$ | 3,480 | | |
$ | 524 | | |
$ | - | | |
$ | 524 | |
| Costs Of Goods Sold | |
| 3,073 | | |
| - | | |
| 3,073 | | |
| 2,946 | | |
| - | | |
| 2,946 | | |
| 127 | | |
| - | | |
| 127 | |
| Gross Profit | |
| 931 | | |
| - | | |
| 931 | | |
| 534 | | |
| - | | |
| 534 | | |
| 397 | | |
| - | | |
| 397 | |
| Selling, General and Administrative Expenses | |
| 792 | | |
| 312 | | |
| 1,104 | | |
| 1,088 | | |
| (694 | ) | |
| 394 | | |
| (296 | ) | |
| 1,006 | | |
| 710 | |
| Operating Income (Loss) | |
| 139 | | |
| (312 | ) | |
| (173 | ) | |
| (554 | ) | |
| 694 | | |
| 140 | | |
| 693 | | |
| (1,006 | ) | |
| (313 | ) |
| Interest Expense, net | |
| (231 | ) | |
| (136 | ) | |
| (367 | ) | |
| (257 | ) | |
| (15 | ) | |
| (272 | ) | |
| 26 | | |
| (121 | ) | |
| (95 | ) |
| Income (Loss) Before Taxes | |
| (92 | ) | |
| (448 | ) | |
| (540 | ) | |
| (811 | ) | |
| 679 | | |
| (132 | ) | |
| 719 | | |
| (1,127 | ) | |
| (408 | ) |
| Provision (Benefit) For Income Taxes | |
| - | | |
| - | | |
| - | | |
| 67 | | |
| - | | |
| 67 | | |
| (67 | ) | |
| - | | |
| (67 | ) |
| Net Income (Loss) | |
$ | (92 | ) | |
$ | (448 | ) | |
$ | (540 | ) | |
$ | (878 | ) | |
$ | 679 | | |
$ | (199 | ) | |
$ | 786 | | |
$ | (1,127 | ) | |
$ | (341 | ) |
Revenues. Our revenues for the nine
months ended September 30, 2014 increased by $0.524 million over the revenues for the nine months ended September 30, 2013. The
increase was due to adding a new customer in May that has taken Regional to full capacity.
Cost of Goods Sold. Our cost of
goods sold for the nine months ended September 30, 2014 increased by 4.3% from 2013. The increase was very low relative to the
revenue that was added for the year.
Selling, General and Administrative
Expenses. SG&A during the nine months ended September 30, 2014 was $1.104 million compared to $0.394 million for the nine
months ended September 30, 2013, an increase of approximately $0.7 million. The increase was mainly the result of the abatement
of tax penalties during the nine months ended September 30, 2013 totaling $1.1 million. Recurring SG&A actually decreased by
nearly $0.4 million in 2014 as compared to 2013.
Liquidity and Capital Resources
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 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 Partnership Agreement, copies of which
have been filed as exhibits to this report. 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. Prior to
execution of the PSA, Messrs. Imad K. Anbouba and Carter R. Montgomery and The Cushing MLP Opportunity Fund I, L. P. (the “Cushing
Fund”) controlled the General Partner and had controlling authority over 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.
At September 30, 2014,
we had cash available to fund ongoing working capital requirements of $66,000. In August 2014, the Board of Directors of the General
Partner recommended a capital call of $750,000 to fund working capital needs. This recommendation was approved by the requisite
percentage of members on August 7, 2014. As of November 14, 2014, the capital call was fully subscribed and funded. With the capital
call completed, CEGP continues to hold 55% of the issued and outstanding membership interests in the General Partner. The Cushing
Fund and Messrs. Anbouba and Montgomery hold 15.90%, 11.28% and 11.28%, respectively.
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. We timely filed the 2012 Tax
Return with the IRS manually. 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 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”),
all of which was advanced in 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 also 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 March 19, 2016 and carries a fixed annual rate of interest of 12%. Under the terms of the Hopewell Loan, as amended, we are
required to make interest payments only through December 2014 and then 14 equal monthly payments of $56,000 (principal and interest)
from January 2015 through the February 2016 with a balloon payment of approximately $2 million 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. We have provided all required financial statements to Hopewell.
Advances from General Partner
All funds advanced
to the Partnership by the General Partner since November 17, 2010 have been treated as a loan. Effective March 1, 2012, the Genreal
Partner and the Partnership executed an Intercompany Demand Promissory Note to evidence the indebtedness, which note was amended
during March 2014 and November 2014. The intercompany demand note provides for advances from time to time by the General Partner
to the Partnership of up to $5,000,000 to fund working capital needs of the Partnership and its subsidiaries. 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 bore interest at the imputed rate of the IRS for medium-term notes. The November 2014
amendment increased the interest rate to a flat 10% per annum for all periods from and after July 1, 2014. At September 30, 2014,
the total amount owed to the General Partner by the Partnership, including accrued interest, was $4,177,000.
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 September 30, 2014 is $4,296,000. 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 September 30, 2014,
the intercompany balance owed by Regional to the Partnership and/or RVOP is approximately $2,957,000, 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
Tank Storage and Terminal Services Agreement
Regional currently
has approximately 10 million gallons of storage capacity at its Hopewell facility, all of which were leased at September 30, 2014.
All of our tanks are under contract with expiration dates ranging from ten months to three years from September 30, 2014. We expect
to renew each contract on or before expiration; however there are no assurances that we will be successful.
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 (“Leased
Tractors”) to be acquired by Penske and leased to us for seven years, and the outsourcing of the maintenance of the Leased
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 Leased 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 Leased Tractors by Regional. In connection with the delivery
of the Leased 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 Leased 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 Leased 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 Leased
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 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 December
31, 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, we 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 Senior Vice President 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 and nine months ended September 30, 2013 and 2014, expenses
billed in connection with the reimbursement agreements were $12,000, $12,000, $42,000 and $47,000, 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 and nine months ended September
30, 2013 and 2014, Regional recorded allocable expenses of $64,000, $45,000, $177,000 and $165,000, respectively.
Registration Rights Agreements
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, which are also the members of the General Partner, are referred to herein as the “Purchasers.”
The Registration Rights
Agreement provides the Purchasers with shelf 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 Purchasers as soon as practicable after April 15, 2012 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) two years from the dated on which the shelf registration statement was first
filed. 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.
In connection with
the CEGP Investment, CEGP and each of the Warrant Purchasers were added as a Holder of Registrable Securities to the Registration
Rights Agreement. In order to include CEGP and the Warrant Purchasers as parties to the Registration Rights Agreement, the parties
agreed to amend and restate the Registration Rights Agreement in its entirety. The Amended and Restated Registration Rights Agreement
(“Registration Rights Agreement”) was approved by more than the needed majority of the parties to the agreement
on November 20, 2013, and Registration Rights Agreement became effective upon its execution by all parties on November 26, 2013.
The major changes incorporated into the Registration Rights Agreement include the following:
| · | The holders of Registrable Securities were redefined to include CEGP, each Warrant Purchaser and
the members of the General Partner holding Common Units. |
| · | The holders were granted two demand registration rights, with certain restrictions, and piggyback
registration rights with respect to Common Units held by each of them. |
| · | 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 as effective such 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 using Form S-3 since its market capitalization does not meet the threshold established
by the SEC. |
| · | The demand registration rights permit the holders of at least 3,000,000 of the Registrable Securities
to demand that the Partnership file a registration statement to register such holders’ Registrable Securities and those of
all other holders who elect to sell Registrable Securities, subject to certain conditions including the right of the Partnership
to postpone a demand registration in the event that such demand would (i) materially interfere with a significant acquisition,
merger, consolidation or reorganization involving the Partnership, (ii) require the premature disclosure of material information
regarding the Registrant, or (iii) render the Partnership unable to comply with requirements of the Securities Act or the Exchange
Act of 1934 and the rules and regulations promulgated thereunder. The piggyback registration rights permit a holder to elect to
participate in an underwritten offering of the Partnership’s Common Units or other registrable securities. The amount of
Registrable Securities that the holders can offer for sale in a piggyback registration is subject to certain restrictions as set
forth in the Registration Rights Agreement. |
We are required to
pay all costs associated with the shelf registration, 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 Purchaser. We are also indemnifying the Purchasers 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 nine months ended September 30, 2014 of $521,000 and $540,000, respectively.
During the period since
December 31, 2012, we improved our overall liquidity. Our deficit in working capital, excluding current maturities of long-term
debt, totaled $898,000 at September 30, 2014 compared with $3,163,000 at December 31, 2012, a reduction of $2,265,000. 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 TransMontaigne Dispute, 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.
At September 30, 2014,
we had cash available to fund ongoing working capital requirements of $66,000. In August 2014, the Board of Directors of the General
Partner recommended a capital call of $750,000 to fund working capital needs. This recommendation was approved by the requisite
percentage of members on August 7, 2014. As of November 14, 2014, the capital call was fully subscribed and funded. We anticipate
that this amount, together with cash flow from operations, will be sufficient to meet the Company’s working capital requirements
for approximately 12 months.
In connection with
the Hopewell Note, Regional is currently required to make interest payments only of $25,000 per month until December 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 approximately $2 million 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. The amount of penalties related to the remaining 2012 Tax Return is $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 available cash resources.
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) 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 our facilities; (2) our hauling revenues remain at current levels; (3) obligations to creditors are not accelerated; (4) our
pending facility upgrades are completed timely and within estimated budgets; (5) our operating expenses remain at current levels;
(6) we obtain additional working capital to meet our contractual commitments through future intercompany advances or a refinancing
of the Hopewell Loan; and/or (7) 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 by the Partnership.
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 2015 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 an alternative funding transaction.
The accompanying 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”.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls
Disclosure controls
are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under
the Securities Exchange Act of 1934, as amended (“Exchange Act”), such as this Quarterly Report, is reported in accordance
with the rules of the SEC. Disclosure controls are also designed with the objective of ensuring that such information is accumulated
appropriately and communicated to management, including the chief executive officer and chief financial officer, as appropriate,
to allow for timely decisions regarding required disclosures.
As of the end of the
period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our
General Partner’s management, including our General Partner’s executive officer and its chief financial officer, of
the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e)
and 15d-15(e).
Based on our assessment
and those criteria, we concluded that Central’s disclosure controls and procedures over financial reporting were not effective
as of September 30, 2014.
Changes in Internal Control Over Financial
Reporting
As of the end of the
period covered by this report, there were no changes in our internal controls over financial reporting, or in other factors that
could significantly affect these controls, that materially affected, or are reasonably likely to affect, our internal control over
financial reporting.
Part II – OTHER INFORMATION
Item
1. Legal Proceedings
See “Note G – Commitments and
Contingencies” to the unaudited consolidated financial statements included in this report for a more detailed discussion
of current contingencies.
Item 1A. Risk Factors
Not applicable.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
See “Note F – Unit Options
and Equity Incentive Plan” to the unaudited consolidated financial statements included in this report for a more detailed
discussion of the issuance of Common Unit Options and Common Unit Grants issued by the Company to its employees and directors.
In August 2014, the Board of Directors
of the General Partner recommended a capital call of $750,000 to fund working capital needs. This recommendation was approved by
the requisite percentage of members on August 7, 2014 pursuant to the terms of the General Partner’s company agreement. On
September 8, 2014, the General Partners offered 15,000 membership interests at a value of $50.00 per interest to each of its members
in accordance with the provisions of its company agreement. As of November 3, 2014, the offered membership interests were fully
subscribed. The offer of the membership interests was made in accordance with Section 4(2) of the Securities Act of 1933, as amended,
and Regulation D. No broker was involved in the transaction.
Item
3. Defaults upon Senior Securities
Not applicable.
Item
4. Mine Safety Disclosures
Not applicable.
Item
5. Other Information
At its quarterly meeting held on November 11, 2014, the Board
of Directors of the General Partner reconstituted its Audit Committee and its Compensation Committee. Mr. Robert L. Lutz agreed
to serve on the Audit Committee to replace Mr. William M. Comegys III, who agreed to serve as Chairman and a member of the Compensation
Committee. The Board has determined that each of Messrs. Lutz and Comegys are “independent” directors and each meet
the respective requirements of Section 10A(3) and Section 10C of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder and is qualified to act in their respective positions. As a result of these actions, the members of the
Audit Committee include Messrs. Alan D. Bell (Chairman), Robert L. Lutz and Michael T. Wilhite. The members of the Compensation
Committee are Messrs. Alan D. Bell, William M. Comegys III (Chairman), Daniel L Spears and Michael T. Wilhite, Jr.
Item
6. Exhibits
The following Exhibits are incorporated
by reference to previously filed reports, as noted:
| Exhibit No. |
|
Description |
| |
|
|
| 2.1 |
|
Securities Purchase and Sale Agreement between Central Energy, LLC, Rio Vista Energy Partners L.P. and Penn Octane Corporation dated May 25, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on May 28, 2010, SEC File No. 000-50394.) |
| |
|
|
| 2.2 |
|
Third Amendment to Securities Purchase and Sale Agreement between Central Energy, LLC, Rio Vista Energy Partners L.P. and Penn Octane Corporation, effective July 21, 2010 and dated August 9, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on August 13, 2010, SEC File No. 000-50394.) |
| |
|
|
| 2.3 |
|
Fourth Amendment to Securities Purchase and Sale Agreement between Central Energy, LLC, Rio Vista Energy Partners L.P. and Penn Octane Corporation, dated November 17, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on November 23, 2010, SEC File No. 000-50394.) |
| |
|
|
| 3.1 |
|
Third Amended and Restated Agreement of Limited Partnership
of Central Energy Partners LP dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on
Form 8-K filed on December 2, 2013, SEC File No. 000-50394.)
|
| 3.2 |
|
Third Amended and Restated Limited Liability Company Agreement of Central Energy GP LLC dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 4.1 |
|
Specimen Common Unit Certificate of Central Energy Partners LP (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q filed on May 15, 2012, SEC File No. 000-50394.) |
| |
|
|
| 4.2 |
|
Amended and Restated Registration Rights Agreement by and among Central Energy Partners LP, the Group I Investors, CEGP Acquisition, LLC, JLD Investors, Ltd, and G. Thomas Graves III, dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 4.3 |
|
Warrant Agreement issued by Central Energy Partners LP to JLD Services, Ltd. dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 4.4 |
|
Warrant Agreement issued by Central Energy Partners LP to G. Thomas Graves III dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.1* |
|
Rio Vista Energy Partners L.P. 2005 Equity Incentive Plan (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on April 12, 2005, SEC File No. 000-50394). |
| |
|
|
| 10.2 |
|
Reimbursement Agreement effective January 1, 2011 by and between Central Energy GP LLC and Rover Technologies LLC. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 and filed on April 15, 2011, SEC File No. 000-50394.) |
| Exhibit No. |
|
Description |
| |
|
|
| 10.3 |
|
Vehicle Maintenance Agreement by and between Regional Enterprises, Inc. and Penske Truck Leasing Co., L.P. dated January 18, 2012. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on February 24, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.4 |
|
Executed Vehicle Lease Service Agreement by and between Regional Enterprises, Inc. and Penske Truck Leasing Co., L.P. dated February 17, 2012. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on October 11, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.5 |
|
Intercompany Demand Promissory Note between Central Energy GP LLC and Central Energy Partners LP dated March 1, 2012. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 filed on March 30, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.6 |
|
Intercompany Demand Promissory Note between Central Energy Partners LP and Regional Enterprises, Inc. dated March 1, 2012. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 filed on March 30, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.7 |
|
Term Loan and Security Agreement between Regional Enterprises, Inc., as Borrower, and Hopewell Investment Partners LLC, as Lender, dated March 20, 2013 (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.8 |
|
Promissory Note dated March 20, 2013 in an amount of up to $2,500,000 issued by Regional Enterprises, Inc., as Borrower, to Hopewell Investment Partners LLC, as Lender (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.9 |
|
First Lien Mortgage, Security Agreement, Assignment of Rents, Leases and Fixture Filing by and from Regional Enterprises, Inc., as Mortgagor, to Hopewell Investment Partners LLC, as Mortgagee, dated as of March 20, 2013 (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.10 |
|
Pledge Agreement dated March 20, 2013 by Central Energy Partners LP to Hopewell Investment Partners (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.11 |
|
Assignment of Leases and Rents from Regional Enterprises, Inc. to Hopewell Investment Partners LLC (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.12 |
|
Environmental Certificate (With Covenants, Representations and Warranties) from Regional Enterprises, Inc. and Central Energy Partners LP to Hopewell Investment Partners LLC (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.13 |
|
Unlimited Guaranty dated March 20, 2013 from Central Energy Partners LP to Hopewell Investment Partners LLC (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.14* |
|
Employment Contract of Ian T. Bothwell (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| Exhibit No. |
|
Description |
| |
|
|
| 10.15 |
|
Purchase and Sale Agreement by and among Central Energy GP LLC, Central Energy Partners LP and CEGP Acquisition, LLC, dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.16* |
|
Central Energy Partners LP 2014 Incentive Compensation Plan of the Registrant. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K filed on April 15, 2014, SEC File No. 000-50394). |
| |
|
|
| 10.17 |
|
Amended and Restated Intercompany Demand Promissory Note dated March 15, 2014. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K filed on April 15, 2014, SEC File No. 000-50394). |
| |
|
|
| 10.18 |
|
Reimbursement Agreement effective December 1, 2013 by and between Central Energy GP LLC and Katy Resources, L.L.C. (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q filed on May 15, 2014, SEC File No. 000-50394). |
| |
|
|
| 10.19* |
|
First Amendment to Employment Agreement of Ian T. Bothwell effective December 19, 2013. (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q filed on May 15, 2014, SEC File No. 000-50394). |
| |
|
|
| * |
|
indicates management contract or compensatory plan or arrangement. |
The following Exhibits are filed as part of this report:
| Exhibit No. |
|
Description |
| |
|
|
| 10.20 |
|
Second Amended and Restated Intercompany Demand Promissory Note dated November 11, 2014 |
| |
|
|
| 15 |
|
Accountant’s Acknowledgement. |
| |
|
|
| 31.1 |
|
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act |
| |
|
|
| 31.2 |
|
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act |
| |
|
|
| 32 |
|
Certification Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 |
All of the Exhibits
are available from the SEC’s website at www.sec.gov. In addition, the Partnership will furnish a copy of any Exhibit
upon payment of a fee (based on the estimated actual cost which shall be determined at the time of the request) together with a
request addressed to Douglas Weir, Central Energy Partners LP, 4809 Cole Ave., Suite 108, Dallas, Texas 75205.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
| |
CENTRAL ENERGY PARTNERS LP |
| |
|
|
|
| |
By: |
CENTRAL ENERGY GP LLC, |
| |
|
its General Partner |
| |
|
|
|
| November 14, 2014 |
|
By: |
/s/ John L. Denman, Jr. |
| |
|
John L. Denman, Jr. |
| |
|
Chief Executive Officer and President |
| |
|
|
|
| November 14, 2014 |
|
By: |
/s/ Douglas W. Weir |
| |
|
Douglas W. Weir |
| |
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
EXHIBIT 10.20
SECOND AMENDED AND RESTATED INTERCOMPANY
DEMAND PROMISSORY NOTE
| $5,000,000 |
Dated: November 11, 2014 |
FOR VALUE RECEIVED, the undersigned,
Central Energy Partners LP, a Delaware limited partnership (“Borrower”), HEREBY PROMISES TO PAY to the
order of Central Energy GP LLC, a Delaware limited liability company (“Lender”), the principal amount of $5,000,000
or, if less, the aggregate principal amount of all advances heretofore and hereafter made by Lender to Borrower as evidenced by
the endorsement of such Advances on Schedule A hereto or in the books and records of Borrower (the “Advances”),
which is deemed a part of this Promissory Note, commencing with the quarter ended March 31, 2017 (the “Termination Date”)
in twelve (12) substantially equal consecutive quarterly installments on the last day of June, September, December and March in
each year commencing on January 1, 2017 and ending on March 31, 2020; provided, that the last such installment shall be
in the amount necessary to repay in full the outstanding principal amount hereof, together with interest on the principal amount
hereof from time to time outstanding from the date hereof until such principal amount is paid in full.
Interest shall accumulate and be calculated
daily on the basis of a 360-day year at a rate per annum, compounded quarterly, at the rate of ten percent (10%) per annum. Interest
shall accumulate until payment of such accumulated and unpaid interest becomes due commencing on the first day immediately after
the Termination Date and payable on each of the dates principal payments are due as set forth above, with the last payment including
that amount of interest due on the remaining outstanding principal amount at March 31, 2020.
Both principal and interest are payable
in lawful money of the United States of America to Lender at 4809 Cole Avenue, Suite 108, Dallas, Texas 75205, or such other address
as Lender shall notify Borrower, in same day funds. All Advances made by Lender to Borrower, and all payments made on account of
the principal amount hereof, shall be recorded by Lender on Schedule A hereto which is part of this Amended and Restated
Intercompany Demand Promissory Note (“Promissory Note”) for all purposes. The failure to show any such Advances
or any error in showing such Advances shall not affect the obligations of Borrower hereunder.
Borrower may, upon at least three (3) Business
Days’ notice to Lender stating the proposed date and principal amount of the prepayment, and if such notice is given Lender
shall, prepay the Promissory Note in whole or in part together with accrued interest to the date of such prepayment on the amount
prepaid.
No amendment or waiver of any provision
of this Promissory Note, nor consent to any departure by Borrower herefrom, shall in any event be effective unless the same shall
be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
Borrower hereby waives (to the extent permitted
by applicable laws) presentment, demand, protest and notice of any kind. No failure on Lender’s part to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver of such right; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
This Promissory Note shall be binding
upon Borrower and its successors and assigns, and the terms and provisions of this Promissory Note shall inure to the benefit of
Lender and its respective successors and assigns, including subsequent holders hereof.
This Promissory Note amends and restates
in its entirety that certain Intercompany Demand Promissory Note by and between Borrower and Lender dated March 15, 2014, and supersedes
such promissory note in all respects.
THIS PROMISSORY NOTE AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION.
The terms and provisions of this Promissory
Note are severable, and if any term or provision shall be determined to be superseded, illegal, invalid or otherwise unenforceable
in whole or in part pursuant to applicable law, such determination shall not in any manner impair or otherwise affect the validity,
legality or enforceability of that term or provision in any other jurisdiction or any of the remaining terms and provisions of
this Promissory Note in any jurisdiction.
This Promissory Note represents the entire
agreement between the parties regarding the subject matter hereof and may not be contradicted by evidence of prior, contemporaneous
or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.
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CENTRAL ENERGY PARTNERS LP |
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By: |
Central Energy GP LLC, its General Partner |
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By: |
/s/ John L. Denman, Jr. |
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John L. Denman, Jr., |
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Chief Executive Officer and President |
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Exhibit 15
ACCOUNTANT’S ACKNOWLEDGMENT
We acknowledge the incorporation by reference
in the Registration Statement on Form S-3 (333-149238) and Form S-8 (333-149248) of Central Energy Partners LP of our report dated
November 14, which appears on page 4 of the quarterly report on Form 10-Q for the quarter ended September 30, 2014.
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/s/ MONGOMERY COSCIA GREILICH, LLP |
Plano, Texas
November
14, 2014
Exhibit 31.1
CERTIFICATION
I, John L. Denman, Jr., Chief Executive
Officer and President of Central Energy GP LLC, the General Partner of Central Energy Partners LP, certify that:
| 1. | I have reviewed this report on Form 10-Q of Central Energy Partners LP; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial
reports to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting. |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
Board of Managers or persons performing: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014
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/s/ John L. Denman, Jr. |
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John L. Denman, Jr., |
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Chief Executive Officer and President |
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of Central Energy GP LLC, the |
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General Partner of |
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Central Energy Partners LP |
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Exhibit 31.2
CERTIFICATION
I, Douglas W. Weir, Chief Financial Officer,
certify that:
| 1. | I have reviewed this report on Form 10-Q of Central Energy Partners LP; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d - 15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial
reports to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
Board of Managers or persons performing: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014
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/s/ Douglas W. Weir |
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Douglas W. Weir, |
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Chief Financial Officer |
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of Central Energy GP LLC, the |
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General Partner of |
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Central Energy Partners LP |
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Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report
of Central Energy Partners LP (“Central Energy”) on Form 10-Q for the three and nine months ended September 30, 2014
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John L. Denman,
Jr., Chief Executive Officer and President of Central Energy GP LLC, the General Partner of Central Energy and Douglas Weir, Chief
Financial Officer of Central Energy GP LLC, the General Partner of Central Energy, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of Central Energy.
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/s/ John L. Denman, Jr. |
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John L. Denman, Jr., |
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Chief Executive Officer and President of |
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Central Energy GP LLC, the |
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General Partner of |
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Central Energy Partners LP |
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November 14, 2014 |
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/s/ Douglas W. Weir |
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Douglas W. Weir, |
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Chief Financial Officer of |
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Central Energy GP LLC, the |
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General Partner of |
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Central Energy Partners LP |
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November 14, 2014 |
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