PART
I. Financial Information
ITEM
1. Financial Statements
ENERGY & TECHNOLOGY, CORP.
Consolidated Balance Sheets
As of June 30, 2014 and December 31, 2013
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
1,124,597
|
|
|
$
|
1,875,187
|
|
Accounts
Receivable
|
|
|
|
|
|
|
|
|
Trade,
Net
|
|
|
580,611
|
|
|
|
1,029,761
|
|
Other
|
|
|
1,340
|
|
|
|
73,800
|
|
Inventory
|
|
|
2,119,165
|
|
|
|
2,309,048
|
|
Prepaid
Expenses
|
|
|
80,854
|
|
|
|
37,173
|
|
Deferred
Tax Asset
|
|
|
1,156,059
|
|
|
|
962,436
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
5,062,626
|
|
|
|
6,287,405
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net
|
|
|
|
|
|
|
|
|
Held
for Operations, Net
|
|
|
3,435,499
|
|
|
|
3,650,236
|
|
Held
for Investment
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Property & Equipment
|
|
|
3,435,499
|
|
|
|
3,650,236
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Patent,
net
|
|
|
399,594
|
|
|
|
409,539
|
|
Deposits
|
|
|
4,988
|
|
|
|
4,988
|
|
Other
Assets
|
|
|
7,573
|
|
|
|
4,393
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
412,155
|
|
|
|
418,920
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
8,910,280
|
|
|
$
|
10,356,561
|
|
See
notes to consolidated financial statements
ENERGY & TECHNOLOGY, CORP.
Consolidated Balance Sheets
As of June 30, 2014 and December 31, 2013
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Current Maturities of Notes Payable
|
|
$
|
200,863
|
|
|
$
|
364,046
|
|
Accounts Payable
|
|
|
2,174,387
|
|
|
|
2,109,713
|
|
Accrued Payroll and Payroll Liabilities
|
|
|
42,483
|
|
|
|
54,357
|
|
Accrued Rent
|
|
|
2,012,500
|
|
|
|
1,937,500
|
|
Income Taxes Payable
|
|
|
25,287
|
|
|
|
149,936
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
4,455,520
|
|
|
|
4,615,552
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
1,046
|
|
|
|
8,066
|
|
Deferred Taxes Payable
|
|
|
495,162
|
|
|
|
604,271
|
|
Due to Affiliates
|
|
|
148,715
|
|
|
|
691,935
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Liabilities
|
|
|
644,923
|
|
|
|
1,304,272
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
5,100,443
|
|
|
|
5,919,824
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Preferred Stock - $.001 Par Value; 10,000,000 Shares Authorized, None Issued
|
|
|
-
|
|
|
|
-
|
|
Common Stock - $.001 Par
Value; 250,000,000 Shares Authorized, 169,165,841 and 169,186,117 Shares Issued and Outstanding at June 30, 2014 and December
31, 2013, With 80,834,159 and 80,813,883 Shares unissued at June 30, 2014 and December 31, 2013
|
|
|
169,186
|
|
|
|
169,186
|
|
Discount on Common Stock
|
|
|
(115,100
|
)
|
|
|
(115,100
|
)
|
Treasury Stock
|
|
|
(120,845
|
)
|
|
|
(120,845
|
)
|
Paid-In Capital
|
|
|
4,297,022
|
|
|
|
4,297,022
|
|
Retained Earnings
|
|
|
(420,426
|
)
|
|
|
206,474
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
3,809,837
|
|
|
|
4,436,737
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
8,910,280
|
|
|
$
|
10,356,561
|
|
See
notes to consolidated financial statements
ENERGY
& TECHNOLOGY, CORP.
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended June 30, 2014 and June 30, 2013
For the Six Months Ended June 30, 2014 and June 30, 2013
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
968,123
|
|
|
$
|
1,319,313
|
|
|
$
|
1,920,333
|
|
|
$
|
2,279,988
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials and Supplies
|
|
|
171,559
|
|
|
|
281,365
|
|
|
|
344,487
|
|
|
|
817,218
|
|
Subcontract Labor
|
|
|
184,831
|
|
|
|
207,304
|
|
|
|
379,839
|
|
|
|
369,041
|
|
Depreciation
|
|
|
192,116
|
|
|
|
202,733
|
|
|
|
383,544
|
|
|
|
405,907
|
|
Employees and Related Costs
|
|
|
111,662
|
|
|
|
132,097
|
|
|
|
232,366
|
|
|
|
233,652
|
|
Repairs and Maintenance
|
|
|
17,410
|
|
|
|
16,038
|
|
|
|
31,747
|
|
|
|
26,095
|
|
Insurance
|
|
|
46,330
|
|
|
|
43,574
|
|
|
|
91,861
|
|
|
|
99,846
|
|
Other Costs
|
|
|
228,462
|
|
|
|
37,588
|
|
|
|
415,156
|
|
|
|
63,519
|
|
Patent Amortization
|
|
|
7,196
|
|
|
|
0
|
|
|
|
14,393
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenues
|
|
|
959,567
|
|
|
|
920,699
|
|
|
|
1,893,394
|
|
|
|
2,015,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
8,556
|
|
|
|
398,614
|
|
|
|
26,940
|
|
|
|
264,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative Salaries and Wages
|
|
|
100,515
|
|
|
|
137,008
|
|
|
|
229,591
|
|
|
|
245,572
|
|
Other
|
|
|
62,299
|
|
|
|
19,621
|
|
|
|
156,763
|
|
|
|
82,449
|
|
Professional Services
|
|
|
57,741
|
|
|
|
70,665
|
|
|
|
146,491
|
|
|
|
277,708
|
|
Rent
|
|
|
8,400
|
|
|
|
48,948
|
|
|
|
17,520
|
|
|
|
98,728
|
|
Depreciation
|
|
|
29,079
|
|
|
|
38,300
|
|
|
|
59,588
|
|
|
|
79,319
|
|
Travel, Lodging and Meals
|
|
|
20,575
|
|
|
|
29,052
|
|
|
|
58,692
|
|
|
|
58,075
|
|
Utilities
|
|
|
15,477
|
|
|
|
13,856
|
|
|
|
36,464
|
|
|
|
26,792
|
|
Office Supplies and Expenses
|
|
|
23,306
|
|
|
|
11,361
|
|
|
|
53,189
|
|
|
|
38,057
|
|
Repairs and Maintenance
|
|
|
19,899
|
|
|
|
25,046
|
|
|
|
44,833
|
|
|
|
25,046
|
|
Communications
|
|
|
5,751
|
|
|
|
10,326
|
|
|
|
15,955
|
|
|
|
21,371
|
|
Patent Amortization
|
|
|
|
|
|
|
7,197
|
|
|
|
|
|
|
|
14,393
|
|
Bad Debts
|
|
|
2,050
|
|
|
|
-
|
|
|
|
116,723
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
345,092
|
|
|
|
411,380
|
|
|
|
935,809
|
|
|
|
967,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(336,536
|
)
|
|
|
(12,766
|
)
|
|
|
(908,870
|
)
|
|
|
(702,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Sale of Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(214
|
)
|
|
|
-
|
|
Investment Income (Expense)
|
|
|
8,561
|
|
|
|
6,523
|
|
|
|
13,763
|
|
|
|
13,930
|
|
Interest Expense
|
|
|
(16,992
|
)
|
|
|
(40,100
|
)
|
|
|
(34,312
|
)
|
|
|
(80,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
|
(8,431
|
)
|
|
|
(33,577
|
)
|
|
|
(20,763
|
)
|
|
|
(66,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Provision for Income Taxes
|
|
|
(344,967
|
)
|
|
|
(46,343
|
)
|
|
|
(929,633
|
)
|
|
|
(769,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for Income Taxes
|
|
|
(129,026
|
)
|
|
|
(19,607
|
)
|
|
|
(302,733
|
)
|
|
|
(258,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(215,941
|
)
|
|
$
|
(26,736
|
)
|
|
$
|
(626,900
|
)
|
|
$
|
(510,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per Share - Basic
|
|
$
|
NM
|
|
|
$
|
NM
|
|
|
$
|
NM
|
|
|
$
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per Share - Diluted
|
|
$
|
NM
|
|
|
$
|
NM
|
|
|
$
|
NM
|
|
|
$
|
NM
|
|
See
notes to consolidated financial statements
ENERGY & TECHNOLOGY CORP.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2013 and the Six Months Ended
June 30, 2014
|
|
|
|
|
Discount
on
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Capital
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Retained
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2013
|
|
|
169,144,950
|
|
|
$
|
169,145
|
|
|
$
|
(115,100
|
)
|
|
$
|
4,288,830
|
|
|
$
|
-
|
|
|
$
|
453,611
|
|
|
$
|
4,796,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share buyback
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(120,845
|
)
|
|
|
-
|
|
|
$
|
(120,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus shares issued
|
|
|
41,167
|
|
|
|
41
|
|
|
|
-
|
|
|
|
8,192
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
8,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(247,137
|
)
|
|
$
|
(247,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
169,186,117
|
|
|
$
|
169,186
|
|
|
$
|
(115,100
|
)
|
|
$
|
4,297,022
|
|
|
$
|
(120,845
|
)
|
|
$
|
206,474
|
|
|
$
|
4,436,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
|
169,186,117
|
|
|
$
|
169,186
|
|
|
$
|
(115,100
|
)
|
|
$
|
4,297,022
|
|
|
$
|
(120,845
|
)
|
|
$
|
206,474
|
|
|
$
|
4,436,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share buyback
|
|
|
(20,276
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus shares issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(626,900
|
)
|
|
$
|
(626,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
|
169,165,841
|
|
|
$
|
169,186
|
|
|
$
|
(115,100
|
)
|
|
$
|
4,297,022
|
|
|
$
|
(120,845
|
)
|
|
$
|
(420,426
|
)
|
|
$
|
3,809,837
|
|
See notes to consolidated financial statements
ENERGY & TECHNOLOGY, CORP.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2014 and 2013
|
|
Six
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(626,900
|
)
|
|
$
|
(510,955
|
)
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
|
|
|
|
|
|
|
|
|
Bad Debts
|
|
|
(116,723
|
)
|
|
|
|
|
Depreciation
|
|
|
443,132
|
|
|
|
485,226
|
|
Amortization of Patent Costs
|
|
|
14,394
|
|
|
|
14,393
|
|
Loss on disposal of asset
|
|
|
214
|
|
|
|
|
|
Deferred Income Taxes
|
|
|
(302,733
|
)
|
|
|
(258,516
|
)
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
Trade Receivables
|
|
|
565,873
|
|
|
|
(570,370
|
)
|
Other Receivables
|
|
|
(540
|
)
|
|
|
(800
|
)
|
Inventory
|
|
|
189,883
|
|
|
|
569,037
|
|
Prepaid Expenses
|
|
|
(43,681
|
)
|
|
|
25,998
|
|
Accounts Payable
|
|
|
64,674
|
|
|
|
(236,962
|
)
|
Accrued Payroll and Payroll Liabilities
|
|
|
(11,874
|
)
|
|
|
20,306
|
|
Income Taxes Payable
|
|
|
(124,649
|
)
|
|
|
(6,840
|
)
|
Accrued Rent
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
126,070
|
|
|
|
(394,483
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Decrease in Other Assets
|
|
|
(3,180
|
)
|
|
|
(3,594
|
)
|
Patent Cost
|
|
|
(4,449
|
)
|
|
|
|
|
Purchase of Property and Equipment
|
|
|
(228,608
|
)
|
|
|
(79,138
|
)
|
Other Receivables
|
|
|
73,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
(163,237
|
)
|
|
|
(82,732
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Purchase of Treasury Stock
|
|
|
-
|
|
|
|
(100,505
|
)
|
Borrowings (Principal Repayments) to Affiliates
|
|
|
(543,220
|
)
|
|
|
(47,237
|
)
|
Borrowings (Principal Repayments) on Notes Payable
|
|
|
(170,203
|
)
|
|
|
(244,670
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(713,423
|
)
|
|
|
(392,412
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(750,590
|
)
|
|
|
(869,627
|
)
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
|
1,875,187
|
|
|
|
2,879,195
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
1,124,597
|
|
|
$
|
2,009,568
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for Interest
|
|
$
|
5,870
|
|
|
$
|
6,335
|
|
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for Income Taxes
|
|
$
|
5,919
|
|
|
$
|
6,840
|
|
See
notes to consolidated financial statements
ENERGY & TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Note 1. Organization
Energy and Technology, Corp.
(the Company) was formed November 29, 2006 under the laws of the State of Delaware in order to acquire and to take over the assets
and business of Technical Industries, Inc. (TII). On that date, the Company issued 125,000,000 shares of common stock
to American Interest, LLC, in exchange for founder services rendered. The fair value of these services was considered
immaterial, and no amounts were recognized in the financial statements. At the time the shares were issued to American
Interest, LLC, the Company had no assets, operations, or cash flows. As such, the stock had no value at the time the
Company was established. The par value was arbitrarily established in order to comply with the State of Delaware laws. In
order to reflect the par value of the shares issued, the Company recognized a discount on capital stock as a contra-equity account
within the equity section of the consolidated balance sheets.
On January 3, 2007, the Company entered into a Stock Exchange
Agreement and Share Exchange (the Agreement) whereby the sole shareholder of TII exchanged all of the outstanding shares of TII
to the Company in exchange for 50,000,000 shares of Company stock. Accordingly, TII became a wholly-owned subsidiary
of the Company. The assets acquired and liabilities assumed were recorded at the carrying value to TII since TII and
the Company were under common control prior to the acquisition.
TII specializes in the non-destructive
testing of vessels, oilfield equipment and mainly pipe, including ultrasonic testing, utilizing the latest technologies. These
technologies enable TII to (i) provide detailed information to customers regarding each pipe tested, and (ii) reach energy reserves
present technology cannot reach without extra cost to the oil and gas companies. Because of the intense scrutiny applied
to each section of pipe, TII is able to generate data which allows the pipe to be used in the most extreme conditions, and has
been proven especially useful in deep water drilling operations in the Gulf of Mexico.
On August 29, 2009, the Company
effected a name change from Technical Industries & Energy Corp. to Energy & Technology, Corp. to better reflect the nature
of the Company’s business.
Note 2. Summary
of Significant Accounting Policies
Basis of Presentation and
Consolidation
The consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary, Technical Industries, Inc., the accounts of Energy
Pipe, LLC (a variable interest entity), and the accounts of Energy Technology Manufacturing & Threading, LLC (a variable interest
entity). All significant intercompany balances and transactions have been eliminated.
The consolidated financial
statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of financial information
for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated
provisions.
Basis of Accounting
Assets, liabilities, revenues
and expenses are recognized on the accrual basis of accounting in conformity with accounting principles generally accepted in the
United States of America.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect amounts reported in the financial statements. Accordingly, actual results could
differ from those estimates due to information that becomes available subsequent to the issuance of the financial statements or
for other reasons.
Revenue Recognition
Revenue for inspection services
and manufacturing and threading services is recognized upon completion of the services rendered. Revenue for the sales
of pipe is recognized when pipe is delivered and the customer takes ownership and assumes the risks of loss, collection of the
relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.
Trade Receivables
Trade accounts receivable
are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus
receivables do not bear interest, although a finance charge may be applied to amounts past due. Trade accounts receivable are
periodically evaluated for collectability based on past credit.
ENERGY & TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Note 2. Summary
of Significant Accounting Policies (Continued)
Allowance for
Doubtful Accounts
The company calculates the
allowance based on the history with customers and their current financial condition. Provisions of uncollectible amounts are determined
based on management’s estimate of collectability. Allowance for doubtful accounts was $3,274 and $9,035 at June 30, 2014
and at December 31, 2013, respectively.
Inventory
Inventory is stated at the
lower of cost determined by the specific identification method or market. At June 30, 2014 and at December 31, 2013,
inventory consisted of pipe available for sale.
Property and
Equipment
Property and equipment are
stated at cost. Expenditures for property and equipment and items that substantially increase the useful lives of existing
assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred. The
cost and related accumulated depreciation of property and equipment disposed of are eliminated from the accounts, and any resulting
gain or loss is recognized. Depreciation is provided utilizing the straight-line method over the estimated useful lives of the
assets capitalized.
Valuation of
Long-Lived Assets
In the event facts and circumstances
indicate that carrying amounts of long-lived assets may be impaired, the Company evaluates the recoverability of its long-lived
assets using the estimated future undiscounted cash flows associated with the asset compared to the asset’s carrying amount
to determine if a write-down is required, pursuant to the provisions of Financial Accounting Standards Board (FASB) ASC 360-10-35. Any
impairment loss is measured as the difference between the carrying amount and the fair value of the impaired asset.
Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables.
Concentration of credit risk with respect to trade receivables is limited due to the Company’s large number of customers.
At June 30, 2014, the balance due from two customers represented 72% of receivables, and sales to three customers represented 57%
of revenues for the six months ended June 30, 2014.
The Company maintains cash
balances at several financial institutions, and periodically maintains cash in bank accounts in excess of insured limits. The
Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice.
Advertising
The Company charges the costs
of advertising to expense as incurred. Advertising expense was $27,768 and $12,065, for the six months ended June 30, 2014 and
2013, respectively.
Cash Flows
For purposes of the consolidated
statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Income Taxes
The Company recognizes income
taxes in accordance with FASB ASC 740, “Income Taxes” (formerly Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes). ASC 740 uses the asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying
enacted statutory tax rates applicable to future years to the difference between financial statement carrying amounts and the tax
basis of existing assets and liabilities. Deferred taxes are also recognized for operating losses and tax credits that are available
to offset future income taxes.
When tax returns are filed,
it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The
benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be sustained upon examination, including the resolution of
appeals or litigation processes, if any.
Tax positions taken are not
offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured
as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above
would be reflected as a liability for unrecognized tax benefits in the consolidated balance sheet along with any associated interest
and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized
tax benefits would be classified as additional income taxes in the statement of operations.
ENERGY & TECHNOLOGY,
CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Note 2. Summary
of Significant Accounting Policies (Continued)
Emerging Growth
Company Critical Accounting Policy Disclosure
The
Company qualifies as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that
an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of
certain accounting standards until those standards would otherwise apply to private companies. The Company may elect to take advantage
of the benefits of this extended transition period in the future
.
Recent Accounting
Pronouncements
In December 2011, the FASB
issued guidance which relates to deconsolidation events. Under this amendment, when a parent (reporting entity) ceases to have
a controlling financial interest in a subsidiary that is in substance real estate as a result of the default on the subsidiary’s
nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20,
Property, Plant and Equipment - Real Estate
Sales,
to determine whether it should derecognize the in substance real estate. This guidance is effective for the fiscal year
ending December 31, 2013 and did not have a significant impact on the Company’s financial statements.
In December 2011, The FASB
issued authoritative guidance to provide enhanced disclosures in the financial statements about offsetting and netting arrangements.
The new guidance requires entities to disclose both gross information and net information about both instruments and transactions
eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to
a master netting agreement. This guidance was issued to facilitate comparison between financial statements prepared on a U.S. GAAP
and IFRS reporting. The new guidance was effective January 1, 2013 and did not have a significant impact on the Company’s
financial statements.
On January 1, 2012, the Company
adopted guidance issued by the FASB on accounting and disclosure requirements related to fair value measurements. The guidance
limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting
positions in market or counterparty credit risks to be measured at a net basis, and provided guidance on the applicability of
premiums and discounts. Additionally, the guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure
of the unobservable inputs and assumptions, as well as description of the valuation process and the sensitivity of the fair value
to changes in unobservable inputs. Adoption of the new guidance did not have a material impact on our financial statements.
In July 2013, FASB issued
authoritative guidance on Derivatives and Hedging, providing guidance on the risks that are permitted to be hedged in a fair value
or cash flow hedge. Among those risks for financial assets and financial liabilities is the risk of changes in a hedged item’s
fair value or a hedged transaction’s cash flows attributable to changes in the designated benchmark interest rate. The guidance
was issued as a direct result of the financial crisis in 2008 as the exposure to and the demand for hedging the Fed Fund rate has
increased significantly. The new guidance was effective July 17, 2013, and did not have a significant impact on the Company’s
financial statements.
In July 2013, guidance was
issued on Topic 740, Income Taxes. The guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit,
should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward,
a similar tax loss, or a tax credit carry-forward with some exceptions. The assessment of whether a deferred tax asset is available
is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance
of the tax position at the reporting date. The new guidance will be for fiscal years, and interim periods within those years, beginning
after December 15, 2013. This guidance did not have a significant impact on the Company’s financial statements
Comprehensive Income
The Company had
no components of comprehensive income. Therefore, net income (loss) equals comprehensive income (loss) for the periods presented.
Note 3. Patent
On September 4, 2007, the
Company’s chief executive officer was awarded a patent from the United States Patent and Trademark Office pertaining to his
development of specialized testing procedures for tubing casing, line pipe, and expandable liners utilized by oil-exploration companies
which was subsequently transferred to the Company.
The Company’s costs
associated with its development of these testing procedures and application for patent have been capitalized and recognized as
an asset in the Company’s balance sheet, and is being amortized over 20 years. Amortization expense for the six months, ended
June 30, 2014 and 2013, respectively, was $14,393 and $14,393, respectively
ENERGY & TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Note 4. Property and Equipment
Property and equipment consists
of the following at June 30, 2014 and December 31, 2013, respectively:
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and Improvements
|
|
$
|
3,042,385
|
|
|
$
|
3,042,385
|
|
|
Equipment
|
|
|
5,815,268
|
|
|
|
5,626,649
|
|
|
Autos and Trucks
|
|
|
255,894
|
|
|
|
255,894
|
|
|
Office Furniture
|
|
|
32,657
|
|
|
|
32,657
|
|
|
Construction in Progress
|
|
|
38,179
|
|
|
|
|
|
|
|
|
|
9,184,383
|
|
|
|
8,957,585
|
|
|
Less: Accumulated Depreciation
|
|
|
(5,748,884
|
)
|
|
|
(5,307,349
|
)
|
|
Total
|
|
$
|
3,435,499
|
|
|
$
|
3,650,236
|
|
Depreciation
expense amounted to $443,132 and $485,226 for the six months ended June 30, 2014 and 2013, respectively.
During 2013, Property and
Equipment held for investment was transferred for a reduction of Notes Payable, specifically Due to Affiliates, in the amount of
$1,095,583.
On May 14, 2014, Energy Technology
Manufacturing & Threading, LLC purchased the assets of Total Pipe Services, Inc. and embarked on relocating the assets to the
Abbeville facility. Assets were purchased and construction was begun to better serve our customers.
Note 5. Related
Party Transactions
Included in due to affiliates
at June 30, 2014 and December 31, 2013, is $148,715 and $1,755,783 respectively, in acquisition debts paid by affiliates upon the
acquisition of the Company in 1999. The affiliates maintain a lien on the Company’s accounts receivable and equipment
to secure this loan. The amounts due to the affiliates have no set terms of repayment and bear interest at 8.00%. Interest
expense associated with this obligation totaled $27,677 and $67,530 for the six months ended June 30, 2014 and 2013, respectively.
Note 6. Notes Payable
Notes payable at June 30,
2014 and December 31, 2013 consist of the following:
|
|
|
2014
|
|
|
2013
|
|
|
Secured fixed term note of $213,226 due October 2014; fixed interest rate of 5.98%
|
|
$
|
-
|
|
|
$
|
27,241
|
|
|
Secured fixed term note of $340,990 due December 2014; fixed interest rate of 5.93%
|
|
|
31,964
|
|
|
|
66,554
|
|
|
Secured fixed term note of $260,000 due May 2015; fixed interest rate of 5.4%
|
|
|
19,877
|
|
|
|
63,525
|
|
|
Secured fixed term note of $60,303 due November 2015; fixed interest rate of 2.9%
|
|
|
11,316
|
|
|
|
18,312
|
|
|
Secured fixed term note of $23,968 due February 2016; fixed interest rate of 6.0%
|
|
|
6,635
|
|
|
|
9,397
|
|
|
Secured fixed term note of $449,000 due October 2014; fixed interest rate of 0.0%
|
|
|
74,833
|
|
|
|
187,083
|
|
|
Secured fixed term note of $112,928 due November 2014; fixed interest rate of 6.99%
|
|
|
57,284
|
|
|
|
-
|
|
|
|
|
$
|
201,909
|
|
|
$
|
372,112
|
|
|
Less: Current Portion
|
|
|
200,863
|
|
|
|
364,046
|
|
|
Long-Term Portion
|
|
$
|
1,046
|
|
|
$
|
8,066
|
|
Following are maturities of long-term debt at December
31, 2013:
|
Fiscal Year Ending
|
|
|
|
|
|
December 31,
|
|
|
Amount
|
|
|
|
2014
|
|
|
$
|
364,046
|
|
|
|
2015
|
|
|
|
8,066
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
372,112
|
|
ENERGY & TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Note 7. Equity
The Company is authorized
to issue 250,000,000 shares of common stock at a par value of $.001 per share. The number of shares issued and outstanding are
169,165,841 and 169,186,117 as of June 30, 2014 and December 31, 2013, respectively.
The Company is authorized
to issue 10,000,000 shares of preferred stock. As of June 30, 2014 and December 31, 2013, there were no shares issued and outstanding.
In 2013, the company issued a total of 41,167 shares of common stock valued at an average of $0.199 a share to employees as compensation.
In 2013, the company purchased 20,276 shares of common stock now in Treasury.
Note 8. Earnings per Share
Earnings (loss) per share
are calculated in accordance with ASC 260 “Earnings per Share”. The weighted average number of common shares outstanding
during each period is used to compute basic earnings (loss) per share. Diluted earnings per share are computed using the weighted
average number of shares and potentially dilutive common shares outstanding. Dilutive potential common shares are additional common
shares assumed to be exercised. Potentially dilutive common shares consist of stock options and are excluded from the diluted earnings
per share computation in periods where the Company has incurred a net loss, as their effect would be considered anti-dilutive.
There were no potentially
dilutive common stock equivalents as of June 30, 2014, therefore basic earnings per share equals diluted earnings per share for
the six months ended June 30, 2014. As the Company incurred a net loss during the six months ended June 30, 2014, the basic and
diluted loss per common share is the same amount, as any common stock equivalents would be considered anti-dilutive.
As the Company incurred a
net loss during the year ended December 31, 2013, the basic and diluted loss per common share is the same amount, as any common
stock equivalents would be considered anti-dilutive.
The weighted average common
shares outstanding were 169,165,841 and 169,186,117 for the six months ended June 30, 2014 and the year ended December 31, 2013,
respectively.
Note 9. Commitments
The Company leases office
premises, operating facilities, and equipment under operating leases expiring in various years through 2030. The Company also leases
land for operating purposes on a month to month basis.
Note 10. Litigation and Contingent
Liabilities
The Company is currently involved
in litigation with a supplier regarding a contract agreement for the Company to serve as a distributor for the suppliers products.
The Company has recorded a liability of $2,043,308 for net proceeds due the supplier from sales of its product.
Note 11. Major Customers
For the six months ended June
30, 2014, the Company had three customers which generated revenues in excess of 10% of the Company’s total revenues. Revenues
for these three customers were approximately 57% of total revenues, and total balance due from these three customers at June 30,
2014 was $435,171.
ENERGY & TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Note 12. Estimated Fair Value of
Financial Instruments
The following disclosure is
made in accordance with the requirements of FASB ASC 825,
Financial Instruments
. Financial instruments are defined as cash
and contractual rights and obligations that require settlement, directly or indirectly, in cash. In cases where quoted market prices
are not available, fair values have been estimated using the present value of future cash flows or other valuation techniques.
The result of these techniques
are highly sensitive to the assumptions used, such as those concerning appropriate discount rates and estimates of future cash
flows, which require considerable judgment. Accordingly, estimates presented herein are not necessarily indicative of the amounts
the Company could realize in a current settlement of the underlying financial instruments. ASC 825 excludes certain financial instruments
and all non-financial instruments from its disclosure requirements. These disclosures should not be interpreted as representing
an aggregate measure of the underlying value of the Company.
While these estimates of fair
value are based on management's judgment of appropriate factors, there is no assurance that if the Company had disposed of such
items at June 30, 2014 or December 31, 2013, the estimated fair values would have been achieved. Market values may differ depending
on various circumstances not taken into consideration in this methodology. The estimated fair values at June 30, 2014 and December
31, 2013, should not necessarily be considered to apply at subsequent dates.
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,124,597
|
|
|
$
|
1,124,597
|
|
|
$
|
1,875,187
|
|
|
$
|
1,875,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
$
|
201,909
|
|
|
$
|
201,909
|
|
|
$
|
372,112
|
|
|
$
|
372,112
|
|
|
Due
to Affiliates
|
|
|
148,715
|
|
|
|
148,715
|
|
|
|
691,935
|
|
|
|
691,935
|
|
|
|
|
$
|
1,475,221
|
|
|
$
|
1,475,221
|
|
|
$
|
2,939,234
|
|
|
$
|
2,939,234
|
|
The following methods and
assumptions were used by the Company in estimating fair values for financial instruments:
Cash and cash equivalents:
The carrying amount reported in the balance sheet approximates fair value.
Notes Payable:
The
fair value of notes payable approximates the carrying amount reported in the balance sheet.
Due to Affiliates:
The carrying amount of due to affiliates approximates fair values.
Note 13. Subsequent Events
In accordance with the subsequent
events topic of the FASB ASC, Topic No. 855,
Subsequent Events
, the Company evaluates events and transactions that occur
after the balance sheet date for potential recognition in the financial statements. The effects of all subsequent events that provide
additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of June
30, 2014. In preparing these financial statements, the Company evaluated the events and transactions through the date these financial
statements were issued.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Headquartered
in Lafayette, Louisiana, with production facilities in Houston, Texas and Abbeville, Louisiana, Energy & Technology, Corp.
provides non-destructive testing (NDT) services, OCTG and oilfield pipe sales, service and storage, and rig and equipment sales.
Originally founded on May 11, 1971 as an inspection company, Energy & Technology, Corp. currently serves customers throughout
the oil patch of Louisiana and Texas as well as in Canada, Mexico, and in the Gulf of Mexico. The Company’s customer base
of over 130 accounts consists of major oil companies, steel mills, material suppliers, drilling companies, tool rental companies,
and natural gas storage operators. Due to the nature of its technology, the Company maintains competitive advantages in offshore
deep water and other onshore critical projects.
Technical
Industries, Inc., a wholly owned subsidiary of Energy & Technology, Corp., manufactures its own proprietary NDT equipment.
The Company’s patented ultrasonic systems have some of the largest OD and pipe length capabilities in the industry and the
deepest penetration capability offered for wall thickness measurement. The Company holds patents on certain exclusive inspection
technology that allows oil and gas companies to use their current drill strings and other equipment to reach depths that were
previously unreachable. This technology can make wells safer, increase the success rate for critical wells, and greatly reduce
the chances of a failure. As the industry moves to ever deeper reserves and makes advances in horizontal drilling, oil and gas
wells are becoming more and more expensive and difficult to drill, making this technology more of a necessity.
In
the oilfield pipe sales and storage segment, Energy & Technology, Corp utilizes a state-of-the-art web based inventory management
system that allows each client to view and track projects during processing, to locate inventory throughout the plant, and access
reports, bill of ladings, tally sheets, logs and other required information.
Energy
Technology Manufacturing & Threading, LLC’s new facility has been completed and is fully operational. This facility
is capable of threading, bucking, and repair of drill pipe, casing, and tubing up to 11 7/8” diameter. The plant is equipped
with a Computer Controlled lathe accurate to within the most critical of tolerances, and has the capability to manufacture, thread,
repair, and manufacture pup joints and marker joints to any length the customer requires, as well as to machine any threads for
which specs can be furnished. Technicians have between 10 and 34 years of experience in the manufacturing and threading industry.
This new facility brings Energy & Technology, Corp. one step closer to its goal of supplying all tubular services under one
roof.
Key Ongoing Operational Processes:
Update
ISO Certification
Energy
& Technology, Corp. recognizes that quality is every bit as important as price and prompt service. This is even truer of the
Company’s typical client, who often contracts for services that other companies are not able to provide. In response to
our clients’ requirements, the Company has obtained the latest ISO: 9001 certification by Moody’s, recognized in the
industry as representing the highest quality control available. As the Company’s business lines are very synergistic, management
feels that it can leverage this dominant position to increase share in the markets in which it competes, and likely more in the
critical service arena.
Foreign
Trade Zone Status
Energy
& Technology, Corp. has selected the well-known auditing and financial consulting firm KPMG to assist the Company in meeting
the requirements to establish a Foreign Trade Zone at its Houston, Texas facility. KPMG has started the initial feasibility analysis
with the formal application to follow. The establishment of a Foreign Trade Zone is expected to produce a substantial increase
in the Company’s ability to sell to overseas markets, and make the Company a far more attractive distribution partner for
foreign manufacturers. Management feels that market share could be taken through a successful designation as an FTZ subzone.
Increased
Sales and Marketing Effort
Energy
& Technology, Corp. has grown over the historical period without an aggressive marketing and sales effort. New business was
generated from referrals, technical sessions given to oil and gas and industry related companies, the Company website, and through
the use of a marketing company on a limited basis. Recently, several new deep water well permits were issued in the Gulf of Mexico.
As a result, ENGT has experienced significant new interest from major oil and gas companies - including site visits and evaluations
- for its VisonArray™ deep water and critical well technologies, and ENGT Manufacturing facilities. Currently, there are
several employees whose duties are focused on sales, and one marketing and promotional activity director. Management believes
revenue can be greatly increased by expanding the Company's sales force.
Diversification
Energy
& Technology, Corp. has diligently worked to diversify its business model by adding sales, service, and storage of OCTG and
all types of oilfield pipe, as well as equipment leasing and sales. The Company’s new threading and repair facility, located
on our Houston campus, became operational in July 2010 and on September 30, 2011 received numerous ISO and API certifications.
Additional growth will come domestically, but management feels that overseas expansion is critical to the ultimate success of
the business plan.
Critical
Accounting Policies
The
Company has identified the following accounting policies to be the critical accounting policies of the Company:
Revenue
Recognition.
Revenue for inspection services and manufacturing an threading services are recognized upon completion of the
services rendered. Revenue for the sales of pipe is recognized when pipe is delivered and the customer takes ownership and assumes
the risks of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales
price is fixed or determinable.
Inventory.
Inventory is stated at the lower of cost determined by the specific identification method or market. At June 30, 2014, inventory
consisted of pipe available for sale.
Property
and Equipment.
Property and equipment are stated at cost. Expenditures for property and equipment and items that substantially
increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance
are expensed as incurred. The cost and related accumulated depreciation of property and equipment disposed of are eliminated from
the accounts, and any resulting gain or loss is recognized. Depreciation is provided utilizing the straight-line method over the
estimated useful lives of the assets capitalized.
Valuation
of Long-Lived Assets.
In the event facts and circumstances indicate that carrying amounts of long-lived assets may be impaired,
the Company evaluates the recoverability of its long-lived assets using the estimated future undiscounted cash flows associated
with the asset compared to the asset’s carrying amount to determine if a write-down is required, pursuant to the provisions
of SFAS Financial Accounting Standards Board (FASB) ASC 360-10-35. Any impairment loss is measured as the difference between the
carrying amount and the fair value of the impaired asset.
Discussion
of Changes in Financial Condition from December 31, 2013 to June 30, 2014
At
June 30, 2014, total assets amounted to $8,910,280 compared to $10,356,561 at December 31, 2013, a decrease of $1,446,281, or
13.96%. The decrease is primarily due to a decrease in cash of $750,590, a decrease in accounts receivable of $449,150, a decrease
in inventory of $189,883, a decrease in other receivables of $72,460, and a decrease of property and equipment held for operations
of $214,738, partially offset by an increase in deferred tax asset of $193,623, and an increase in prepaid expenses of $43,681.
Our
liabilities at June 30, 2014, totaled $5,100,443 compared to $5,919,824 at December 31, 2013, a decrease of $819,381, or 13.84%.
The decrease is primarily due to a decrease in due to affiliates of $543,220, a decrease in notes payable of $170,203, a decrease
in income tax payable of $124,649, and a decrease in deferred taxes payable of $109,110, partially offset by an increase in accrued
rent of $75,000.
Total
stockholder’s equity decreased from $4,436,737 at December 31, 2013, to $3,809,837 at June 30, 2014. This decrease was due
to our net loss for the six months ended June 30, 2014.
Cash
and Cash Equivalents
Cash
and Cash Equivalents totaled $1,124,597at June 30, 2014, a decrease of $750,590 from the balance of $1,875,187 at December 31,
2013. The decrease in cash and cash equivalents was primarily due to amounts used to reduce debt, partially offset by the cash
generated from operating activities for the six months ended June 30, 2014.
Inventory
Inventory
consists primarily of pipe held for sale to our customers. We began purchasing pipe for sale to customers in December, 2007. This
was an opportunity for us to expand our services to our customers. It is anticipated that the Company will continue its efforts
to expand its sales of pipe.
Property
and Equipment
The
decrease in property and equipment, totaling $214,738, is primarily due to depreciation for the six months ended June 30, 2014
partially offset by fixed asset additions.
Deferred
Tax Asset/Income Taxes Payable
Due
to the Company’s loss for the six months ended June 30, 2014, our deferred tax asset has increased by $193,623. We have
decreased our deferred income taxes by $109,110 due to the change in book and tax depreciation differences.
Accounts
Payable
Accounts
payable at June 30, 2014 totaled $2,174,387 compared to $2,109,713 at December 31, 2013, an increase of $64,674. The increase
is primarily due to the purchase of pipe.
Discussion
of Results of Operations for the Three Months Ended June 30, 2014 compared to the Three Months Ended June 30, 2013
Revenues
Our
revenue for the three months ended June 30, 2014, was $968,123, compared to $1,319,313, for the three months ended June 30, 2013,
a decrease of $351,190, or 26.62%. The decrease is attributable primarily to a decrease in inspection fees.
The
following table presents the composition of revenue for the three months ended June 30, 2014 and 2013:
|
|
2014
|
|
|
2013
|
|
|
Variance
|
|
Revenue:
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspection
|
|
$
|
334,221
|
|
|
|
34.5
|
%
|
|
$
|
587,642
|
|
|
|
44.5
|
%
|
|
$
|
(253,421
|
)
|
Pipe
and Equipment Sales
|
|
$
|
197,172
|
|
|
|
20.4
|
%
|
|
$
|
296,254
|
|
|
|
22.5
|
%
|
|
$
|
(99,082
|
)
|
Storage
|
|
$
|
107,200
|
|
|
|
11.1
|
%
|
|
$
|
108,999
|
|
|
|
8.3
|
%
|
|
$
|
(1,799
|
)
|
Rebillable
Income
|
|
$
|
39,272
|
|
|
|
4.1
|
%
|
|
$
|
65,365
|
|
|
|
5.0
|
%
|
|
$
|
(26,093
|
)
|
Manufacturing
|
|
$
|
290,258
|
|
|
|
30.0
|
%
|
|
$
|
261,053
|
|
|
|
19.8
|
%
|
|
$
|
29,205
|
|
Total
Revenue
|
|
$
|
968,123
|
|
|
|
100.0
|
%
|
|
$
|
1,319,313
|
|
|
|
100.0
|
%
|
|
$
|
(351,190
|
)
|
Cost
of Revenue and Gross Profit
Our
cost of revenue for the three months ended June 30, 2014, was $959,567, or 99.1% of revenues, compared to $920,699, or 69.8% of
revenues, for the three months ended June 30, 2013. The overall increase in our cost of revenue is primarily due to an increase
in transportation cost which included in the other costs category.
The
following table presents the composition of cost of revenue for the three months ended June 30, 2014 and 2013:
|
|
2014
|
|
|
2013
|
|
|
Variance
|
|
Cost
of Revenue:
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
and Related Costs
|
|
$
|
111,662
|
|
|
|
11.6
|
%
|
|
$
|
132,097
|
|
|
|
14.3
|
%
|
|
$
|
(20,435
|
)
|
Materials
and Supplies
|
|
|
171,559
|
|
|
|
17.9
|
%
|
|
|
281,365
|
|
|
|
30.6
|
%
|
|
$
|
(109,806
|
)
|
Subcontract
Labor
|
|
|
184,831
|
|
|
|
19.3
|
%
|
|
|
207,304
|
|
|
|
22.5
|
%
|
|
$
|
(22,473
|
)
|
Depreciation
and Amortization
|
|
|
199,312
|
|
|
|
20.8
|
%
|
|
|
202,733
|
|
|
|
22.0
|
%
|
|
$
|
(3,421
|
)
|
Repairs
and Maintenance
|
|
|
17,410
|
|
|
|
1.8
|
%
|
|
|
16,038
|
|
|
|
1.7
|
%
|
|
$
|
1,372
|
|
Insurance
|
|
|
46,330
|
|
|
|
4.8
|
%
|
|
|
43,574
|
|
|
|
4.7
|
%
|
|
$
|
2,756
|
|
Other
Costs
|
|
|
228,462
|
|
|
|
23.8
|
%
|
|
|
37,588
|
|
|
|
4.1
|
%
|
|
$
|
190,874
|
|
Total
Cost of Revenues
|
|
$
|
959,567
|
|
|
|
100.0
|
%
|
|
$
|
920,699
|
|
|
|
100.0
|
%
|
|
$
|
38,868
|
|
Due
to limitations with the pool of qualified individuals, we utilized the services of subcontractors to assist us in providing timely
and quality service to our customers. We will continue our efforts to attract employ and retain qualified individuals to serve
the needs of our customers.
Operating
Expenses
For
the three months ended June 30, 2014, our operating expenses totaled $345,092 as compared to $411,380 in 2013, representing a
decrease of $66,288, or 16.11%. The largest components of our operating expense for 2014 consist of salaries and wages, other
operating expenses, and professional services. Salaries and wages for general and administrative personnel was $100,515 for the
three months ended June 30, 2014, compared to $137,008 the three months ended June 30, 2013, a decrease of $36,493, or 26.64%.
Professional
services expense decreased from $70,665 for the three months ended June 30, 2013, to $57,741 for the three months ended June 30,
2014, a decrease of $12,924, or 18.29%. The decrease is primarily a result of employing an accountant to handle the company’s
financials instead of using an accounting firm and a decrease in legal fees.
Other operating expenses increased from $19,621
at June 30, 2013 to $62,299 for the three months ended June 30, 2014, an increase of $42,678 or 217.51%. Other operating expense
consists primarily of taxes and licenses, training, advertising, dues and subscriptions.
Other
Income and Expense
Other
income and expense consists of investment income, interest expense, and gains and losses from the sale and disposal of assets.
Other expense, net, totaled $8,431for the three months ended June 30, 2014, compared to other expenses, net, of $33,577, for the
three months ended June 30, 2013, a decrease of $25,146 or 74.89%. Interest Investment income, which consists of interest, dividends,
realized gains and losses, and unrealized gains and losses, amounted to income of $8,561 for the three months ended June 30, 2014,
compared to income of $6,523 for the three months ended June 30, 2013.
Interest
expense totaled $16,992 for the three months ended June 30, 2014, as compared to $40,100 for the three months ended June 30, 2013,
a decrease of $23,108, or 57.63%. Interest expense pertains primarily to amounts due to affiliates as well as to our notes payable
with third parties.
Provision
for income taxes
For
the three months ended June 30, 2014, we reported a deferred income tax benefit of $129,026 compared to income tax benefit of
$19,607 for the three months ended June 30, 2013, an increase of $109,419, or 558.06%. The change was due to the net loss for
the three month period.
Discussion
of Results of Operations for the Six Months Ended June 30, 2014 compared to the Six Months Ended June 30, 2013
Revenues
Our
revenue for the six months ended June 30, 2014, was $1,920,333, compared to $2,279,988, for the six months ended June 30, 2013,
a decrease of $359,655, or 15.77%. The decrease is attributable primarily to a decrease in pipe sales.
The
following table presents the composition of revenue for the six months ended June 30, 2014 and 2013:
|
|
2014
|
|
|
2013
|
|
|
Variance
|
|
Revenue:
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inspection
|
|
$
|
625,607
|
|
|
|
64.6
|
%
|
|
$
|
754,732
|
|
|
|
57.2
|
%
|
|
$
|
(129,125
|
)
|
Pipe
and Equipment Sales
|
|
$
|
340,142
|
|
|
|
35.1
|
%
|
|
$
|
815,006
|
|
|
|
61.8
|
%
|
|
$
|
(474,864
|
)
|
Storage
|
|
$
|
214,300
|
|
|
|
22.1
|
%
|
|
$
|
220,592
|
|
|
|
16.7
|
%
|
|
$
|
(6,292
|
)
|
Rebillable
Income
|
|
$
|
148,005
|
|
|
|
15.3
|
%
|
|
$
|
196,815
|
|
|
|
14.9
|
%
|
|
$
|
(48,810
|
)
|
Manufacturing
|
|
$
|
592,279
|
|
|
|
61.2
|
%
|
|
$
|
292,843
|
|
|
|
22.2
|
%
|
|
$
|
299,436
|
|
Total
Revenue
|
|
$
|
1,920,333
|
|
|
|
100.0
|
%
|
|
$
|
2,279,988
|
|
|
|
172.8
|
%
|
|
$
|
(359,655
|
)
|
Cost
of Revenue and Gross Profit
Our
cost of revenue for the six months ended June 30, 2014, was $1,893,394, or 98.6% of revenues, compared to $2,015,278, or 88.4%
of revenues, for the six months ended June 30, 2013. The overall increase in our cost of revenue is primarily due to an increase
in transportation cost which included in the other costs category.
The
following table presents the composition of cost of revenue for the six months ended June 30, 2014 and 2013:
|
|
2014
|
|
|
2013
|
|
|
Variance
|
|
Cost
of Revenue:
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
Percentage
|
|
|
Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
and Related Costs
|
|
$
|
232,366
|
|
|
|
12.3
|
%
|
|
$
|
233,652
|
|
|
|
11.6
|
%
|
|
$
|
(1,286
|
)
|
Materials
and Supplies
|
|
|
344,487
|
|
|
|
18.2
|
%
|
|
|
817,218
|
|
|
|
40.6
|
%
|
|
$
|
(472,731
|
)
|
Subcontract
Labor
|
|
|
379,839
|
|
|
|
20.1
|
%
|
|
|
369,041
|
|
|
|
18.3
|
%
|
|
$
|
10,798
|
|
Depreciation
and Amortization
|
|
|
397,937
|
|
|
|
21.0
|
%
|
|
|
405,907
|
|
|
|
20.1
|
%
|
|
$
|
(7,970
|
)
|
Repairs
and Maintenance
|
|
|
31,747
|
|
|
|
1.7
|
%
|
|
|
26,095
|
|
|
|
1.3
|
%
|
|
$
|
5,652
|
|
Insurance
|
|
|
91,861
|
|
|
|
4.9
|
%
|
|
|
99,846
|
|
|
|
5.0
|
%
|
|
$
|
(7,985
|
)
|
Other
Costs
|
|
|
415,156
|
|
|
|
21.9
|
%
|
|
|
63,519
|
|
|
|
3.2
|
%
|
|
$
|
351,637
|
|
Total
Cost of Revenues
|
|
$
|
1,893,394
|
|
|
|
100.0
|
%
|
|
$
|
2,015,278
|
|
|
|
100.0
|
%
|
|
$
|
(121,884
|
)
|
Due
to limitations with the pool of qualified individuals, we utilized the services of subcontractors to assist us in providing timely
and quality service to our customers. We will continue our efforts to attract employ and retain qualified individuals to serve
the needs of our customers.
Operating
Expenses
For
the six months ended June 30, 2014, our operating expenses totaled $935,809 as compared to $967,510 in 2013, representing a decrease
of $31,701, or 3.28%. The largest components of our operating expense for 2014 consist of salaries and wages, other operating
costs, and professional services. Salaries and wages for general and administrative personnel was $229,591 for the six months
ended June 30, 2014, compared to $245,572 the six months ended June 30, 2013, a decrease of $15,981, or 6.51%.
Professional
services expense decreased from $277,708 for the six months ended June 30, 2013, to $146,491 for the six months ended June 30,
2014, a decrease of $131,217, or 47.25%. The decrease is primarily a result of employing an accountant to handle the company’s
financials instead of using an accounting firm and a decrease in legal fees.
Other
operating expenses increased from $84,449 at June 30, 2013 to $156,763 for the six months ended June 30, 2014, an increase of
$74,314 or 90.13%. Other operating expense consists primarily of taxes and licenses, training, advertising, dues and subscriptions.
Other
Income and Expense
Other
income and expense consists of investment income, interest expense, and gains and losses from the sale and disposal of assets.
Other expense, net, totaled $20,763 for the six months ended June 30, 2014, compared to other expenses, net, of $66,671, for the
six months ended June 30, 2014, a decrease of $45,908 or 68.86%. Interest Investment income, which consists of interest, dividends,
realized gains and losses, and unrealized gains and losses, amounted to income of $13,549 for the six months ended June 30, 2014,
compared to income of $13,930 for the six months ended June 30, 2013.
Interest
expense totaled $34,312 for the six months ended June 30, 2014, as compared to $80,601 for the six months ended June 30, 2013,
a decrease of $46,289, or 57.43%. Interest expense pertains primarily to amounts due to affiliates as well as to our notes payable
with third parties.
Provision
for income taxes
For
the six months ended June 30, 2014, we reported a deferred income tax benefit of $302,733 compared to income tax benefit of $258,516
for the six months ended June 30, 2013, a increase of $44,217, or 17.10%. The change was due to the net loss for the six month
period.
Comparative
financial information for the six months ended June 30
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,920,333
|
|
|
$
|
2,279,988
|
|
|
$
|
5,269,659
|
|
|
$
|
592,655
|
|
|
$
|
1,604,066
|
|
Cost of Revenues
|
|
|
1,893,394
|
|
|
|
2,015,278
|
|
|
|
3,819,717
|
|
|
|
1,158,193
|
|
|
|
1,194,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (Loss)
|
|
|
26,940
|
|
|
|
264,710
|
|
|
|
1,449,942
|
|
|
|
(565,538
|
)
|
|
|
409,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & Administrative Expenses
|
|
|
876,221
|
|
|
|
888,191
|
|
|
|
896,379
|
|
|
|
809,424
|
|
|
|
1,173,429
|
|
Depreciation
|
|
|
59,588
|
|
|
|
79,319
|
|
|
|
82,330
|
|
|
|
82,413
|
|
|
|
61,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
935,809
|
|
|
|
967,510
|
|
|
|
978,709
|
|
|
|
891,837
|
|
|
|
1,234,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
(908,870
|
)
|
|
|
(702,800
|
)
|
|
|
471,233
|
|
|
|
(1,457,375
|
)
|
|
|
(825,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
(20,763
|
)
|
|
|
(66,671
|
)
|
|
|
(67,241
|
)
|
|
|
(88,053
|
)
|
|
|
434,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(929,633
|
)
|
|
|
(769,471
|
)
|
|
|
403,992
|
|
|
|
(1,545,428
|
)
|
|
|
(391,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income
Taxes
|
|
|
(302,733
|
)
|
|
|
(258,516
|
)
|
|
|
133,004
|
|
|
|
(588,356
|
)
|
|
|
(140,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(626,900
|
)
|
|
$
|
(510,955
|
)
|
|
$
|
270,988
|
|
|
$
|
(957,072
|
)
|
|
$
|
(250,874
|
)
|
Capital
Resources and Liquidity
As
of June 30, 2014, we had $1,124,597 in cash and cash equivalents. Our cash outflows have consisted primarily of expenses associated
with our operations. These outflows have been offset by the timely inflows of cash from our customers for sales that have been
made. We have been able to utilize our relationships with affiliated entities to stabilize our liquidity needs.
We
believe we can satisfy our cash requirements for the next twelve months only with our current cash and additional loans. However,
completion of our plan of operation is subject to attaining adequate revenue. We cannot assure investors that adequate revenues
will be generated. In the absence of our projected revenues, we may be unable to proceed with our plan of operations. Even without
adequate revenues within the next twelve months, we still anticipate being able to continue with our present activities, but we
will require financing to potentially achieve our growth goals.
In
the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able
to proceed with our business plan for the development and marketing of our core services. Should this occur, we would likely seek
additional financing to support the continued operation of our business.