SXCL 2014.02.28 8-K/A


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K/A
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): December 16, 2013
 
 
STEEL EXCEL INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
0-15071
94-2748530
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
 
 
 
1133 Westchester Avenue, Suite N222, White Plains, New York
10604
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (914) 461-1300
 
 
n/a
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 





This Current Report on Form 8-K/A amends the Current Report on Form 8-K of Steel Excel Inc. (the "Company") dated December 20, 2013, for purposes of providing the financial statements of Black Hawk Energy Services, Inc. ("Black Hawk") and the unaudited pro forma financial information relating to the Company’s acquisition of the business and substantially all of the assets of Black Hawk.

Item 9.01.   Financial Statements and Exhibits.
 
(a) Financial statements of businesses acquired.
 
(1) Audited financial statements of Black Hawk as of and for the years ended December 31, 2012 and 2011.

(2) Unaudited financial statements of Black Hawk as of and for the nine months ended September 30, 2013 and 2012.

(b) Pro forma financial information

(c) Not applicable

(d) Exhibits

Exhibit No.
Exhibits
23.1
Consent of Independent Registered Public Accounting Firm
  






(a) (1) Audited financial statements of Black Hawk
BLACK HAWK ENERGY SERVICES, INC.

FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011







































 





BLACK HAWK ENERGY SERVICES, INC.
TABLE OF CONTENTS
DECEMBER 31, 2012 AND 2011


 
Page
Independent Auditors' Report
1 - 2
 
 
Financial Statements
 
 
 
Balance Sheets
3
Statements of Operations
4
Statements of Changes in Shareholders' Equity
5
Statements of Cash Flows
6 - 7
Notes to Financial Statements
8 - 18










INDEPENDENT AUDITORS’ REPORT



To the Shareholders
Black Hawk Energy Services, Inc.
Bloomfield, New Mexico

We have audited the accompanying financial statements of Black Hawk Energy Services, Inc. (the "Company"), which comprise the balance sheets as of December 31, 2012 and 2011, and the related statements of operations, changes in shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.






Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Black Hawk Energy Services, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.


/s/ Dixon Hughes Goodman LLP


Memphis, Tennessee
July 30, 2013






BLACK HAWK ENERGY SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 2012 AND 2011
 
 
 
 
 
ASSETS
 
2012
 
2011
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
$
729,662

 
$
370,839

Receivables
 
6,903,122

 
1,674,430

Related party receivables
 
809,445

 

Other current assets
 
259,509

 
16,225

 
 
 
 
 
TOTAL CURRENT ASSETS
 
8,701,738

 
2,061,494

 
 
 
 
 
PROPERTY AND EQUIPMENT, net
 
25,423,440

 
4,486,227

 
 
 
 
 
TOTAL ASSETS
 
$
34,125,178

 
$
6,547,721

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
Book overdraft
 
$
190,742

 
$

Accounts payable
 
3,682,965

 
457,220

Accrued expenses
 
1,296,620

 
363,118

Current portion of capital lease obligation
 
132,634

 

Notes payable - shareholders
 
226,204

 

Current portion of long-term debt
 
3,443,853

 
388,255

 
 
 
 
 
TOTAL CURRENT LIABILITIES
 
8,973,018

 
1,208,593

 
 
 
 
 
CAPITAL LEASE OBLIGATION, less current portion
 
143,678

 

LONG-TERM DEBT, less current portion
 
4,774,192

 
921,309

 
 
 
 
 
TOTAL LIABILITIES
 
13,890,88

 
2,129,902

 
 
 
 
 
SHAREHOLDERS' EQUITY
 
 
 
 
Common stock, $1 par; 10,000 authorized, 10,000 and
 
 
 
 
9,782 issued and outstanding, respectively
 
10,000

 
9,782

Additional paid-in capital
 
18,070,348

 
3,321,748

Retained earnings
 
7,138,687

 
1,086,289

Notes receivable - shareholders
 
(4,984,745
)
 

 
 
 
 
 
TOTAL SHAREHOLDERS' EQUITY
 
20,234,290

 
4,417,819

 
 
 
 
 
 
 
$
34,125,178

 
$
6,547,721



See accompanying notes to financial statements.





BLACK HAWK ENERGY SERVICES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
 
 
 
 
 
 
2012
 
2011
 
 
 
 
 
REVENUE
 
$
33,096,761

 
$
9,780,178

 
 
 
 
 
OPERATING EXPENSES AND COSTS
 
 
 
 
Cost of sales
 
2,627,972

 
775,499

Salaries, wages and benefits
 
13,274,757

 
4,462,242

Depreciation
 
2,510,460

 
509,277

Fuel
 
1,600,660

 
589,989

Insurance
 
1,179,856

 
373,905

Repairs and maintenance
 
956,664

 
281,302

Supplies and small tools
 
832,512

 
638,061

Travel
 
630,263

 
90,248

Rent
 
416,569

 
100,847

Office and administration
 
134,258

 
35,326

Other expenses
 
427,114

 
138,635

 
 
24,591,085

 
7,995,331

 
 
 
 
 
OPERATING INCOME
 
8,505,676

 
1,784,847

 
 
 
 
 
OTHER INCOME (EXPENSE)
 
 
 
 
Interest expense
 
(764,475
)
 
(66,733
)
Interest income
 
167,915

 

Other expense
 
(7,238
)
 

Other income
 
750

 

 
 
(603,048
)
 
(66,733
)
 
 
 
 
 
NET INCOME
 
$
7,902,628

 
$
1,718,114





See accompanying notes to financial statements.





BLACK HAWK ENERGY SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2012 AND 2011

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
Notes
 
 
 
 
Common
 
Paid-In
 
Retained
 
Receivable -
 
 
 
 
Stock
 
Capital
 
Earnings
 
Shareholders
 
Total
 
 
 
 
 
 
 
 
 
 
 
BALANCE JANUARY 1, 2011
 
$
8,590

 
$
2,822,940

 
$
(181,825
)
 
$

 
$
2,649,705

 
 
 
 
 
 
 
 
 
 
 
Contributions from shareholders
 
1,192

 
498,808

 

 

 
500,000

 
 
 
 
 
 
 
 
 
 
 
Distributions to shareholders
 

 
 
 
(450,000
)
 

 
(450,000
)
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
 
 
1,718,114

 

 
1,718,114

 
 
 
 
 
 
 
 
 
 
 
BALANCE DECEMBER 31, 2011
 
9,782

 
3,321,748

 
1,086,289

 

 
4,417,819

 
 
 
 
 
 
 
 
 
 
 
Contributions from shareholders
 
218

 
14,748,600

 

 
(4,915,450
)
 
9,833,368

 
 
 
 
 
 
 
 
 
 
 
Distributions to shareholders
 

 

 
(1,850,230
)
 
56,085

 
(1,794,145
)
 
 
 
 
 
 
 
 
 
 
 
Accrued interest on notes receivable - shareholders
 

 

 
 
 
(125,380
)
 
(125,380
)
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 
7,902,628

 

 
7,902,628

 
 
 
 
 
 
 
 
 
 
 
BALANCE DECEMBER 31, 2012
 
$
10,000

 
$
18,070,348

 
$
7,138,687

 
$
(4,984,745
)
 
$
20,234,290

 
 
 
 
 
 
 
 
 
 
 




See accompanying notes to financial statements.





BLACK HAWK ENERGY SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
 
 
 
 
 
 
2012
 
2011
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
7,902,628

 
$
1,718,114

Adjustments to reconcile net income to net cash
 
 
 
 
provided by operating activities:
 
 
 
 
Depreciation and amortization
 
2,510,460

 
509,277

Loss on sale of property and equipment
 
7,238

 
-

Interest income on notes receivable - shareholders
 
(125,380
)
 
-

Change in operating assets and liabilities:
 
 
 
 
Receivables
 
(5,228,692
)
 
(733,333
)
Other current assets
 
(243,284
)
 
(4,225
)
Accounts payable
 
3,225,745

 
9,153

Accrued expenses
 
933,502

 
96,281

 
 
 
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
8,982,217

 
1,595,267

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Purchase of property and equipment
 
(20,788,869
)
 
(2,091,532
)
Proceeds from sale of property and equipment
 
357,339

 
-

Issuance of related party receivables
 
(930,000
)
 
-

Proceeds from repayments on related party receivables
 
500,000

 
    -

 
 
 
 
 
NET CASH USED BY INVESTING ACTIVITIES
 
(20,861,530
)
 
(2,091,532
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Change in book overdraft
 
190,742

 
-

Payments on capital lease obligation
 
(122,438
)
 
-

Proceeds from notes payable - shareholders
 
226,204

 
-

Proceeds from long-term debt
 
5,760,919

 
924,857

Payments on long-term debt
 
(732,039
)
 
(181,160
)
Contributions from shareholders
 
8,708,893

 
500,000

Distributions to shareholders
 
(1,794,145
)
 
(450,000
)
 
 
 
 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
 
12,238,136

 
793,697

 
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
 
358,823

 
297,432

 
 
 
 
 
CASH AND CASH EQUIVALENTS, BEGINNING
 
370,839

 
73,407

 
 
 
 
 
CASH AND CASH EQUIVALENTS, ENDING
 
$
729,662

 
$
370,839

 
 
 
 
 


See accompanying notes to financial statements.





BLACK HAWK ENERGY SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
 
 
 
2012
 
2011
Supplemental schedule of cash paid during the year for:
 
 
 
 
Interest
 
$
717,435

 
$
59,554

 
 
 
 
 
State income taxes
 
$
41,941

 
$

 
 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
 
Property and equipment acquired by debt
 
$
2,013,743

 
$
315,867

 
 
 
 
 
Property and equipment contributed by shareholders
 
$
745,030

 
$

 
 
 
 
 
Property and equipment under capital lease obligation
 
$
398,750

 
$

 
 
 
 
 
Property and equipment casualty losses paid directly to lien holder by insurance
 
$
134,142

 
$

 
 
 
 
 
Issuance of notes receivable - shareholders treated as capital contributions
 
$
4,915,450

 
$

 
 
 
 
 
Distributions to shareholders treated as collections of notes receivable - shareholders
 
$
56,085

 
$

 
 
 
 
 
Related party receivables treated as capital contributions
 
$
379,445

 
$

 
 
 
 
 




See accompanying notes to financial statements.






NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

Black Hawk Energy Services, Inc. (“Black Hawk”), was established on June 30, 2011, and began operations on January 1, 2012 upon assuming the assets and liabilities of Rig and Rod Equipment and Supply, Inc. (“Rig and Rod”), a related company under common control. Black Hawk primarily provides well services related to the oil and gas industries in the New Mexico, Texas, and North Dakota regions. Black Hawk also leases, rents, sells and buys services and equipment related to the oil and gas industry in those regions.

Rig and Rod Equipment and Supply, Inc. (“Rig and Rod”) was established on March 1, 2010, and engaged in substantially the same services as Black Hawk. On January 1, 2012, the shareholders elected to transfer the operating assets and business relationships of Rig and Rod to Black Hawk, at which time Rig and Rod ceased business operations. In accordance with ASC 805-50 (Business Combinations), Black Hawk had recognized the transfer of assets and liabilities at Rig and Rod’s carrying amounts.

The accompanying financial statements include the accounts and operating activity of both Black Hawk and Rig and Rod (collectively referred to as “the Company”), and are presented as if Black Hawk had been the operating entity since the initial formation in 2010.


Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments that have an original maturity of three months or less at the date of purchase.


Receivables

Receivables consist primarily of uncollateralized, non-interest bearing, customer obligations due under normal trade terms requiring payment within 30 to 60 days from the invoiced date. The carrying amount of receivables is reduced by an allowance that reflects management's best estimate of the amounts that will not be collected. Management reviews each receivable balance that exceeds 90 days from the invoice date, and, based on historical bad debt experience and management's evaluation of customer credit worthiness, estimates that portion, if any, of the balance that will not be collected. At December 31, 2012 and 2011, delinquent accounts were not significant. Interest is not charged on delinquent receivables.







Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance, repairs, and minor renewals are charged to expense as incurred. Major renewals and betterments are capitalized. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets or the length of the related lease, if shorter. The useful lives of property and equipment for the purposes of computing depreciation and amortization are as follows:

 
Buildings
25 years
 
Rigs and equipment
5 - 10 years
 
Trucks
5 years
 
Other equipment
5 - 15 years
 
Airplane
10 years


S Corporation - Income Tax Status

The Company has elected by consent of its shareholders to be treated as an S corporation, under Internal Revenue Code provisions. Under those provisions, this entity does not pay federal corporate income taxes on its taxable income. Instead, the shareholders are liable for individual income taxes on the entity's taxable income. The entity is, however, liable for state franchise tax under Texas provisions.


Uncertainty Regarding Income Tax Positions

The Company recognizes income tax benefits only to the extent that the Company believes it is more- likely-than-not that its income tax positions will be sustained upon examination. A tax position is a position taken in a previously filed income tax return or a position expected to be taken in a future income tax return, which includes the Company's status as an S Corporation under Internal Revenue Code provisions. The recognition and measurement of tax positions taken for various jurisdictions consider the amounts and probabilities of outcomes that could be realized upon settlement using the facts, circumstances, and information available at the reporting date. The Company has determined that it does not have any material unrecognized tax benefits or obligations resulting from uncertain tax positions as of December 31, 2012.



Presentation of Certain Taxes

The Company collects various taxes from customers and remits these amounts to applicable taxing authorities. The Company's policy is to exclude these taxes from revenues and costs of sales.







Revenue Recognition

Revenues from oil and gas well servicing contracts are recognized on a daily basis as the work is performed.


Advertising Costs

The Company expenses advertising costs in the periods in which they are incurred. Advertising costs incurred for the years ended December 31, 2012 and 2011, were approximately $40,000 and $4,000, respectively.


Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Evaluation of Subsequent Events

The Company has evaluated the effect subsequent events would have on the financial statements through July 30, 2013, which is the date the financial statements were available to be issued.

NOTE B - RECEIVABLES

Receivables consisted of the following at December 31:

 
2012
 
2011
Customers
$
6,882,824

 
$
1,674,422

Employees
20,298

 
8

 
$
6,903,122

 
$
1,674,430


NOTE C - RELATED PARTY RECEIVABLES

Related party receivables consisted of the following at December 31, 2012:

Related party
$
430,000

Chris Beal, shareholder
126,482

Greg Tucker, shareholder
126,482

Ken Stevens, shareholder
126,481

 
 
 
$
809,445


At December 31, 2012, the Company had $430,000 due from a related party under common ownership. The balance is a short term advance and is due on demand.






At December 31, 2012, the Company had $379,445 due from shareholders that were related to several work trucks purchased by the shareholders and contributed to the Company as part of a capital contribution. Though the trucks were used in the Company’s operations, they were not titled in the Company’s name and were encumbered by debt that was payable by the contributing shareholders. In May 2013, the shareholders agreed to pay off the debt related to these vehicles, at which time the ownership of the trucks was legally transferred to the Company to satisfy these receivables.

Approximately $43,000 of interest income was earned during the year ended December 31, 2012, on these notes.

NOTE D - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:

 
2012
 
2011
Land
$
482,510

 
$

Buildings
2,664,694

 
3,900

Rigs and Equipment
20,271,913

 
4,601,770

Trucks
2,440,043

 
347,639

Other equipment
2,388,812

 
253,340

Airplane
382,525

 

 
28,630,497

 
5,206,649

Accumulated depreciation and amortization
(3,207,057
)
 
(720,422
)
 
 
 
 
 
$
25,423,440

 
$
4,486,227


Depreciation and amortization expense on property and equipment totaled $2,510,460 and $509,277 for the years ended December 31, 2012 and 2011, respectively.

NOTE E - CAPITAL LEASE OBLIGATIONS

The Company leases well servicing equipment under a capital lease agreement with Commercial Capital. The related asset is recorded in property and equipment at a cost of $398,750 with accumulated amortization of $38,675 at December 31, 2012. Amortization expense is included in depreciation expense on the accompanying statements of operations. The equipment and related liability were initially recorded at the present value of the lease payments.

The following is a schedule by years of the future minimum lease payments together with the present value of the net minimum lease payments as of December 31, 2012:

Year ending December 31:
2013
$
150,000

2014
150,000

Total minimum lease payments
300,000

Amount representing interest
(23,688
)
 
 
Present value of net minimum lease payments
276,312

Current portion
(132,634
)
 
 
Total long-term portion
$
143,678







NOTE F - NOTES PAYABLE - SHAREHOLDERS

Notes payable - shareholders consisted of the following at December 31, 2012:

Note payable to Jeff Thomas, shareholder, non-interest bearing, due on demand, unsecured.
$
126,204

 
 
Note payable to Ken Stevens, shareholder, fixed interest at 15.00%, monthly interest-only payments, due on demand, unsecured.
50,000

 
 
Note payable to Chris Beal, shareholder, fixed interest at 15.00%, monthly interest-only payments, due on demand, unsecured.
50,000

 
 
 
$
226,204


NOTE G - LONG-TERM DEBT

Long-term debt consisted of the following at December 31:

Notes payable to various individuals and entities, fixed interest at 15.00%, monthly interest-only payments, call options varying from February 2013 to July 2013, secured by all assets and accounts, see detail below.
1,215,000

 

 
 
 
 
Note payable to Community National Bank, fixed interest at 6.25%, payable in monthly installments of $10,000 including interest, due December 2013, secured by an Eagle 500 Series Pulling Unit.
110,466

 
228,778

 
 
 
 
Note payable to Community National Bank, fixed interest at 6.25%, payable in monthly installments of $7,645 including interest, due June 2014, secured by a 1982 Hopper Back In Wells Service Rig and 1979 Franks Well Service Rig, guaranteed by the shareholders.
122,435

 
210,688

 
 
 
 
Notes payable to Ally Bank, fixed interest at varying rates from 4.20% to 12.05%, payable in varying monthly installments from $578 to $1,298 including interest, due from May 2015 to May 2017, secured by company vehicles.
1,723,648

 
65,070

 
 
 
 
Note payable to Vectra Bank, fixed interest at 6.25%, payable in monthly installments of $129,929 including interest, due November 2015, secured by all inventory, chattel paper, accounts, general intangibles and all equipment owned at the loan date or later.
4,142,211

 

 
 
 
 
Note payable to Community National Bank, fixed interest at 7.00%, payable in monthly installments of $12,422 including interest, due May 2016, secured by an Eagle 500 Series Mobile Well Servicing Rig, guaranteed by the shareholders.
432,484

 
557,784

 
 
 
 
Note payable to Caterpillar Financial Services, fixed interest at 5.50%, payable in monthly installments of $4,781 including interest, due November 2016, secured by a Caterpillar Foam Unit including all attachments, accessories
202,134

 
247,244

 
 
 
 
Subtotal, carried forward
7,948,378

 
1,309,564







Subtotal, carried forward
$
7,948,378

 
$
1,309,564

 
 
 
 
Note payable to Four Corners Community Bank, fixed interest at 6.00%, payable in monthly installments of $4,324 including interest, due March 2019, secured by a Cessna 414A RAM.
269,667

 

 
 
 
 
Total
8,218,045

 
1,309,564

 
 
 
 
Current portion
(3,443,853
)
 
(388,255
)
 
$
4,774,192

 
$
921,309


Notes payable to various individuals and entities are detailed below:

 
Call Option
 
Principal
Payee
Date
 
Balance
KTW, LLC
February 2013
 
$
200,000

D&R Properties
February 2013
 
105,000

Zia Trust, Inc.
March 2013
 
100,000

Randall E. and Barbara L. Johnson
March 2013
 
100,000

James and Sharon Eanes LLC
March 2013
 
100,000

Jaime and Sean Johnson
March 2013
 
40,000

Constance Givens
April 2013
 
70,000

Michelle Lockmiller
July 2013
 
500,000

 
 
 
$
1,215,000


Amounts due on long-term debt are payable as follows:

Year ending December 31:
 
2013
$
3,443,853

2014
2,228,782

2015
2,086,340

2016
329,430

2017
71,561

Thereafter
58,079

 
$
8,218,045


NOTE H - NOTES RECEIVABLE - SHAREHOLDERS

Notes receivable - shareholders consisted of the following at December 31, 2012:

Chris Beal, shareholder
$
1,094,442

Greg Tucker, shareholder
1,094,442

Ken Stevens, shareholder
1,317,724

Stuart Buckingham, shareholder
1,478,137

 
$
4,984,745







The notes receivable were established to contribute additional capital from the shareholders. The balances bear interest at varying rates which were 6.00% to 6.25% at December 31, 2012. The balance is due in monthly installments ranging from $32,428 to $32,500 from each shareholder beginning in March 2013. Contractual maturities of installment notes receivable were as follows:

Year ending December 31:
2013
$
1,424,660

2014
1,559,136

2015
2,000,949

 
$
4,984,745


Approximately $125,000 of interest income was earned during the year ended December 31, 2012, on these notes. Accrued interest on notes receivable of approximately $125,000 was included in notes receivable - shareholders at December 31, 2012.

NOTE I - LEASE COMMITMENTS

The Company leases a manufactured home in Sidney, MT from a non-related party under a non- cancelable operating lease. The lease requires monthly rental payments of $3,500 through June 2013.

The Company leases a mobile home in Williston, ND from a non-related party under a non-cancelable operating lease. The lease requires monthly rental payments of $3,500 through September 2013.

The Company leases a residential home in Williston, ND from a non-related party under a non- cancelable operating lease. The lease requires monthly rental payments of $3,500 through May 2015.

The Company leases various other properties from non-related parties on a month-to-month basis. Monthly rental payments range from $1,000 to $3,000.

The following is a schedule of the future minimum lease payments required under these non- cancelable operating leases as of December 31, 2012:

Year ending December 31,
 
2013
$
91,000

2014
42,000

2015
17,500

 
$
150,500


Rent expense related to these and other short-term rentals was approximately $417,000 and $101,000 for the years ended December 31, 2012 and 2011, respectively.

NOTE J - RELATED PARTY TRANSACTIONS

Payroll expenses were shared with J & J Inspections, a related party under common ownership, during the year ended December 31, 2011. The amount received from this related party for payroll expenses for the year ended December 31, 2011, was approximately $62,000.






Various expenses were shared with Scada Source, a related party under common ownership, during the years ended December 31, 2012 and 2011. The amounts paid to (received from) this related party are detailed below for the years ended December 31:

 
2012
 
2011
Capital expenditures
$
134,968

 
$
4,036

Salaries, wages and benefits
218,928

 
119,576

Insurance
946

 
13,777

Repairs and maintenance
3,376

 
788

Supplies and small tools
64,840

 
46,483

Office and administration
2,172

 
4,733

Travel
3,442

 
181

Other
(1,109
)
 
1,065

 
$
427,563

 
$
190,639


The Company has engaged in transactions with affiliates under common ownership. The following is a summary of balances at December 31, 2012 and 2011, and transactions with these affiliates for the years then ended:

 
2012
 
2011
 
 
 
 
Sales
$
161,851

 
$
1,500

 
 
 
 
Purchases of property and equipment
$
2,016,098

 
$
65,847

 
 
 
 
Due from affiliates (included in accounts receivable)
$
58,060

 
$
7,570

 
 
 
 
Due to affiliates (included in accounts payable)
$
199,044

 
$
24,289


See additional related party disclosures in Notes B, C, F and G.

NOTE K - COMMITMENTS AND CONTINGENCIES

The Company is involved in certain legal matters that it considers incidental to its business, which include workplace injuries. In management's opinion, none of these legal matters will have a material effect on the Company's financial position or the results of operations.

NOTE L - CONCENTRATIONS OF CREDIT RISK

The Company’s sales and receivables are highly concentrated to a few major customers. For the year ended December 31, 2012, the Company had sales to three customers totaling $16,270,007. Sales to these customers accounted for approximately 49% of the Company’s total sales for 2012. Receivables from these same customers at December 31, 2012, totaled $2,614,439, which accounted for approximately 38% of the total receivables.


For the year ended December 31, 2011, the Company had sales to five customers totaling $8,453,699. Sales to these customers accounted for approximately 86% of the Company’s total sales for 2011. Receivables from these same customers at December 31, 2011, totaled $1,262,740, which accounted for approximately 76% of total receivables.






There were no other customers that individually accounted for more than 10% of gross sales during the years ended December 31, 2012 and 2011.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of receivables and cash deposits in excess of federally insured limits. The Company's bank balances usually exceed federally insured limits.

NOTE M - SUBSEQUENT EVENTS

In March 2013, Rig #27, operating in Texas, was damaged in a wind storm. The Company’s insurance provider deemed the damage a total loss and the Company expects to fully recover the cost of the asset. The asset's net book value at December 31, 2012, was approximately $187,000.

In June 2013, the shareholders received a letter of intent to sell the Company to an unrelated third party. As of the date of the audit report, the Company was engaged in the negotiation and due diligence process with the buyer and the outcome of the sale and its potential impact on the financial statements taken as a whole was not determined.







(a) (2) Unaudited interim financial statements of Black Hawk


BLACK HAWK ENERGY SERVICES, INC.
BALANCE SHEETS
(In thousands, except share amounts)
(unaudited)
 
 
 
September 30,
2013
 
 
December 31,
2012
 
ASSETS
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,220
 
 
$
730
 
Receivables
 
 
11,546
 
 
 
6,903
 
Related party receivables
 
 
 
 
 
 
809
 
Other current assets
 
 
498
 
 
 
260
 
Total current assets
 
 
13,264
 
 
 
8,702
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 
28,666
 
 
 
25,423
 
Total assets
 
$
41,930
 
 
$
34,125
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
Accounts payable
 
$
2,022
 
 
$
3,873
 
Accrued expenses
 
 
1,536
 
 
 
1,297
 
Current portion of capital lease obligation
 
 
 
 
 
 
133
 
Notes payable - shareholders
 
 
 
 
 
 
226
 
Current portion of long-term debt
 
 
4,061
 
 
 
3,444
 
Total current liabilities
 
 
7,619
 
 
 
8,973
 
 
 
 
 
 
 
 
 
 
Capital lease obligation
 
 
 
 
 
 
144
 
Long-term debt
 
 
5,499
 
 
 
4,774
 
Total liabilities
 
 
13,118
 
 
 
13,891
 
 
 
 
 
 
 
 
 
 
Shareholders' Equity:
 
 
 
 
 
 
 
 
Common stock, $1 par; 10,000 authorized, issued, and outstanding
 
 
10
 
 
 
10
 
Additional paid-in capital
 
 
18,070
 
 
 
18,070
 
Retained earnings
 
 
14,517
 
 
 
7,139
 
Notes receivable - shareholders
 
 
(3,785
)
 
 
(4,985
)
Total shareholders' equity
 
 
28,812
 
 
 
20,234
 
Total liabilities and shareholders' equity
 
$
41,930
 
 
$
34,125
 
 
See accompanying notes to financial statements.
 
 



 
 





BLACK HAWK ENERGY SERVICES, INC.
STATEMENTS OF OPERATIONS
(In thousands)
(unaudited)
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
 
 
 
 
 
 
2013
 
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
 
 
$
44,791
 
 
$
20,333
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
 
 
 
 
 
 
 
 
 
 
7,621
 
 
 
2,020
 
Other operating expenses
 
 
 
 
 
 
 
 
 
 
27,265
 
 
 
12,369
 
Total operating expenses
 
 
 
 
 
 
 
 
 
 
34,866
 
 
 
14,389
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
 
 
 
 
 
 
 
 
9,905
 
 
 
5,944
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense - net
 
 
 
 
 
 
 
 
 
 
(154
 
 
(386
)
Other income (expense) - net
 
 
 
 
 
 
 
 
 
 
154
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
 
 
 
 
 
 $
9,905
 
 
5,558
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
See accompanying notes to financial statements.
 
 



 
  





BLACK HAWK ENERGY SERVICES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
 
 
Nine Months Ended
September 30
 
 
 
2013
 
 
2012
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
 
Net income
 
$
9,905
 
 
$
5,558
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
3,309
 
 
 
1,572
 
Gain on sale of property and equipment
 
 
(153
)
 
 
-
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Receivables
 
 
(4,643
 
 
(4,575
)
Other current assets
 
 
(238
)
 
 
(54
)
Accounts payable
 
 
(1,851
 
 
1,118
 
Accrued expenses
 
 
239
 
 
 
517
 
Net cash provided by operating activities
 
 
6,568
 
 
 
4,136
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
Purchase of property and equipment
 
 
(3,340
 
 
(17,075
)
Proceeds from sale of property and equipment
 
 
320
 
 
 
-
 
Proceeds from repayments of related party receivables
 
 
430
 
 
 
-
 
Net cash used in investing activities
 
 
(2,590
)
 
 
(17,075
)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Proceeds from long-term debt
 
 
-
 
 
 
5,465
 
Payments of long-term debt
 
 
(1,658
)
 
 
(403
)
Payments on capital lease obligations
 
 
(277
)
 
 
-
 
Advances (repayments) of notes payable - shareholders
 
 
(226
)
 
 
100
 
Proceeds from repayments of notes receivable - shareholders
 
 
1,200
 
 
 
-
 
Contributions from shareholders
 
 
-
 
 
 
8,709
 
Distributions to shareholders
 
 
(2,527
)
 
 
(893
)
Net cash provided by (used in) financing activities
 
 
(3,488
 
 
12,978
 
 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
 
 
490
 
 
 
39
 
Cash and cash equivalents, beginning of period
 
 
730
 
 
 
371
 
Cash and cash equivalents, end of period
 
$
1,220
 
 
$
410
 
 
See accompanying notes to financial statements.
   
 



 
 





BLACK HAWK ENERGY SERVICES, INC.
Notes to Financial Statements
(In thousands)
(unaudited)
 
(1) Basis of Presentation
 
Black Hawk Energy Services, Inc. (“Black Hawk”) primarily provides well services related to the oil and gas industries in the New Mexico, Texas, and North Dakota regions. Black Hawk also leases, rents, sells and buys services and equipment related to the oil and gas industry in those regions.

The accompanying unaudited financial statements of Black Hawk do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles, and therefore should be read in conjunction with the notes to the consolidated financial statements contained in the Black Hawk’s audited financial statements for the year ended December 31, 2012. Management believes that all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation have been included in the accompanying financial statements. The operating results of any period are not necessarily indicative of the results for the entire year or any future period. 

(2) Property and Equipment

Property and equipment at September 30, 2013, and December 31, 2012, consisted of the following:
 

 
September 30, 2013
 
December 31, 2012
Land
$
483
 
 
$
483
 
Buildings
2,704
 
 
2,664
 
Rigs and equipment
24,847
 
 
20,272
 
Trucks
3,419
 
 
2,440
 
Other equipment
3,214
 
 
2,388
 
Airplane
383
 
 
383
 
 
35,050
 
 
28,630
 
Accumulated depreciation and amortization
(6,384
)
 
(3,207
)
Property and equipment - net
$
28,666
 
 
$
25,423
 

Depreciation and amortization expense on property and equipment totaled $3,309 and $1,572 for the nine months ended September 30, 2013 and 2012, respectively.

(3) Long-term Debt

In September 2013, Black Hawk borrowed $3,000 under a promissory note with Vectra Bank. The note, which matures in September 2016 and has monthly payments of $90, bears interest at a fixed rate of 5.25%.

(4) Related Party Transactions

Black Hawk rents certain equipment from affiliates that are under common ownership. Such rentals totaled $100 and $51 for the nine months ended September 30, 2013 and 2012, respectively.
 





(5) Supplemental Cash Flow Information

Cash paid for interest and income taxes and non-cash investing and financing activities for the nine months ended September 30, 2013 and 2012, were as follows:
 
Nine months ended September 30,
 
2013
 
2012
Interest paid
$
154
 
 
$
538
 
Taxes paid
$
71
 
 
$
42
 
Property and equipment acquired by debt
$
3,000
 
 
$
2,438
 
Repayment of related party receivables with contribution of property and equipment
$
379
 
 
 
 
 
Property and equipment contributed by shareholders
 
 
 
 
$
745
 
Distribution to shareholders treated as collections of notes receivable - shareholders
 
 
 
 
$
56
 
Related party receivables treated as capital contributions
 
 
 
 
$
379
 
Issuance of notes receivable - shareholders treated as capital contributions
 
 
 
 
$
4,915
 

(6) Subsequent Events

Effective December 16, 2013, Black Hawk sold substantially all of its assets to an indirect wholly owned subsidiary of Steel Excel Inc. Such assets were sold pursuant to an Asset Purchase Agreement, dated October 29, 2013, as amended effective December 16, 2013. The sale price paid at closing was approximately $60,763, of which $763 is subject to a post-closing working capital adjustment and $5,000 of which was placed in escrow for up to one year.







(b) Pro forma financial information

On August 23, 2013, the Company acquired 1,316,866 shares of the common stock of iGo, Inc. (“iGo”), in a cash tender offer for total consideration of $5.2 million. The shares of common stock of iGo acquired by the Company represented approximately 44.0% of the outstanding shares of iGo on a fully-diluted basis and approximately 44.7% of the issued and outstanding shares of iGo. Pursuant to the Stock Purchase and Sale Agreement between the Company and iGo entered into on July 11, 2013, two members of iGo’s four-member board of directors were replaced by two designees of the Company. The Company accounts for its investment in iGo under the equity method as the Company’s 44.7% voting interest and board representation provide it with significant influence, but do not provide the Company with control over iGo’s operations. The Company's investment in iGo was previously reported on a Current Report on Form 8-K and a Current Report on Form 8-K/A dated August 29, 2013, and October 21, 2013, respectively.

The investment in iGo is included in the Company's historical balance sheet as of September 30, 2013. The pro forma consolidated balance sheet as of September 30, 2013, is presented as if the acquisition of the business and substantially all of the assets of Black Hawk, which was consummated on December 16, 2013, had occurred on September 30, 2013.

The pro forma consolidated statements of operations for the nine months ended September 30, 2013, and for the year ended December 31, 2012, are presented as if both the investment in iGo and the acquisition of the business and substantially all of the assets of Black Hawk had occurred on January 1, 2012, and have been derived from the historical financial statements of iGo and Black Hawk.

The Black Hawk transaction has been accounted for as a business combination. Accordingly, the net assets acquired have been recorded at their estimated fair values. Such amounts are provisional pending further analysis and completion of valuations to determine current fair values, including the values of any identifiable intangible assets. The excess of total consideration over the provisional fair value of net assets acquired has been reflected as goodwill in the accompanying pro forma financial information.

The pro forma consolidated financial information does not purport to present the financial position or results of operations of the Company had the transactions and events assumed therein occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future.

The pro forma financial information is based on certain assumptions and adjustments described in the Notes to Pro Forma Financial Information and should be read in conjunction therewith and with the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q and the financial statements and related notes thereto of Black Hawk included elsewhere herein.






Pro Forma Consolidated Balance Sheet
September 30, 2013
(In thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Historical Steel Excel
 
Historical Black Hawk
 
Pro Forma Adjustments
 
Pro forma consolidated
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
121,914

 
$
1,220

 
$
(37,238
)
(A)
$
85,896

 
Marketable securities
169,495

 
 
 
 
 
169,495

 
Accounts receivable
15,540

 
11,546

 
 
 
27,086

 
Deferred income taxes
188

 
 
 
 
 
188

 
Prepaid expenses and other current assets
6,317

 
498

 
 
 
6,815

 
 
 
 
 
 
 
 
 
 
Total current assets
313,454

 
13,264

 
(37,238
)
 
289,480

 
 
 
 
 
 
 
 
 
Property and equipment, net
75,868

 
28,666

 
 
 
104,534

Goodwill
59,164

 
 
 
23,611

(B)
82,775

Intangible assets, net
33,271

 
 
 

(C)
33,271

Other investments
25,849

 
 
 
 
 
25,849

Investments in equity method investees
8,984

 
 
 
 
 
8,984

Deferred income taxes
1,696

 
 
 
 
 
1,696

Other long-term assets
1,785

 
 
 
255

(D)
2,040

 
 
 
 
 
 
 
 
 
Total assets
$
520,071

 
$
41,930

 
$
(13,372
)
 
$
548,629

 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
Accounts payable
$
3,177

 
$
2,022

 
 
 
$
5,199

 
Accrued expenses and other liabilities
7,822

 
1,536

 
 
 
9,358

 
Current portion of long-term debt
10,000

 
4,061

 
(845
)
(E)
13,216

 
Current portion of capital leases
413

 
 
 
 
 
413

 
Convertible notes
346

 
 
 
 
 
346

 
 
 
 
 
 
 
 
 
 
Total current liabilities
21,758

 
7,619

 
(845
)
 
28,532

Capital lease obligations
670

 
 
 
 
 
670

Long-term debt
57,500

 
5,499

 
16,285

(E)
79,284

Deferred income taxes
448

 
 
 
 
 
448

Other long-term liabilities
10,281

 
 
 
 
 
10,281

 
Total liabilities
90,657

 
13,118

 
15,440

 
119,215

 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
Common stock
14

 
10

 
(10
)
(F)
14

 
Additional paid-in-capital
274,765

 
14,285

 
(14,285
)
(F)
274,765

 
Accumulated other comprehensive income
5,320

 

 
 
 
5,320

 
Retained earnings
206,623

 
14,517

 
(14,517
)
(F)
206,623

 
Treasury stock
(59,433
)
 
 
 
 
 
(59,433
)
 
 
 
 
 
 
 
 
 
 
Total Steel Excel Inc. stockholders' equity
427,289

 
28,812

 
(28,812
)
 
427,289

 
Non-controlling interest
2,125

 
 
 
 
 
2,125

 
Total stockholders' equity
429,414

 
28,812

 
(28,812
)
 
429,414

 
 
 
 
 
 
 
 
 
Total liabilities and stockholders' equity
$
520,071

 
$
41,930

 
$
(13,372
)
 
$
548,629

 
 
 
 
 
 
 
 
 
See Notes to Pro Forma Financial Information
 
 
 
 
 
 
 
 
 








Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2013
(In thousands, except per-share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Historical Steel Excel
(G)
Historical Black Hawk
 
Pro Forma Adjustments
 
Pro forma consolidated
 
 
 
 
 
 
 
 
 
Net revenues
$
87,571

 
$
44,791

 
 
 
$
132,362

Cost of sales
62,209

 
34,176

 
 
 
96,385

 
 
 
 
 
 
 
 
 
Gross profit
25,362

 
10,615

 
 
 
35,977

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
18,568

 
710

 
 
 
19,278

 
Amortization expense
6,616

 
 
 

(H)
6,616

 
 
 
 
 
 
 
 
 
 
Total operating expenses
25,184

 
710

 
 
 
25,894

 
 
 
 
 
 
 
 
 
Operating income
178

 
9,905

 
 
 
10,083

Interest income, net
2,341

 
(154
)
 
(498
)
(I)
1,689

Other expense, net
1,190

 
154

 
 
 
1,344

 
 
 
 
 
 
 
 
 
Income from continuing operations before taxes
3,709

 
9,905

 
 
 
13,116

Benefit from income taxes
2,310

 
 
 
(402
)
(J)
1,908

 
 
 
 
 
 
 
 
 
Net income from continuing operations
6,019

 
9,905

 
(900
)
 
15,024

Loss from discontinued operations

 
 
 
 
 

 
 
 
 
 
 
 
 
 
Net income
6,019

 
9,905

 
(900
)
 
15,024

 
 
 
 
 
 
 
 
 
Net loss attributable to non-controlling interests:
 
 
 
 
 
 
 
 
Continuing operations
832

 

 
 
 
832

 
Discontinued operations

 

 
 
 

 
 
 
 
 
 
 
 
 
Net income attributable to Steel Excel
$
6,851

 
$
9,905

 
$
(900
)
 
$
15,856

 
 
 
 
 
 
 
 
 
Income per share from continuing operations attributable to Steel Excel:
 
 
 
 
 
 
 
 
Basic
$
0.54

 
 
 
 
 
 $ 1.25

 
Diluted
$
0.54

 
 
 
 
 
 $ 1.24

 
 
 
 
 
 
 
 
 
Shares used in computing income per share:
 
 
 
 
 
 
 
 
Basic
12,736

 
 
 
 
 
              12,736

 
Diluted
12,754

 
 
 
 
 
              12,754

 
 
 
 
 
 
 
 
 
See Notes to Pro Forma Financial Information









Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2012
(In thousands, except per-share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Historical Steel Excel
 
Pro Forma Adjustments (iGo)
 
Pro Forma Consolidated (iGo)
 
Historical Black Hawk
 
Pro Forma Adjustments (Black Hawk)
 
Pro Forma Consolidated (iGo and Black Hawk)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
$
100,104

 
 
 
$
100,104

 
$
33,097

 
 
 
$
133,201

Cost of sales
66,064

 
 
 
66,064

 
24,030

 
 
 
90,094

 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
34,040

 
 
 
34,040

 
9,067

 
 
 
43,107

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
20,397

 
 
 
20,397

 
561

 
 
 
20,958

 
Amortization expense
7,634

 
 
 
7,634

 
 
 

(H)
7,634

 
Impairment of goodwill
192

 
 
 
192

 
 
 
 
 
192

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
28,223

 
 
 
28,223

 
561

 
 
 
28,784

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
5,817

 
 
 
5,817

 
8,506

 
 
 
14,323

Interest income, net
1,234

 
 
 
1,234

 
(597
)
 
(272
)
(I)
365

Other expense, net
(584
)
 
$
(5,202
)
(K)
(5,786
)
 
(6
)
 
 
 
(5,792
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before taxes
6,467

 
(5,202
)
 
1,265

 
7,903

 
(272
)
 
8,896

Benefit from income taxes
15,712

 
 
 
15,712

 
 
 
(326
)
(J)
15,386

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income from continuing operations
22,179

 
(5,202
)
 
16,977

 
7,903

 
(598
)
 
24,282

Loss from discontinued operations
(1,935
)
 
 
 
(1,935
)
 
 
 
 
 
(1,935
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
20,244

 
(5,202
)
 
15,042

 
7,903

 
(598
)
 
22,347

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to non-controlling interests:
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
22

 
 
 
22

 

 
 
 
22

 
Discontinued operations
427

 
 
 
427

 

 
 
 
427

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Steel Excel
$
20,693

 
$
(5,202
)
 
$
15,491

 
$
7,903

 
$
(598
)
 
$
22,796

 
 
 
 
 
 
 
 
 
 
 
 
 
Income per share from continuing operations attributable to Steel Excel:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.83

 
 
 
$
1.40

 
 
 
 
 
$
2.01

 
Diluted
$
1.83

 
 
 
$
1.40

 
 
 
 
 
$
2.00

 
 
 
 
 
 
 
 
 
 
 
 
 
Shares used in computing income per share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
12,110

 
 
 
12,110

 
 
 
 
 
12,110

 
Diluted
12,133

 
 
 
12,133

 
 
 
 
 
12,133

 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Pro Forma Financial Information






Steel Excel Inc.
Notes to Pro Forma Financial Information

(A) The pro forma adjustment represents the portion of consideration paid from Company’s cash balances ($35,763), the cash paid for deferred financing costs on the new borrowings ($255), and the elimination of the closing cash balance of Black Hawk ($1,220), which was an excluded asset.
(B) The pro forma adjustment represents the excess of total consideration over fair value of the net assets acquired. The fair values of the net assets of Black Hawk are provisional pending completion of a valuation. The amount of the pro forma adjustment was determined as follows:
    
Total consideration paid
 
 
$
60,763

Historical net assets of Black Hawk
28,812

 
 
Net liabilities excluded from transaction
8,340

 
 
Fair value of net assets acquired
 
 
37,152

Excess of total consideration over fair value
 
 
$
23,611

(C) No amount is included for intangible assets since the fair values of the net assets acquired are provisional pending the completion of a valuation.
(D) Pro forma adjustment represents deferred financing costs associated with additional borrowings
(E) The pro forma adjustment represents the additional borrowings under the Company's existing credit facility to finance the transaction less the elimination of the historical long-term debt balances of Black Hawk, which were an excluded liability. The amount of the pro forma adjustment was determined as follows:
    
Additional borrowings under the Company's credit facility
 
$
25,000

Long-term debt excluded from transaction
 
 
(9,560
)
Total additional long-term debt
 
 
15,440

Pro forma adjustment to current portion
 
(845
)
Non-current portion of additional long-term debt
 
$
16,285

(F) The pro forma adjustments represent the elimination of Black Hawk's stockholders' equity
(G) No pro forma adjustment is made to the Steel Excel historical statement of operations for the nine-month period ended September 30, 2013, for the investment in iGo since the Company's pro forma investment in iGo as of December 31, 2012, is zero (see Note K), and the Company has not guaranteed the iGo losses and has no additional funding obligations.
(H) No amount is included for amortization of intangible assets since the fair values of net assets acquired are provisional pending the completion of a valuation.
(I) Pro forma adjustment to reflect interest expense on additional borrowings, including amortization of deferred financing costs, and elimination of Black Hawk interest expense.
(J) Pro forma adjustment to reflect state income tax provision. No Federal provision is included as any current or deferred Federal provision would be offset by the reversal of the valuation allowance for deferred tax assets.

(K) The pro forma adjustment represents the Company's equity in the iGo net loss for the year ended December 31, 2012. Since the Company's proportionate share (44.7%) of the iGo loss for the period ($12.0 million) exceeds the Company's investment in iGo, the pro forma loss is limited to the Company's investment in iGo since the Company has not guaranteed the iGo losses and has no additional funding obligations.







SIGNATURES
 
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
STEEL EXCEL INC.
 
 
 
 
Dated: February 28, 2014
By:
/s/ James F. McCabe, Jr.
 
Name:
James F. McCabe, Jr.
 
Title:
Chief Financial Officer