dxpe121613-8ka.htm

Note 1 – Receivables

The components of receivables at December 31, 2011 and 2010 are as follows:

	2011	2010

Trade receivables	$ 23,381	$ 8,799
Retainage receivables	399	1,499
Impaired receivables	258	150
Employee and other receivables	217	64

Total receivables	24,255	10,512
Less: allowance for doubtful accounts	648	675

Total receivables, net	$ 23,607	$ 9,837

Note 2 – Inventories

The components of inventories at December 31, 2011 and 2010 are as follows:

	2011	2010
Raw materials and components	$2,549	$2,877
Work-in-process
Cost incurred on all uncompleted contracts	11,166	12,152
Less: Amounts involved in percentage completion method of accounting (Note 3)	8,887	8,180
Total work-in-process (completed contract method)	2,279	3,972
Finished goods	108	114
Total inventories	$ 4,936	$ 6,963

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 3 – Costs and Estimated Profit on Uncompleted Contracts

Following is information with respect to uncompleted contracts accounted for under the percentage completion method of accounting at December 31, 2011 and 2010:

	2011	2010

Costs incurred on uncompleted contracts	$ 8,887	$ 8,324
Estimated gross profit	4,981	2,229
Total revenue recorded on uncompleted contracts	13,868	10,553
Billings applicable thereto	(20,410)	(8,781)
Total excess (deficit) on uncompleted contracts	$ (6,542)	$ 1,772
Reflected in the accompanying balance sheet as:
Costs and estimated profit in excess of billings on uncompleted contracts	$ 3,813	$ 5,511
Billings in excess of costs and estimated profit on uncompleted contracts	(10,355)	(3,739)

Total excess (deficit) on uncompleted contracts	$ (6,542)	$ 1,772

Note 4 – Property, Plant and Equipment

A summary of property, plant and equipment as of December 31, 2011 and 2010 is as follows:

Assets	Useful Life	2011	2010

Land	N/A	$ 184	$ 184
Building and building equipment	10-25 years	946	873
Leasehold improvements	1-5 Years	280	201
Office furniture, fixtures and equipment	3-7 Years	665	489
Computer software	3 Years	723	680
Vehicles	3-5 Years	282	226
Production equipment	7-10 Years	2,662	2,413
Pattern Costs	7-10 Years	1,069	-
Equipment under construction		1,334	430

Total property, plant and equipment		8,145	5,496
Less: accumulated depreciation		2,106	1,315
Property, plant and equipment, net		$ 6,039	$ 4,181

For the years ended December 31, 2011 and 2010, the Company incurred $791 and $608, respectively, in depreciation expense related to the above property, plant and equipment.

Note 5 – Goodwill and Other Intangibles

The accompanying balance sheets include goodwill and other intangible assets as follows:

	2011	2010
Goodwill	$51,877	$51,877
Other intangible assets, net	15,613	17,136

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 5 – Goodwill and Other Intangibles, cont’d.

The change in the goodwill balance follows:

Balance December 31, 2009	$ 46,300
Acquisitions	5,577
Valuation review	-
Balance December 31, 2010	51,877
Valuation review	-
Balance December 31, 2011	$ 51,877

Other intangible assets subject to amortization consisted of the following:

Customer Relationships

	BPW	IFS	PW610	Patents/TM	Patterns	Drawings	Total
Balances, December 31, 2009	$5,700	$6,500	$ -	$1,800	$ -	$ -	$14,000
Acquisition intangibles	-	-	851	108	287	2,017	3,263
Amortization	475	464	23	184	15	45	1,206
Balances, December 31, 2010	5,225	6,036	828	1,724	272	1,972	16,057
Amortization	475	464	69	192	44	135	1,379
Balances, December 31, 2011	$4,750	$5,572	$ 759	$1,532	$ 228	$1,837	$14,678

For the year ended December 31, 2011, as provided by ASU 2011-08 issued by the Financial Account Standards Board, the Company performed a qualitative assessment using certain prescribed factors to determine the annual impairment testing of goodwill. Factors considered in the assessment included various macroeconomic, industry and market conditions as well as analysis of other cost factors and the overall financial performance of the Company. The intent of this testing is to determine whether it is more likely than not that the value of the Company is less than its carrying value. After making this qualitative assessment, the Company determined it was not necessary to perform the two-step goodwill impairment test.

For the year ended December 31, 2010, the Company used an independent third party to perform its annual impairment test of goodwill. In performing the valuations, cash flows that reflected management's forecasts and discount rates that reflected risks associated with the current market were used. The results of the testing indicated that goodwill was not impaired for the year ended December 31, 2010 and, as a result of this finding, the second step of the impairment testing (in which fair value of each of the reporting units assets and liabilities are measured) was not required.

Amortization expenses of other intangible assets are being recorded using estimated useful lives of 12-14 years for customer relationships, 9.3-10 years for trademarks, 6.5 years for patterns and 15 years for drawings.

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 5 – Goodwill and Other Intangibles, cont’d.

The following is a summary of the estimated future amortization expense for the existing amortizable intangible assets for the next five years (excluding loan and derivative related interest expense amortization):

Years ending
December 31,
2012	$1,379
2013	1,379
2014	1,379
2015	1,379
2016	1,379

Estimating the fair value of intangibles involves the use of estimates and significant judgments that are based on a number of factors including actual operating results. If current conditions change from those expected, it is reasonably possible that judgments and estimates described above could change in future periods.

Other intangibles not included in the above discussions as of December 31, 2011 and 2010, consisted of the following:

Intangibles	Useful Life	2011	2010

Loan acquisition costs	56 Months	$ -	$ 1,463
Loan acquisition costs (CTI)	31 Months	-	377
New loan acquisition costs	58 Months	1,071	-
Derivative costs	36 Months	-	135
Total other intangibles		1,071	1,975
Less accumulated amortization		137	896
Net intangibles		$ 934	$ 1,079

Amortization of loan acquisition costs and derivative costs totaled $335 and $407 for the years ending December 31, 2011 and 2010, respectively, and is included as a component of interest expense.

As further described in Note 8, upon completion of the refinancing of the Company’s senior credit facility, the Company wrote off $880 of remaining unamortized loan fees from the original facility and capitalized the new facility costs of $1,071.

Note 6 – Line of Credit

The Company completed the refinancing of its existing credit facility in May, 2011, as further described in Note 8, adding $1,000 to increase the revolving line of credit from $9,000 to $10,000. This revolving note, as amended, continues to bear interest at a rate that varies based on the bank’s prime interest rate plus 3.75% as determined and is secured by substantially all of the Company's assets. There was no borrowing under the revolving note at December 31, 2011 or 2010.

Under the new credit facility, the Company issues letters of credit which are issued to customers in the ordinary course of business to support advanced payments, as performance and/or warranty guarantees or in lieu of retention on contracts. Letters of credit issued to secure guaranteed contracts as of December 31, 2011 and 2010, totaled $1,627 and $2,371, respectively.

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 7 – Short-term Borrowings – Related Parties

Short-term borrowings as of December 31, 2011 and 2010 are summarized as follows:

	2011	2010
Related party note, automatically convertible as further described below, maturing January, 2011, unsecured	$ -	$ 6,450
Total short-term borrowings	$ -	$ 6,450

During 2009, increasing backlog levels caused the Company to approach the maximum threshold for available letters of credit under their current credit agreement. Following modifications to the agreement, certain members of the Company supplied short term financing to purchase a certificate of deposit held for the purpose of providing collateral against a letter of credit on a large order obtained in 2009. The terms of the short term borrowing agreement provide for the loan to be repaid at the conclusion of the job. Interest accrues annually at 17.75%, of which 2% - 3% is accrued and will be paid at the completion of the project. The remaining interest is accrued as payment-in-kind interest as further described in Note 8, under Subordinated Note – Related Parties. In 2010, an additional $5,507 was advanced under this arrangement to complete the financing for this large project and then, when the project completed, the entire balance was repaid. Interest paid on the note during 2010 was $88.

On August 31, 2010, the Company entered into a L/C Subordinated Loan Agreement with certain members which provides for up to $10,000 in loans to be used as collateral for possible future letters of credit under high backlog situations. The loans are available to be issued at the discretion of each members’ approval as well as senior lender approval and will include provisions consistent with the terms of the note described above. No borrowings have occurred under the loan agreement.

During 2010, convertible subordinated promissory notes totaling $6,450 were issued related to the financing of the CTI transaction. These notes converted to common and preferred conversion units in January, 2011, as further described in Note 10. Interest accrued on these notes during 2011 and 2010 totaled $0 and $487, respectively.

Note 8 – Long-term Borrowings

Long-term borrowings as of December 31, 2011 and 2010 are summarized as follows:

	2011	2010
Senior note, due in varying installments at variable rates as further described below and maturing March, 2016, secured by all assets of the Company	$ 40,750	$ 20,524
Subordinated notes, interest only paid quarterly at a fixed rateof 11.5% and payment-in-kind interest of 3% added to the principal balance of the notes, maturing on various dates in 2013, unsecured	-	24,742
Subordinated note – related party acquisition financing, interest only paid quarterly at a fixed rate of 10% and payment-in-kind interest of 7.5% added to the principal balance of the notes, maturing January, 2014, unsecured	4,344	4,033
Subordinated note – related parties, payment-in-kind component of financing, interest at 17.75% added to the principal balance of the note, maturing October, 2013, unsecured, as further described in Note 7	874	733
Note payable to credit financing company, due in monthly installments of $1 at a fixed rate of 5.99% through January, 2016, secured by 2012 Ford F250	29	-
Total borrowings	45,997	50,032
Less current portion	2,750	2,648
Total long-term borrowings	$ 43,247	$ 47,384

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 8 – Long-term Borrowings, cont’d.

The Company is subject to certain restrictive financial and other covenants under the long-term credit agreements, including affirmative, negative and financial reporting covenants. As of December 31, 2011 and 2010, management believes the Company is in compliance with the covenant requirements.

The aggregate maturities of long-term borrowings subsequent to December 31, 2011 are as follows:

Years ending December 31,
2012	$ 2,750
2013	4,137
2014	7,852
2015	3,508
2016	27,750
	$ 45,997

Senior note

As described earlier in Note 6, the Company refinanced its senior credit facility in May, 2011 and, as a part of this refinancing arrangement, paid off the outstanding balance of the subordinated notes and consolidated the debt into one senior note. As part of this refinancing agreement, the LIBOR interest floor was reduced from 2.5% to 1.5% and the terms were extended through March, 2016.

The Restated Credit Agreement allows for interest rates to be determined under two interest rate methods. Base Rate Loans are tied to the Prime lending rate plus a spread of 3.75% and interest using this rate method is paid on a monthly basis. LIBOR Loans are contracts purchased using one of four LIBOR rate periods; 1 month, 2 months, 3 months or 6 months with a minimum floor of 1.5%, as stated above, plus a spread of 4.75% and interest using this rate method is accrued monthly and paid quarterly. The applicable LIBOR contract is determined by management for each of the relevant periods and is staggered to mature quarterly when the principal payments are due.

The Credit Agreement requires the Company at the end of each accounting year after the financial audit is presented to calculate an excess cash flow payment. These provisions provide for an additional payment to be made against the long-term borrowing based on a ratio of total debt to EBITDA. Payments of $0 and $1,409 were made in 2011 and 2010, respectively, related to this provision of the credit agreement.

As required by the Senior Credit Agreement, on November 19, 2008, the Company entered into a three year interest rate cap contract on 100% of the outstanding senior note balance for a payment of $135. The contract, which is designated as a cash flow hedge under FASB ASC 815, caps the variable interest rates under the terms of the Senior Credit Agreement at 10.25%.

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 8 – Long-term Borrowings, cont’d.

Subordinated notes

Subject to senior lender approval, the Company has the discretion to, in lieu of payment of the interest due on the note in excess of 11.5%, add such amount to the principal balance of the note. During the years ended December 31, 2011 and 2010, $186 and $731, respectively, in interest was added to the principal balance of the note.

These subordinated notes were paid off as part of the refinancing of the senior credit facility in May, as described above. Included in this payoff was an early redemption premium of $249 that represented 1% of the payoff balance as defined in the agreement.

Subordinated note – related party acquisition financing

In conjunction with financing the acquisition of CTI, the Company entered into a related party financing arrangement with certain related parties totaling $4,000. The terms of the lending agreement provide for a component of the short term loan interest to be repaid in cash at a rate of 10% per annum and a portion as payment-in-kind which accrues at a rate of 7.5% and is added to the principal balance of the note. The remaining note balance and related accrued interest is due at maturity on January 1, 2014. For the year ended December 31, 2011, the Company incurred $740 of interest expense of which $190 was accrued and $311 was added to the principal balance of the note. For the year ended December 31, 2010, the Company incurred $254 of interest expense of which $176 was accrued and $33 was added to the principal balance of the note.

Subordinated note – related parties

As earlier described in the short-term borrowing – related parties note, the Company entered into a financing arrangement to obtain necessary cash to use as collateral for letter of credit requirements related to the financing of a large order. The terms of the lending agreement provide for a component of the short term loan interest to be repaid as payment-in-kind which accrues in the form of a long-term subordinated note. Once the short term borrowing is satisfied, this existing accrued obligation will remain and begin to accrue interest at 17.75%. The remaining note balance and related accrued interest is due at maturity on October 7, 2013. For the years ended December 31, 2011 and 2010, $141 and $615 in interest were added to the principal, respectively.

Note 9 – Retirement Plans

The Company maintains a defined contribution retirement plan for the benefit of its employees in accordance with Section 401(k) of the Internal Revenue Code. The Company's contributions to the plan are discretionary. For the years ended December 31, 2011 and 2010, employer matching contributions totaled $248 and $0, respectively.

Effective July 25, 2008, the Company created the 2008 Equity Incentive Plan (“Plan”). The Plan authorizes the grants of phantom units to eligible employees, consultants and directors, subject to the conditions of the Plan. The phantom units represent the right to receive the fair market value of one LLC membership unit at the date of grant, without conveying the rights and privileges associated with equity ownership. Awards are granted at the sole discretion of the board of directors and vest at a rate of 25% annually from the date of the award. They are cancelled and forfeited, if not vested, upon termination of service or employment. Early vesting occurs in the events of death, disability, retirement or change in control. As of December 31, 2011 and 2010, no phantom LLC units have been granted under the Plan.

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 10 – Members’ Equity

Members’ equity is comprised of Common Units and Series A Preferred Units. The units have varying rights and privileges that are defined in the Company’s Operating Agreement. Series A Preferred Units are non-voting and may be redeemed on or after the seventh anniversary of the date of issuance. Series A Preferred Units are entitled to a preferred return accruing at the rate of 8% per annum on the unpaid Series A preference amount as defined in the Operating Agreement.

In 2010, in conjunction with the CTI Acquisition, the operating agreement was amended to increase available common and Series A units from 50,000 to 60,000 in order to provide the additional units necessary for the conversion of the $6,450 convertible note discussed in Note 7. In January, 2011, this debt was converted to equity at a rate of one Common and one Series A Preferred unit per thousand dollars. Included in the conversion was accrued interest related to the debt of $487. At December 31, 2011 and 2010, 56,427 and 49,490, respectively, of Common and Series A Preferred Units were issued and outstanding.

Note 11 – Fair Market Value Measurements

ASC 820 “Fair Value Measurements,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Assets and liabilities measured at fair value on a nonrecurring basis consist of goodwill and other intangible assets (see Note 5). These assets are measured using level 3 inputs as defined in ASC 820.

The carrying values of the Company's long-term borrowings approximate fair values for financial instruments of similar risk. The carrying values of cash equivalents, receivables and accounts payable approximate fair value because of the short maturities of these instruments.

Note 12 – Business and Credit Concentrations

For the years ended December 31, 2011 and 2010, approximately 31% and 37%, respectively, of the Company's sales were to companies outside of the United States. No one customer or country accounted for a significant portion of these sales.

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 12 – Business and Credit Concentrations, cont’d.

At December 31, 2011 and 2010, one customer accounted for approximately 13% and 18%, respectively, of accounts receivable. No other customer accounted for greater than 10% of the accounts receivable at December 31, 2011 and 2010.

The Company maintains bank accounts at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250. Management closely monitors the financial condition of these institutions.

Note 13 – Commitments

The Company has non-cancelable operating leases for various sales offices and manufacturing locations as well as several vehicles. The following is a summary of future minimum rental payments due under the lease agreements as of December 31, 2011:

Years ending December 31,
2012	$927
2013	888
2014	805
2015	23
After 2015	15

For the years ended December 31, 2011 and 2010, lease related expenses were $927 and $933, respectively.

The Company has a self funded medical plan that is funded based on historical claim calculations and the historical claims experience of the administrative service provider (Blue Cross / Blue Shield). Based on these factors, an annual expected paid claims target is calculated and an aggregate stop loss calculation is used to determine the exposure limitation of the plan. The plan is partially funded to account for these expenses and the premiums that are paid from the plan to fund stop loss insurance that minimizes the Company’s exposure. These calculations are based on historical estimates of accrued expenses which will be different than actual expenses and, consequently, there is a potential unfunded liability for this difference. As of December 31, 2011 and 2010, accrued expenses include $60 related to this unfunded risk.

The Company has commitments to perform on long-term contracts at December 31, 2011 and 2010. Certain of these contracts contain performance penalties for work that is not completed to the specified performance schedules, which could be material to the Company. Included in the accrued expenses as of December 31, 2011 and 2010, respectively, are $36 and $305 related to these contract performance conditions.

Due to the nature of the oil and gas industry, there is a potential exposure for environmental remediation contingencies. The Company believes they are adequately insured against possible losses of this nature.

The Company is party to a five year license agreement for certain engineering related software products. The agreement expires February 2012. The annual license fee under the agreement was approximately $45 as of December 31, 2011.

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 14 – Related Party Transactions

The Company pays management fees for services to three related parties, including; Champlain Capital Partners, Honeywell and the Board Chairman, Steve Ardia. During the years ended December 31, 2011 and 2010, the Company recorded $225 and $225, respectively, in management fees related to these services.

The Company has entered into employment agreements with three key members of management. The agreements set forth terms and rights of employment, contain certain non-compete obligations and require confidentiality.

The Company leases two manufacturing facilities from Reynolds Real Estate, LLC; which is owned by the original unit holders of B27, LLC. Each of the leases is a seven year lease expiring December 31, 2014. Total lease payments for the years ended December 31, 2011 and 2010 were $757 and $749, respectively.

B27, LLC has an enterprise license to use software products from Intelliquip, LLC which is owned by the original unit holders of B27, LLC. There is no cost to use these licenses until the software is implemented. When implemented, B27 is obligated to pay maintenance and hosting fees based on the current software selling price. Best Equipment Service and Sales Company, LLC has begun use of these licenses to provide software services related to a web-enabled automated sales program. Payments made during the years ended December 31, 2011 and 2010 totaled $66 and $46, respectively, of which $4 and $0, respectively, was included in accounts payable at December 31, 2011 and 2010.

Short-term and long-term borrowings described earlier in Notes 7 and 8 are being provided by certain members of the Company.

Certain members of the Company have provided third party financing to one of the Company’s vendors.

The Company became a 49% partner in IFS West Africa, Ltd., a joint venture in Nigeria, in which it loaned $30 to the entity for various organizational and startup costs.

Note 15 – Change in Accounting Method

During the year ended December 31, 2012, the Company has retrospectively adopted the percentage of completion method of revenue recognition on manufactured API (“American Petroleum Institute”) pumps and remanufactured pump products from the completed contract method.

The following table summarizes the restatement as of and for the year ended December 31, 2011:

	As Previously Reported	Change in Accounting Principle	As Restated
Receivables, principally trade, net	$ 18,977	$ 4,630	$ 23,607
Inventories	9,021	(4,085)	4,936
Costs and estimated profit in excess of billings on uncompleted contracts	1,789	2,024	3,813
Billings in excess of costs and estimated profit on uncompleted contracts	(3,969)	(6,386)	(10,355)
Anticipated losses on long term contracts
Customer deposits and other deferred revenue	(6,776)	5,630	(1,146)
Members’ equity, beginning	(31,327)	(1,060)	(32,387)
Revenues	(93,696)	(593)	(94,289)
Cost of goods	66,002	(175)	65,827

B27, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

December 31, 2011 and 2010

(Thousands of dollars)

Note 15 – Change in Accounting Method, cont’d.

The following table summarizes the restatement as of and for the year ended December 31, 2010:

	As Previously Reported	Change in Accounting Principle	As Restated
Receivables, principally trade, net	$ 8,239	$ 1,598	$ 9,837
Inventories	11,078	(4,115)	6,963
Costs and estimated profit in excess of billings on uncompleted contracts	3,143	2,368	5,511
Billings in excess of costs and estimated profit on uncompleted contracts	(1,501)	(2,238)	(3,739)
Anticipated losses on long term contracts	-	(145)	(145)
Customer deposits and other deferred revenue	(5,425)	3,590	(1,835)
Members’ equity, beginning	(26,059)	(348)	(26,407)
Revenues	(83,945)	(3,702)	(87,647)
Cost of goods	56,634	2,990	59,624

Note 16 – Subsequent Events

In February, 2012, the Company signed a letter of intent to acquire a pump repair facility in Shreveport, LA. It is anticipated that this transaction will close in early April, 2012.

The Company has evaluated subsequent events through March 28, 2012, the date that these financial statements were available to be issued.

Note 1 – Receivables

The components of receivables are as follows:

	September 30, 2013	December 31, 2012

Trade receivables	$ 12,921	$ 16,976
Retainage receivables	1,070	878
Impaired receivables	105	105
Employee and other receivables	375	361

Total receivables	14,471	18,320
Less: allowance for doubtful accounts	687	659

Total receivables, net	$ 13,784	$ 17,661

Note 2 – Inventories

The components of inventories are as follows:

	September 30, 2013	December 31, 2012

Raw materials and components	$ 3,470	$ 3,687
Work-in-process
Cost incurred on all uncompleted contracts	37,191	30,894
Less: Amounts involved in percentage completion method of accounting (Note 3)	33,475	26,159
Total work-in-process (completed contract method)	3,716	4,735
Finished goods	191	137

Total inventories	$ 7,377	$ 8,559

B27, LLC AND SUBSIDIARIES

Notes to Unaudited Interim Consolidated Financial Statements

(Thousands of dollars)

Note 3 – Costs and Estimated Profit on Uncompleted Contracts

Following is information with respect to uncompleted contracts accounted for under the percentage completion method of accounting:

	September 30, 2013	December 31, 2012

Costs incurred on uncompleted contracts	$ 33,475	$ 26,159
Estimated gross profit	16,320	10,818
Total revenue recorded on uncompleted contracts	49,795	36,977
Billings applicable thereto	(32,209)	(29,263)
Total excess (deficit) on uncompleted contracts	$ 17,586	$ 7,714
Reflected in the accompanying balance sheet as:
Costs and estimated profit in excess of billings on uncompleted contracts	$ 20,441	$ 17,630
Billings in excess of costs and estimated profit on uncompleted contracts	(2,855)	(9,916)

Total excess (deficit) on uncompleted contracts	$ 17,586	$ 7,714

Note 4 – Property, Plant and Equipment

A summary of property, plant and equipment is as follows:

Assets	Useful Life	September 30, 2013	December 31, 2012

Land	N/A	$ 284	$ 284
Building and building equipment	10-25 years	1,998	1,918
Improvements & leasehold improvements	1-5 Years	980	769
Office furniture, fixtures and equipment	3-7 Years	897	841
Computer software	3 Years	879	920
Vehicles	3-5 Years	520	381
Production equipment	7-10 Years	9,321	7,797
Pattern Costs	7-10 Years	3,412	2,503
Equipment under construction		452	153

Total property, plant and equipment		18,743	15,566
Less: accumulated depreciation		4,342	3,258
Property, plant and equipment, net		$ 14,401	$ 12,308

Note 5 – Line of Credit

The Company has a revolving line of credit of $20,000 that bears interest at a rate that varies based on the bank’s prime interest rate plus 3.75% as determined and is secured by substantially all of the Company's assets. There were no borrowings under the revolving note at September 30, 2013 and December 31, 2012.

The Company additionally issues letters of credit which are issued to customers in the ordinary course of business to support advanced payments, as performance and/or warranty guarantees or in lieu of retention on contracts. Letters of credit issued to secure guaranteed contracts as of September 30, 2013 and December 31, 2012, totaled $12,823 and $2,896, respectively.

B27, LLC AND SUBSIDIARIES

Notes to Unaudited Interim Consolidated Financial Statements

(Thousands of dollars)

Note 6 – Long-term Borrowings

Long-term borrowings are summarized as follows:

	September 30, 2013	December 31, 2012
Senior note, due in varying installments at variable rates as further described below and maturing March, 2016, secured by all assets of the Company	$ 35,625	$ 38,000
Subordinated note – related party acquisition financing, interest only paid quarterly at a fixed rate of 10% and payment-in-kind interest of 7.5% added to the principal balance of the notes, maturing January, 2014, unsecured	4,948	4,680
Subordinated note – related parties, payment-in-kind component of financing, interest at 17.75% added to the principal balance of the note, maturing October, 2013, unsecured	1,189	1,042
Total borrowings	41,762	43,722
Less current portion	9,833	4,292
Total long-term borrowings	$ 31,929	$ 39,430

The Company is subject to certain restrictive financial and other covenants under the long-term credit agreements, including affirmative, negative and financial reporting covenants. As of September 30, 2013 and December 31, 2012, management believes the Company is in compliance with the covenant requirements.

Note 7 – Fair Market Value Measurements

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Assets and liabilities measured at fair value on a nonrecurring basis consist of goodwill and other intangible assets. These assets are measured using level 3 inputs as defined in ASC 820.

B27, LLC AND SUBSIDIARIES

Notes to Unaudited Interim Consolidated Financial Statements

(Thousands of dollars)

Note 8 – Business and Credit Concentrations

For the three and nine months ended September 30, 2013, approximately 28% and 43%, respectively, of the Company's sales were to companies outside of the United States. No one customer or country accounted for a significant portion of these sales.

As of September 30, 2013 and December 31, 2012, one customer accounted for approximately 10% and 22%, respectively, of accounts receivable. No other customer accounted for greater than 10% of the accounts receivable at September 30, 2012 and December 31, 2012.

The Company maintains bank accounts at several banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation. Management closely monitors the financial condition of these institutions.

Note 9 – Related Party Transactions

The Company pays management fees for services to three related parties, including; Champlain Capital Partners, Honeywell and the Board Chairman, Steve Ardia. During the three and nine month periods ended September 30, 2013 and 2012, the Company recorded the following in management fees related to these services:

	2013	2012
Three months ended September 30	$ 56	$ 56
Nine months ended September 30	$ 169	$ 169

The Company leases two manufacturing facilities from Reynolds Real Estate, LLC which is owned by the original unit holders of B27, LLC. Each of the leases is a nine year lease expiring December 31, 2018. During the three and nine month periods ended September 30, 2013 and 2012, the Company recorded the following expenses related to these leases:

	2013	2012
Three months ended September 30	$ 233	$ 229
Nine months ended September 30	$ 699	$ 631

B27, LLC has an enterprise license to use software products from Intelliquip, LLC which is owned by the original unit holders of B27, LLC. There is no cost to use these licenses until the software is implemented. When implemented, B27 is obligated to pay maintenance and hosting fees based on the current software selling price. Best Equipment Service and Sales Company, LLC has begun use of these licenses to provide software services related to a web-enabled automated sales program. During the three and nine month periods ended September 30, 2013 and 2012, the Company recorded the following expenses related to these licenses:

	2013	2012
Three months ended September 30	$ 27	$ 44
Nine months ended September 30	$ 46	$ 75

Short-term and long-term borrowings described earlier in Notes 6 are being provided by certain members of the Company.

Certain members of the Company have provided third party financing to one of the Company’s vendors.

B27, LLC AND SUBSIDIARIES

Notes to Unaudited Interim Consolidated Financial Statements

(Thousands of dollars)

Note 10 – Subsequent Events

The Company has evaluated subsequent events through the date that these financial statements were available to be issued. On December 9, 2013, the Company entered into a Securities Purchase Agreement pursuant to which all of the equity of B27 is to be sold. Consummation of the transaction remains subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, along with the satisfaction of other customary closing conditions.

Texas	76-0509661
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

7272 Pinemont, Houston, Texas 77040	(713) 996-4700
(Address of principal executive offices)	Registrant’s telephone number, including area code:

	2012	2011
ASSETS

Current assets
Cash and cash equivalents	$ 1,014	$ 4,764
Receivables, principally trade, net	17,661	23,607
Inventories	8,559	4,936
Costs and estimated profit in excess of billings on uncompleted contracts	17,630	3,813
Prepaid and other current assets	967	501
Total current assets	45,831	37,621

Property, plant and equipment, net	12,308	6,039

Goodwill	53,600	51,877

Other intangibles, net	14,343	15,613

Other assets	40	14

Total assets	$ 126,122	$ 111,164

LIABILITIES AND MEMBERS’ EQUITY

Current liabilities
Current portion of long-term borrowings	$ 4,292	$ 2,750
Accounts payable	13,714	6,111
Accrued expenses	3,156	4,313
State taxes payable	247	154
Billings in excess of costs and estimated profit on uncompleted contracts	9,916	10,355
Customer deposits and other deferred revenue	146	1,146
Total current liabilities	31,471	24,829

Long-term borrowings, excluding current portion	39,430	43,247

Total liabilities	70,901	68,076

Members’ equity
	55,221	43,088
Total liabilities and members’ equity	$ 126,122	$ 111,164

	2012	2011

Revenues	$ 141,896	$ 94,289
Cost of goods	104,782	65,827
Gross profit	37,114	28,462

Selling, general & administrative expenses	19,578	16,071
Operating earnings	17,536	12,391

Other income & expenses
Interest income	14	1
Other loss, net	(90)	(24)
Interest expense	(3,963)	(6,197)
Net earnings	13,497	6,171

Income, franchise and foreign taxes
Federal income tax expense	-	(33)
State income tax expense	(258)	(159)
Foreign income tax expense	(81)	(11)
Net earnings after taxes	13,158	5,968

Other comprehensive income
Foreign currency translation adjustment	(44)	-
Net comprehensive earnings	$ 13,114	$ 5,968

	Members' Equity	Cumulative Translation Cost	Total Members' Equity

Balances at December 31, 2010	$ 32,431	$ (44)	$ 32,387

Net earnings	5,968	-	5,968
Conversion of debt	6,937	-	6,937
Distributions	(2,204)	-	(2,204)

Balances at December 31, 2011	43,132	(44)	43,088

Net earnings	13,158	-	13,158
Foreign currency translation adjustment	(44)	44	-
Distributions	(1,025)	-	(1,025)

Balances at December 31, 2012	$ 55,221	$ -	$ 55,221

	2012	2011

Cash flows from operating activities:
Net earnings	$ 13,114	$ 5,968
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation & amortization	2,786	2,505
Non cash payment-in-kind interest	504	736
Bad debt expense	212	73
Gain on disposal of assets	-	(1)
Disposal of deferred loan fees	-	880
Foreign currency translation adjustment	44	-
Changes in assets and liabilities, net:
Receivables	6,307	(13,843)
Inventories	(3,491)	2,027
Other assets	(492)	66
Accounts payable	7,527	1,256
Accrued expenses	(1,177)	(1,290)
State taxes payable	93	30
Costs and estimated profit and related billings	(14,256)	8,314
Anticipated losses on long term contracts	-	(145)
Customer deposits and other deferred revenues	(1,000)	(689)
Net cash provided by operating activities	10,171	5,887

Cash flows from investing activities:
Capital expenditures	(6,018)	(2,649)
Proceeds from sale of property, plant and equipment	-	1
Redemption of certificate of deposit	-	108
New acquisition	(4,021)	-
Net cash used in investing activities	(10,039)	(2,540)

Cash flows from financing activities:
Proceeds from short-term borrowing	500	-
Proceeds from long-term borrowing	-	42,029
Payments of short-term debt	(500)	-
Payments of long-term debt	(2,779)	(46,701)
Loan acquisition costs	(78)	(1,071)
Distributions	(1,025)	(2,204)
Net cash used in financing activities	(3,882)	(7,947)
Net change in cash and cash equivalents	(3,750)	(4,600)
Cash and cash equivalents at beginning of year	4,764	9,364
Cash and cash equivalents at end of year	$ 1,014	$ 4,764

Supplemental data:
Cash paid for interest	$ 3,206	$ 3,858
Cash paid for income taxes	$ 246	$ 183
Non-cash conversion of debt	$ -	$ 6,937

Current assets		$ 705
Property and equipment		1,404
Intangible assets		285
Goodwill		1,723
Total assets		4,117

Purchase liabilities		96
Purchase price		$ 4,021

	Members' Equity	Cumulative Translation Account	Total Members' Equity

Balances at December 31, 2009	$ 26,451	$ (44)	$ 26,407

Net earnings	5,980	-	5,980

Balances at December 31, 2010	32,431	(44)	32,387

Net earnings	5,968	-	5,968
Conversion of debt	6,937	-	6,937
Distributions	(2,204)	-	(2,204)

Balances at December 31, 2011	$ 43,132	$ (44)	$ 43,088

	September 30,	December 31,
	2013	2012
ASSETS

Current assets
Cash and cash equivalents	$ 9,986	$ 1,014
Receivables, principally trade, net	13,784	17,661
Inventories	7,377	8,559
Costs and estimated profit in excess of billings on uncompleted contracts	20,441	17,630
Prepaid and other current assets	1,405	967
Total current assets	52,993	45,831

Property, plant and equipment, net	14,401	12,308

Goodwill	53,600	53,600

Other intangibles, net	13,112	14,343

Other assets	46	40

Total assets	$ 134,152	$ 126,122

LIABILITIES AND MEMBERS’ EQUITY

Current liabilities
Current portion of long-term borrowings	$ 9,833	$ 4,292
Accounts payable	12,526	13,714
Accrued expenses	6,314	3,156
State taxes payable	172	247
Billings in excess of costs and estimated profit on uncompleted contracts	2,855	9,916
Customer deposits and other deferred revenue	3,093	146
Total current liabilities	34,793	31,471

Long-term borrowings, excluding current portion	31,929	39,430

Total liabilities	66,722	70,901

Members’ equity
	67,430	55,221
Total liabilities and members’ equity	$ 134,152	$ 126,122

	Three Months Ended		Nine Months Ended
	2013	2012	2013	2012

Revenues	$ 50,518	$ 38,458	$ 123,224	$ 96,500
Cost of goods	35,273	28,673	90,402	71,405
Gross profit	15,245	9,785	32,822	25,095

Selling, general & administrative expenses	5,699	4,553	15,687	13,666
Operating earnings	9,546	5,232	17,135	11,429

Other income & expenses
Interest income	21	4	21	7
Other income, net	(5)	4	17	7
Interest expense	(1,149)	(977)	(3,554)	(2,973)
Net earnings before taxes	8,413	4,263	13,619	8,470

Income, franchise and foreign taxes
Federal income tax expense	(23)	-	(23)	-
State income tax expense	(27)	(62)	(131)	(167)
Foreign income tax expense	-	6	(6)	-

Net earnings after taxes	$ 8,363	$ 4,207	$ 13,459	$ 8,303

	Nine Months Ended September 30,
	2013	2012
Cash flows from operating activities:
Net earnings	$ 13,459	$ 8,303
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation & amortization	2,469	1,876
Non cash payment-in-kind interest	415	373
Bad debt expense	6	21
Gain on disposal of assets	(6)	-
Changes in assets and liabilities, net:
Receivables	3,871	9,763
Inventories	1,182	(3,122)
Other assets	(444)	(533)
Accounts payable	(1,188)	342
Accrued expenses	3,158	(79)
State taxes payable	(75)	90
Costs and estimated profit and related billings	(9,873)	(19,146)
Anticipated losses on long-term contracts	-	175
Customer deposits and other deferred revenues	2,948	8,658
Net cash provided by operating activities	15,922	6,721

Cash flows from investing activities:
Capital expenditures	(3,524)	(3,894)
Proceeds from sale of property, plant and equipment	19	-
Acquisition of business	-	(4,021)
Net cash used in investing activities	(3,505)	(7,915)

Cash flows from financing activities:
Proceeds from short-term borrowing	4,725	-
Payments of debt short-term debt	(4,725)	-
Payments of debt long-term debt	(2,375)	(2,029)
Loan acquisition costs	180	100
Distributions	(1,250)	-
Net cash used in financing activities	(3,445)	(1,929)
Net change in cash and cash equivalents	8,972	(3,123)
Cash and cash equivalents at beginning of period	1,014	4,764
Cash and cash equivalents at end of period	$ 9,986	$ 1,641

DXP ENTERPRISES, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED BALANCE SHEET As of September 30, 2013 (in thousands)(unaudited)
	DXP	B27	Pro Forma		Pro Forma
	Historical	Historical	Adjustments		Combined
ASSETS
Current Assets:
Cash	$ 8,271	$ 9,986	$ (9,986)	(a)	$ 8,271
Accounts receivable, net	196,036	13,784	-		209,820
Inventories, net	110,207	7,377	-		117,584
Prepaid expenses and other current assets	3,692	21,846			25,538
Deferred income taxes	7,158	-	-		7,158
Total current assets	325,364	52,993	(9,986)		368,371
Property & equipment, net	60,751	14,401	-		75,152
Goodwill	186,847	53,600	(53,600) 209,856	(a) (d)	396,703
Other intangible assets, net	73,412	13,112	(13,112) 65,000	(g) (e)	138,412
Other long-term assets	5,127	46	2,000	(b)	7,173
Total assets	$ 651,501	$ 134,152	$ 200,158		$ 985,811

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$ 23,776	$ 9,833	$ (9,833)	(b)	$ 23,776
Trade accounts payable	91,918	12,526	-		104,444
Accrued expenses and other current liabilities	43,983	12,434	1,300	(c)	57,717
Total current liabilities	159,677	34,793	(8,533)		185,937
Long term debt, less current maturities	212,375	31,929	(31,929) 283,600	(b) (b)	495,975
Deferred income taxes	22,492	-	22,750	(e)	45,242
			(1,300)	(c)
			3,000	(b)
Shareholders' equity	256,957	67,430	(67,430)	(f)	258,657
Total liabilities & shareholders' equity	$ 651,501	$ 134,152	$ 200,158		$ 985,811

The accompanying notes are an integral part to these pro forma condensed combined financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME For the Nine Months Ended September 30, 2013 (in thousands, except per share amounts) (unaudited)

	DXP Historical	B27 Historical	Pro Forma Adjustments		Pro Forma Combined

Sales	$ 927,758	$ 123,224	$ -		$ 1,050,982
Cost of sales	650,015	90,402	-		740,417
Gross profit	277,743	32,822	-		310,565
Selling, general and administrative expense	195,655	14,640	-		210,295
Intangible asset amortization	9,221	1,047	(1,047) 3,483	(a) (h)	12,704
Operating income	72,867	17,135	(2,436)		87,566
Other expense (income)	(16)	(38)	-		(54)
Interest expense	4,930	3,554	4,353	(i)	12,837
Income before taxes	67,953	13,619	(6,789)		74,783
Provision for income taxes	24,620	160	2,572	(j)	27,352
Net income	43,333	13,459	(9,361)		47,431
Preferred stock dividend	68	-	-		68
Net income attributable to common shareholders	$ 43,265	$ 13,459	$ (9,361)		$ 47,363

Basic income per share	$ 3.00				$ 3.28
Weighted average common shares outstanding	14,430		30	(b)	14,460
Diluted income per share	$ 2.84				$ 3.10
Weighted average common and common equivalent shares outstanding	15,270		30	(b)	15,300
The accompanying notes are an integral part to these pro forma condensed combined financial statements.

Total current assets	$ 43,053
Intangible assets	65,000
Goodwill	209,856
Property and equipment	14,401
Total liabilities	(47,710)
Total purchase price	$ 284,600