CENTRAL ENERGY PARTNERS LP

The Partnership Agreement provides for minimum quarterly distributions to its holders of Common Units (“Unitholders”) of $0.25 per Common Unit. The Partnership has not made distributions to its Unitholders or the General Partner in any amount since August 18, 2008 for the quarter ended June 30, 2008. Since the Sale, the members of the General Partner have held more than 80% of the total issued and outstanding Common Units of the Partnership and, therefore, control any vote on Partnership matters. In December 2010, the General Partner and Unitholders holding more than a majority in interest of the Common Units of the Partnership approved an amendment to the Partnership Agreement to provide that the Partnership was no longer obligated to make distributions of “Common Unit Arrearage” or “Cumulative Common Unit Arrearages” pursuant to the terms of the Partnership Agreement in respect of any quarter prior to the quarter beginning October 1, 2011. The impact of this amendment was that the Partnership was no longer obligated to Unitholders for unpaid minimum quarterly distributions prior to the quarter beginning October 1, 2011 and Unitholders would only be entitled to minimum quarterly distributions arising from the quarter beginning October 1, 2011 and thereafter.

On May 15, 2015, Tank 110, holding approximately 840,000 gallons of liquid asphalt (“Tank 110”) leased to Associated Asphalt Hopewell, LLC (the “Asphalt Customer”) was discovered to have a leak (the “Asphalt Leak”). Regional and the Asphalt Customer immediately took all necessary measures to limit and mitigate the amount of asphalt released from Tank 110. Regional and the Asphalt Customer arranged for the expedited removal of approximately 674,000 gallons of asphalt from Tank 110 through (a) the transfer of asphalt to a vacant smaller tank at the Regional terminal, (b) the transfer of asphalt to one of the Asphalt Customer’s terminal locations and (c) expedited sales of asphalt to customers of the Asphalt Customer. The remaining contents of Tank 110, consisting of approximately 166,000 gallons of asphalt (“Spilled Asphalt”), was released into the containment area of the Regional terminal, except for a portion of the asphalt which remains contained within the interior of Tank 110.

Regional has notified its insurance providers of the Asphalt Leak. Regional believes that all of the costs incurred in connection with the Asphalt Leak, including the Asphalt Customer Claim, and a portion of the Lost Rents are covered through Regional’s insurance policies, subject to any exclusions for liability to repair Tank 110 including ordinary wear and tear or corrosion. Regional has requested its insurance providers to make an advanced payment of certain costs related to the Asphalt Leak. As of the date of this Form 10-Q, the insurance providers have not had access to the inside of Tank 110 to assess damage or the cause of the Asphalt Leak. As a result, the insurance providers have not provided any analysis or opinion as to whether they will accept or deny coverage for the cost of repairing Tank 110.

At June 30, 2015, Regional recorded an expense of $257,000 as a part of “cost of goods sold” in connection with the Asphalt Leak, which represents a reserve in the amount of $232,000 to repair Tank 110 and the casualty policy deductible of $25,000. At the present time, Regional does not have a third-party estimate of the cost of repairing Tank 110. Regional has not reserved any costs associated with the cleanup of the Spilled Asphalt and the Asphalt Customer Claim, as its insurance providers have indicated they will reimburse the company for such losses, less the applicable deductibles. The above amounts do not include any Lost Rents which may be reimbursed to Regional through existing insurance coverage.

^{Regional expects that the Storage Tank will be operational by the 4th} quarter of 2015.

Our unaudited consolidated balance sheets have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. However, currently the General Partner’s cash reserves are limited and the remaining available amounts (approximately $87,000 at August 3, 2015) are intended to be used to fund the Partnership’s ongoing working capital requirements, including necessary funding of working capital for Regional. In connection with the Hopewell Note, Regional is currently required to make monthly payments of $28,000 (interest only) and such amounts are expected to increase to $56,000 (principal and interest) once Tank 110 is operational. In March 2016, a balloon payment for the principal amount owed on the Hopewell Note will be due (approximately $2,376,000 at June 30, 2015). Payments under the Hopewell Note could be accelerated in the event of a default. The amount of penalties related to the remaining 2012 Tax Return are $142,000 and will be required to be paid if the Partnership’s appeal is unsuccessful. In connection with the Asphalt Leak, the exposure to Regional for costs in excess of insured amounts has yet to be determined. In addition, Regional may be required to fund the costs associated with the Asphalt Leak prior to receiving advances or reimbursements available under the applicable insurance policies, including deductible amounts under each applicable insurance policy, and any costs incurred in excess of coverage amounts. All of Central’s assets are pledged as collateral for the Hopewell Loan, and therefore, Central is unable to obtain additional financing collateralized by those assets without the repayment of the Hopewell Loan. In addition, the Partnership has obligations under existing registration rights agreement which may be a deterrent to any future financings.