FRONT LINE POWER CONSTRUCTION, LLC

ROSHARON, TEXAS

FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2020 and 2019

ex_312628img001.jpg

8 WEST WAY COURT

LAKE JACKSON, TEXAS 77566

(979) 297-4075

 

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FRONT LINE POWER CONSTRUCTION, LLC

FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

TABLE OF CONTENTS

    Page
Independent Auditor's Report   5-6
     
FINANCIAL STATEMENTS:    
     
Balance Sheets   8-9
     

Statements of Operations and Partners' Capital

  10-11
     
Statements of Cash Flow   12
     
Notes to Financial Statements   13-21
 

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Independent Auditors Report

Front Line Power Construction, LLC

Rosharon, Texas 77583

We have audited the accompanying financial statements of Front Line Power Construction, LLC ( the “Company”) which comprise the balance sheets as of December 31, 2020 and 2019, , and the related statements of operations and partners’ capital, and cash flows for the years then ended, and the related notes to the financial statements.

Managements 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 from 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 auditor’s 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.

Lake Jackson

El Campo

Angleton

Bay City

8 W Way Ct.

201 W. Webb St.

2801 N. Velasco, Suite C

2245 Avenue G

Lake Jackson, TX 77566

El Campo, TX 77437

Angleton, TX 77515

Bay City, TX 77414

979-297-4075

979-543-6836

979-849-8297

979-245-9236

 ex_312628img003.jpg

www.kmandl.com

 

Front Line Power Construction, LLC

Page 2

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, 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.

KM&L, LLC

Lake Jackson, Texas

July 9, 2021

-6-

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FRONT LINE POWER CONSTRUCTION, LLC

BALANCE SHEETS

December 31, 2020 and 2019

Assets

   

2020

   

2019

 

Current Assets:

               

Cash and cash equivalents

  $ 8,584,450     $ 4,068,870  

Accounts receivable (net of allowance

               

for doubtful accounts of $73,128 and $73,128)

    8,608,632       14,344,579  

Costs and estimated earnings in excess of billings

               

on uncompleted contracts

    653,323       1,241,341  

Prepaid expenses

    377,595       119,900  

Other assets

    45       17,044  
                 

Total current assets

    18,224,045       19,791,734  
                 

Property and Equipment:

               

Computers and office equipment

    82,632       82,632  

Field equipment and tools

    6,162,692       5,564,270  

Vehicles and vehicle equipment

    13,353,009       10,948,544  

Leasehold improvements

    46,976       34,427  
                 

Total property and equipment

    19,645,309       16,629,873  
                 

Less accumulated depreciation

    9,500,737       6,619,025  
                 

Net property and equipment

    10,144,572       10,010,848  
                 

Other Assets:

               

Investment

    302,722       132,995  
                 

Total other assets

    302,722       132,995  
                 

Total assets

  $ 28,671,339     $ 29,935,577  

The accompanying notes are an integral part of the financial statements.

-8-

Liabilities and Partners Capital

      2020       2019  

Current Liabilities:

               

Accounts payable

  $ 325,954     $ 1,196,191  

Other current liabilities

    222,134       147,260  

Billings in excess of costs and estimated

               

earnings on uncompleted contracts

    32,635       73,404  

Current portion of notes payable

    1,408,476       324,520  
                 

Total current liabilities

    1,989,199       1,741,375  
                 

Long-Term Liabilities:

               

Notes payable

    931,229       1,180,357  

PPP loan payable

    2,144,607        
                 

Total long-term liabilities

    3,075,836       1,180,357  
                 

Total liabilities

    5,065,035       2,921,732  
                 

Partners' capital

    23,606,304       27,013,845  
                 

Total liabilities and partners' capital

  $ 28,671,339     $ 29,935,577  
-9-

FRONT LINE POWER CONSTRUCTION, LLC

STATEMENTS OF OPERATIONS AND PARTNERS’ CAPITAL

For the Years Ended December 31, 2020 and 2019

   

2020

   

2019

 
                 

Revenue

  $ 56,120,605     $ 54,980,814  

Cost of sales

    39,609,829       39,028,271  
                 

Gross margin

    16,510,776       15,952,543  
                 

Operating Expenses:

               

Salaries and wages

    1,238,589       1,013,992  

Employee benefits

    143,189       180,136  

Business promotion

          23,517  

Bank charges

    5,487       6,434  

Charitable contributions

    2,332       18,691  

Dues and subscriptions

    20,263       14,984  

Equipment rental

    18,708       30,723  

Freight and postage

    6,319       8,106  

Interest expense

    50,185       8,710  

Licenses and permits

    6,919       30,748  

Printing and reproduction

          4,821  

Professional fees

    269,681       179,665  

Building rent

    150,000       150,000  

Telephone

    51,339       45,814  

Utilities

    20,450       19,465  

Uniforms

          3,851  

Supplies

    46,666       41,554  

Payroll taxes

    88,312       78,273  

Employee testing

    74,339       111,025  

Other taxes

    1,200       4,170  

Property taxes

    172,519       122,127  

Franchise taxes

    178,559       110,544  

Travel

    1,507       4,641  

Meals and entertainment

    75,399       66,678  

Miscellaneous

    33,357       31,861  
                 

Total operating expenses

    2,655,319       2,310,530  
                 

Income from operations

    13,855,457       13,642,013  

(continued)

-10-

FRONT LINE POWER CONSTRUCTION, LLC

STATEMENTS OF OPERATIONS AND PARTNERS’ CAPITAL - Continued

For the Years Ended December 31, 2020 and 2019

   

2020

   

2019

 
                 

Other Income (Expense):

               

Other income

  $ 14,555     $ 6,279  

Loss on disposal of assets

    (27,553 )     (7,993 )
                 

Total other income (expense)

    (12,998 )     (1,714 )
                 

Net income

    13,842,459       13,640,299  
                 

Beginning partners' capital

    27,013,845       18,748,546  
                 

Distributions to partners

    (17,250,000 )     (5,375,000 )
                 

Ending partners' capital

  $ 23,606,304     $ 27,013,845  

The accompanying notes are an integral part of the financial statements

-11-

FRONT LINE POWER CONSTRUCTION, LLC

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2020 and 2019

   

2020

   

2019

 

Cash Flows from Operating Activities

               

Net income

  $ 13,842,459     $ 13,640,299  

Adjustments to Reconcile Net Income to

               

Net Cash Provided by Operating Activities:

               

Depreciation

    3,022,760       2,401,919  

Loss on disposal of assets

    27,553       7,993  

Changes in Working Capital

               

Accounts receivable

    5,735,947       (6,391,523 )

Prepaid expenses

    (257,695 )      

Costs and estimated earnings in excess

               

Of billings on uncompleted contracts

    588,018       (805,249 )

Other assets

    16,999       (77,297 )

Accounts payable

    (870,237 )     857,646  

Billings in excess of costs and estimated

               

Earnings on uncompleted contracts

    (40,769 )     (239,935 )

Other liabilities

    74,874       35,803  
                 

Net cash provided by operating activities

    22,139,909       9,429,656  
                 

Cash Flows from Investing Activities:

               

Purchase of investment

    (169,727 )     (132,995 )

Purchase of property and equipment

    (3,184,037 )     (5,396,747 )
                 

Net cash used by investing activities

    (3,353,764 )     (5,529,742 )
                 

Cash Flows from Financing Activities

               

Proceeds from notes payable

    3,316,829       1,432,980  

Payments on notes payable

    (337,394 )     (111,372 )

Distribution of partners' capital

    (17,250,000 )     (5,375,000 )
                 

Net cash used by financing activities

    (14,270,565 )     (4,053,392 )
                 

Net increase (decrease) in cash and cash equivalents

    4,515,580       (153,478 )
                 

Cash and cash equivalents, January 1

    4,068,870       4,222,348  
                 

Cash and cash equivalents, December 31

  $ 8,584,450     $ 4,068,870  
                 

Cash Paid for Interest:

               

Interest

  $ 50,185     $ 8,710  
                 

Federal income taxes

  $     $  

The accompanying notes are an integral part of the financial statements

-12-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

INDEX

Note

Page

 

A.

Summary of Significant Accounting Policies

14
 

B.

Deposits

16
 

C.

Investment

16
 

D.

Costs and Estimated Earnings on Uncompleted Contracts

17
 

E.

Long-Term Notes Payable

18
 

F.

Operating Leases

20
 

G.

Related Party Transactions

20
 

H.

Contingent Liabilities and Litigation

20
 

I.

Union Employee Benefit Plans

20
 

J.

Evaluation of Subsequent Events

21
-13-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS

For the Years Ended December 31, 2020 and 2019

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Front Line Power Construction, LLC (“Company”) is a partnership which is engaged in full service electrical construction. The Company’s products are marketed through management and in-house sales representatives.

Cash and Cash Equivalents

The Company considers all short-term investments with a maturity of three months or less to be cash equivalents.

Accounts Receivable and Concentrations of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company grants credit to customers in the electrical distribution and petro-chemical industry. Five customers make up 89% and eight customers make up 90% of the current accounts receivable balance as of December 31, 2020 and 2019, respectively. The Company’s ability to collect the amounts due from customers is affected by current economic conditions in these industries. The Company maintains an allowance for doubtful accounts based on its historical bad debt experience. Uncollectible accounts are charged against the reserve account. A provision for bad debts is expensed to restore the reserve. The balance recorded in the allowance for doubtful accounts was $73,128 and $73,128 at December 31, 2020 or 2019, respectively. Financial risk also exists in regards to the distribution of customer revenue. Seven customers make up 93% and five customers make up 95% of the revenue for the years ended December 31, 2020 and 2019, respectively. One customer makes up 68% and 78% of the total revenue across a number of the customer’s divisions for the years ended December 31, 2020 and 2019, respectively.

Property and Equipment

Property and equipment are recorded at cost less depreciation and amortization. Depreciation and amortization are primarily accounted for on a straight-line method based on estimated useful lives of the assets.

Depreciation and amortization is based on the following useful lives:

  Years
Computers and office equipment

5

Field equipment and tools 5-7

Vehicles and vehicle equipment

5-7
Leasehold improvements 15

The Company’s depreciation expense was $3,022,760 and $2,401,919 for the years ended December 31, 2020 and 2019, respectively.

-14-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, 2020 and 2019

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Income taxes

The Company is a partnership and therefore any income is not taxable to the Company but flows through to the Company’s partners.

Adoption of New Accounting Standard and Revenue Recognition

The Company recognizes revenue according to FASB ASC 606 revenue from contracts with customers. FASB ASC 606 has been adopted by the Company using the Full Retrospective Method which has been applied and is effective as of January 1, 2019.

As part of the adoption of FASB ASC 606, the Company did consider but was not required to elect specific transition expedients as the adoption of the new standard required no changes to previously reported revenues as a result of the adoption.

The majority of the Company’s revenue is recognized at a point in time based on the transfer of control or percentage of completion on a contract. Revenue recognized over time primarily consists of performance obligations that are satisfied within one year or less. In addition, the majority of the Company’s contracts do not contain variable consideration. Based on the Company’s evaluation process and review of its contracts with customers, the timing and amount of revenue recognized previously is consistent with how revenue is recognized under the new standard. Contract change orders do occur on percentage of completion contracts and revenue is recognized using the percentage of completion method while considering these ongoing contract change orders and the relative completion of the change orders. There are warranties typically provided on completed contract work up to 12 months from contract completion however warranty work is rare and therefore the probability of future warranty work occurring is insignificant. For these reasons, there is not a significant impact as a result of adopting FASB ASC 606.

There are three major revenue streams which are for construction, service and maintenance, and storm restoration. As previously discussed, revenue is recognized when performance obligations are met throughout the contract primarily based on percentage of completion. At December 31, 2020 and 2019 the Company had contract assets and liabilities. The contract assets are listed on the balance sheet as cost and estimated earnings in excess of billings on uncompleted contracts in the amount of $653,323 and $1,241,341 as of December 31, 2020 and 2019, respectively. Contract liabilities are listed on the balance sheet as billings in excess of costs and estimated earnings on uncompleted contracts in the amount of $32,635 and $73,404 as of December 31, 2020 and 2019, respectively.

Cost of Revenue

Cost of sales are direct costs which are incurred in the delivery of construction services.

-15-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, 2020 and 2019

NOTE A SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES - Continued

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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.

NOTE B - DEPOSITS

The Company does not require financial institutions to provide collateral for amounts in excess of insured balances. At December 31, 2020 the carrying amount of the Company’s deposits was $8,584,450 while the financial institution balances totaled $9,853,898. At December 31, 2019 the carrying amount of the Company’s deposits was $4,068,870 while the financial institution balances totaled $4,747,056.

NOTE C - INVESTMENT

The Company is not restricted as to the type of investments, which can be made with unrestricted funds.

During both 2020 and 2019 the Company invested in a captive insurance provider. The carrying amount of the investment was $302,722 at December 31, 2020 and $132,995 at December 13, 2019. The market value of this investment is not readily determinable. The Company elects to measure the investment at cost less any impairment and plus or minus changes visible from observable price changes. The Company determined that the investment was not impaired and therefore no impairment adjustments have been recorded to the original cost. There were no unrealized gains or losses in 2020 or 2019.

Fair Value Measures

Financial Accounting Standards Board Accounting Standards Codification 820-10, Fair Value Measurements (FASB Codification 820-10), establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level

3 measurements). The three levels of the fair value hierarchy under FASB Codification 820-10 are described below:

Level 1         Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.

Level 2         Inputs to the valuation methodology include:

 

Quoted prices for similar assets or liabilities in active markets;

 

Quoted prices for identical or similar assets or liabilities in inactive markets;

 

Inputs other than quoted prices that are observable for the asset or liability;

(continued)

-16-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, 2020 and 2019

NOTE C - INVESTMENT - continued

 

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

                        If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3         Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets at fair value as of December 31, 2020 and 2019:

   

Assets at Fair Value

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

December 31, 2020:

                               

Captive insurance provider

  $     $ 302,722     $     $ 302,722  
                                 

Total assets at fair value

  $     $ 302,722     $     $ 302,722  
   

Assets at Fair Value

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

December 31, 2019:

                               

Captive insurance provider

  $     $ 132,995     $     $ 132,995  
                                 

Total assets at fair value

  $     $ 132,995     $     $ 132,995  

NOTE D - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings on uncompleted contracts for the period ended December 31, 2020 and 2019 were comprised of the following:

   

2020

   

2019

 
                 

Costs incurred on uncompleted contracts

  $ 3,264,043     $ 7,316,216  

Estimated earnings

    1,988,697       4,826,169  
                 
      5,252,740       12,142,385  

Less billings to date

    4,632,052       10,974,448  
                 
    $ 620,688     $ 1,167,937  

(continued)

-17-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, 2020 and 2019

NOTE D - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS - continued

Included in accompanying balance sheet under the following captions:

      2020       2019  

Costs and estimated earnings in excess of billings on

               

uncompleted contracts

  $ 653,323     $ 1,241,341  
                 

Billings in excess of costs and estimated earnings

               

on uncompleted contracts

    (32,635 )     (73,404 )
                 
    $ 620,688     $ 1,167,937  

NOTE E - LONG-TERM NOTES PAYABLE

Long-term debt at December 31, is comprised of the following:

   

2020

   

2019

 

Note payable to a financial institution, due in monthly

               

installments of $976 at 0% interest, final payment due

               

August 2020, secured by equipment.

  $     $ 7,808  
                 

Note payable to a financial institution, due in monthly

               

installments of $831 at 5% interest, final payment due

               

November 2021, secured by equipment

    4,987       14,963  
                 

Note payable to a financial institution, due in monthly

               

installments of $829 at 0% interest, final payment due

               

July 2022, secured by equipment

    14,924       24,872  
                 

Note payable to a financial institution, due in monthly

               

installments of $2,289 at 0% interest, final payment due

               

September 2022, secured by equipment

    48,073       75,544  
                 

Note payable to a financial institution, due in monthly

               

installments of $1,531 at 0% interest, final payment due

               

January 2023, secured by equipment

    39,809       58,182  
                 

Note payable to a bank, due in monthly installments of

               

$3,555 including interest at 4.23%, final payment due

               

August 2024, secured by equipment

    147,704       183,300  
                 

Note payable to a bank, due in monthly installments of

               

$3,545 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    150,695       185,977  
                 

Note payable to a bank, due in monthly installments of

               

$3,545 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    150,695       185,977  
-18-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, 2020 and 2019

NOTE E - LONG-TERM NOTES PAYABLE - Continued

      2020       2019  

Note payable to a bank, due in monthly installments of

               

$3,549 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

  $ 150,550     $ 186,157  
                 

Note payable to a bank, due in monthly installments of

               

$3,549 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    150,550       186,157  
                 

Note payable to a bank, due in monthly installments of

               

$3,545 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    150,550       185,977  
                 

Note payable to a bank, due in monthly installments of

               

$3,900 including interest at 4.35%, final payment due

               

November 2024, secured by equipment

    171,537       209,963  
                 

Note payable to a financial institution, due in monthly

               

installments of $829 at 0% interest, final payment due

               

July 2022, secured by equipment

    95,338        
                 

Paycheck Protection Program (PPP) loan received in April

               

of 2020. The loan has an effective interest rate of 1% and

               

any balance due would be payable beginning in 2021.

               

The balance which is expected to be payable is $0.

    3,208,900        
                 

Total notes payable

    4,484,312       1,504,877  
                 

Less current maturities

    1,408,476       324,520  
                 

Total long-term notes payable

  $ 3,075,836     $ 1,180,357  

Long-term debt maturing in the next five years is as follows:

Year Ended

                       

December 31,

 

Principal

   

Interest

   

Total

 
                         

2021

  $ 1,408,476     $ 40,454     $ 1,448,930  

2022

    2,483,306       29,112       2,512,418  

2023

    309,647       17,278       326,925  

2024

    248,397       4,142       252,539  

2025

    34,486             34,486  
                         

Total

  $ 4,484,312     $ 90,986     $ 4,575,298  
-19-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, 2020 and 2019

NOTE F - OPERATING LEASES

The Company leases three buildings from an entity and a property from another entity, each under month to month operating leases and each of which can be canceled by either party at any time. Each of the lessor companies share a common owner with the Company. The three leases had monthly payments of $4,000, $6,500 and $2,000 in both 2020 and 2019. The Company also leases temporary building units under operating leases at varying lease payment amounts. Total building operating lease expense was $150,000 for the years ended December 31, 2020 and December 31, 2019.

The Company leases vehicles under an operating lease agreement from an entity which shares a common owner with the Company. Vehicles are leased at varying monthly lease payment amounts and all are month to month leases. Total vehicle operating lease expense was $42,025 for the year ended December 31, 2020 and $97,145 for the year ended December 31, 2019.

NOTE G - RELATED PARTY TRANSACTIONS

The Company has operating lease agreements with four different entities, each having a common owner with the Company. All operating lease agreements are in place for property which is used directly as business use property of the Company and all lease agreements are market based agreements. The total amount paid by the Company in 2020 and 2019 for all of these lease agreements combined was $192,025 and $247,145, respectively.

NOTE H - CONTINGENT LIABILITIES AND LITIGATION

The Company had no contingent liabilities or litigation in process at December 31, 2020 or 2019

NOTE I UNION EMPLOYEE BENEFIT PLANS

The Company employs unionized employees and as a result contributes monthly to union operated employee benefit plans. The name of the plan is National Electrical Benefit Fund (the “Plan”), EIN 53-0181657, Plan Number 001. The Plan has a plan zone status of Green. The union collective bargaining agreement which established this plan has an expiration date of August 31, 2023. The Company contributed $6.50 in 2020 and $6.00 in 2019 per hour worked for eligible employees to a health insurance plan, 3% of gross wages for eligible employees to an employee benefit retirement plan, 25% of gross wages paid to another employee benefit retirement plan and 1% of gross wages for eligible employees to an apprentice program. The Company made combined contributions for all of the these benefit plans totaling $6,716,480 and $5,730,108 which are recorded in cost of revenue for the year ended December 31, 2020 and 2019, respectively. A new fund was created near the end of 2019 which is also employer funded for health insurance and any amount contributed in excess of $6.00 per hour above is offset by the amount funded to this new health insurance fund. The new fund started at $0.60 per hour and was down to $0.10 per hour contribution rate at the end of 2020.

-20-

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, 2020 and 2019

NOTE J - EVALUATION OF SUBSEQUENT EVENTS

The Company has evaluated subsequent events through July 9, 2021, the date which the financial statements were available to be issued.

As of July 9, 2021, the Company has received communication from it’s banking institution that the PPP loan in the amount of $3,208,900 has been forgiven completely.

-21-

THIS PAGE LEFT BLANK INTENTIONALLY.

-22

FRONT LINE POWER CONSTRUCTION, LLC

CONDENSED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2021 and 2020

(Unaudited)

 

FRONT LINE POWER CONSTRUCTION, LLC

Index

Page

Condensed Balance Sheets

1
   
Condensed Statements of Operations and Partners' Capital 3
   
Condensed Statements of Cash Flows 3
   
Notes to Financial Statements 4-9
 

FRONT LINE POWER CONSTRUCTION, LLC

Balance Sheets

(Unaudited)

September 30, 2021 and December 31, 2020

Assets

   

2021

   

2020

 

Current Assets:

               

Cash and cash equivalents

  $ 5,435,503     $ 8,584,450  

Accounts receivable (net of allowance

               

for doubtful accounts of $73,128 and $73,128)

    14,256,830       8,608,632  

Costs and estimated earnings in excess of billings

               

on uncompleted contracts

    695,265       653,323  

Prepaid and other current assets

    365,627       377,640  
                 

Total current assets

    20,753,225       18,224,045  
                 

Property and Equipment:

               

Computers and office equipment

    122,728       82,632  

Field equipment and tools

    6,080,297       6,162,692  

Vehicles and vehicle equipment

    16,534,074       13,353,009  

Leasehold improvements

    55,089       46,976  
                 

Total property and equipment

    22,792,188       19,645,309  
                 

Less accumulated depreciation

    11,785,288       9,500,737  
                 

Net property and equipment

    11,006,900       10,144,572  
                 

Investment

    530,781       302,722  
                 

Total assets

  $ 32,290,906     $ 28,671,339  
 

Liabilities and Partners Capital

(Unaudited)

   

2021

   

2020

 

Current Liabilities:

               

Accounts payable

  $ 515,229     $ 325,954  

Other current liabilities

    1,342,753       222,134  

Billings in excess of costs and estimated

               

earnings on uncompleted contracts

    380,219       32,635  

Current portion of notes payable

    345,475       1,408,476  
                 

Total current liabilities

    2,583,676       1,989,199  
                 

Notes payable

    671,377       931,229  

Paycheck Protection Program ("PPP") loan payable

          2,144,607  
                 

Total liabilities

    3,255,053       5,065,035  
                 

Partners' capital

    29,035,853       23,606,304  
                 

Total liabilities and partners' capital

  $ 32,290,906     $ 28,671,339  
2

FRONT LINE POWER CONSTRUCTION, LLC

STATEMENTS OF OPERATIONS AND PARTNERS’ CAPITAL (Unaudited)

For the Nine Months Ended September 30, 2021 and 2020

   

For the Nine Months Ended September 30,

 
   

2021

   

2020

 
                 

Revenues

  $ 49,683,263     $ 40,688,742  
                 

Cost of revenues

    32,796,639       28,620,521  
                 

Gross profit

    16,886,624       12,068,221  
                 

Operating expenses:

               

Selling, general and administrative expense

    1,767,545       1,432,007  

(Gain) loss on disposal of fixed assets

    (69,944 )     8,614  
                 

Total operating expenses

    1,697,601       1,440,621  
                 

Income from operations

    15,189,023       10,627,600  
                 

Other income (expense)

    3,248,169       (5,722 )

Interest expense

    (32,623 )     (38,341 )

Net income

    18,404,569       10,583,537  
                 

Beginning partners' capital

    23,606,304       27,013,845  
                 

Distributions to partners

    (12,975,020 )     (17,230,815 )
                 

Ending partners' capital

  $ 29,035,853     $ 20,366,567  
3

FRONT LINE POWER CONSTRUCTION, LLC

STATEMENTS OF CASH FLOWS (Unaudited)

For the Nine Months Ended September 30, 2021 and 2020

                 

Cash flows from operating activities:

 

2021

   

2020

 

Net income

  $ 18,404,569     $ 10,583,537  

Adjustments to reconcile net income to net cash

               

provided by operating activities:

               

Depreciation

    2,519,067       2,254,817  

Gain on extinguishment of debt

    (3,208,900 )      

(Gain) loss on disposal of fixed assets

    (69,944 )     8,614  

Changes in operating assets and liabilities:

               

Accounts receivable

    (5,648,198 )     5,053,994  

Costs and estimated earnings in excess

               

of billings on uncompleted contracts

    (41,942 )     1,208,371  

Prepaid expense and other current assets

    12,013       7,585  

Accounts payable

    189,275       (428,745 )

Billings in excess of costs and estimated

               

earnings on uncompleted contracts

    347,584       (59,619 )

Accrued expenses

    1,120,619       (256,416 )

Net cash provided by operating activities

    13,624,143       18,372,138  
                 

Cash flows from investing activities:

               

Purchase of investment

    (228,059 )     (169,727 )

Purchases of property and equipment

    (3,434,521 )     (2,122,071 )

Proceeds from sale of property and equipment

    123,070       52,861  

Net cash used in investing activities

    (3,539,510 )     (2,238,937 )
                 

Cash flows from financing activities:

               

Proceeds from PPP loans

          3,208,900  

Repayment of long-term debt

    (258,560 )     (143,818 )

Distribution of partners' capital

    (12,975,020 )     (17,230,815 )

Net cash used in financing activities

    (13,233,580 )     (14,165,733 )
                 

Net change in cash

    (3,148,947 )     1,967,468  

Cash and cash equivalents at beginning of year

    8,584,450       4,068,870  

Cash and cash equivalents at end of year

    5,435,503       6,036,338  
                 

Supplemental Disclosure of Cash Flow Information

               

Cash paid for interest

  $ 32,623     $ 38,341  
4

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Nine Months Ended September 30, 2021 and 2020

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Front Line Power Construction, LLC (“Company”) is a partnership which is engaged in full service electrical construction. The Company’s products are marketed through management and in-house sales representatives.

Cash and Cash Equivalents

The Company considers all short-term investments with a maturity of three months or less to be cash equivalents.

Accounts Receivable and Concentrations of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company grants credit to customers in the electrical distribution and petro-chemical industry. Three customers make up 79% and five customers make up 89% of the current accounts receivable balance as of September 30, 2021 and December 31, 2020, respectively. The Company’s ability to collect the amounts due from customers is affected by current economic conditions in these industries. The Company maintains an allowance for doubtful accounts based on its historical bad debt experience. Uncollectible accounts are charged against the reserve account. A provision for bad debts is expensed to restore the reserve. The balance recorded in the allowance for doubtful accounts was $73,128 and $73,128 at September 30, 2021 and December 31, 2020, respectively. Financial risk also exists in regards to the distribution of customer revenue. One customer makes up 77% and two customers make up 83% of the revenue for the nine months ended September 30, 2021 and 2020, respectively. One customer makes up 77% and 69% of the total revenue across a number of the customer’s divisions for the nine months ended September 30, 2021 and 2020, respectively.

Income taxes

The Company is a partnership and therefore any income is not taxable to the Company but flows through to the Company’s partners.

5

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Nine Months Ended September 30, 2021 and 2020

NOTE B - INVESTMENT

The Company is not restricted as to the type of investments, which can be made with unrestricted funds.

During both the nine months ended September 30, 2021 and 2020 the Company invested in a captive insurance provider. The carrying amount of the investment was $530,781 at September 30, 2021 and $302,722 at December 31, 2020. The market value of this investment is not readily determinable. The Company elects to measure the investment at cost less any impairment and plus or minus changes visible from observable price changes. The Company determined that the investment was not impaired and therefore no impairment adjustments have been recorded to the original cost. There were no unrealized gains or losses in the nine months ended September 30, 2021 or 2020.

Fair Value Measures

Financial Accounting Standards Board Accounting Standards Codification 820-10, Fair Value Measurements (FASB Codification 820-10), establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB Codification 820-10 are described below:

Level 1         Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.

Level 2         Inputs to the valuation methodology include:

 

Quoted prices for similar assets or liabilities in active markets;

 

Quoted prices for identical or similar assets or liabilities in inactive markets;

 

Inputs other than quoted prices that are observable for the asset or liability;

6

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Nine Months Ended September 30, 2021 and 2020

NOTE B - INVESTMENT - continued

 

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

                        If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3         Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets at fair value as of September 30, 2021 and December 31, 2020:

   

Assets at Fair Value

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

September 30, 2020:

                               

Captive insurance provider

  $     $ 530,781     $     $ 530,781  
                                 

Total assets at fair value

  $     $ 530,781     $     $ 530,781  
   

Assets at Fair Value

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

December 31, 2020:

                               

Captive insurance provider

  $     $ 302,722     $     $ 302,722  
                                 

Total assets at fair value

  $     $ 302,722     $     $ 302,722  

NOTE C - REVENUE FROM CONTRACTS WITH CUSTOMERS 

Front Line Power Construction, LLC is a full-service electrical construction company that performs work from foundation and installation of equipment to service and maintenance. The business is located in Texas and performs work throughout the United States. Revenue at Front Line Power is recognized over time as the performance creates or enhances an asset that the customer controls as the asset is created. In this manner, the customer simultaneously receives and consumes the benefits of FLP's performance as FLP performs the service.

Balances and activity in the current contract liabilities as of and for the nine months ended September 30, 2021 and 2020 was as follows:

Contract liabilities:

 

2021

   

2020

 

Billings in excess of costs and estimated earnings on uncompleted contracts , January 1

  $ 32,635     $ 73,404  
                 

Revenue recognized

    (32,635 )     (73,404 )

Other contract additions, net

    380,219       13,785  

Billings in excess of costs and estimated earnings on uncompleted contracts , September 30

  $ 380,219     $ 13,785  
7

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Nine Months Ended September 30, 2021 and 2020

NOTE D - LONG-TERM NOTES PAYABLE

Long-term debt at September 30, 2021 and December 31, 2020, is comprised of the following:

   

As of September 30

   

As of December 31

 
   

2021

   

2020

 
                 

Note payable to a financial institution, due in monthly

               

installments of $831 at 5% interest, final payment due

               

November 2021, secured by equipment

  $     $ 4,987  
                 

Note payable to a financial institution, due in monthly

               

installments of $829 at 0% interest, final payment due

               

July 2022, secured by equipment

    7,462       14,924  
                 

Note payable to a financial institution, due in monthly

               

installments of $2,289 at 0% interest, final payment due

               

September 2022, secured by equipment

    27,471       48,073  
                 

Note payable to a financial institution, due in monthly

               

installments of $1,531 at 0% interest, final payment due

               

January 2023, secured by equipment

    26,029       39,809  
                 

Note payable to a bank, due in monthly installments of

               

$3,555 including interest at 4.23%, final payment due

               

August 2024, secured by equipment

    120,004       147,704  
                 

Note payable to a bank, due in monthly installments of

               

$3,545 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    123,098       150,695  
                 

Note payable to a bank, due in monthly installments of

               

$3,545 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    123,098       150,695  
8

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Nine Months Ended September 30, 2021 and 2020

Note payable to a bank, due in monthly installments of

               

$3,549 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    122,980       150,550  
                 

Note payable to a bank, due in monthly installments of

               

$3,549 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    122,980       150,550  
                 

Note payable to a bank, due in monthly installments of

               

$3,545 including interest at 4.23%, final payment due

               

September 2024, secured by equipment

    122,980       150,550  
                 

Note payable to a bank, due in monthly installments of

               

$3,900 including interest at 4.35%, final payment due

               

November 2024, secured by equipment

    141,602       171,537  
                 

Note payable to a financial institution, due in monthly

               

installments of $1,799 at 0% interest, final payment due

               

June 2025, secured by equipment

    79,148       95,338  
                 

Paycheck Protection Program (PPP) loan received in April

               

of 2020. The loan has an effective interest rate of 1% and

               

any balance due would have been payable beginning in 2021.

               

The balance of the loan and accrued interest was forgiven in 2021

          3,208,900  
                 

Total notes payable

    1,016,852       4,484,312  
                 

Less current maturities

    345,475       1,408,476  
                 

Total long-term notes payable

  $ 671,377     $ 3,075,836  

Long-term debt maturing in the next five years is as follows:

Period Ended

                       

December 31,

 

Principal

   

Interest

   

Total

 
                         

2021

  $ 85,918     $ 9,080     $ 94,998  

2022

    339,004       29,147       368,151  

2023

    309,964       17,298       327,262  

2024

    272,972       5,037       278,009  

2025

    8,994             8,994  
                         

Total

  $ 1,016,852     $ 60,562     $ 1,077,414  
9

FRONT LINE POWER CONSTRUCTION, LLC

NOTES TO FINANCIAL STATEMENTS - Continued

For the Nine Months Ended September 30, 2021 and 2020

NOTE E - RELATED PARTY TRANSACTIONS

The Company has operating lease agreements with four different entities, each having a common owner with the Company. All operating lease agreements are in place for property which is used directly as business use property of the Company and all lease agreements are market based agreements. The total amount paid by the Company in the nine months ended September 30, 2021 and 2020 for all of these lease agreements combined was $120,500 and $112,500, respectively.

NOTE F - CONTINGENT LIABILITIES AND LITIGATION

The Company had no contingent liabilities or litigation in process at September 30, 2021 or December31, 2020.

NOTE G – UNION EMPLOYEE BENEFIT PLANS

The Company employs unionized employees and as a result contributes monthly to union operated employee benefit plans. The name of the plan is National Electrical Benefit Fund (the “Plan”), EIN 53- 0181657, Plan Number 001. The Plan has a plan zone status of Green. The union collective bargaining agreement which established this plan has an expiration date of August 31, 2023. The Company contributed $6.75 in the nine months ended September 30, 2021 and $6.50 in 2020 per hour worked for eligible employees to a health insurance plan, 3% of gross wages for eligible employees to an employee benefit retirement plan, 25% of gross wages paid to another employee benefit retirement plan and 1.5% of gross wages for eligible employees to an apprentice program. The Company made combined contributions for all of its benefit plans totaling $6,092,900 and $4,990,382 which are recorded in cost of revenue for the nine months ended September 30, 2021 and 2020, respectively. 

10