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HomeMy WebLinkAboutPrime Construction Group - FSFinancial Statements For the year ended December 31, 2019 TABLE OF CONTENTS Page INDEPENDENT ACCOUNTANT’S REVIEW REPORT 1 FINANCIAL STATEMENTS Balance Sheet 2 Statement of Income 3 Statement of Changes in Stockholders’ Equity 4 Statement of Cash Flows 5 Notes to the Financial Statements 6 1 INDEPENDENT ACCOUNTANT’S REVIEW REPORT To Board of Directors Prime Construction Group, Inc. Orlando, Florida We have reviewed the accompanying financial statements of Prime Construction Group, Inc. (the “Company”), which comprise the balance sheets as of December 31, 2019, and the related statements of income, changes in stockholders’ equity and cash flows for the year then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error. Accountant’s Responsibility Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion. Accountant’s Conclusion Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America. February 18, 2020 Orlando, FL 8035 Spyglass Hill Road Melbourne, FL 32940 Phone: 321-757-2020 Fax: 321-242-4844 255 S. Orange Ave. Suite 1545 Orlando, FL 32801 Phone: 407-841-8841 Fax: 407-841-8849 www.bermanhopkins.com 1415 S. Washington Ave. Titusville, FL 32780 Phone: 321-267-2190 Fax: 321-268-2272 Berman Hopkins Wright & LaHam CPAs and Associates, LLP CURRENT ASSETS Cash and cash equivalents 904,016$ Contracts receivable 3,453,991 Contract assets 2,165,378 Prepaid expenses and other current assets 175,443 Total current assets 6,698,828 PROPERTY AND EQUIPMENT, NET 997,449 Total assets 7,696,277$ CURRENT LIABILITIES Accounts payable 2,299,912$ Accrued expenses 203,700 Contract liabilities 1,511,422 Current portion of long-term debt 356,419 Total current liabilities 4,371,453 Long-term debt, less current portion 212,559 Total liabilities 4,584,012 STOCKHOLDERS' EQUITY Common stock; Class A voting ($.001 par value; 800,000 shares authorized, 799,998 shares issued and 533,332 outstanding)800 Common stock; Class B nonvoting ($.001 par value, 200,000 shares authorized, 76,507 shares issued and 14,997 outstanding)77 Additional paid-in capital 392,007 Retained earnings 4,925,583 Treasury stock (328,176 shares at cost)(2,206,202) Total stockholders' equity 3,112,265 Total liabilities and stockholders' equity 7,696,277$ LIABILITIES AND STOCKHOLDERS' EQUITY ASSETS Prime Construction Group, Inc. BALANCE SHEET December 31, 2019 See accompanying notes and independent accountant's review report. 2 REVENUES EARNED 20,800,688$ COSTS OF REVENUES EARNED 16,740,322 Gross profit 4,060,366 GENERAL AND ADMINISTRATIVE EXPENSES 2,979,031 Income from operations 1,081,335 OTHER INCOME Interest income 4,976 Other Income 98,289 Gain on disposal of assets 36,715 NET INCOME 1,221,315$ STATEMENT OF INCOME Year ended December 31, 2019 Prime Construction Group, Inc. See accompanying notes and independent accountant's review report. 3 TotalBalance at January 1, 2019800$ 77$ 392,007$ 5,272,790$ (2,206,202)$ 3,459,472$ Net income, year ended December 31, 2019- - - 1,221,315 - 1,221,315 Distributions to stockholders- - - (1,568,522) - (1,568,522) Balance at December 31, 2019800$ 77$ 392,007$ 4,925,583$ (2,206,202)$ 3,112,265$ Additional Paid-in CapitalRetained EarningsSTATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYYear ended December 31, 2019Prime Construction Group, Inc.Common Stock; Class A votingCommon Stock; Class B nonvotingTreasury StockSee accompanying notes and independent accountant's review report. 4 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 1,221,315$ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 623,275 Gain from disposal of assets (36,715) (Increase) decrease in assets: Contracts receivable (4,657) Contract assets (464,654) Prepaid expenses and other current assets (2,511) Increase (decrease) in liabilities: Accounts payable 54,961 Accrued expenses (57,749) Contract liabilities 57,701 Net cash provided by operating activities 1,390,966 CASH FLOWS USED IN INVESTING ACTIVITIES: Proceeds from sale of property and equipment 95,355 Purchase of property and equipment (47,371) Net cash provided by investing activities 47,984 CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (477,574) Distributions to stockholders (1,568,522) Net cash used in financing activities (2,046,096) Net decrease in cash and cash equivalents (607,146) Cash and cash equivalents at beginning of year 1,511,162 Cash and cash equivalents at end of year 904,016$ Supplemental cash flow information: Cash paid during the year for interest 11,429$ Supplemental schedule of noncash investing and financing activity: Property and equipment acquired through long-term debt 169,443$ Prime Construction Group, Inc. STATEMENT OF CASH FLOWS Year ended December 31, 2019 See accompanying notes and independent accountant's review report. 5 Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 6 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Organization and nature of business Prime Construction Group, Inc. (the “Company”) is engaged in underground utility, site work, and treatment plant improvement construction in the Central Florida area. The work is performed under fixed-price and unit-price contracts. The length of the Company’s contracts range from less than one year to two years. The majority of the Company’s contracts are with municipalities or other governmental units located in Central Florida. 2.Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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. 3.Cash and cash equivalents For purposes of the statements of cash flows, the Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. 4.Contracts receivable Management reviews outstanding balances on a regular basis to determine collectability. Collectability is based on customer history, aging of amounts due, as well as any other current circumstances that could affect the collectability of amounts. When receivables are considered uncollectible, they are charged off against the allowance account. As of December 31, 2019, management considers the Company’s contracts receivable to be fully collectible. Accordingly, no allowance for doubtful accounts has been reflected in the accompanying financial statements. 5.Contract assets The Company’s contract assets include amounts due under contractual retainage provisions as well as costs and estimated earnings in excess of billings (“CIE”). Collection of retentions receivable related to uncompleted contracts generally coincides with the final acceptance of the project. The Company expects retentions receivable to be collected within one year and there were no retentions receivable deemed to be uncollectible. CIE represents revenue recognized in excess of amounts billed on in- progress contracts. Generally, such amounts will become billable according to the contract terms and generally will be billed and collected over the next twelve months, based on the Company’s historical experience, they generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced. Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 7 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 6. Property and equipment Property and equipment are recorded at cost and capitalized when the life exceeds one year. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally five to ten years. Leasehold improvements are amortized over the shorter of the life of the applicable lease or the life of the asset. Expenditures for repairs and maintenance are charged to operations as incurred. 7.Contract liabilities The Company’s contract liabilities consist of billings in excess of costs and estimated earnings on uncompleted contracts (“BIE”), customer deposits, and retainage payable to subcontractors. BIE represents billings in excess of revenue recognized on in-progress contracts. Generally, unearned project-related costs will be incurred over the next twelve months along with the associated revenue being earned. 8.Revenue and cost recognition Revenues are accounted for in accordance with the Financial Accounting Standards Board issued ASU 2014-09 (Revenue from Contracts with Customers (Topic 606)). The Company estimates the percentage of completion of individual contracts as measured by the percentage of costs incurred to date in relation to total estimated costs for each contract. This percentage is applied to the total contract price to determine the amount of revenue earned. Because of the inherent uncertainties in estimating cost, it is at least reasonably possible that the estimates used will change within the near term. Contract costs include all direct and indirect costs related to contract performance, such as indirect labor, supplies and tools. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. Costs of contract claims are generally charged to operations in the period incurred. 9.Income taxes The Company has elected under the Internal Revenue Code to be an S Corporation. In lieu of corporate income taxes, the stockholders of an S Corporation are taxed on their proportionate share of the Company’s taxable income. Accordingly, no provision or liability for income taxes has been included in the accompanying financial statements. Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 8 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 9. Income taxes (continued) The Company accounts for income taxes in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 740, Income Taxes, which clarifies the accounting and disclosure requirements for uncertainty in tax positions. It requires a two-step approach to evaluate tax positions and determine if they should be recognized in the financial statements. The two-step approach involves recognizing any tax positions that are “more likely than not” to occur and then measuring those positions to determine if they are recognizable in the financial statements. Management regularly reviews and analyzes all tax positions and has determined that no uncertain tax positions requiring recognition have occurred. The Company files income tax returns in the U.S. federal jurisdiction. In general, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2016. 10.Credit risk In the normal course of business, the Company performs ongoing credit evaluations of its customers’ financial condition, and generally does not require collateral or other security to support customer receivables. Additionally, since the Company concentrates its activities in construction, it is subject to the risks inherent within the industry. The Company maintains its cash in financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250,000 per depositor. Cash in banking institutions may be in excess of the FDIC insurance limit. However, the Company does not believe that the credit risk related to these balances is significant. 11.Impairment of long-lived assets Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Management has determined that long-lived assets were not impaired at December 31, 2019. Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 9 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. Recently adopted accounting standard In May 2014, the Financial Accounting Standards Board issued ASU 2014-09 (Revenue from Contracts with Customers (Topic 606)), which requires an entity to recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the FASB ASC Topic 606, as of January 1, 2019, using the modified retrospective transition method for all contracts not substantially completed as of the date of adoption. The adoption of ASC 606 represents a change in accounting principle that is intended to more closely align revenue recognition with the transfer of control of the Company’s products and services to the customer. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for the products and/or services. To achieve this principle, the Company applies the following five steps: 1. Identify the contract with the customer; 2. Identify the performance obligations in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to performance obligations in the contract, and 5. Recognize revenue when or as the Company satisfies a performance obligation. The guidance addresses, in particular, contracts with more than one performance obligation, as well as the accounting for some costs to obtain or fulfill a contract with customer; and provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. With respect to non-public entities, this update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company has determined that the adoption of ASC 606 had no impact to beginning retained earnings or any other component of stockholders’ equity as of January 1, 2019 or during the year ended December 31, 2019. 13.Recently issued accounting pronouncements In February 2016, the Financial Accounting Standards Board issued ASU 2016-02 (Leases (Topic 842)), which requires an entity to recognize a liability and corresponding asset for leases that meet certain criteria. With respect to nonpublic entities, this update is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years, beginning after December 15, 2021, and early adoption is permitted. The effect of this guidance on the financial statements of the Company has not been determined. Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 10 NOTE B - PROPERTY AND EQUIPMENT Property and equipment is summarized as follows as of December 31, 2019: Construction equipment 4,853,601$ Transport equipment 213,266 Vehicles 916,045 Computer equipment and software 234,826 Office furniture and equipment 213,398 6,431,136 Less: accumulated depreciation (5,433,687) 997,449$ Depreciation and amortization expense for the year ended December 31, 2019 was $623,275, of which $563,161 is included in costs of revenues earned and $60,114 is included in general and administrative expense on the accompanying Statement of Income. NOTE C - CONTRACTS RECEIVABLE Contracts receivable consist of the following as of December 31, 2019: Completed contracts 228,539$ Contracts in progress 3,225,452 3,453,991$ NOTE D - CONTRACT ASSETS AND CONTRACT LIABILITIES Contract assets and contract liabilities consist of the following at December 31, 2019: Cost incurred on uncompleted contracts 24,913,378$ Estimated earnings 2,936,453 27,849,831 Less: billings to date (28,138,016) (288,185) Retainage receivable on uncompleted contracts 1,494,820 Retainage payable to subcontractors (552,679) 653,956$ Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 11 NOTE D - CONTRACT ASSETS AND CONTRACT LIABILITIES (continued) These amounts are included in the accompanying balance sheet under the following captions at December 31, 2019: Costs and estimated earnings in excess of billings on uncompleted contracts 670,558$ Retainage receivable on uncompleted contracts 1,494,820 Total Contract Assets 2,165,378 Billings in excess of costs and estimated earnings on uncompleted contracts (958,743) Retainage payable to subcontractors (552,679) Total contract liabilities (1,511,422) Total 653,956$ NOTE E - REMAINING PERFORMANCE OBLIGATION Remaining performance obligations represent the transaction price of firm orders for which work has not been performed. The following schedule shows a reconciliation of remaining performance obligations representing signed contracts in existence at December 31, 2019: Balance - January 1, 2019 15,993,070$ New contracts and contract adjustments 25,315,939 41,309,009 Less: contract revenues earned - December 31, 2019 (20,800,688) Balance - December 31, 2019 20,508,321$ Gross profit on remaining performance obligations is estimated to be approximately $2,554,000, at December 31, 2019. Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 12 NOTE F - LINE OF CREDIT On February 28, 2019, the Company obtained a $1,000,000 revolving line of credit from a bank. This line of credit is due on demand, bears interest at Prime Rate (4.75% at December 31, 2019) plus .25%, and is collateralized by the Company’s assets, as defined in the loan agreement. The line of credit is guaranteed by the stockholders and contains various covenants. As of December 31, 2019 no amounts were due or payable on this line of credit. NOTE G - LONG-TERM DEBT Long-term debt consist of the following at December 31, 2019: Installment notes - various notes payable with total monthly installments of $66,728 including interest from 0% to 4.1%; various maturity dates through August 2024; collaterized by certain equipment or vehicles.524,340$ Note payable to former stockholder, $2,267 due monthly including interest at 7.17%; matures August 2021; unsecured.44,638 568,978 Less: current portion (356,419) 212,559$ Maturities of long-term debt for each of the years subsequent to December 31, 2019, are as follows: 2020 356,419$ 2021 135,718 2022 32,492 2023 25,863 2024 18,486 Total 568,978$ Interest expense total $11,429 for the year ended December 31, 2019, of which $7,131 is included in costs of revenues earned and $4,298 is included in general and administrative expense on the accompanying Statement of Income. Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 13 NOTE H - COMMITMENTS AND CONTINGENCIES 1. Surety bonds The Company is contingently liable to a surety company under a general indemnity agreement. The Company agrees to indemnify the surety for any payments made on contracts of suretyship, guaranty, or indemnity. The Company believes that all contingent liabilities will be satisfied by its performance on the specific bonded contracts. The Company, as a condition for entering into some of its construction contracts, had outstanding surety bonds as of December 31, 2019. The surety bonds are collateralized by the contracts receivable and are personally guaranteed by the owners of the Company. 2.Litigation During the course of its operations, the Company may be subject to various claims or legal actions which may require litigation. Management reviews the circumstance on such contingencies and acts accordingly. Management was not aware of any material claims or actions at December 31, 2019. 3.Warranty provisions Certain construction contracts contain warranty provisions on material and workmanship. The Company’s management feels that any warranty work that should arise would be nominal and not have a material effect on the current period financial statements. Therefore, no accrual for warranty provisions has been recorded. NOTE I - PROFIT SHARING PLAN The Company maintains a profit sharing plan which includes a 401(k) provision allowing participants to make pre-tax and post-tax contributions. The plan also provides for discretionary matching and discretionary contributions by the Company and covers all eligible employees. The trustees of the plan are also members of management of the Company. Plan contribution expenses for the years ended December 31, 2019 were $131,642. NOTE J - RELATED PARTY TRANSACTIONS The Company leases its office facilities from a related party under an operating lease that expires February 28, 2024. Annual real estate taxes on the office facilities are also due and payable under the lease. Prime Construction Group, Inc. NOTES TO THE FINANCIAL STATEMENTS December 31, 2019 14 NOTE J - RELATED PARTY TRANSACTIONS (continued) Future minimum rental payments under this lease at December 31, 2019, are as follows: 2020 252,568$ 2021 260,145 2022 267,950 2023 275,988 2024 46,222 1,102,873$ Rental expense for the office facilities totaled $248,237 for the year ended December 31, 2019. The Company has a note payable to a former stockholder. See Note G for details related to this note payable. NOTE K - CONCENTRATIONS The Company recognized approximately 80% of its revenues from two customers during the year ended December 31, 2019. Approximately 90% of contract receivables at December 31, 2019 were due from these customers. NOTE L - SUBSEQUENT EVENTS Management has evaluated subsequent events through February 18, 2020, the date which the financial statements were available to be issued, and has determined that no material transactions, other than the event noted above, have occurred that would warrant additional disclosure in the financial statements.