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OFFON

ORBITAL ENERGY GROUP, INC.

(OEG)
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Orbital Energy : FRONT LINE POWER CONSTRUCTION, LLC ROSHARON, TEXAS - Form 8-K/A

01/13/2022 | 04:52pm EST

FRONT LINE POWER CONSTRUCTION, LLC

ROSHARON, TEXAS

FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2020 and 2019

8 WEST WAY COURT

LAKE JACKSON, TEXAS 77566

(979) 297-4075

THIS PAGE LEFT BLANK INTENTIONALLY.

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

THIS PAGE LEFT BLANK INTENTIONALLY.

Independent Auditor's 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.

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.

Auditor's 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

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-

THIS PAGE LEFT BLANK INTENTIONALLY.

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

Disclaimer

Orbital Energy Group Inc. published this content on 13 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 January 2022 21:50:52 UTC.


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Financials (USD)
Sales 2021 102 M - -
Net income 2021 -51,3 M - -
Net Debt 2021 - - -
P/E ratio 2021 -2,06x
Yield 2021 -
Capitalization 110 M 110 M -
Capi. / Sales 2021 1,08x
Capi. / Sales 2022 0,33x
Nbr of Employees 278
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Managers and Directors
James Francis O'Neil Vice Chairman & Chief Executive Officer
Nicholas M. Grindstaff Chief Financial Officer
William J. Clough Executive Chairman & Chief Legal Counsel
Daniel Ned Ford Chief Operational & Accounting Officer
Corey Allen Lambrecht Independent Director