Exhibit 99.02
PVBJ Inc.
FINANCIAL STATEMENTS
December 31, 2017 and 2016
PVBJ Inc.
TABLE OF CONTENTS
To the Shareholders of
PVBJ Inc.
We have audited the accompanying financial statements of PVBJ, Inc. which comprise the balance sheets as of December 31, 2017 and 2016, and the related statements of operations and shareholder deficit, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management isresponsibleforthe preparation and fair presentation of these financial statements inaccordancewithaccounting principles generallyacceptedin the UnitedStatesof America; this includesthe design,implementation, and maintenance of internal controlrelevantto thepreparation and fair presentation of financialstatements that arefreefrommaterial misstatementwhether due to fraud or error.
Auditor’s Responsibility
Our responsibilityis toexpressan opinion onthesefinancial statements based onouraudits. Weconducted ourauditsin accordancewith auditing standards generallyaccepted in theUnitedStatesof America. Those standardsrequire that we plan and perform theaudit toobtainreasonable assurance about whether thefinancial statementsarefree from materialmisstatement.
Anauditinvolvesperforming procedures to obtainauditevidenceabout theamountsanddisclosuresin the financial statements. The procedures selecteddependon the auditor’s judgment, includingthe assessmentof therisks of materialmisstatement of the financialstatements,whetherdue to fraudorerror. Inmaking thoserisk assessments, theauditor considersinternal control relevant to theentity’spreparation and fair presentation of thefinancial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of theentity’s internal control. Accordingly, we expressnosuch o pinion. An auditalso includesevaluating the appropriateness of accounting policiesusedand thereasonableness ofsignificant accountingestimates madebymanagement,as well asevaluatingthe overall presentation of thefinancial statements.
We believe that theaudit evidence wehave obtainedis sufficient and appropriateto provide a basis forour audit opinion.
Opinion
In our opinion, thefinancialstatementsreferredtoabove presentfairly,inallmaterialrespects, the financial position of PVBJ Inc. as of December 31,2017and2016,and the results of its operations and itscashflowsforthe yearsthen endedin accordancewith accountingprinciplesgenerallyaccepted in theUnitedStates of America.
/s/ Rosenberg Rich Baker Berman, P.A.
Somerset, New Jersey
June 15, 2018
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BALANCE SHEETS
Year Ended December 31, | ||||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 82,063 | $ | 53,244 | ||||
Accounts receivable, net | 226,707 | 267,792 | ||||||
Total current assets | 308,770 | 321,036 | ||||||
Property and equipment, net of accumulated depreciation | 280,969 | 314,019 | ||||||
Total assets | $ | 589,739 | $ | 635,055 | ||||
LIABILITIES AND SHAREHOLDER DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 166,433 | $ | 159,416 | ||||
Current notes payable | 14,918 | 13,547 | ||||||
Current capital lease payable | 66,475 | 56,018 | ||||||
Total current liabilities | 247,826 | 228,981 | ||||||
Line of credit | 198,701 | 144,015 | ||||||
Capital leases | 199,961 | 224,749 | ||||||
Notes payable | 71,898 | 70,721 | ||||||
Total long term liabilities | 470,560 | 439,485 | ||||||
Total liabilities | $ | 718,386 | $ | 668,466 | ||||
Shareholder deficit: | ||||||||
Common stock, no par value, 100 shares authorized, 100 shares issued and outstanding | 40,000 | 40,000 | ||||||
Contributed capital | 29,262 | 32,134 | ||||||
Accumulated deficit | (197,909 | ) | (105,545 | ) | ||||
Total shareholder deficit | (128,647 | ) | (33,411 | ) | ||||
Total liabilities and shareholder equity | $ | 589,739 | $ | 635,055 |
See accompanying notes to financial statements. | 2 |
STATEMENTS OF OPERATIONS AND SHAREHOLDER DEFICT
Year Ended December 31, | ||||||||
2017 | 2016 | |||||||
Sales | $ | 2,181,086 | $ | 2,216,107 | ||||
Cost of sales | 1,636,404 | 1,675,574 | ||||||
Gross profit | 544,682 | 540,533 | ||||||
General and administrative expenses | 594,983 | 514,872 | ||||||
Income (loss) before other income and expense | (50,301 | ) | 25,661 | |||||
Other expense: | ||||||||
Loss on disposition of equipment | 4,657 | 3,819 | ||||||
Interest expense | 37,407 | 39,223 | ||||||
Total other expense | 42,064 | 43,042 | ||||||
Net loss | (92,365 | ) | (17,381 | ) | ||||
Shareholder deficit, beginning of year | (33,411 | ) | (48,164 | ) | ||||
Shareholder distributions | (2,871 | ) | (957 | ) | ||||
Contributed capital | - | 33,091 | ||||||
Shareholder deficit, end of year | $ | (128,647 | ) | $ | (33,411 | ) |
See accompanying notes to financial statements. | 3 |
STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (92,365 | ) | $ | (17,381 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | 94,700 | 94,641 | ||||||
Loss on disposal of assets (Increase) decrease in: | 4,657 | 3,819 | ||||||
Accounts receivable | 55,208 | (54,188 | ) | |||||
Allowance for doubtful accounts | (14,123 | ) | 14,123 | |||||
Prepaid expenses and other current assets | - | 12,062 | ||||||
Security deposits increase (decrease) in: | - | 686 | ||||||
Accounts payable and accrued expenses | 7,017 | (48,099 | ) | |||||
Net cash provided by operating activities | 55,094 | 5,663 | ||||||
Cash flows from investing activities: | ||||||||
Proceeds from disposition of property and equipment | - | - | ||||||
Net cash (used in) investing activities | - | - | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from line of credit | 55,863 | - | ||||||
Payments on line of credit | (708 | ) | ||||||
Repayment of notes payable | (7,941 | ) | (4,863 | ) | ||||
Repayment of capital leases | (71,326 | ) | (62,047 | ) | ||||
Proceeds from contributed capital | - | 33,091 | ||||||
Shareholder distribution | (2,871 | ) | (957 | ) | ||||
Net cash provided by (used in) financing activities | 26,275 | (35,484 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 28,819 | (29,821 | ) | |||||
Cash and cash equivalents, beginning of year | 53,244 | 83,065 | ||||||
Cash and cash equivalents, end of year | $ | 82,063 | $ | 53,244 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 37,407 | $ | 39,223 | ||||
Cash paid for taxes | $ | 1,965 | $ | 2,907 |
See accompanying notes to financial statements. | 4 |
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 1 - NATURE OF OPERATIONS
Established in 2008, PVBJ, Inc. doing business as Temperature Service Company (the “Company”) a New Jersey S-Corporation is a regionally recognized company that specializes in HVAC and refrigeration for commercial and residential customers. The services offered include design, installation, repair, maintenance and emergency services for environmental systems. The Company has a highly trained technical team that is experienced in all aspects of environmental systems. The Company works directly with end users and through general contractors. The Company covers the Pennsylvania, New Jersey, Maryland and Delaware markets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Accounts Receivable:
Accounts receivable are recorded when invoices are issued and are presented in the balance sheet net of the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company’s historical losses, the existing economic conditions in the construction industry, and the financial stability of its customers. Accounts are written off as uncollectible after collection efforts have failed. In addition, the Company does not generally charge interest on past-due accounts or require collateral. At December 31, 2017 there was no allowance doubtful accounts and at December 31, 2016 there was a $14,123 allowance for doubtful accounts.
Property and Equipment, and Depreciation:
Property and equipment are stated at cost. Depreciation is generally provided using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining term of the lease or the estimated useful life of the improvement.
Repairs and maintenance that do not improve or extend the lives of the property and equipment are charged to expense as incurred.
Revenue Recognition:
Revenue is all from service or short term contracts and is recognized currently as the work is performed. Time and materials are accordingly charged to the customer at completion of the job.
The Company recognizes revenues when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales price is determinable, and collectability is reasonably assured. Revenue is typically recorded once all performance obligations of PVBJ, Inc. have been satisfied. Sales are recorded net of discounts and returns, which historically have not been material.
Cash and Cash Equivalents:
Cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. The Company has no cash equivalents for either years presented.
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PVBJ Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
Advertising Costs
Advertising costs are charged to expense during the period in which they are incurred. Advertising expense for the years ended December 31, 2017 and 2016 was approximately $1,738 and $1,248, respectively.
Fair Value of Financial Instruments:
The carrying value of the Company’s financial instruments, consisting principally of cash, receivables and accounts payable approximates fair value due to either the short-term maturity of the instruments or borrowings with similar interest rates or maturities.
Income Taxes:
PVBJ Inc. is a New Jersey S-Corporation with pass through tax benefit to the shareholder of PVBJ Inc. personal tax returns. Accordingly, no provision has been made for income taxes in the accompanying financial statements, since all items of income or loss are required to be reported on the income tax returns of the Shareholder, who are responsible for any taxes thereon.
Sales and Use Tax
The Company collects sales tax in various jurisdictions. Upon collection from customers, it records the amount as a payable to the related jurisdiction. On a periodic basis, it files a sales tax return with the jurisdictions and remits the amount indicated on the return.
NOTE 3 – SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Cash is maintained at an authorized deposit-taking institution incorporated in the United States and is insured by the U.S. Federal Deposit Insurance Corporation up to $250,000.
Credit risk for trade accounts is concentrated as well because substantially all of the balances are receivable from entities located within certain geographic regions. To reduce credit risk, the Company performs ongoing credit evaluations of its customers’ financial conditions, but does not generally require collateral. In addition, at December 31, 2017, 40% of the Company’s accounts receivable was from one customer, and, at December 31, 2016, 61% of the Company’s accounts receivable was due from three unrelated customers at 31%, 18% and 12%.
NOTE 4 – MAJOR CUSTOMERS
During the year ended December 31, 2017, there was one customer with a concentration of 40% of the Company’s revenue. During the year ended December 31, 2016, the Company earned 61% of it’s revenue from three customers at approximately 31%, 18% and 12%.
NOTE 5 – PROPERTY AND EQUIPMENT
At December 31, property and equipment are comprised of the following:
2017 | 2016 | |||||||
Furniture and fixtures (5 to 7 years) | $ | 6,464 | $ | 6,464 | ||||
Auto and truck (5 to 7 years) | 501,615 | 450,151 | ||||||
508,079 | 456,615 | |||||||
Less: accumulated depreciation | (227,110 | ) | (142,596 | ) | ||||
$ | 280,969 | $ | 314,019 |
Depreciation expense for the years ended December 31, 2017 and 2016 amounted to $94,700 and $94,159, respectively.
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PVBJ Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 6 – COMMITMENTS
The Company entered into one operating lease for office space in Downingtown, PA expiring in December 2018. The future minimum payments on the lease for the next year and in the aggregate amount to the following:
2018 | $ | 16,200 | ||
$ | 16,200 |
Rent expense for the years ended December 31, 2017 and 2016 amounted to approximately $16,200 and $19,600, respectively, and is included in General and Administrative expenses on the related statements of operations.
During the year ended December 31, 2016, the Company leased equipment under three capital leases, which expire in June 2023. During the year ended December 31, 2017 the company entered into one more capital lease bringing the total to four. The obligations are payable in monthly installments ranging from approximately $615 to $2,630 with interest rates from 5.57% to 7.20% per annum. The leases are secured by the related equipment.
At December 31, capital leases are comprised of the following:
2017 | 2016 | |||||||
Auto and truck (5 to 7 years) | 262,400 | 312,937 | ||||||
Less: accumulated depreciation | (185,394 | ) | (111,911 | ) | ||||
$ | 77,006 | $ | 201,026 |
At December 31, 2017, approximate payments to be made on these capital lease obligations are as follows:
2018 | $ | 78,207 | ||
2019 | 78,207 | |||
2020 | 78,207 | |||
2021 | 44,680 | |||
2022 | 7,510 | |||
Thereafter | 4,380 |
Capital lease obligation | 291,191 | |||
Less amounts representing interest | 24,755 | |||
Current portion | 66,475 | |||
Net | $ | 199,961 |
For the years ended June 30, 2017 and 2016, interest expense on the capital leases was approximately $14,840 and $17,782, respectively. Amortization of the capital leases is included in depreciation expense on the income statement.
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PVBJ Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 7 – NOTES PAYABLE
Notes payable consisted of the following:
December 31, 2017 | December 31, 2016 | |||||||
Note payable with monthly payments of $716, including interest at 6.50% per annum through April 2021. | $ | 25,576 | $ | 32,341 | ||||
Note payable with monthly payments of $792, including interest at 5.44% per annum through June 2023. | $ | - | $ | 51,920 | ||||
Note payable with monthly payments of $947 including interest at 6.14% per annum through August 2024. | $ | 61,240 | $ | - | ||||
Total | $ | 86,816 | $ | 84,261 |
Aggregate annual principal payments in the fiscal years subsequent to December 31 2017, are as follows:
Year ending December: | Amount | |||
2018 | $ | 14,918 | ||
2019 | 15,887 | |||
2020 | 16,919 | |||
2021 | 12,064 | |||
2022 | 9,926 | |||
Thereafter | 17,102 | |||
$ | 86,816 |
NOTE 8 - 401(k) PLANS
Substantially all of the Company’s employees may elect to defer a portion of their annual compensation in the Company-sponsored 401(k) tax-deferred savings plans. The Company makes matching contributions in these plans. The amount charged to expense for these plans was $19,276 and $9,979 for the years ended December 31, 2017 and 2016, respectively.
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PVBJ Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 - SUBSEQUENT EVENTS
Date of Management’s Review:
The Company has evaluated subsequent events for the period from December 31, 2017, the date of these financial statements, through June 15, 2018 which represents the date these financial statements were available to be issued.
Sale of business:
On February 1, 2018, the shareholder of the Company entered into a Share Exchange Agreement with H/Cell Energy Corporation (“H/Cell”), whereby H/Cell acquired all outstanding shares of the Company in exchange for 444,445 shares in H/Cell stock with a fair value of $1,177,779 and $221,800 of earn-out liability.
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