Exhibit 99.3
Road and Highway Builders, LLC
(A Limited Liability Company)
Condensed Balance Sheets (Unaudited)
| | September 30, | | | December 31, | |
Assets | | 2007 | | | 2006 | |
| Current Assets | | | | | | |
| Receivables: | | | | | | |
| Contracts | | $ | 5,376,930 | | | $ | 1,371,573 | |
| Interest | | | 57,254 | | | | 49,010 | |
| Due from related party | | | 11,999,999 | | | | 11,311,477 | |
| Inventory | | | 448,636 | | | | - | |
| Costs and estimated earnings in excess of billings on uncompleted contracts | | | 553,127 | | | | 104,709 | |
| Prepaid expenses | | | 236,737 | | | | 24,812 | |
Total current assets | | | 18,672,683 | | | | 12,861,581 | |
| | | | | | | | | |
| Property and Equipment | | | | | | | | |
| Land | | | 621,546 | | | | 621,546 | |
| Water rights | | | 200,000 | | | | - | |
| Buildings | | | 1,184,842 | | | | 1,184,842 | |
| Equipment | | | 15,688,298 | | | | 11,479,923 | |
| Furniture and fixtures | | | 17,569 | | | | 13,969 | |
| | | | 17,712,255 | | | | 13,300,280 | |
| Less accumulated depreciation | | | 6,718,867 | | | | 5,588,570 | |
| | | | 10,993,388 | | | | 7,711,710 | |
| | | $ | 29,666,071 | | | $ | 20,573,291 | |
| | | | | | | | | |
Liabilities and Members' Equity | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Excess of outstanding checks over bank balance | | $ | 1,756,332 | | | $ | 723,670 | |
| Current maturities of long-term debt | | | 67,363 | | | | 133,387 | |
| Accounts payable | | | 5,886,127 | | | | 1,506,486 | |
| Billings in excess of costs and estimated earnings on uncompleted contracts | | | 3,034,652 | | | | 12,027,108 | |
| Accrued expenses | | | 665,975 | | | | 73,828 | |
Total current liabilities | | | 11,410,449 | | | | 14,464,479 | |
| | | | | | | | | |
| Long-Term Debt, less current maturities | | | 100,913 | | | | 150,603 | |
| | | | | | | | | |
| Commitments and Contingency | | | | | | | | |
| | | | | | | | | |
| Members' Equity | | | 18,154,709 | | | | 5,958,209 | |
| | | $ | 29,666,071 | | | $ | 20,573,291 | |
See Notes to Condensed Financial Statements.
Road and Highway Builders, LLC
(A Limited Liability Company)
Condensed Statements of Income (Unaudited)
| | | | Three months ended September 30, | | | | Nine months ended September 30, | |
| | | | 2007 | | | | 2006 | | | | 2007 | | | | 2006 | |
| | | | | | | | | | | | | | | | | |
| Earned contract revenues | | $ | 28,583,357 | | | $ | 14,594,400 | | | $ | 64,919,898 | | | | 29,588,474 | |
| Cost of earned contract revenues | | | 18,695,453 | | | | 12,845,108 | | | | 44,114,876 | | | | 24,798,254 | |
Gross profit | | | 9,887,904 | | | | 1,749,292 | | | | 20,805,022 | | | | 4,790,220 | |
Percent of revenues | | | 34.6 | % | | | 12.0 | % | | | 32.0 | % | | | 16.2 | % |
| General and administrative expenses | | | 122,555 | | | | 127,058 | | | | 399,348 | | | | 357,349 | |
Operating income | | | 9,765,349 | | | | 1,622,234 | | | | 20,405,674 | | | | 4,432,871 | |
| | | | | | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest income | | | 168,260 | | | | 147,177 | | | | 470,926 | | | | 334,284 | |
| Interest expense | | | (3,438 | ) | | | (2,735 | ) | | | (70,286 | ) | | | (48,750 | ) |
| Miscellaneous | | | 86,055 | | | | 19,441 | | | | 90,186 | | | | 535,257 | |
Net income | | $ | 10,016,226 | | | $ | 1,786,117 | | | $ | 20,896,500 | | | $ | 5,253,662 | |
See Notes to Condensed Financial Statements.
Road and Highway Builders, LLC
(A Limited Liability Company)
Condensed Statements of Members' Equity (Unaudited)
| Nine Months Ended | |
| September 30, 2006 | |
| | |
| Balance at January 1, 2006 | | $ | 4,139,607 | |
| Distributions | | | (2,400,000 | ) |
| Net income | | | 5,253,662 | |
| Balance at September 30, 2006 | | $ | 6,993,269 | |
| | | | | |
| | | Nine Months Ended September 30, 2007 | |
| Balance at January 1, 2007 | | $ | 5,958,209 | |
| Distributions | | | (8,700,000 | ) |
| Net income | | | 20,896,500 | |
| Balance at September 30, 2007 | | $ | 18,154,709 | |
See Notes to Condensed Financial Statements.
Road and Highway Builders, LLC
(A Limited Liability Company)
Condensed Statements of Cash Flows (Unaudited)
| | | Nine Months Ended September 30, | |
| | | 2007 | | | 2006 | |
| Cash Flows From Operating Activities | | | | | | |
| Net income | | $ | 20,896,500 | | | $ | 5,253,662 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Depreciation | | | 1,130,296 | | | | 1,107,005 | |
| Change in assets and liabilities: | | | | | | | | |
| (Increase) in receivables | | | (4,013,601 | ) | | | (3,990,155 | ) |
| (Increase) in inventory | | | (448,636 | ) | | | - | |
| (Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts | | | (448,418 | ) | | | 169,602 | |
| (Increase) in prepaid expenses | | | (211,925 | ) | | | (283,737 | ) |
| Increase in checks issued in excess of bank balance | | | 1,032,662 | | | | 540,275 | |
| Increase in accounts payable | | | 4,329,060 | | | | 2,584,349 | |
| Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts | | | (8,992,456 | ) | | | 3,770,135 | |
| Increase in accrued expenses | | | 592,147 | | | | 173,382 | |
Net cash provided by operating activities | | | 13,865,629 | | | | 9,324,518 | |
| | | | | | | | | |
| Cash Flows From Investing Activities | | | | | | | | |
| Principal (advances) on due from related party, net | | | (688,522 | ) | | | (4,127,058 | ) |
| Purchase of property and equipment | | | (4,361,393 | ) | | | (2,562,544 | ) |
Net cash used in investing activities | | | (5,049,915 | ) | | | (6,689,602 | ) |
| | | | | | | | | |
| Cash Flows From Financing Activities | | | | | | | | |
| Principal payments on long-term debt | | | (115,714 | ) | | | (234,916 | ) |
| Cash distributions to members | | | (8,700,000 | ) | | | (2,400,000 | ) |
Net cash used in financing activities | | | (8,815,714 | ) | | | (2,634,916 | ) |
Net increase in cash | | | - | | | | - | |
| | | | | | | | | |
| Cash | | | | | | | | |
| Beginning | | | - | | | | - | |
| Ending | | $ | - | | | $ | - | |
| | | | | | | | | |
| Supplemental Disclosure of Cash Flow Information | | | | | | | | |
| Cash paid for interest | | $ | 70,286 | | | $ | 48,750 | |
| | | | | | | | | |
| Supplemental Disclosure of Noncash Investing and Financing Activities | | | | | | | | |
| Property and equipment acquired with accounts payable | | $ | 50,581 | | | $ | - | |
See Notes to Condensed Financial Statements.
Road and Highway Builders, LLC
(A Limited Liability Company)
Notes to Condensed Financial Statements (Unaudited)
Note 1. Basis of Presentation and Significant Accounting Policies
The accompanying condensed balance sheet as of December 31, 2006 has been derived from audited financial statements. The unaudited interim condensed financial statements of Road and Highway Builders, LLC reflect all adjustments consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations and cash flows. The results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for a full fiscal year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures made are adequate to make the information not misleading. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto as of and for the year ended December 31, 2006. Significant changes to the Company’s accounting policies and newly adopted standards are disclosed below.
Inventory: Inventories are stated at the lower of cost or market and consist of extracted raw materials.
Property and equipment: Property and equipment is stated at cost. Depreciation is computed over the following estimated useful lives of the assets:
| | Years |
| Buildings | 39.5 |
| Water rights | 30 |
| Equipment, furniture and fixtures | 5 – 7 |
Income taxes: The Company is organized as a limited liability company under Nevada law. Under this type of organization, the Company is treated as a partnership for federal and state income tax purposes with earnings or losses passing through to the members and being taxed at the member level. Accordingly, no income tax provision is reflected in the statements of income.
The Company files income tax returns in the U.S. federal jurisdiction and (when required) various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to the U.S. federal, state or local income tax examinations by tax authorities for the years before 2004.
The provisions of Financial Accounting Standards Board Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48), were effective on January 1, 2007. The Company recognized no financial statement impact on the adoption of Interpretation 48 as it maintains that its tax status as a pass through entity is proper.
Road and Highway Builders, LLC
(A Limited Liability Company)
Notes to Condensed Financial Statements (Unaudited)
Note 2. Contracts
Contract receivables consist of the following:
| | September 30, | | | December 31, | |
| | 2007 | | | 2006 | |
| Current | | $ | 4,905,147 | | | $ | 261,541 | |
| Retainage | | | 471,783 | | | | 1,110,032 | |
| | | $ | 5,376,930 | | | $ | 1,371,573 | |
Note 3. Costs and Estimated Earnings on Uncompleted Contracts
| | | September 30, | | | December 31, | |
| | | 2007 | | | 2006 | |
| Total amount of contracts in process | | $ | 217,955,833 | | | $ | 109,484,576 | |
| Costs incurred on uncompleted contracts | | $ | 70,514,177 | | | $ | 42,738,698 | |
| Estimated earnings | | | 17,312,771 | | | | 3,280,000 | |
| | | | 87,826,948 | | | | 46,018,698 | |
| Less billings to date | | | 90,308,473 | | | | 57,941,097 | |
| | | $ | (2,481,525 | ) | | $ | (11,922,399 | ) |
| Included in the accompanying balance sheets under the following captions: | | | | | | | | |
| | | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2007 | | | 2006 | |
| Costs and estimated earnings in excess of billings on uncompleted contracts | | $ | 553,127 | | | $ | 104,709 | |
| Billings in excess of costs and estimated earnings on uncompleted contracts | | | (3,034,652 | ) | | | (12,027,108 | ) |
| | | $ | (2,481,525 | ) | | $ | (11,922,399 | ) |
Road and Highway Builders, LLC
(A Limited Liability Company)
Notes to Condensed Financial Statements (Unaudited)
Note 3. Costs and Estimated Earnings on Uncompleted Contracts (continued)
The Company operates primarily as a general road construction contractor in the state of Nevada. The work is performed under construction contracts acquired by bid primarily from the Nevada Department of Transportation. The recognition of earnings based upon estimates of percent complete on a contract by contract basis is a particularly sensitive estimate that is subject to significant change in the near term. During 2007, earnings were recognized on various contracts which were disproportionate to the percent of work completed during the period due to negotiated and completed change orders, cost and expense efficiencies, lower than expected materials costs, minimal rework and favorable weather working conditions gained after preliminary bidding and contract work. Cumulative profits recognized as of December 31, 2006 and 2005, respectively, were approximately $7,700,000 and $2,700,000 lower than it would have been had the actual performance of these contracts, including all final adjustments, been known as of December 31, 2006 and 2005, respectively. Net income was higher for the three and nine months ended September 30, 2007 by approximately $2,900,000 and $7,700,000, respectively. Net income was higher for the three and nine months ended September 30, 2006 by approximately $200,000 and $2,700,000, respectively.
Note 4. Related Party Transactions
The amount due from related party (Fisher Sand & Gravel Co.) is due on demand with interest accruing at a variable interest rate, currently 5.32%. Total interest income recognized on this note was $452,646 and $323,592 for the nine months ended September 30, 2007 and 2006, respectively. $57,254 of accrued interest receivable is due from Fisher at September 30, 2007.
Fisher charges a management fee for administrative services to the Company. Total fees were $45,000 for the nine months ended September 30, 2007 and 2006, respectively.
In addition, Fisher works as a subcontractor on certain construction projects. There were no amounts incurred to Fisher on subcontracts for the nine months ended September 30, 2007 and $374,850 for the nine months ended September 30, 2006. At September 30, 2007, $148,708 was included in accounts payable to Fisher.
Note 5. Backlog
Following is a reconciliation of the backlog of signed contracts on which work had commenced:
| Balance of signed but unperformed work at December 31, 2006 | | $ | 63,465,878 | |
| New contracts and change orders during the nine months ended September 30, 2007 | | | 131,582,905 | |
| | | | 195,048,783 | |
| Less contract revenue earned during the nine months ended September 30, 2007 | | | 64,919,898 | |
| Balance, September 30, 2007 | | $ | 130,128,885 | |
Road and Highway Builders, LLC
(A Limited Liability Company)
Notes to Condensed Financial Statements (Unaudited)
Note 6. Contingency
The Company obtains surety bonding through a joint program with Fisher Sand and Gravel Co. (Fisher). The maximum bonding capacity in this program is $670,000,000. The Company and Fisher have jointly guaranteed all outstanding bonds. The Company could be compelled to honor construction contracts in the event of nonperformance by Fisher Sand & Gravel on the contracts. The Company retains the right to recourse against Fisher Sand & Gravel in the event the guarantee is called. As of September 30, 2007, there were no material claims pending against the surety of these performance bonds. No liability has been recognized for this guarantee.
Note 7. Subsequent Events
In October 2007, the Company made $6,000,000 in distributions to its members. On October 31, 2007, the members sold 91.67% of their members interests for 53,000,000 to Sterling Construction Company, Inc.
