Absolute Consulting Inc.
Interim Condensed Financial Statements
Unaudited condensed financial statements of Absolute Consulting Inc.
As of June 30, 2017 and for the six months ended June 30, 2017 and 2016
And notes to condensed financial statements
Contents
| Condensed Balance Sheet | 2 |
| Condensed Statement of Operations | 3 |
| Condensed Statement of Changes in Stockholders' Equity | 4 |
| Condensed Statement of Cash Flows | 5 |
| Notes to Condensed Financial Statements | 6 |
Absolute Consulting, Inc.
Condensed Balance Sheets
| | As of June 30, 2017 | | As of December 31, 2016 |
| | (unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 1,162,067 | | $ | 1,177,556 |
| Contract receivables, net | | 5,534,680 | | | 4,485,467 |
| Prepaid expenses | | 94,976 | | | 131,836 |
| Total current assets | | 6,791,723 | | | 5,794,859 |
| | | | | | |
| Equipment, software, and leasehold improvements, net | | 116,838 | | | 151,685 |
| Total assets | | 6,908,561 | | | 5,946,544 |
| | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | |
| Current liabilities: | | | | | |
| Line of credit | | - | | | - |
| Accounts payable | | 30,457 | | | 21,064 |
| Unearned revenue | | 40,623 | | | 38,828 |
| Accrued expenses | | 2,033,502 | | | 1,234,858 |
| Distributions payable | | 232,730 | | | 250,000 |
| Total current liabilities | | 2,337,312 | | | 1,544,750 |
| | | | | | |
| Stockholders' equity: | | | | | |
| Capital stock, $0.001 par value, 1,000,000 shares authorized, 213,134 shares issued and outstanding in 2017 and 2016 | | 213 | | | 213 |
| Treasury stock at cost, 33,482 and 31,797 shares in 2017 and 2016, respectively | | (4,231,103) | | | (4,231,103) |
| Additional paid in capital | | 465,421 | | | 465,421 |
| Retained earnings | | 8,336,718 | | | 8,167,263 |
| Total stockholders' equity | | 4,571,249 | | | 4,401,794 |
| Total liabilities and stockholders' equity | $ | 6,908,561 | | $ | 5,946,544 |
The accompanying notes are an integral part of these condensed financial statements
Absolute Consulting, Inc.
Condensed Statements of Operations
(Unaudited)
| | Six months ended June 30 |
| | 2017 | | 2016 |
| Revenues earned | $ | 20,948,861 | | $ | 20,686,322 |
| Costs of revenues earned | | 18,525,313 | | | 18,160,755 |
| Gross profit | | 2,423,548 | | | 2,525,567 |
| | | | | | |
| Selling, general and administrative | | 1,931,786 | | | 2,169,961 |
| Depreciation | | 40,281 | | | 48,608 |
| Income from operations | | 451,481 | | | 306,998 |
| | | | | | |
| Interest (expense), net | | (1,401) | | | (917) |
| Miscellaneous income (expense) | | 91 | | | (102) |
| | | | | | |
| Net income | $ | 450,171 | | $ | 305,979 |
The accompanying notes are an integral part of these condensed financial statements
Absolute Consulting, Inc.
Statement of Changes in Stockholders' Equity
(Unaudited)
| | Common Stock | | Treasury Stock | | Additional | | Retained | | Total stockholders' |
| | Shares | | Amount | | Shares | | Amount | | paid-in capital | | earnings | | equity |
| Balance at December 31, 2016 | | 213,134 | | $ | 213 | | | 33,482 | | $ | (4,231,103) | | $ | 465,421 | | $ | 8,167,263 | | $ | 4,401,794 |
| Treasury stock issued for payments of bonus | | - | | | - | | | (248) | | | 28,632 | | | - | | | - | | | 28,632 |
| Purchase of treasury stock | | - | | | - | | | 248 | | | (28,632) | | | - | | | - | | | (28,632) |
| Distributions | | - | | | - | | | - | | | - | | | - | | | (280,716) | | | (280,716) |
| Net income | | - | | | - | | | - | | | - | | | - | | | 450,171 | | | 450,171 |
| Balance at June 30, 2017 | | 213,134 | | $ | 213 | | | 33,482 | | $ | (4,231,103) | | $ | 465,421 | | $ | 8,336,718 | | $ | 4,571,249 |
The accompanying notes are an integral part of these condensed financial statements
Absolute Consulting, Inc.
Condensed Statement of Cash Flows
(Unaudited)
| | Six months ended June 30 |
| | 2017 | | 2016 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| | | | |
| Net income | $ | 450,171 | | $ | 305,979 |
| Adjustments to reconcile net income to net cash from operating activities: | | | | | |
| Depreciation | | 40,281 | | | 48,608 |
| Stock-based compensation expense | | 28,632 | | | 120,534 |
| Changes in assets and liabilities: | | | | | |
| Accounts receivable | | (1,049,213) | | | 371,730 |
| Prepaid expenses | | 36,860 | | | 24,302 |
| Unearned revenue | | 1,795 | | | - |
| Accounts payable | | 9,393 | | | (40,699) |
| Accrued expenses | | 798,644 | | | 204,662 |
| Net cash provided by operating activities | | 316,563 | | | 1,035,116 |
| | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Purchase of property and equipment | | (5,434) | | | (21,513) |
| Net cash used in investing activities | | (5,434) | | | (21,513) |
| | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Borrowings on line of credit | | (3,555,094) | | | 3,165,297 |
| Repayments on line of credit | | 3,555,094 | | | (3,165,297) |
| Purchase of treasury stock | | (28,632) | | | (180,517) |
| Distributions paid | | (297,986) | | | (882,916) |
| Net cash used in financing activities | | (326,618) | | | (1,063,433) |
| NET DECREASE IN CASH | | (15,489) | | | (49,830) |
| CASH AND CASH EQUIVALENTS, BEGINNING | | 1,177,556 | | | 1,754,809 |
| CASH AND CASH EQUIVALENTS, ENDING | $ | 1,162,067 | | $ | 1,704,979 |
The accompanying notes are an integral part of these condensed financial statements
| 1. | Description of Business and Summary of Significant Accounting Policies |
Description of Business
Absolute Consulting, Inc. ("the Company"), formed in 1997, was created with a goal of providing the technical service needs for organizations in the nuclear power industry. Today, the Company is a leading supplier of technical experts and professional personnel for companies involved in a variety of industries - power related and others. The Company's target market includes energy focused utilities and government facilities. The Company operates primarily in the United States.
Basis of Accounting
A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:
Use of Estimates in the Preparation of Financial Statements
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 amounts reported and disclosed in the financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purposes of reporting cash flows, the Company considers all cash accounts and certificates of deposit with original maturities of three months or less to be cash or cash equivalents.
Revenue Recognition
The Company derives its revenues from contracts mainly in the nuclear and utility industries. The Company provides technical experts and professional personnel for companies on a temporary basis. Revenues as presented on the statements of operations represent services rendered to customers less sales adjustments and discounts. Reimbursements, including those related to out- of-pocket expense, are also included in revenues, and equivalent amounts of reimbursable expenses are included in cost of services.
The Company and its customers enter into agreements that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. The Company records revenue on a gross basis versus on a net basis as an agent in the presentation of revenue and expenses. The Company has evaluated ASC 605-45 and concluded that gross reporting is appropriate because the Company has the risk of identifying and hiring qualified workers, has the discretion to select the workers and establish their price and duties, and bears the risk for services that are not fully paid for by customers.
Accounts Receivable
Accounts receivable are carried at original invoice amount. Recoveries of accounts receivable previously written off are recorded when received. The Company does not charge interest on trade accounts receivable balances.
Allowance for Doubtful Accounts
Accounts receivable are recorded when invoices are submitted and are presented in the balance sheet net of the allowance for doubtful accounts. Accounts receivable are written off when deemed to be uncollectible. The allowance for doubtful accounts is estimated based on the Company's historical losses, the existing economic conditions in the industry and the financial stability of its customers.
Property and Equipment
Property and equipment are stated at cost. Major renewals, betterments, and replacements are capitalized, while maintenance and repair costs are charged directly to expense as incurred. When properties are sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in earnings. Depreciation is calculated on the straight-line method over the estimated useful lives of the related assets ranging from 3 to 7 years.
Compensated Absences
All exempt employees of the Company receive paid time off (PTO) based on full time status and length of service. Compensated absences is included in accrued expenses on the balance sheet.
Income Taxes
The Company has elected to be taxed as an S corporation under the Internal Revenue Code. As a result, earnings or losses of the Company flow through to its shareholders. Therefore, no provision for income taxes has been included in these financial statements. However, the Company generally distributes funds to the shareholders through capital distributions to pay income taxes attributable to corporate earnings. The Company is not aware of any uncertain tax positions that would require disclosure or accrual in accordance with generally accepted accounting principles.
Accounts receivable are comprised of the following:
| | As of June 30, 2017 | | As of December 31, 2016 |
| | (unaudited) | | |
| Accounts receivable - billed | $ | 4,120,565 | | $ | 3,676,679 |
| Accounts receivable - unbilled | | 1,414,115 | | | 808,788 |
| Total accounts receivable | $ | 5,534,680 | | $ | 4,485,467 |
Unbilled amounts are classified as current assets since substantially all amounts are expected to be realized within one year. The majority of the unbilled amounts reported were billed within 30 days of the period ended June 30, 2017. All of the accounts receivable were pledged as collateral on the Company's line of credit as of June 30, 2017.
A summary of property and equipment by major category follows:
| | As of June 30, 2017 | | As of December 31, 2016 |
| | (unaudited) | | |
| Furniture and fixtures | $ | 126,305 | | $ | 126,305 |
| Office equipment | | 154,293 | | | 148,859 |
| Software | | 328,400 | | | 328,400 |
| | | 608,998 | | | 603,564 |
| Less: accumulated depreciation | | (492,160) | | | (451,879) |
| | $ | 116,838 | | $ | 151,685 |
Depreciation expense of these assets for the six months ended June 30, 2017 and 2016 were $40,281 and $48,608, respectively.
Accrued expenses are comprised of the following:
| | As of June 30, 2017 | | As of December 31, 2016 |
| | (unaudited) | | |
| Accrued payroll, including taxes | $ | 1,327,782 | | $ | 821,940 |
| Bonus payable | | 412,121 | | | 399,487 |
| Other accrued expenses | | 293,599 | | | 13,431 |
| | $ | 2,033,502 | | $ | 1,234,858 |
The Company had a $3,600,000 line of credit with a Bank secured by all assets of the Company. Advances on the line of credit bear interest at the Bank's base rate plus 0.25%. There was no outstanding balance on the line of credit as of June 30, 2017 and December 31, 2016. The line of credit matured on September 21, 2017.
| 6. | Bonus Compensation Plans |
The Company has a bonus compensation plan for sales and support personnel and a second bonus compensation plan for executives. The bonus plan for sales and support personnel was established to share approximately 50% of the Company's profits with key employees and are paid as additional compensation. During the six months ended June 30, 2017 and 2016, the Company recorded approximately $559,000 and $495,000 in compensation expense as a result of the sales and support personnel bonus plan.
Under the bonus plan for executives, the bonuses are based upon a certain percentage of profits and are generally paid out in a combination of cash and common stock of the Company. The stock is valued based on management's best estimate of the fair value of the Company's common stock.
During the six months ended June 30, 2017 and 2016, the Company recorded approximately $45,000 and $30,000 in compensation expense as a result of the bonus plan for executives.
| 7. | Related Party Transactions |
The Company rents office space from an entity owned by Company shareholders. The lease renews on an annual basis and requires annual rents as disclosed in Note 9.
The Company has a defined contribution 401(k) retirement plan for all employees. For those employees who are at least 21 years of age, the plan covers all employees immediately upon the start of an assignment. Employees may contribute up to the maximum deferral amount allowed by law into the plan. The Company does not make discretionary matching or non-elective contributions for the employees.
The Company leases office facilities from a related party as disclosed in Note 7 under multiple operating lease agreements with initial terms of ten years. Under the leases, the Company pays taxes, maintenance, and insurance expenses related to the leased premises. Lease expense for the six months ended June 30, 2017 and 2016, was $60,000, respectively.
| 10. | Major Customers and Risk Concentration |
The Company has concentrations of credit risk as a result of significant revenues from three major customers. The Company's two largest customers accounted for 58% of accounts receivable as of June 30, 2017, and the Company's three largest customers accounted for 65% of accounts receivable as of December 31, 2016.
