ITEM
1. FINANCIAL STATEMENTS
CONSOLIDATED
BALANCE SHEETS (Unaudited)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$
|
191,136
|
|
|
$
|
229,882
|
|
Advances to employees
|
|
|
12,754
|
|
|
|
13,770
|
|
Contracts receivable (net of allow. for bad debt)
|
|
|
3,997,376
|
|
|
|
4,599,131
|
|
Inventory
|
|
|
145,947
|
|
|
|
133,715
|
|
Deferred tax asset- current
|
|
|
86,098
|
|
|
|
86,098
|
|
Prepaids
|
|
|
55,145
|
|
|
|
-
|
|
Cost and estimated earnings in excess of billings on uncompleted contracts
|
|
|
1,402,434
|
|
|
|
690,553
|
|
Total current assets
|
|
$
|
5,890,890
|
|
|
$
|
5,753,149
|
|
Property and equipment, net
|
|
|
1,856,577
|
|
|
|
1,998,158
|
|
Goodwill
|
|
|
1,446,855
|
|
|
|
1,446,855
|
|
Deferred tax asset- non-current
|
|
|
-
|
|
|
|
632,882
|
|
Other assets
|
|
|
-
|
|
|
|
4,731
|
|
TOTAL ASSETS
|
|
$
|
9,831,935
|
|
|
$
|
9,835,775
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,921,296
|
|
|
$
|
2,911,780
|
|
Accrued payroll
|
|
|
40,456
|
|
|
|
47,819
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
181,424
|
|
|
|
301,398
|
|
Notes payable
|
|
|
1,750,300
|
|
|
|
1,750,300
|
|
Current portion long-term debt
|
|
|
|
|
|
|
|
|
Related party
|
|
|
-
|
|
|
|
-
|
|
Non-related party
|
|
|
457,950
|
|
|
|
457,950
|
|
Total current liabilities
|
|
|
5,351,426
|
|
|
|
5,469,247
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
|
|
Related party
|
|
|
3,414,035
|
|
|
|
3,419,098
|
|
Non-related party
|
|
|
333,464
|
|
|
|
446,066
|
|
Total long-term liabilities
|
|
|
|
|
|
|
3,865,164
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock, authorized: $0.001 par value, 250,000,000 shares, at March 31, 2016; issued: 46,890,500 shares, at March 31, 2016; 46,880,500 shares, at December 31, 2015
|
|
|
46,890
|
|
|
|
46,881
|
|
Additional paid in capital
|
|
|
1,299,018
|
|
|
|
1,299,018
|
|
Retained earnings
|
|
|
(612,898
|
)
|
|
|
(844,535
|
)
|
Total stockholders' equity
|
|
|
733,010
|
|
|
|
501,364
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
9,831,935
|
|
|
$
|
9,835,775
|
|
See
accompanying Notes to Consolidated Financial Statements
CES
SYNERGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
|
|
Three
months ended
|
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Revenues
|
|
$
|
4,000,808
|
|
|
$
|
3,523,357
|
|
Cost
of sales
|
|
|
2,686,036
|
|
|
|
2,850,038
|
|
Gross
profit
|
|
|
1,314,772
|
|
|
|
673,319
|
|
General
& administrative expenses
|
|
|
1,064,549
|
|
|
|
1,318,880
|
|
Net
operating profit/(loss)
|
|
|
250,223
|
|
|
|
(645,561
|
)
|
Other
expenses, net
|
|
|
(18,586
|
)
|
|
|
(69,317
|
)
|
Profit/(loss)
before income taxes
|
|
|
231,637
|
|
|
|
(714,878
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
Net
profit/(loss)
|
|
$
|
231,637
|
|
|
$
|
(714,878
|
)
|
Profit/(loss)
per share
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Shares used in computing profit/(loss) per share
|
|
|
46,883,687
|
|
|
|
46,730,500
|
|
Cash
distributions declared per common share
|
|
|
-
|
|
|
|
-
|
|
See
accompanying Notes to Consolidated Financial Statements
CES
SYNERGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
|
|
Three months ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Operating Activities
|
|
|
|
|
|
|
Net profit/(loss)
|
|
$
|
231,635
|
|
|
$
|
(714,878
|
)
|
Adjustments to reconcile net loss to cash provided (used) by operating activities
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
127,916
|
|
|
|
126,941
|
|
(Gain)/loss on disposal of assets
|
|
|
(15,455
|
)
|
|
|
-
|
|
Decrease (Increase) in:
|
|
|
|
|
|
|
|
|
Contracts receivable
|
|
|
601,755
|
|
|
|
3,040,290
|
|
Other assets
|
|
|
(54,129
|
)
|
|
|
204
|
|
Inventories
|
|
|
(12,232
|
)
|
|
|
(20,411
|
)
|
Cost and estimated earnings in excess of billings on uncompleted contracts
|
|
|
(711,881
|
)
|
|
|
(396,861
|
)
|
Increase (Decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
9,517
|
|
|
|
(1,587,149
|
)
|
Accrued liabilities
|
|
|
(7,363
|
)
|
|
|
(42,863
|
)
|
Billings in excess of costs and estimated earnings
|
|
|
(119,974
|
)
|
|
|
(127,136
|
)
|
Total Adjustments
|
|
|
(181,846
|
)
|
|
|
993,015
|
|
Net cash provided (used) by operating activities
|
|
$
|
49,789
|
|
|
$
|
278,137
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(5,880
|
)
|
|
|
(85,200
|
)
|
Proceeds from disposal of equipment
|
|
|
35,000
|
|
|
|
-
|
|
Net cash provided (used) by investing activities
|
|
|
29,120
|
|
|
|
(85,200
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
New borrowings
|
|
|
-
|
|
|
|
85,200
|
|
Debt reduction
|
|
|
(117,665
|
)
|
|
|
(200,242
|
)
|
Proceeds from issuance of common stock
|
|
|
10
|
|
|
|
-
|
|
Net cash provided (used) by financing activities
|
|
|
(117,655
|
)
|
|
|
(115,042
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(38,746
|
)
|
|
|
77,895
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
229,882
|
|
|
|
149,455
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
191,136
|
|
|
$
|
227,350
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
35,964
|
|
|
$
|
58,295
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying Notes to the Consolidated Financial Statements
CES
SYNERGIES, INC.
MARCH
31, 2016
(Unaudited)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Company Background
CES
Synergies, Inc. (unless otherwise indicated, together with its consolidated subsidiaries, the “Company”) is a Nevada
corporation formed on April 26, 2010. The Company is the parent company of Cross Environmental Services, Inc. (“CES”)
which was incorporated in 1988 in the state of Florida. The Company acquired CES in a reverse merger transaction that closed on
November 1, 2013, and CES is deemed the accounting acquirer under accounting rules (see Note 14). The Company is an asbestos and
lead abatement contracting firm specializing in the removal of asbestos and lead from buildings and other structures, and demolition
of structures. The Company’s services include removal of asbestos and lead, construction, installation, and repair of ceilings
and insulation systems and demolition. Most jobs are located within the state of Florida, but the Company accepts and performs
jobs throughout the southeastern United States.
Note
2 – Summary of Significant Accounting Policies
This
summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial
statements.
The
Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States
of America and has adopted a year-end of December 31.
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
("US GAAP") 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.
Management
further acknowledges that it is solely responsible for adopting sound accounting practices consistently applied, establishing
and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal
accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are
recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present
fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
Basis
of Presentation
The
Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. These include the accounts
of Cross Environmental Services, Inc., and its wholly-owned subsidiaries, Cross Demolition, Inc., Cross Insulation, Inc., Cross
Remediation, Inc., Cross FRP, Inc., Triple J Trucking, Inc., and Tenpoint Trucking, Inc. All significant intercompany account
balances, transactions, profits and losses have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities, 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 materially from those
estimates.
Fair
Value of Financial Instruments
For
certain financial instruments, including accounts receivable, accounts payable, accrued expenses, interest payable, advances payable
and notes payable, the carrying amounts approximate fair value due to their relatively short maturities.
The
Company has adopted ASC 820-10,
“Fair Value Measurements and Disclosures.”
ASC 820-10 defines fair value, and
establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements
for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities
each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between
the origination of such instruments and their expected realization and their current market rate of interest. The three levels
of valuation hierarchy are defined as follows:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The
Company did not identify any non-recurring assets and liabilities that are required to be presented in the balance sheets at fair
value in accordance with ASC 815, “
Derivatives and Hedging
.”
In
February 2007, the FASB issued ASC 825-10
“Financial Instruments.”
ASC 825-10 permits entities to choose to
measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings. ASC 825-10 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007.
The
carrying amounts of cash and current liabilities approximate fair value due to the short maturity of these items. These fair value
estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial
instruments for trading purposes, nor does it utilize derivative instruments in the management of foreign exchange, commodity
price, or interest rate market risks.
Revenue
and Cost Recognition
The
Company follows ASC 605-35 "
Revenue Recognition: Construction type contracts
" and recognizes revenues from fixed-price
and modified fixed-price construction contracts on the percentage-of-completion method, measured by the percentage of cost incurred
to date to estimated total cost for each contract. This method is used because management considers total cost to be the best
available measure of progress on the contracts.
Contract
costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation. Selling, general, and administrative costs are charged to expenses as incurred. Provisions
for estimated losses on uncompleted contracts, if any, are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability may result in revisions to costs and income which are recognized
in the period in which the revisions are determined.
The
asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized
in excess of amounts billed.
The
liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess
of revenues recognized.
Contract
retentions are included in contracts receivable.
Cash
and Cash Equivalents
For
purposes of reporting cash flows, the Corporation considers cash and cash equivalents to be all highly liquid deposits with maturities
of three months or less. Cash equivalents are carried at cost, which approximates market value.
Concentrations
of Credit Risk
The
company maintains cash balances at Centennial Bank located in Central Florida. The cash accounts are insured by the Federal Deposit
Insurance Corporation up to $250,000. At March 31, 2016 and 2015, the Company’s uninsured cash balances for those accounts
were
$0.
Special
purpose entities
The
Company does not have any off-balance sheet financing activities.
Contracts
Receivable
Contracts
receivable are recorded when invoices are issued and presented in the balance sheet net of the allowance for doubtful accounts.
Contract receivables are written off when they are determined to be uncollectible. The allowance for doubtful accounts is estimated
based on the Company's historical average percentage of bad debts in relation to its revenue.
Inventory,
Net
Inventories
consist primarily of job materials and supplies and are priced at the lower of cost (first-in, first-out) or market.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are
capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss thereon is recognized as operating expenses.
Depreciation
is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term
of the related lease, including renewal periods, if shorter. Estimated useful lives are as follows:
The
Company reviews property, plant and equipment and all amortizable intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability is based on estimated
undiscounted cash flows. Measurement of the impairment loss, if any, is based on the difference between the carrying value and
fair value.
Impairment
of Long-Lived Assets and Amortizable Intangible Assets
The
Company follows ASC 360-10,
“Property, Plant, and Equipment,”
which establishes a
“primary asset”
approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting
for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed 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 recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition
of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Through March 31, 2016, the Company had not experienced impairment losses on its long-lived assets.
Intangible
Assets - Goodwill
Cost
of investment in purchased company assets (Simpson & Associates, Inc.) in excess of the underlying fair value of net assets
at date of acquisition (March 2001) is recorded as goodwill on the balance sheet. The amount of $1,396,855 was acquired in 2001
and an additional $50,000 was reclassified as goodwill in 2002. Goodwill is not amortized, but instead is assessed for impairment
at least annually and upon the occurrence of certain triggering events or substantive changes in circumstances that indicate that
the fair value of goodwill may be impaired. Measurement of the impairment loss, if any, is based on the difference between the
carrying value and fair value of the reporting unit. The goodwill impairment test follows a two-step process. In the first step,
the fair value of a reporting unit is compared to its carrying value. If the carrying value of a reporting unit exceeds its fair
value, the second step of the impairment test is performed for purposes of measuring the impairment. In the second step, the fair
value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill
value. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill, an impairment
loss will be recognized in an amount equal to that excess. There were no material impairments to the carrying value of long-lived
assets and intangible assets subject to amortization during the periods ended March 31, 2016 and 2015.
Business
segments
ASC
280,
“Segment Reporting”
requires use of the
“management approach”
model for segment reporting.
The management approach model is based on the way a company’s management organizes segments within the company for making
operating decisions and assessing performance. The Company determined it has three operating segments as of March 31, 2016 and
March 31, 2015.
Income
Taxes
Tax
expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent
that they relate to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax
is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes
any tax liability arising from the declaration of dividends. Deferred tax would be recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
No deferred tax is recognized since the difference in carrying amount is not significant.
Net
Income (Loss) per Share
The Company computes net income (loss)
per share in accordance with ASC 260-10,
“Earnings Per Share.”
The basic net income/(loss) per common share
is computed by dividing the net income/(loss) by the weighted average number of common shares outstanding. Diluted net income/(loss)
per share gives effect to all dilutive potential common shares outstanding during the period using the
“as if converted”
basis. For the periods ended March 31, 2016 and 2015 there were no potential dilutive securities.
Common
Stock
There
is currently only one class of common stock. Each share of common stock is entitled to one vote. The authorized number of shares
of common stock of CES Synergies, Inc. at March 31, 2016 and 2015 was 250,000,000 shares with a nominal par value per share of
$0.001. Authorized shares that have been issued and fully paid amounted to 46,890,500 at March 31, 2016 compared to 46,730,500
common shares at March 31, 2015.
Comprehensive
Income/(Loss)
Comprehensive
income/(loss) represents net income/(loss) plus the change in equity of a business enterprise resulting from transactions and
circumstances from non-owner sources. The Company’s comprehensive income/(loss) was equal to net income/(loss) for the periods
ended March 31, 2016 and 2015.
Note
3 – Recent Accounting Pronouncements
Financial
Accounting Standards Board (“FASB”) Update No. 2012-02, July 2012, Intangibles—Goodwill and Other (Topic 350):
In accordance with the amendments in this update, an entity has the option first to assess qualitative factors to determine whether
the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset
is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than
not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if
an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform
the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30.
FASB
Update No. 2012-06, October 2012, Business Combinations (Topic 805): When a reporting entity recognizes an indemnification asset
(in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently
a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows
expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change
in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any
amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser
of the term of the indemnification agreement and the remaining life of the indemnified assets).
FASB
Update No. 2014-01, January 2014, Balance Sheet (Topic 210): The amendments in this update affect entities that have derivatives
accounted for in accordance with Topic 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45
or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. Entities with other types of
financial assets and financial liabilities subject to a master netting arrangement or similar agreement also are affected because
these amendments make them no longer subject to the disclosure requirements in FASB Update 2011-11.
Note
4 – Contracts Receivable
Contracts
Receivable consist of at:
|
|
For
the three months ended
|
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Billed
|
|
|
|
|
|
|
Completed Contracts
|
|
$
|
3,006,904
|
|
|
|
1,800,522
|
|
Contracts in Progress
|
|
|
629,722
|
|
|
|
1,068,624
|
|
Retained
|
|
|
560,627
|
|
|
|
656,839
|
|
Allowance for
Bad Debts
|
|
|
(199,877
|
)
|
|
|
(201,000
|
)
|
TOTAL
|
|
$
|
3,997,376
|
|
|
$
|
3,324,985
|
|
Note
5 – Property, Plant and Equipment
Property,
plant and equipment and related accumulated depreciation consists of the following:
|
|
For
the three months ended
|
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Machinery
and Equipment
|
|
$
|
3,843,117
|
|
|
$
|
3,847,408
|
|
Office
furniture and Equipment
|
|
|
172,636
|
|
|
|
172,635
|
|
Transportation
and Earth Moving Equipment
|
|
|
8,730,807
|
|
|
|
8,802,943
|
|
Leasehold
Improvements
|
|
|
30,189
|
|
|
|
30,189
|
|
Property,
Plant and Equipment Gross
|
|
|
12,776,749
|
|
|
|
12,853,175
|
|
Less:
Accumulated Depreciation
|
|
|
(10,920,172
|
)
|
|
|
(10,777,699
|
)
|
Property,
Plant and Equipment Net
|
|
$
|
1,856,577
|
|
|
$
|
2,075,476
|
|
Depreciation
expense for the twelve months ended March 31, 2016 and 2015 was $127,916 and $126,941 respectively.
Note
6 – Costs and Estimated Earnings on Contracts
For
the three months ended March 31, 2016:
|
|
Revenues
Earned
|
|
|
Cost
of Revenues
|
|
|
Gross
Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue on completed contracts
|
|
$
|
2,227,953
|
|
|
$
|
1,548,072
|
|
|
$
|
679,880
|
|
Revenue on uncompleted
contracts
|
|
|
1,772,856
|
|
|
|
1,137,964
|
|
|
|
634,892
|
|
Total for 3 months
ended 3/31/16
|
|
$
|
4,000,808
|
|
|
$
|
2,686,036
|
|
|
$
|
1,314,772
|
|
|
|
As
of March 31, 2016
|
|
Costs
incurred on uncompleted contracts
|
|
$
|
2,737,277
|
|
Estimated
earnings on uncompleted contracts
|
|
|
1,418,255
|
|
Revenues
earned on uncompleted contracts
|
|
|
4,155,532
|
|
Billings
to date
|
|
|
2,934,518
|
|
Total
Net Amount
|
|
$
|
1,221,014
|
|
|
|
|
|
|
Amount
shown as cost and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
1,402,439
|
|
Amount
shown as billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
(181,425
|
)
|
|
|
|
|
|
Total
Net Amount
|
|
$
|
1,221,014
|
|
For
the three months ended March 31, 2015:
|
|
Revenues
Earned
|
|
|
Cost
of Revenues
|
|
|
Gross
Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue on completed contracts
|
|
$
|
2,129,367
|
|
|
$
|
1,662,064
|
|
|
$
|
467,303
|
|
Revenue on uncompleted
contracts
|
|
|
1,393,989
|
|
|
|
1,187,975
|
|
|
|
206,014
|
|
Total for 3 months
ended 3/31/15
|
|
$
|
3,523,356
|
|
|
$
|
2,850,039
|
|
|
$
|
673,317
|
|
|
|
As
of March 31, 2015
|
|
Costs
incurred on uncompleted contracts
|
|
$
|
5,289,580
|
|
Estimated
earnings on uncompleted contracts
|
|
|
1,984,707
|
|
Revenues
earned on uncompleted contracts
|
|
|
7,274,287
|
|
Billings
to date
|
|
|
7,119,498
|
|
Total
Net Amount
|
|
$
|
154,789
|
|
|
|
|
|
|
Amount
shown as cost and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
626,298
|
|
Amount
shown as billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
(471,509
|
)
|
|
|
|
|
|
Total
Net Amount
|
|
$
|
154,789
|
|
Note
7 – Long-Term Debt
Long-term
debt consists of the following at March 31, 2016 and 2015:
|
|
March
31, 2016
|
|
|
March
31, 2015
|
|
Demand
Loan from a shareholder and the chairman of board of directors of the Company, Clyde A. Biston, in monthly payments of $4,632
deferred until January 2017, interest rate of 4.25%.
|
|
$
|
236,900
|
|
|
$
|
250,275
|
|
|
|
|
|
|
|
|
|
|
Demand
Loan from a shareholder and the chairman of board of directors of the Company, Clyde A. Biston, in monthly payments of $1,908
deferred until January 2017, interest rate of 4.75%.
|
|
|
158,092
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Demand
Loan from a shareholder and the chairman of board of directors of the Company, Clyde A. Biston, in monthly payments of $9,922
deferred until January 2017, interest rate of 4.75%.
|
|
|
175,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Demand
Loan from a shareholder and the chairman of board of directors of the Company, Clyde A. Biston, in monthly payments of $9,881
deferred until January 2017, interest rate of 4.75%.
|
|
|
175,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Line
of credit, Centennial Bank, Dade City, FL variable interest of 1.25% over prime, current rate 3.25%, secured by land,
improvements, and accounts receivable. On May 5, 2016, the maturity date of the line of credit was extended to May 5,
2018.
|
|
|
1,750,300
|
|
|
|
1,750,300
|
|
|
|
|
|
|
|
|
|
|
Installment
loan from a shareholder and the chairman of board of directors of the Company, Clyde A. Biston. Payable in monthly payments
of $23,994, interest rate of 6.15%.
|
|
|
2,656,803
|
|
|
|
2,677,259
|
|
|
|
|
|
|
|
|
|
|
Various
installment loans payable in monthly payments, interest rates ranging from 0% to 9.5%, secured by various equipment, vehicles,
and property.
|
|
|
803,654
|
|
|
|
890,347
|
|
Total
|
|
|
5,955,749
|
|
|
|
5,568,181
|
|
Less:
Current portion
|
|
|
(2,208,250
|
)
|
|
|
(2,346,057
|
)
|
Long-Term
debt, less current portion
|
|
$
|
3,747,499
|
|
|
$
|
3,222,124
|
|
Note
8 – Commitments and Contingencies
Commitments
Principal
payments on long-term debt are due as follows:
Year ending
December 31,
|
|
|
|
2016
|
|
$
|
2,208,250
|
|
2017
|
|
|
510,013
|
|
2018
|
|
|
351,543
|
|
2019
|
|
|
328,541
|
|
2020+
|
|
|
2,557,402
|
|
|
|
$
|
5,955,749
|
|
Contingencies
None.
Note
9 – Profit/(loss) per Share
|
|
For
the three months ended
|
|
|
|
March
31, 2016
|
|
|
March
31, 2015
|
|
|
|
|
|
|
|
|
Net
Profit/(Loss)
|
|
$
|
231,637
|
|
|
$
|
(714,878
|
)
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
|
basic:
|
|
|
46,883,687
|
|
|
|
46,730,500
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock
|
|
|
|
|
|
|
|
|
Equivalents
|
|
|
-
|
|
|
|
-
|
|
Stock Options
|
|
|
-
|
|
|
|
-
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
Convertible Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
46,883,687
|
|
|
|
46,530,500
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) per share outstanding
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
0.005
|
|
|
$
|
(0.015
|
)
|
Note
10
–
Operating Lease Agreements
In
the past, the Company rented certain equipment/office space under month to month operating lease agreements. Lease expenses incurred
as of March 31, 2016 and 2015 under such agreements were $56,195, and $94,997, respectively.
Note
11
–
Related Party Transactions
For
the purposes of these notes to consolidated financial statements, parties are considered to be related if one party has the ability
to control the other party or exercise significant influence over the other party in making financial or operational decisions.
In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely
the legal form.
Related
parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected
on the same terms, conditions and amounts as transactions between unrelated parties. Clyde A. Biston, the chairman of board of
directors and former CEO of the Company, owns a majority of our shares, meaning he can exert significant influence over corporate
decisions and strategy. Related party transactions for the period include the following:
Leased
Facilities
The
Company is headquartered in Crystal Springs, Florida, where it currently occupy 6,000 square feet of office space as well as 6,000
square feet for a mechanic shop and a 12,000 square foot warehouse. The facilities are owned by our President, Clyde
A. Biston. Between June and October 2013, the Company was allowed to use the facilities rent-free. As of November 1,
2013, the Company entered into a lease agreement with Mr. Biston for rental of the facilities at an annual rent of $180,000 ($15,000
on a monthly basis). On June 1, 2015 Mr. Biston reduced the rent on the Crystal Springs facilities to an annual rent of $90,000
($7,500 on a monthly basis). The Company also pays the property taxes for use of the facilities, and has paid monthly rent of
$16,050 since November 1, 2013, and $8,025 monthly since June 1, 2015, including sales taxes.
The
Company also leases satellite offices in Davie and Ft. Walton Beach, Florida as well as Chalmette, Louisiana from third parties.
Monthly rent for these facilities the three months ended March 31, 2016 was $15,367, $9,555 and $7,200 respectively. We believe
our facilities are adequate for their intended purposes and have capacities adequate for our current and anticipated needs.
Note
12
–
401K Salary Deferral Plan
The
Company has established a deferred benefit plan for office and managerial staff with one year or more of service. The plan allows
employees to contribute through salary withholding. The Company may match the contribution up to 3% of the gross wages of the
employee. Amounts contributed by the Company for the three months ended March 31, 2016 and 2015 are $0 and $0, respectively.
Note
13 – Income Tax Provisions
Management
of the Company considers the likelihood of changes by tax authorities in its filed income tax returns and recognizes a liability
for or discloses potential significant changes that management believes are more likely than not to occur upon examination by
tax authorities. Management has not identified any uncertain tax positions in income tax returns filed that require recognition
or disclosure in the accompanying financial statements. The Company’s income tax returns for the past three years are subject
to examination by tax authorities, and may change upon examination.
For
financial reporting purposes, for the three months ending March 31, 2016 and 2015, income before income taxes includes the following
components:
|
|
March
31, 2016
|
|
|
March
31, 2015
|
|
United States
|
|
$
|
231,637
|
|
|
$
|
(714,878
|
)
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
231,637
|
|
|
$
|
(714,878
|
)
|
The
expense (benefit) for income taxes consist of:
Current:
|
|
2016
|
|
|
2015
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred and other:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Note
14 – Reverse Acquisition
On
November 1, 2013, CES entered into an Agreement and Plan of Merger (the “Merger Agreement”), with CES Acquisitions,
Inc. (the “Subsidiary”) and the Company, which was a shell company that traded on the OTC bulletin board. Pursuant
to the Merger Agreement, the Subsidiary merged into CES, such that CES became a wholly-owned subsidiary of the Company (the “Merger”);
and the Company issued 35,000,000 shares of the Company’s common stock to the shareholders of CES, representing approximately
75.2% of the Company’s aggregate issued and outstanding common stock following the closing of the Merger Agreement. The
share exchange is being accounted for as a recapitalization, and not as a business combination under the scope of FASB ASC Topic
805. CES is the acquirer for accounting purposes and the Company is the acquired company. Accordingly, CES’s subchapter
S corporate status was terminated at the date of the Merger.
Note
15 – Subsequent Events
10,000
shares of common stock were issued by the Company in April, 2016 to a member of the Company’s board of directors for services
under a contract that requires the issuance of 10,000 shares each quarter.
Note
16 - Segment Information
The
accounting standards for reporting information about operating segments define operating segments as components of an enterprise
for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive
Officer. The Company is organized by line of business. While the Chief Executive Officer evaluates results in a number of different
ways, the line of business management structure is the primary basis for which the allocation of resources and financial results
are assessed. Under the aforementioned criteria, the Company operates in three operating and reporting segments: remediation,
demolition and insulation.
Cross
Remediation is one segment of the Company that derives its income from mold remediation and abatement services for a broad range
of environments. Cross Demolition offers full scale commercial demolition and wrecking down to interior and selective demolition
and strip down services. Our third segment, Cross Insulation, derives its revenue from re-insulation and insulation of new and
remodeling projects.
The information provided below is obtained
from internal information that is provided to the Company’s chief operating decision maker for the purpose of corporate management.
The Company uses net operating profit/(loss) to measure segment performance as recorded below:
|
|
For
the three months ended
|
|
|
|
March
31, 2016
|
|
|
March
31, 2015
|
|
Remediation Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,563,892
|
|
|
$
|
2,033,840
|
|
Cost of Revenues
|
|
|
1,479,190
|
|
|
|
1,932,641
|
|
Gross Profit
|
|
|
1,084,702
|
|
|
|
101,199
|
|
|
|
|
|
|
|
|
|
|
General & Administrative Expense
|
|
|
350,036
|
|
|
|
459,081
|
|
Allocated CES Admin. Expenses
|
|
|
360,353
|
|
|
|
167,570
|
|
Other Expense
|
|
|
(7,775
|
)
|
|
|
1,343
|
|
|
|
|
|
|
|
|
|
|
Net Profit/(Loss)
from Segment
|
|
$
|
382,088
|
|
|
$
|
(526,795
|
)
|
|
|
For the three months ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Demolition Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,302,019
|
|
|
$
|
1,400,338
|
|
Cost of Revenues
|
|
|
1,080,935
|
|
|
|
1,127,159
|
|
Gross Profit
|
|
|
221,084
|
|
|
|
273,179
|
|
|
|
|
|
|
|
|
|
|
General & Administrative Expense
|
|
|
183,256
|
|
|
|
219,344
|
|
Allocated CES Admin. Expenses
|
|
|
216,859
|
|
|
|
193,462
|
|
Other Expense
|
|
|
(2,201
|
)
|
|
|
18,061
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Segment
|
|
$
|
(176,830
|
)
|
|
$
|
(157,688
|
)
|
|
|
For
the three months ended
|
|
|
|
March
31, 2016
|
|
|
March
31, 2015
|
|
Insulation Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
134,898
|
|
|
$
|
89,179
|
|
Cost of Revenues
|
|
|
79,858
|
|
|
|
84,654
|
|
Gross Profit
|
|
|
55,040
|
|
|
|
4,525
|
|
|
|
|
|
|
|
|
|
|
General & Administrative Expense
|
|
|
20,813
|
|
|
|
24,700
|
|
Allocated CES Admin. Expenses
|
|
|
7,848
|
|
|
|
10,260
|
|
Other Income
|
|
|
-
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
Net Profit/(Loss)
from Segment
|
|
$
|
26,379
|
|
|
$
|
(30,396
|
)
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking
Statements and Associated Risks
This
section and other parts of this Form 10-Q contain forward-looking statements. Forward-looking statements provide current expectations
of future events based on certain assumptions and include any statement that does not directly relate to any historical or current
fact. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “will,” “would,” “could,”
“can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and
the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors
that might cause such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year
ended December 31, 2015 filed with the Securities and Exchange Commission on March 30, 2016 (the “2015 Form 10-K”)
under the heading “Risk Factors”.
The
following discussion should be read in conjunction with the 2015 Form 10-K and the consolidated financial statements and notes
thereto included elsewhere in this Form 10-Q. All information presented herein is based on the Company’s fiscal calendar.
Unless otherwise stated, references in this Form 10-Q to particular years, quarters, months or periods refer to the Company’s
fiscal years ended in December and the associated quarters, months, or periods of those fiscal years. Each of the terms the “Company”,
“we”, “us” or “our” as used herein refers collectively to CES Synergies, Inc. and its wholly-owned
subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for
any reason, except as required by law.
Overview
and Highlights
Since
its formation in 1988, Cross Environmental Services, Inc. (“CES”), a wholly-owned subsidiary of the Company, has been
providing asbestos abatement, demolition, and mold remediation services to city, state, and federal agencies. Our customers include
general contractors, developers, project owners, and industrial and commercial clients. Much of our work has been founded on the
removal of hazardous materials from structures ranging from residences to commercial and industrial applications, including secure
defense contractor facilities, colleges, hospitals, and mid-rise and high-rise buildings and residential structures. Additionally,
our experience working on federal projects, such as the Department of Interior, Bureau of Land Management Promiscuous Dump Clean
Up, U.S. Fish and Wildlife Service Midway Atoll Asbestos and Lead Paint Cleanup, and Department of Defense Military Housing Privatization
Initiative, gives us the expertise to provide the submittals and mandated government compliance documents for any size federal
project.
CES
removes regulated and hazardous materials from industrial, commercial and residential spaces. Specifically, we have developed
a niche market for our services that was facilitated by the Environmental Protection Agency’s National Emission Standards
for Hazardous Air Pollutants, or NESHAP, regulations. Under these regulations, if a building or structure is altered, modified
or renovated in any way, an environmental survey of the building must be completed and regulated hazardous materials (asbestos)
must be removed prior to the alteration or renovation. We provide such services to our clients.
We
also provide services related to the asbestos removal process including interior demolition, lead-based paint removal, mold abatement,
and full-scale structural demolition. We are also adept at materials handling and we have participated in emergency response activities
for multiple hurricanes, including Katrina, Rita, Gene, Francis, Ivan, and many others. We have been able to develop niche markets
by maintaining a high level of technical competence coupled with prudent management and an energetic staff. We are willing to
go to remote or extreme places to complete projects. Examples of locations at which we perform this type of work include Midway
Atoll, Curacao, Guatemala, and remote Bahamian Islands. We also developed niches providing services in connection with various
set-asides under federal law, including Service Connected Disabled Veteran Owned Small Business, Economically Disadvantaged Woman
Owned Business, HUBZone, Veteran Owned, and Total Small Business. We have strategic alliances relating to all of such set-asides
and have utilized these alliances to generate projects.
We
have an established operating infrastructure, with numerous long-term contracts, blanket purchase orders, and ongoing relationships
with a robust customer base.
Our
management and employees are very experienced and expert in their trades. We have nine project managers who have over 100 combined
years of experience. All are skilled in project set-up, permitting, submittals, scheduling, and project close-out.
In
addition to the tools made available to our project managers, we have a highly skilled staff of field personnel. We have multiple
field superintendents and supervisors who have fifteen to twenty years’ experience. Many of these people have been with
CES since its inception. Our field supervisory staff has, in the aggregate, over 200 man-years of experience. We believe that
almost as important as the project personnel and related experience, is having modern late model equipment to work with. We have
an extensive late model fleet of service trucks, box trucks, vans, excavators, loaders, dump trucks, semi tractors, and roll off
trucks that can be deployed to any project. In addition to the large rolling stock and excavators, we have an extensive inventory
of specialty equipment designed to provide demolition and abatement services inside a structure. This equipment includes but is
not limited to skid steer loaders equipped with exhaust scrubbers, mini excavators equipped with hydraulic hammers, automated
tile removing machines, airless sprayers, and various handheld power tools designed for material removal.
Services
Strategy
We
offer services in the environmental contracting arena. Our core business includes hazardous material removal (lead and asbestos),
interior demolition, full scale demolition, and mold remediation. Historically, our customers have come to us either through a
low bid environment or through direct negotiations.
We
believe set-aside government contracting is an additional growth opportunity for us. We have participated in this sector of the
federal market by teaming with firms that have the various set-aside designations. Additionally, we created our own Service Connected
Disabled Veteran Owned Small Business in an effort to capture a portion of the federal market that had been previously off-limits
to CES. Success to date with this firm has been limited to two current contracts.
Effects
of Seasonality and Economic Uncertainty
We
may be subject to seasonal fluctuations and construction cycles at educational institutions, where large projects are typically
carried out during summer months when their facilities are unoccupied. Government customers, many of which have fiscal years that
do not coincide with ours, typically follow annual procurement cycles and appropriate funds on a fiscal-year basis even though
contract performance may take more than one year. Further, government contracting cycles can be affected by the timing of, and
delays in, the legislative process related to government programs and incentives that help drive demand for energy efficiency
and renewable energy projects. As a result, our revenue and operating income in the third quarter are typically higher, and our
revenue and operating income in the first quarter are typically lower, than in other quarters of the year. As a result of such
fluctuations, we may occasionally experience declines in revenue or earnings as compared to the immediately preceding quarter,
and comparisons of our operating results on a period-to-period basis may not be meaningful.
To
manage uncertainties created by business seasonality, we have implemented business processes to give us flexibility to manage
overhead and job costs. Those processes allow us to determine when it is most cost effective to use Company-owned assets
or to contract out aspects of a project. For example, when the Company was awarded a sizeable post-Hurricane Katrina
demolition contract in Louisiana, the processes led it to develop relationships with local subcontractors under Company management
and supervision to perform the demolition work rather than moving Company heavy equipment and personnel to Louisiana, thereby
preserving margins on the contract.
During
the recession that started in 2008, the number of projects available to the Company in Florida fell. To allow the Company
to maintain cash reserves necessary to execute the Louisiana contract, management agreed to a 10% reduction in salaries, and did
so for a full year, until finances righted themselves in late 2009. No field supervisors or workers were laid off during
this period. CES retained its skilled workforce, allowing the contracts in Louisiana to return a 41% gross profit.
Backlog
and Awarded Projects
Our
sales cycle begins with the initial contact with the customer and ends, when successful, with a signed contract, also referred
to as fully-contracted backlog. Historically, our sales cycle typically has averaged 30 days. Awarded backlog is created when
a potential customer awards a project to us following a request for proposal. Once a project is awarded but not yet contracted,
we typically conduct a detailed review to determine the scope of the project. At this point, we also determine the sub-contractor,
and what equipment will be used. Historically, awarded projects typically have taken 45 days to result in a signed contract and
thus convert to fully-contracted backlog. This process may take longer, however, depending upon the size and complexity of the
project. Further, at times in the past we have experienced periods during which the portion of the sales cycle for converting
awarded project to signed contracts has lengthened. Recently, we have been experiencing an unusually sustained lengthening of
conversion times. Continued U.S. federal fiscal uncertainty not only has contributed to a lengthening of our sales cycle for U.S.
federal projects, but also has adversely affected both municipal and commercial customers across most geographic regions. We have
observed among our existing and prospective customer base increased scrutiny of decisions about spending and about incurring debt
to finance projects. For example, we have observed increased use of outside consultants and advisors, as well as adoption of additional
approval steps, by many of our customers, which has resulted in a lengthening of the sales cycle. We expect this trend to continue
in 2016. After the customer agrees to the terms of the contract and the contract is executed, the project moves to fully-contracted
backlog. The contracts reflected in our fully-contracted backlog typically have a construction period of 30-45 days and we typically
expect to recognize revenue for such contracts over the same period. Fully-contracted backlog begins converting into revenue generated
from backlog on a percentage-of-completion basis once construction has commenced.
Financial
Operations Overview
Revenue
We
derive revenue from the provision of asbestos abatement, demolition, and mold remediation services to city, state, and federal
agencies. We also sell services to general contractors, developers, project owners, and industrial and commercial clients. Much
of our work has been founded on the removal of hazardous materials from structures ranging from residences to commercial and industrial
applications.
While
in any particular quarter a single customer may account for more than ten percent of revenue, for the quarter ended March 31,
2016, US Army- Fort Benning, Georgia and the Florida Department of Transportation (“FDOT”), accounted for 20.9% and
23.8% of our total revenue, respectively. For the quarter ended March 31, 2015, the Renu Asset Recovery, the general contractor
for the DTE Energy power plant project in Michigan, and the Florida Department of Transportation (“FDOT”), accounted
for 10% and 21% of our total revenue, respectively.
Direct
Expenses and Gross Margin
Direct
expenses include the cost of labor, materials, equipment, subcontracting and outside engineering that are required for the execution
our contracts, as well as preconstruction costs, sales incentives, associated travel, inventory obsolescence charges, and amortization
of intangible assets related to customer contracts. A majority of our contracts have fixed price terms; however, in some cases
we negotiate protections, such as a cost-plus structure, to mitigate the risk of rising prices for materials, services and equipment.
Gross
margin, which is gross profit as a percent of revenue, is affected by a number of factors, including the type of services performed
and the geographic region in which the sale is made. Geographic location impacts the cost of disposal, lodging, and
fuel. We sometimes find ourselves bidding against local contractors. In these instances, we may be willing
to accept a lower profit margin in order to establish ourselves with a new client, or in a new geographic location.
Rising
fuel costs affect us in several ways. Fuel in our trucks and equipment has an immediate cost impact. Increases
in petroleum prices increase the costs for remediation due because petroleum products are used to make all poly, bags, etc. that
we use for contaminated materials containment.
In
addition, gross margin frequently varies across the period of a project. Our expected gross margin on, and expected revenue for,
a project are based on budgeted costs. From time to time, a portion of the contingencies reflected in budgeted costs are not incurred
due to strong execution performance. In that case, and generally at project completion, we recognize revenue for which there is
no further corresponding direct expense. As a result, gross margin tends to be back-loaded for projects with strong execution
performance; this explains the gross margin improvement that occurs from time to time at project closeout. We refer to this gross
margin improvement at the time of project completion as a project closeout.
Operating
Expenses
Operating
expenses consist of salaries and benefits, project development costs, and general, administrative and other expenses.
Salaries
and benefits
. Salaries and benefits consist primarily of expenses for personnel not directly engaged in specific revenue generating
activity. These expenses include the time of executive management, legal, finance, accounting, human resources, information technology
and other staff not utilized in a particular project. We employ a comprehensive time card system which creates a contemporaneous
record of the actual time by employees on project activity.
Project
development costs
. Project development costs consist primarily of sales, engineering, legal, finance and third-party expenses
directly related to the development of a specific customer opportunity. This also includes associated travel and marketing expenses.
General,
administrative and other expenses
. These expenses consist primarily of rents and occupancy, professional services, insurance,
unallocated travel expenses, telecommunications, and office expenses. Professional services consist principally of recruiting
costs, external legal, audit, tax and other consulting services.
Other
expenses, net
. Other expenses, net consists primarily of interest income on cash balances, interest expense on borrowings,
and gains and losses on the disposal of surplus assets. Interest expense will vary periodically depending on prevailing short-term
interest rates.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”)
and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management
to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying
notes. Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part
II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 describes the significant
accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases
its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities.
We
have identified the policies below as critical to our business operations and the understanding of our results of operations.
The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Company’s
Board of Directors. The impact and any associated risks related to these policies on our business operations are discussed throughout
this section where such policies affect our reported and expected financial results. Our preparation of financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting
period. There can be no assurance that actual results will not differ from those estimates and such differences may be material.
Cash
and Cash Equivalents
We
consider all highly liquid debt instruments and other short-term investments with maturity of three months or less to be cash
equivalents.
Contracts
Receivable
Contracts receivable are stated at
the amounts management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through
a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts.
Balances outstanding after management has used reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to trade contracts receivable. Management has determined that an allowance of $199,877 for doubtful
accounts was required at March 31, 2016 ($201,000 at March 31, 2015).
Contracts
receivable will generally be due within 30 to 45 days and collateral is not required.
Cost
and Estimated Earnings in Excess of Billings on Uncompleted Contracts
The
asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized
in excess of amounts billed.
The
liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess
of revenues recognized.
Recoverability
of Long-Lived Assets
We
review the recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred
which may indicate a possible impairment. The assessment for potential impairment is based primarily on our ability
to recover the carrying value of our long-lived assets from expected future cash flows from our operations on an undiscounted
basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying
value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale are carried at the
lower of the then current carrying value or fair value less estimated costs to sell.
Fair
Value of Financial Instruments
The
carrying amount reported in the balance sheets for cash and cash equivalents, contracts receivable, accounts payable, and accrued
expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. We do not utilize
derivative instruments.
Revenue
and Cost Recognition
The
Company recognizes revenues from fixed-price and modified fixed-price construction contracts on the percentage-of-completion method,
measured by the percentage of cost incurred to date to estimated total cost for each contract. This method is used because management
considers total cost to be the best available measure of progress on the contracts.
Contract
costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation. Selling, general, and administrative costs are charged to expenses as incurred.
Provisions
for estimated losses on uncompleted contracts, if any, are made in the period in which such losses are determined. Changes
in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized
in the period in which the revisions are determined.
The
asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized
in excess of amounts billed.
The
liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess
of revenues recognized.
Contract
retentions are included in contract receivables.
Net
Earnings (Loss) Per Share of Common Stock
The
basic net earnings (loss) per common share is computed by dividing the net earnings (loss) by the weighted average number of common
shares outstanding. Diluted net earnings (loss) per share gives effect to all dilutive potential common shares outstanding during
the period using the “as if converted” basis.
Uncertainty
in Income Taxes
Management
considers the likelihood of changes by taxing authorities in its filed income tax returns and recognizes a liability for or discloses
potential changes that management believes are more likely than not to occur upon examination by tax authorities. Management
has not identified any uncertain tax positions in filed income tax returns that require recognition or disclosure. The Company’s
income tax returns for the past three years are subject to examination by tax authorities, and may change upon examination.
We
follow ASC 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740-10”). This interpretation requires recognition
and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective
for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 and evaluates our tax positions on an annual
basis.
Prior
to November 1, 2013, CES had elected by unanimous consent of its shareholders to be taxed under the provisions of subchapter S
of the Internal Revenue Code. Under those provisions, CES did not pay federal or state corporate income taxes on its
taxable income. Instead, the shareholders of CES were liable for individual federal income taxes on their respective
shares of CES’s taxable income. Since the closing of the Merger on November 1, 2013, the Company is responsible for paying
corporate income tax.
Advertising
(in thousands, except percentages)
Advertising
costs are expensed when incurred. Advertising costs for the quarters ended March 31, 2016 and March 31, 2015 were $3 and $8, respectively.
Historically, the Company has not relied on advertising and marketing to generate business. We recently hired a marketing/sales
manager to expand our marketing activities.
Results
of Operations
(in thousands, except percentages)
Quarter
Ended March 31, 2016 Compared to Quarter Ended March 31, 2015
Net
sales increased 13.6%, or $477, during the quarter ended March 31, 2016 compared to the quarter ended March 31, 2015. Revenues
in the Demolition segment decreased by $98, or 7%, during the quarter ended March 31, 2016 compared to the quarter ended March
31, 2015. Revenues in the Remediation segment increased by $530, or 26%, during the quarter ended March 31, 2016 compared to the
quarter ended March 31, 2015. The Insulation segment experienced a $46 increase in revenue, or 51%, during the quarter ended March
31, 2016 compared to the quarter ended March 31, 2015.
The
decrease in Demolition segment revenues was primarily attributable to the near completion of the larger St. Bernard Parish projects
in Louisiana, and the completion of two major contracts in Florida. At March 31, 2016, 29 Demolition segment contracts valued
in excess of $2,477 were in progress. Remediation segment sales increased in the first quarter of 2016, primarily because of the
continuation of remediation contracts in Florida and Georgia, and the commencement of other large scale projects valued in excess
of $6,269 in the aggregate in Florida, Georgia and Louisiana. The increase in Insulation segment revenue was due primarily to
increased maintenance spending by a large supermarket chain in the southeastern United States.
During
the quarter ended March 31, 2016, the new sales staff that was hired early in 2014 in Florida and Louisiana continued to bring
in new business in these regions. In the quarter ended March 31, 2016, approximately $169 of revenues were derived from contracts
in Louisiana, $2,453 from contracts in Florida and $1,378 from contracts in Georgia (compared to $426, $3,097 and $0 respectively
in the quarter ended March 31, 2015).
Sales
Data
The
following table shows net sales by operating segment and net sales by service during the quarters ended March 31, 2016 and 2015
(in thousands, except percentages):
|
|
2016
|
|
|
Change
|
|
|
2015
|
|
Net Sales by Operating
Segment:
|
|
|
|
|
|
|
|
|
|
Remediation
|
|
$
|
2,564
|
|
|
|
26
|
%
|
|
$
|
2,034
|
|
Demolition
|
|
|
1,302
|
|
|
|
(7
|
)%
|
|
|
1,400
|
|
Insulation
|
|
|
135
|
|
|
|
51
|
%
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$
|
4,001
|
|
|
|
14
|
%
|
|
$
|
3,523
|
|
Segment
Operating Performance
(in thousands, except percentages)
The
Company manages its business on a functional basis. Accordingly, the Company has determined its reportable operating segments,
which are generally based on the types of services it provides, to be Remediation, Demolition and Insulation. Remediation derives
its income from mold remediation and abatement services for a broad range of environments. Demolition offers full scale commercial
demolition and wrecking. Insulation derives its revenue from re-insulation and insulation of new and remodeling projects.
Further
information regarding the Company’s operating segments may be found in Note 16, “Segment Information.”
Remediation
Remediation
segment services are comprised of asbestos abatement, lead removal, mold remediation, indoor air quality/duct cleaning, removal
of contaminated soil, animal waste removal, manual selective and complete interior demolition including removal of floor covering,
and adhesive removal. These services are primarily performed for commercial, retail, governmental, industrial, and military customers,
as well as public and private schools.
The
following table presents Remediation segment net sales information for the quarters ended March 31, 2016 and 2015 (dollars in
thousands):
|
|
2016
|
|
|
Change
|
|
|
2015
|
|
Net
sales
|
|
$
|
2,564
|
|
|
$
|
530
|
|
|
$
|
2,034
|
|
Percentage
of total net sales
|
|
|
64
|
%
|
|
|
6
|
%
|
|
|
58
|
%
|
The
increase in the Remediation segment net sales during the quarter ended March 31, 2016 was caused by typical business fluctuations.
Remediation is usually the first activity performed in a contract and therefore the first part to be completed. In larger projects
it is not unusual to perform work in stages over the course of several months. The total number of Remediation segment jobs in
progress at March 31, 2016 was 48 (valued at $6,269), compared to 165 (valued at $9,793) on the same date in 2015. The Company
has no control over the amount of work available to bid from year to year. It is the nature of the Remediation business to experience
broad fluctuations in results of operations.
Demolition
Demolition
segment services are comprised of partial, phased and complete demolition of commercial, retail, private, governmental, industrial,
and military sites, as well as public and private schools. Demolition activities include building separations, concrete breaking
and saw-cutting, using the Company’s own man-lifts, bobcats, roll-off containers and roll-off trucks for hauling and disposal
of construction debris. The Company focuses on asbestos, mold and lead remediation and interior demolition. The Company also provides
full-scale commercial demolition and wrecking, as well as underground and above ground storage tank removal, and full-scale site
clearing including underground pipe removal and installation.
Hurricanes
and natural disasters are the biggest factor in the creation of large scale demolition opportunities for the Company. As a result,
the source of projects for the Demolition segment is unpredictable and can cause its results of operations to fluctuate broadly
and seasonally. Demolition contracts range widely in price from $30 to $20,000. Demolition contracts last anywhere from two weeks
(to demolish a one-story masonry commercial building such as a home improvement store) to two years or more to demolish concrete
slabs left by a hurricane such as Katrina.
The
following table presents Demolition segment net sales information for the quarters ended March 31, 2016 and 2015 (in thousands,
except percentages):
|
|
2016
|
|
|
Change
|
|
|
2015
|
|
Net
sales
|
|
$
|
1,302
|
|
|
$
|
(98
|
)
|
|
$
|
1,400
|
|
Percentage
of total net sales
|
|
|
33
|
%
|
|
|
(7
|
)%
|
|
|
40
|
%
|
The
decrease in net sales for the Demolition segment during the quarter ended March 31, 2016 was caused primarily by the lower number
of demolition contracts put out for bids in 2016 compared to 2015, as well as more selective bidding process utilizing higher
margins The Company saw more renovation opportunities than demolition projects year over year. During the first quarter 2016,
however, the Company did win 17 contracts in Florida valued at $302 that will commence in the second quarter 2016. At the end
of the first quarter 2016, the Company had Demolition segment contracts valued at $1,768 in backlog, of which more than $302 are
expected to start in the second quarter.
Insulation
Our
Insulation segment derives its revenue from re-insulation and insulation of new and remodeling projects. The segment typically
does not typically experience large changes in revenues year over year. The amount of sales is typically driven by the amount
of remodeling or maintenance work required by a large supermarket chain, with which the Company has an ongoing service contract.
The
following table presents Insulation segment net sales information for the quarters ended March 31, 2016 and 2015 (in thousands,
except percentages):
|
|
2016
|
|
|
Change
|
|
|
2015
|
|
Net
sales
|
|
$
|
135
|
|
|
$
|
46
|
|
|
$
|
89
|
|
Percentage
of total net sales
|
|
|
3
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
The
decrease in the Insulation segment net sales between the quarters ended March 31, 2016 and 2015 was caused primarily by a reduction
in work provided to the aforementioned supermarket chain.
Gross
Margin
Gross
margin for the quarters ended March 31, 2016 and 2015 are as follows (in thousands, except gross margin percentages). Differences
between net sales and cost of sales in the table below, on one hand, and the Company’s Consolidated Statements of Operations,
on the other, are caused by an adjustment to sales and billing that takes place within consolidated reports rather than within
the applicable segments.
|
|
2016
|
|
|
2015
|
|
Net
sales
|
|
$
|
4,001
|
|
|
$
|
3,523
|
|
Cost
of sales
|
|
|
2,686
|
|
|
|
2,850
|
|
Gross
margin
|
|
|
1,315
|
|
|
|
673
|
|
Gross
margin percentage
|
|
|
33
|
%
|
|
|
19
|
%
|
The
decrease in year-over-year cost of sales was caused by decreased use of materials, decreased job site and other indirect costs,
and decreases in dump fees and fuel costs, offset by a 38% increase in labor costs. The improvement in gross margin percentage
in the quarter ended March 31, 2016 by 14 percentage points over the quarter ended March 31, 2015 reflects the fact that the Company
had a higher percentage of Remediation jobs, which have lower materials and non-labor costs. Remediation contracts are typically
self-performed, without the need for subcontractors or expensive rental equipment. We believe our profit margin will continue
to benefit from the fact that we are bidding on larger projects with an increased margin. We are also encountering fewer bidders
qualified to bid these types of jobs.
The
Company anticipates that gross margin for the full-year 2016 will be between 28% and 30%. In general, gross margins and margins
on services will remain under pressure due to a variety of factors, including continued industry-wide pricing pressures and increased
competition. In response to competitive pressures, the Company may have to take service pricing actions, which could adversely
affect gross margins. Gross margins could also be affected by the Company’s ability to manage costs effectively and to stimulate
demand for certain of its products. To counteract the pressure on margins, the Company is working to improve its budget management
processes for contracts, in particular to improve its ability to track and charge for change orders as they occur. The Company
may also decline to bid on contracts where gross margins fall below acceptable levels.
Operating
Expenses
Operating
expenses for the quarters ended March 31, 2016 and 2015 are as follows (in thousands, except for percentages):
|
|
2016
|
|
|
Change
|
|
|
2015
|
|
General
and administrative
|
|
$
|
1,065
|
|
|
$
|
(254
|
)
|
|
$
|
1,319
|
|
Percentage
of total net sales
|
|
|
27
|
%
|
|
|
(10
|
%)
|
|
|
37
|
%
|
General
and Administrative (“G&A”) Expense
The
decrease in G&A expense during the quarter ended March 31, 2016 was caused by a number of factors, including a reduction in
compensation costs (lower by $190, due to a $100 reduction of his annual salary by Clyde A. Biston President, and a reduction
in overall headcount in the first quarter of 2016), lower rents associated with a reduction in rent charged by Mr. Biston on the
Crystal Springs leases (decreased by $48), lower group health insurance costs, which fell 31% ($51. Health insurance costs in
the first quarter of 2015 were over-paid by one month), lower office expenses (down by $13 or 29%, reflecting budget constraints
imposed on office spending), lower business taxes (down by $13 or 100%, due to the fact that some 2016 taxes were paid in April
2016), reduced bank service charges, which fell by $5 or 13% due to lower loan closing costs, and lower professional fees (down
by $4 or 14%, reflecting the elimination of the use of a public relations firm and reduced borrowing activity in 2016). These
decreases were offset by higher administrative indirect costs (up $55 or 91%, reflecting higher insurance premiums allocated to
this category), increased costs for licenses and permits (up by $9 or 84%, reflecting the increased number of permits required
for Florida DOT contracts), and higher costs of insurance (up by $9 or 277%), reflecting increases in premiums charged to the
Company for our Directors and Officer’s policy, which we did not have in first quarter of 2015.
The
total number of employees at March 31, 2016 was 148, compared to 152 at March 31, 2015.
Other
Expense
Other
expense for the quarters ended March 31, 2016 and 2015 are as follows (in thousands, except percentages):
|
|
2016
|
|
|
Change
|
|
|
2015
|
|
Other
income/(expense)
|
|
$
|
2
|
|
|
$
|
13
|
|
|
$
|
(11
|
)
|
Interest
expense
|
|
|
(36
|
)
|
|
|
22
|
|
|
|
(58
|
)
|
Gain
on asset sale
|
|
|
15
|
|
|
|
15
|
|
|
|
-
|
|
Total
other expense, net
|
|
|
(19
|
)
|
|
|
50
|
|
|
|
(69
|
)
|
The
year-over-year decrease in other expense during the quarter ended March 31, 2016 was due primarily to lower interest costs resulting
from the partial restructuring of the Company’s debt owed to the Company’s President, and to a gain recorded from
the disposal of skid steer loaders, excavators, a mini excavator, and a dump truck. All these items were old, in need of repair,
and were not being utilized.
Provision
for Income Taxes
Prior
to November 1, 2013, CES elected to be taxed under the provisions of subchapter S of the Internal Revenue Code. Under those provisions,
during and prior to 2013, CES did not pay federal or state corporate income taxes on its taxable income. Instead, its shareholders
were liable for individual federal income taxes on their respective shares of CES’s taxable income. Therefore, no provision
or liability for federal income taxes was included in our 2014 financial statements.
Provision
for income taxes and effective tax rates for the quarters ended March 31, 2016 and 2015 was as follows (dollars in thousands):
|
|
|
2016
|
|
|
|
2015
|
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Effective
tax rate
|
|
|
-
|
|
|
|
-
|
|
The
Company’s effective tax rate for the quarter ended March 31, 2016 was nil because of the losses carried forward from prior
periods.
Net
operating losses (“NOLs”) generated from 2014 and 2015 will offset the income reported for the quarter ended March
31, 2016. The Company has taken a full valuation allowance against the NOLs, as a result of which there are no tax assets or liabilities
reported at March 31, 2016.
Liquidity
and Capital Resources
(in thousands, except percentages)
The
Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its working
capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with its existing
operations over the next 12 months. The Company will seek, however, to raise up to $5,000 in additional capital in 2016 There
can be no assurance that the Company will be able to raise such additional capital on terms that are acceptable to the Company
or at all.
The
Company’s cash, cash equivalents and marketable securities were generally held in bank accounts.
The
following table presents selected financial information and statistics as of March 31, 2016 and December 31, 2015 (dollars in
thousands):
|
|
March
31, 2016
|
|
|
December 31,
2015
|
|
Cash,
cash equivalents and marketable securities
|
|
$
|
191
|
|
|
$
|
230
|
|
Property,
plant and equipment, net
|
|
$
|
1,857
|
|
|
$
|
1,998
|
|
Long-term
debt
|
|
$
|
3,747
|
|
|
$
|
3,865
|
|
Working
capital
|
|
$
|
539
|
|
|
$
|
284
|
|
The
following table presents selected financial information and statistics about the Company’s sources and uses of cash during
the first three months of 2016 and 2015 (in $ thousands):
|
|
Three
months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash
provided by operating activities
|
|
$
|
50
|
|
|
$
|
278
|
|
Cash
provided/(used) by investing activities
|
|
$
|
29
|
|
|
$
|
(85
|
)
|
Cash
used by financing activities
|
|
$
|
(118
|
)
|
|
$
|
(115
|
)
|
During
the three months ended March 31, 2016, the cash generated by operating activities of $50 was a result of $231 of net income, non-cash
adjustments to net income of $112, and a net change in operating assets and liabilities of $(294). The Company generated $29 of
cash for investing activities during the three months ended March 31, 2016, $35 from disposals of property and equipment, which
was offset by $(6) used to purchase equipment. Cash of $(118) was used by financing activities during the three months ended March
31, 2016 to repay debt. There were no new borrowings or payments of distributions in the first three months of 2016.
During
the three months ended March 31, 2015, the cash generated by operating activities of $278 was a result of $(715) of net loss,
non-cash adjustments to net loss of $127 and a net change in operating assets and liabilities of $506. The Company used $(85)
of cash for investing activities during the three months ended March 31, 2015 to purchase property and equipment. There were no
disposals of equipment in the three months ended March 31, 2015. Cash generated by financing activities during the three months
ended March 31, 2016 ($85) came from the issuance of new debt, some of which was used to repay debt ($200). No distributions were
paid in the first three months of 2015.
Capital
Assets
The
Company’s capital expenditures were $6 during the three months ended March 31, 2016, consisting of primarily of purchases
of earth moving equipment. The new equipment was acquired to replace aging equipment, and to add to our fleet of equipment to
prepare for new Demolition segment projects at Florida State University and at military bases in Georgia.
The
Company will seek to raise up to $5,000 in additional capital in 2016 to support its 2016 plan of operations. There can be no
assurance that the Company will be able to raise such additional capital on terms that are acceptable to the Company or at all.
Long-Term
Debt
(in thousands, except percentages)
To
date, the Company has financed its operations through internally generated revenue from operations, the sale of common stock,
the issuance of notes, and loans from shareholders. The following debt was outstanding at March 31, 2016:
(i) Demand
loan from shareholder and the chairman of our board of directors, Clyde A. Biston, with a monthly payment of $5 which has been
deferred to January 2017, bearing annual interest at 4.25%. At March 31, 2016, $237 was outstanding under the loan. In the three
months ended March 31, 2016, the Company repaid $17 of principal under the loan.
(ii) Demand
loan from shareholder and the chairman of our board of directors, Clyde A. Biston, with a monthly payment of $2 which has been
deferred to January 2017, bearing annual interest at 4.75%. At March 31, 2016, $158 was outstanding under the loan. In the three
months ended March 31, 2016, the Company made no repayments of principal under the loan.
(iii) Demand
loan from shareholder and the chairman of our board of directors, Clyde A. Biston, with a monthly payment of $10 which has been
deferred to January 2017, bearing annual interest at 4.75%. At March 31, 2016, $175 was outstanding under the loan. In the three
months ended March 31, 2016, the Company made no repayments of principal under the loan.
(iv) Demand
loan from shareholder and the chairman of our board of directors, Clyde A. Biston, with a monthly payment of $10 which has been
deferred to January 2017, bearing annual interest at 4.75%. At March 31, 2016, $175 was outstanding under the loan. In the three
months ended March 31, 2016, the Company made no repayments of principal under the loan.
(v) Installment
loan from shareholder and the chairman of our board of directors, Clyde A. Biston, with a monthly payment of $24, bearing annual
interest at 6.15%. At March 31, 2016, $2,656 was outstanding under the loan. In the three months ended March 31, 2016, the Company
the Company made no repayments of principal under the loan.
(vi) A line of credit
from Centennial Bank, Dade City, Florida, bearing variable interest of 1.25% over prime, secured by land, improvements, and accounts
receivable. The line of credit matures on May 5, 2018. At March 31, 2016, $1,750 was outstanding under the line. In the three months
ended March 31, 2016, the Company made no repayments of principal under the line, and borrowed no additional principal.
(vii)
Various installment loans payable in monthly payments, with interest rates ranging from 0% to 9.5%, secured by equipment and property.
At March 31, 2016, $804 was outstanding under the loans. In the three months ended March 31, 2016, the Company repaid $100 of
principal under the loans.
At
March 31, 2016, a total of $5,956 was outstanding under all loans and the line of credit. $2,208 of that amount is due and payable
in the 12 months following that date.
Dividend
Program
As
a privately-owned company prior to November 1, 2013, CES was owned by Clyde A. Biston. Mr. Biston elected to receive part of his
compensation in the form of distributions paid to himself as the sole shareholder. No dividends have been paid to Mr. Biston since
2013.
The
Company does not expect to pay any dividends or make any distributions to shareholders in 2016.
Off-Balance
Sheet Arrangements
The
Company does not have any off balance sheet arrangements.
Indemnification
On
occasion, the Company indemnifies its customers against legal claims arising from services it provides. The Company has not been
required to make any significant payments resulting from such services.
The
Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the Company
has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their
status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings.
It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements
due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. However,
the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations, and payments
made under these agreements historically have not been material.