Exhibit 99.1

 

 

 

Barber-Nichols, Inc.

 

 

Financial Report

December 26, 2020


Barber-Nichols, Inc.

   
       Contents  

Independent Auditor’s Report

     1  

Financial Statements

  

Balance Sheet

     2  

Statement of Operations

     3  

Statement of Stockholders’ Equity

     4  

Statement of Cash Flows

     5  

Notes to Financial Statements

     6-16  

 


 

LOGO

 

Plante & Moran, PLLC

Suite 600

8181 E. Tufts Avenue

Denver, CO 80237

Tel: 303.740.9400

Fax: 303.740.9009

plantemoran.com

Independent Auditor’s Report

To the Board of Directors

Barber-Nichols, Inc.

We have audited the accompanying financial statements of Barber-Nichols, Inc. (the “Company”), which comprise the balance sheet as of December 26, 2020 and December 28, 2019 and the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Barber-Nichols, Inc. as of December 26, 2020 and December 28, 2019 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Plante & Moran, PLLC

March 26, 2021    

 

 

 

1

   LOGO


Barber-Nichols, Inc.

 

Balance Sheet

 

 

December 26, 2020 and December 28, 2019

 

     2020   2019
                                     Assets     

Current Assets

    

Cash and cash equivalents

   $ 4,856,149      $ 3,028,029   

Restricted cash and cash equivalents

     50,000       -    

Accounts receivable - Net

     6,745,744       4,548,743  

Contract assets

     7,670,964       5,731,306  

Inventory - Net

     4,046,363       2,965,807  

Current portion of notes receivable - Related party

     30,000       30,000  

Prepaid expenses and other current assets

     404,328       515,498  
  

 

 

 

 

 

 

 

Total current assets

     23,803,548       16,819,383  

Property and Equipment - Net

     14,221,497       4,567,513  

Notes Receivable - Related party - Net of current portion

     -         30,000  
  

 

 

 

 

 

 

 

Total assets

   $       38,025,045     $       21,416,896  
  

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

Current Liabilities

    

Accounts payable

   $ 4,729,134     $ 2,279,877  

Current portion of capital lease obligation

     154,723       153,774  

Contract liabilities - Current portion

     6,494,787       2,559,869  

Shareholder distribution payable

     1,187,216       1,567,578  

Current maturities of long-term debt

     537,146       467,419  

Accrued and other current liabilities

     3,270,466       1,791,129  
  

 

 

 

 

 

 

 

Total current liabilities

     16,373,472       8,819,646  

Long-term Debt - Net of current portion

     6,478,048       370,542  

Capital Lease Obligation - Net of current portion

     -         156,722  

Contract Liabilities - Net of current portion

     -         966,295  

Other Long-term Liabilities

     321,606       -    
  

 

 

 

 

 

 

 

Total liabilities

     23,173,126       10,313,205  

Stockholders’ Equity

    

Paid-in capital, 50,000 shares authorized $0 par value, 7,871 and 7,497 shares issued and outstanding at December 26, 2020 and December 28, 2019, respectively

     837,067       36,599  

Retained earnings

     14,014,852       11,067,092  
  

 

 

 

 

 

 

 

Total stockholders’ equity

     14,851,919       11,103,691  
  

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

   $ 38,025,045     $ 21,416,896  
  

 

 

 

 

 

 

 

 

See notes to financial statements.

  2   


Barber-Nichols, Inc.

 

Statement of Operations

 

 

Years Ended December 26, 2020 and December 28, 2019

 

     2020   2019

Net Sales

   $ 56,300,074      $ 41,475,258   

Cost of Goods Sold

    

Salaries

     7,513,787       6,948,307  

Materials

     18,009,280       11,135,101  

Subcontractors

     7,576,339       7,223,940  
  

 

 

 

 

 

 

 

Total cost of goods sold

     33,099,406       25,307,348  
  

 

 

 

 

 

 

 

Gross Profit

     23,200,668       16,167,910  

Operating Expenses

     15,900,792       12,026,087  
  

 

 

 

 

 

 

 

Operating Income

     7,299,876       4,141,823  

Nonoperating Income (Expense)

    

Interest income

     13,200       79,343  

Interest expense

     (71,317     (74,972

Miscellaneous income

     101,217       16,992  
  

 

 

 

 

 

 

 

Total nonoperating income

     43,100       21,363  
  

 

 

 

 

 

 

 

Net Income

   $       7,342,976     $       4,163,186  
  

 

 

 

 

 

 

 

 

See notes to financial statements.

  3   


Barber-Nichols, Inc.

 

Statement of Stockholders’ Equity

 

 

Years Ended December 26, 2020 and December 28, 2019

 

       Paid-in Capital      Retained
      Earnings      
          Total        
       

Balance - December 30, 2018

   $ 36,599      $ 12,314,660     $ 12,351,259   

Net income

     -          4,163,186       4,163,186  

Distributions

     -          (5,410,754     (5,410,754
  

 

 

 

  

 

 

 

 

 

 

 

Balance - December 28, 2019

     36,599        11,067,092       11,103,691  

Net income

     -          7,342,976       7,342,976  

Contributions

     800,468        -         800,468  

Distributions

     -          (4,395,216     (4,395,216
  

 

 

 

  

 

 

 

 

 

 

 

Balance - December 26, 2020

   $ 837,067      $     14,014,852     $     14,851,919  
  

 

 

 

  

 

 

 

 

 

 

 

 

See notes to financial statements.

  4   


Barber-Nichols, Inc.

 

Statement of Cash Flows

 

 

Years Ended December 26, 2020 and December 28, 2019

 

     2020     2019  

Cash Flows from Operating Activities

    

Net income

   $ 7,342,976      $ 4,163,186   

Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:

    

  Depreciation

     765,119        731,761   

  Bad debt expense

     -          11,318   

  Gain on sale

     3,600        -     

  Changes in operating assets and liabilities that (used) provided cash and cash equivalents:

    

  Accounts receivable

     (2,197,001)       1,919,088   

  Contract assets

     (1,939,658)       362,464   

  Inventory

     (1,080,556)       374,374   

  Prepaid expenses and other current assets

     111,170        (393,921)  

  Accounts payable

     2,449,257        1,113,090   

  Contract liabilities

     2,968,623        (3,205,799)  

  Accrued and other liabilities

     1,800,943        (634,043)  
  

 

 

   

 

 

 

Net cash and cash equivalents provided by operating activities

     10,224,473        4,441,518   

Cash Flows from Investing Activities

    

Purchase of property and equipment

     (10,419,103)       (836,201)  

Proceeds on note receivables - Related party

     30,000        30,000   

Proceeds from sale of assets

     (3,600)       -    
  

 

 

   

 

 

 

Net cash and cash equivalents used in investing activities

     (10,392,703)       (806,201)  

Cash Flows from Financing Activities

    

Payments on long-term debt

     (2,608,013)       (603,371)  

Proceeds from long-term debt

     8,996,000        -    

Payments on capital lease obligations

     (155,773)       (184,722)  

Debt issuance costs

     (210,754)       -    

Contributions

     800,468        -    

Distributions to stockholders

     (4,775,578)       (3,843,176)  
  

 

 

   

 

 

 

Net cash and cash equivalents provided by (used in) financing activities

     2,046,350        (4,631,269)  
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     1,878,120        (995,952)  

Cash and Cash Equivalents - Beginning of year

     3,028,029        4,023,981   
  

 

 

   

 

 

 

Cash and Cash Equivalents - End of year

   $ 4,906,149      $ 3,028,029   
  

 

 

   

 

 

 

Classification of Cash and Cash Equivalents

    

Cash and cash equivalents

   $ 4,856,149      $ 3,028,029   

Restricted cash

     50,000        -     
  

 

 

   

 

 

 

Total cash and cash equivalents

   $       4,906,149      $       3,028,029   
  

 

 

   

 

 

 

Supplemental Cash Flow Information - Interest paid

   $ 62,531      $ 74,251   

Significant Noncash Transactions - Distributions declared

   $ 1,187,216      $ 1,567,578   

 

See notes to financial statements.

  5   


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

 

Note 1 - Nature of Business

Barber-Nichols, Inc. (the “Company”) was incorporated on December 29, 1967 under the laws of the State of Colorado. The Company designs, develops, and produces specialty turbines, pumps, and compressors, their electrical drives, and associated fluid and power systems for aerospace, defense, energy, cryogenic, and other markets.

Note 2 - Significant Accounting Policies

Basis of Accounting

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Fiscal Year End Policy

The fiscal year end of the Company is the last Saturday of the calendar year. The years ended December 26, 2020 and December 28, 2019 were 52-week fiscal years.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value due to the short-term nature of these investments.

Restricted Cash

Under the terms of its standby letter of credit agreement with a bank, the Company has agreed to maintain a compensating balance of $50,000. At December 26, 2020, $50,000 of cash is restricted for that purpose. At December 28, 2019, the Company did not have restricted cash.

Accounts Receivable

Accounts receivable are stated at invoice amounts. An allowance for doubtful accounts is established on an aggregate basis. The allowance is computed using historical loss rate factors applied to unpaid accounts stratified by the number of days payment is delinquent. Loss rate factors are based on historical loss experience and adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding amounts. Uncollectible amounts are written off against the allowance for doubtful accounts in the period they are determined to be uncollectible. The allowance for doubtful accounts on accounts receivable balances was $21,318 as of December 26, 2020 and December 28, 2019.

Credit Risk and Major Customers

The Company extends trade credit to its customers on terms that are generally practiced in the markets in which it competes. For the years ended December 26, 2020 and December 28, 2019, approximately $42,987,000 (76 percent) and $31,561,000 (76 percent), respectively, of the Company’s billable revenue was generated from contracts funded either directly or indirectly by the U.S. federal government. As of December 26, 2020 and December 28, 2019, trade accounts receivable of $5,729,000 (85 percent) and $3,290,000 (74 percent), respectively, were generated from the contracts funded either directly or indirectly by the U.S. federal government.

 

  6   


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 2 - Significant Accounting Policies (Continued)

 

Contracts with the U.S. federal government and its prime contractors usually contain standard provisions for permitting the government to modify, curtail, or terminate the contract for convenience of the government if program requirements or budgetary constraints change. Upon such a termination, the Company generally is entitled to recover costs incurred, settlement expenses, and profit on work completed prior to termination.

For the years ended December 26, 2020 and December 28, 2019, approximately 48 percent and 54 percent of revenue was generated from two and three customers, respectively. As of December 26, 2020 and December 28, 2019, approximately 65 percent and 50 percent, respectively, of accounts receivable was due from three customers.

Inventory

Inventory is stated at the lower of cost or net realizable value, with cost determined on the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Inventoried costs primarily include costs of materials, labor, overhead, and freight. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value.

Property and Equipment

Property and equipment are recorded at cost. The straight-line method is used for computing depreciation and amortization. Assets are depreciated over their estimated useful lives. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or the estimated useful lives of the assets. Costs of maintenance and repairs are charged to expense when incurred.

 

       Depreciable Life - 
Years

Computer equipment

   3-5

Vehicles

   5

Shop equipment

   5-7

Furniture and fixtures

   7

Leasehold improvements

   5-15

Revenue Recognition and Cost Recognition

Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

 

7


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 2 - Significant Accounting Policies (Continued)

 

The Company is a designer and manufacturer of specialty turbines, pumps, and compressors, their electrical drives, and associated fluid and power systems for aerospace, defense, energy, cryogenic, and other markets. The business has two main revenue streams:

 

   

Preproduction and production contracts - This includes a full spectrum of preproduction and production services for commercial and industrial projects, including developing, consulting, prototyping, and the manufacture, repair, and significant overhaul of machines. The Company earns revenue from these services using three contract delivery methods: fixed price, cost plus, and time and materials. Generally, the Company will have one performance obligation per contract; however, certain contracts may require the Company to perform multiple performance obligations. The Company breaks contracts into separate performance obligations to the extent that the contract obligates the Company to perform distinct activities for which the customer can individually benefit. These services are performed over time. For the years ended December 26, 2020 and December 28, 2019, approximately $51,270,000 and $37,790,000, respectively, or 91 percent, of the Company’s revenue comes from these contracts.

 

   

Standard product sales - The Company manufactures pumps that are sold to various companies throughout the world. Revenue from sales of pumps is recognized when the product is delivered to the customer. For the years ended December 26, 2020 and December 28, 2019, approximately $5,030,000 and $3,685,000, respectively, or 9 percent, of the Company’s revenue comes from standard product sales.

The following economic factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows as indicated:

 

   

Project change orders - Change orders often arise when unexpected costs to the existing contract are incurred or the customer wants to extend the scope of the project. These rarely create a separate project performance obligation and are accounted for as a modification to the contract price using the cumulative catch-up adjustment method.

 

   

Type of contract - Contracts almost always include a signed contract with the customer. Preproduction and production contracts may be short or long term, depending on the scope of the contract. Long-term contracts are defined as contracts that extend beyond one year.

Contract Balances

A contract asset is recognized when the Company has a right to consideration for goods or services it transferred to the customer that is conditional on other than the passing of time, such as future performance of the Company. Contract assets are classified as receivables when the rights in their respect become unconditional.

A contract liability is recognized when the Company has an obligation to transfer goods or services to the customer for which it has received consideration (or the consideration is payable) from the customer.

The opening balances of the Company’s accounts receivable, contract assets, and contract liabilities as of December 30, 2018 were $6,479,149, $6,093,770, and $6,731,963, respectively.

Timing of Satisfaction of Performance Obligations

The Company typically satisfies its performance obligations as goods are delivered and services are rendered.

 

8


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 2 - Significant Accounting Policies (Continued)

 

The Company’s preproduction and production contracts are typically performed over time, due to the continuous transfer of control to the customer. The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. To determine the transaction price, the Company assumes that the goods or services will be transferred to the customer in accordance with the agreed-upon contractual terms.

Costs incurred in fulfilling a contract with a customer are recorded as contract costs, as these costs are considered necessary for progress toward completion on the contract. Direct contract costs include all direct subcontractor, material, and labor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools, and repair costs.

On fixed-price contracts, the Company recognizes revenue over time primarily using contract costs incurred to date compared to total estimated contract costs to measure progress toward the satisfaction of the performance obligations. This directly measures the value of the services transferred to the customer. There is usually one performance obligation under these contracts. Revenue for cost reimbursable (cost-plus and time and materials contracts) is recorded on the basis of cost incurred plus contractual cost markup.

Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined. Changes in job performance, conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period in which they are determined. Due to uncertainties inherent in the estimating process, it is at least reasonably possible that, in the near term, the Company will revise its cost and profit estimates related to contracts in progress.

Changes in estimates or contracts with customers in the current reporting period may result in changes to the revenue recognized for performance obligations that were previously fully or partially satisfied.

The Company satisfies its performance obligations for product sales at a point in time. Revenue from product sales is recognized upon delivery, which is considered the point the customer obtains control according to the contractual delivery term. The Company accounts for shipping and handling activities as a fulfillment costs rather than as a separate performance obligation.

Significant Payment Terms

Payment for services performed by the Company is typically due within 30 days after an invoice is sent to the customer. Progress invoices for services performed are sent to customers throughout the month or based on milestones outlined in the contract. Invoices for services performed over a shorter range of time are typically sent to customers upon completion of the service. The Company does not offer discounts if the customer pays some or all of an invoiced amount prior to the due date.

Nature of Promises to Transfer

In most cases, performance obligations transfer to customers when performed by the Company. Some services are provided by subcontractors. The Company does not act as an agent (i.e., the Company does not provide a service of arranging for another party to transfer goods or services to the customer).

Warranties

The Company’s warranties provide customers with assurance that contracts and services performed comply with agreed-upon specifications under the industry-standard workmanship warranty. The Company’s contracts typically include a one-year warranty. At the time revenue is recognized, the Company estimates the cost of expected future warranty claims but does not exclude any amounts from revenue. The Company does not maintain separate warranty accounts, as warranty claims are infrequent and rare. The Company does not sell warranties separately.

 

9


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 2 - Significant Accounting Policies (Continued)

 

Determining and Allocating the Transaction Price

The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer.

To determine the transaction price of a contract, the Company considers its customary business practices and the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the goods or services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will not be canceled, renewed, or modified.

Most of the Company’s contracts with customers have fixed transaction prices. For some contracts, the amount of consideration to which the Company will be entitled is variable. Variable consideration contracts are not common and can include performance bonuses and liquidated damages. Under these contracts, the Company uses the most likely amount method based on the range of possible outcomes, history with similar situations, and facts and circumstances as known.

The Company includes amounts of variable consideration in a contract’s transaction price only to the extent that the Company has a relatively high level of confidence that the amounts will not be subject to significant reversals, that is, downward adjustments to revenue recognized for satisfied performance obligations. In determining amounts of variable consideration to include in a contract’s transaction price, the Company relies on its experience and other evidence that supports its qualitative assessment of whether revenue would be subject to a significant reversal. The Company considers all the facts and circumstances associated with both the risk of a revenue reversal arising from an uncertain future event and the magnitude of the reversal if that uncertain event were to occur.

At the end of each month, the Company updates the estimated transaction prices of contracts having unsatisfied performance obligations. At that time, revenue and related account balances are adjusted to reflect any changes in transaction prices.

If it is determined that there are multiple performance obligations, the appropriate amount of consideration is allocated to each separate performance obligation. The Company determines the stand-alone selling price at contract inception of the good or service underlying each separate performance obligation and allocates the transaction price on a relative stand-alone selling price basis. The stand-alone selling price is determined using the Company’s internal estimate of selling price based on its expected cost plus expected margin for each performance obligation.

Income Taxes

Pursuant to provisions of the Internal Revenue Code, the Company has elected to be taxed as an S corporation. Generally, the income of an S corporation is not subject to federal income tax at the corporate level, but rather the stockholders are required to include a pro rata share of the corporation’s taxable income or loss in their personal income tax returns, irrespective of whether dividends have been paid. Accordingly, no provision for federal income taxes has been made in the accompanying financial statements.

 

10


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 2 - Significant Accounting Policies (Continued)

 

Upcoming Accounting Pronouncement

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which will supersede the current lease requirements in Accounting Standards Codification (ASC) 840. The ASU requires lessees to recognize a right-to-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease-related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective for the Company’s year ending December 31, 2022 and will be applied using a modified retrospective transition method to either the beginning of the earliest period presented or the beginning of the year of adoption. The Company is still evaluating which method it will apply. The new lease standard is expected to have a significant effect on the Company’s financial statements as a result of the Company’s operating leases, as disclosed in Note 11, that will be reported on the balance sheet at adoption. Upon adoption, the Company will recognize a lease liability and corresponding right-to-use asset based on the present value of the minimum lease payments. The effects on the results of operations are not expected to be significant, as recognition and measurement of expenses and cash flows for leases will be substantially the same under the new standard.

Subsequent Events

The financial statements and related disclosures include evaluation of events up through and including March 26, 2021, which is the date the financial statements were available to be issued.

The COVID-19 outbreak has impacted millions of individuals and businesses worldwide. In response, many jurisdictions where the Company operates have implemented measures to combat the outbreak. During 2020, the Company has taken certain personnel-related actions. Although current performance in 2020 has not been significantly impacted by COVID-19, concern exists for continuing operations relating projects pushing out further into the future than originally planned, employees’ ability to work on job sites, ability for suppliers to support production, and for timing of customer payments. Management has taken prudent and necessary employee protective measures, as advised by the CDC and local authorities.

On March 26, 2021, the Company entered into a sale-leaseback transaction with a related party. The Company sold the building recently constructed (see Note 9) and related equipment for approximately $9,765,000 and $978,000, respectively. The Company sold the assets at recorded cost; therefore, no gain was recognized. Subsequent to the sale, the Company entered into an agreement to lease all assets back from the related party. The building lease is a nine-year lease effective April 1, 2021 with a base rent of $476,000, subject to annual 3 percent increase. The equipment leases are an 84-month lease with fixed monthly payments ranging from $1,905 to $7,427.

 

11


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 3 - Contracts in Progress

 

Costs and estimated earnings on contracts in progress at December 26, 2020 and December 28, 2019 are as follows:

 

     2020   2019

Direct costs incurred on uncompleted contracts

   $       110,442,445      $       90,657,840   

Estimated earnings

     56,313,788       46,172,838  
  

 

 

 

 

 

 

 

Total revenue to date

     166,756,233       136,830,678  

Billings to date

     165,580,056       134,625,536  
  

 

 

 

 

 

 

 

Total

   $ 1,176,177     $ 2,205,142  
  

 

 

 

 

 

 

 

Balance sheet classification:

    

Contract asset - Costs and estimated earnings in excess of billings on uncompleted contracts

   $ 7,670,964     $ 5,731,306  

Contract liabilities - Billings in excess of costs and estimated earnings on uncompleted contracts

     (6,494,787     (3,526,164
  

 

 

 

 

 

 

 

Total

   $ 1,176,177     $ 2,205,142  
  

 

 

 

 

 

 

 

Note 4 - Accounts Receivable and Contract Balances    

The following is the detail of accounts receivable at December 26, 2020 and December 28, 2019:

 

     2020   2019

Trade receivables

   $ 6,766,887      $ 4,560,036   

Less allowance for doubtful accounts

     21,318       21,318  
  

 

 

 

 

 

 

 

Net accounts receivable

     6,745,569       4,538,718  

Employee accounts receivable

     175       10,025  
  

 

 

 

 

 

 

 

Total accounts receivable - Net

   $           6,745,744     $          4,548,743  
  

 

 

 

 

 

 

 

Contract assets

   $ 7,670,964     $ 5,731,306  

Contract liabilities

     6,494,787       3,526,164  

Note 5 – Inventory    

Inventory at December 26, 2020 and December 28, 2019 consists of the following:    

 

     2020   2019

Raw materials

   $ 339,353      $ 240,376   

Work in progress

     715,896       911,888  

Finished goods

     3,267,849       1,861,160  

Loss provision

     (276,735     (47,617
  

 

 

 

 

 

 

 

Total

   $           4,046,363     $          2,965,807  
  

 

 

 

 

 

 

 

 

12


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 6 - Property and Equipment

 

Property and equipment at December 26, 2020 and December 28, 2019 are summarized as follows:

 

     2020   2019

Land

   $ 826,645      $ 1,114,128   

Shop equipment

     7,608,092       7,331,253  

Transportation equipment

     27,327       27,327  

Furniture and fixtures

     463,410       156,706  

Computer equipment and software

     536,438       473,716  

Leasehold improvements

     2,278,927       2,102,455  

Construction in progress

     9,883,849       -    
  

 

 

 

 

 

 

 

Total cost

     21,624,688       11,205,585  

Accumulated depreciation

     7,403,191       6,638,072  
  

 

 

 

 

 

 

 

Net property and equipment

   $       14,221,497     $       4,567,513  
  

 

 

 

 

 

 

 

Depreciation expense for 2020 and 2019 was $765,119 and $731,761, respectively.

Note 7 - Related Party Notes Receivable

Notes receivable at December 26, 2020 and December 28, 2019 are as follows:

 

     2020   2019

Amounts due from three stockholders, due in annual installments of $10,000 each, including interest at the prime rate (an effective rate of 4.75 percent at December 26, 2020)

   $            30,000      $ 60,000   

Less current portion

     30,000       30,000  
  

 

 

 

 

 

 

 

Long-term portion

   $ -       $             30,000  
  

 

 

 

 

 

 

 

Note 8 - Accrued and Other Liabilities

The following is the detail of accrued and other liabilities as of December 26, 2020 and December 28, 2019:

 

     2020   2019

Accrued profit sharing

   $ 960,052      $ 673,405   

Accrued vacation

     817,543       541,906  

Accrued retainage - Construction in progress

     477,393       -    

FICA deferred - CARES Act

     321,605       -    

Accrued property taxes

     211,900       209,685  

Accrued payroll taxes and withholdings

     188,913       111,729  

Accrued payroll

     154,773       161,981  

Other

     138,287       92,423  
  

 

 

 

 

 

 

 

Total

   $        3,270,466     $        1,791,129  
  

 

 

 

 

 

 

 

The Company owes accrued retainage related to the construction in progress related to the bonds discussed in Note 9. Upon completion of the building, the accrued retainage will be reclassed to a long-term liability, as the amount will be funded by the bonds.

 

13


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

 

Note 9 - Long-term Debt and Line of Credit

During 2020, the Company issued Series A and Series B bonds with a financial institution. The Series A and Series B bonds have maximum cumulative borrowings of $7,640,000 and $2,360,000, respectively. The bonds mature in January 2026. The funds were authorized and available for draw down to finance the expansion of the Company’s manufacturing facility as reimbursable costs. The Series A and Series B bonds have cumulative borrowings outstanding of $6,750,000 and $0, respectively, as of December 26, 2020. The Company incurred debt issuance fees of $210,754 from the issuance of the Series A and Series B bonds. The Series A and Series B bonds require monthly installments, including principal and interest at 2.24 percent, beginning in March 2021 through April 2045. The Series B bonds require monthly installments, including principal and interest at 2.24 percent, beginning in March 2021 through December 2045.

The Series A and Series B bonds contain certain restrictive covenants concerning the maintenance of certain financial statement ratios, the incurrence of additional debt, and a requirement for the submission of audited financial statements by a specified date. The Series A and B bonds are collateralized by all business assets.

During 2020, the Company received a Paycheck Protection Program term note through its primary bank in the amount of $2,246,000. The PPP loan program was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and is administered by the Small Business Administration. Subsequently, although the Company received a PPP loan, management decided the Company would not seek forgiveness under the terms of the program and repaid the loan in full.

Long-term debt at December 26, 2020 and December 28, 2019 is as follows:

 

     2020   2019

The Series A bonds require monthly installments, including principal and interest at 2.24 percent beginning in March 2021 through December 2045. The Series A and B bonds are collateralized by all business assets

   $       6,750,000     $ -    

Note to a former owner due in 10 semiannual payments of $176,509 in principal, plus accrued interest at prime (3.25 percent at December 26, 2020). The note is unsecured and due on January 1, 2023

     132,383             176,509   

Note to a financial institution due in 60 monthly payments of $9,107, including interest at 3.50 percent. The note is collateralized by all business assets and due on August 22, 2021

     70,763       176,066  

Note to a financial institution due in 60 monthly payments of $3,898, including interest at 3.70 percent. The note is collateralized by equipment and due on October 14, 2023

     124,883       166,119  

Note to individual due in 10 semiannual payments of $60,864 in principal, plus accrued interest at prime (3.25 percent at December 26, 2020). The note is unsecured and due on January 1, 2022

     61,882       121,769  

Note to a financial institution due in 84 monthly payments of $1,804, including interest at 4.41 percent. The note is collateralized by equipment and due on November 7, 2024

     77,459       95,196  

Note to a financial institution due in 60 monthly payments of $2,184, including interest at 3.03 percent. The note is collateralized by equipment and due on April 6, 2021

     8,578       34,091  

Note to a financial institution due in 60 monthly payments of $4,713, including interest at 3.30 percent. The note is collateralized by equipment and due on July 1, 2020

     -         32,583  

 

14


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 9 - Long-term Debt and Line of Credit (Continued)

 

     2020   2019

Note to a financial institution due in 60 monthly payments of $6,016, including interest at 3.05 percent. The note is collateralized by equipment and due on April 21, 2020

   $ -       $ 23,690  

Note to a financial institution due in 60 monthly payments of $1,742, including interest at 3.30 percent. The note is collateralized by equipment and due on July 1, 2020

     -         11,938  
Unamortized debt issuance costs      (210,754     -    
  

 

 

 

 

 

 

 

Long-term debt

     7,015,194       837,961   

Less current portion

     537,146       467,419  
  

 

 

 

 

 

 

 

Long-term portion

   $       6,478,048     $       370,542  
  

 

 

 

 

 

 

 

The balance of the above debt matures as follows:

 

   

      Years Ending      

  Amount      
               
 

  2021

  $ 537,146     
 

  2022

    309,683     
 

  2023

    309,396     
 

  2024

    276,023     
 

  2025 and thereafter

    5,793,700     
   

 

 

   
 

  Total long-term debt

    7,225,948     
 

Unamortized debt discount

    (210,754)    
   

 

 

   
 

 

  Total

 

 

$

 

            7,015,194 

 

 

 
   

 

 

   

Interest expense for 2020 and 2019 was $71,317 and $74,972, respectively.

The Company has a line of credit agreement with a bank of up to $3,000,000 payable to a bank with a maturity date of June 2021. As of December 26, 2020 and December 28, 2019, the Company has no outstanding draws on line of credit. Interest is payable monthly at a variable rate (3.00 percent at December 26, 2020). The line of credit is collateralized by substantially all assets by the Company.

Note 10 - Capital Leases

The Company leases equipment under long-term lease arrangements that are classified as capital leases. For financial statement purposes, the present values of the net minimum lease payments have been capitalized and are being amortized over the useful lives of the assets. Under the terms of the lease agreements, payments ranging from $6,052 to $13,916 are due monthly through December 20, 2021. The leases have been imputed with interest at an annual rate of 5.48 percent.

At December 26, 2020 and December 28, 2019, property under capital leases consists of equipment with a gross cost of $598,594. Accumulated depreciation on the property under capital leases was $359,157 and $239,438 as of December 26, 2020 and December 28, 2019, respectively.

 

15


Barber-Nichols, Inc.

 

Notes to Financial Statements

 

 

December 26, 2020 and December 28, 2019

Note 10 - Capital Leases (Continued)

 

The future minimum lease payments under capital leases are as follows:

 

   

    Year Ending in    

December

   Amount      
                
 

2021

   $ 161,236    
 

Less amount representing interest

     6,513    
    

 

 

   
 

Present value of net minimum lease payments

   $             154,723    
    

 

 

   

Note 11 - Operating Leases

The Company is obligated under operating leases primarily for facilities, warehouses, and equipment, expiring at various dates through 2028. The leases require the Company to pay taxes, insurance, utilities, and maintenance costs. Total rent expense under these leases was $564,144 and $541,200 for 2020 and 2019, respectively.

Future minimum annual commitments under these operating leases are as follows:

 

   

    Years Ending in    

December

   Amount       
                 
 

    2021

   $ 781,704     
 

    2022

     698,845     
 

    2023

     596,858     
 

    2024

     614,764     
 

    2025

     633,207     
 

    Thereafter

     2,709,678     
    

 

 

    
 

      Total

   $             6,035,056     
    

 

 

    

Note 12 - Retirement Plans

The Company sponsors a 401(k) plan for all employees. The plan provides for the Company to make a matching or discretionary profit-sharing contributions. Contributions to the plan for matching totaled $537,808 and $762,192 and discretionary profit sharing totaled $752,192 and $534,071 for the years ended December 26, 2020 and December 28, 2019, respectively.

 

16