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HomeMy WebLinkAboutFinancial Statement CPA Certified EXEMPT Hycon Investments, LLC Reviewed Financial Statements As of and for the Six-Month Period Ended June 30, 2024 Hycon Investments, LLC Table of Contents June 30, 2024 Page(s) Independent Accountant’s Review Report ............................................................................................... 1 Financial Statements Balance Sheet ............................................................................................................................................... 2 Statement of Earnings................................................................................................................................... 3 Statement of Changes in Members’ Capital ................................................................................................ 4 Statement of Cash Flows .............................................................................................................................. 5 Notes to Financial Statements ................................................................................................................. 6-13 Coral Gables 2320 Ponce de Leon Blvd. Coral Gables, FL 33134 Miami 800 Brickell Ave. Suite 800 Miami, FL 33131 Ft. Lauderdale 350 East Las Olas Blvd. Suite 1250 Ft. Lauderdale, FL 33301 Aventura 19495 Biscayne Blvd. Suite 702 Aventura, FL 33180 Independent Accountant’s Review Report To the Members of Hycon Investments, LLC We have reviewed the accompanying financial statements of Hycon Investments, LLC which comprise the balance sheet as of June 30, 2024 and the related statements of earnings, changes in members' capital, and cash flows for the six-month period then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America (‘U.S. GAAP’), and 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. Accountant’s Responsibility Our responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with U.S. GAAP. We believe that the results of our procedures provide a reasonable basis for our conclusion. We are required to be independent of the Company and to meet our ethical responsibilities, in accordance with the relevant ethical requirements related to our review. Accountant’s Conclusion Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with U.S. GAAP. October 29, 2024 Coral Gables, FL Hycon Investments, LLC Balance Sheet June 30, 2024 The Independent Accountant’s Review Report and the accompanying notes are an integral part of these financial statements. 2 Assets Current assets Cash 794,887$ Contracts receivable 506,427 Contract assets: Contracts retention 249,342 Costs and estimated earnings in excess of billings 132,722 Total current assets 1,683,378$ Investments 83,114 Other assets 45,225 Total assets 1,811,717$ Liabilities and Members' Capital Current liabilities Accounts payable 355,112$ Current portion of long term debt 3,368 Contract liabilities: Billings in excess of costs and estimated earnings 419,039 Total current liabilities 777,519$ EIDL loan, net of current portion 146,632 Total liabilities 924,151 Members' capital 887,566 Total liabilities and members' capital 1,811,717$ (This space has been intentionally left blank.) Hycon Investments, LLC Statement of Earnings For the Six-Month Period Ended June 30, 2024 The Independent Accountant’s Review Report and the accompanying notes are an integral part of these financial statements. 3 Contract revenues earned 2,278,441$ Cost of contract revenues earned 1,721,614 Gross profit 556,827$ General and administrative expenses 124,534 Income from operations 432,293 Other income (expenses) Other expense (9,662) Other income 9,295 Total other expense (367) Net income 431,926$ (This space has been intentionally left blank.) Hycon Investments, LLC Statement of Changes in Members’ Capital For the Six-Month Period Ended June 30, 2024 The Independent Accountant’s Review Report and the accompanying notes are an integral part of these financial statements. 4 Members' capital at the beginning of the period 675,200$ Net income for the period 431,926 Distributions to members (219,560) Members' capital at the end of the period 887,566$ (This space has been intentionally left blank.) Hycon Investments, LLC Statement of Cash Flows For the Six-Month Period Ended June 30, 2024 The Independent Accountant’s Review Report and the accompanying notes are an integral part of these financial statements. 5 Cash flows from operating activities Net income 431,926$ Adjustments to reconcile net income to net cash provided by operating activities (Increase) decrease in assets Contracts receivable 467,220$ Contract assets 551,326 Other assets (1,069) Increase (decrease) in liabilities Accounts payable (917,587) Contract liabilities 423,301 Total adjustments 523,191 Net cash provided by operating activities 955,117 Cash flows from financing activities Members' distributions (219,560) Net cash used in financing activities (219,560) Net increase in cash 735,557 Cash Beginning of period 59,330 End of period 794,887$ Supplemental disclosure of cash flow information Cash paid for interest 5,400$ (This space has been intentionally left blank.) Hycon Investments, LLC Notes to Financial Statements June 30, 2024 6 Note 1 Organization and Nature of Business Hycon Investments, LLC (the “Company”) is a Limited Liability Company formed under the laws of the State of Florida on February 1, 2016 for the purpose of performing construction contracts. The Company is primarily engaged in performing construction contracts in South Florida. Note 2 Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on historical experience and various other assumptions that management believes to be reasonable under the circumstances, including the potential future effects of macroeconomic trends and events, such as inflation and interest rate levels; uncertainty from potential market volatility; other market, industry and regulatory factors, including uncertainty related to the implementation and pace of governmental programs and initiatives and project permitting issues, and other regulatory matters or uncertainty; supply chain disruptions; climate- related matters; global events, such as military conflicts; and public health matters. These estimates form the basis for making judgments about the Company’s operating results and the carrying values of assets and liabilities that are not readily apparent from other sources. While management believes that such estimates are reasonable when considered in conjunction with the Company’s financial position and results of operations taken as a whole, actual results could differ materially from these estimates if conditions change or if certain key assumptions used in making these estimates ultimately prove to be inaccurate. Key estimates include: the recognition of revenue and project profit or loss, which the Company defines as project revenue less project costs of revenue, including project-related depreciation, in particular, on construction contracts accounts for under the cost-to-cost method, for which the recorded amounts require estimates of costs to complete and the amount and probability of variable consideration included in the contract transaction price; fair value estimates, including those related to financial instruments; allowances for credit losses, certain other accruals and allowances; and the estimated effects of litigation and other contingencies. Operating Cycle The Company’s work is normally performed under fixed-price contracts. The length of the Company contracts varies but is typically about two years. Therefore, assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheet as they will be liquidated in the normal course of contract completion, although this may require more than one year. Fair Value of Financial Instruments The Company’s financial instruments are cash, contracts receivable, investments, and accounts payable. The recorded values of cash , contracts receivable, and accounts payable approximate their fair values based on their short-term nature. (This space has been intentionally left blank.) Hycon Investments, LLC Notes to Financial Statements June 30, 2024 7 Note 2 Summary of Significant Accounting Policies (Continued) Fair Value of Financial Instruments (Continued) Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820 Fair Value Measurement defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company uses the following three level valuation hierarchy based upon observable and non- observable inputs: Level 1 – Quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 – Other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – Unobservable inputs that are used to measure fair value to the extent that observable inputs are not available. This valuation method utilizes management’s estimates of market participant assumptions. The fair value of the Company’s investments was determined based on “Level 3” due to the use of significant unobservable inputs in their valuation. These investments are carried at cost, less impairments, if any, as permitted under ASC 321, Equity Securities. Management performs periodic assessments to evaluate if any impairment or observable price changes in orderly transactions for identical or similar investments of the same issuer have occurred. As of June 30, 2024, no such impairment has been identified. Income Taxes The Company, a limited liability company, is treated as a Partnership for income tax purposes and does not pay federal or state corporate income taxes on its taxable income. Instead, the members are liable for income taxes on the Company income. Uncertain Tax Position The Company accounts for uncertain tax positions in accordance with FASB ASC 740 Income Taxes. This pronouncement prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance on recognition, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Contracts Receivable Contracts receivable are carried at the outstanding amount due less an estimate for credit losses, if deemed necessary. Contract Assets and Liabilities Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of milestones or predetermined schedules. Billings do not necessarily correlate with revenue recognized over time using the percentage-of-completion method. Contract assets consist of unbilled receivables and retainage. Unbilled receivables represent the estimated value of unbilled work for projects with performance obligations recognized over time. Retainage represents a portion of the contract amount that has been billed, but for which the contract allows the customer to retain a portion of the billed amount until final contract settlement, which is generally, from 5% to 10% of contract billings. Hycon Investments, LLC Notes to Financial Statements June 30, 2024 8 Note 2 Summary of Significant Accounting Policies (Continued) Contract Assets and Liabilities (Continued) Retainage is not considered to be a significant financing component because the intent is to protect the customer. Retainage amounts are generally classified as current assets within the Company’s balance sheet. Retainage that has been billed, but is not due until completion of performance and acceptance by customers, is generally expected to be collected within the Company’s operating cycle. The balance of contracts retainage as of June 30, 2024, pertains to contracts in progress. These contract-related assets are carried at the outstanding amount due less an estimate for credit losses, if deemed necessary. Contract liabilities consist of advance payments and billings in excess of revenue recognized as well as deferred revenue. Credit Losses The Company maintains an allowance for credit losses for its financial instruments, which are primarily composed of contracts receivable and contract assets. The measurement and recognition of credit losses involve the use of judgment and represents management’s estimate of expected lifetime credit losses based on historical experience, trends, and current conditions. The credit loss assessment can be made individually or as a collective of the financial instruments. The Company’s assessment of expected credit losses includes consideration of current and expected economic, market and industry factors affecting the Company’s customers, including their financial condition, the aging of account balances, historical credit loss experience, customer concentrations, and customer credit-worthiness. Amounts are written off against the allowance when they are considered to be uncollectible, and reversals of previously reserved amounts are recognized if a specifically reserved item is settled for an amount exceeding the previous estimate. Construction Contracts The Company recognizes revenue on construction contracts over time as performance obligations are satisfied due to the continuous transfer of control to the customer. The Company recognizes revenue using a cost-based input method, by which actual costs incurred relative to total estimated contract costs are used to determine a percentage of progress toward contract completion. This percentage is applied to the transaction price to determine the cumulative revenue recognized. Costs incurred that do not contribute to satisfying performance obligations are excluded from the cost input calculation as these amounts are not reflective of transferring control to the customer. The Company believes the cost-based input method is the most faithful depiction of performance because it directly measures the value of the services transferred to the customer. Performance Obligation A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For most of the contracts, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. A series of goods or services are a single performance obligation if the goods or services are substantially the same and each distinct good or service in the series will be satisfied over time and the same method would be used to measure progress towards satisfaction. Hycon Investments, LLC Notes to Financial Statements June 30, 2024 9 Note 2 Summary of Significant Accounting Policies (Continued) Variable Consideration Contracts commonly contain variable considerations in the form of incentive fees, performance bonuses, award fees, liquidated damages or penalties. Other contract provisions also give rise to variable consideration such as claims and unpriced change orders that may either increase or decrease the transaction price. The Company estimates the amount of variable consideration at the most likely amount to which the Company expects to be entitled. Variable consideration associated with claims and unapproved change orders is included in the transaction price when the Company believes it has an enforceable right to the modification or claim, the amount can be estimated reliably, and its realization is probable. The Company recognizes claims against vendors, subcontractors, and others as a reduction in recognized costs when enforceability is established by the contract and the amounts are reasonably estimable and probable of recovery. Reductions in costs are recognized to the extent of the lesser of the amount management expects to recover or actual costs incurred. Cost and Expense Recognition Contract costs include all direct labor, materials, subcontractor, and equipment costs, and those indirect costs related to contract performance, such as indirect labor, tools and supplies, repairs, interest, and depreciation costs. Indirect costs are allocated to contracts based on direct labor and subcontractor costs. Costs incurred that do not contribute to satisfying performance obligations are excluded from the cost input calculation for revenue recognition. These costs comprise wasted materials, wasted or rework labor and other resources to fulfill a contract that were not reflected in the price of the contract. A limited allowance for material overages and labor inefficiencies is typically included in the Company’s contract costs estimates (and by extension in the contract price). When it is probable that the total contract costs will exceed total contract revenues, a provision for the estimated expected loss is recorded in the period it is identified. Contract Estimates Due to the nature of the Company’s performance obligations, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer, among other variables. As a significant change in one or more of these estimates could affect the profitability of contracts, the Company reviews and update contract-related estimates regularly through a review process in which management reviews the progress and execution of performance obligations and the estimated cost at completion. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress toward completion and the related program schedule and the related changes in estimates of revenues and costs. The Company recognizes adjustments in estimated revenue recognized on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on revenue recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, a provision for the entire loss is recognized in the period it is identified. Hycon Investments, LLC Notes to Financial Statements June 30, 2024 10 Note 2 Summary of Significant Accounting Policies (Continued) Warranties Many construction contracts contain warranty provisions covering defects in equipment, materials, design or workmanship that generally run from six months to one year after the customer accepts the contract. These assurance warranties are not accounted for as performance obligations. Because of the nature of the projects, including contract owner inspections of the work both during construction and prior to acceptance, the Company has not experienced material warranty costs for these short-term warranties and, therefore, do not believe an accrual for these costs is necessary. Concentrations of Risk Credit Risk The Company maintains its cash balances in two financial institutions in Florida. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 in each institution. These balances may at times exceed the insured limits. At June 30, 2024, the Company has total unsecured cash balances at these financial institutions of approximately $619,000. At June 30, 2024, two customers accounted for 52% of the Company’s total contracts receivable. Total contracts receivable due from these customers amounted to approximately $264,000. Major Customers During the six-month period ended June 30, 2024, one customer accounted for 28% of the Company’s total contract revenues. Total revenues derived from this customer amounted to approximately $645,000. Major Vendors At June 30, 2024, three vendors accounted for 54% of the Company’s total payables. Total accounts payable due to these vendors amounted to approximately $170,000. Risk and Uncertainties The Company has experienced, and may continue to experience, direct and indirect negative effects on its business and operations from economic, market, and regulatory conditions, including the current level of interest rates; inflationary effects on the costs of labor, materials and fuel; supply chain disruptions; uncertainty related to the implementation and pace of spending under governmental programs and initiatives related to infrastructure and other industrial investment, delays and uncertainty related to project permitting and/or other regulatory matters or uncertainty; climate, environmental and sustainability-related matters; changes in technology, tax and other incentives; potential market volatility that could negatively affect demand for future projects, and/or delay existing project timing or cause increased project costs; and public health matters. Additionally, the effects of ongoing and recent geopolitical events, such as the political unrest and military conflicts in the Middle East and Ukraine, could potentially increase volatility and uncertainty in the energy and capital markets, which could delay projects and/or negatively affect demand for future projects. The extent to which these conditions could affect the Company’s business, operations and financial results is uncertain as it will depend upon numerous evolving factors that management may not be able to accurately predict, and, therefore, any future impacts on the Company’s business, financial condition and/or results of operations cannot be quantified or predicted with specificity. Hycon Investments, LLC Notes to Financial Statements June 30, 2024 11 Note 3 Contracts Receivable Contracts receivable at June 30, 2024 are as follows: Completed contracts 41,350$ Contracts in progress 465,077 506,427$ Note 4 Investments The Company holds 4% and 1% investments in two separate real estate development businesses for strategic purposes. At June 30, 2024, the carrying values of the investments were approximately $53,000 and $30,000, respectively, and are included as investments in the accompanying balance sheet. Note 5 Billings, Costs and Estimated Earnings on Uncompleted Contracts Billings, costs and estimated earnings on uncompleted contracts as of June 30, 2024 are as follows: Costs incurred on uncompleted contracts 3,500,949$ Estimated earnings 899,993 4,400,942 Less: billings to date (4,687,259) (286,317)$ Costs and estimated earnings in excess of billings on uncompleted contracts 132,722$ Billings in excess of costs and estimated earnings on uncompleted contracts (419,039) (286,317)$ Note 6 Long-Term Debt At June 30, 2024, the Company’s long-term debt consists of the following: 150,000$ Less: current portion (3,368) 146,632$ COVID-19 EIDL loan in the amount of $150,000, bearing interest at a rate of 3.75%; payable in monthly installments of $731, including interest, through July 2050. Hycon Investments, LLC Notes to Financial Statements June 30, 2024 12 150,000$ Balance at the beginning of the period 1,174,653$ New contracts and adjustments during the period 5,528,332 6,702,985 Less: contract revenues earned during the period 2,278,441 Balance at the end of the period 4,424,544$ Subsequent to the date of the financial statements through October 29, 2024, the Company has signed an additional contract totaling approximately $2.1 million. Note 6 Long-Term Debt (Continued) Minimum principal payments required on the loan as of June 30, 2024 are as follows: 2025 $ 3,368 2026 3,499 2027 3,634 2028 3,761 2029 3,920 Thereafter 131,818 Note 7 Related Party Transactions Office Lease The Company leases its office space from a related party. The lease agreement is assessed and renewed annually, and under the terms of the agreement, the Company does not make traditional rent payments. Instead, the Company pays certain operating expenses associated with the leased office space, which ranges from approximately $8,000 to $12,000 annually. The Company has determined that this arrangement does not require adoption of ASC 842, Leases, due to its short-term nature (less than 12 months) and annual reassessment. As permitted under ASC 842-20-25-2, the Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases. For the six-month period ended June 30, 2024, the Company incurred approximately $4,300 in expenses related to this arrangement, which are included as part of general and administrative expenses in the accompanying statement of earnings. Note 8 Backlog Backlog represents the amount of the transaction price, including variable consideration not constrained, allocated to remaining (i.e., unsatisfied or partially unsatisfied) performance obligations at the end of each reporting period. Backlog includes revenues expected to be realized both from uncompleted contracts and from signed contracts on which work has not yet begun. The Company’s backlog balance as of June 30, 2024 and changes during the six-month period, are comprised of the following: Hycon Investments, LLC Notes to Financial Statements June 30, 2024 13 Note 9 Subsequent Events The Company has evaluated subsequent events through October 29, 2024, the date these financial statements were available to be issued. Aside from events disclosed earlier in these notes, no other subsequent events occurred that require recognition or disclosure in the financial statements.