TRI-STATE TECHNICAL SERVICES, INC.

AUDITED AND UNAUDITED FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

 

 

 

 

 

TRI-STATE TECHNICAL SERVICES, INC.

 

TABLE OF CONTENTS

  PAGE
Independent auditors' report 1
Financial statements:  
Balance sheets - June 30, 2017 (unaudited) and December 31, 2016 and 2015 2
Statements of income - 6-month periods ended June 30, 2017 and 2016 (unaudited) and the years ended December 31, 2016 and 2015 3
Statements of shareholder's equity - 6-month period ended June 30, 2017 (unaudited) and the years ended December 31, 2016 and 2015 4
Statements of cash flows - 6-month periods ended June 30, 2017 and 2016 (unaudited) and the years ended December 31, 2016 and 2015 5 - 6
Notes to financial statements 7 – 16

 

 

 

INDEPENDENT AUDITORS' REPORT

 

 

To the Board of Directors of

Tri-State Technical Services, Inc.

We have audited the accompanying financial statements of Tri-State Technical Services, Inc., which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of income, shareholder's equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statement

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.

Auditors’ 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 audit to obtain reasonable assurance about whether the financial statements are free of 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 control 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 control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 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 opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tri-State Technical Services, Inc. as of December 31, 2016 and 2015, 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/ Aprio, LLP

 

Atlanta, Georgia

September 9, 2017

 

TRI-STATE TECHNICAL SERVICES, INC.

BALANCE SHEETS

 

ASSETS  

 

   JUNE 30, 2017   DECEMBER 31, 
   (UNAUDITED)   2016   2015 
Current assets               
Cash and cash equivalents  $2,215,485   $3,338,618   $2,483,185 
Trade accounts receivable, net of allowance for doubtful
      accounts of $200,911, $70,085, and $73,043, respectively
   3,071,445    2,551,615    2,095,573 
Current portion of trade notes receivable   312,282    276,270    415,226 
Inventories, net   2,923,504    3,086,190    2,344,036 
Other current assets   113,674    138,260    64,915 
Total current assets   8,636,390    9,390,953    7,402,935 
Property, plant and equipment, net   3,787,761    3,807,504    1,959,519 
Trade notes receivable, net of current portion   1,170,016    401,797    373,694 
Total assets  $13,594,167   $13,600,254   $9,736,148 

 

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities               
Accounts payable  $950,639   $2,192,136   $1,097,673 
Accrued expenses   1,622,474    947,488    470,225 
Customer deposits   1,380,025    1,233,708    687,385 
Current portion of long-term debt   1,318,284    563,487    136,832 
Total current liabilities   5,271,422    4,936,819    2,392,115 
Long-term debt, net of current portion   30,764    838,481    378,398 
Total liabilities   5,302,186    5,775,300    2,770,513 
Shareholder's equity               
Common stock, $1 par value, 100,000 shares authorized,
     500 shares issued and outstanding
   500    500    500 
Additional paid-in capital   349    349    349 
Retained earnings   8,291,132    7,824,105    6,964,786 
Total shareholder's equity   8,291,981    7,824,954    6,965,635 
Total liabilities and shareholder's  $13,594,167   $13,600,254   $9,736,148 

 

See auditors' report and accompanying notes to financial statements

 

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TRI-STATE TECHNICAL SERVICES, INC.

STATEMENTS OF INCOME

 

 

   6-MONTH PERIODS ENDED JUNE 30,     
   2017   2016   YEARS ENDED DECEMBER 31, 
   (UNAUDITED)   (UNAUDITED)   2016   2015 
Net revenues  $14,713,371   $14,292,771   $26,876,495   $21,745,936 
Cost of sales   9,815,604    9,983,502    18,534,467    14,730,080 
Gross profit   4,897,767    4,309,269    8,342,028    7,015,856 
Operating expenses                    
Selling and marketing   134,104    112,841    216,892    190,090 
Depreciation   141,960    109,134    229,753    190,915 
General and administrative   3,105,692    2,985,988    5,777,421    5,077,406 
Total operating expenses   3,381,756    3,207,963    6,224,066    5,458,411 
Operating income   1,516,011    1,101,306    2,117,962    1,557,445 
Other income and expense                    
Interest income   58,370    29,231    17,477    10,983 
Interest expense   (16,736)   (11,707)   (33,413)   (20,610)
Other income   59,653    33,378    93,430    18,462 
Total other income   101,287    50,902    77,494    8,835 
Net income  $1,617,298   $1,152,208   $2,195,456   $1,566,280 

See auditors' report and accompanying notes to financial statements

 

-3-

 

TRI-STATE TECHNICAL SERVICES, INC.

STATEMENTS OF SHAREHOLDER'S EQUITY

 

   Common Stock   Additional Paid-in   Retained     
   Shares   Amount   Capital   Earnings   Total 
Balance at January 1, 2015   500   $500   $349   $6,609,546   $6,610,395 
Distributions               (1,211,040)   (1,211,040)
Net income               1,566,280    1,566,280 
Balance at December 31, 2015   500    500    349    6,964,786    6,965,635 
Distributions               (1,336,137)   (1,336,137)
Net income               2,195,456    2,195,456 
Balance at December 31, 2016   500    500    349    7,824,105    7,824,954 
Distributions               (1,150,271)   (1,150,271)
Net income               1,617,298    1,617,298 
Balance at June 30, 2017 (unaudited)   500   $500   $349   $8,291,132   $8,291,981 

See auditors' report and accompanying notes to financial statements

 

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TRI-STATE TECHNICAL SERVICES, INC.

STATEMENTS OF CASH FLOWS

 

 
   6-MONTH PERIODS ENDED JUNE 30,     
   2017   2016   YEARS ENDED DECEMBER 31, 
   (UNAUDITED)   (UNAUDITED)   2016   2015 
Operating activities                    
Net income  $1,617,298   $1,152,208   $2,195,456   $1,566,280 
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:                    
Change in allowance for doubtful accounts   130,826        (2,958)   (4,372)
Change in allowance for obsolete inventory       (112,704)   (4,020)   215,433 
Depreciation   141,960    109,134    229,753    190,915 
Loss (gain) on disposition of property, plant and equipment   16,412        (7,504)   (153)
Change in operating assets and liabilities:                    
Trade accounts receivable   (650,656)   (1,067,793)   (453,084)   (165,588)
Trade notes receivable   (804,231)   43,889    110,853    (45,633)
Inventories   162,686    812,530    (738,134)   (61,356)
Other current assets   24,586    33,411    (73,345)   (8,715)
Accounts payable   (1,241,497)   1,110,488    1,094,463    (692,032)
Accrued expenses   674,986    438,943    477,263    (90,674)
Customer deposits   146,317    944,531    546,323    10,855 
Total adjustments   (1,398,611)   2,312,429    1,179,610    (651,320)
Cash provided by operating activities   218,687    3,464,637    3,375,066    914,960 
Investing activities                    
Acquisition of property, plant and equipment, net   (125,251)   (1,837,254)   (2,080,434)   (501,294)
Proceeds from disposition of property, plant, and equipment   24,541        10,200    14,428 
Cash used by investing activities   (100,710)   (1,837,254)   (2,070,234)   (486,866)
Financing activities                    
Proceeds from issuance of long-term debt       1,100,000    1,100,000    160,050 
Principal payments on long-term debt   (90,839)   (122,439)   (213,262)   (79,102)
Distributions   (1,150,271)   (808,964)   (1,336,137)   (1,211,040)
Cash (used) provided by financing activities   (1,241,110)   168,597    (449,399)   (1,130,092)
Net increase (decrease) in cash and cash equivalents   (1,123,133)   1,795,980    855,433    (701,998)
                     
Cash and cash equivalents, beginning of period/year   3,338,618    2,483,185    2,483,185    3,185,183 
Cash and cash equivalents, end of period/year  $2,215,485   $4,279,165   $3,338,618   $2,483,185 

See auditors' report and accompanying notes to financial statements

 

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TRI-STATE TECHNICAL SERVICES, INC.

STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

   6-MONTH PERIODS ENDED JUNE 30,         
   2017   2016   YEARS ENDED DECEMBER 31, 
   (UNAUDITED)   (UNAUDITED)   2016   2015 
Cash paid during the periods/ years for:
         Interest
  $16,736   $11,707   $33,413   $20,610 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS

During the 6-month period ended June 30, 2017 (unaudited), the Company purchased a vehicle in exchange for long-term debt of $37,919.

See auditors' report and accompanying notes to financial statements

 

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TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note A

Summary of Significant Accounting Policies

Nature of Operations:

Tri-State Technical Services, Inc. (the "Company"), an S Corporation, is a provider of commercial laundry equipment, serving Georgia, Florida, North Carolina, South Carolina, Ohio, Virginia and West Virginia since 1995. The Company serves a broad spectrum of laundry operations, from large industrial laundries to coin-operated laundromats.

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 statement. Estimates are used for, but not limited to, the accounting for doubtful accounts, inventory valuation, real and personal property taxes, and contingencies. Actual results could differ from these estimates.

Cash and Cash Equivalents:

For the purpose of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

Concentration of Credit Risk Arising From Cash Deposits in Excess of Insured Limits:

The Company maintains cash balances at several financial institutions that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant risks on cash.

Trade Accounts Receivable:

The Company extends credit to customers located primarily throughout North America based on the size of the customer, its payment history, and other factors. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, which is the face amount of the receivable, net of the allowance for doubtful accounts.

 

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TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note A

Summary of Significant Accounting Policies (Continued)

Trade Notes Receivable:

Trade notes receivable arise from financing of purchases. The interest rates vary from 0% to 11% and the terms range from 10 months to 84 months. The maximum accounting loss from the risk of non-payment associated with trade notes receivables is the amount of the note receivable recorded, which is the face amount of the note receivable.

Future minimum payments due under these trade notes receivables are as follows:

 

Year Ending December 31,  Amount 
2017  $320,540 
2018   233,934 
2019   153,738 
2020   45,021 
2021   8,653 
    761,886 
Less: amount representing interest:   (83,819)
    678,067 
Less: current portion   (276,270)
Total trade notes receivable as of December 31, 2016, net of current portion  $401,797 

Inventory:

Inventory is stated at the lower of cost or market and is valued using the first-in, first-out method. Provisions are made in each period for the estimated effect of obsolete and slow-moving inventories.

Property, Plant and Equipment:

Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation are eliminated from the accounts, and any resulting gain or loss is recognized.

 

-8-

TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note A

Summary of Significant Accounting Policies (Continued)

Depreciation of property, plant and equipment is provided using a straight-line method over the estimated useful lives of the assets, which are as follows:

Land  Non-depreciable
Buildings  39 years
Equipment  5 - 7 years
Furniture and fixtures  5 - 7 years
Vehicles  5 - 7 years

Lease Equipment:

Certain equipment are leased to customers. The leased equipment assets are included in equipment on the accompanying balance sheets. The cost, carrying value and accumulated depreciation associated with the leased equipment were as follows:

 

   June 30, 2017   December 31, 
   (Unaudited)   2016   2015 
Cost of leased equipment  $539,753   $464,014   $387,663 
Accumulated depreciation   (261,115)   (228,988)   (167,725)
Carrying value of leased equipment  $278,638   $235,026   $219,938 

There is no contingent rental income under the leases. The Company recognized lease revenue of $93,815 and $81,360 in the 6-month periods ended June 30, 2017 and 2016 (unaudited), respectively. The Company recognized lease revenue of $220,653 and $220,730 in the years ended December 31, 2016 and 2015, respectively.

 

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TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note A

Summary of Significant Accounting Policies (Continued)

At December 31, 2016, future non-cancelable lease income is as follows:

Year Ending December 31,  Amount 
2017  $136,411 
2018   90,388 
2019   78,026 
2020   51,066 
2021   20,536 
Thereafter   2,382 
   $378,809 

Impairment of Long-Lived Assets:

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to their fair value, which is normally determined through analysis of the future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets.

Revenue Recognition:

For sales of equipment and parts, revenue is recognized upon delivery or acceptance of product by the customer, at which time title transfers to the customer and there are no remaining future obligations. For leased equipment, the Company recognizes revenue monthly at the contracted monthly rate during the term of the lease.

Shipping and Handling Costs:

Consistent with FASB ASC 605-45-45, “Revenue Recognition—Principal Agent Considerations—Other Presentation Matters", the Company classifies shipping and handling amounts billed to customers as sales and shipping and handling costs as a component of cost of goods sold.

 

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TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note A

Summary of Significant Accounting Policies (Continued)

Advertising:

The Company expenses advertising costs as incurred. Advertising expenses were approximately $5,000 and $11,000 for the 6-month periods ended June 30, 2017 and 2016 (unaudited), respectively. Advertising expenses were approximately $20,000 and $4,000 for the years ended December 31, 2016 and 2015, respectively.

Income Taxes:

The Company, with the consent of the shareholder, has elected under the Internal Revenue Code to be taxed as an S corporation. In lieu of federal corporate income taxes, the stockholders of an S corporation are taxed on their proportionate share of the Company's taxable income. These financial statements do not reflect federal income taxes for the Company.

The Company accounts for tax contingencies in accordance with the authoritative guidance of accounting for uncertainty in income taxes. As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company does not believe its financial statements include any material uncertain tax positions.

The Company is no longer subject to income tax examinations for years prior to 2013.

Fair Value of Financial Instruments:

The Company’s financial instruments, including cash and cash equivalents, trade accounts receivable, accounts payable, and accrued expenses, are carried at cost, which approximates their fair value because of the short-term nature of these financial instruments. The carrying value of trade notes receivable and long-term debt based on the instruments’ interest rate, terms, maturity date and collateral, if any, in comparison to the Company’s incremental borrowing rate for similar financial instruments.

Customer Deposits:

Customer deposits represent advances paid by customers when placing orders for equipment with the Company.

 

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TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note B

Property, Plant and Equipment

 

Property, plant and equipment were comprised of the following at:

 

   June 30, 2017   December 31, 
   (Unaudited)   2016   2015 
Land  $856,442   $856,442   $301,010 
Buildings   2,380,789    2,380,789    1,306,696 
Equipment   906,805    831,066    568,707 
Furniture and fixtures   42,786    42,790    42,786 
Vehicles   772,927    822,784    732,677 
    4,959,749    4,933,871    2,951,876 
Accumulated depreciation   (1,171,988)   (1,126,367)   (992,357)
   $3,787,761   $3,807,504   $1,959,519 

Depreciation expense for the 6-month periods ended June 30, 2017 and 2016 (unaudited) totaled $141,960 and $109,134, respectively. Depreciation expense for the years ended December 31, 2016 and 2015, totaled $229,753 and $190,915, respectively.

Note C

Inventories

The components of inventories are as follows as of:

   June 30, 2017   December 31, 
   (Unaudited)   2016   2015 
Equipment and parts  $3,845,628   $4,008,314   $3,270,180 
Less reserve for obsolescence   (922,124)   (922,124)   (926,144)
Inventories, net  $2,923,504   $3,086,190   $2,344,036 

 

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TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note D

Long-Term Debt

Long-term debt comprised the following at:

   June 30, 2017   December 31, 
   (Unaudited)   2016   2015 
Note payable with a financial institution - $500,000 face amount, dated May 22, 2012, payable in 60 monthly payments of $3,726 including interest at 4.05% per annum. The note initially matured on May 22, 2017. In July 2017, the Company extended the note to September 14, 2017, at which time all outstanding principal and accrued interest was due. The note was secured by real property of the Company. Subsequent to June 30, 2017, the note payable was paid in full by the Company.  $368,596   $378,399   $406,890 
Note payable with a financial institution - $160,050 face amount, dated January  12, 2015. The note bore interest at 2.60% per annum matured on January 12, 2016, at which time all outstanding principal and accrued interest was due. The note was secured by real property of the Company.           108,340 
Note payable with a financial institution - $1,100,000 face amount, dated May 3, 2016. The note bears interest at 2.50% per annum and matures on March 14, 2017, at which time all outstanding principal and accrued interest was due.  On March 14, 2017, the Company amended the note, requiring 60 monthly payments of $3,726 including interest at 2.50% per annum, maturing February 14, 2022.  The note is secured by real property of the Company. The Company is subject to compliance with certain financial covenants in the agreement. Subsequent to June 30, 2017, the note payable was paid in full by the Company.   943,888    1,023,569     

 

-13-

TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note D

Long-Term Debt (Continued)        

 

   June 30, 2017   December 31, 
   (Unaudited)   2016   2015 
Note payable with a financial institution - $37,919 face amount, dated February 21, 2017. The note is payable over 72 monthly payments of $591 including interest at 3.79% per annum and matures on March 7, 2023. The note is secured by a vehicle of the Company. The Company is subject to compliance with certain financial covenants in the agreement (unaudited).   36,564         
    1,349,048    1,401,968    515,230 
Less: current portion   (1,318,284)   (563,487)   (136,832)
   $30,764   $838,481   $378,398 

Aggregate future principal payments are as follows at December 31, 2016:

Year Ending December 31,  Amount 
2017  $563,487 
2018   193,351 
2019   198,245 
2020   203,235 
2021   208,408 
Thereafter   35,242 
   $1,401,968 

Note E

Commitments and Contingencies

Litigation:

The Company has legal proceedings arising from the normal course of business. The Company believes that the ultimate outcome of the proceedings will not have a material adverse impact on the Company's financial position, results of operations, or cash flows.

 

-14-

TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note E

Commitments and Contingencies (Continued)

Operating Leases:

The Company leases various office space on month to month basis aggregating $19,050 per month as of December 31, 2016. Rent expense under these agreements totaled $116,350 and $59,410 for the 6-month periods ended June 30, 2017 and 2016 (unaudited), respectively. Rent expense under these agreements totaled $171,660 and $47,600 for the years ended December 31, 2016 and 2015, respectively.

A portion of buildings owned by the Company is leased to third parties with terms ranging from month to month to 5 years. Rental income under the leases amounted to $59,462 and $32,880 for the 6-month periods ended June 30, 2017 and 2016 (unaudited), respectively. Rental income under the leases amounted to $92,342 and $16,980 for the years ended December 31, 2016 and 2015, respectively. Rental income under the leases is included in other income on the accompanying statements of income.

At December 31, 2016, future minimum rental receipts due under theses noncancelable operating leases were as follows:

Year Ending December 31,  Amount 
2017  $74,025 
2018   75,567 
2019   77,456 
2020   79,393 
2021   81,378 
Thereafter   13,618 
   $401,437 

 

-15-

TRI-STATE TECHNICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE 6-MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED) AND

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note F

Concentrations

Significant Vendor:

A significant vendor is defined as one from which the company receives at least 10% its total purchases. For the 6-month periods ended June 30, 2017 and 2016 (unaudited), the Company had purchases from three suppliers totaling approximately $4,969,000 and $5,747,000, which comprised approximately 66% and 65%, respectively, of the Company's purchases. The accounts payable balance included approximately $689,000 to these vendors at June 30, 2017 (unaudited). For the years ended December 31, 2016 and 2015, the Company had purchases from three suppliers totaling approximately $12,660,000 and $9,850,000, which comprised approximately 68% and 68%, respectively, of the Company's annual purchases. The accounts payable balance included approximately $1,510,000 and $370,000 to these vendors at December 31, 2016 and 2015, respectively.

Note G

Related Party Transactions

The Company leases various office space on a month to month basis with related parties. Rent expense incurred under the rental agreements totaled $102,000 and $44,000 for the 6-month periods ended June 30, 2017 and 2016 (unaudited), respectively. Rent expense incurred under the rental agreements totaled $147,060 and $23,000 for the years ended December 31, 2016 and 2015, respectively.

The Company has elected to apply the Accounting Standards Update 2014-07 "Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements” which eliminates the requirement for consolidation of a lessor that is under common control when certain conditions are met, which they were in the Company's case.

Note H

Subsequent Events

The Company evaluated subsequent events through September 9, 2017, when these financial statements were available to be issued. Management is not aware of any significant events that occurred subsequent to the balance sheet date, but prior to the filing of this report, that would have a material impact on the financial statements.

 

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