Note 1. Nature of Operations and Summary of Significant Accounting Policies

Gibson Technical Services, Inc. (the "Company") is a national provider of broadband and wireless technical support services for telecommunications providers and cable television system operators. Specific services offered by the Company encompass plant testing and certification, network systems design and integration, and fiber splicing. In addition, the Company offers wireless network design and implementation services and utility contracting services. Revenues by service line are as follows:

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

See matters described in Note 1 regarding certain significant estimates.

Cash and Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Concentrations of Credit Risk and Significant Customers: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. The Company places its cash and temporary cash investments with high credit quality institutions. At times such cash and cash equivalents may be more than amounts insured by federal agencies. If the financial institutions were not to honor their contractual liability to the Company, the Company could incur losses. The Company routinely assesses the financial strength of its customers and consequently, believes that its trade accounts receivable credit risk exposure is limited. Accounts receivable are unsecured, and the Company is at risk to the extent that such amounts become uncollectible.

The Company considers the accounts receivable included in the accompanying financial statements to be fully collectible; accordingly, no allowance for doubtful accounts has been recorded.

As of December 31, 2020, four customers accounted for approximately 50%, 10%, 8% and 4% of the Company's accounts receivable (including unbilled receivables). As of December 31, 2019, four customers accounted for approximately 28%, 24%, 21% and 14% of the Company's accounts receivable (including retainage and unbilled receivables). For the year ended December 31, 2020, four customers accounted for approximately 44%, 11%, 8% and 7% of the Company's revenues, while for the year ended December 31, 2019, four customers accounted for approximately 36%, 23%, 10% and 7% of the Company's revenues.

Note 1. Nature of Operations and Summary of Significant Accounting Policies (Continued)

Inventory and Work in Progress: Inventory is stated at the lower cost or market. As inventory is used, the cost is transferred to the cost of performing specific services for customers using the first-in, first-out (“FIFO”) method.

Work in progress includes the cost of work performed for customers, which cannot yet be billed to the customer based on the provisions of the contract.

Property and Equipment: Property and equipment are stated at cost. The Company depreciates the cost of vehicles, computer equipment, furniture and fixtures, and equipment on a straight-line basis over their estimated useful lives, which are generally three to seven years. Leasehold improvements are depreciated over the lesser of the lease term or estimated useful life. Property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairments of property and equipment noted through December 31, 2020.

Intangible assets: Intangible assets are recorded for the difference between the value allocated to tangible assets and the total purchase price. 

Revenue Recognition:

The Company generates revenue from broadband and wireless technical support services provided to telecommunications providers and cable television system operators. Revenues earned from these contracts are accounted for in accordance with ASC Topic 606. Revenues are reported at amounts that reflect the consideration to which the Company expects to be entitled in exchange for providing those services at a fixed price.

Performance obligations are determined based on the nature of delivery of the goods and services provided. Performance obligations for the contracts are recognized over time based on the completion of contractual milestones. Contract revenues for 2020 and 2019 are $40,036,683 and $44,282,821, respectively.

Receivables consist of amounts for which the Company has an unconditional right to collect. Receivables are impaired when determined to be uncollectible based on identified risk of nonpayment. The Company does incur bad debt on occasion due to the nature of its receivables. Recoveries of accounts previously written off are recorded as a reduction of bad debt expense when received. Interest is not charged on receivables. Collateral is not required to secure outstanding receivables.

Contract assets consist of revenue earned that is unable to be billed due to the terms of the contract. Revenues on contracts that are lump sum bids are earned based on level of completion. Revenues on contracts with line item pricing are earned based on the quantities completed multiplied by the line item price. Unbilled amounts are billed and collected when all requirements of the contract have been met.

Income Taxes: The Company has elected under the Internal Revenue Code to be taxed as an S corporation. Accordingly, the stockholders of the Company are taxed on their proportionate share of the Company's taxable income and therefore, no income taxes have been provided for the Company in the financial statements for the years ended December 31, 2020 and 2019.

Certain states may assess franchise or other similar taxes, which are accrued when material.

Fair Value of Financial Instruments: Due to the short-term nature of the accounts receivable and accounts payable and the variable interest rate on the Company’s debt instruments, the carrying value of these financial instruments approximates their fair value.

Subsequent Events: Management has evaluated subsequent events through the date of this report, which is the date the financials were available to be issued and have determined that there are no subsequent events that require disclosure under the Subsequent Events topic of the FASB ASC.

Note 2. Acquisitions

On February 29, 2020, the Company agreed to acquire the remaining 25% interest of Smith Telcom, Inc, (Smith Telcom) for the cash purchase price of $1,140,110. The results of operations of the acquisition are included in the statement of income for the period from January 2019 to December 2020.

Note 2. Acquisitions (Continued)

On February 7, 2020, the Company acquired all the assets of Upstate Companies One, LLC for the cash purchase price of $1,600,000 The results of operations of the acquisition are included in the statement of income for the period ended December 31, 2020.

The acquisitions generally expanded the Company’s breadth of services to its customers and will potentially help to grow the customer base. The acquisitions resulted in Goodwill of approximately $1,400,000. There were no liabilities acquired. 

Depreciation expense for the years ended December 31, 2020 and 2019 was $853,857 and $638,024 respectively.

Note 4. Related Party Transactions

The Company periodically charters the use of an aircraft owned by an affiliate of the Company’s majority stockholder. In 2020 and 2019, the Company paid $80,500 and $287,574 respectively, for the use of the aircraft.

The Company pays rent for the corporate headquarters it leases from its minority stockholders. The Company paid $138,000 in 2020 and 2019 under this lease.

The majority stockholder of the Company is a part owner in a captive insurance company that provides certain insurance on risks related to the Company’s vehicles and property. Included in other assets is security collateral paid by the Company as a deposit held by this related party of $38,305 at December 31, 2020 and 2019. Premiums paid by the Company to the captive insurer were $703,692 and $538,430 for the years ended December 31, 2020 and 2019, respectively. Also included in other assets for 2020 and 2019 is $36,000 paid on behalf of the majority stockholder related to the formation of this related party insurer.

At December 31, 2020 and 2019, amounts due from related parties are comprised of payments made on behalf of the Company's stockholders and employees that are to be reimbursed to the Company.

Note 5. Common Stock Repurchase Agreement

The Company and certain stockholders are party to stock purchase agreements that give the Company and certain stockholders the right of first refusal to purchase stock owned by stockholders. Under certain circumstances, the Company's majority stockholder has an option to repurchase the shares issued based upon the agreement at a price based on the Company's capitalized earnings forecast. If the Company's majority stockholder does not elect on a timely basis to exercise their option, then the Company has the option to repurchase the shares according to the same provisions.

Note 6. Employee Benefit Plan

The Company has a qualified profit-sharing retirement plan for all eligible employees. The plan provides for contributions by the Company in such amounts as management may determine. The total company contribution expense was $91,577 and $105,392 for the years ended December 31, 2020 and 2019, respectively.

Note 7. Revolving Line of Credit

The Company has available a line of credit with a financial institution for up to $4,500,000. The line of credit expires June 2021, unless extended. Borrowings on the line of credit bear interest at a variable interest rate per annum and is collateralized by a percentage of eligible accounts receivable. There was no outstanding balance on the line of credit as of December 31, 2020 and 2019.

Note 9. Payroll Protection Plan Loan

The Company received a loan from BB&T in the amount of $1,474,431 under the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The loan is subject to a note dated April 20, 2020 and may be forgiven to the extent proceeds of the loan are used for eligible expenditures such as payroll and other expenses described in the CARES Act. No determination has been made as to whether the Company will be eligible for forgiveness, in whole or in part. The loan bears interest at a rate of 1% and is payable in monthly installments of principal and interest over 24 months beginning 6 months from the date of the note. The loan may be repaid at any time with no prepayment penalty. No payments have been made as the payments have been deferred.

Note 10. Commitments and Contingencies

The Company leases various office facilities and office equipment under operating lease agreements on month-to- month leases or long-term basis. The Company also leases its corporate headquarters from the minority stockholders on a long-term lease. Rental expense under all leases totaled $265,596 and $241,040 for the years ended December 31, 2020 and 2019, respectively. The future minimum lease payments are $138,000 for the next ten years under the current lease agreement.

The Company's contracts with its customers generally obligate the Company to perform warranty work correcting defects in work within a period of one to three years after the work is accepted by the customer. As of December 31, 2020, and 2019, the cost arising from potential warranty liabilities is not considered to be significant by management; therefore, the Company has not recognized any liability related to warranty claims.

Note 11. Legal Proceedings

The Company from time to time is involved in litigation or other claims. These loss contingencies generally arise in the normal course of business and their ultimate outcomes would not be expected to have a material effect on the Company’s financial condition or financial statements.

Note 12. Uncertainties in Income Tax Positions

The Company has adopted accounting rules that prescribe when to recognize and how to measure the financial statement effects, if any, of income tax positions taken or expected to be taken on its income tax returns, including the position that the Company continues to qualify to be treated as an S Corporation for both federal and state income tax purposes. These rules require management to evaluate the likelihood that, upon examination by relevant taxing jurisdictions, those income tax positions would be sustained.

Based on that evaluation, if it were more than 50% probable that a material amount of income tax would be imposed at the entity level upon examination by the relevant taxing authorities, a liability would be recognized in the accompanying balance sheets along with any interest and penalties that would result from that assessment. Should any such penalties and interest be incurred, the Company's policy would be to recognize them as operating expenses.

Based on the results of management's evaluation, no income taxes, interest or penalties have been accrued or charged to expense as of December 31, 2020 and 2019, or for the years then ended related to uncertain tax positions.

The Company's income tax returns are subject to examination by taxing authorities for a period of three years from the date they are filed. As of December 31, 2020, all tax years back to December 31, 2017 are subject to examination by U.S. federal, state, and local tax authorities.

Note 13. Public Business Entity

The stand-alone statements were  performed  based  on  private  company accounting within U.S. GAAP. Gibson Technical Services meets the definition of a public business entity only because its financial information has to be included in another company’s SEC filing. To comply with those standards, amortization of goodwill has been omitted. No other adjustments have been made.

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GIBSON TECHNICAL SERVICES, INC.

FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED

MARCH 31, 2021

(Unaudited)

GIBSON TECHNICAL SERVICES, INC.

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