Exhibit 99.3

 

Asphalt, Inc., LLC dba Lone Star Paving Company Consolidated Financial Statements and Supplementary Information December 31, 2022

TABLE OF CONTENTS

 

		Page No.
Independent Auditor’s Report		1 - 3
Consolidated Balance Sheet		4
Consolidated Statement of Income		5
Consolidated Statement of Changes in Members’ Equity		6
Consolidated Statement of Cash Flows		7
Notes to Consolidated Financial Statements		8 - 21
Supplementary Information
Schedule of Earnings from Construction Contracts		23
Schedule of Earnings from Completed Contracts		24
Schedule of Earnings from Contracts in Progress		25
Schedule of Selling, General and Administrative Expenses		26
Consolidating Balance Sheet		27
Consolidating Statement of Income		28

INDEPENDENT AUDITOR’S REPORT

To the Members

Asphalt, Inc., LLC

dba Lone Star Paving Company

Austin, Texas

Opinion

We have audited the accompanying consolidated financial statements of Asphalt, Inc., LLC dba Lone Star Paving Company (the ‘‘Company’’), which comprise the consolidated balance sheet as of December 31, 2022, and the related consolidated statements of income, changes in members’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Asphalt, Inc., LLC dba Lone Star Paving Company as of December 31, 2022, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Asphalt, Inc., LLC dba Lone Star Paving Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter

As discussed in Note 15 to the consolidated financial statements, in 2022, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases, and therefore has changed its method for accounting for leases. Our opinion is not modified with respect to this matter

Responsibilities of Management for the Financial Statements

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

 

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Asphalt, Inc., LLC’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in the United States of America will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with auditing standards generally accepted in the United States of America, we:

 

•

Exercise professional judgment and maintain professional skepticism throughout the audit.

 

•

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

 

•

Obtain an understanding of internal control relevant to the audit 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 Asphalt, Inc., LLC’s internal control. Accordingly, no such opinion is expressed.

 

•

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

 

•

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Asphalt, Inc., LLC’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

 

2

Report on Supplementary Information

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information on pages 23 - 28 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The supplementary information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

 

February 13, 2023

 

3

Asphalt, Inc., LLC

dba Lone Star Paving Company

Consolidated Balance Sheet

December 31, 2022

 

ASSETS
Current assets
Cash		$	6,470,440
Contract receivables, net of allowance for doubtful accounts of $500,000			44,146,559
Costs and estimated earnings on uncompleted contracts in excess of billings			1,822,931
Other assets			1,449,896
Inventory			22,741,596
Total current assets			76,631,422
Related party notes receivable			13,725,000
Related party investments			8,695,000
Operating lease right-of-use assets, net			4,640,612
Goodwill, net			23,420,093
Fixed assets, net			137,919,499
Total assets		$	265,031,626
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities
Accounts payable		$	13,475,505
Accrued liabilities			748,323
Billings in excess of costs and estimated earnings on uncompleted contracts			3,667,304
Provisions for losses on uncompleted contracts			550,000
Current portion of long-term debt			18,250,000
Current portion of operating lease liability			1,238,332
Total current liabilities			37,929,464
Long-term debt, net of current portion			84,204,578
Operating lease liability, net of current portion			3,402,280
Total liabilities			125,536,322
Members’ equity			139,495,304
Total liabilities and members’ equity		$	265,031,626

The accompanying notes are an integral part of these consolidated financial statements.

 

4

Asphalt, Inc., LLC

dba Lone Star Paving Company

Consolidated Statement of Income

For the Year Ended December 31, 2022

 

Revenues
Contract revenues earned - paving		$	285,635,078
Sales - materials			41,862,537
Total revenues			327,497,615
Cost of revenues
Cost of contract revenues - paving			254,088,235
Cost of sales - materials			34,493,064
Total cost of revenues			288,581,299
Gross profit			38,916,316
Selling, general, and administrative expenses			17,964,841
Income from operations			20,951,475
Other income (expense)
Other income (expense)			94,541
Earnings from equity method investments			2,370,000
Loss on sale of fixed assets			(2,133,378	)
Interest expense			(2,846,045	)
Total other income (expense), net			(2,514,882	)
Income before provision for income taxes			18,436,593
Provision for income taxes			315,421
Net income		$	18,121,172

The accompanying notes are an integral part of these consolidated financial statements.

 

5

Asphalt, Inc., LLC

dba Lone Star Paving Company

Consolidated Statement of Changes in Members’ Equity

For the Year Ended December 31, 2022

 

Balance, January 1, 2022		$	121,374,132
Net income			18,121,172
Balance, December 31, 2022		$	139,495,304

The accompanying notes are an integral part of these consolidated financial statements.

 

6

Asphalt, Inc., LLC

dba Lone Star Paving Company

Consolidated Statement of Cash Flows

For the Year Ended December 31, 2022

 

Cash flows from operating activities
Net income		$	18,121,172
Adjustments to reconcile net income to net cash provided by operating activities
Amortization			1,186,774
Depreciation			13,582,735
Loss on sale of fixed assets			2,133,378
Earnings from equity method investments			(2,370,000	)
Changes in operating assets and liabilities
Contract receivables, net			1,477,010
Costs and estimated earnings in excess of costs on uncompleted contracts			(656,787	)
Other assets			(827,826	)
Inventory			(2,832,178	)
Operating right-of-use-assets			(4,640,612	)
Accounts payable			(7,716,503	)
Accrued liabilities			(5,631	)
Billings in excess of costs and estimated earnings on uncompleted contracts			2,199,138
Provisions for losses on uncompleted contracts			550,000
Operating lease liabilities			4,640,612
Net cash provided by operating activities			24,841,282
Cash flows from investing activities
Proceeds from sale of fixed assets			3,138,400
Cash paid for purchase of fixed assets			(14,013,336	)
Cash paid for acquisitions, net of cash acquired			(2,380,716	)
Payment for issuance of related party notes receivable			(1,000,000	)
Proceeds from membership redemption on investment			936,942
Net cash used in investing activities			(13,318,710	)
Cash flows from financing activities
Proceeds from line of credit			174,592,565
Payments on line of credit			(180,363,931	)
Proceeds from issuance of long-term debt			12,461,393
Payments on long-term debt			(11,775,662	)
Net cash used in financing activities			(5,085,635	)
Net increase in cash			6,436,937
Cash, beginning of year			33,503
Cash, end of year		$	6,470,440
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest		$	2,636,045
Income taxes		$	315,421

The accompanying notes are an integral part of these consolidated financial statements.

 

7

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

1.	NATURE OF OPERATIONS

Asphalt, Inc., LLC (the “Company”) was organized in the State of Texas on September 18, 2013 and began operations on November 6, 2014 (date of inception of business activities). The Company is primarily engaged in highway and road paving, maintenance and repair of parking lots in Central and South Texas. The Company is also engaged in manufacturing hotmix and mining limestone for internal uses and sale to third parties.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting and consolidation

The consolidated financial statements present the financial position and results of operations of the Company and its wholly-owned subsidiaries, Pelican Asphalt Company, LLC and Lone Star Materials & Asphalt, LLC. All significant intercompany transactions and accounts have been eliminated in the consolidated financial statements. The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP).

Operating cycle

The Company’s work is performed under quantity pricing, fixed-price contracts, and fixed-price contracts modified by incentive and penalty provisions. These contracts are primarily performed under subcontractor agreements. The length of the Company’s contracts varies but is typically less than six months. In accordance with industry practice, contract-related assets and liabilities that are realizable or payable over periods in excess of one year, but within the Company’s normal operating cycle, are recorded as current assets and liabilities.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

Cash consists primarily of cash on deposit.

 

8

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Contract receivables

Contract receivables, including retainage receivables, are presented in the consolidated balance sheet less an allowance for doubtful accounts. The allowance for doubtful accounts is based on the Company’s historical losses, the existing economic conditions in the construction industry, and the financial stability of its customers. Amounts are considered past due based on the billing date and are written off after all reasonable collection efforts have been exhausted. The allowance for doubtful accounts was $500,000 at December 31, 2022.

Inventory

Inventories consist primarily of stockpiles of rock, sand and gravel, liquid asphalt, supplies, and other materials. Inventories are carried at the lower of cost or net realizable value using the first-in, first-out method.

Fixed assets

Fixed assets are reported at cost less accumulated depreciation, which is generally provided on a straight-line method over the estimated useful lives of the assets. Estimated useful lives range from three to forty years. Significant expenditures, which extend the useful lives of existing assets, are capitalized. Maintenance and repair costs are expensed as incurred.

Business combinations

The Company records business acquisitions in accordance with FASB ASC 805, Business Combination which requires the acquisition purchase price to be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of the purchase price over these estimated fair values is recorded to goodwill. Significant estimates and assumptions, including fair value estimates, are used to determine the fair value of assets acquired, liabilities assumed, and contingent consideration transferred as well as the useful lives of long-lived assets acquired. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to initial estimates and assumptions. Upon conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to operating expenses on the accompanying consolidated statement of operations.

 

9

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill

The Company has elected the private company accounting alternative to amortize its goodwill on a straight line basis over a 10 year period in accordance with the FASB ASC 350, Intangibles - Goodwill and Other. If an event occurs or circumstances change that indicate that the fair value of the Company may be below its carrying value, the Company evaluates the goodwill for impairment. During the year ending December 31, 2022, the Company did not identify an event or circumstance that indicated the fair value of the Company is below its carrying value.

Long-lived assets - impairments and disposals

The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell. No impairment provisions were recorded by the Company during the year.

Revenue and cost recognition

ASC Topic 606, Revenue from Contracts with Customers, (“ASC 606”) requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriate unit at which to record revenue, which is referred to as a performance obligation. Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for the products or services.

Revenue from contracts with customers is recognized using the following five steps:

 

•

Identify the contract(s) with a customer;

 

•

Identify the performance obligations in the contract;

 

•

Determine the contract price;

 

•

Allocate the transaction price to the performance obligations in the contract; and

 

•

recognize revenue when (or as) the Company satisfies a performance obligation

The Company’s performance obligations for contracts with customers for asphalt sales do not meet the criteria to be recognized over time, therefore, those performance obligations are recognized at a point-in-time and the related revenue is recognized only when the performance obligation is complete, generally upon delivery to the customer. Revenue from the sale of asphalt is recognized upon delivery of the asphalt to the customer’s transportation unit at the asphalt plant.

 

10

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue and cost recognition (continued)

The Company’s paving contract costs and related revenues are generally recognized over time as work progresses due to continuous transfer to the customer. Revenues from fixed-price and modified fixed-price construction contracts are recognized on the percentage-of-completion method measured by the cost-to-cost method. This method is used because management considers expended costs to be the best available measure of progress on these contracts.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, equipment rental, supplies, tools, repairs and depreciation costs. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the year in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the year in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. Claims are charged against revenues when realization is probable and can be reasonably estimated.

The asset on the accompanying balance sheet, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability on the accompanying balance sheet, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

Advertising expense

The Company accounts for advertising costs as expenses in the year in which they are incurred. Advertising expense for the year ending December 31, 2022 was $258,324.

Income taxes

The Company is a limited liability company, and such does not incur income taxes directly. Accordingly, all income and expenses flow directly to the members for Federal income tax purposes. Therefore, no provision or liability for current or deferred federal income taxes has been included in these consolidated financial statements. However, the Company is subject to state tax based on the Company’s taxable gross margin.

 

11

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income taxes (continued)

The FASB ASC, 740-10 Accounting for Uncertainty in Income Taxes clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The Company did not identify any uncertain tax positions therefore, no adjustments were made to the consolidated financial statements.

Sales tax

The Company records sales and other taxes collected from customers and subsequently remitted to government authorities as accounts receivable with a corresponding offset to sales tax payable. The Company removes sales tax payable balances from the balance sheet as cash is collected from the customer and remitted to the tax authority.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and contract receivables. The Company maintains its cash balances in highly rated financial institutions, which at times may exceed federally insured limits. The Company has not experienced any loss relating to cash and cash equivalents in these accounts.

The Company is engaged primarily in highway and road paving, maintenance and repair of parking lots in the Central and South Texas region. Concentrations of credit risk with respect to contract receivables are with property management companies, construction companies and developers. Liens are filed on properties when necessary to assure payment. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.

Customers representing more than 10% of the Company’s total contract receivables at December 31, 2022 are as follows:

 

Customer A			10	%
Customer B			10	%
Customer C			10	%

 

12

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Concentration of credit risk (continued)

Loss of these customers could have a material adverse impact on the results of operations and financial position of the Company. No customer represented more than 10% of total revenues in 2022.

The Company purchases a substantial portion of materials from third-party vendors. As of December 31, 2022, one vendor represented 13% of the Company’s total accounts payable. The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.

Recently adopted accounting standards

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). This standard requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The Company adopted this guidance effective January 1, 2022, using the optional transition method which eliminated the requirement to restate amounts presented prior to January 1, 2022. See Note 15 for additional disclosures related to the impact of adopting the new lease standard.

Subsequent events

The Company has evaluated subsequent events occurring after December 31, 2022, the date of the most recent consolidated balance sheet date, through February 13, 2023, the date the consolidated financial statements were issued. The Company does not believe any subsequent events have occurred that would require further disclosure or adjustment to the consolidated financial statements.

 

3.	CONTRACT RECEIVABLES

Contract receivables consisted of the following:

 

Accounts receivable - trade		$	36,142,970
Accounts receivable - retention			8,503,589
			44,646,559
Allowance for doubtful accounts			(500,000	)
		$	44,146,559

 

13

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

4.	COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings on uncompleted contracts are summarized as follows:

 

Costs incurred on uncompleted contracts		$	132,342,422
Estimated earnings on uncompleted contracts			13,458,476
			145,800,898
Less: billings on uncompleted contracts			(147,645,271	)
		$	(1,844,373	)

Costs, estimated earnings and billings on uncompleted contracts are included in the accompanying balance sheets under the following captions:

 

Costs and estimated earnings on uncompleted contracts in excess of billings		$	1,822,931
Billings in excess of costs and estimated earnings on uncompleted contracts			(3,667,304	)
		$	(1,844,373	)

 

5.

INVENTORY

Inventory consisted of the following:

 

Raw materials - sand and aggregates		$	18,466,532
Raw materials - fluid			4,275,064
		$	22,741,596

 

6.	FIXED ASSETS

Fixed assets consisted of the following:

 

Construction equipment		$	54,214,389
Trucks and trailers			36,294,525
Land			15,127,845
Hotmix and mining equipment			87,156,282
Buildings			4,892,110
Computer and office equipment			433,390
			198,118,541
Accumulated depreciation			(60,199,042	)
		$	137,919,499

Depreciation expense totaled $13,582,735 for the year.

 

14

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

7.	ACQUISITIONS

In October 2022, the Company completed the purchase business combination of an entity engaged in asphalt milling and construction in central Texas. The total purchase price was $13,230,807 which, after the payoff of accrued expenses and loans, was issued in a note to the seller. The Company has recorded the fair value of the assets and liabilities acquired, which are reflected in the accompanying balance sheet as follows:

 

Allocation of purchase price
Cash		$	936,951
Equipment			3,490,513
Goodwill			8,898,352
			13,325,816
Accrued expenses			(95,009	)
		$	13,230,807

In November 2022, the Company completed the acquisition of the membership interest in a logistics company, creating a wholly owned subsidiary. The total purchase price was $21,007,499 which, after the payoff of accrued expenses and loans, was issued in a note to the sellers as well as additional debt assumed. The Company has recorded the fair value of the assets and liabilities acquired, which are reflected in the accompanying balance sheet as follows:

 

Allocation of purchase price
Equipment		$	18,142,051
Goodwill			3,724,621
			21,866,672
Accounts payable			(556,126	)
Accrued expenses			(303,047	)
		$	21,007,499

 

8.

GOODWILL

Goodwill consisted of the following:

 

Goodwill		$	26,589,225
Accumulated amortization			(3,169,132	)
		$	23,420,093

 

15

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

8.	GOODWILL (continued)

The Company’s goodwill is being amortized over 10 years using the straight-line method. Total amortization expense for the year ending December 31, 2022 was $1,186,774.

Future annual amortization expense is as follows:

 

Year ending December 31,
2023		$	1,851,948
2024			1,851,948
2025			1,655,940
2026			1,653,490
2027			1,653,490
Thereafter			14,753,277
		$	23,420,093

 

9.	LINE OF CREDIT

The Company entered into a $25 million line of credit with a bank that expires in April 2023. Bank advances on the credit line are payable on demand and carry an interest rate at 2.0% above Secured Overnight Financing Rate (SOFR) Average, which was 2.05% at December 31, 2022. The line is secured by substantially all assets of the Company. There was no outstanding balance on the line of credit as of December 31, 2022.

Interest expense for the line of credit totaled $310,306 for the year ended December 31, 2022.

 

16

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

10.	LONG-TERM DEBT

Long-term debt consisted of the following:

 

Note payable to a finance company with principal plus interest due in 60 monthly installments of $440,000 bearing an interest rate of 3.69%, secured by equipment, guaranteed by certain members of the Company.		$	12,320,000
Note payable to a finance company with principal plus interest due in 60 monthly installments of $250,000 bearing an interest rate of 3.57%, secured by equipment.			10,500,000
Note payable to a finance company with principal plus interest due in 60 monthly installments of $125,000 bearing an interest rate of 3.57%, secured by equipment.			5,750,575
Note payable to a finance company with principal plus interest due in 60 monthly installments of $200,008 bearing an interest rate of 5.99%, secured by equipment.			12,000,500
Note payable to an individual with principal plus interest due in 84 monthly installments of $45,991 bearing an interest rate of 5.00%.			3,221,546
Note payable to an individual with principal plus interest due in 84 monthly installments of $45,991 bearing an interest rate of 5.00%.			3,221,546
Note payable to a limited liability company with principal plus interest due in 84 monthly installments of $150,812 bearing an interest rate of 5.00%.			10,457,073
Note payable to a bank with principal plus interest due in monthly payments of $159,000, a balloon payment for the full amount due in October 2028, bearing an interest rate of 3.00%.			30,269,608
Note payable to a limited liability company with principal plus interest due in 84 monthly payments of $51,455, bearing an interest rate of 5.00%.			3,604,252
Note payable to a limited liability company with principal plus interest due in 84 monthly payments of $37,514, bearing an interest rate of 5.00%.			2,627,703
Note payable to a bank with principal plus interest due in monthly payments of $159,000, a balloon payment for the full amount due in December 2028, bearing an interest rate of 3.00%.			8,481,775
			102,454,578
Current portion			(18,250,000	)
		$	84,204,578

 

17

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

10.	LONG-TERM DEBT (continued)

The future maturities of the long-term debt are as follows:

 

Year ending December 31,
2023		$	18,255,587
2024			18,722,627
2025			15,486,306
2026			12,233,936
2027			9,720,458
Thereafter			28,035,664
			102,454,578
Current portion			(18,250,000	)
		$	84,204,578

Interest expense for the long-term debt obligations totaled $2,535,739 for the year ended December 31, 2022.

 

11.	MEMBERS’ CAPITAL

Members’ capital consists of membership units. As of December 31, 2022, there are 384,637 membership units issued and outstanding. No additional membership units in the Company may be issued in the absence of the affirmative vote of the members holding at least 85% of the units.

Distributions are paid based on the respective membership interest. There were no distributions paid during 2022.

Management of the Company shall be performed by the Operating Manager. The Operating Manager may be removed as a manager upon the affirmative vote of the Members holding at least 85% of the units.

 

12.	COMMITMENTS AND CONTINGENCIES

Legal proceedings

The Company carries a broad range of insurance coverage, including general liability, workers’ compensation and an umbrella policy.

In the normal course of business, the Company is subject to various litigation; however, there are no legal proceedings pending against the Company that would have a material adverse effect on the financial position or results of operations of the Company.

 

18

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

 

13.	RETIREMENT PLAN

The Company maintains a 401(k) defined contribution plan for its qualified employees. The 401(k) plan allows eligible employees to defer a portion of their annual compensation. The Company provides matching contributions and contributions to this plan are discretionary. Contributions to the plan totaled $1,186,818 for the year ending December 31, 2022.

 

14.	RELATED PARTY TRANSACTIONS

The Company is invested in a Partnership which sells readymix concrete in Central Texas. As of December 31, 2022, the Partnership’s unaudited balance sheet has approximately $47,500,000 and $31,100,000 in assets and liabilities, respectively. The Partnership’s unaudited revenues and net income for the year ending December 31, 2022 were approximately $84,700,000 and $7,000,000, respectively. This 25% equity investment in the Partnership is included in related party investments on the accompanying consolidated balance sheet in the amount of $5,270,000. Total amounts invoiced to the Partnership for aggregate sales were approximately $5,700,000 in 2022.

The Company is invested in a Partnership which sells precast concrete products in Central Texas. As of December 31, 2022, the Partnership’s unaudited balance sheet has approximately $8,500,000 and $7,600,000 in assets and liabilities, respectively. The Partnership’s unaudited revenues and net income for the period ending December 31, 2022 were approximately $10,100,000 and $550,000, respectively. This 20% equity investment in the Partnership is included in related party investments on the accompanying consolidated balance sheet in the amount of $150,000. Total amounts invoiced to the Partnership for aggregate, rents and equipment sales were approximately $188,000 in 2022.

The Company is invested in a Partnership which mines aggregates in South Texas. As of December 31, 2022, the Partnership’s unaudited balance sheet has approximately $12,000,000 and $8,400,000 in assets and liabilities, respectively. The Partnership’s unaudited revenues and net earnings for the period ending December 31, 2022 were approximately $9,500,000 and $2,000,000, respectively. This 25% equity investment in the Partnership is included in related party investments on the accompanying consolidated balance sheet in the amount of $3,275,000. Total amounts invoiced to the Partnership were approximately $101,000 in 2022.

The Company engages in business transactions with entities that have common minority ownership and/or employees. These activities include construction projects, subcontractor work, trucking, rent and royalties. The Company does not guarantee any of the liabilities of these entities. Additionally, the Company and these entities have no common primary beneficiary. Amounts due from and to these entities at December 31, 2022 were approximately $380,000 and $870,000, respectively. Amounts received from and paid to these entities during the year ended December 31, 2022 were approximately $6,800,000 and $12,200,000, respectively.

 

19

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

14.	RELATED PARTY TRANSACTIONS (continued)

On January 10, 2022 the Company issued a note receivable to a related entity totaling $1,000,000. The note bears interest at 1.5%, and interest-only payments are payable annually, with principal due January 9, 2027. This note is included in related party notes receivable on the accompanying consolidated balance sheet, along with various existing notes receivables from related entities. The existing notes bear interest at 1.5%, and interest-only payments are payable annually, with principal due December 30, 2026. Outstanding balances on the related party notes receivable totaled $13,725,000 as of December 31, 2022. Interest income on these notes for the year ended December 31, 2022 totaled $189,962 and is recorded in Other income (expenses) on the accompanying consolidated financial statements.

 

15.

LEASES

The Company leases yard space, equipment and office space on a month-to-month basis for agreements that expire in one year or less. The Company also leases land and equipment under various operating leases with terms exceeding one year.

The Company adopted FASB Topic 842, Leases, using the modified retrospective approach. Prior period amounts have not been adjusted and continue to be reported in accordance with historic accounting under Topic 840. Upon adoption the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to adopt the guidance without reassessing whether arrangements contain leases, the lease classification and determination of initial direct costs as well as the ability to use hindsight in determining the lease term for existing leases, which resulted in lengthening the lease terms for certain existing leases as certain options to renew were reasonably certain.

As a result of adopting the new standard effective January 1, 2022, the Company recorded operating right-of-use (“ROU”) assets and lease liabilities of approximately $5,600,000, respectively.

The Company determines if an arrangement contains a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and the corresponding lease liabilities represent its obligation to make lease payments arising from the lease. The Company’s ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The ROU asset is reduced for tenant incentives and excludes any initial direct costs incurred. The implicit rate within the leases are generally not readily determinable, and the Company uses its incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the incremental borrowing rate requires judgment. The Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors including collateralization and term to align with the terms of the lease. Certain leases include options to extend the lease. The lease values include options to extend the lease when it is reasonably certain the Company will exercise such options.

 

20

Asphalt, Inc., LLC

dba Lone Star Paving Company

Notes to Consolidated Financial Statements

December 31, 2022

 

15.	LEASES (continued)

Lease expenses for minimum lease payments for operating leases are recognized on a straight-line basis over the lease term. Amortization expense of the ROU asset for operating leases is recognized on a straight-line basis over the lease term and interest expense for operating leases is recognized based on the incremental borrowing rate. The Company has elected not to recognize a lease liability or ROU asset for short-term leases, defined as those which have a term of twelve months or less.

For the year ended December 31, 2022, operating lease expense was $966,403. For the year ended December 31, 2022, amortization of the operating ROU asset was approximately $1,000,000 and interest expense on operating lease liabilities was not significant.

At December 31, 2021, future minimum payments due under these operating leases agreements were as follows:

 

Year ending December 31,
2023		$	1,238,332
2024			1,194,375
2025			839,312
2026			782,423
2027			664,107
			4,718,549
Less: discount to present value			(77,937	)
		$	4,640,612

The weighted average remaining lease term was 4.30 years and the weighted average discount rate was 2.13% as of December 31, 2022.

 

21

SUPPLEMENTARY INFORMATION

Asphalt, Inc., LLC

dba Lone Star Paving Company

Schedule of Earnings from Construction Contracts

For the Year Ended December 31, 2022

 

		Revenues Earned				Cost of Revenues Earned				Gross Profit
Contracts in progress at year end		$	102,890,275			$	92,157,669			$	10,732,606
Contracts completed during the period			182,744,803				161,930,566				20,814,238
		$	285,635,078			$	254,088,235			$	31,546,843

 

23

Asphalt, Inc., LLC

dba Lone Star Paving Company

Schedule of Earnings from Completed Contracts

For the Year Ended December 31, 2022

 

Total Contract										Contract Totals												Before January 1, 2022												For the Year Ended December 31, 2022
Job Name		Contract Price				Gross Profit				Revenues Earned				Cost of Revenues				Gross Profits				Revenues Earned				Cost of Revenues				Gross Profits				Revenues Earned				Cost of Revenues				Gross Profits
131356		$	2,636,724			$	206,302			$	2,636,724			$	2,430,422			$	206,302			$	1,912,424			$	1,774,577			$	137,847			$	724,300			$	655,845			$	68,455
129257			19,817,063				1,722,372				19,817,063				18,094,690				1,722,372				19,780,118				18,060,895				1,719,222				36,945				33,795				3,150
52965			9,898,815				1,887,110				9,898,815				8,011,705				1,887,110				2,017,912				1,493,255				524,657				7,880,903				6,518,450				1,362,453
128395			8,459,036				252,455				8,459,036				8,206,581				252,455				8,443,358				8,191,448				251,910				15,678				15,134				544
53227			6,364,516				1,498,844				6,364,516				4,865,672				1,498,844				—				—				—				6,364,516				4,865,672				1,498,844
55167			5,693,701				5,411,347				5,693,701				5,411,347				282,354				4,799,456				4,641,769				157,687				894,245				769,577				124,667
51344			5,083,253				193,216				5,083,253				4,890,037				193,216				5,083,253				4,890,037				193,216				—				—				—
55103			4,886,192				1,074,294				4,886,192				3,811,897				1,074,294				4,884,904				3,810,892				1,074,011				1,288				1,005				283
52316			4,550,445				297,646				4,550,445				4,252,799				297,646				4,550,061				4,252,440				297,621				384				359				25
129195			3,778,162				125,628				3,778,162				3,652,533				125,628				3,778,162				3,652,533				125,628				—				—				—
52514			3,453,397				(371,690	)			3,453,397				3,825,087				(371,690	)			3,423,701				3,792,302				(368,601	)			29,696				32,785				(3,089	)
129242			3,005,933				554,486				3,005,933				2,451,447				554,486				2,325,030				1,891,770				433,261				680,903				559,678				121,225
51647			2,833,595				286,090				2,833,595				2,547,505				286,090				2,833,595				2,547,505				286,090				—				—				—
55172			2,567,129				(170,642	)			2,567,129				2,737,771				(170,642	)			2,567,129				2,737,771				(170,642	)			—				—				—
52236			2,365,742				495,114				2,365,742				1,870,628				495,114				1,723,367				1,356,159				367,208				642,375				514,469				127,906
52738			2,138,231				530,044				2,138,231				1,608,187				530,044				2,136,947				1,606,047				530,900				1,284				2,140				(856	)
52366			2,045,521				(33,042	)			2,045,521				2,078,563				(33,042	)			2,045,521				2,078,563				(33,042	)			—				—				—
132094			3,049,047				636,781				3,049,047				2,412,266				636,781				—				—				—				3,049,047				2,412,266				636,781
53019			2,921,046				1,962,366				2,921,046				958,680				1,962,366				—				—				—				2,921,046				958,680				1,962,366
53002			2,647,494				(57,181	)			2,647,494				2,704,675				(57,181	)			16,374				15,955				419				2,631,120				2,688,720				(57,600	)
131364			2,456,799				115,834				2,456,799				2,340,966				115,834				1,579,109				1,471,115				107,994				877,690				869,851				7,839
Small jobs			180,129,378				27,478,491				178,804,055				161,470,481				17,333,575				22,810,672				20,438,341				2,372,331				155,993,383				141,032,140				14,961,244
		$	280,781,219			$	44,095,866			$	279,455,896			$	250,633,940			$	28,821,956			$	96,711,093			$	88,703,374			$	8,007,719			$	182,744,803			$	161,930,566			$	20,814,238

 

24

Asphalt, Inc., LLC

dba Lone Star Paving Company

Schedule of Earnings from Contracts in Progress

For the Year Ended December 31, 2022

 

Total Contract														Contract Totals												At December 31, 2022								Before January 1, 2022												For the Year Ended December 31, 2022
Job Name		Contract Price				Gross Profit				Billed To Date				Cost To Date				Total Estimated Costs				Earned Profit To Date				Costs in Excess Billings				Billings in Excess Costs				Revenues Earned				Cost of Revenues				Gross Profits				Revenues Earned				Cost of Revenues				Gross Profits
132059		$	22,307,095			$	1,049,683			$	5,116,128			$	4,494,990			$	21,257,412			$	221,961			$	—			$	399,178			$	—			$	—			$	—			$	4,716,950			$	4,494,990			$	221,961
131362			7,305,305				918,833				2,227,059				1,604,760				6,386,472				230,879				—				391,420				304,389				288,644				15,745				1,531,250				1,316,116				215,134
53328			5,886,208				218,744				1,478,630				1,557,039				5,667,464				60,096				138,506				—				—				—				—				1,617,135				1,557,039				60,096
53317			72,066,127				5,595,785				505,590				505,590				66,470,342				42,563				42,563				—				—				—				—				548,152				505,590				42,563
52937			22,257,901				530,394				1,789,982				1,637,742				21,727,507				39,979				—				112,261				—				—				—				1,677,721				1,637,742				39,979
75359			19,970,494				349,789				1,433,006				1,435,346				19,620,706				25,589				27,929				—				845,907				834,960				10,947				615,028				600,386				14,642
130293			19,243,987				(498,715	)			5,469,699				5,614,206				19,742,702				(141,819	)			2,688				—				2,123,741				2,107,863				15,878				3,348,646				3,506,343				(157,697	)
75284			17,219,908				1,535,276				16,996,908				15,650,432				15,684,632				1,531,928				185,452				—				7,082,785				6,446,825				635,960				10,099,575				9,203,607				895,968
52647			15,254,074				3,242,075				14,909,155				11,770,534				12,011,999				3,176,902				38,281				—				—				—				—				14,947,436				11,770,534				3,176,902
129284			15,116,615				926,004				14,820,324				13,911,519				14,190,611				907,792				—				1,014				8,192,293				7,816,511				375,782				6,627,018				6,095,009				532,010
51102			13,271,407				365,756				13,184,744				12,905,651				12,905,651				365,756				86,663				—				9,387,817				9,360,724				27,094				3,883,590				3,544,927				338,663
75519			10,792,305				1,939,373				9,904,069				8,015,880				8,852,932				1,756,003				—				132,186				6,391,382				4,859,303				1,532,079				3,380,501				3,156,577				223,924
132212			9,812,734				525,799				42,018				46,475				9,286,934				2,631				7,089				—				—				—				—				49,106				46,475				2,631
131321			9,359,797				608,015				2,105,657				1,513,860				8,751,782				105,173				—				486,624				127,115				124,719				2,395				1,491,918				1,389,141				102,777
53186			6,892,782				1,154,075				5,252,164				3,925,991				5,738,707				789,531				—				536,643				—				—				—				4,715,522				3,925,991				789,531
131476			6,823,432				283,033				1,284,299				1,250,200				6,540,399				54,102				20,003				—				—				—				—				1,304,302				1,250,200				54,102
75453			6,043,097				143,603				3,898,461				3,551,977				5,899,495				86,461				—				260,023				738,455				723,576				14,879				2,899,982				2,828,401				71,582
55104			6,037,690				1,831,198				5,891,311				4,173,873				4,206,491				1,816,999				99,560				—				2,393,540				1,352,060				1,041,480				3,597,332				2,821,813				775,519
53304			5,823,823				240,528				1,331,817				1,330,868				5,583,294				57,334				56,384				—				—				—				—				1,388,202				1,330,868				57,334
53393			5,479,514				94,971				717,132				623,372				5,384,543				10,995				—				82,765				—				—				—				634,367				623,372				10,995
52526			4,952,523				376,485				2,786,377				2,472,642				4,576,038				203,432				—				110,303				576,511				568,026				8,484				2,099,563				1,904,616				194,948
129013			4,653,074				—				—				571,842				4,170,975				66,096				637,937				—				—				—				—				637,937				571,842				66,096
52964			4,601,375				(89,806	)			4,477,021				4,591,181				4,691,181				(87,892	)			26,268				—				30,993				30,720				—				4,472,295				4,560,461				(88,166	)
132240			4,496,223				557,105				1,766,428				1,492,542				3,939,117				211,089				—				62,798				—				—				—				1,703,631				1,492,542				211,089
52006			4,036,920				521,371				3,208,666				2,819,574				3,515,549				418,155				29,062				—				1,323,665				1,162,483				161,183				1,914,063				1,657,091				256,972
52705			3,531,986				94,065				1,266,868				1,194,085				3,437,921				32,671				—				40,111				388,402				365,224				23,178				838,355				828,861				9,493
53477			2,730,040				—				—				16,970				2,547,929				1,213				18,183				—				—				—				—				18,183				16,970				1,213
52958			2,679,867				81,958				1,913,579				1,798,464				2,597,908				56,737				—				58,377				—				—				—				1,855,201				1,798,464				56,737
131297			2,574,996				213,120				898,978				749,855				2,361,877				67,662				—				81,462				114,697				106,814				7,883				702,819				643,041				59,779
53087			2,503,003				509,293				859,960				694,976				1,993,710				177,531				12,547				—				—				—				—				872,507				694,976				177,531
53384			2,349,410				235,396				—				14,916				2,114,014				1,661				16,577				—				—				—				—				16,577				14,916				1,661
53077			2,279,158				276,745				2,274,808				2,002,413				2,002,413				276,745				4,350				—				—				—				—				2,279,158				2,002,413				276,745
132283			2,204,982				—				55,520				50,035				2,087,884				2,806				—				2,678				—				—				—				52,842				50,035				2,806
52925			2,022,897				110,150				2,045,633				1,912,747				1,912,747				110,150				—				22,736				—				—				—				2,022,897				1,912,747				110,150
Small jobs			33,373,373				1,878,448				17,733,278				16,439,879				31,494,926				779,564				372,889				886,725				2,888,934				3,007,116				(118,182	)			14,330,510				12,403,575				1,926,935
		$	375,954,122			$	25,818,547			$	147,645,271			$	132,342,423			$	349,354,266			$	13,458,476			$	1,822,931			$	3,667,304			$	42,910,625			$	39,155,567			$	3,754,785			$	102,890,275			$	92,157,669			$	10,732,606

 

25

Asphalt, Inc., LLC

dba Lone Star Paving Company

Schedule of Selling, General and Administrative Expenses

For the Year Ended December 31, 2022

 

Advertising and promotion		$	258,324
Amortization			1,186,774
Auto and trucks			70,527
Bank charges			391,418
Bad debt			60,604
Computer and internet			353,092
Depreciation			180,000
Other			474,524
Insurance			1,225,537
Meals and entertainment			1,228,749
Office supplies			979,202
Payroll and benefits			9,048,111
Professional fees			295,284
Rent			966,403
Retirement			348,744
Taxes and permits			97,884
Utilities			799,664
		$	17,964,841

 

26

Asphalt, Inc., LLC

dba Lone Star Paving Company

Consolidating Balance Sheet

December 31, 2022

 

		Lone Star Paving Company				Pelican Asphalt Company, LLC				Lone Star Materials & Asphalt, LLC				Eliminations				Consolidated
Assets
Cash		$	5,599,085			$	—			$	871,355			$	—			$	6,470,440
Contract receivables, net of allowance for doubtful accounts			44,146,254				—				305				—				44,146,559
Costs and estimated earnings on uncompleted contracts in excess of billings			1,822,931				—				—				—				1,822,931
Other assets			1,174,563				—				275,333				—				1,449,896
Inventory			22,741,596				—				—				—				22,741,596
Related party notes receivable			13,725,000				—				—				—				13,725,000
Related party investments			8,695,000				—				—				—				8,695,000
Operating lease right-of-use-assets, net			4,640,612				—				—				—				4,640,612
Goodwill			12,380,905				10,483,699				3,724,621				—				26,589,225
Accumulated amortization			(1,962,909	)			(1,164,855	)			(41,368	)			—				(3,169,132	)
Fixed Assets			167,156,490				13,100,000				17,862,051				—				198,118,541
Accumulated depreciation			(58,869,781	)			(752,084	)			(577,177	)			—				(60,199,042	)
Total		$	221,249,746			$	21,666,760			$	22,115,120			$	—			$	265,031,626
Liabilities and equity
Accounts payable		$	12,880,958			$	—			$	594,546			$	—			$	13,475,505
Accrued liabilities			663,822				—				84,500				—				748,322
Billings in excess of costs and estimated earnings on uncompleted contracts			3,667,304				—				—				—				3,667,304
Provisions for losses on uncompelted contracts			550,000				—				—				—				550,000
Current portion of long-term debt			16,000,000				—				2,250,000				—				18,250,000
Current portion of operating lease liabilities			1,238,332				—				—				—				1,238,332
Long-term debt, net of current portion			71,740,847				—				12,463,730				—				84,204,578
Operating lease liability, net of current portion			3,402,280				—				—				—				3,402,280
Retained earnings			91,959,768				22,840,672				6,573,694				—				121,374,134
Current earnings			19,146,435				(1,173,912	)			148,648				—				18,121,172
Total		$	221,249,746			$	21,666,760			$	22,115,119			$	—			$	265,031,626

 

27

Asphalt, Inc., LLC

dba Lone Star Paving Company

Consolidating Statement of Income

For the Year Ended December 31, 2021

 

		Lone Star Paving Company				Pelican Asphalt Company, LLC				Lone Star Materials & Asphalt, LLC				Eliminations				Consolidated
Revenues
Contract revenues earned - paving		$	285,635,078			$	—			$	4,221,524			$	(4,221,524	)		$	285,635,078
Sales - materials			41,862,537				—				—				—				41,862,537
Total revenues		$	327,497,615			$	—			$	4,221,524			$	(4,221,524	)		$	327,497,615
Costs and expenses
Costs of contract revenues - paving		$	254,642,423			$	475,000			$	3,192,336			$	(4,221,524	)		$	254,088,235
Cost of sales - materials			34,493,064				—				—				—				34,493,064
Total cost of revenues		$	289,135,487			$	475,000			$	3,192,336			$	(4,221,524	)		$	288,581,299
Gross profit		$	38,362,128			$	(475,000	)		$	1,029,188			$	—			$	38,916,316
Selling, general and administrative expenses		$	17,040,707			$	698,912			$	225,222			$	—			$	17,964,841
Income from operations		$	21,321,421			$	(1,173,912	)		$	803,966			$	—			$	20,951,475
Other income (expense)			(1,859,565	)			—				(655,318	)			—				(2,514,882	)
Income tax			(315,421	)			—				—				—				(315,421	)
Net income (loss)		$	19,146,435			$	(1,173,912	)		$	148,648			$	—			$	18,121,172

 

28