ALLIANCE MARITIME HOLDINGS, LLC AND RELATED ENTITIES

CONDENSED COMBINED CONSOLIDATED BALANCE SHEET (UNAUDITED)

JUNE 30, 2022


	2022
ASSETS
Current assets:
Cash and cash equivalents	$	6,335,894
Restricted cash		344,678
Accounts receivable		44,187,507
Other current assets		3,977,367
Due from related parties		114,143
Total current assets		54,959,589
Property and equipment		151,804,559
Less accumulated depreciation		(86,780,829)
Property and equipment, net		65,023,730
Operating lease right-of-use assets		1,204,798
Other assets, net		2,133,652
Total assets	$	123,321,769

LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable	$	20,370,193
Accrued liabilities		3,128,158
Current maturities of long-term debt		8,121,860
Current operating lease liabilities		611,424
Total current liabilities		32,231,635
Long-term debt		43,603,498
Operating lease liabilities		593,374
Due to members		6,492,826
Due to related parties		71,263,327
Total liabilities		154,184,660
Members' deficit		(30,862,891)
Total members' deficit		(30,862,891)
Total liabilities and members' deficit	$	123,321,769

The accompanying notes are an integral part of the condensed combined consolidated financial statements.

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ALLIANCE MARITIME HOLDINGS, LLC AND RELATED ENTITIES

CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

AND MEMBERS’ DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2022


	2022
Net revenues	$	79,737,331
Cost of sales		65,022,730
Gross profit		14,714,601
Gain on disposition of assets, net		15,163
Selling, general and administrative expenses		(2,504,798)
Income from operations		12,224,966
Net interest expense		(4,452,994)
Other expense, net		(104,046)
Net income	$	7,667,926

Members' deficit:
Beginning of year	$	(35,868,261)
Net income		7,667,926
Members' draws		(2,662,556)
End of period	$	(30,862,891)

The accompanying notes are an integral part of the condensed combined consolidated financial statements.

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ALLIANCE MARITIME HOLDINGS, LLC AND RELATED ENTITIES

CONDENSED COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2022


	2022
Cash flows from operating activities:
Net income	$	7,667,926
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,552,729
Amortization of debt issuance costs		84,108
Gain on disposition of assets, net		(15,163)
Changes in operating assets and liabilities:
Accounts receivable, net		(19,823,783)
Other current assets		(1,331,214)
Due from related parties		(22,755)
Accounts payable and accrued liabilities		11,145,332
Other, net		(1,703,580)
Net cash provided by operating activities		2,553,600

Cash flows from investing activities:
Capital expenditures		(4,857,210)
Proceeds from sale of assets		15,163
Proceeds from insurance recovery		1,782,298
Net cash used in investing activities		(3,059,749)

Cash flows from financing activities:
Borrowings under long-term debt		6,500,000
Members' draws		(2,662,556)
Decrease in due to members		(6,000,000)
Decrease in due to related parties		(949,161)
Net cash used in financing activities		(3,111,717)

Net decrease in cash and cash equivalents and restricted cash		(3,617,866)
Cash and cash equivalents and restricted cash:
Balance, beginning of year		10,298,438
Balance, end of period	$	6,680,572

The accompanying notes are an integral part of the condensed combined consolidated financial statements.

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ALLIANCE MARITIME HOLDINGS, LLC AND RELATED ENTITIES

NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2022

Note 1 — Company Overview

Alliance Maritime Holdings, LLC and Related Entities (the “Company”) is a vertically integrated platform, specializing in comprehensive offshore oil field decommissioning and reclamation (“D&R”) services. Its D&R offering includes not only engineering, permitting and project management, but also in-house execution services such as well plugging and abandonment, subsea infrastructure flushing and abandonments (or removals), platform decommissioning and structure removals, and underwater site clearance. In addition to its end-of-life D&R services, the Company offers services to support the full life cycle of offshore upstream and midstream industries, including installations and construction, inspection, maintenance and repair, and oil and gas production (i.e., well intervention, reeled tubing, and pumping). The Company operates a diversified fleet of marine assets including crew boats, dive support vessels, liftboats, offshore supply vessels, coastal/spud barges and a 1760T heavy lift derrick barge, which support the aforementioned services primarily in the U.S. Gulf of Mexico. These services are carried out by three businesses: Alliance Energy Services (Energy Services), Alliance Offshore (Offshore), and Triton Diving and Heavy Lift (Triton).

The Company’s customer base includes major and independent oil & gas companies, pipeline companies and oil and gas service companies.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed combined consolidated financial statements include the accounts of Alliance Maritime Holdings, LLC and its wholly-owned subsidiaries, Alliance Vessel Leasing, LLC, Alliance Energy Services, LLC, Heavy Lift Holdings, LLC and its wholly-owned subsidiaries, Triton Diving Services, LLC, and Whitney Liftboats, LLC. These entities are under common ownership in the six months ended June 30, 2022. The unaudited condensed combined consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.

Restricted Cash

Restricted cash is comprised of funds that are contractually restricted as to usage or withdrawal due to a contractual agreement with an insurer for the payment of worker’s compensation insurance claims.

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Accounts Receivable

Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The Company’s estimate for the allowance for doubtful accounts is based on a review of the current status of accounts receivable. No allowance was provided for its accounts receivable as of June 30, 2022.

Property and Equipment

Expenditures for new property and equipment and amounts expended which substantially increase the estimated useful lives of existing assets, are capitalized and carried on the basis of cost. Maintenance and repairs are expensed as incurred. The carrying amounts and related accumulated depreciation of property and equipment sold are eliminated from the related accounts and any resulting gain or loss is included in the statement of operations. Depreciation is computed using primarily the straight-line method over estimated useful lives as follows:


Vessels		7 - 18 years
Machinery and equipment		2 - 10 years
Buildings and improvements		5 - 39 years

Impairment of Long-Lived Assets

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The Company did not recognize any impairment losses during the six months ended June 30, 2022.

Deferred Dry Dock Costs

The Company’s vessels are required by regulation to be recertified after certain periods of time. These recertification costs are incurred while the vessel is in dry dock. In addition, routine repairs and maintenance are performed, and at times, major replacements and improvements are performed. The Company defers and depreciates recertification costs over the length of time in which the recertification is expected to last, which is generally 24 to 36 months. Major replacements and improvement, which extend the vessel’s economic life or functional operating capability are capitalized and depreciated over the vessel’s remaining life.

Leases

Leases with a term greater than one year are recognized in the condensed combined consolidated balance sheet as right-of-use (“ROU”) assets and lease liabilities. The Company has not recognized in the condensed combined consolidated balance sheet leases with an initial term of one year or less. Lease liabilities and their corresponding ROU assets are recorded at the commencement date based on the present value of lease payments over the expected lease term. The lease term may include the option to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company uses its incremental borrowing rate, which would be the rate incurred to borrow on a collateralized basis over a similar term in a similar economic environment, to calculate the present value of lease payments. ROU assets are adjusted for any initial direct costs paid or incentives received.

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The Company recognizes operating lease cost on a straight-line basis over the lease term for both (i) leases that are recognized in the condensed combined consolidated balance sheet and (ii) short-term leases. The Company recognizes lease cost related to variable lease payments that are not recognized in the condensed combined consolidated balance sheet in the period in which the obligation is incurred.

Revenue Recognition

Revenue from the Company’s Energy Services business is generated with the provision of plug and abandonment systems, coiled tubing systems, other equipment and personnel to provide decommissioning and intervention services. Revenue from the Company’s Offshore business is generated with the provision of offshore vessels, liftboats and crewboats to provide marine access to offshore facilities in order to perform decommissioning, intervention, diving and other workscopes. The Company’s vessels and systems are used together to perform services for its customers. Revenue from the Company’s Triton business is generated with the provision of diving vessels and personnel and with the heavy lift barge to provide diving and platform decommissioning services.

Revenues are generated primarily from short-term projects pursuant to service contracts, such as master service agreements and purchase orders or other contractual arrangements with the Company’s customers. Its service contracts generally contain provisions for specific time, material and equipment charges that are billed in accordance with the terms of such contracts (time and materials contracts). Less frequently, its service contracts may contain lump sum payment provisions (lump sum contracts).

The Company accounts for its services under contracts with customers as a single performance obligation satisfied over time. The single performance obligation in time and materials contracts is comprised of a series of distinct time increments in which the Company provides services.

Time and Materials Contracts. Revenues generated from time and materials contracts provide for payment according to the rates per time increment (e.g., hours or days) and as stipulated in the contract (e.g., operating rate or standby rate). Invoices billed to the customer are typically based on the applicable rates for that time period. Time and materials consideration is allocated to the distinct hourly time increment to which it relates and is therefore recognized in line with the contractual rate billed for the services provided for any time period.

The Company receives reimbursements from its customers for the purchase of supplies, equipment, personnel services and other services provided at their request. Reimbursable revenues are variable and not recognized until the related costs are incurred on behalf of the customer.

Lump Sum Contracts. Revenues generated from lump sum contracts are recognized over time. Revenue is recognized based on the extent of progress towards completion of the performance obligation. Consideration for lump sum contracts is generally due from the customer based on the achievement of milestones.

The Company records revenues net of taxes collected from customers and remitted to governmental authorities.

The following table provides information about disaggregated revenue by service line for the six months ended June 30, 2022:


	2022
Alliance Energy Services	$	42,551,193
Alliance Offshore		25,064,813
Triton Diving and Heavy Lift		19,799,073
Intercompany eliminations		(7,677,748)
Total	$	79,737,331

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Income Taxes

The Company, with the consent of its members, has elected to have its income or loss reported directly to the members under provisions of the Internal Revenue Code. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities beyond three years from the filling of those returns.

Contingencies

Liabilities for loss contingencies arising from claims and litigation are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. Legal costs incurred in connection with claims and litigation are expensed as incurred.

Fair Value of Financial Instruments

The Company’s consolidated financial instruments primarily consist of cash, accounts receivable, accounts payable, and debt instruments. The carrying amounts of financial instruments, other than debt instruments, are representative of their fair values due to their short maturities. The Company’s debt agreements bear interest at market rates, and management believes their carrying amounts approximate fair value.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits and trade receivables. The Company at times has cash on deposit at financial institutions that is in excess of federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation up to federally insured limits. The Company has not experienced any losses in such accounts. The Company has no policy requiring collateral or other security to support its deposits.

Concentrations of credit risk with respect to trade receivables results from its customers, substantially all of whom are involved in oil and gas activities. The Company performs credit evaluations of new customers and existing customers whenever necessary. The Company has no policy requiring collateral or other security to support its deposits or accounts receivable.

At June 30, 2022, major customer receivables (those representing 10% or more of the Company’s total accounts receivable) are as follows: Apache Corporation (29%) and Talos Energy (15%).

Major Customers

For the six months ended June 30, 2022, revenues from major customers (those representing 10% or more of the Company’s total revenues) are as follows: Talos Energy (25%) and Apache Corporation (20%).

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New Accounting Standards

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASC 842”), which was updated by subsequent amendments. ASC 842 requires that a lessee recognize the ROU assets and lease liabilities that arise from leases classified as finance or operating. ASC 842 also changes the definition of a lease and requires expanded quantitative and qualitative disclosures for both lessees and lessors. The Company adopted ASC 842 as of January 1, 2022. The Company elected the package of practical expedients permitted under the transition guidance that, among other things, allows companies to carry forward their historical lease classification. The adoption of this standard resulted in the recognition of operating lease liabilities of $1,477,874 and corresponding ROU assets of $1,477,874 as of January 1, 2022.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” which was updated by subsequent amendments. The credit loss standard replaces the current incurred loss model for measurement of credit losses on financial assets (including trade receivables) with a forward-looking expected loss model based on historical experience, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 will be effective for the Company’s fiscal year beginning January 1, 2023. The Company is continuing to evaluate the impact the adoption of ASU No. 2016-13 will have on the Company’s combined consolidated financial statements.

The Company does not expect any other recent accounting standards to have a material impact on its financial position, results of operations or cash flows when they become effective.

Note 3 — Details of Certain Accounts

Other current assets as of June 30, 2022 consist of the following:


	2022
Prepaids	$	1,629,675
Inventory		827,541
Other receivables		1,312,402
Deposits		207,749
Total other current assets	$	3,977,367

Other assets, net as of June 30, 2022 consist of the following:


	2022
Deferred recertification and dry dock costs, net	$	2,133,652
Total other assets, net	$	2,133,652

Accrued liabilities as of June 30, 2022 consist of the following:


	2022
Accrued payroll and related benefits	$	2,447,940
Other		680,218
Total accrued liabilities	$	3,128,158

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Note 4 — Leases

The Company leases facilities under long-term operating lease agreements that expire on various dates through March 2025.

The following table details the components of the Company’s lease cost:


	2022
Operating lease cost	$	375,000
Short-term lease cost		269,892
Net lease cost	$	644,892

Maturities of the Company’s operating lease liabilities as of June 30, 2022 are as follows:


	Facilities
Less than one year	$	750,000
One to two years		517,339
Two to three years		125,000
Total lease payments	$	1,392,339
Less: imputed interest		(187,541)
Total operating lease liabilities	$	1,204,798

Current operating lease liabilities	$	611,424
Non-current operating lease liabilities		593,374
Total operating lease liabilities	$	1,204,798

The following table presents the weighted average remaining lease term and discount rate as of June 30, 2022:


	2022
Weighted average remaining lease term	1.95	years
Weighted average discount rate	15.85	%

The following table presents other information related to the Company’s operating leases for the six months ended June 30, 2022:


	2022
Cash paid for operating lease liabilities	$	375,000

Note 5 — Long-Term Debt

Long-term debt as of June 30, 2022 consists of the following:


	2022
Notes payable to Squadron Capital bearing interest at 11%. The notes mature on June 8, 2026 and are secured by all Company assets ⁽¹⁾	$	52,921,667
Total long-term debt		52,921,667
Less unamortized debt issuance costs		(1,196,309)
Less current maturities		(8,121,860)
Long-term debt	$	43,603,498

(1)	Notes payable to Squadron Capital were paid in full on July 1, 2022 due to the acquisition of the Company. See Note 11 for further discussion.

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Scheduled maturities of long-term debt outstanding as of June 30, 2022 are as follows:


	2022
Less than one year	$	8,121,860
One to two years		6,509,612
Two to three years		6,017,897
Three to four years		32,272,298
Total long-term debt	$	52,921,667

Note 6 — Employee Benefit Plans

The Company sponsors a defined contribution 401(k) retirement plan (the “Plan”) to provide retirement and incidental benefits for its employees. Employees may contribute up to 100% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The Plan provides for discretional matching contributions on elective deferrals in an amount to be determined by the Company on an annual basis. There was no Company match for the six months ended June 30, 2022.

Note 7 — Related Parties Transactions

Due from related parties

Due from related parties represents amounts that the Company was owed from entities owned by a member or an officer of the Company as of June 30, 2022.

Due to members

The Company paid $6,000,000 to a member in January 2022 and the remaining amount owed to that member was $3,700,000 as of June 30, 2022. The Company accrues interest at 6%. As of June 30, 2022, $2,651,158 of interest was accrued.

Due to related parties

Due to related parties represents amounts that the Company owed to entities owned by a member or an officer of the Company as of June 30, 2022.

The Company entered into a promissory note with an entity owned by a member. The note payable bears interest at LIBOR plus 7% and matures on July 31, 2026. As of June 30, 2022, the note had a remaining principal amount of $574,622 and accrued interest payable of $1,228,371.

The Company entered into a promissory note with an individual who owns indirectly a portion of the Company. The note payable of $1,000,000 bears interest at LIBOR plus 7%. The balance of all accrued and unpaid interest and outstanding principal was due on or before November 18, 2016. The issuer granted a verbal extension of time at the same interest rate. As of June 30, 2022, the note had accrued interest payable of $509,339.

The Company has five promissory notes with an entity owned by a member. One note payable with an original principal of $17,000,000 bears interest at 3.85% and matures on November 29, 2027. The other four notes with an aggregate original principal of $35,150,000 bear interest at 6%. According to an intercreditor agreement dated June 8, 2021 among lender parties to the Company, these notes are subordinate and junior in right of payment to the notes payable to Squadron Capital and no payment shall be made with respect to these notes until the discharge of the Squadron debt. As of June 30, 2022, the remaining amounts owed on these notes totaled $35,044,007 and these notes had accrued interest payable of $16,156,259.

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The Company leases plane time from an entity owned by a member. As of June 30, 2022, the Company owed this entity a total of $415,083 for plane time.

The Company leases an office building from an entity owned by a member. Rent expense for the six months ended June 30, 2022 was $150,000.

All related party balances were settled on July 1, 2022 as part of the acquisition of the Company. See Note 11 for further discussion.

Note 8 — Commitments and Contingencies and Other Matters

Commitments

The Company leases facilities under long-term operating lease agreements. See Note 4 for disclosures related to leases.

Contingencies and Claims

The Company believes that there are currently no contingencies that would have a material adverse effect on its financial position, results of operations or cash flows.

Litigation

The Company is involved in various legal proceedings. In addition, from time to time the Company receives other claims, such as contract and employment-related disputes, in the normal course of business.

Note 9 — Statement of Cash Flow Information

The following table provides supplemental cash flow information for the six months ended June 30, 2022:


	2022
Interest paid	$	3,214,094

Note 10 — Coronavirus (COVID-19) and CARES Act

The COVID-19 pandemic has impacted and could further impact the Company’s operations and the operations of the Company’s suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company’s customers, suppliers, and vendors and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in the future. Therefore, the Company cannot reasonably estimate the impact at this time.


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Condensed Combined Consolidated Financial Statements

	Condensed Combined Consolidated Balance Sheet (Unaudited)	3

	Condensed Combined Consolidated Statement of Operations and Members' Deficit (Unaudited)	4

	Condensed Combined Consolidated Statement of Cash Flows (Unaudited)	5

Notes to Condensed Combined Consolidated Financial Statements (Unaudited)		6