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UNDERWATER ENGINEERING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 Note 1 - Nature of Operations Underwater Engineering Services, Inc. (the "Company") provides heavy and marine construction and other commercial diving services to clients including municipalities, utilities, industrial and commercial industries. The Company's staff consists of personnel who specialize in construction above, near and below water and corrosion specialists and inspectors who have specialized in the field of corrosion control. Engagements requiring underwater services are accomplished with cross -trained divers and supervisory personnel. The Company is wholly owned by the Greenman - Pedersen, Inc. Employee Stock Ownership Trust ("ESOT"). Note 2 - Summary of Significant Accounting Policies 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 that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows: Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 - Valuations based on unobservable inputs reflecting the Company's own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. At December 31, 2017 and 2016, the fair value of the Company's financial instruments, including cash, accounts receivable, accounts receivable - related party, advances to related parties, accounts payable, and accrued expenses and other current liabilities, approximated book value due to the short maturity of these instruments. At December 31, 2017 and 2016, the Company does not have any assets or liabilities required to be measured at fair value in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements. 7