What changed in this filing

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Item 1. Financial Statements

2022-08-15 compared with 2022-05-12 · 190 added, 149 removed, 394 unchanged (46% of the section changed)

17 unchanged sentences

Total fixed assets

Right-of-use assets-operating lease

Intangible assets, net

6 unchanged sentences

Contract liabilities

Income tax payable

Total current liabilities

3 unchanged sentences

Shareholders’ equity

Preferred stock, $ .0001 par value Authorized 1,000,000 shares, none issued at March 31, 2022 and 206 issued at September 30, 2021

Common stock, $ .0001 par value Authorized 50,000,000 shares, 17,466,328 issued and 16,247,898 outstanding at March 31, 2022 and 14,839,836 issued and 13,621,406 outstanding at September 30, 2021

Treasury stock, 1,218,430 shares at March 31, 2022 and September 30, 2021

Preferred stock, $ .0001 par value Authorized 1,000,000 shares, none issued at June 30, 2022 and 206 issued at September 30, 2021

Common stock, $ .0001 par value Authorized 50,000,000 shares, 17,885,615 issued and 16,667,185 outstanding at June 30, 2022 and 14,839,836 issued and 13,621,406 outstanding at September 30, 2021

Treasury stock, 1,218,430 shares at June 30, 2022 and September 30, 2021

Additional paid in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenues

Selling and administrative expenses

(Loss) income from operations

( 1,950,390 )

Income (loss) from operations

( 3,205,414 )

1 unchanged sentence

Interest income

Paycheck Protection Program loan forgiveness

Other nonoperating expense

1 unchanged sentence

Gain on sale of equipment

(Loss) income before income taxes

( 1,646,997 )

( 2,364,101 )

Income before income taxes

Income tax (benefit) expense

Net (loss) income

( 1,311,471 )

( 1,959,133 )

Dividends on preferred stock

Net (loss) income available to common shareholders

( 1,388,721 )

( 2,113,633 )

Net income available to common shareholders

Weighted average shares outstanding-basic

Weighted average shares-diluted

(Loss) earnings per share available to common shareholders

(Loss) earnings per share-diluted available to common shareholders

Weighted average shares outstanding-diluted

Earnings per share available to common shareholders

Earnings per share-diluted available to common shareholders

The Accompanying Notes are an Integral Part of These Financial Statements

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

Net income (loss)

( 1,959,133 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation expense

Paycheck Protection Program loan forgiveness

( 9,799,100 )

Gain on sale of equipment

1 unchanged sentence

Amortization of intangible assets

Amortization of right-of-use assets

Accreted interest on note payable

Decrease (increase) in contracts receivable

(Increase) decrease in contracts receivable

( 3,086,194 )

(Increase) decrease in retainage receivable

1 unchanged sentence

Decrease (increase) in other receivables

Decrease in contract assets

Increase in prepaid expenses

( 1,103,499 )

Increase in contract assets

( 3,206,678 )

Decrease in accounts payable

Decrease (increase) in prepaid expenses and other

Increse (decrease) in accounts payable

( 2,107,138 )

Increase (decrease) in accrued expenses and other current liabilities

2 unchanged sentences

( 1,223,272 )

Increase in income taxes payable

Net cash provided by (used in) operating activities

1 unchanged sentence

Cash flows from investing activities:

Acquisition of Revolt Energy

Acquisition of West Virginia Pipeline, net of cash received of $ 250,000

18 unchanged sentences

( 9,437,620 )

Increase (decrease) in cash and cash equivalents

Decrease in cash and cash equivalents

( 2,831,342 )

( 8,946,172 )

Cash and cash equivalents beginning of period

2 unchanged sentences

Purchases of property & equipment under financing agreements

Insurance premiums financed

Prepaid insurance premiums financed

Note payable to finance West Virginia Pipeline acquisition

Note payable to refinance short-term borrowing

Accrued dividends on preferred stock

Debt assumed in acquisitions

Par value of common stock issued from preferred stock conversion

Sellers' note Tri-State Paving acquisition

Note payable to finance Tri-State Paving acquisition

Common stock issued to finance Tri-State Paving acquisition

Par value of common stock issued from preferred stock coversion

Operating lease right-of-use assets obtained in exchange for lease liability

Supplemental disclosures of cash flows information:

3 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

For the six months ended March 31, 2022 and 2021

For the nine months ended June 30, 2022 and 2021

Additional Paid

2 unchanged sentences

( 26,035,015 )

Preferred share redemption, net of accrued dividends at September 30, 2021

( 1,210,525 )

Accrued preferred dividends

Preferred share conversion

Balance at December 31, 2021

( 24,864,035 )

Balance at March 31, 2022

( 25,449,838 )

Shares issued for Tri-State Paving acquisition

Balance at June 30, 2022

( 23,827,724 )

Additional Paid

Shareholders’

Balance at September 30, 2020

( 34,848,032 )

Preferred share repemption, net of accrued dividends at September 30, 2021

Accrued preferred dividends

Preferred share conversion

Balance at December 31, 2020

( 35,572,944 )

( 1,311,471 )

Accrued preferred dividends

Preferred share conversion

1 unchanged sentence

( 36,961,665 )

Accrued preferred dividends

Balance at June 30, 2021

( 27,725,675 )

The Accompanying Notes are an Integral Part of These Financial Statements

22 unchanged sentences

The employees of SQP are non-union and are managed independently from the Company’s union subsidiaries.

On April 29, 2022, Tri-State Paving Acquisition Company (“TSP”), a West Virginia corporation and a newly formed wholly owned subsidiary of the Company, completed the acquisition of Tri-State Paving & Sealcoat, LLC (“Tri-State Paving”), a West Virginia corporation located in Hurricane, WV.

TSP acquired substantially all the assets of Tri-State Paving for $ 7.5 million in cash, a $ 1.0 million seller note, and $ 1.0 million in the Company’s common stock, which resulted in the issuance of 419,287 new common shares.

TSP will provide utility paving services to water distribution customers in the Charleston, WV, Lexington, KY, and Chattanooga, TN markets.

The employees of TSP will be non-union and managed independently from the Company’s union subsidiaries.

Tri-State Paving & Sealcoating, Inc.

(“TSP” or “Tri-State Paving”), acquired on April 29, 2022, is a wholly owned subsidiary of Energy Services that provides utility paving services to water distribution customers in the Charleston, West Virginia, Lexington, Kentucky, and Chattanooga, Tennessee markets.

The employees of TSP are non-union and are managed independently from the Company’s union subsidiaries.

Interim Financial Statements

3 unchanged sentences

The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations.

The operating results for the three and six months ended March 31, 2022 and 2021 are not necessarily indicative of the results to be expected for the full year or any other interim period.

The operating results for the three and nine months ended June 30, 2022, and 2021 are not necessarily indicative of the results to be expected for the full year or any other interim period.

Principles of Consolidation

The consolidated financial statements of Energy Services include the accounts of Energy Services, its wholly owned subsidiaries West Virginia Pipeline, SQP and C.J.

The consolidated financial statements of Energy Services include the accounts of Energy Services, its wholly owned subsidiaries West Virginia Pipeline, SQP, TSP, and C.J.

Hughes and its subsidiaries, Contractors Rental, Nitro, and Pinnacle.

All significant intercompany accounts and transactions have been eliminated in the consolidation.

Unless the context requires otherwise, references to Energy Services include Energy Services, West Virginia Pipeline, SQP, and C.J.

Unless the context requires otherwise, references to Energy Services include Energy Services, West Virginia Pipeline, SQP, TSP, and C.J.

Hughes and its subsidiaries.

5 unchanged sentences

Please refer to Note 2 “ Summary of Significant Accounting Policies ” of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended September 30, 2021, for a more detailed discussion of our significant accounting policies.

There were no material changes to these critical accounting policies during the three and six months ended March 31, 2022.

There were no material changes to these critical accounting policies during the three and nine months ended June 30, 2022.

REVENUE RECOGNITION

36 unchanged sentences

(1) Gas & Water Distribution, (2) Gas & Petroleum Transmission, and (3) Electrical, Mechanical, & General services and construction.

Certain reclassifications have been made to the three and six months ended March 31, 2021, to reflect the current presentation.

Our contract types are:

Lump Sum, Unit Price, Cost Plus and Time and Materials (“T&M”).

The following tables present our disaggregated revenue for the three and six months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022

The following tables present our disaggregated revenue for the three and nine months ended June 30, 2022 and 2021:

Three Months Ended June 30, 2022

Gas & Petroleum

9 unchanged sentences

Total revenue from contracts

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Gas & Petroleum

9 unchanged sentences

Total revenue from contracts

Six Months Ended March 31, 2022

Nine Months Ended June 30, 2022

Gas & Petroleum

9 unchanged sentences

Total revenue from contracts

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2021

Gas & Petroleum

15 unchanged sentences

The timing of billings to customers may generate contract assets or contract liabilities.

During the three and six months ended March 31, 2022, the Company recognized revenue of $ 2.6 million that was included in the contract liability balance at September 30, 2021.

During the three and nine months ended June 30, 2022, the Company recognized revenue of $ 328,000 and $ 2.6 million, respectively, that was included in the contract liability balance at September 30, 2021.

Accounts receivable-trade, net of allowance for doubtful accounts, retentions receivable, contract assets and contract liabilities consisted of the following:

March 31, 2022

June 30, 2022

September 30, 2021

Accounts receivable-trade, net of allowance for doubtful accounts

( 4,507,492 )

Contract assets

Cost and estimated earnings in excess of billings

( 1,032,513 )

Contract liabilities

7 unchanged sentences

Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs).

During the three and six months ended March 31, 2022, there was no revenue recognized as a result of changes in contract transaction price related to performance obligations that were satisfied prior to September 30, 2021.

During the three and nine months ended June 30, 2022, there was no revenue recognized as a result of changes in contract transaction price related to performance obligations that were satisfied prior to September 30, 2021.

Changes in contract transaction price can result from such items as changes in projected profit, executed or estimated change orders, and unresolved contract modifications and claims.

The Company does not sell warranties for its construction services.

At March 31, 2022, the Company had $ 66.2 million in remaining unsatisfied performance obligations, in which revenue is expected to be recognized in less than twelve months.

At June 30, 2022, the Company had $ 71.1 million in remaining unsatisfied performance obligations, in which revenue is expected to be recognized in less than twelve months.

UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts as of March 31, 2022, and September 30, 2021, are summarized as follows:

March 31, 2022

Costs, estimated earnings, and billings on uncompleted contracts as of June 30, 2022, and September 30, 2021, are summarized as follows:

June 30, 2022

September 30, 2021

4 unchanged sentences

Less billings in excess of costs and estimated earnings on uncompleted contracts

Backlog at March 31, 2022, and September 30, 2021, was $ 120.3 million and $ 72.2 million, respectively.

Backlog at June 30, 2022, and September 30, 2021, was $ 135.0 million and $ 72.2 million, respectively.

FAIR VALUE MEASUREMENTS

9 unchanged sentences

The carrying amount for borrowings under the Company’s revolving credit facility approximates fair value because of the variable market interest rate charged to the Company for these short-term borrowings.

The fair value of the Company’s long term fixed-rate debt to unrelated parties was estimated using a discounted cash flow analysis and a yield rate that was estimated based on the borrowing rates for bank loans with similar terms and maturities.

The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $ 10.1 million at March 31, 2022, was $ 10.1 million.

The fair value of the Company’s long term fixed-rate debt was estimated using a discounted cash flow analysis and a yield rate that was estimated based on the borrowing rates for bank loans with similar terms and maturities.

The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $ 17.4 million at June 30, 2022, was $ 17.3 million.

The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $ 10.0 million at September 30, 2021, was $ 9.9 million.

All current receivables and payables are carried at net realizable value which approximates fair value because of their short duration to maturity.

(LOSS) EARNINGS PER SHARE

The amounts used to compute the (loss) earnings per share for the three and six months ended March 31, 2022, and 2021 are summarized below.

EARNINGS PER SHARE

The amounts used to compute the earnings per share for the three and nine months ended June 30, 2022, and 2021 are summarized below.

Three Months Ended

Six Months Ended

Net (loss) income

( 1,311,471 )

( 1,959,133 )

Nine Months Ended

Dividends on preferred stock

(Loss) income available to common shareholders

( 1,388,721 )

( 2,113,633 )

Income available to common shareholders

Weighted average shares outstanding

Weighted average shares outstanding-diluted

(Loss) earnings per share available to common shareholders

(Loss) earnings per share available to common shareholders-diluted

Earnings per share available to common shareholders

Earnings per share available to common shareholders-diluted

The components of income taxes are as follows:

Three Months Ended

March 31, 2022

March 31, 2021

Total income tax benefit

Six Months Ended

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

Total income tax expense (benefit)

The effective income tax rate for the three months ended March 31, 2022, was ( 25.5 ) %, as compared to ( 20.4 ) % for the same period in 2021.

The effective income tax rate for the six months ended March 31, 2022, was 33.4 %, as compared to ( 17.1 ) % for the same period in 2021.

Nine Months Ended

June 30, 2022

June 30, 2021

Total income tax expense (benefit)

The effective income tax rate for the three months ended June 30, 2022, was 28.7 %, as compared to ( 0.60 )% for the same period in 2021.

The effective income tax rate for the nine months ended June 30, 2022, was 30.0 %, as compared to ( 6.7 )% for the same period in 2021.

Effective income tax rates are estimates and may vary from period to period due to changes in the amount of taxable income and non-deductible expenses.

Per diem paid to employees on construction projects and entertainment expenses are only partially deductible from taxable income and can have a significant impact on the effective tax rate.

For the three months ended March 31, 2022, the non-deductible portion of per diem and entertainment expenses resulted in an approximate $ 106,000 increase in taxable income as compared to $ 221,000 for the same period in the prior year.

For the six months ended March 31, 2022, the non-deductible portion of per diem and entertainment expenses resulted in an approximate $ 235,000 increase in taxable income as compared to $ 297,000 for the same period in the prior year.

On June 16, 2021, the Company received notice that the SBA had granted forgiveness and repaid $9.8 million of Paycheck Protection Program (“PPP”) borrowings to its lender.

The forgiveness was recorded as “other nonoperating income” for the three and nine months ended June 30, 2021.

According to the CARES Act passed by Congress in March 2020, PPP loan forgiveness is not taxable.

In accordance with the Consolidated Appropriations Act, 2021, the Company’s PPP related expenditures in fiscal year 2020 were considered deductible expenses for federal income tax purposes.

The PPP forgiveness had a significant impact on the effective income tax rate for the three and nine months ended June 30, 2021, as taxable income was decreased by $ 9.8 million.

The income tax effects of temporary differences giving rise to the deferred tax assets and liabilities are as follows:

15 unchanged sentences

Short-term debt consists of the following:

On August 3, 2021, the Company received a one-year extension on its line of credit (“Operating Line of credit (2021)”) effective June 28, 2021.

On July 13, 2022, the Company received a one-year extension on its line of credit (“Operating Line of credit (2022)”) effective June 28, 2022.

The $ 15.0 million revolving line of credit has a $ 12.5 million component and a $ 2.5 million component, each with separate borrowing requirements.

The interest rate on the line of credit is the “ Wall Street Journal ” Prime Rate (the index) with a floor of 4.99 %.

Based on the borrowing base calculation, the Company was able to borrow up to $ 9.4 million and had no borrowings on the line of credit as of March 31, 2022.

The interest rate at March 31, 2022, was 4.99 %.

Based on the borrowing base calculation, the Company was able to borrow up to $ 11.9 million and had $ 2.1 million borrowed, leaving $ 9.8 million available on the line of credit as of June 30, 2022.

The interest rate at June 30, 2022, was 4.99 %.

Based on the borrowing base calculation, the Company was able to borrow up to $ 12.2 million as of September 30, 2021.

14 unchanged sentences

Minimum tangible net worth of $ 24.0 million to be measured quarterly.

The Company believes it was in compliance with all covenants for the $ 12.5 million and $ 2.5 million components of the line of credit at March 31, 2022.

The Company was not in compliance with all covenants but received a waiver on the $ 12.5 million component of the line of credit at June 30, 2022.

The Company projects to be in compliance with all covenants for the next twelve months.

The Company also finances insurance policy premiums on a short-term basis through a financing company.

2 unchanged sentences

In January 2022, the Company financed $ 3.4 million in insurance premiums.

At March 31, 2022, there was a $ 2.2 million outstanding balance for insurance premiums financed.

A summary of short-term and long-term debt as of March 31, 2022, and September 30, 2021, is as follows:

At June 30, 2022, there was a $ 1.4 million outstanding balance for insurance premiums financed.

A summary of short-term and long-term debt as of June 30, 2022, and September 30, 2021, is as follows:

September 30,

Line of credit payable to bank, monthly interest at 4.99 %, final payment due by June 28, 2022, guaranteed by certain directors of the Company.

Line of credit payable to bank, monthly interest at 4.99 %, expiring on June 28, 2022 (extended to June 30, 2023), guaranteed by certain directors of the Company.

Term note payable to United Bank, WV Pipeline acquisition, due in monthly installments of $ 64,853 interest at 4.25 %, final payment due by March 25, 2026, secured by receivables and equipment, guaranteed by certain directors of the Company.

Notes payable to finance companies, due in monthly installments totaling $ 68,079 at March 31, 2022 and $ 70,062 at September 30, 2021, including interest ranging from 0.00 % to 6.03 %, final payments due April 2022 through August 2026, secured by equipment.

Notes payable to finance companies, due in monthly installments totaling $ 75,000 at June 30, 2022 and $ 70,062 at September 30, 2021, including interest ranging from 0.00 % to 6.03 %, final payments due July 2022 through August 2026, secured by equipment.

Note payable to finance company for insurance premiums financed, due in monthly installments totaling $ 279,000 in FY 2022 and $ 272,000 in FY 2021, including interest rate at 3.50 %, final payment November 2022.

1 unchanged sentence

Notes payable to bank, due in monthly installments totaling $ 11,602 , including interest at 4.25 %, final payment due November 2025 secured by building and property, guaranteed by certain directors of the Company.

Notes payable to bank, due in monthly installments totaling $ 98,865 , including interest at 4.99 %, final payment due September 2022 secured by equipment, guaranteed by certain directors of the Company.

Notes payable to bank, due in monthly installments totaling $ 98,865 , including interest at 4.99 %, final payment due July 2022 secured by equipment, guaranteed by certain directors of the Company.

Notes payable to David Bolton and Daniel Bolton, due in annual installments totaling $ 500,000 , including interest at 3.25 %, final payment due December 31, 2026, unsecured

1 unchanged sentence

Note payments due in monthly installments totaling $ 68,073 , including interest at 4.25 %, beginning February 2022 with final payment due January 2026, secured by equipment, guaranteed by certain directors of the Company.

Term note payable to United Bank, Tri-State Paving acquisition, due in monthly installments of $ 140,000 including interest at 4.50 %, final payment due by June 1, 2027, secured by receivables and equipment, guaranteed by certain directors of the Company.

Notes payable to Corns Enterprises, $ 1,000,000 with fair value of $ 936,000 , due in annual installments totaling $ 250,000 , including interest at 3.50 %, final payment due April 29, 2026, unsecured

Operating lease liability payable to third party, $ 129,198 , due in monthly installments totaling $ 5,537 , final payment due May 31, 2024, unsecured

Operating lease liability payable to Corns Enterprises, $ 236,201 , due in monthly installments totaling $ 7,000 , final payment due April 29, 2025, unsecured

Less current maturities

Total long term debt

On December 31, 2020, Energy Services completed an asset purchase of West Virginia Pipeline, which became a wholly owned subsidiary of Energy Services that operates as a gas and water distribution contractor primarily in southern West Virginia.

Energy Services paid $ 3.5 million in cash and acquired a $ 3.0 million seller note with a term of five years with an interest rate of 3.25 %.

The Company incurred approximately $ 150,000 in expenses related to the acquisition.

West Virginia Pipeline earned revenues of $ 1.5 million and $ 3.8 million, respectively, for the three and six months ended March 31, 2022, and $ 1.2 million for the three and six months ended March 31, 2021.

On April 30, 2021, the Company’s Nitro subsidiary completed an asset purchase of Revolt Energy, Inc.

(“Revolt Energy”), a solar installation company located in Nitro, WV for $ 150,000 in cash.

After the acquisition, Revolt Energy began to operate as a division within Nitro.

Revolt Energy earned revenues of $ 468,000 and $ 725,000 , respectively, for the three and six months ended March 31, 2022.

ASC 805-10-50-2 requires public companies that present comparative financial statements to present pro forma financial statements as though the business combination that occurred during the current fiscal year had occurred as of the beginning of the comparable prior annual reporting period.

As allowed under ASC 805-10-50-2, the Company finds this information impracticable to provide for the interim periods presented due to the lack of availability of meaningful financial statements of the acquired companies that comply with U.S.

Generally Accepted Accounting Principles.

On April 29, 2022, the Company completed the acquisition of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”), located in Hurricane, West Virginia.

Tri-State Paving, LLC was later renamed to Corns Enterprises (“Seller”).

Pursuant to the Asset Purchase Agreement (“Agreement”) signed on April 6, 2022, and amended on April 29, 2022, the Company acquired substantially all the assets (including but not limited to customer contracts, employees, and equipment) of Tri-State Paving, LLC for $ 7.5 million in cash, a $ 1.0 million Promissory Note (“Note”), and $ 1.0 million in Energy Services Common Stock (“Stock”).

The $ 7.5 million in cash was funded through a loan with United Bank, Inc., Huntington, West Virginia.

Corns continued his role as President of the Company’s new subsidiary, Tri-State Paving & Sealcoating, Inc., which earned revenues of $ 2.0 million for the three and nine months ended June 30, 2022.

As part of the Agreement, the Company entered into a four-year , $ 1.0 million Note with a fair value of $ 936,000 that requires $ 250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning on the date of the Note, April 29, 2022.

Interest payments due shall be calculated on the principal balance remaining and shall be at the annual rate of 3.5 % which equates to 6.85 % on the carrying value of the Note.

Additionally, the Seller received $ 1.0 million in Stock pursuant to an exemption under The Securities Act of 1933.

Based on the market value calculation in the Agreement, the Seller received 419,287 shares of Stock.

As an additional consideration, if the share price of the Stock is below a closing asking price of $ 1.50 per share on the date 180 days after issuance, the Company shall pay the Seller, in cash, the difference between $ 1.50 and the market value for each share of Stock.

Payment would be made within thirty ( 30 ) days after Seller makes written demand.

Energy Services accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations.

Accordingly, for each transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition.

The purchase price allocation of each acquisition is allocated in the tables below:

West Virginia Pipeline

Equipment and vehicles

Accordingly, for the transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition.

In conjunction with ASC 805, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition date, Energy Services records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined.

The Company is continuing to finalize the purchase price allocations related to the Tri-State Paving acquisition.

The purchase price for the non-cash Tri-State Paving acquisition is allocated in the table below:

Property and equipment

Customer relationships

Cash received in acquisition

Debt assumed in acquisition

Purchase price

Revolt Energy

Equipment and vehicles

Non-compete agreement

Debt assumed in acquisition

Purchase price

West Virginia Pipeline’s past financial performance, experienced management and workforce and relationships with its customers made it an attractive acquisition for the Company.

Going back to 1963, West Virginia Pipeline has a long history of excellent work performance in southern West Virginia.

Their geographic region compliments Energy Services as the two companies rarely competed for work previously.

The goodwill generated by the acquisition is largely the result of the high return on capital generated by West Virginia Pipeline.

While West Virginia Pipeline is managed separately from the Company’s other union operations, it is expected that relationships built by all the companies will help provide new opportunities within the organization.

Revolt Energy’s reputation as a leading solar installation company in southern West Virginia made it an attractive acquisition and assisted Nitro’s entry into the growing solar installation industry.

Prior to the acquisition, Revolt installed the solar panels and subcontracted the electrical work.

The acquisition will now allow Nitro to self-perform the complete solar installation process.

Nitro’s and Revolt’s common union affiliations align to give Nitro flexibility on both solar installations and commercial electrical work.

On April 29, 2022, Tri-State Paving Acquisition Company ("TSP"), a West Virginia corporation and a newly formed wholly owned subsidiary of the Company, completed the acquisition of Tri-State Paving & Sealcoat, LLC ("Tri-State Paving"), a West Virginia corporation located in Hurricane, WV.

TSP acquired substantially all the assets of Tri-State Paving for $ 7.5 million in cash, a $ 1.0 million seller note, and $ 1.0 million in the Company's common stock.

TSP will provide utility paving services to water distribution customers in the Charleston, WV, Lexington, KY, and Chattanooga, TN markets.

The employees of TSP will be non-union and managed independently from the Company's union subsidiaries.

GOODWILL AND INTANGIBLE ASSETS

2 unchanged sentences

If a company fails this test or decides to bypass this step, it must proceed with a two-step quantitative assessment of goodwill impairment.

The Company did not have a goodwill impairment at March 31, 2022 or September 30, 2021.

The Company did not have a goodwill impairment at June 30, 2022 or September 30, 2021.

A table of the Company’s goodwill is below:

2 unchanged sentences

Ending balance

A table of the Company’s intangible assets subject to amortization at March 31, 2022, and September 30, 2021 is below:

A table of the Company’s intangible assets subject to amortization at June 30, 2022, and September 30, 2021 is below:

Amortization and

Remaining Life at

Amortization at

Amortization and

Impairment Six

Impairment at

Impairment Nine

Impairment at

2 unchanged sentences

Original Cost

March 31, 2022

June 30, 2022

September 30, 2021

March 31, 2022

June 30, 2022

West Virginia Pipeline

2 unchanged sentences

Employment agreement/non-compete

Tri-State Paving

Customer Relationships

Total intangible assets

The amortization and impairment on identifiable intangible assets for the six months ended March 31, 2022 and 2021 was $ 195,856 and $ 0 , respectively.

The $ 43,000 intangible impairment charge for the six months ended March 31, 2022, was the result of a mutual parting of ways with a former employee.

The amortization and impairment on identifiable intangible assets for the three months ended June 30, 2022 and 2021 was $ 112,000 and $ 0 , respectively.

The amortization and impairment on identifiable intangible assets for the nine months ended June 30, 2022 and 2021 was $ 307,698 and $ 0 , respectively.

Amortization expense associated with the identifiable intangible assets is expected to be as follows:

April 2022-March 2023

April 2023-March 2024

April 2024-March 2025

April 2025-March 2026

April 2026-March 2027

July 2022-June 2023

July 2023-June 2024

July 2024-June 2025

July 2025-June 2026

July 2026-June 2027

The Company leases office space for SQP Construction Group for $ 1,500 per month.

2 unchanged sentences

The lease is expensed monthly and not treated as a right-to-use asset as it does not have a material impact on the Company’s consolidated financial statements.

During the six months ended March 31, 2022, the Company entered into two lease agreements of construction equipment for a combined $ 160,000 .

During the nine months ended June 30, 2022, the Company entered into two lease agreements of construction equipment for a combined $ 160,000 .

The leases have a term of twenty-two months with a stated interest rate of 0 %, combined monthly installment payments of $ 6,645 and are cancellable at any time without penalty.

The Company has the right to purchase the equipment at the expiration of the leases by applying the two-month deposit paid.

The right-of-use assets and finance lease obligations associated with these lease agreements are included in the consolidated balance sheets within property, plant and equipment and long-term debt, respectively, and do not have a material impact on the Company's financial statements.

The right-of-use assets and operating lease obligations associated with these lease agreements are included in the consolidated balance sheets within property, plant and equipment and long-term debt, respectively, and do not have a material impact on the Company’s financial statements.

The Company entered into two operating leases for office facilities subsequent to the Tri-State Paving acquisition on April 29, 2022.

Information on the operating leases can be found below:

Operating Lease-Weighted Average Remaining Term

Remaining liability

Fiscal year end

Operating lease 1

Operating lease 2

Weighted average remaining term

Operating Lease Maturity Schedule

July 2022-June 2023

July 2023-June 2024

July 2024-June 2025

Less amounts representing interest

Present value of operating lease liabilities

Operating Lease Expense

Three and nine

June 30, 2022

June 30, 2021

Operating lease 1

Operating lease 2

Total amortization

Operating lease 1

Operating lease 2

Total interest

Total amortization and interest

Cash Paid for Operating Leases

Three and nine

June 30, 2022

June 30, 2021

Operating lease 1

Operating lease 2

The leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases.

The Company’s leases include options to renew.

The exercise of lease renewal options is at the Company’s sole discretion.

Therefore, the renewals to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise.

The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

The Company used its incremental borrowing rate of approximately 4.5 % in determining the present value of the lease payments based on the information available at the lease commencement date.

The Company rents equipment for use on construction projects with rental agreements being week to week or month to month.

Rental expense can vary by fiscal year due to equipment requirements on construction projects and the availability of Company owned equipment.

Rental expense, which is included in cost of goods sold on the consolidated statements of income, was $ 1.6 million and $ 900,000 , respectively, for the three months ended March 31, 2022, and 2021 and $ 3.5 million and $ 1.9 million, respectively, for the six months ended March 31, 2022 and 2021.

Rental expense, which is included in cost of goods sold on the consolidated statements of income, was $ 1.7 million and $ 646,000 , respectively, for the three months ended June 30, 2022, and 2021 and $ 5.3 million and $ 2.5 million, respectively, for the nine months ended June 30, 2022 and 2021.

PAYCHECK PROTECTION PROGRAM LOANS

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SUBSEQUENT EVENTS

TSP acquired substantially all the assets of Tri-State Paving for $ 7.5 million in cash, a $ 1.0 million seller note, and $ 1.0 million in the Company's common stock, which resulted in the issuance of 419,287 new common shares.

TSP will provide utility paving services to water distribution customers in the Charleston, WV, Lexington, KY, and Chattanooga, TN markets.

The employees of TSP will be non-union and managed independently from the Company's union subsidiaries.

On July 6, 2022, the Company issued a press release announcing that the Company’s Board of Directors authorized a share repurchase program (the “Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate repurchase not to exceed 1,000,000 shares, which is approximately 6.0 % of its outstanding common stock.

The Program does not obligate the Company to purchase any particular number of shares, and there is no guarantee as to the exact number of shares to be repurchased by the Company.

To date, no shares have been repurchased through the Program.

On August 11, 2022, the Company acquired substantially all the assets of Ryan Environmental, LLC (“Debtor”), located in Bridgeport, West Virginia after having its bid previously accepted by the United States Bankruptcy Court for the Northern District of West Virginia.

In the transaction, the Company paid $ 2.5 million at closing for substantially all the vehicles, equipment, small tools, and accounts receivable.

In separate transactions, the Company will assume the Debtor’s vehicle leases with Enterprise Fleet Management for approximately $ 1.1 million and purchased equipment from a related party of the Debtor for approximately $ 1.0 million.

Management has evaluated all subsequent events for accounting and disclosure.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements