What changed in this filing

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Item 1. Business

2022-12-22 compared with 2021-12-29 · 63 added, 115 removed, 129 unchanged (58% of the section changed)

Energy Services of America Corporation (“Energy Services” or the “Company”), formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic region of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries.

Hughes Construction Company, Inc.

Hughes”), a wholly owned subsidiary of the Company, is a general contractor primarily engaged in pipeline construction for utility companies.

Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J.

Hughes, provides union building trade employees for projects managed by C.J.

Nitro Construction Services, Inc.

(“Nitro”), a wholly owned subsidiary of C.J.

Hughes, provides electrical, mechanical, HVAC/R, solar installation, and fire protection services to customers primarily in the automotive, chemical, and power industries.

Pinnacle Technical Solutions, Inc.

(“Pinnacle”), a wholly owned subsidiary of Nitro, operates as a data storage facility within Nitro’s office building.

Pinnacle is supported by Nitro and has no employees of its own.

Hughes, Nitro, and Contractors Rental construction personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.

On December 31, 2020, Energy Services completed an asset purchase of West Virginia Pipeline, Inc.

(“West Virginia Pipeline”), a West Virginia corporation located in Princeton, West Virginia.

West Virginia Pipeline, a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia.

West Virginia Pipeline’s employees are non-union, and the company is managed independently from C.J.

Hughes and Nitro.

On March 22, 2021, the Company established a new wholly owned subsidiary, SQP Construction Group, Inc.

(“SQP”), that operates as a general contractor primarily in West Virginia.

SQP engages in the construction and renovation of buildings and other civil construction projects for state and local government agencies and commercial customers.

As a general contractor, SQP manages the overall construction project and subcontracts most of the work.

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

(“Revolt Energy”), a West Virginia corporation located in Nitro, WV.

Revolt Energy previously operated primarily as a residential solar installation company in southern West Virginia.

As a division of Nitro, Revolt Energy continues to perform residential solar installations and has expanded its solar installation services to include commercial and industrial customers.

Revolt Energy’s construction employees are members of the International Brotherhood of Electrical Workers.

On June 30, 2021, the Company provided notice to all holders of the Company’s 6.0% Convertible Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) that, subject to applicable law and in accordance with the Company’s certificate of incorporation, the Company intended to redeem all 206 shares of the Series A Preferred Stock, at a price equal to $25,000 per preferred share plus all accrued and unpaid dividends whether or not declared up to and excluding the Redemption Date of September 1, 2021 (the “Redemption Price”).

A portion of the 206 outstanding shares of Series A Preferred Stock were converted into common stock of the Company (“Common Stock”) at the election of each shareholder.

The conversion formula for each share of the Series A Preferred Stock was $25,000 plus all accrued but unpaid dividends up to, but excluding, September 1, 2021 divided by the Conversion Price of $1.50.

Cash was issued in lieu of fractional shares at a rate of $1.50 multiplied by the fractional share rounded to the nearest cent.

On October 6, 2021, the Company’s transfer agent completed the redemption, which resulted in the issuance of 2,626,492 new shares of the Company’s common stock, the issuance of 317,500 common shares that were included in Series A Preferred Stock units, and cash redemption payments of $1.3 million.

The Company’s total outstanding common shares after redemption was 16,247,898 as of October 6, 2021.

The Company’s stock is quoted under the symbol “ESOA” on the OTCQB marketplace operated by the OTC Markets Group.

Energy Services provides contracting services for utilities and energy related companies including gas, petroleum power, chemical, water & sewer and automotive industries.

Energy Services of America Corporation (“Energy Services” or the “Company”), formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic and central regions of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries.

For the gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies.

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The Company has also added the ability to install residential, commercial, and industrial solar systems and perform civil and general contracting services.

The Company had consolidated operating revenues of $122.5 million for the fiscal year ended September 30, 2021, of which 48.9% was attributable to electrical, mechanical, and general contract services , 33.0% to gas & water distributions services, and 18.1% to gas and petroleum transmission projects.

The Company had consolidated operating revenues of $197.6 million for the fiscal year ended September 30, 2022, of which 43.5% was attributable to electrical, mechanical, and general contract services, 29.5% to gas and petroleum transmission projects, and 27.0% to gas & water distributions services.

The Company had consolidated operating revenues of $122.5 million for the fiscal year ended September 30, 2021, of which 48.9% was attributable to electrical, mechanical, and general contract services, 33.0% to gas & water distributions services, and 18.1% to gas and petroleum transmission projects.

Energy Services’ customers include many of the leading companies in the industries it serves, including:

TransCanada Corporation

Columbia Gas Distribution

NiSource, Inc.

Marathon Petroleum

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Various state, county and municipal public service districts.

The majority of the Company’s customers are located in West Virginia, Virginia, Ohio, Pennsylvania, and Kentucky.

The majority of the Company’s customers are in West Virginia, Virginia, Ohio, Pennsylvania, and Kentucky.

However, the Company also performs work in other states including Alabama, Michigan, Illinois, Tennessee, and Indiana.

Energy Services’ sales force consists of industry professionals with significant relevant sales experience, who utilize industry contacts and available public data to determine how to most appropriately market the Company’s line of products.

The Company relies

on direct contact between its sales force and customers’ engineering and contracting departments in order to obtain new business.

Energy Services’ sales force consists of industry professionals with significant relevant sales experience, who utilize industry contacts and available public data to determine how to market the Company’s line of products most appropriately.

The Company relies on direct contact between its sales force and customers’ engineering and contracting departments to obtain new business.

A substantial portion of the Company’s workforce are union members of various construction related trade unions and are subject to separately negotiated collective bargaining agreements that expire at varying time intervals.

The Company believes its relationship with its unionized workforce is good.

Hughes Construction Company, Inc.

Hughes”), a wholly owned subsidiary of the Company, is a general contractor primarily engaged in pipeline construction for utility companies.

Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J.

Hughes, provides union building trade employees for projects managed by C.J.

Nitro Construction Services, Inc.

(“Nitro”), a wholly owned subsidiary of C.J.

Hughes, provides electrical, mechanical, HVAC/R, solar installation, and fire protection services to customers primarily in the automotive, chemical, and power industries.

Pinnacle Technical Solutions, Inc.

(“Pinnacle”), a wholly owned subsidiary of Nitro, operates as a data storage facility within Nitro’s office building.

Pinnacle is supported by Nitro and has no employees of its own.

West Virginia Pipeline, Inc.

(“West Virginia Pipeline” or “WVP”), a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia.

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

SQP Construction Group, Inc.

(“SQP”), a wholly owned subsidiary of Energy Services, operates as a general contractor primarily in West Virginia.

SQP engages in the construction and renovation of buildings and other civil construction projects for state and local government agencies and commercial customers.

As a general contractor, SQP manages the overall construction project and subcontracts most of the work.

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

Tri-State Paving & Sealcoating, Inc.

(“TSP” or “Tri-State Paving”), a wholly owned subsidiary of Energy Services, completed the acquisition of substantially all of the assets of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”) on April 29, 2022.

Tri-State Paving 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.

Ryan Construction Services Inc.

(“Ryan Construction” or “RCS”), a wholly owned subsidiary of Energy Services, formed in August 2022 in connection with the acquisition of substantially all of the assets of Ryan Environmental, LLC and Ryan Environmental Transport, LLC, provides directional drilling services for broadband service providers along with offering natural gas distribution services, cathodic protection and corrosion prevention services, and civil construction services.

Ryan Construction operates primarily in West Virginia and Pennsylvania.

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

The Company’s website address is www.energyservicesofamerica.com.

Recent Events

On October 6, 2021, the Company’s transfer agent completed the full redemption of all the Company’s 6.0% Convertible Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), which resulted in the issuance of 2,626,492 new shares of the Company’s common stock, the issuance of 317,500 common shares that were included in Series A Preferred Stock units, and cash redemption payments of $1.3 million.

The Company’s total outstanding common shares after redemption was 16,247,898 as of October 6, 2021.

On February 16, 2022, the stockholders of Energy Services approved the Company’s 2022 Equity Incentive Plan (the “Plan”), which provides for the grant of stock-based awards to officers and employees of the Company and its subsidiaries.

The maximum number of shares of stock, in the aggregate, that may be granted under the Plan as stock options, restricted stock or restricted stock units is 1,500,000 shares.

A description of the material terms of the Plan is contained in the Company’s definitive proxy statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on January 11, 2022.

No grants of stock-based awards were made during the fiscal year ended September 30, 2022.

On March 23, 2022, the Company’s common stock began trading on the Nasdaq Capital Market operated by The Nasdaq Stock Market, LLC under the symbol “ESOA”.

Pursuant to the Asset Purchase 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, and $1.0 million in Energy Services common stock.

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

The transaction resulted in the issuance of 419,287 common shares, bringing the total outstanding common shares to 16,667,185 as of April 29, 2022.

Corns continued his role as President of the Company’s new subsidiary, Tri-State Paving, which earned revenues of $4.9 million for the fiscal year ended September 30, 2022.

On July 6, 2022, the Company’s Board of Directors authorized a new 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 amount not to exceed 1,000,000 shares, which was approximately 6.0% of its outstanding common stock as of the date of the announcement.

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

No repurchases were made in connection with the Program during the fiscal year ended September 30, 2022.

On August 11, 2022, Ryan Construction Services Inc., a newly formed wholly owned subsidiary of Energy Services, completed the acquisition of Ryan Environmental, LLC (“Ryan Environmental”), located in Bridgeport, WV, pursuant to an order issued by the United States Bankruptcy Court for the Northern District of West Virginia (the “Court”) on August 9, 2022 and Ryan Environmental Transport, LLC (“Ryan Transport”), located in Bridgeport, West Virginia, under the terms of an Asset Purchase Agreement.

As part of the business combination, the Company acquired certain assets, including equipment, vehicles, and small tools, of Ryan Environmental for $3.0 million in cash and certain assets, including equipment and small tools, of Ryan Transport for $1.0 million in cash.

COVID-19 Response

In March 2020, the World Health Organization recognized the novel strain of coronavirus, COVID-19, as a pandemic.

This coronavirus and related variants have significantly impacted both the world and U.S.

In response the governments of many cities, counties, states, and other geographic regions have taken preventative or protective actions.

In the geographic regions in which the Company operates, state ordered business closures and masking policies have been lifted during 2021;

however, some businesses may implement their own policies related to masks and vaccination.

While a federal vaccine mandate enforceable by OSHA has been suspended pending developments in litigation, certain customers, or potential customers, may require all construction employees working on a project to be vaccinated.

Some of the procedures that the Company has implemented to help protect employees from COVID-19 and variant exposure are guidelines for social distancing, office sanitation, hand washing, mask wearing, limited office admittance, and immediate symptom reporting.

The Company has provided personal protective equipment and hand-sanitizers to employees, made arrangements for administrative personnel to work from home, and provided access to vaccines to employees.

The Company works closely with our customers to limit exposure risk and cooperate with symptom reporting and contact tracing.

Construction employees are required to meet all procedures established by our customers in addition to the Company’s own procedures.

The Company also followed the paid sick and expanded family and medical leave guidelines set forth in the Families First Coronavirus Response Act, which expired on December 31, 2020.

As of September 30, 2021, the Company has not had significant issues with COVID-19 exposure among its employees and most of the Company’s existing customers had resumed projects that were affected by the March 2020 shutdowns.

As a result, the Company has increased its employment level of construction personnel as compared to March 31, 2020.

Given the uncertainty regarding the spread of this coronavirus and variants, the related financial impact on the Company’s results of operations, financial position, and liquidity or capital resources cannot be reasonably estimated at this time.

For the fiscal year ended September 30, 2022, the Company did not have significant issues with COVID-19 exposure among its employees and most of the Company’s existing customers had resumed projects that were affected by COVID-19 shutdowns in fiscal 2021.

Fluctuation of Results

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These variations are the result of weather, customer spending patterns, bidding seasons and holidays.

The first quarter of the calendar year is typically the slowest in terms of revenues because inclement weather conditions causes delays in production and customers usually do not plan large projects during that time.

The first quarter of the calendar year is typically the slowest in terms of revenues because inclement weather conditions cause delays in production and customers usually do not plan large projects during that time.

While usually better than the first quarter, the second calendar year quarter often has some inclement weather which can cause delays in production, reducing the revenues the Company receives and/or increasing the production costs.

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You should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Understanding Gross Margins ” below for discussions of trends and challenges that may affect our financial condition and results of operations.

Financing Arrangements

On December 16, 2014, the Company’s Nitro subsidiary entered into a 20-year $1.2 million loan agreement with First Bank of Charleston, Inc.

(West Virginia) to purchase the office building and property it had previously been leasing for $6,300 monthly.

The interest rate on this loan agreement is 4.82% with monthly payments of $7,800.

The interest rate on this note is subject to change from time to time based on changes in The U.S.

Treasury yield, adjusted to a constant maturity of three years as published by the Federal

Reserve weekly.

As of September 30, 2021, the Company had made principal payments of $281,000.

The loan is collateralized by the building purchased under this agreement.

On September 16, 2015, the Company entered into a $2.5 million Non-Revolving Note agreement with United Bank, Inc.

This six-year agreement gave the Company access to a $2.5 million line of credit (“Equipment Line of Credit”), specifically for the purchase of equipment, for the period of one year with an interest rate of 5.0%.

After the first year, all borrowings against the Equipment Line of Credit were converted to a five-year term note agreement with an interest rate of 5.0%.

As of September 30, 2021, the Company had borrowed $2.46 million against this note and had paid off the loan, which was collateralized by the equipment purchased under this agreement.

On November 13, 2015, the Company entered into a 10-year $1.1 million loan agreement with United Bank, Inc.

to purchase the fabrication shop and property Nitro had previously been leasing for $12,900 each month.

The interest rate on the new loan agreement is 4.25% with monthly payments of $11,602.

As of September 30, 2021, the Company had made principal payments of $569,000.

The loan is collateralized by the building and property purchased under this agreement.

On June 28, 2017, the Company entered into a $5.0 million Non-Revolving Note agreement with United Bank, Inc.

This five-year agreement gave the Company access to a $5.0 million line of credit (“Equipment Line of Credit 2017”), specifically for the purchase of equipment, for a period of three months with an interest rate of 4.99%.

After three months, all borrowings against the Equipment Line of Credit 2017 were converted to a five-year term note agreement with an interest rate of 4.99%.

As of September 30, 2021, the Company had borrowed $5.0 million against this note and made principal payments of $4.2 million.

The loan is collateralized by the equipment purchased under this agreement.

On December 31, 2020, West Virginia Pipeline Acquisition Company, later renamed West Virginia Pipeline, Inc., entered into a $3.0 million sellers’ note agreement with David and Daniel Bolton for the remaining purchase price of West Virginia Pipeline, Inc.

For the purchase price allocation, the $3.0 million note had a fair value of $2.85 million.

As part of the $6.35 million fair acquisition, the acquirer paid $3.5 million in cash in addition to the note.

The unsecured five-year term note requires equal annual payments with a fixed interest rate of 3.25% on the $3.0 million sellers’ note, which equates to 5.35% on the carrying value of the note.

As of September 30, 2021, the Company has made interest payments of $73,000 and expensed $22,500 in accreted interest.

The Company made the first installment payment in December 2021.

On January 4, 2021, the Company entered into a $3.0 million Non-Revolving Note agreement with United Bank, Inc.

This five-year agreement gave the Company access to a $3.0 million line of credit (“Equipment Line of Credit 2021”), specifically for the purchase of equipment, for a period of twelve months with a variable interest rate initially established at 4.25% as based on the Prime Rate as published by The Wall Street Journal .

After twelve months, all borrowings against the Equipment Line of Credit 2021 will be converted to a four-year term note agreement with a variable interest rate initially established at 4.25%.

The loan is collateralized by the equipment purchased under this agreement.

As of September 30, 2021, the Company borrowed $3.0 million against this line of credit with payments set to begin in February 2022.

The Company has made interest payments of $34,000 on this note as of September 30, 2021.

On April 2, 2021, the Company entered into a $3.5 million Non-Revolving Note agreement with United Bank, Inc.

This five-year agreement repaid the outstanding $3.5 million line of credit that was used for the down payment on the West Virginia Pipeline acquisition.

This loan has a variable interest rate initially established at 4.25% as based on the Prime Rate as published by The Wall Street Journal .

The loan is collateralized by the Company’s equipment and receivables.

As of September 30, 2021, the Company had made principal payments of $316,000.

On August 3, 2021, the Company received a one-year extension on its line of credit (“Operating Line of credit (2020)”) effective June 28, 2021.

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 $12.2 million as of September 30, 2021.

The Company had $4.5 million in borrowings on the line of credit, leaving $7.7 million available on the line of credit as of September 30, 2021.

The interest rate at September 30, 2021, was 4.99%.

Based on the borrowing base calculation, the Company was able to borrow up to $11.1 million as of September 30, 2020.

The Company had no borrowings on the line of credit, leaving $11.1 million available on the line of credit as of September 30, 2020.

The interest rate at September 30, 2020, was 4.99%.

Paycheck Protection Program Loans

Due to the economic uncertainties created by COVID-19 and limited operating funds available, the Company applied for loans under the Paycheck Protection Program (“PPP”).

On April 15, 2020, Energy Services of America Corporation and subsidiaries C.J.

Hughes Construction Company, Contractors Rental Corporation and Nitro Construction Services, Inc.

entered into separate PPP notes effective April 7, 2020, with United Bank, Inc.

as the lender (“Lender”) in an aggregate principal amount of $13,139,100 pursuant to the PPP (collectively, the “PPP Loan”).

On April 15, 2020, Energy Services and subsidiaries, C.J.

Hughes, Contractors Rental and Nitro entered into separate PPP notes effective April 7, 2020, with United Bank as the lender (“Lender”) in an aggregate principal amount of $13.1 million pursuant to the PPP (collectively, the “PPP Loan”).

In a special meeting held on April 27, 2020, the Board of Directors of the Company unanimously voted to return $3.3 million of the PPP Loan funds after discussing the financing needs of the Company and subsidiaries.

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During fiscal year 2021, the Company received notice that the SBA had granted forgiveness of the $9.8 million of PPP borrowings and the SBA repaid the lending institution in full.

The forgiveness was recorded as “other non-operating income” for the fiscal year ended September 30, 2021.

Borrowers must retain PPP documentation for at least 6 years after the date the loan is forgiven or paid in full, and the SBA and SBA Inspector General must be granted these files upon request.

The forgiveness was recorded as other income for the fiscal year ended September 30, 2021.

Borrowers must retain PPP documentation for at least six years after the date the loan is forgiven or paid in full, and the SBA and SBA Inspector General must be granted these files upon request.

The SBA could still revisit its forgiveness decision and determine that the Company does not qualify in whole or in part for loan forgiveness and demand repayment of the loans.

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Any penalties in addition to the potential repayment of the PPP Loan could negatively impact the Company’s business, financial condition and results of operations and prospects .

The Company has not received any notifications related to an audit;

however, the Company has provided additional payroll costs information for two companies as requested by the SBA through the Company’s lender.

The Company has received no other requests or questions.

Backlog/New Business

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We anticipate being able to obtain materials for current work, as well as any raw materials not supplied by our customers, for the foreseeable future.

However, the inability of our customers to obtain raw materials may delay projects

from being bid, awarded, started, or completed.

However, the inability of our customers to obtain raw materials may delay projects from being bid, awarded, started, or completed.

Although not a significant impact, the Company has experienced minor delays resulting from the availability of construction equipment and vehicles.

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Energy Services’ activities are subject to existing federal, state and local laws and regulations governing environmental quality, pollution control and the preservation of natural resources.

Such laws and regulations concern, among

other things, the containment, disposal and recycling of waste materials, and reporting of the storage, use or release of certain chemicals or hazardous substances.

Such laws and regulations concern, among other things, the containment, disposal and recycling of waste materials, and reporting of the storage, use or release of certain chemicals or hazardous substances.

Numerous federal and state environmental laws regulate drilling activities and impose liability for discharges of waste or spills, including those in coastal areas.

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It is not anticipated that Energy Services will be required to make material expenditures by reason of such health and safety laws and regulations.

Please see “COVID-19 Response” above to see the steps the Company has taken to ensure the health and safety of its workforce as it relates to the COVID-19 pandemic.

Research and Development/Intellectual Property

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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-K

Item 1. Business