What changed in this filing

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Item 1A. Risk Factors

2022-12-22 compared with 2021-12-29 · 50 added, 9 removed, 123 unchanged (32% of the section changed)

19 unchanged sentences

● Changes in bonding requirements of agreements;

● Supply chain constraints;

● Interest rate variations;

● Changes in accounting and financial reporting standards.

Future acquisitions could disrupt the Company’s business and adversely affect our results of operations, financial condition and cash flows.

In fiscal 2022, the Company completed the acquisitions of Tri-State Paving and Ryan Construction.

The Company may choose to expand by making additional acquisitions that could be material to its business, results of operations, financial condition and cash flows.

Acquisitions involve many risks, including the following:

● an acquisition may negatively affect the Company’s results of operations, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;

● the Company may encounter difficulties or unforeseen expenditures in integrating the operations of any company that it acquires, particularly if key personnel of the acquired company decide not to work for us;

● an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;

● an acquisition may involve the entry into geographic or business markets in which the Company has little or no prior experience or where competitors have stronger market positions;

● if the Company incurs debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants;

● to the extent that the Company issues a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

The occurrence of any of these risks could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

Risk Related to our Business

6 unchanged sentences

These actions could be taken on short notice.

does not require bonding or if we are unable to provide other means of securing the jobs performance such as with letters of credit or cash.

Since a growing number of our customers require such bonding, should our surety providers limit or eliminate our access to bonding, our performance could be negatively impacted if we are unable to replace the bonded business with work that does not require bonding or if we are unable to provide other means of securing the jobs performance such as with letters of credit or cash.

Many of our contracts can be cancelled or delayed or may not be renewed upon completion.

23 unchanged sentences

Such attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information, damages to systems, or other material disruptions to network access or business operations.

Although we take protective measures and believe that we have not experienced any of the data breaches described above, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security.

Because the techniques used to cause security breaches change frequently, we may be unable to proactively address these techniques or to implement adequate preventative measures.

The Company uses industry-leading firewall hardware and runs anti-malware, antivirus, and anti-exploit solutions on all computers as a first line of defense to prevent security breaches.

1 unchanged sentence

The Company uses compartmentalized network drive access to mitigate ransomware damage and performs daily encrypted backups to secure offsite locations including a disaster recovery site.

Because the techniques used to cause security breaches change frequently, we may be unable to proactively address these techniques or to implement adequate preventative measures.

Inflation can have an adverse impact on our business and on our customers.

Inflation risk is the risk that the value of assets or income will be worth less in the future as inflation decreases the value of money.

Recently, there have been market indicators of a pronounced rise in inflation and the Federal Reserve has raised certain benchmark interest rates in an effort to combat inflation.

Inflation generally increases the cost of goods and services we will use in our business operations, such as electricity and other utilities, which increases our expenses.

In addition, we may have to increase both wages to retain our employees and the cost of our services by a greater amount than we have budgeted.

Furthermore, our customers will also be affected by inflation and the rising costs of goods and services used in their businesses, which could have a negative impact on their ability to use our services and afford to pay our fees.

Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.

Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.

Consumers and businesses also may change their behavior on their own as a result of these concerns.

We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns.

We and our customers may face cost increases, asset value reductions and operating process changes.

The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities.

Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors.

Our efforts to take these risks into account may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Risk Related to the COVID-19 Pandemic

9 unchanged sentences

The Company believes it meets the SBA’s certification requirement based on its limited access to capital, weakened business operations during the pandemic and small market value.

The Company’s shares of common stock do not trade on a national exchange.

The Company’s shares of common stock did not trade on a national exchange at the time we applied for PPP loans and at the time such loans were forgiven by the SBA.

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.

However, no assurance can be given as to the outcome if the SBA re-evaluates the Company’s loan certification.

27 unchanged sentences

Energy Services maintains a banking relationship with two regional banks and has lines of credit and borrowing facilities with these institutions.

On August 3, 2021, the Company renewed its $15.0 million Operating Line of Credit (2020) with United Bank, WV.

On July 13, 2022, the Company renewed its $15.0 million operating line of credit with United Bank.

Based on the borrowing base calculation, the Company could borrow up to $12.5 million as of September 30, 2022.

The Company had borrowed $4.5 million on the line of credit, leaving $7.7 million available on the line of credit.

The Company believes this line of credit will provide enough operating capital for future projects, but the Company cannot guarantee it will always have access to this line of credit in the future depending on the Company’s financial performance.

The Company had borrowed $12.5 million on the line of credit as of September 30, 2022, leaving no borrowings available on the line of credit as of that date.

The Company believes this line of credit will provide enough operating capital for future projects, but the Company and its lenders are working on a financing package that could expand the current operating line.

The Company cannot guarantee it will always have access to this line of credit in the future depending on the Company’s financial performance.

Risk Related to our Financial Performance

14 unchanged sentences

While we are constantly monitoring our health and safety programs, our industry involves a high degree of operating risk and there can be no assurance given that we will avoid significant liability exposure and/or be precluded from working for various customers due to high incident rates.

While the Company encourages employees to receive COVID-19 vaccinations, enforcement of OSHA’s COVID-19 Vaccination and Testing Emergency Temporary Standard could result in lost productivity and additional expense for the Company.

Changes by the government in laws regulating the industries we serve could reduce our sales volumes.

5 unchanged sentences

However, if we should inadvertently cause contamination of waters or soils, liabilities for our Company relating to cleanup and remediation could be substantial and could exceed any insurance coverage we might have and result in a negative impact to the Company’s ability to operate.

Risks Relating to Ownership of Our Common Stock

Our common stock is not heavily traded, and the stock price may fluctuate significantly.

Our common stock is traded on the NASDAQ Capital Market under the symbol “ESOA.” Certain brokers currently make a market in the common stock, but such transactions are infrequent, and the volume of shares traded is relatively small.

Management cannot predict whether these or other brokers will continue to make a market in our common stock.

Prices on stock that is not heavily traded, such as our common stock, can be more volatile than heavily traded stock.

Factors such as our financial results, the introduction of new products and services by us or our competitors, publicity regarding our industry, and various other factors may have a significant impact on the market price of the shares of the common stock.

Management also cannot predict the extent to which an active public market for our common stock will develop or be sustained in the future.

Accordingly, stockholders may not be able to sell their shares of our common stock at the volumes, prices, or times that they desire.

Our directors beneficially own a significant portion of our common stock and have substantial influence over us.

Our directors, as a group, beneficially owned approximately 36.1% of our outstanding shares of common stock as of September 30, 2022.

As a result of this level of ownership, our directors have the ability, by taking coordinated action, to exercise significant influence over our affairs and policies.

The interests of our directors may not be consistent with your interests as a stockholder.

This influence may also have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our Company.

Unresolved Staff Comments

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 1A. Risk Factors