What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-02-13 compared with 2022-08-15 · 176 added, 287 removed, 297 unchanged (61% of the section changed)

7 unchanged sentences

Allowance for doubtful accounts

Retainage receivable

Retainages receivable

Other receivables

6 unchanged sentences

( 41,074,646 )

Total fixed assets

Total property and equipment, net

Right-of-use assets-operating lease

4 unchanged sentences

Lines of credit and short-term borrowings

Current maturities of operating lease liabilities

Accounts payable

1 unchanged sentence

Contract liabilities

Income tax payable

Total current liabilities

Long-term debt, less current maturities

Long-term operating lease liabilities, less current maturities

Deferred tax liability

1 unchanged sentence

Shareholders’ equity

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

Common stock, $ .0001 par value Authorized 50,000,000 shares, 17,885,615 issued and 16,667,185 outstanding at December 31, 2022 and September 30, 2022

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

Additional paid in capital

9 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of revenues

Selling and administrative expenses

Income (loss) from operations

( 3,205,414 )

Income from operations

Other income (expense)

Interest income

Paycheck Protection Program loan forgiveness

Other nonoperating expense

Interest expense

Gain on sale of equipment

(Loss) gain on sale of equipment

Income before income taxes

Income tax (benefit) expense

Dividends on preferred stock

Net income available to common shareholders

Weighted average shares outstanding-basic

Weighted average shares outstanding-diluted

Earnings per share available to common shareholders

Earnings per share-diluted available to common shareholders

Weighted average shares-diluted

Earnings per share-basic

Earnings per share-diluted

The Accompanying Notes are an Integral Part of These Financial Statements

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

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

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense

Paycheck Protection Program loan forgiveness

( 9,799,100 )

Gain on sale of equipment

Provision for deferred taxes

Loss (gain) on sale of equipment

Deferred income tax benefit

Amortization of intangible assets

Amortization of right-of-use assets

Accreted interest on note payable

(Increase) decrease in contracts receivable

( 3,086,194 )

(Increase) decrease in retainage receivable

( 2,221,588 )

Decrease (increase) in other receivables

( 1,103,499 )

Increase in contract assets

( 3,206,678 )

Decrease (increase) in prepaid expenses and other

Increse (decrease) in accounts payable

( 2,107,138 )

Increase (decrease) in accrued expenses and other current liabilities

Accreted interest on notes payable

Decrease (increase) in accounts receivable

( 4,265,751 )

Increase (decrease) in contract liabilities

Increase in retainage receivable

(Increase) decrease in other receivables

Decrease in contract assets

Decrease in prepaid expenses and other

(Decrease) increase in accounts payable

( 5,330,386 )

Increase in income taxes payable

Net cash provided by (used in) operating activities

(Decrease) increase in accrued expenses and other current liabilities

( 2,451,871 )

Increase in contract liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of Revolt Energy

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

( 3,250,000 )

Investment in property and equipment

( 2,348,901 )

( 7,385,469 )

Proceeds from sales of property and equipment

1 unchanged sentence

( 2,256,086 )

( 10,092,178 )

Cash flows from financing activities:

1 unchanged sentence

( 1,262,750 )

Preferred dividends paid

Borrowings on lines of credit and short-term debt, net of (repayments)

( 4,884,880 )

Proceeds from long-term debt

Principal payments on long-term debt

1 unchanged sentence

( 1,215,390 )

Net cash (used in) provided by financing activities

( 9,437,620 )

Decrease in cash and cash equivalents

( 2,831,342 )

Net cash provided by (used in) financing activities

( 3,018,390 )

Increase in cash and cash equivalents

Cash and cash equivalents beginning of period

2 unchanged sentences

Purchases of property & equipment under financing agreements

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

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

Par value of common stock issued from preferred stock conversion

Supplemental disclosures of cash flows information:

3 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

For the nine months ended June 30, 2022 and 2021

For the three months ended December 31, 2022 and 2021

Additional Paid

2 unchanged sentences

( 22,184,942 )

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

( 1,210,525 )

Preferred share conversion

Balance at December 31, 2022

( 22,021,424 )

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

2 unchanged sentences

( 26,035,015 )

Accrued preferred dividends

Preferred share conversion

Balance at December 31, 2020

( 35,572,944 )

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

( 1,210,525 )

Accrued preferred dividends

Preferred share conversion

Balance at March 31, 2021

( 36,961,665 )

Accrued preferred dividends

Balance at June 30, 2021

Balance at December 31, 2021

( 24,864,035 )

3 unchanged sentences

BUSINESS AND ORGANIZATION

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.

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.

Energy Services is involved in the construction of both interstate and intrastate pipelines, with an emphasis on the latter.

For the oil industry, the Company provides a variety of services relating to pipeline, storage facilities and plant work.

For the power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, packaged buildings, transformers, and other ancillary work with regards thereto.

Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.

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

Hughes Construction Company, Inc.

5 unchanged sentences

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

Revolt Energy, LLC and Nitro Electric Company, LLC are newly formed, wholly owned subsidiaries of Nitro.

Pinnacle Technical Solutions, Inc.

3 unchanged sentences

West Virginia Pipeline, Inc.

(“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” 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.

5 unchanged sentences

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.

(“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.

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 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.

The operating results for the three months ended December 31, 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, TSP, and C.J.

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

The consolidated financial statements of Energy Services include the accounts of Energy Services, its wholly owned subsidiaries West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving and C.J.

Hughes and its subsidiaries.

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, TSP, and C.J.

Unless the context requires otherwise, references to Energy Services include Energy Services, West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving 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, 2022, for a more detailed discussion of our significant accounting policies.

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

There were no material changes to these significant accounting policies during the three months ended December 31, 2022.

REVENUE RECOGNITION

38 unchanged sentences

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

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

Mechanical, and

Total revenue

from contracts

Lump sum contracts

Unit price contracts

Cost plus and T&M contracts

Total revenue from contracts

Earned over time

Earned at point in time

Total revenue from contracts

Three Months Ended June 30, 2021

Gas & Petroleum

Mechanical, and

Total revenue

from contracts

Lump sum contracts

Unit price contracts

Cost plus and T&M contracts

Total revenue from contracts

Earned over time

Earned at point in time

Total revenue from contracts

Nine Months Ended June 30, 2022

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

Three Months Ended December 31, 2022

Gas & Petroleum

Mechanical, and

Total revenue

7 unchanged sentences

Total revenue from contracts

Nine Months Ended June 30, 2021

Three Months Ended December 31, 2021

Gas & Petroleum

Mechanical, and

Total revenue

8 unchanged sentences

CONTRACT BALANCES

The Company’s accounts receivable consists of amounts that have been billed to customers.

Collateral is generally not required.

The Company’s contracts have billing terms including daily, weekly, monthly, and at project completion depending on the customer and contract agreement.

The Company’s accounts receivable consists of amounts that have been billed to customers and collateral is generally not required.

Most of the Company’s contracts have monthly billing terms;

however, billing terms for some are based on project completion.

Payment terms are generally within 30 to 45 days after invoices have been issued.

The Company attempts to negotiate two-week billing terms and 15-day payment terms on larger projects.

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

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:

June 30, 2022

During the three months ended December 31, 2022, we recognized revenue of $ 4.5 million that was included in the contract liability balance at September 30, 2022.

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

December 31, 2022

September 30, 2022

Accounts receivable-trade, net of allowance for doubtful accounts

( 3,153,393 )

Contract assets

Cost and estimated earnings in excess of billings

( 1,711,912 )

Contract liabilities

1 unchanged sentence

PERFORMANCE OBLIGATIONS

Generally, our contracts contain one performance obligation that is satisfied over time because our performance typically creates or enhances an asset that the customer controls as the asset is created or enhanced.

We recognize revenue as performance obligations are satisfied and control of the promised good and service is transferred to the customer.

Revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost-to-cost”) method.

Under the cost-to-cost method, costs incurred to-date are generally the best depiction of transfer of control.

All contract costs, including those associated with affirmative claims, change orders and back charges, are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined.

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 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 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.

For the three months ended December 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, 2022.

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

At December 31, 2022, the Company had $ 155.9 million in remaining unsatisfied performance obligations, in which revenue is expected to be recognized over the next twelve months.

UNCOMPLETED CONTRACTS

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

June 30, 2022

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

December 31, 2022

September 30, 2022

4 unchanged sentences

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

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

Backlog at December 31, 2022, and September 30, 2022, was $ 206.9 million and $ 142.3 million, respectively.

FAIR VALUE MEASUREMENTS

The fair value measurement guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.

The fair value measurement guidance of the Financial Accounting Standards Board (“FASB”) ASC defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and specifies disclosures about fair value measurements.

Under the FASB’s authoritative guidance on fair value measurements, fair value is 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.

3 unchanged sentences

Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.

Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.

Level 3 — Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation;

1 unchanged sentence

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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 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 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 borrowings.

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 currently available to the Company for bank loans with similar terms and maturities.

The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $ 16.0 million at December 31, 2022 was $ 15.0 million.

The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $ 15.0 million at September 30, 2022 was $ 14.5 million.

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

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

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.

The amounts used to compute the earnings per share for the three months ended December 31, 2022 and 2021 are summarized below.

Three Months Ended

Nine Months Ended

Dividends on preferred stock

Income available to common shareholders

Weighted average shares outstanding

Weighted average shares outstanding-diluted

Earnings per share available to common shareholders

Earnings per share available to common shareholders-diluted

Weighted average shares outstanding-basic

Weighted average shares-diluted

Earnings per share-basic

Earnings per share-diluted

The components of income taxes are as follows:

Three Months Ended

June 30, 2022

June 30, 2021

Total income tax expense (benefit)

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.

December 31, 2022

December 31, 2021

Total income tax (benefit) expense

The effective income tax rate for the three months ended December 31, 2022, was ( 94.9 )%, as compared to 29.7 % 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.

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.

Major items that can affect the effective tax rate include amortization of goodwill and non-deductible amounts for per diem expenses.

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

7 unchanged sentences

Total net deferred tax liabilities

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future.

A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

At December 31, 2022, the Company expects all net operating loss carryforwards to be realized in the near future.

The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition.

The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in general and administrative expenses.

The Company and all subsidiaries file a consolidated federal and various state income tax returns on a fiscal year basis.

1 unchanged sentence

federal, state, or local income tax examinations for years ended prior to September 30, 2018.

The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition.

The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in selling and administrative expenses.

SHORT-TERM AND LONG-TERM DEBT

Short-term debt consists of the following:

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.

On July 13, 2022, the Company received a one-year extension on its $ 15.0 million operating line of credit effective June 28, 2022.

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 $ 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.

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 December 31, 2022, was 7.75 %.

The interest rate at September 30, 2022, was 5.5 %.

Major items excluded from the borrowing base calculation are receivables from bonded jobs and retainage as well as all items greater than ninety (90) days old.

Line of credit borrowings are collateralized by the Company’s accounts receivable.

Cash available under the line is calculated based on 70.0 % of the Company’s eligible accounts receivable.

Under the terms of the agreement, the Company must meet the following loan covenants to access the first $ 12.5 million:

Minimum tangible net worth of $ 21.5 million to be measured quarterly,

Minimum traditional debt service coverage of 1.25x to be measured quarterly on a rolling twelve- month basis,

Minimum current ratio of 1.50x to be measured quarterly,

Maximum debt to tangible net worth ratio (“TNW”) of 1.5x to be measured semi-annually,

Full review of accounts receivable aging report and work in progress.

The results of the review shall be satisfactory to the lender in its sole and unfettered discretion.

Under the terms of the agreement, the Company must meet the following additional requirements for draw requests causing the borrowings to exceed $ 12.5 million:

Minimum traditional debt service coverage of 2.0x to be measured quarterly on a rolling twelve-month basis,

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

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 line of credit has a $ 12.5 million component and a $ 2.5 million component with additional borrowing requirements.

Based on the borrowing base calculation, the Company borrowed all $ 12.5 million available on the line of credit as of December 31, 2022 and September 30, 2022.

The Company did not meet the requirements to borrow any from the $ 2.5 million component.

On January 19, 2023, the Company received an amendment to the agreement which increased the line of credit to $ 30.0 million.

The maturity date remains June 28, 2023, with a variable interest rate equal to the “Wall Street Journal” Prime Rate with a floor of 4.5 %.

The modified financial covenants for the quarter ended December 31, 2022, and all subsequent quarters, are below:

● Minimum tangible net worth of $ 28.0 million,

● Minimum traditional debt service coverage of 1.50x on a rolling twelve- month basis,

● Minimum current ratio of 1.20x ,

● Maximum debt to tangible net worth ratio (“TNW”) of 2.75x ,

● Each ratio and covenant shall be determined, tested, and measured as of each calendar quarter beginning December 31, 2022,

● Borrower shall maintain a ratio of Maximum Senior Funded Debt ("SFD") to Earnings before Interest, Taxes, Depreciation and Amortization ("EBDITA") equal to or less than 3.5 :1.

SFD shall mean any funded debt or lease of Borrower, other

than subordinated debt.

The covenant shall be tested quarterly, as of the end of each fiscal quarter, with EBITDA based on the preceding four quarters.

The Company was in compliance with all covenants at December 31, 2022, and the Company projects to meet all covenant requirements for the next twelve months.

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

These insurance policies include workers’ compensation, general liability, automobile, umbrella, and equipment policies.

The Company makes a down payment in January and finances the remaining premium amount over ten monthly payments.

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

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:

The Company makes a down payment in January and finances the remaining premium amount over eleven monthly payments.

At December 31, 2022 and September 30, 2022, respectively, the remaining balance of the insurance premiums was $ 0 and $ 580,000 .

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

September 30,

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 $ 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.

Line of credit payable to bank, monthly interest at 7.75 % , final payment due by June 28, 2023, guaranteed by certain directors of the Company.

Term note payable to United Bank, WV Pipeline acquisition, due in monthly installments of $ 64,853 fixed 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 $ 32,000 at December 31, 2022 and $ 60,000 at September 30, 2022, including interest ranging from 0.00 % to 6.03 % , final payments due January 2023 through August 2026, secured by equipment.

Note payable to finance company for insurance premiums financed, due in monthly installments totaling $ 282,000 in FY 2022 and $ 272,000 in FY 2021, including interest rate at 3.50 % , final payment due November 2022.

Notes payable to bank, due in monthly installments totaling $ 7,848 , including interest at 4.82 % , final payment due November 2034 secured by building and property.

Notes payable to bank, due in monthly installments totaling $ 12,464 , including interest at 8.75 % , 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 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

Notes payable to bank, interest at 4.25 % of outstanding balance due monthly between August 2021 and January 2022.

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

Notes payable to bank, due in monthly installments totaling $ 59,932 , including fixed interest at 6.0 % , final payment due October 2027 secured by receivables and equipment, guaranteed by certain directors of the Company.

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

Notes payable to bank, due in monthly installments totaling $ 68,073 , including interest at 8.75 % , beginning February 2022 with final payment due September 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 , fixed 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, due in annual installments totaling $ 250,000 , including fixed interest at 3.50 % , final payment due April 29, 2026, unsecured.

Less current maturities

Total long-term debt

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 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

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 company that comply with U.S.

GOODWILL AND INTANGIBLE ASSETS

The Company follows the guidance of ASC 350-20-35-3 Intangibles-Goodwill and Other (Topic 350) which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value.

The Company follows the guidance of ASC Topic 350, Intangibles-Goodwill and Other , which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value.

Under the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0).

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 June 30, 2022 or September 30, 2021.

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

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

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 June 30, 2022, and September 30, 2021 is below:

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

Amortization and

2 unchanged sentences

Amortization and

Impairment Nine

Impairment Three

Impairment at

2 unchanged sentences

Original Cost

June 30, 2022

December 31, 2022

September 30, 2022

June 30, 2022

December 31, 2022

West Virginia Pipeline:

5 unchanged sentences

Total intangible assets

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.

The amortization on identifiable intangible assets for the three months ended December 31, 2022 and 2021 was $133,000 and $119,000 , respectively.

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

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.

Amortization Expense

January 2023 to December 2023

January 2024 to December 2024

January 2025 to December 2025

January 2026 to December 2026

January 2027 to December 2027

LEASE OBLIGATIONS

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

The lease, signed on March 25, 2021, is for a period of two years with five one-year renewals available immediately following the end of the base term.

Rental terms for the option periods shall be negotiated and agreed mutually between the parties and shall not exceed five percent increases to rent, if any.

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

The Company has two lease agreements for construction equipment with a combined amount of $ 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 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

The related 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.

The Company has two right-of-use operating leases acquired on April 29, 2022, as part of the Tri-State Paving, LLC transaction.

The first operating lease, for the Hurricane, WV facility, had a net present value of $ 236,000 at April 29, 2022, and a carrying value of $ 186,000 at December 31, 2022.

The second operating lease, for the Chattanooga, Tennessee facility, had a net present value of $ 144,000 at April 29, 2022, and a carrying value of $ 103,000 at December 31, 2022.

The 4.5 % interest rate on the operating leases is based on the Company’s incremental borrowing rate at inception.

The Company has a right-of-use operating lease with Enterprise Fleet Management, Inc.

acquired on August 11, 2022, as part of the Ryan Environmental acquisition.

This lease agreement was initially for 31 vehicles to be used for Ryan Construction;

however, the Company plans to add vehicles as it finds necessary.

This lease had a net present value of $ 1.2 million at inception, and carrying value of $ 1.1 million at December 31, 2022.

The 4.5 % interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022, as part of the Ryan Environmental acquisition.

This lease, for the Bridgeport, WV facility, had a net present value of $ 140,000 at inception and a carrying value of $ 83,000 at December 31, 2022.

The 4.5 % interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

Schedules related to the Company’s operating leases at December 31, 2022 can be found below:

Remaining liability

December 31, 2022

September 30, 2022

Fiscal year end

1 unchanged sentence

Operating lease 2

Operating lease 3

Operating lease 4

Weighted average remaining term

Operating Lease Maturity Schedule

July 2022-June 2023

July 2023-June 2024

July 2024-June 2025

January 2023-December 2023

January 2024-December 2024

January 2025-December 2025

January 2026-December 2026

Less amounts representing interest

Present value of operating lease liabilities

Three months ended

December 31, 2022

Operating Lease Expense

Three and nine

June 30, 2022

June 30, 2021

Operating lease 1

Operating lease 2

Operating lease 3

Operating lease 4

Total amortization

1 unchanged sentence

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 3

Operating lease 4

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.

Total interest

Total amortization and interest

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 $ 1.7 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

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 Paycheck Protection Program 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”).

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.

That left the Company and subsidiaries with $ 9.8 million in PPP Loans to fund operations.

In fiscal year 2021, the Company received notice that the SBA had granted forgiveness and repaid $ 9.8 million of the PPP borrowings to the Lender.

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 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.

In addition, it is unknown what type of penalties could be assessed against the Company if the SBA disagrees with the Company’s certification.

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

Rental expense can vary by reporting period 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 $ 2.7 million and $ 1.9 million, respectively, for the three months ended December 31, 2022 and 2021.

SUBSEQUENT EVENTS

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.

On January 18, 2023, the Company’s Board of Directors approved a special cash dividend of $ 0.05 per common share payable on February 15, 2023 to shareholders of record as of January 31, 2023.

On January 19, 2023, the Company received an amendment to increase its line of credit from $ 15.0 million to $ 30.0 million.

The maturity date remains June 28, 2023, with a variable interest rate equal to the “Wall Street Journal” Prime Rate with a floor of 4.5 %.

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