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Item 1. Financial Statements

2023-05-31 compared with 2023-02-13 · 226 added, 102 removed, 371 unchanged (47% of the section changed)

33 unchanged sentences

Shareholders’ equity

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

Common stock, $ .0001 par value Authorized 50,000,000 shares, 17,885,615 issued and 16,635,004 outstanding at March 31, 2023 and 17,885,615 issued and 16,667,185 outstanding at September 30, 2022

Treasury stock, 1,250,611 shares at March 31, 2023 and 1,218,430 shares at September 30, 2022

Additional paid in capital

6 unchanged sentences

Energy Services of America Corporation

Consolidated Statements of Income

Consolidated Statements of Income (Loss)

Three Months Ended

Six Months Ended

Cost of revenues

Selling and administrative expenses

Income from operations

(Loss) income from operations

( 1,987,094 )

( 1,316,970 )

Other income (expense)

2 unchanged sentences

Interest expense

(Loss) gain on sale of equipment

Income before income taxes

( 1,073,974 )

Gain on sale of equipment

( 1,148,028 )

(Loss) income before income taxes

( 2,523,760 )

( 2,464,998 )

Income tax (benefit) expense

Net (loss) income

( 1,873,600 )

( 1,735,226 )

Weighted average shares outstanding-basic

Weighted average shares-diluted

Earnings per share-basic

Earnings per share-diluted

(Loss) earnings per share-basic

(Loss) earnings per share-diluted

The Accompanying Notes are an Integral Part of These Financial Statements

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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

Net (loss) income

( 1,735,226 )

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

Accreted interest on PPP loans

Depreciation expense

Loss (gain) on sale of equipment

Deferred income tax benefit

Gain on sale of equipment

Provision for deferred taxes

Amortization of intangible assets

Accreted interest on notes payable

Decrease (increase) in accounts receivable

( 4,265,751 )

Decrease in accounts receivable

Increase in retainage receivable

( 1,214,242 )

( 1,007,082 )

(Increase) decrease in other receivables

Decrease in contract assets

Decrease in prepaid expenses and other

(Decrease) increase in accounts payable

Decrease (increase) in prepaid expenses and other

( 1,731,735 )

Decrease in accounts payable

( 6,155,465 )

(Decrease) increase in accrued expenses and other current liabilities

5 unchanged sentences

( 5,774,905 )

( 2,084,200 )

Proceeds from sales of property and equipment

1 unchanged sentence

( 5,500,281 )

( 1,525,547 )

Cash flows from financing activities:

1 unchanged sentence

( 1,210,525 )

Dividends on common stock

Treasury stock purchased

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

( 1,618,718 )

( 2,803,888 )

Proceeds from long-term debt

2 unchanged sentences

( 2,024,150 )

Net cash provided by (used in) financing activities

Net cash used in financing activities

( 2,306,851 )

( 6,038,563 )

Increase in cash and cash equivalents

3 unchanged sentences

Purchases of property & equipment under financing agreements

Prepaid insurance premiums financed

Par value of common stock issued from preferred stock conversion

Operating lease right-of-use assets acquired in exchange for operating liabilities

Supplemental disclosures of cash flows information:

3 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended December 31, 2022 and 2021

For the three and six months ended March 31, 2023 and 2022

Additional Paid

Shareholders’

Balance at September 30, 2022

Balance at September 30, 2022, as restated

( 32,269,473 )

Balance at December 31, 2022

Net income, as restated

Balance at December 31, 2022, as restated

( 32,131,099 )

( 1,873,600 )

Dividends on common stock ($ 0.05 per share on 16,667,185 shares)

Treasury stock purchased by company

Balance at March 31, 2023

( 34,838,059 )

Additional Paid

Shareholders’

Balance at September 30, 2021

Balance at September 30, 2021, as restated

( 36,019,788 )

Net income, as restated

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

2 unchanged sentences

Preferred share conversion

Balance at December 31, 2021

Balance at December 31, 2021, as restated

( 34,873,952 )

Net loss, as restated

Balance at March 31, 2022, as restated

( 35,484,353 )

The Accompanying Notes are an Integral Part of These Financial Statements

23 unchanged sentences

(“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.

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

SQP Construction Group, Inc.

2 unchanged sentences

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.

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

Tri-State Paving & Sealcoating, Inc.

1 unchanged sentence

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.

The employees of TSP are non-union and are managed independently of 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” or “RCS”), a wholly owned subsidiary of Energy Services, formed in August 2022 in connection with the acquisition of substantially all the assets of Ryan Environmental, LLC and Ryan Environmental Transport, LLC (collectively “Ryan Environmental”), 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 employees of RCS are non-union and are managed independently of the Company’s union subsidiaries.

Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto for the years ended September 30, 2022, and 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 22, 2022.

1 to the Company’s Annual Report on Form 10-K/A filed with the SEC on May 31, 2023.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

1 unchanged sentence

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 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.

The operating results for the three and six months ended March 31, 2023 and 2022 are not necessarily indicative of the results to be expected for the full year or any other interim period.

Principles of Consolidation

9 unchanged sentences

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 significant accounting policies during the three months ended December 31, 2022.

Please refer to Note 2 “ Summary of Significant Accounting Policies ” of the Consolidated Financial Statements in the Company’s Amendment No.

1 to the Company’s Annual Report on Form 10-K/A for the year ended September 30, 2022 for a more detailed discussion of our significant accounting policies.

There were no material changes to these significant accounting policies during the three and six months ended March 31, 2023.

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

On May 12, 2023, the audit committee of the Board of Directors of Energy Services, after considering the recommendation of management, concluded:

that (a) the Company’s previously issued audited consolidated financial statements for the fiscal years ended September 30, 2022 and 2021 included in the Company’s annual reports on Form 10-K for the fiscal years ended September 30, 2022 and 2021, and (b) the Company’s unaudited consolidated financial statements for the periods ended June 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022 and December 31, 2022 as reported in the Company’s quarterly reports on Form 10-Q for those periods (together, the “Reports”) should no longer be relied upon and have been restated.

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, the Company and its 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 Loans”).

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 Loans 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.

During fiscal year 2021, the Company received notice that the Small Business Administration (the “SBA”) had granted forgiveness of the $ 9.8 million of PPP Loans and the SBA repaid the Lender in full.

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

During April 2023, management received notification from the SBA that one of the Company’s forgiveness applications related to the PPP Loans was under review.

As part of the review, the SBA requested additional payroll information.

Additionally, the SBA requested information regarding the ability of the Company’s affiliates to meet SBA size standards and/or PPP corporate maximum limits.

The requested information was subsequently provided to the SBA through the Lender.

The Company recognizes that there is a possibility that the SBA could reverse its previous determination on the forgiveness of the PPP Loans.

As a result of this uncertainty, the Company restated the previously issued financial statements of the Company that were included in the Reports.

The Company has recorded a short-term borrowing due to the SBA inquiry for the full $ 9.8 million, plus accrued interest for all periods presented.

Tables for the income statement impact “As previously reported” and “restated” for Payroll Protection Program loan forgiveness and interest expense for the three and six months ended March 31, 2022 are below:

Three Months Ended March 31, 2022

Six Months Ended March 31, 2022

Interest expense

A table for the balance sheet impact “As previously reported” and “restated” for Payroll Protection Program loan forgiveness and interest expense at September 30, 2022 is below:

September 30, 2022

Lines of credit and short-term borrowings

Shareholders' equity

( 10,084,531 )

REVENUE RECOGNITION

30 unchanged sentences

Our contract liabilities consist of provisions for losses and billings in excess of costs and estimated earnings.

Provisions for losses, if incurred, are recognized in the consolidated statements of income at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.

Provisions for losses, if incurred, are recognized in the consolidated statements of income (loss) at the uncompleted performance obligation level for total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.

Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition.

5 unchanged sentences

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

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

Three Months Ended December 31, 2022

The following tables present our disaggregated revenue for the three and six months ended March 31, 2023 and 2022:

Three Months Ended March 31, 2023

Gas & Petroleum

8 unchanged sentences

Total revenue from contracts

Three Months Ended December 31, 2021

Three Months Ended March 31, 2022

Gas & Petroleum

8 unchanged sentences

Total revenue from contracts

Six Months Ended March 31, 2023

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

Six Months Ended March 31, 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

CONTRACT BALANCES

5 unchanged sentences

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

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.

During the six months ended March 31, 2023, we recognized revenue of $ 5.7 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

March 31, 2023

September 30, 2022

7 unchanged sentences

PERFORMANCE OBLIGATIONS

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.

For the three and six months ended March 31, 2023, 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.

At March 31, 2023, the Company had $ 161.1 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 December 31, 2022, and September 30, 2022, are summarized as follows:

December 31, 2022

Costs, estimated earnings, and billings on uncompleted contracts as of March 31, 2023 and September 30, 2022, are summarized as follows:

March 31, 2023

September 30, 2022

4 unchanged sentences

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

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

Backlog at March 31, 2023 and September 30, 2022, was $ 224.6 million and $ 142.3 million, respectively.

FAIR VALUE MEASUREMENTS

12 unchanged sentences

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 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 months ended December 31, 2022 and 2021 are summarized below.

The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $ 25.8 million at March 31, 2023 was $ 24.4 million.

The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $ 25.1 million, as restated, at September 30, 2022 was $ 24.3 million, as restated.

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

(LOSS) EARNINGS PER SHARE

The amounts used to compute the (loss) earnings per share for the three and six months ended March 31, 2023 and 2022 are summarized below.

Three Months Ended

Six Months Ended

Net (loss) income, as restated

( 1,873,600 )

( 1,735,226 )

Weighted average shares outstanding-basic

Weighted average shares-diluted

Earnings per share-basic

Earnings per share-diluted

(Loss) earnings per share-basic

(Loss) earnings per share-diluted

The components of income taxes are as follows:

Three Months Ended

December 31, 2022

December 31, 2021

March 31, 2023

March 31, 2022

Total income tax benefit

Six Months Ended

March 31, 2023

March 31, 2022

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.

The effective income tax rate for the three and six months ended March 31, 2023 was ( 25.8 %) and ( 29.6 %), as restated, respectively, as compared to ( 24.7 %), as restated, and 35.4 %, as restated, for the same periods in fiscal year 2022.

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.

11 unchanged sentences

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.

At March 31, 2023, 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.

5 unchanged sentences

SHORT-TERM AND LONG-TERM DEBT

Short-term debt consists of the following:

Operating Line of Credit

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 %.

The interest rate at December 31, 2022, was 7.75 %.

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

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

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.

On January 19, 2023, the Company received an amendment to the agreement which increased the line of credit to $ 30.0 million, limited to a borrowing base calculation, which was approximately $ 12.75 million at March 31, 2023.

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:

The interest rate at March 31, 2023 was 8.0 %.

The modified financial covenants for the quarter ended March 31, 2023, and all subsequent quarters, are below:

● Minimum tangible net worth of $ 28.0 million,

2 unchanged sentences

● 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.

● Each ratio and covenant shall be determined, tested, and measured as of each calendar quarter beginning March 31, 2023,

● The Company 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 the Company, other than subordinated debt.

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

The Company was in compliance with all covenants at March 31, 2023 and the Company projects to meet all covenant requirements for the next twelve months.

Insurance Premiums Financed

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

1 unchanged sentence

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:

At March 31, 2023 and September 30, 2022, the remaining balance of the insurance premiums was $ 2.5 million and $ 580,000 , respectively.

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 PPP.

On April 15, 2020, the Company and its subsidiaries, C.J.

Hughes, Contractors Rental and Nitro, entered into separate PPP notes effective April 7, 2020, with its Lender in an aggregate principal amount of $ 13.1 million pursuant to the PPP Loans.

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

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