What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-31 compared with 2023-02-13 · 252 added, 183 removed, 358 unchanged (55% of the section changed)

5 unchanged sentences

Hughes’ wholly owned subsidiaries on a consolidated basis.

The accompanying information gives effect to certain adjustments made to the previously reported financial statements for the three and six months ended March 31, 2022, and as of September 30, 2022.

Refer to Note 3, “Restatement of Previously Issued Financial Statements” in the accompanying consolidated financial statements for further details related to the restatement and impact on our financial statements.

Forward Looking Statements

43 unchanged sentences

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.

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

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.

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.

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

5 unchanged sentences

The third and fourth calendar year quarters usually are less impacted by weather and usually have the largest number of projects underway.

Many projects are

completed in the fourth calendar year quarter and revenues are often impacted by customers seeking to either spend their capital budget for the year or scale back projects due to capital budget overruns.

Many projects are completed in the fourth calendar year quarter and revenues are often impacted by customers seeking to either spend their capital budget for the year or scale back projects due to capital budget overruns.

In addition to the fluctuations discussed above, the pipeline industry can be highly cyclical, reflecting variances in capital expenditures in proportion to energy price fluctuations.

As a result, our volume of business may be adversely affected by where our customers are in the cycle and thereby their financial condition as to their capital needs and access to capital to finance those needs.

Three Months Ended December 31, 2022, and 2021 Overview

The following is an overview of results from operations for the three months ended December 31, 2022, and 2021:

Three and Six Months Ended March 31, 2023 and 2022 Overview

The following is an overview of results from operations for the three and six months ended March 31, 2023 and 2022:

Three Months Ended

Six Months Ended

Cost of revenues

Selling and administrative expenses

Income from operations

(Loss) income from operations

Other income (expense)

2 unchanged sentences

Interest expense

(Loss) gain on sale of equipment

Income before income taxes

Gain on sale of equipment

(Loss) income before income taxes

Income tax (benefit) expense

Net (loss) income

Weighted average shares outstanding-basic

Weighted average shares-diluted

Earnings per share-basic

Earnings per share-diluted

Results of Operations for the Three Months Ended December 31, 2022, Compared to the Three Months Ended December 31, 2021

A table comparing the Company’s revenues for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, is below:

Three Months Ended

(Loss) earnings per share-basic

(Loss) earnings per share-diluted

Results of Operations for the Three and Six Months Ended March 31, 2023 Compared to the Three and Six Months Ended March 31, 2022

A table comparing the Company’s revenues for the three and six months ended March 31, 2023 compared to the three and six months ended March 31, 2022, is below:

Three Months Ended

December 31, 2022

December 31, 2021

March 31, 2023

March 31, 2022

Gas & Water Distribution

1 unchanged sentence

Electrical, Mechanical, and General

Total revenues increased by $17.4 million to $60.0 million for the three months ended December 31, 2022, as compared to $42.7 million for the three months ended December 31, 2021.

The increase was a result of increased work in all categories of business.

Gas & Water Distribution revenues totaled $12.5 million for the three months ended December 31, 2022, a $526,000 increase from $12.0 million for the three months ended December 31, 2021.

Six Months Ended

March 31, 2023

March 31, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Total revenues increased by $18.3 million to $53.7 million for the three months ended March 31, 2023, as compared to $35.4 million for the three months ended March 31, 2022.

The increases were a result of increased work in all categories of business except for transmission projects, which are starting later compared to 2022.

Total revenues increased by $35.7 million to $113.7 million for the six months ended March 31, 2023, as compared to $78.1 million for the six months ended March 31, 2022.

The increases were a result of increased work in all categories of business.

Gas & Water Distribution revenues totaled $13.4 million for the three months ended March 31, 2023, a $2.8 million increase from $10.7 million for the three months ended March 31, 2022.

Gas & Water Distribution revenues totaled $25.9 million for the six months ended March 31, 2023 a $3.3 million increase from $22.6 million for the six months ended March 31, 2022.

The revenue increase was primarily related to paving services performed on water projects, partially offset by reduced customer spending on certain blanket contracts.

Gas & Petroleum Transmission revenues totaled $16.8 million for the three months ended December 31, 2022, a $5.6 million increase from $11.2 million for the three months ended December 31, 2021.

Gas & Petroleum Transmission revenues totaled $5.3 million for the three months ended March 31, 2023 a $3.2 million decrease from $8.5 million for the three months ended March 31, 2022.

The revenue decrease was primarily related to the Company’s transmission work starting later compared to 2022.

Gas & Petroleum Transmission revenues totaled $22.2 million for the six months ended March 31, 2023 a $2.5 million increase from $19.8 million for the six months ended March 31, 2022.

The revenue increase was primarily related to transmission work that was awarded during the fiscal year ended September 30, 2022 and completed during the first quarter of fiscal year 2023.

Electrical, Mechanical, & General construction services revenues totaled $30.7 million for the three months ended December 31, 2022, an $11.3 million increase from $19.5 million for the three months ended December 31, 2021.

The revenue increase was primarily related to an increase in mechanical and electrical services performed during the three months ended December 31, 2022, as compared to the same period in the prior year.

Electrical, Mechanical, & General construction services revenues totaled $34.9 million for the three months ended March 31, 2023, an $18.7 million increase from $16.2 million for the three months ended March 31, 2022.

Electrical, Mechanical, & General construction services revenues totaled $65.6 million for the six months ended March 31, 2023, a $29.9 million increase from $35.7 million for the six months ended March 31, 2022.

The revenue increases were primarily related to increased mechanical and electrical maintenance services performed during the three and six months ended March 31, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Cost of Revenues.

A table comparing the Company’s costs of revenues for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, is below:

Three Months Ended

A table comparing the Company’s costs of revenues for the three and six months ended March 31, 2023 compared to the three months ended March 31, 2022, is below:

Three Months Ended

December 31, 2022

December 31, 2021

March 31, 2023

March 31, 2022

Gas & Water Distribution

2 unchanged sentences

Unallocated Shop Expenses

Total cost of revenues increased by $16.7 million to $54.0 million for the three months ended December 31, 2022, as compared to $37.4 million for the three months ended December 31, 2021.

The cost of revenues increase was a result of increased work in all categories of business.

Gas & Water Distribution cost of revenues totaled $10.7 million for the three months ended December 31, 2022, a $1.3 million increase from $9.3 million for the three months ended December 31, 2021.

The cost of revenue increase was primarily related to paving services performed on water projects, partially offset by reduced customer spending on certain blanket contracts.

Gas & Petroleum Transmission cost of revenues totaled $14.0 million for the three months ended December 31, 2022, a $4.3 million increase from $9.7 million for the three months ended December 31, 2021.

The cost of revenue increase was primarily related to transmission work that was awarded during the fiscal year ended September 30, 2022 and completed during the first quarter of fiscal year 2023.

Electrical, Mechanical, & General construction services cost of revenues totaled $29.0 million for the three months ended December 31, 2022, a $10.9 million increase from $18.1 million for the three months ended December 31, 2021.

The cost of revenue increase was primarily related to an increase in mechanical and electrical services performed during the three months ended December 31, 2022, as compared to the same period in the prior year.

Unallocated shop expenses totaled $296,000 for the three months ended December 31, 2022, a $126,000 increase from $170,000 for the three months ended December 31, 2021.

The increase in unallocated shop expenses was due to decreased internal equipment charges to projects for the three months ended December 31, 2022, as compared to the same period in the prior year.

Six Months Ended

March 31, 2023

March 31, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Unallocated Shop Expenses

Total cost of revenues increased by $17.2 million to $49.8 million for the three months ended March 31, 2023, as compared to $32.5 million for the three months ended March 31, 2022.

Total cost of revenues increased by $34.0 million to $103.8 million for the six months ended March 31, 2023, as compared to $69.9 million for the six months ended March 31, 2022.

The cost of revenues increase was a result of increased work in all categories of business, except transmission for the three months ended March 31, 2022.

Gas & Water Distribution cost of revenues totaled $10.6 million for the three months ended March 31, 2023, a $1.4 million increase from $9.2 million for the three months ended March 31, 2022.

Gas & Water Distribution cost of revenues totaled $21.3 million for the six months ended March 31, 2023, a $2.7 million increase from $18.5 million for the six months ended March 31, 2022.

The cost of revenues increases were primarily related to paving services performed on water projects, partially offset by reduced customer spending on certain blanket contracts.

Gas & Petroleum Transmission cost of revenues totaled $5.8 million for the three months ended March 31, 2023, a $1.8 million decrease from $7.6 million for the three months ended March 31, 2022.

The cost of revenues decrease was primarily related to the Company’s transmission work starting later compared to 2022.

Gas & Petroleum Transmission cost of revenues totaled $19.8 million for the six months ended March 31, 2023, a $2.5 million increase from $17.3 million for the six months ended March 31, 2022.

The cost of revenues increases were primarily related to transmission work that was awarded during the fiscal year ended September 30, 2022 and completed during the first quarter of fiscal year 2023.

Electrical, Mechanical, & General construction services cost revenues totaled $32.5 million for the three months ended March 31, 2023, a $17.2 million increase from $15.3 million for the three months ended March 31, 2022.

Electrical, Mechanical, & General construction services cost revenues totaled $61.5 million for the six months ended March 31, 2023, a $28.1 million increase from $33.4 million for the six months ended March 31, 2022.

The cost of revenues increases was primarily related to increased mechanical and electrical maintenance services performed during the three and six months ended March 31, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Unallocated shop expenses totaled $935,000 for the three months ended March 31, 2023, a $507,000 increase from $427,000 for the three months ended March 31, 2022.

Unallocated shop expenses totaled $1.2 million for the six months ended March 31, 2023, a $634,000 increase from $597,000 for the six months ended March 31, 2022.

The increases in unallocated shop expenses were due to decreased internal equipment charges to projects for the three and six months ended March 31, 2023, as compared to the same period in the prior year.

Gross Profit.

A table comparing the Company's gross profit for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, is below:

Three Months Ended

A table comparing the Company’s gross profit for the three and six months ended March 31, 2023 compared to the three and six months ended March 31, 2022, is below:

Three Months Ended

December 31, 2022

December 31, 2021

March 31, 2023

March 31, 2022

Gas & Water Distribution

2 unchanged sentences

Unallocated Shop Expenses

Gross profit percentage

Total gross profit increased by $678,000 to $6.0 million for the three months ended December 31, 2022, as compared to $5.3 million for the three months ended December 31, 2021.

Gas & Water Distribution gross profit totaled $1.8 million for the three months ended December 31, 2022, a $807,000 decrease from $2.6 million for the three months ended December 31, 2021.

The gross profit decrease was primarily related to less profitable water projects performed during the three months ended December 31, 2022 as compared to the same period in the prior year.

Gas & Petroleum Transmission gross profit totaled $2.8 million for the three months ended December 31, 2022, a $1.3 million increase from $1.5 million for the three months ended December 31, 2021.

The gross profit increase was primarily related to transmission work that was awarded during the fiscal year ended September 30, 2022 and completed during the first quarter of fiscal year 2023.

Electrical, Mechanical, & General construction services gross profit totaled $1.7 million for the three months ended December 31, 2022, a $301,000 increase from $1.4 million for the three months ended December 31, 2021.

The increase was primarily related to an increase in gross profit generated by mechanical and electrical services performed during the three months ended December 31, 2022, as compared to the same period in the prior year.

Six Months Ended

March 31, 2023

March 31, 2022

Gas & Water Distribution

Gas & Petroleum Transmission

Electrical, Mechanical, and General

Unallocated Shop Expenses

Total gross profit increased by $1.0 million to $3.9 million for the three months ended March 31, 2023, as compared to $2.9 million for the three months ended March 31, 2022.

Total gross profit increased by $1.7 million to $9.9 million for the six months ended March 31, 2023, as compared to $8.2 million for the six months ended March 31, 2022.

Gas & Water Distribution gross profit totaled $2.8 million for the three months ended March 31, 2023, a $1.4 million increase from $1.5 million for the three months ended March 31, 2022.

Gas & Water Distribution gross profit totaled $4.7 million for the six months ended March 31, 2023, a $578,000 increase from $4.1 million for the six months ended March 31, 2022.

The gross profit increase was primarily related to paving services performed on water projects, partially offset by reduced customer spending on certain blanket contracts.

Gas & Petroleum Transmission gross loss totaled ($420,000) for the three months ended March 31, 2023, a $1.4 million decrease from $955,000 for the three months ended March 31, 2022.

Gas & Petroleum Transmission gross profit totaled $2.4 million for the six months ended March 31, 2023, a $66,000 decrease from $2.5 million for the six months ended March 31, 2022.

The gross profit decrease was primarily related to existing transmission work that was less profitable during the three and six months ended March 31, 2023, as compared to the same periods in 2022, and new transmission projects starting later in 2023 as compared to 2022.

Electrical, Mechanical, & General construction services gross profit totaled $2.4 million for the three months ended March 31, 2023, a $1.5 million increase from $883,000 for the three months ended March 31, 2022.

Electrical, Mechanical, & General construction services gross profit totaled $4.1 million for the six months ended March 31, 2023, a $1.8 million increase from $2.2 million for the six months ended March 31, 2022.

The gross profit increases were primarily related to increased mechanical and electrical maintenance services performed during the three and six months ended March 31, 2023, as compared to the same period in the prior year and an increase in new construction opportunities.

Selling and administrative expenses .

Total selling and administrative expenses increased by $1.7 million to $5.3 million for the three months ended December 31, 2022, as compared to $3.6 million for the same period in the prior year.

Selling and administrative expense for operations acquired after December 31, 2021 totaled $915,000 for the three months ended December 31, 2022.

The remaining increase primarily related to additional personnel hired to secure and manage work for expected growth in fiscal year 2023.

Total selling and administrative expenses increased by $2.5 million to $5.9 million for the three months ended March 31, 2023, as compared to $3.4 million for the same period in the prior year.

Total selling and administrative expenses increased by $4.2 million to $11.2 million for the six months ended March 31, 2023, as compared to $7.0 million for the same period in the prior year.

Selling and administrative expenses for operations acquired after March 31, 2022 totaled $1.0 million and $1.9 million for the three and six months ended March 31, 2023, respectively.

The remaining increase was primarily related to additional personnel hired to secure and manage work for expected growth in fiscal year 2023.

Other nonoperating (expense) income.

Other nonoperating expense totaled $81,000 for the three months ended December 31, 2022, a decrease of $72,000 from $153,000 for the same period in the prior year.

Other nonoperating expenses totaled $11,000 for the three months ended March 31, 2023, a decrease of $99,000 from $110,000 for the same period in the prior year.

Other nonoperating expense totaled $91,000 for the six months ended March 31, 2023, a decrease of $172,000 from $263,000 for the same period in the prior year.

Interest expense.

Interest expense totaled $474,000 for the three months ended December 31, 2022, an increase of $276,000 from $198,000 for the same period in the prior year.

The increase in interest expense was primarily due to the financing of the recent acquisitions, an increase in line of credit borrowings due to increased work, and an increase in interest rates.

(Loss) Gain on sale of equipment .

Loss on sale of equipment totaled ($31,000) for the three months ended December 31, 2022, a decrease of $371,000 from a gain on sale of equipment of $340,000 for the same period in the prior year.

The Company sold certain underutilized or non-working pieces of equipment at auction during the three months ended December 31, 2021, with no comparable sale occuring during the three months ended December 31, 2022.

Income before income taxes was $84,000 for the three months ended December 31, 2022, compared to $1.7 million for the same period in the prior year.

Interest expense totaled $575,000 for the three months ended March 31, 2023, an increase of $405,000 from $170,000, as restated, for the same period in the prior year.

Interest expense totaled $1,074,000 for the six months ended March 31, 2023, an increase of $682,000 from $392,000, as restated, for the same period in the prior year.

The increase in interest expense was primarily due to the financing of recent acquisitions, an increase in line of credit borrowings due to increased work, and an increase in interest rates.

Gain on sale of equipment.

Gain on sale of equipment totaled $48,000 for the three months ended March 31, 2023, an increase of $28,000 from $20,000 for the same period in the prior year.

Gain on sale of equipment totaled $17,000 for the six months ended March 31, 2023, a decrease of $343,000 from $360,000 for the same period in the prior year.

The Company sold certain underutilized or non-working pieces of equipment at auction during the six months ended March 31, 2022, with no comparable sale occurring during the three and six months ended March 31, 2023.

Net (loss) income.

Loss before income taxes was ($2.5) million for the three months ended March 31, 2023, compared to ($811,000) for the same period in the prior year.

Loss before income taxes was ($2.5) million for the six months ended March 31, 2023, compared to an income before tax of $829,000 for the same period in the prior year.

The decrease was primarily related to the items mentioned above.

Income tax benefit for the three months ended December 31, 2022, was $80,000 compared to income tax expense of $494,000 for the same period in the prior year.

The decrease in income tax expense was due to the decrease in taxable income for the three months ended December 31, 2022 as compared to the prior period.

Net income for the three months ended December 31, 2022, was $164,000, as compared to $1.2 million for the same period in the prior year.

Comparison of Financial Condition at December 31, 2022, and September 30, 2022

The Company had total assets of $107.9 million at December 31, 2022, a decrease of $4.7 million from the prior fiscal year end balance of $112.6 million.

Accounts receivable, net of allowance for doubtful accounts, totaled $35.3 million at December 31, 2022, a decrease of $3.2 million from the prior fiscal year end balance of $38.5 million.

Income tax benefit for the three months ended March 31, 2023, was ($650,000) compared to ($200,000) for the same period in the prior year.

Income tax benefit for the six months ended March 31, 2023, was ($730,000) compared to income tax expense of $294,000 for the same period in the prior year.

The changes in income tax expense (benefit) were due to the decreases in taxable income for the three and six months ended March 31, 2023 as compared to the prior period.

Net (loss) income for the three and six months ended March 31, 2023 was ($1.9) million and ($1.7) million, respectively, as compared to ($610,000) and $535,000 for the same periods in the prior year.

Comparison of Financial Condition at March 31, 2023 and September 30, 2022

The Company had total assets of $104.8 million at March 31, 2023, a decrease of $7.8 million from the prior fiscal year end balance of $112.6 million.

Accounts receivable, net of allowance for doubtful accounts, totaled $24.7 million at March 31, 2023, a decrease of $13.7 million from the prior fiscal year end balance of $38.5 million.

The decrease was primarily due to the timing of cash collections and project invoicing since September 30, 2022.

Contract assets totaled $14.4 million at December 31, 2022, a decrease of $1.7 million from the prior fiscal year end balance of $16.1 million.

The decrease was due to a difference in the timing of project billings at December 31, 2022, compared to September 30, 2022.

Prepaid expenses and other totaled $3.2 million at December 31, 2022, a decrease of $775,000 from the prior fiscal year end balance of $3.9 million.

The decrease was primarily due to expensing prepaid insurance during the three months ended December 31, 2022.

Intangible assets, net totaled $3.7 million at December 31, 2022, a decrease of $133,000 from the prior fiscal year end balance of $3.9 million.

The decrease was due to the amortization of intangible assets during the three months ended December 31, 2022.

Right-of-use assets totaled $1.5 million at December 31, 2022, a decrease of $133,000 from the prior fiscal year end balance of $1.6 million.

The decrease was primarily due to the amortization of operating leases during the three months ended December 31, 2022.

The Company had property, plant and equipment of $33.2 million at December 31, 2022, an increase of $551,000 from the prior fiscal year end balance of $32.7 million.

The increase was due to $2.3 million in asset additions, partially offset by $1.7 million in depreciation and net equipment disposals of $124,000.

Retainage receivable totaled $5.0 million at December 31, 2022, an increase of $546,000 from the prior fiscal year end balance of $4.4 million.

Contract assets totaled $11.5 million at March 31, 2023, a decrease of $4.7 million from the prior fiscal year end balance of $16.1 million.

The decrease was primarily due to a difference in the timing of project billings at March 31, 2023, compared to September 30, 2022.

Intangible assets, net totaled $3.6 million at March 31, 2023, a decrease of $265,000 from the prior fiscal year end balance of $3.9 million.

The decrease was due to the amortization of intangible assets during the three and six months ended March 31, 2023.

Cash and cash equivalents totaled $11.6 million at March 31, 2023, an increase of $4.2 million from the prior fiscal year end balance of $7.4 million.

The increase was primarily due to $3.1 million in proceeds from long-term debt and a net $11.8 million provided from operating activities, partially offset by a net $5.3 million investment in equipment, $4.5 million in net short-term and long-term debt repayments, $833,000 in dividend payments on common stock, and $72,000 paid for treasury stock.

The Company had property, plant and equipment of $35.1 million at March 31, 2023, an increase of $2.5 million from the prior fiscal year end balance of $32.7 million.

The increase was due to a $5.6 million cash investment in property, plant and equipment and a $599,000 addition of financed equipment, partially offset by $3.6 million in depreciation and net equipment disposals of $258,000.

Prepaid expenses and other totaled $6.0 million at March 31, 2023, an increase of $2.0 million from the prior fiscal year end balance of $3.9 million.

The increase was primarily due to financed insurance premiums, net of expense, during the six months ended March 31, 2023.

Retainage receivable totaled $5.7 million at March 31, 2023, an increase of $1.2 million from the prior fiscal year end balance of $4.4 million.

The increase was primarily due to more current year projects that require retainages to be withheld.

Cash and cash equivalents totaled $7.5 million at December 31, 2022, an increase of $103,000 from the prior fiscal year end balance of $7.4 million.

The increase was primarily due to $3.1 million in proceeds from long-term debt and a net $1.6 million provided from operating activities, partially offset by a net $2.3 million investment in equipment, and $2.3 million in net short-term and long-term debt repayments.

Goodwill totaled $4.1 million at December 31, 2022, and September 30, 2022.

The Company had total liabilities of $69.4 million at December 31, 2022, a decrease of $4.9 million from the prior fiscal year end balance of $74.3 million.

Accounts payable totaled $15.0 million at December 31, 2022, a decrease of $5.3 million from the prior fiscal year end balance of $20.3 million.

Right-of-use assets totaled $2.3 million at March 31, 2023, an increase of $649,000 from the prior fiscal year end balance of $1.6 million.

The increase was primarily due to $962,000 in operating lease additions, partially offset by $315,000 in amortization expense, during the six months ended March 31, 2023.

Other receivables totaled $320,000 at March 31, 2023, an increase of $309,000 from the prior end balance of $11,000.

The increase was primarily related to expected insurance premium refunds.

Goodwill totaled $4.1 million at March 31, 2023 and September 30, 2022.

The Company had total liabilities of $79.2 million at March 31, 2023, a decrease of $5.2 million from the prior fiscal year end balance of $84.4 million.

Accounts payable totaled $14.2 million at March 31, 2023, a decrease of $6.2 million from the prior fiscal year end balance of $20.3 million.

The decrease was due to the timing of accounts payable payments as compared to September 30, 2022.

Accrued expenses and other current liabilities totaled $8.8 million at December 31, 2022, a decrease of $2.5 million from the prior fiscal year end balance of $11.3 million.

Accrued expenses and other current liabilities totaled $8.3 million at March 31, 2023, a decrease of $3.0 million from the prior fiscal year end balance of $11.3 million.

The decrease was due to the timing of accrued expense payments, as compared to September 30, 2022.

Lines of credit and short-term borrowings totaled $12.5 million at December 31, 2022, a decrease of $580,000 from the prior fiscal year end balance of $13.1 million.

The decrease was due to the repayment of insurance premiums financed.

Current and long-term operating lease liabilities totaled $1.5 million at December 31, 2022, a decrease of $133,000 from the prior fiscal year end balance of $1.6 million.

The decrease was due to payments made during the three months ended December 31, 2022.

Deferred tax liabilities totaled $4.0 million at December 31, 2022, a decrease of $422,000 from the prior fiscal year end balance of $4.5 million.

The decrease was primarily related to the reduction of the net operating loss carry forward during the three months ended December 31, 2022.

Long-term debt totaled $19.0 million at December 31, 2022, an increase of $1.5 million from the prior fiscal year end balance of $17.6 million.

Deferred tax liabilities totaled $3.7 million at March 31, 2023, a decrease of $730,000 from the prior fiscal year end balance of $4.5 million.

The decrease was primarily related to an increase in the net operating loss carry forward other tax assets during the six months ended March 31, 2023.

Lines of credit and short-term borrowings totaled $25.4 million at March 31, 2023, an increase of $2.2 million from the prior fiscal year end balance of $23.2 million.

The increase was primarily due to the financed insurance premiums, net of repayments.

Contract liabilities totaled $7.0 million at March 31, 2023, an increase of $1.0 million from the prior fiscal year end balance of $6.0 million.

The increase was due to a difference in the timing of project billings at March 31, 2023, as compared to September 30, 2022.

Long-term debt totaled $18.4 million at March 31, 2023, an increase of $837,000 from the prior fiscal year end balance of $17.6 million, as restated.

The increase in long-term debt was primarily due to $3.7 million in new debt agreements, partially offset by $2.9 million in debt repayments.

The new long-term debt primarily related to the financing of the equipment obtained in the Ryan Construction acquisition, which was a cash transaction at the time of the acquisition.

Contract liabilities totaled $8.6 million at December 31, 2022, an increase of $2.6 million from the prior fiscal year end balance of $6.0 million.

The increase was due to a difference in the timing of project billings at December 31, 2022, as compared to September 30, 2022.

Shareholders’ equity was $38.5 million at December 31, 2022, an increase of $164,000 from the prior fiscal year end balance of $38.3 million.

The increase was due to net income of $164,000 for the three months ended December 31, 2022.

The new long-term debt was primarily related to the financing of the equipment obtained in the Ryan Construction acquisition, which was a cash transaction at the time of the acquisition.

Current and long-term operating lease liabilities totaled $2.2 million at March 31, 2023, an increase of $646,000 from the prior fiscal year end balance of $1.6 million.

The increase was due to operating lease additions of $962,000, partially offset by $357,000 in operating lease payments for the six months ended March 31, 2023.

Shareholders’ equity was $25.6 million at March 31, 2023, a decrease of $2.6 million from the prior fiscal year end balance of $28.2 million.

The decrease was due to net loss of ($1.7) million for the six months ended March 31, 2023, common dividend payments of $833,000, and treasury stock repurchases of $72,000.

Liquidity and Capital Resources

Operating Line of Credit and Short-Term Borrowings

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 7.5%.

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,

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● 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 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.

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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.

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

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 the Lender, in an aggregate principal amount of $13.1 million pursuant to 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 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, 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, and the related reports of its independent registered public accounting firm, Baker Tilly, 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 should no longer be relied upon and have been restated.

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.

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 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 repayment of the PPP Loans could negatively impact the Company’s business, financial condition and results of operations and prospects.

Long-Term Debt

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

As of December 31, 2022, the Company had made principal payments of $346,000.

As of March 31, 2023, the Company had made principal payments of $359,000.

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

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On November 13, 2015, the Company entered into a 10-year $1.1 million loan agreement with United Bank to purchase the fabrication shop and property Nitro had previously been leasing for $12,900 each month.

The variable interest rate on the loan agreement is 8.75% at December 31, 2022 with monthly payments of $12,464.

As of December 31, 2022, the Company had made principal payments of $746,000.

The variable interest rate on the loan agreement is 9.0% at March 31, 2023 with monthly payments of $12,464.

As of March 31, 2023, the Company had made principal payments of $765,000.

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

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The unsecured five-year term note requires annual payments of at least $500,000 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 December 31, 2022, the Company had made annual installment payments of $1,250,000, interest payments of $172,000 and expensed $38,000 in accreted interest.

As of March 31, 2023, the Company had made annual installment payments of $1,250,000, interest payments of $186,000 and expensed $45,000 in accreted interest.

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

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

As of December 31, 2022, the Company borrowed $3.0 million against this line of credit with monthly payments of $68,150 that started in February 2022.

The interest rate at December 31, 2022 was 8.75%.

The Company has made principal payments of $609,000 on this note as of December 31, 2022.

As of March 31, 2023, the Company borrowed $3.0 million against this line of credit with monthly payments of $68,150 that started in February 2022.

The interest rate at March 31, 2023 was 9.0%.

The Company has made principal payments of $763,000 on this note as of March 31, 2023.

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

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

As of December 31, 2022, the Company had made principal payments of $1.1 million.

As of March 31, 2023, the Company had made principal payments of $1.3 million.

On April 29, 2022, the Company entered into a $7.5 million Non-Revolving Note agreement with United Bank.

This five-year agreement was used to finance the purchase of Tri-State Paving and has monthly payments of $129,910 with a fixed interest rate of 4.25%.

The Company has made principal payments of $834,000 on this note as of December 31, 2022.

The Company has made principal payments of $1.2 million on this note as of March 31, 2023.

On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises, a related party, as partial consideration for the purchase of Tri-State Paving.

This four-year agreement requires $250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning April 29, 2022.

Interest payments due shall be calculated on the principal balance remaining and shall be at the stated rate of 3.5% per year.

The Company had made principal payments of $250,000 on this note as of March 31, 2023.

On October 10, 2022, the Company entered into a $3.1 million promissory note agreement with United Bank.

2 unchanged sentences

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

As of December 31, 2022, the Company had made principal payments of $89,000.

On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises, a related party, as partial consideration for the purchase of Tri-State Paving.

This four-year agreement requires $250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning April 29, 2022.

Interest payments due shall be calculated on the principal balance remaining and shall be at the stated rate of 3.5% per year.

The Company recorded $11,000 in accreted interest and has not made any principal payments on this note as of December 31, 2022.

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.

Operating Leases

As of March 31, 2023, the Company had made principal payments of $224,000.

Lease Obligations

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

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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 first operating lease, for the Hurricane, West Virginia facility, had a net present value of $236,000 at inception, and a carrying value of $167,000 at March 31, 2023.

The second operating lease, for the Chattanooga, Tennessee facility, had a net present value of $144,000 at inception, and a carrying value of $88,000 at March 31, 2023.

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

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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;

This lease agreement was initially for 31 vehicles to be used by 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.

This lease had a net present value of $1.2 million at inception, and carrying value of $1.7 million at March 31, 2023.

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.

This lease, for the Bridgeport, West Virginia facility, had a net present value of $140,000 at inception and a carrying value of $63,000 at March 31, 2023.

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 acquired on March 28, 2023.

This lease, for the Winchester, Kentucky facility, had a net present value of $290,000 at inception and a carrying value of $273,000 at March 31, 2023.

The 7.75% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

Off-Balance Sheet Arrangements

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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 for the three months ended December 31, 2022, and 2021, respectively.

Rental expense, which is included in cost of goods sold on the consolidated statements of income (loss), was $1.5 million and $1.6 million, and $4.2 million and $3.5 million for the three and six months ended March 31, 2023 and 2022, respectively.

Letters of Credit

Certain customers or vendors may require letters of credit to secure payments that the vendors are making on our behalf or to secure payments to subcontractors and vendors on various customer projects.

At December 31, 2022, the Company did not have any letters of credit outstanding.

At March 31, 2023, the Company did not have any letters of credit outstanding.

Performance Bonds

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Depending upon the size and conditions of a particular contract, the Company may be required to post letters of credit or other collateral in favor of the insurer.

Posting of these letters or other collateral will reduce our borrowing capabilities.

Posting these letters or other collateral will reduce our borrowing capabilities.

The Company does not anticipate any claims in the foreseeable future.

At December 31, 2022, the Company had $79.0 million in performance bonds outstanding.

At March 31, 2023, the Company had $97.6 million in performance bonds outstanding.

Concentration of Credit Risk

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Under certain circumstances such as foreclosure, the Company may take title to the underlying assets in lieu of cash in settlement of receivables.

Please see the tables below for customers that represent 10.0% or more of the Company’s revenue or accounts receivable, net of retention for the three months ended December 31, 2022, and 2021:

Please see the tables below for customers that represent 10.0% or more of the Company’s revenue for the three and six months ended March 31, 2023 and 2022:

Three Months Ended

December 31, 2022

December 31, 2021

March 31, 2023

March 31, 2022

TransCanada Corporation

* Less than 10.0% and included in “All other” if applicable

Six Months Ended

March 31, 2023

March 31, 2022

TransCanada Corporation

* Less than 10.0% and included in “All other” if applicable

Please see the tables below for customers that represent 10.0% or more of the Company’s accounts receivable, net of retention at March 31, 2023 and September 30, 2022:

Accounts receivable, net of retention

December 31, 2022

December 31, 2021

WV American Water

Kentucky American Water

March 31, 2023

September 30, 2022

* Less than 10.0% and included in “All other” if applicable

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On November 21, 2022, a Judgment Order was issued, and the Company was awarded $13.1 million, of which $5.8 million was the jury award, $1.6 million was for attorney’s fees, and $5.7 million was for penalties and interest.

The amounts awarded by the Judgment Order have not been recognized in the Company’s consolidated financial statements as of December 31, 2022.

The amounts awarded by the Judgment Order have not been recognized in the Company’s consolidated financial statements as of March 31, 2023.

The Company’s attorney’s fees have been expensed as incurred.

On December 16, 2022, the Defendant filed a notice of appeal with the court.

The case has been appealed to the United States Court of Appeals for the Third Circuit and is expected to be heard in the next 10 to 12 months.

On November 12, 2021, the Company received a withdrawal liability claim from a pension plan to which the Company made pension contributions for union construction employees performing covered work in a particular jurisdiction.

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The Company is in negotiations with the pension fund to resolve the matter and all future payments have been suspended as part of the negotiation.

The Company has expensed all $164,000 in payments made through December 31, 2022 and does not expect any future liabilities related to this claim.

Other than described above, at December 31, 2022, the Company was not involved in any legal proceedings other than in the ordinary course of business.

The Company has expensed all $164,000 in payments made through March 31, 2023 and does not expect any future liabilities related to this claim.

Other than described above, at March 31, 2023, the Company was not involved in any legal proceedings other than in the ordinary course of business.

The Company is a party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.

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With respect to all such lawsuits, claims, and proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

At December 31, 2022, the Company does not believe that any of these proceedings, separately or in aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.

At March 31, 2023, the Company does not believe that any of these proceedings, separately or in aggregate, would be expected to have a material adverse effect on our financial position, results of operations or cash flows.

Related Party Transactions

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

As of December 31, 2022, the Company had paid approximately $346,000 in principal and approximately $404,000 in interest since the beginning of the loan.

As of March 31, 2023, the Company had paid approximately $359,000 in principal and approximately $414,000 in interest since the beginning of the loan.

Douglas Reynolds, President of Energy Services, was a director and secretary of First Bank of Charleston.

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Subsequent to the April 29, 2022 acquisition of Tri-State Paving, the Company entered into an operating lease for facilities in Hurricane, West Virginia with Corns Enterprises.

This thirty-six-month lease is treated as a right to use asset and has payments of $7,000 per month.

The total net present value at inception was $236,000 with a carrying value of $186,000 at December 31, 2022.

This thirty-six-month lease is treated as a right-of-use asset and has payments of $7,000 per month.

The total net present value was $236,000 at inception, and had a carrying value of $167,000 at March 31, 2023.

SQP made an equity investment of $156,000 in 1030 Quarrier Development, LLC (“Development”) in August 2022.

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United Bank provided $5.0 million in loans to fund the Project.

SQP and Ventures has jointly provided an unconditional guarantee for the $5.0 million of obligations associated with the Project.

Other than mentioned above, there were no new material related party transactions entered into during the three months December 31, 2022.

SQP and Ventures have jointly provided an unconditional guarantee for the $5.0 million of obligations associated with the Project.

As of March 31, 2023, there is no significant impact on our consolidated financial statements in connection with this investment by SQP.

Other than mentioned above, there were no new material related party transactions entered into during the three months March 31, 2023.

Certain Energy Services subsidiaries routinely engage in transactions in the normal course of business with each other, including sharing employee benefit plan coverage, payment for insurance and other expenses on behalf of other affiliates, and other services incidental to business of each of the affiliates.

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Significant inflation or supply chain issues could cause customers to delay or cancel planned projects;

however, inflation did not have a significant effect on our results for the three months ended December 31, 2022 and 2021.

however, inflation did not have a significant effect on our results for the three months ended March 31, 2023 and 2022.

Critical Accounting Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period.

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

Provisions for losses 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 are recognized in the consolidated statements of income (loss) 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.

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.

Generally, unearned project-related costs will be earned over the next twelve months.

The following table presents our costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings at December 31, 2022 and September 30, 2022:

December 31, 2022

The following table presents our costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings at March 31, 2023 and September 30, 2022:

March 31, 2023

September 30, 2022

10 unchanged sentences

Additionally, frequently changing reserves could be an indication of risky or unreliable customers.

At December 31, 2022, the management review deemed that the allowance for doubtful accounts was adequate.

At March 31, 2023, the management review deemed that the allowance for doubtful accounts was adequate.

Please see the allowance for doubtful accounts table below:

December 31, 2022

March 31, 2023

September 30, 2022

Balance at beginning of year

Beginning balance

Charged to expense

Deductions for uncollectible receivables written off, net of recoveries

Balance at end of year

Ending Balance

Impairment of goodwill and intangible assets

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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.

The Company did not have a goodwill impairment at March 31, 2023 or September 30, 2022.

Materially incorrect estimates could cause an impairment to goodwill or intangible assets and result in a loss in profitability for the Company.

1 unchanged sentence

Amortization and

Impairment Nine

Impairment Six

Remaining Life at

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Original Cost

December 31, 2022

March 31, 2023

September 30, 2022

December 31, 2022

March 31, 2023

West Virginia Pipeline:

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The definite-lived identifiable intangible assets recognized as part of the Company’s business combinations are recorded at their estimated fair value.

The Company’s depreciation expense for the three months ended December 31, 2022 and 2021 was $1.8 million and $1.3 million, respectively.

In general, depreciation is included in “cost of revenues” on the Company’s consolidated statements of income.

The Company’s intangible amortization expense for the three months ended December 31, 2022 and 2021 was $133,000 and $119,000, respectively.

In general, amortization is included in “selling and administrative expenses” on the Company’s consolidated statements of income.

The Company’s depreciation expense for the six months ended March 31, 2023 and 2022 was $3.6 million and $2.6 million, respectively.

In general, depreciation is included in “cost of revenues” on the Company’s consolidated statements of income (loss).

The Company’s intangible amortization expense for the six months ended March 31, 2023 and 2022 was $265,000 and $196,000, respectively.

In general, amortization is included in “selling and administrative expenses” on the Company’s consolidated statements of income (loss).

Materially incorrect estimates of depreciation and amortization and/or the useful lives of assets could significantly impact the value of long-lived assets on the Company’s consolidated financial statements.

A material over valuation could result in impairment charges and reduced profitability for the Company.

The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid.

Significant judgments and estimates are required in the determination of the consolidated income tax expense.

A material overvaluation could result in impairment charges and reduced profitability for the Company.

The Company’s income tax expense (benefit) and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid.

Significant judgments and estimates are required in the determination of the consolidated income tax expense (benefit).

The Company’s provision for income taxes is computed by applying a federal rate of 21.0% and a state rate of 6.0% to taxable income or loss after consideration of non-taxable and non-deductible items.

Permanent income tax differences result in an increase or decrease to taxable income and impact the Company’s effective tax rates, which were (94.9%) and 29.7% for the three months ended December 31, 2022 and 2021, respectively.

Permanent income tax differences result in an increase or decrease in taxable income and impact the Company’s effective tax rates, which were (26.0%) and (25.5%), as restated, for the three months ended March 31, 2023, and 2022, respectively.

The effective income tax rate for the six months ended March 31, 2023 was (30.2%), as restated, as compared to 33.4%, as restated, for the same period in the prior year.

Our tax rate is affected by recurring items, such as non-deductible expenses, which we expect to be fairly consistent in the near term.

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.

At December 31, 2022, the Company had a net deferred income tax liability of $4.0 million as compared to $4.5 million at September 30, 2022.

The Company’s deferred income tax liabilities at December 31, 2022 totaled $7.7 million and primarily related to depreciation on property and equipment.

The Company’s deferred income tax assets at December 31, 2022, totaled $3.7 million and primarily related to a NOL carryforward.

At March 31, 2023, the Company had a net deferred income tax liability of $3.8 million as compared to $4.5 million at September 30, 2022.

The Company’s deferred income tax liabilities at March 31, 2023 totaled $7.5 million and primarily related to depreciation on property and equipment.

The Company’s deferred income tax assets at March 31, 2023, totaled $3.8 million and primarily related to a NOL carryforward.

The Company believes that it is more likely than not that all NOL carryforwards will be realized.

Accounting for PPP loans

The Company’s accounting for PPP loans reflects management’s best estimate of current and future amounts to be paid.

The Company applies significant judgment regarding the determination of PPP loan forgiveness based on the rules established, and subsequently clarified by the SBA, including rules related to the Company’s affiliations and meeting SBA size standards.

Refer to Note 3 “Restatement of Previously Issued Financial Statements” in the accompanying consolidated financial statements for additional details.

New Accounting Pronouncements

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Subsequent Events

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.

3 unchanged sentences

The Company is seeing a significant increase in bid opportunities for natural gas transmission and distribution projects along with electrical, mechanical, and general construction projects.

The Company’s backlog at December 31, 2022, was $206.9 million, as compared to $101.6 million and $142.3 million at December 31, 2021, and September 30, 2022, respectively.

The Company’s backlog at March 31, 2023 was $224.6 million, as compared to $120.3 million and $142.3 million at December 31, 2022, and September 30, 2022, respectively.

While adding additional projects appears likely, no assurances can be given that the Company will be successful in bidding on projects that become available.

3 unchanged sentences

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 2. Management’s Discussion and Analysis