Delaware | | Delaware | | | | 20-4606266 | | (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification Number) |
| | | 75 West 3rd Ave., Huntington, West Virginia | | | | 25701 | | (Address of Principal Executive Office) | | (Zip Code) |
| (304) 522-3868 | | (304) 522-3868 (Registrant’s Telephone Number including area code) |
Securities Registered Pursuant to Section 12(b) of the Act: | | | | | Title of Each Class | | | | Trading Symbol | | Name of Each Exchange
On Which Registered
| | Common Stock, par value $0.0001per share | None | ESOA | | None | The Nasdaq Stock Market, LLC |
Securities Registered Pursuant to Section 12(g) of the Act: | Common Stock, par value $0.0001 per share | | (Title of Class) |
None (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES¨☐NOx☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES¨☐NOx☒ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YESx☒NO¨☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YESx⌧NO¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x
◻ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer | ¨☐ | Accelerated filer | ¨☐ | Non-accelerated filer | ¨(Do not check if a smaller reporting company) | | | Non-accelerated filer | ☒ | Smaller reporting company | x☒ | | | | | | | Emerging growth company | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the ExchangeAct. ¨ Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ◻ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES¨☐NOx ☒ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the closing price on March 31, 20172022, was $ 14,848,780. 24,004,287. As of December 1, 2017,21, 2022, there were issued and outstanding 14,839,83617,885,615 and 14,239,836,16,667,185, respectively, shares of the Registrant’s Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The registrant incorporates by reference its definitive Proxy Statement with respect to its 2023 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into (Part III) of this Annual Report on Form 10-K. None
Energy Services of America Corporation Annual Report on Form 10-K For the Fiscal Year Ended September 30, 20172022 Table of Contents Forward Looking Statements Within Energy Services’ (as defined below) consolidated financial statements and this Annual Report on Form 10-K, there are included statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “project,” “forecast,” “may,” “will,” “should,” “could,” “expect,” “believe,” “intend” and other words of similar meaning. These forward-looking statements are not guarantees ofguaranteeing future performance and involve or rely on a number of risks, uncertainties, and assumptions that are difficult to predict or beyond Energy Services’ control. Energy Services has based its forward-looking statements on management’s beliefs and assumptions based on information available to management at the time the statements are made. Actual outcomes and results may differ materially from what is expressed, implied and forecasted by forward-looking statements and any or all of Energy Services’ forward-looking statements may turn out to be wrong. The accuracy of such statements can be affected by inaccurate assumptions and by known or unknown risks and uncertainties. All of the forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements or that are otherwise included in this report. In addition, Energy Services does not undertake and expressly disclaims any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or otherwise. PART I ITEM 1.Business Overview Energy Services of America Corporation (“Energy Services” or the “Company”) was, formed in 2006, as a special purpose acquisition corporation, or blank check company. On August 15, 2008, Energy Services completed the acquisitions of S.T. Pipeline, Inc. (“S.T. Pipeline”) and C.J. Hughes Construction Company, Inc. (“C.J. Hughes”). Wholly owned subsidiary C.J. Hughes is a general contractor primarily engaged in pipeline construction for utility companies. C.J. Hughesand service company that operates primarily in the mid-Atlantic regionand central regions of the United States. Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J. HughesStates and provides union building trade employees for projects managed by C.J. Hughes. Nitro Electric Company, Inc. (“Nitro Electric”), a wholly owned subsidiary of C. J. Hughes, is an electrical and mechanical contractor that provides its services to customers in the power,natural gas, petroleum, water distribution, automotive, chemical, and automotivepower industries. Nitro Electric operates primarily in the mid-Atlantic region of the United States. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of Nitro Electric, operates as a data storage facility within Nitro Electric’s office building. Pinnacle is supported by Nitro Electric and has no employees of its own. All of the C.J. Hughes, Nitro Electric, and Contractors Rental production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals. S.T. Pipeline engaged in the construction of natural gas pipelines for utility companies in various states, mostly in the mid-Atlantic area of the country. On May 14, 2013, the Company liquidated the operations of S.T. Pipeline and realized $1.9 million from the sale of assets. The financial position and results of operations of S.T. Pipeline have been presented as discontinued operations in the accompanying financial statements for all presented periods.
Energy Services is engaged in providing contracting services for energy related companies. Currently Energy Services primarily services the gas, petroleum, power, chemical and automotive industries, though it does some other incidental work such as water and sewer projects. For the gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. Energy Services is involved in the construction of both interstate and intrastate pipelines, with an emphasis on the latter. For the oil industry, the Company provides a variety of services relating to pipeline, storage facilities and plant work. For the power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, packaged buildings, transformers, and other ancillary work with regards thereto. Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction. The majority ofCompany has also added the Company’s customers are located in West Virginia, Virginia, Ohio, Pennsylvania,ability to install residential, commercial, and Kentucky. industrial solar systems and perform civil and general contracting services.
The Company builds, but does not own, natural gas pipelines for its customers that are part of both interstate and intrastate pipeline systems that move natural gas from producing regions to consumption regions as well as build and replace gas line services to individual customers of the various utility companies. Ourhad consolidated operating revenues of $197.6 million for the fiscal year ended September 30, 2017 were $140.5 million2022, of which 56.7%43.5% was attributable to electrical, mechanical, and general contract services, 29.5% to gas and petroleum transmission projects, and 27.0% to gas & petroleum contract work, 37.4% to electrical and mechanical contract services and 5.9% to water and sewer contract installations and other ancillarydistributions services. The Company had consolidated operating revenues of $155.5$122.5 million for the fiscal year ended September 30, 2016,2021, of which 53.2%48.9% was attributable to electrical, mechanical, and general contract services, 33.0% to gas & petroleum contract work, 37.8% to electrical and mechanical contractwater distributions services, and 9.0%18.1% to watergas and sewer contract installations and other ancillary services.petroleum transmission projects.
Energy Services’ customers include many of the leading companies in the industries it serves, including: EQTTransCanada Corporation
Rice Energy
Columbia Gas DistributionNiSource, Inc.
Marathon Petroleum Mountaineer Gas American Electric Power Toyota Motor Manufacturing Bayer Chemical Dow Chemical Kentucky American Water WV American Water Various state, county and municipal public service districts. The Company enters into various types of contracts, including competitive unit price, cost-plus (or time and materials basis) and fixed price (lump sum) contracts. The terms of the contracts will vary from job to job and customer to customer though most contracts are on the basis of either unit pricing, in which the Company agrees to do the work for a price per unit of work performed or for a fixed amount for the entire project. Mostmajority of the Company’s projectscustomers are completed within one year ofin West Virginia, Virginia, Ohio, Pennsylvania, and Kentucky. However, the start of the work. On occasion, the Company’s customers will require the posting of performance and/or payment bonds upon execution of the contract, depending upon the nature of theCompany also performs work performed. The Company generally recognizes revenue on unit pricein other states including Alabama, Michigan, Illinois, Tennessee, and cost-plus contracts when units are completed or services are performed. Fixed price contracts usually result in recording revenues as work on the contract progresses on a percentage of completion basis. Under this accounting method, revenue is recognized based on the percentage of total costs incurred to date in proportion to total estimated costs at completion. Many contracts also include retention provisions under which a percentage of the contract price is withheld until the project is complete and has been accepted by the customer.Indiana. Energy Services’ sales force consists of industry professionals with significant relevant sales experience, who utilize industry contacts and available public data to determine how to most appropriately market the Company’s line of products.products most appropriately. The Company relies on direct contact between its sales force and customers’ engineering and contracting departments in order to obtain new business. A substantial portion of the Company’s workforce are union members of various construction related trade unions and are subject to separately negotiated collective bargaining agreements that expire at varying time intervals. The Company believes its relationship with its unionized workforce is good. C.J. Hughes Construction Company, Inc. (“C.J. Hughes”), a wholly owned subsidiary of the Company, is a general contractor primarily engaged in pipeline construction for utility companies. Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J. Hughes, provides union building trade employees for projects managed by C.J. Hughes. Nitro Construction Services, Inc. (“Nitro”), a wholly owned subsidiary of C.J. Hughes, provides electrical, mechanical, HVAC/R, solar installation, and fire protection services to customers primarily in the automotive, chemical, and power industries. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of Nitro, operates as a data storage facility within Nitro’s office building. Pinnacle is supported by Nitro and has no employees of its own. All C.J. 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. West Virginia Pipeline, Inc. (“West Virginia Pipeline” or “WVP”), a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia. The employees of West Virginia Pipeline are non-union and are managed independently from the Company’s union subsidiaries. SQP Construction Group, Inc. (“SQP”), a wholly owned subsidiary of Energy Services, operates as a general contractor primarily in West Virginia. SQP engages in the construction and renovation of buildings and other civil construction projects for state and local government agencies and commercial customers. As a general contractor, SQP manages the overall construction project and subcontracts most of the work. The employees of SQP are non-union and are managed independently from the Company’s union subsidiaries. Tri-State Paving & Sealcoating, Inc. (“TSP” or “Tri-State Paving”), a wholly owned subsidiary of Energy Services, completed the acquisition of substantially all of the assets of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”) on April 29, 2022. Tri-State Paving provides utility paving services to water distribution customers in the Charleston, West Virginia, Lexington, Kentucky, and Chattanooga, Tennessee markets. The employees of TSP are non-union and are managed independently from the Company’s union subsidiaries. Ryan Construction Services Inc. (“Ryan Construction” or “RCS”), a wholly owned subsidiary of Energy Services, formed in August 2022 in connection with the acquisition of substantially all of the assets of Ryan Environmental, LLC and Ryan Environmental Transport, LLC, provides directional drilling services for broadband service providers along with offering natural gas distribution services, cathodic protection and corrosion prevention services, and civil construction services. Ryan Construction operates primarily in West Virginia and Pennsylvania. The employees of RCS are non-union and are managed independently from the Company’s union subsidiaries. The Company’s website address is www.energyservicesofamerica.com. Recent Events On October 6, 2021, the Company’s transfer agent completed the full redemption of all the Company’s 6.0% Convertible Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), which resulted in the issuance of 2,626,492 new shares of the Company’s common stock, the issuance of 317,500 common shares that were included in Series A Preferred Stock units, and cash redemption payments of $1.3 million. The Company’s total outstanding common shares after redemption was 16,247,898 as of October 6, 2021. On February 16, 2022, the stockholders of Energy Services approved the Company’s 2022 Equity Incentive Plan (the “Plan”), which provides for the grant of stock-based awards to officers and employees of the Company and its subsidiaries. The maximum number of shares of stock, in the aggregate, that may be granted under the Plan as stock options, restricted stock or restricted stock units is 1,500,000 shares. A description of the material terms of the Plan is contained in the Company’s definitive proxy statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on January 11, 2022. No grants of stock-based awards were made during the fiscal year ended September 30, 2022. On March 23, 2022, the Company’s common stock began trading on the Nasdaq Capital Market operated by The Nasdaq Stock Market, LLC under the symbol “ESOA”. Pursuant to the Asset Purchase Agreement signed on April 6, 2022, and amended on April 29, 2022, the Company acquired substantially all the assets (including but not limited to customer contracts, employees, and equipment) of Tri-State Paving, LLC for $7.5 million in cash, a $1.0 million promissory note, and $1.0 million in Energy Services common stock. The $7.5 million in cash was funded through a loan with United Bank, Inc., Huntington, West Virginia (“United Bank”). The transaction resulted in the issuance of 419,287 common shares, bringing the total outstanding common shares to 16,667,185 as of April 29, 2022. David E. Corns continued his role as President of the Company’s new subsidiary, Tri-State Paving, which earned revenues of $4.9 million for the fiscal year ended September 30, 2022. On July 6, 2022, the Company’s Board of Directors authorized a new share repurchase program (the “Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate repurchase amount not to exceed 1,000,000 shares, which was approximately 6.0% of its outstanding common stock as of the date of the announcement. The Program does not obligate the Company to purchase any number of shares, and there is no guarantee as to the exact number of shares to be repurchased by the Company. No repurchases were made in connection with the Program during the fiscal year ended September 30, 2022. On August 11, 2022, Ryan Construction Services Inc., a newly formed wholly owned subsidiary of Energy Services, completed the acquisition of Ryan Environmental, LLC (“Ryan Environmental”), located in Bridgeport, WV, pursuant to an order issued by the United States Bankruptcy Court for the Northern District of West Virginia (the “Court”) on August 9, 2022 and Ryan Environmental Transport, LLC (“Ryan Transport”), located in Bridgeport, West Virginia, under the terms of an Asset Purchase Agreement. As part of the business combination, the Company acquired certain assets, including equipment, vehicles, and small tools, of Ryan Environmental for $3.0 million in cash and certain assets, including equipment and small tools, of Ryan Transport for $1.0 million in cash. COVID-19 Response For the fiscal year ended September 30, 2022, the Company did not have significant issues with COVID-19 exposure among its employees and most of the Company’s existing customers had resumed projects that were affected by COVID-19 shutdowns in fiscal 2021. Seasonality: Fluctuation of Results Our revenues and results of operations can and usually are subject to seasonal variations. These variations are the result of weather, customer spending patterns, bidding seasons and holidays. The first quarter of the calendar year is typically the slowest in terms of revenues because inclement weather conditions causescause delays in production and customers usually do not plan large projects during that time. While usually better than the first quarter, the second calendar year quarter often has some inclement weather which can cause delays in production, reducing the revenues the Company receives and/or increasing the production costs. 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. 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. Accordingly, our operating results in any particular quarter or year may not be indicative of the results that can be expected for any other quarter or any other year. You should read“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Understanding Gross Margins” below for discussions of trends and challenges that may affect our financial condition and results of operations. Paycheck Protection Program Loans Forbearance AgreementDue to the economic uncertainties created by COVID-19 and Financing Arrangements
On November 28, 2012,limited operating funds available, the Company applied for loans under the Paycheck Protection Program (“PPP”). On April 15, 2020, Energy Services and subsidiaries, C.J. Hughes, Contractors Rental and Nitro entered into a Forbearance Agreementseparate PPP notes effective April 7, 2020, with United Bank Inc. (West Virginia), Summit Community Bank (West Virginia), and First Guaranty Bank (Louisiana) related to our revolving lineas the lender (“Lender”) in an aggregate principal amount of credit and term debt as reported in the Company’s November 29, 2012 Form 8-K filing. The Forbearance Agreement, among other things, required the Company to close S.T. Pipeline and dispose of its assets. The Company was also required to prepare recommendations relating$13.1 million pursuant to the on-going operationsPPP (collectively, the “PPP Loan”). In a special meeting held on April 27, 2020, the Board of Nitro Electric, C.J. Hughes, and Contractors Rental, including refinancing, sale or liquidation of the companies by May 31, 2013.
On January 31, 2014, the Company entered into a financing arrangement (“Term Note”) with United Bank, Inc. and Summit Community Bank. The financing arrangement is a five-year term loan in the amount of $8.8 million. In addition, the Company entered into a separate five-year term loan agreement with First Guaranty Bank for $1.6 million. Taken together, the $10.4 million in new financings superseded the prior financing arrangements the Company had with United Bank, Inc. and other lenders. As a result of entering into the new financings, United Bank, Inc. and the other lendersDirectors of the Company agreedunanimously voted to terminate their Forbearance Agreementreturn $3.3 million of the PPP Loan funds after discussing the financing needs of the Company and subsidiaries. That left the Company and subsidiaries with $9.8 million in PPP Loans to fund operations.
The Small Business Administration (“SBA”) has announced, in consultation with the Company. This was reportedDepartment of the Treasury, that it will review all loans in excess of $2 million, following the Company’s February 4, 2014 Form 8-K filing.lender’s submission of the borrower’s loan forgiveness application. The SBA will be reviewing a borrower’s required certification that current economic uncertainty at the time of the loan made the PPP Loan request necessary to support the ongoing operations of the applicant. Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. The SBA has noted it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to the SBA, upon request, the basis for its certification. On September 16, 2015,During fiscal year 2021, the Company entered into a $2.5received notice that the SBA had granted forgiveness of the $9.8 million Non-Revolving Note agreement with United Bank, Inc. This six-year agreement gaveof PPP borrowings and the Company access to a $2.5 million line of credit (“Equipment Line of Credit”), specificallySBA repaid the lending institution in full. The forgiveness was recorded as other income for the purchase of equipment, for the period of onefiscal year with an interest rate of 5.0%. After the first year, all borrowings against the Equipment Line of Credit were converted to a five-year term note agreement withan interest rate of 5.0%.As of September 30, 2017, the Company had borrowed $2.46 million against this line of credit and made principal payments of $444,000.
On March 21, 2017, the Company entered into a financing agreement (“Operating Line of Credit (2017)”) with United Bank, Inc. to provide the Company with a $15.0 million revolving line of credit. The interest rate on the line of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. The effective date of this agreement was February 27, 2017 and it replaced the $15.0 million revolving line of credit (“Operating Line of Credit (2016)”) entered into with United Bank, Inc. effective February 27, 2016. The Company had borrowed $6.0 million against the Operating Line of Credit (2016) as of September 30, 2016, and repaid $4.5 million for an outstanding balance of $1.5 million at December 31, 2016. The Company repaid the remaining $1.5 million on the Operating Line of Credit (2016) subsequent to December 31, 2016, and borrowed $9.1 million against the Operating Line of Credit (2017) as of September 30, 2017. Major items excluded from the borrowing base calculation are receivables from bonded jobs and retainage as well as all items greater than ninety (90) days old.
On June 28, 2017, the Company entered into a $5.0 million Non-Revolving Note agreement with United Bank, Inc. This five-year agreement gave the Company access to a $5.0 million line of credit (“Equipment Line of Credit 2017”), specifically for the purchase of equipment, for a period of three months with an interest rate of 4.99%. After three months, all borrowings against the Equipment Line of Credit 2017 were converted to a five-year term note agreement withan interest rate of 4.99%.As of September 30, 2017, the Company had borrowed $5.0 million against this line of credit and had made no principal payments.
Going Concern
Due to the improved financial position at September 30, 2014, the Company successfully resolved the factors that gave rise to Arnett Carbis Toothman’s decision to render its “Going Concern” opinion for the years ended September 30, 20132021.
Borrowers must retain PPP documentation for at least six years after the date the loan is forgiven or paid in full, and 2012. Key factors included: refinancing the bank debtSBA and terminationSBA Inspector General must be granted these files upon request. The SBA could still revisit its forgiveness decision and determine that the Company does not qualify in whole or in part for loan forgiveness and demand repayment of the Forbearance Agreement, securingloans. 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 Loan could negatively impact the Company’s business, financial condition and results of operations and prospects. The Company has not received any notifications related to an operating lineaudit; however, the Company has provided additional payroll costs information for two companies as requested by the SBA through the Company’s lender. The Company has received no other requests or questions. Backlog/New Business The Company’s backlog represents contracts for services that have been entered into, but which have not yet been completed. At September 30, 2017,2022, Energy Services had a backlog of $62.5$142.3 million of work to be completed on existing contracts. At September 30, 2016,2021, the Company had a backlog of $78.5$72.2 million. Due to the timing of Energy Services’ construction contracts and the long-term nature of some of our projects, portions of our backlog work may not be completed in the current fiscal year. Most of the Company’s projects can be completed in a short period of time, typically two to five months. Larger projects usually take seven to eighteen months to be completed. As a general rule, work starts shortly after the signing of the contract. Types of Contracts Energy Services’ contracts are usually awarded on a competitive and negotiated basis. Whilesome contracts may be lump sum or time and material projects, most of the work is bid based upon unit prices for various portions of the work with a total agreed-upon price based on estimated units. The actual revenues produced from the project will be dependent upon how accurate the customer estimates are as to the units of the various items. Raw Materials and Suppliers The principal raw materials that the Company and its subsidiaries use are metal plate, structural steel, pipe, wire, fittings, and selected engineering equipment such as pumps, valves and compressors. For the most part, the largest portion of these materials are supplied by the customer. The materials thatPurchases made by the Company purchases are predominately those of a consumable nature, on the job, such as small tools, welding rod and environmental supplies.The COVID-19 pandemic has not had a significant impact on the Company’s ability to obtain materials and consumables for projects awarded. We anticipate being able to obtain these materials for current work, as well as any raw materials not supplied by our customers, for the foreseeable future. However, the inability of our customers to obtain raw materials may delay projects from being bid, awarded, started, or completed. Although not a significant impact, the Company has experienced minor delays resulting from the availability of construction equipment and vehicles. Industry Factors Energy Services’ revenues, cash flows and earnings are substantially dependent upon, and affected by, the level of natural gas exploration development activity and the levels of work on existing pipelines as well as the level of demand for our electrical and mechanical services. Such activity and the resulting level of demand for pipeline construction and related services and electrical and mechanical services are directly influenced by many factors over which the Company has no control. Such factors include the market prices of natural gas and electricity, market expectations about future prices, the volatility of such prices, the cost of producing and delivering natural gas and electricity, government regulations and trade restrictions, local and international political and economic conditions, the development of alternate energy sources, changes in the tax code that affect the energy industry, and the long-term effects of worldwide energy conservation measures. Energy Services cannot predict the future level of demand for its construction services, future conditions in the pipeline or electrical construction industry or future pipeline and electrical construction rates. Competition The pipeline, electrical, and mechanical construction industry is aindustries are highly competitive businessand characterized by high capital and maintenance costs. Pipeline contractsContracts are usually awarded through a competitive bid process. The Company believes that operators consider factors such as quality of service, type and location of equipment, or the ability to provide ancillary services. However, price and the ability to complete the project in a timely manner are the primary factors in determining which contractor is awarded a job. There are a number ofmany regional and national competitors that offer services similar to Energy Services. Certain of the Company’s competitors have greater financial and human resources than Energy Services, which may enable them to compete more efficiently on the basisbecause of price and technology. The Company’s largest competitors are Otis Eastern, Miller Pipeline, Brown Electric, Summit Electric and Apex Pipeline. Operating Hazards and Insurance Energy Services’ operations are subject to many hazards inherent in the pipeline, electrical, and mechanical construction business,businesses, including, for example, operating equipment in mountainous terrain, people working in deep trenches, people working near large construction equipment, and people working in close proximity to large equipment.near manufacturing equipment and power sources. These hazards could cause personal injury or death, serious damage to or destruction of property and equipment, suspension of drilling operations, orand substantial damage to the environment, including damage to producing formations and surrounding areas. Energy Services seeks protection against certain of these risks through insurance, including property casualty insurance on its equipment, commercial general liability and commercial contract indemnity, commercial umbrella and workers’ compensation insurance. The Company’s insurance coverage for property damage to its equipment is based on estimates of the cost of comparable used equipment to replace the insured property. There is a deductible per occurrence on equipment of $10,000$2,500 and $500 for damage to miscellaneous tools. The Company also maintains third party liability insurance, pollution and professional liability insurance, and a commercial umbrella policy. Energy Services believes that it is adequately insured for public liability and property damage to others with respect to its operations. However, such insurance may not be sufficientenough to protect Energy Services against liability for all consequences related to its operations. Government Regulation and Environmental Matters General. Energy Services’ operations are affected from time to time in varying degrees by political developments and federal, state and local laws and regulations. In particular, natural gas production, operations and the profitability of the gas industry are or have been affected by price controls, taxes and other laws relating to the natural gas industry, by changes in such laws and by changes in administrative regulations. Although significant capital expenditures may be required to comply with such laws and regulations, to date, such compliance costs have not had a material adverse effect on the earnings or competitive position of Energy Services. In addition, Energy Services’ operations are vulnerable to risks arising from the numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Energy Services may also be affected by regulations designed to provide benefits to companies engaged in the production of alternative sources of energy, such as solar, wind, and related industries. Environmental Regulation. Energy Services’ activities are subject to existing federal, state and local laws and regulations governing environmental quality, pollution control and the preservation of natural resources. Such laws and regulations concern, among other things, the containment, disposal and recycling of waste materials, and reporting of the storage, use or release of certain chemicals or hazardous substances. Numerous federal and state environmental laws regulate drilling activities and impose liability for discharges of waste or spills, including those in coastal areas. The Company has conducted pipeline construction in or near ecologically sensitive areas, such as wetlands and coastal environments, which are subject to additional regulatory requirements. State and federal legislation also provide special protections to animal and marine life that could be affected by the Company’s activities. In general, under various applicable environmental programs, the Company may potentially be subject to regulatory enforcement action in the form of injunctions, cease and desist orders and administrative, civil and criminal penalties for violations of environmental laws. Energy Services may also be subject to liability for natural resource damages and other civil claims arising out of a pollution event. The Company would be responsible for any pollution event that was determined to be caused by its actions. It has insurance that it believes is adequate to cover any such occurrences. Environmental regulations that affect Energy Services’ customers also have an indirect impact on Energy Services. Increasingly stringent environmental regulation of the natural gas industry has led to higher drilling costs and a more difficult and lengthylengthier well permitting process. The primary environmental statutory and regulatory programs that affect Energy Services’ operations include the following: Department of Transportation regulations, regulations set forth by agencies such as the Federal Energy Regulatory Commission and various environmental agencies including the Environmental Protection Agency, and state and local government agencies. Health and Safety Matters. Energy Services’ facilities and operations are also governed by various other laws and regulations, including the federal Occupational Safety and Health Act, relating to worker health and workplace safety. The Occupational Safety and Health Administration has issued the Hazard Communication Standard. This standard applies to all private-sector employers, including the natural gas exploration and producing industry. The Hazard Communication Standard requires that employers assess their chemical hazards, obtain and maintain certain written descriptions of these hazards, develop a hazard communication program and train employees to work safely with the chemicals on site. Failure to comply with the requirements of the standard may result in administrative, civil and criminal penalties. Energy Services believes that appropriate precautions are taken to protect employees and others from harmful exposure to materials handled and managed at its facilities and that it operates in substantial compliance with all Occupational Safety and Health Act regulations. It is not anticipated that Energy Services will be required to make material expenditures by reason of such health and safety laws and regulations. Research and Development/Intellectual Property Energy Services has not made any material expenditure for research and development. Energy Services does not own any patents, trademarks or licenses. Employees and Human Capital Resources Employees
Energy Services of America believes the Company’s greatest asset is its employees. The Company’s emphasis on the health and safety of its employees is an important factor in maintaining its experienced workforce and attracting new talent. As of September 30, 2017,2022, the Company had approximately 6481,055 employees including 353 full-time non-union employees. The Company’s non-union construction, management, with approximately 85 of those employees being full-time. A number of the Company’sand administrative employees are represented by trade unionsall eligible to participate in the Company paid health, vision, dental, life, prescription, and long-term disability insurance plans. The Company also provides employee paid supplemental life and accident insurance plans. To encourage employees to keep up with routine medical care and participate in its wellness program, the Company funds a Health Reimbursement Account for participating employees. To help employees cover medical expenses pre-tax, the Company offers employees a Flexible Spending Account. The Company also offers employees a 401(k)-retirement plan with a Company match. The Company’s union construction workers are represented by various collective bargaining units.units that provide health and welfare and retirement plans to their members. The Company’s top priority is the safety of our construction employees. The Company’s experienced safety department ensures that employees have the Company and customer required safety training before starting a project. Daily and weekly safety meetings at project sites help employees remain aware of potential hazards. Periodic internal and third-party safety audits are performed to help ensure that the Company’s and customer’s safety procedures are followed. Early in the COVID-19 pandemic, the Company had customers that delayed or cancelled projects due to the uncertainty in the economy and health concerns. During this time, the Company attempted to keep as many of its employees working as possible by moving crews to different projects or shifting work responsibilities. The Company also worked closely to accommodate employees’ request to use the Families First Coronavirus Relief Act and the Family Medical Leave Act. ITEM 1A.Risk Factors Our business is subject to a variety of risks and uncertainties, including, but not limited to, the risk and uncertainties described below. The risks and uncertainties described below are not the only ones we may face. Additional risks and uncertainties not known to us or not described below also may impair our business operations. If any of the following risks actually occur, our business financial condition and results of operations could be harmedimpacted, and we may not be able to achieve our expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the section entitled “Forward looking statements”. Risk Related to our Operations Our operating results may vary significantly from quarter to quarter. We typically experience lower volumes and lower margins during the winter months due to lower demand for our pipeline services and more difficult operating conditions. Also, other items that can materially affect our quarterly results include: | ·● | Variations in the mix of our work in any particular quarter; |
| ·● | Shortage of qualified labor; |
| ● | Unfavorable regional, national or global economic and market conditions; |
| ·● | A reduction in the demand for our services; |
| ·● | Changes in customer spending patterns and need for the services we provide; |
| ·● | Unanticipated increases in construction and design costs; |
| ·● | Timing and volume of work we perform; |
| ·● | Termination of existing agreements; |
| ·● | Losses experienced not covered by insurance; |
| ·● | Payment risks associated with customer financial condition; |
| ·● | Changes in bonding requirements of agreements; |
| ·● | Interest rate variations; andSupply chain constraints; |
| ·● | Interest rate variations; and |
| ● | Changes in accounting pronouncements.and financial reporting standards. |
Future acquisitions could disrupt the Company’s business and adversely affect our results of operations, financial condition and cash flows. Credit facilitiesIn fiscal 2022, the Company completed the acquisitions of Tri-State Paving and Ryan Construction. The Company may choose to expand by making additional acquisitions that could be material to its business, results of operations, financial condition and cash flows. Acquisitions involve many risks, including the following:
| ● | an acquisition may negatively affect the Company’s results of operations, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; |
| ● | the Company may encounter difficulties or unforeseen expenditures in integrating the operations of any company that it acquires, particularly if key personnel of the acquired company decide not to work for us; |
| ● | an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; |
| ● | an acquisition may involve the entry into geographic or business markets in which the Company has little or no prior experience or where competitors have stronger market positions; |
| ● | if the Company incurs debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; and |
| ● | to the extent that the Company issues a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease. |
The occurrence of any of these risks could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. Risk Related to our operationsBusiness The type of contracts we obtain could adversely affect our profitability. We enter into various types of contracts, including fixed price and growth mightvariable pricing contracts. On fixed price contracts our profits could be curtailed or eliminated by unanticipated pricing increases associated with the contract. A portion of our business depends on our ability to provide surety bonds. We may be unable to compete on certain projects if we are not able to obtain the necessary surety bonds. Current or future market conditions, including losses in the construction industry or as a result of large corporate bankruptcies, as well as changes in our surety providers’ assessment of our operating and financial risk, could cause our surety providers to decline to issue or renew, or substantially reduce the amount of bonds for our work or could increase our bonding costs. These actions could be taken on short notice. Since a growing number of our customers require such bonding, should our surety providers limit or eliminate our access to bonding, our performance could be negatively impacted if we are unable to replace the bonded business with work that does not require bonding or if we are unable to provide other means of securing the jobs performance such as with letters of credit or cash. Many of our contracts can be cancelled or delayed or may not be available.renewed upon completion. If our customers should cancel or delay many projects, our revenues could be reduced if we are unable to replace these contracts with others. Also, we have contracts that expire and are renewed periodically. If we are unsuccessful in renewing those contracts, that could reduce our revenue as well. Our business requires a skilled labor force and if we are unable to attract and retain qualified employees, our ability to maintain our productivity could be impaired. Our business relies heavily on having linesproductivity depends upon our ability to employ and maintain skilled personnel to meet our requirements. Should some of credit in place to fundour key managers leave the various projectsCompany, it could limit our productivity. Also, many of our labor personnel are trade union members. Should we encounter labor problems associated with our union employees or if we are working on. Should fundingunable to employ enough available operators, welders, or other skilled labor, our production could be significantly curtailed. Our backlog may not be available, realized. Our backlog could be reduced due to cancellation of projects by customers and/or on favorable terms, itreductions in scope of the projects. Should this occur, our anticipated revenues would be reduced unless we are able to replace those contracts. We extend credit to customers for purchases of our services and therefore have risk that they may not be able to repay us. While we have not had any significant problems with collections of accounts receivables historically, should there be an economic downturn our customers’ ability to repay us could severelybe compromised, and this may curtail our operations and the ability to generate profits. Energy Services maintainsoperate profitably. Our dependence on suppliers, subcontractors and equipment manufacturers could expose us to risk of loss in our operations. On certain projects, we rely on suppliers to obtain the necessary materials and subcontractors to perform portions of our services. We also rely on equipment manufacturers to provide us with the equipment needed to conduct our operations. Any limitation on the availability of materials or equipment or failure to complete work on a banking relationship with two regional bankstimely basis by subcontractors in a quality fashion could lead to added costs and has linestherefore lower profitability for the Company. We face cybersecurity risk including the breach of confidential personal information, Company or customer intellectual properties, and borrowing facilities with these institutions.delays related to data loss. Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger and other systems. Our computer systems, data management and internal processes, as well as those of third parties, are integral to our performance. Our operational risks include the risk of malfeasance by employees or persons outside our company, errors relating to transaction processing and technology, systems failures or interruptions, breaches of our internal control systems, and business continuation and disaster recovery. There have been increasing efforts by third parties to breach data security. Such attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information, damages to systems, or other material disruptions to network access or business operations. The Company currentlyuses industry-leading firewall hardware and runs anti-malware, antivirus, and anti-exploit solutions on all computers as a first line of defense to prevent security breaches. The Company’s email software utilizes spam blocking, phishing filtering, and external sender warnings. The Company uses compartmentalized network drive access to mitigate ransomware damage and performs daily encrypted backups to secure offsite locations including a disaster recovery site. Although we take protective measures and believe that we have not experienced any of the data breaches described above, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security. Because the techniques used to cause security breaches change frequently, we may be unable to proactively address these techniques or to implement adequate preventative measures. Inflation can have an adverse impact on our business and on our customers. Inflation risk is the risk that the value of assets or income will be worth less in the future as inflation decreases the value of money. Recently, there have been market indicators of a pronounced rise in inflation and the Federal Reserve has raised certain benchmark interest rates in an effort to combat inflation. Inflation generally increases the cost of goods and services we will use in our business operations, such as electricity and other utilities, which increases our expenses. In addition, we may have to increase both wages to retain our employees and the cost of our services by a $15.0greater amount than we have budgeted. Furthermore, our customers will also be affected by inflation and the rising costs of goods and services used in their businesses, which could have a negative impact on their ability to use our services and afford to pay our fees. Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers. Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions and operating process changes. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors. Our efforts to take these risks into account may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior. Risk Related to the COVID-19 Pandemic We have operations in multiple states and face risks related to the Coronavirus/COVID 19 global pandemic that could impact our results of operations. Our business could be adversely affected by the effects of the widespread outbreak of Coronavirus and related variants (“COVID-19”). The outbreak of COVID-19 and other adverse public health developments may have a material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to travel or to complete our projects, as well as temporary closures of our facilities or the facilities of our suppliers or customers. Any disruption of our suppliers or customers would likely impact our operating results. In addition, the continued outbreak of COVID-19 could continue to adversely affect the economies of the states that we operate in resulting in a long-term economic downturn that could impact our operating results. The SBA may review the Company’s PPP Loan forgiveness application and if the SBA disagrees with the Company’s certification the Company could be subject to penalties and the repayment of the PPP Loans, which could negatively impact the Company’s business, financial condition and results of operations and prospects. In fiscal year 2021, the Company received notification of forgiveness on the $9.8 million Operating Linein PPP loans received in calendar year 2020. The Company must retain PPP loan documentation in its files for six years after the date of Credit (2017), of which $9.1 million was outstanding at September 30, 2017.forgiveness. The Company believes this line of credit will provide sufficient operating capital for future projects, butit meets the Company cannot guarantee it will always haveSBA’s certification requirement based on its limited access to this line of credit in the future depending on the Company’s financial performance. We have sold Units, each consisting of one share of 6.0% Convertible Perpetual Preferred Stock, Series A and 2,500 shares of Common Stock. If the Preferred Stock is converted to Common Stock, shareholders may experience dilution of their ownership interest.
As of September 30, 2013, the Company sold 140 units in a private placement to accredited investors, with an additional 10 units soldcapital, weakened business operations during the fiscal year ended September 30, 2014 for a total of 150 units. As a result of the private placement, an additional 375,000pandemic and small market value. The Company’s shares of common stock did not trade on a national exchange at the time we applied for PPP loans and at the time such loans were outstanding as of September 30, 2017. forgiven by the SBA.
The Company also issued 56 shareshas not received any notifications related to an audit; however, the Company has provided additional payroll costs information for two companies as requested by the SBA through the Company’s lender. The Company has received no other requests or questions. However, no assurance can be given as to the outcome if the SBA re-evaluates the Company’s loan certification. The SBA could determine that the Company does not qualify in whole or in part for loan forgiveness. In addition, it is unknown what type of Preferred Stockpenalties could be assessed against the Company if the SBA disagrees with the Company’s certification. The Company could be required to Marshall Reynolds, Chairmanrepay its PPP Loans. Any penalties in addition to the potential repayment of the BoardPPP Loans could negatively impact the Company’s business, financial condition and results of Directors, in exchange for a debt forgiveness of $1.4 million. Mr. Reynolds did not receive any shares of Common Stock in this transaction. In addition, if the Company electsoperations and prospects. Risk Related to allow the holders of the Preferred Stock to choose to convert their Preferred Stock into shares of common stock we would issue an additional 3,433,333 shares of Common Stock, which will result in shareholders experiencing a dilution in their ownership interest.our Industry An economic downturn in the industries we serve could lead to less demand for our services. In addition to the effects of an economic recession, there could be reductions in the particular industries that the Company serves. If the demand for natural gas should drop dramatically, or the demand for electrical and mechanical services drops dramatically, these would in turn result in less demand for the Company’s services. Project delays or cancellations may result in additional costs to us, reductions in revenues or the payment of liquidated damages. In certain circumstances, we guarantee project completion by a scheduled acceptance date or are paid only upon achievement of certain acceptance and performance testing levels. Failure to meet any of these requirements could result in additional costs or penalties which could exceed the expected project profits. Revenue and cost estimates on projects may differ from actual results.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. While the Company believes losses on significant projects have been recorded at September 30, 2017, there can be no assurance that actual results will not differ from those estimates.
Changes in tax regulations could adversely affect income tax benefits.
With potential changes to tax regulations in 2017, the Company’s estimated income tax benefit and net operating loss carryforward could differ from actual results.
We may be unsuccessful at generating internal growth.
Our ability to generate internal growth will be affected by our ability to:
| · | Expand our relationships with existing customers; |
| · | Hire and maintain qualified employees; |
| · | Expand geographically; and |
| · | Adjust quickly to changes in our industry. |
Our industry is highly competitive. Our industry has been and remains competitive with competitors ranging from small owner operated companies to large public companies. Within that group there may be companies with lower overhead costs that may be able to price their services at lower levels than we can. Accordingly, if that occurs, our business opportunities could be severely limited. In addition, our industry competes for energy demand with suppliers of alternative energy sources such as solar and wind. We may be unsuccessful at generating internal growth. The typeOur ability to generate internal growth will be affected by our ability to:
| ● | Expand our relationships with existing customers; |
| ● | Hire and maintain qualified employees; |
| ● | Expand geographically; and |
| ● | Adjust quickly to changes in our industry. |
Risk Related to Financing Credit facilities to fund our operations and growth might not be available. Our business relies heavily on having lines of credit in place to fund the various projects we obtain could adversely affect our profitability. We enter into various types of contracts, including fixed price and variable pricing contracts. On fixed price contracts our profits couldare working on. Should funding not be curtailedavailable, or eliminated by unanticipated pricing increases associated with the contract.
Changes by the government in laws regulating the industries we serve could reduce our sales volumes.
If the government enacts legislation that has a serious impact on the industries we serve,favorable terms, it could lead to the curtailment of capital projects in those industries and therefore lead to lower sales volumes for our Company.
Many of our contracts can be cancelled or delayed or may not be renewed upon completion.
If our customers should cancel or delay many projects, our revenues could be reduced if we are unable to replace these contracts with others. Also, we have contracts that expire and are rebid periodically. If we are unsuccessful in rebidding those contracts, that could reduce our revenue as well.
Our business requires a skilled labor force and if we are unable to attract and retain qualified employees, our ability to maintain our productivity could be impaired.
Our productivity depends upon our ability to employ and maintain skilled personnel to meet our requirements. Should some of our key managers leave the Company, it could limit our productivity. Also, many of our labor personnel are trade union members. Should we encounter labor problems associated with our union employees or if we are unable to employ sufficient available operators, welders, or other skilled labor, our production could be significantly curtailed.
Our backlog may not be realized.
Our backlog could be reduced due to cancellation of projects by customers and/or reductions in scope of the projects. Should this occur, our anticipated revenues would be reduced unless we are able to replace those contracts.
We extend credit to customers for purchases of our services and therefore have risk that they may not be able to repay us.
While we have not had any significant problems with collections of accounts receivables historically, should there be an economic downturn our customers’ inability to repay us would be compromised, and this mayseverely curtail our operations and the ability to operate profitably.
We may incur liabilities or suffer negative financial or reputational harm relatinggenerate profits. Energy Services maintains a banking relationship with two regional banks and has lines of credit and borrowing facilities with these institutions. On July 13, 2022, the Company renewed its $15.0 million operating line of credit with United Bank. Based on the borrowing base calculation, the Company could borrow up to occupational health$12.5 million as of September 30, 2022. The Company had borrowed $12.5 million on the line of credit as of September 30, 2022, leaving no borrowings available on the line of credit as of that date. The Company believes this line of credit will provide enough operating capital for future projects, but the Company and safety matters.
Our operationsits lenders are subjectworking on a financing package that could expand the current operating line. The Company cannot guarantee it will always have access to extensive laws and regulations relating to the maintenancethis line of safe conditionscredit in the workplace.future depending on the Company’s financial performance.
Risk Related to our Financial Performance Revenue and cost estimates on projects may differ from actual results. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. While wethe Company believes estimates on project performance are constantly monitoring our health and safety programs, our industry involves a high degree of operating risk andmaterially correct at September 30, 2022, there can be no assurance given that weactual results will avoid significant liability exposure and/or be precludednot differ from working for various customers duethose estimates. Risk Related to high incident rates.Law and Regulatory Compliance Our dependence on suppliers, subcontractors and equipment manufacturers could expose us to risk of loss in our operations.
On certain projects, we rely on suppliers to obtain the necessary materials and subcontractors to perform portions of our services. We also rely on equipment manufacturers to provide us with the equipment needed to conduct our operations. Any limitation on the availability of materials or equipment or failure to complete work on a timely basis by subcontractors in a quality fashion could lead to added costs and therefore lower profitability for the Company.
During the ordinary course of business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations. From time to time, we may in the ordinary course of business be named as a defendant in lawsuits, claims and other legal proceedings. These actions may seek, among other things, compensation for alleged personal injury, worker’s compensation, employment discrimination, breach of contract, property damages, civil penalties and other losses of injunctive or declaratory relief. Also, we often indemnify our customers for claims related to the services we provide and actions we take under our contracts with them. Because our services in certain instances may be integral to the operation and performance of our customers’ infrastructure, we may become subject to lawsuits or claims for any failure of the systems we work on. While we carry insurance to protect the Company against such claims, the outcomes of any of the lawsuits, claims or legal proceedings could result in significant costs and diversion of management’s attention from the business. Payments of significant amounts, even if reserved, could adversely affect our reputation, liquidity and results of operations. A portion of our business depends on our ability to provide surety bonds. We may be unableincur liabilities or suffer negative financial or reputational harm relating to compete on certain projects ifoccupational health and safety matters.
Our operations are subject to extensive laws and regulations relating to the maintenance of safe conditions in the workplace. While we are not ableconstantly monitoring our health and safety programs, our industry involves a high degree of operating risk and there can be no assurance given that we will avoid significant liability exposure and/or be precluded from working for various customers due to obtainhigh incident rates. Changes by the necessary surety bonds.government in laws regulating the industries we serve could reduce our sales volumes. Current or future market conditions, including lossesIf the government enacts legislation that has a serious impact on the industries we serve, it could lead to the curtailment of capital projects in the construction industry or as a result of large corporate bankruptcies, as well as changes in our surety providers’ assessment of our operatingthose industries and financial risk, could cause our surety providerstherefore lead to decline to issue or renew, or substantially reduce the amount of bondslower sales volumes for our work or could increase our bonding costs. These actions could be taken on short notice. Since a growing numberCompany.
Our failure to comply with environmental laws could result in significant liabilities. Our operations are subject to various environmental laws and regulations, including those dealing with the handling and disposal of waste products, polychlorinated biphenyls (PCBs) and other hazardous materials, as well as fuel storage. We also work around and under bodies of water. We invest significantly in compliance with the appropriate laws and regulations. However, if we should inadvertently cause contamination of waters or soils, liabilities for our Company relating to cleanup and remediation could be substantial and could exceed any insurance coverage we might have and result in a negative impact to the Company’s ability to operate. Risks Relating to Ownership of Our Common Stock Our common stock is not heavily traded, and the stock price may fluctuate significantly. Our common stock is traded on the NASDAQ Capital Market under the symbol “ESOA.” Certain brokers currently make a market in the common stock, but such transactions are infrequent, and the volume of shares traded is relatively small. Management cannot predict whether these or other brokers will continue to make a market in our common stock. Prices on stock that is not heavily traded, such as our common stock, can be more volatile than heavily traded stock. Factors such as our financial results, the introduction of new products and services by us or our competitors, publicity regarding our industry, and various other factors may have a significant impact on the market price of the shares of the common stock. Management also cannot predict the extent to which an active public market for our common stock will develop or be sustained in the future. Accordingly, stockholders may not be able to sell their shares of our common stock at the volumes, prices, or times that they desire. Our directors beneficially own a significant portion of our common stock and have substantial influence over us. Our directors, as a group, beneficially owned approximately 36.1% of our outstanding shares of common stock as of September 30, 2022. As a result of this level of ownership, our directors have the ability, by taking coordinated action, to exercise significant influence over our affairs and policies. The interests of our directors may not be consistent with your interests as a stockholder. This influence may also have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our Company. ITEM 1B.Unresolved Staff Comments None. ITEM 2.Properties The Company and its subsidiaries own the property where its subsidiaries, C.J. Hughes, Nitro, West Virginia Pipeline, SQP, Tri-State Paving and Nitro Electric,Ryan Construction and the Company’s headquarters are located. We maintain our executive offices at 75 West 3rd Ave., Huntington, West Virginia 25701, which is also the officeoffices of C.J. Hughes. Nitro Electric’sHughes and Contractors Rental. Nitro’s office is located at 4300 1st Ave., Nitro, WV 25143. West Virginia Pipeline’s office is located at 300 Pipeline Road, Princeton, WV 24739. SQP leases its office space and is located at 281 Smiley Drive, St Albans, WV 25177. TSP leases its office space and is located at 3384 Teays Valley Rd, Hurricane, WV 25526. Ryan Construction leases its office space and is located at 5793 W. Veterans Memorial Highway, Bridgeport, WV 26330. The Company’s management believes that its properties are adequate for the business it conducts. Please see “Liquidity and Capital Resources” for a description of the mortgages and leases on these properties. ITEM 3.Legal Proceedings AtIn February 2018, the Company filed a lawsuit against a former customer (“Defendant”) in the United States District Court for the Western District of Pennsylvania. The lawsuit is related to a dispute over work performed on a pipeline construction project. 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 September 30, 2017,2022. 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.
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. The Company has not performed covered work in their jurisdiction since 2011; however, the Company disagrees with the withdrawal claim and believes it is covered by an exemption under federal law. The demand called for thirty-four quarterly installment payments of $41,000 starting December 15, 2021. The Company must comply with the demand under federal pension law; however, the Company firmly believes no withdrawal liability exists. 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 September 30, 2022 and does not expect any future liabilities related to this claim. Other than described above, at September 30, 2022, the Company was not involved in any legal proceedings other than in the ordinary course of business. The outcomeCompany is a party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. 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 September 30, 2022, the Company does not believe that any of these proceedings, separately or in aggregate, would not be expected to have a material toadverse effect on our financial condition orposition, results of operations.operations or cash flows. ITEM 4.Mine Safety Disclosures None. PART II ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
On March 23, 2022, the Company’s common stock began trading on the Nasdaq Capital Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities operated by The Company’s stock is quotedNasdaq Stock Market, LLC under the symbol “ESOA” and transactions in. The Company’s common stock had previously been traded under the stock are reportedsymbol “ESOA” on the OTC QB marketplace. OTCQB Marketplace. The following table sets forth the range of high and low sales prices for common stock during each of the last two fiscal years and is based on information provided by OTC QB.years. The high and low “bid price”, as required to be disclosed by Regulation S-K, was not available for certain periods because either these were not two-sided quotes by market makers or there was only one market maker with a two-sided quote. Over the counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. Common Stock | | | | | | | | | | Fiscal 2021 | | High | | Low | | Dividends | Quarter ended December 31, 2020 | | $ | 1.30 | | $ | 0.81 | | $ | — | Quarter ended March 31, 2021 | | | 2.45 | | | 1.02 | | | — | Quarter ended June 30, 2021 | | | 2.40 | | | 1.96 | | | — | Quarter ended September 30, 2021 | | | 2.40 | | | 1.62 | | | — |
| Fiscal 2016 | | High | | | Low | | | Dividends | | | Quarter ended December 31, 2015 | | $ | 1.40 | | | $ | 1.02 | | | $ | __ | | | Quarter ended March 31, 2016 | | | 1.90 | | | | 1.15 | | | | __ | | | Quarter ended June 30, 2016 | | | 1.70 | | | | 1.25 | | | | 0.05 | | | Quarter ended September 30, 2016 | | | 1.62 | | | | 1.30 | | | | __ | |
| | | | | | | | | | Fiscal 2022 | | High | | Low | | Dividends | Quarter ended December 31, 2021 | | $ | 3.65 | | $ | 1.32 | | $ | — | Quarter ended March 31, 2022 | | | 4.68 | | | 2.30 | | | — | Quarter ended June 30, 2022 | | | 3.25 | | | 1.90 | | | — | Quarter ended September 30, 2022 | | | 3.49 | | | 1.77 | | | — |
| Fiscal 2017 | | High | | | Low | | | Dividends | | | Quarter ended December 31, 2016 | | $ | 1.60 | | | $ | 1.25 | | | $ | __ | | | Quarter ended March 31, 2017 | | | 1.92 | | | | 1.33 | | | | __ | | | Quarter ended June 30, 2017 | | | 1.79 | | | | 1.55 | | | | 0.05 | | | Quarter ended September 30, 2017 | | | 1.77 | | | | 0.94 | | | | __ | |
As of September 30, 2017,December 21, 2022, there were 2631 holders of record of our common stock. Certain shares of the Company’s common stock are held in “nominee” or “street” name and accordingly the number of beneficial owners of common stock is not included in the number of record holders. There was a $0.05 special dividend paid on 13,922,336 common shares during fiscal year 2017 for a total of $696,117. The dividend payment did not include 317,500 common shares that are part of preferred units. There was a $0.05 special dividend paid on 13,907,340 common shares during fiscal year 2016 for a total of $695,367. The dividend payment did not include 332,496 common shares that are part of preferred units. The payment of cash dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition and will be within the discretion of our board of directors.
The Company did not repurchase any stock during the twelve months ended September 30, 2022 and 2021. On February 16, 2022, the stockholders of Energy Services approved the Company’s 2022 Equity Incentive Plan (the “Plan”), which provides for the grant of stock-based awards to officers and employees of the Company and its subsidiaries. The maximum number of shares of stock, in the aggregate, that may be granted under the Plan as stock options, restricted stock or restricted stock units is 1,500,000 shares. A description of the material terms of the Plan is contained in the Company’s definitive proxy statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on January 11, 2022. No grants of stock-based awards were made during the fiscal year ended September 30, 2022. On July 6, 2022, the Company’s Board of Directors authorized a new share repurchase program (the “Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate repurchase amount not to exceed 1,000,000 shares, which was approximately 6.0% of its outstanding common stock as of the date of the announcement. The Program does not obligate the Company to purchase any number of shares, and there is no guarantee as to the exact number of shares to be repurchased by the Company. No repurchases were made in connection with the Program during the fourth fiscal quarter of 2017.year ended September 30, 2022. ITEM 6. Selected Financial DataReserved Not required for smaller reporting companies.17
ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of the financial condition and results of operations of Energy Services in conjunction with the historical financial statements and related notes contained elsewhere herein. Among other things, those historical consolidated financial statements include more detailed information regarding the basis of presentation for the following information. Understanding Gross Margins Our gross margin is gross profit expressed as a percentage of revenues. Cost of revenues consists primarily of salaries, wages and some benefits to employees, depreciation, fuel and other equipment costs, equipment rentals, subcontracted services, portions of insurance, facilities expense, materials and parts and supplies. Factors affecting gross margin include: Seasonal.As discussed above, seasonal patterns can have a significant impact on gross margins. Usually, business is slower in the winter months versus the warmer months. Weather.Adverse or favorable weather conditions can impact gross margin in a giveneach period. Periods of wet weather, snow or rainfall, as well as severe temperature extremes can severely impact production and therefore negatively impact revenues and margins. Conversely, periods of dry weather with moderate temperatures can positively impact revenues and margins due to the opportunity for increased production and efficiencies. Revenue Mix.The mix of revenues between customer types and types of work for various customers will impact gross margins. Some projects will have greater margins while others that are extremely competitive in bidding may have narrower margins. Service and Maintenance versus Installation.In general, installation work has a higher gross margin than maintenance work. This is due to the fact thatbecause installation work usually is of a fixed price nature and therefore has higher risks involved. Accordingly, a higher portion of the revenue mix from installation work typically will result in higher margins. Subcontract Work. Work that is subcontracted to other service providers generally has lower gross margins. Increases in subcontract work as a percentage of total revenues in a giveneach period may contribute to a decrease in gross margin. Materials versus Labor. Typically, materials supplied on projects have lower margins than labor. Accordingly, projects with a higher material cost in relation to the entire job will have a lower overall margin. Depreciation.Depreciation is included in our cost of revenue. This is a common practice in our industry but can make comparability to other companies difficult. Margin Risk. Failure to properly execute a job including failure to properly manage and supervise a job could decrease the profit margin. Selling General and Administrative Expenses Selling general and administrative expenses consist primarily of compensation and related benefits to management, administrative salaries and benefits, marketing, communications, office and utility costs, professional fees, bad debt expense, letter of credit fees, general liability insurance and miscellaneous other expenses. Results of Operations for the Fiscal Year Ended September 30, 20172022, Compared to the Fiscal Year Ended September 30, 20162021. Revenue. A table comparing the components of the Company’s revenues for the fiscal years ended September 30, 2022, and 2021 is below: | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | | September 30, 2022 | | % of total | | September 30, 2021 | | % of total | | Change | | % Change | | Gas & Water Distribution | | $ | 53,311,569 | | 27.0 | % | $ | 40,440,195 | | 33.02 | % | $ | 12,871,374 | | 31.8 | % | Gas & Petroleum Transmission | | | 58,268,501 | | 29.5 | % | | 22,133,483 | | 18.07 | % | | 36,135,018 | | 163.3 | % | Electrical, Mechanical, and General | | | 86,009,930 | | 43.5 | % | | 59,892,148 | | 48.91 | % | | 26,117,782 | | 43.6 | % | Total | | $ | 197,590,000 | | 100.0 | % | $ | 122,465,826 | | 100.0 | % | $ | 75,124,174 | | 61.3 | % |
Revenues. Revenues on continuing operations decreasedRevenue increased by $15.0$75.1 million, or 9.6%61.3%, to $140.5$197.6 million for the fiscal year ended September 30, 20172022, from $155.5$122.5 million for the fiscal year ended September 30, 2016.The decrease was primarily attributable to a $6.2 million revenue decrease in electrical and mechanical services, a $5.7 million revenue decrease in water and sewer projects and other ancillary services, and a $3.1 million revenue decrease in petroleum and gas work. Schedule delays on two major projects, please see “Major Projects with Losses” below, prevented the Company from securing additional work during the fourth quarter of fiscal year 2017.There were no2021.
Gas & Water Distribution revenues from discontinued operations for fiscal years 2017 and 2016. Cost of Revenues. Cost of revenues on continuing operations decreased by $8.6 million or 6.1% to $132.7totaled $53.3 million for the fiscal year ended September 30, 20172022, a $12.9 million increase from $141.3$40.4 million for the fiscal year ended September 30, 2016.2021. The decreaserevenue increase was primarily attributablerelated to a $6.4 million cost decrease in electricalthe Company’s overall commitment to growing this line of business through adding new distribution crews and mechanicalthe acquisition of Tri-State Paving, which primarily provides services a $4.4 million cost decrease infor water and sewer and other ancillary services, and a $500,000 cost decrease in equipment and tool shop operations not allocated to projects, partially offset by a $2.7 million cost increase in petroleum and gas work.There was no costutility companies. Tri-State Paving, acquired on April 29, 2022, contributed revenues of revenues from discontinued operations for fiscal years 2017 and 2016.
Gross Profit. Gross profits on continuing operations decreased by $6.4 million or 45.2% to $7.8$4.9 million for the fiscal year ended September 30, 2017 from $14.22022. A full year of West Virginia Pipeline revenue, acquired on December 31, 2020, resulted in $3.1 million in additional revenue during fiscal year 2022 as compared to 2021.
Gas & Petroleum Transmission revenues totaled $58.3 million for the fiscal year ended September 30, 2016.The decrease was primarily attributable to2022, a $5.8$36.1 million gross profit decrease in petroleum and gas work, and a $1.3increase from $22.1 million gross profit decrease in water and sewer and other ancillary services, partially offset by a $500,000 gross profit increase in equipment and tool shop operations not allocated to projects and a $200,000 gross profit increase in electrical and mechanical services.The gross profit percentage was 5.5% for the fiscal year ended September 30, 20172021. The revenue increase was primarily related to an increase in the amount of bidding opportunities with both existing, long-term customers and 9.1%newer customers. Electrical, Mechanical, & General services and construction revenues totaled $86.0 million for the fiscal year ended September 30, 2016. Please see “Major Projects with Losses” below for further details. There was no gross profit on discontinued operations for fiscal years 2017 and 2016. Selling and administrative expenses. Selling and administrative expenses on continuing operations increased by $100,000 or 1.5% to $7.42022, a $26.1 million increase from $59.9 million for the fiscal year ended September 30, 2017 from $7.3 million for the year ended September 30, 2016.2021. The revenue increase was primarily due to growth in general and civil construction opportunities for SQP, which began operations in March 2021 and increased revenues by $19.3 million in fiscal year 2022 as compared to 2021.
Cost of Revenues. A table comparing the components of the Company’s costs of revenues for fiscal years ended September 30, 2022 and 2021, is below: | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | | September 30, 2022 | | % of total | | September 30, 2021 | | % of total | | Change | | % Change | | Gas & Water Distribution | | $ | 41,726,934 | | 23.8 | % | $ | 32,467,794 | | 29.6 | % | $ | 9,259,140 | | 28.5 | % | Gas & Petroleum Transmission | | | 54,856,321 | | 31.3 | % | | 17,237,245 | | 15.7 | % | | 37,619,076 | | 218.2 | % | Electrical, Mechanical, and General | | | 79,141,713 | | 45.2 | % | | 55,574,528 | | 50.7 | % | | 23,567,185 | | 42.4 | % | Unallocated Shop (Profit) Expense | | | (505,716) | | (0.3) | % | | 4,265,237 | | 3.9 | % | | (4,770,953) | | (111.9) | % | Total | | $ | 175,219,252 | | 100.0 | % | $ | 109,544,804 | | 100.0 | % | $ | 65,674,448 | | 60.0 | % |
Total cost of revenues increased by $65.7 million or 60.0% to $175.2 million for the fiscal year ended September 30, 2022, from $109.5 million for the fiscal year ended September 30, 2021. Gas & Water Distribution cost of revenues totaled $41.7 million for the fiscal year ended September 30, 2022, a $9.2 million increase from $32.5 million for the fiscal year ended September 30, 2021. The cost of revenues increase was primarily related to the Company’s overall commitment to growing this line of business through adding new distribution crews and the acquisition of Tri-State Paving, which primarily provides services for water utility companies. Tri-State Paving, acquired on April 29, 2022, had cost of revenues of $3.1 million for the fiscal year ended September 30, 2022. A full year of West Virginia Pipeline cost of revenues, acquired on December 31, 2020, resulted in $1.8 million in additional salarycost of revenues during fiscal year 2022 as compared to 2021. Gas & Petroleum Transmission cost of revenues totaled $54.9 million for the fiscal year ended September 30, 2022, a $37.7 million increase from $17.2 million for the fiscal year ended September 30, 2021. The cost of revenues increase was primarily related to an increase in the amount of bidding opportunities with both existing, long-term customers and burden expense needednewer customers. The Company has one gas transmission project that is projected to bidlose $2.1 million. Electrical, Mechanical, & General services and manage projects. Thereconstruction cost of revenues totaled $79.1 million for the fiscal year ended September 30, 2022, a $23.5 million increase from $55.6 million for the fiscal year ended September 30, 2021. The cost of revenues increase was noprimarily due to growth in general and civil construction opportunities for SQP, which began operations in March 2021 and increased costs of revenues by $16.4 million in fiscal year 2022 as compared to 2021. Gross Profit. A table comparing the components of the Company’s gross profit for fiscal years ended September 30, 2022, and 2021, is below: | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | | | | September 30, 2022 | | % of revenue | | | September 30, 2021 | | % of revenue | | | Change | | % Change | | Gas & Water Distribution | | $ | 11,584,635 | | 51.8 | % | $ | 7,972,401 | | 61.7 | % | $ | 3,612,234 | | 45.3 | % | Gas & Petroleum Transmission | | | 3,412,180 | | 15.3 | % | | 4,896,238 | | 37.9 | % | | (1,484,058) | | (30.3) | % | Electrical, Mechanical, and General | | | 6,868,217 | | 30.7 | % | | 4,317,620 | | 33.4 | % | | 2,550,597 | | 59.1 | % | Unallocated Shop Profit (Expense) | | | 505,716 | | 2.3 | % | | (4,265,237) | | (33.0) | % | | 4,770,953 | | (111.9) | % | Total | | $ | 22,370,748 | | 100.0 | % | $ | 12,921,022 | | 100.0 | % | $ | 9,449,726 | | 73.1 | % | | | | | | | | | | | | | | | | | | Gross profit percentage | | | 11.3 | % | | | | 10.6 | % | | | | | | | |
Total gross profit increased by $9.5 million or 73.1% to $22.4 million for the fiscal year ended September 30, 2022, from $12.9 million for the fiscal year ended September 30, 2021. Gas & Water Distribution gross profit totaled $11.6 million for the fiscal year ended September 30, 2022, a $3.6 million increase from $8.0 million for the fiscal year ended September 30, 2021. The gross profit increase was primarily related to the Company’s overall commitment to growing this line of business through adding new distribution crews and the acquisition of Tri-State Paving, which primarily provides services for water utility companies. Tri-State Paving, acquired on April 29, 2022, contributed gross profit of $1.8 million for the fiscal year ended September 30, 2022. A full year of West Virginia Pipeline gross profit, acquired on December 31, 2020, resulted in $1.3 million in additional gross profit during the fiscal year 2022 as compared to 2021. Gas & Petroleum Transmission gross profit totaled $3.4 million for the fiscal year ended September 30, 2022, a $1.5 million decrease from $4.9 million for the fiscal year ended September 30, 2021. The gross profit decrease was primarily related to one gas transmission project that is projected to lose $2.1 million. Electrical, Mechanical, & General services and construction gross profit totaled $6.9 million for the fiscal year ended September 30, 2022, a $2.6 million increase from $4.3 million for the fiscal year ended September 30, 2021. The gross profit increase was primarily due to growth in general and civil construction opportunities for SQP, which began operations in March 2021 and increased gross profit by $3.0 million in the fiscal year 2022 as compared to 2021. Gross profit attributed to unallocated shop operations totaled $506,000 for the fiscal year ended September 30, 2022, a $4.8 million increase from $4.3 million in unallocated shop expenses for the fiscal year ended September 30, 2021. The gross profit increase was primarily due to increased internal equipment charges to projects and better project costs tracking for the fiscal year ended September 30, 2022, as compared to 2021. Selling and administrative expenses. Total selling and administrative expenses increased by $1.9 million to $15.9 million for the fiscal year ended September 30, 2022, from $14.0 million for the fiscal year ended September 30, 2021. Approximately $700,000 of the selling and administrative expense on discontinuedincrease for the fiscal year ended September 30, 2022 as compared to the prior fiscal year, was from the operations of the new subsidiaries, Tri-State Paving and Ryan Construction. In addition, the Company incurred approximately $1.6 in million additional selling and administrative expenses related to a full twelve months of activity for West Virginia Pipeline and SQP in the fiscal years 2017 and 2016.year 2022 as compared to 2021. Income from operations. Income from operations decreased bywas $6.5 million or 94.5% to $400,000 for the fiscal year ended September 30, 20172022, a $7.6 million increase from $6.9a $1.1 million loss from operations for the fiscal year ended September 30, 2016.2021. The increase was due to the items described above. Interest Expense. Interest expense increased by $331,000 or 59.3% to $888,000 for the fiscal year ended September 30, 2022, from $557,000 for the fiscal year ended September 30, 2021. This increase was primarily due to increased line of credit borrowings and financing the financing of acquisitions. Other Income. Other income totaled $507,000 for the fiscal year ended September 30, 2022, as compared to other income of $10.7 million for the fiscal year ended September 30, 2021. The decrease in other income was primarily related to $9.8 million of PPP loan debt forgiveness recognized during the fiscal year ended September 30, 2021. Please see the “Paycheck Protection Program Loans” disclosure on page 9. Net Income. Income before income taxes was $6.1 million for the fiscal year ended September 30, 2022, compared to $9.1 million for the fiscal year ended September 30, 2021. The $3.0 million decrease was primarily due to a one-time $9.8 million PPP loan debt forgiveness in the items mentioned above. Please see “Major Projects with Losses” below for further details. There was nofiscal year 2021, partially offset by a $7.6 million increase in income from discontinued operationsoperations. The income tax expense for fiscal years 2017 and 2016. Interest Expense. Interest expense decreased by $42,000 or 4.8% to $833,000 for the year ended September 30, 2017 from $875,0002022 was $2.3 million compared to an income tax benefit of ($29,000) for the fiscal year ended September 30, 2016.This decrease2021. The increase was primarily due to an increased amount of debt payments appliedincrease in taxable income. According to principal rather than interest.
Net Income (loss). Loss from continuing operations beforethe Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed by Congress in March 2020, PPP loan forgiveness is not taxable. In accordance with the Consolidated Appropriations Act, 2021, the Company’s PPP related expenditures in the fiscal year 2020 were considered deductible expenses for federal income tax benefit was $468,000purposes.
The effective income tax rate for the fiscal year 2017, compared to income from continuing operations beforeended September 30, 2022 was 37.0%. The effective income tax expense of $6.1 millionrate for the fiscal year 2016. Please see “Major Projects with Losses” below for further detailsended September 30, 2021, was (0.32%). The PPP forgiveness had a significant impact on the reasoneffective income tax rate for the net loss for 2017. There was no income from discontinued operations for fiscal years 2017 and 2016. Income tax benefit for fiscal year 2017ended September 30, 2021, as taxable income was $80,000 compared to income tax expense of $2.9 million for fiscal year 2016. The effective tax benefit rate for fiscal year 2017 was 17.2% as compared to an effective tax expense rate of 47.2% for fiscal year 2016. The income tax benefit in fiscal year 2017 was due to the loss from continuing operations before income taxes.decreased by $9.8 million. Effective income tax rates are estimates and may vary from period to period due to changes in the amount of taxable income or loss, non-taxable items and non-deductiblenondeductible expenses.
Accrued dividendsDividends on preferred stock for the fiscal years ended September 30, 20172022, and 20162021 were $309,000.$0 and $284,000, respectively. There will be no further dividends paid on preferred stock after the October 6, 2021 redemption of all the Company’s preferred stock.
The net lossNet income available to common shareholders was $700,000stockholders for the fiscal year ended September 30, 20172022 was $3.9 million compared to net income available to common shareholders of $2.9$8.8 million for the fiscal year ended September 30, 2016.
Major Projects with Losses
2021. The Company has two pipeline projects (“Project A” and “Project B”), both started in April 2017, that have recognized an estimated combined loss of $5.0 million at September 30, 2017. The Company believes the total amount of expected loss has been recorded at September 30, 2017. Project A had an estimated contract value of $9.5 million to install 19,000 feet of 24” pipe, 3,400 feet of 16” pipe, and 600 feet of 8” pipe. At September 30, 2017, the Company had recognized a $3.1 million loss on this project. Project B had an estimated contract value of $4.5 million to install 14,600 feet of 16” steel pipe. At September 30, 2017, the Company had recognized a $1.9 million loss on this project. Losses on both projects are primarily due to daily production significantly below historical results. The inefficient productiondecrease was due to a shortage of qualified labor during an extremely busy time in the pipeline industry and more inclement weather than was estimated for the projects. This led to greater labor expense and longer project schedules than was estimated on the projects. A summary of the projects is below:items mentioned above.
| | | Earned | | | Cost of | | | Gross | | | | | Revenue | | | Revenues | | | Loss | | | | | | | | | | | | | | Three Months Ended September 30, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Project A | | $ | 6,442,852 | | | $ | 6,261,202 | | | $ | 181,650 | | | Project B | | | 3,266,086 | | | | 2,674,098 | | | | 591,988 | | | Total | | $ | 9,708,938 | | | $ | 8,935,300 | | | $ | 773,638 | | | | | | | | | | | | | | | | | Fiscal Year 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Project A | | $ | 8,429,838 | | | $ | 11,507,538 | | | $ | (3,077,700 | ) | | Project B | | | 5,054,534 | | | | 6,931,887 | | | | (1,877,353 | ) | | Total | | $ | 13,484,372 | | | $ | 18,439,425 | | | $ | (4,955,053 | ) |
Comparison of Financial Condition at September 30, 20172022 Compared to September 30, 2016.2021. The Company had total assets of $58.7$112.6 million at September 30, 2017,2022, an increase of $2.3$42.4 million from the prior the fiscal year-end balance of $70.2 million. The aggregate balance of accounts receivable, retainages receivable, allowance for doubtful accounts and other receivables totaled $42.9 million at September 30, 2022, an increase of $20.4 million from the combined prior the fiscal year-end balance of $22.5 million. The increase was primarily due to increased work in the fiscal year 2022 as compared to 2021. Specifically, $69.4 million in revenue was generated in the fourth quarter of fiscal year 2022 as compared to $39.6 million for the same period in 2021. Net property, plant and equipment totaled $32.7 million at September 30, 2022, an increase of $9.7 million from the prior the fiscal year-end balance of $23.0 million. Property, plant and equipment acquisitions totaled $15.6 million for the fiscal year 2022 while depreciation expense was $5.6 million, and the net impact of disposals was $316,000. Assets received as part of the Tri-State Paving and Ryan Construction acquisitions accounted for $8.9 million of the $15.6 million in total acquisitions. Contract assets totaled $16.1 million at September 30, 2022, an increase of $7.4 million from the prior the fiscal year-end balance of $8.7 million. This increase was primarily due to increased work and the timing of project billings and related increase in costs and estimated earnings in excess of billings at September 30, 2022 as compared to at September 30, 2021. Goodwill and acquired intangible assets totaled $8.0 million at September 30, 2022, a $3.7 million increase from the prior fiscal year end balance of $56.4$4.2 million. Net fixedThe increase to goodwill and acquired intangible assets was primarily the result of the Tri-State Paving acquisition which goodwill and acquired intangible assets totaled $19.2$4.2 million at September 30, 2017,2022, and was partially offset by $445,000 in amortization expense for fiscal year 2022. Right-of-use assets acquired from operating leases totaled $1.6 million net of amortization expense, as compared to no right-to-use assets at the prior the fiscal year end. The operating leases were primarily related to the business combinations completed in the fiscal year ended September 30, 2022. Prepaid expenses and other totaled $3.9 million at September 30, 2022, an increase of $6.5 million$401,000 from the prior the fiscal year endyear-end balance of $12.7$3.5 million. The increase was primarily due to $9.8 millionthe increase of fixed asset acquisitions, partially offset by $3.2 million in depreciation expense. Prepaid expensesvarious prepaid insurance accounts based on labor cost expensed or standard monthly charges. Cash and othercash equivalents totaled $4.0$7.4 million at September 30, 2017,2022, a decrease of $799,000 from the prior the fiscal year-end balance of $8.2 million. The decrease was primarily related to a net $8.3 million investment in property and equipment, $4.3 million in long-term debt repayments, and $1.2 million in preferred stock conversion payments, partially offset by a net $4.7 million increase in line of credit and short-term borrowings and $8.3 million in net cash provided by operating activities. Liabilities totaled $74.3 million at September 30, 2022, an increase of $1.5$38.8 million from the prior year endthe fiscal year-end balance of $2.5$35.5 million. Accounts payable totaled $20.3 million as of September 30, 2022, an increase of $13.0 million from the prior the fiscal year-end balance of $7.3 million. The increase was due to more work in progress at the end of the fiscal year 2022, as compared to the same period in fiscal 2021. Lines of credit and short-term borrowings totaled $13.1 million at September 30, 2022, an increase of $8.1 million from the prior the fiscal year-end balance of $5.0 million. This increase was primarily due to $900,000increased borrowings against the Company’s operating line of credit because or more work in estimated income tax payments for whichprogress at the Company will request a refund dueend of the fiscal year 2022, as compared to the taxable loss forsame period in fiscal year 2017. Combined, accounts receivable2021. Accrued expenses and retainages receivableother current liabilities totaled $26.9$11.3 million a decreasedat September 30, 2022, an increase of $3.0$5.7 million from the combined prior year endthe fiscal year-end balance of $29.9$5.6 million. This decreaseThe increase was primarily due to lower revenueincreased labor and project billings forburden expenses incurred towards the end of the fiscal year ended September 30, 20172022, as compared to 2016. Cash and cash equivalents totaled $1.6 million, a decreased of $2.2 million from the prior year endsame period in fiscal 2021. The aggregate balance of $3.8 million. The decrease was primarily related to the loss from continuing operations available to common shareholders and a $2.8 million cash investment in fixed assets. Estimated earnings in excess of billings totaled $5.4 million at September 30, 2017, a decrease of $600,000 from the prior year end balance of $6.0 million. This decrease was due to lower revenue for the last quarter of fiscal year 2017 compared to 2016. Liabilities totaled $37.6 million at September 30, 2017, an increase of $3.7 million from the prior year end balance of $33.9 million. Combined, current maturities of long-term debt and long-term debt totaled $14.3$17.6 million at September 30, 2017,2022, an increase of $4.0$5.2 million from the prior the fiscal year-end balance of $12.4 million. The increase was primarily due to a $8.4 million increase related to financing the Tri-State Paving acquisition and $940,000 in equipment financing, partially offset by $4.3 million in payments on long-term debt.
Contract liabilities totaled $6.0 million at September 30, 2022, an increase of $2.8 million from the prior the fiscal year-end balance of $3.2 million. This increase was due to increased billings in excess of costs and earnings when computing earned revenue on construction projects at September 30, 2022, as compared to at September 30, 2021. Operating lease liabilities totaled $1.6 million at September 30, 2022, an increase of $1.6 million from the prior fiscal year end balance. See “Leases” on page 29 for a discussion of operating leases added in the fiscal year 2022. Net deferred income tax payable totaled 4.5 million at September 30, 2022, an increase of $2.5 million from the prior the fiscal year-end balance of $10.3$2.0 million. The increase was primarily related to a net operating loss (“NOL”) carryforward resulting from bonus depreciation on acquired assets. Stockholders’ equity totaled $38.3 million at September 30, 2022, an increase of $3.7 million from the prior the fiscal year-end balance of $34.6 million. This increase was primarily due to $7.0$3.9 million in financed equipmentnet income and a $1.0 million increase in additional paid in capital related to stock issued as part of the Tri-State Paving acquisition, partially offset by $3.0$1.2 million in principal paymentspreferred stock redemption payments. Liquidity and Capital Resources Operating Line of Credit and Short-Term Borrowings On July 13, 2022, the Company received a one-year extension on long-term debt. Linesits operating line of credit effective June 28, 2022. The $15.0 million revolving line of credit has a $12.5 million component and short-term borrowings totaled $9.4a $2.5 million component. The Company can borrow from the $12.5 million component first and then from the additional $2.5 million component if additional requirements are met. The covenant requirements for both components are below. Based on the borrowing base calculation, the Company borrowed all $12.5 million available on the line of credit as of September 30, 2022. The Company did not meet the requirements to borrow any from the $2.5 million component. The Company expects to receive an amendment to increase its line of credit by December 31, 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 September 30, 2017, an increase of $3.2 million from2022, was 5.5%. Based on the prior year end balance of $6.2 million. This increaseborrowing base calculation, the Company was dueable to increased borrowing against the Company’s operating line of credit. Accounts payable totaled $5.5borrow up to $12.2 million as of September 30, 2017, an increase2021. The Company had $4.5 million in borrowings on the line of $500,000 fromcredit, leaving $7.7 million available on the prior year end balanceline of $5.0 million. This increase was due to the timingcredit as of payments to material and equipment providers. Accrued expenses and other accrued liabilities totaled $4.3 millionSeptember 30, 2021. The interest rate at September 30, 2017, a decrease of $1.6 million2021, was 4.99%. Major items excluded from the prior year end balance of $5.9 million. This decrease was primarily due to lower laborborrowing base calculation are receivables from bonded jobs and burden expenses incurred towards the end of fiscal year 2017 compared to 2016. Billings in excess of costs and estimated earnings totaled $2.2 million, a decrease of $1.2 million from the prior year end balance of $3.4 million. This decrease was primarily due to a lower number of overbillings when comparing the billed revenue and percentage of cost completed on construction projects in 2017 as compared to 2016. There was no income tax payable at September 30, 2017, a decrease of $1.1 million from the prior year end balance of $1.1 million. This decrease was due to the taxable loss in fiscal year 2017 compared to the taxable income in fiscal year 2016. Shareholders’ equity totaled $21.1 million at September 30, 2017, a decrease of $1.4 million from the prior year end balance of $22.5 million. This decrease was primarily due to the $700,000 net loss available to common shareholders generated by the Company in fiscal year 2017 and $696,000 in dividends paid on common stock.
Liquidity and Capital Resources
Indebtedness
On January 31, 2014, the Company entered into a financing arrangement with United Bank, Inc. (West Virginia) and Summit Community Bank (West Virginia). The financing arrangement is a five-year term loan in the amount of $8.8 million and bears interest at an annual rate of 6.50%. In addition, the Company entered into a separate five-year term loan agreement with First Guaranty Bank (Louisiana) for $1.6 million and bears interest at an annual rate of 3.55%. Taken together, the $10.4 million in new financings supersedes the prior financing arrangements the Company had with United Bankretainage as well as all items greater than ninety (90) days old. Line of credit borrowings are collateralized by the other lenders. As a result of entering intoCompany’s accounts receivable. Cash available under the new financings, United Bank and the other lendersline is calculated based on 70.0% of the Company agreed to terminate their Forbearance Agreement with the Company. This was reported in the Company’s February 4, 2014 Form 8-K filing.
eligible accounts receivable. Under the terms of the financing agreement, reached January 31, 2014, the Company must meet the following loan covenants: covenants to access the first $12.5 million: | 1. | Minimum tangible net worth of $10.0$21.5 million to be measured quarterly, |
| 2. | Minimum traditional debt service coverage of 1.50x1.25x to be measured quarterly on a rolling twelve- month basis, |
| 3. | Minimum current ratio of 1.30x1.50x to be measured quarterly, |
| 4. | Maximum debt to tangible net worth ratio (“TNW”) of 1.5x to be measured semi-annually, on |
| 5. | Full review of accounts receivable aging report and work in progress. The results of the following basis:review shall be satisfactory to the lender in its sole and unfettered discretion. |
Under the terms of the agreement, the Company must meet the following additional requirements for draw requests causing the borrowings to exceed $12.5 million: Date | Debt1. | Minimum traditional debt service coverage of 2.0x to TNW | 6/30/2016 | 1.50x | Thereafter | 1.50xbe measured quarterly on a rolling twelve-month basis, |
| 2. | Minimum tangible net worth of $24.0 million to be measured quarterly. |
On July 31, 2014,The Company was not in compliance with all covenants but received a waiver on the bank group modified the calculation$12.5 million component of the debt service coverage covenantline of credit at September 30, 2022. The Company projects to be in compliance with all covenants associated with the loan agreement so that$12.5 million component for the next twelve months.
The Company also finances insurance policy premiums on a short-term basis through a financing company. These insurance policies include workers’ compensation, general liability, automobile, umbrella, and equipment policies. The Company makes a down payment in January and finances the remaining premium amount over ten monthly payments. In January 2022 and 2021, respectively, the Company is required to maintain a minimum debt service coverage ratio of no less than 1.50 to 1.0x tested quarterly, asfinanced $3.4 million and $3.2 million in insurance premiums. At September 30, 2022 and 2021, respectively, the remaining balance of the end of each fiscal quarter, based upon the preceding four quarters.insurance premiums was $580,000 and $540,000. Long-Term Debt service coverage will be defined as the ratio of cash flow (net income plus depreciation, amortization and interest expense, plus or minus one-time/non-recurring income and expenses (determined at the bank group’s sole discretion)) divided by the annualized debt service requirements on the Company’s senior secured term debt (post refinance), actual interest paid on the Company’s senior secured revolving credit facility and the annualized payments on any other debt outstanding. On December 16, 2014, the Company’s Nitro Electric subsidiary entered into a 20-year $1.2 million loan agreement with First Bank of Charleston, Inc. (West Virginia)a bank to purchase the office building and property it had previously been leasing for $6,300 monthly. The interest rate on the newthis loan agreement is 4.75%4.82% with monthly payments of $7,800. On The interest rate on this note is subject to change from time to time based on changes in the U.S. Treasury yield, adjusted to a constant maturity of three years as published by the Federal Reserve weekly. As of September 16, 2015,30, 2022, the Company entered into a $1.2 million 41-month term note agreement with United Bank, Inc. to refinance the five-year term note agreement with First Guaranty Bank. The agreement has an interest rate of 5.0% and issubject to the terms of the January 31, 2014 Term Note agreement discussed above.
Also on September 16, 2015, the Company entered into a $2.5 million Non-Revolving Note agreement with United Bank, Inc. This six-year agreement gave the Company access to a $2.5 million line of credit (“Equipment Line of Credit”), specifically for the purchase of equipment, for the period of one year with an interest rate of 5.0%. After the first year, all borrowings against the Equipment Line of Credit will be converted to a five-year term note agreement withan interest rate of 5.0%. This agreement issubject to the terms of the January 31, 2014 Term Note agreement discussed above. At September 30, 2017, the Company had borrowed $2.46 million against this line of credit and made principal payments of $444,000.$333,000. The loan is collateralized by the building purchased under this agreement. The note is currently held by Peoples Bank, Inc., formerly First Bank of Charleston, Inc. (West Virginia).
On November 13, 2015, the Company entered into a 10-year $1.1 million loan agreement with United Bank Inc. to purchase the fabrication shop and property Nitro Electric had previously been leasing for $12,900 monthly.each month. The variable interest rate on the new loan agreement is 5.0%7.25% at September 30, 2022 with monthly payments of $11,500.$12,193. As of September 30, 2022, the Company had made principal payments of $687,000. The loan is collateralized by the building and property purchased under this agreement. On June 28, 2017, the Company entered into a $5.0 million Non-Revolving Note agreement with United Bank, Inc.Bank. This five-year agreement gave the Company access to a $5.0 million line of credit (“Equipment Line of Credit 2017”), specifically for the purchase of equipment, for a period of three months with an interest rate of 4.99%. After three months, all borrowings against the Equipment Line of Credit 2017 were converted to a five-year term note agreement withan interest rate of 4.99%. with monthly payments of $98,865. As of September 30, 2017,2022, the Company had repaid this note in full. On December 31, 2020, West Virginia Pipeline Acquisition Company, later renamed West Virginia Pipeline, Inc., entered into a $3.0 million sellers’ note agreement with David and Daniel Bolton for the remaining purchase price of West Virginia Pipeline, Inc. For the purchase price allocation, the $3.0 million note had a fair value of $2.85 million. As part of the $6.35 million acquisition price, the Company paid $3.5 million in cash in addition to the note. 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 September 30, 2022, the Company had made annual installment payments of $500,000, interest payments of $152,000 and expensed $53,000 in accreted interest. On January 4, 2021, the Company entered into a $3.0 million Non-Revolving Note agreement with United Bank. This five-year agreement gave the Company access to a $3.0 million line of credit (“Equipment Line of Credit 2021”), specifically for the purchase of equipment, for a period of twelve months with a variable interest rate initially established at 4.25% as based on the Prime Rate as published by The Wall Street Journal. After twelve months, all borrowings against the Equipment Line of Credit 2021 were converted to a four-year term note agreement with a variable interest rate initially established at 4.25%. The loan is collateralized by the equipment purchased under this agreement. As of September 30, 2022, the Company borrowed $5.0$3.0 million against this line of credit with monthly payments of $68,150 that started in February 2022. The interest rate at September 30, 2022 was 7.25%. The Company has made principal payments of $451,000 on this note as of September 30, 2022. On April 2, 2021, the Company entered into a $3.5 million Non-Revolving Note agreement with United Bank. This five-year agreement repaid the outstanding $3.5 million line of credit that was used for the down payment on the West Virginia Pipeline acquisition. This loan has monthly installment payments of $64,853 and had made no principal payments. has a fixed interest rate of 4.25%. The loan is collateralized by the Company’s equipment and receivables. As of September 30, 2017,2022, the Company had $1.7made principal payments of $971,000. 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 $518,000 on this note as of September 30, 2022. 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 $7,800 in cashaccreted interest and working capitalhas not made any principal payments on this note as of $12.0 million. September 30, 2022. The maturities of long-term and short-term debt, which includes line of credit borrowings, term notes payable to banks, and notes payable on various equipment purchases, were as follows:follows: | | | | 2023 | | $ | 17,140,336 | 2024 | | | 4,061,665 | 2025 | | | 4,170,114 | 2026 | | | 3,569,091 | 2027 | | | 1,069,272 | Thereafter | | | 623,942 | | | $ | 30,634,420 |
As of September 30, 2022, the Company had $7.4 million in cash and $15.1 million in working capital (defined as current assets less current liabilities). | 2018 | | $ | 13,995,886 | | | 2019 | | | 3,156,779 | | | 2020 | | | 2,252,257 | | | 2021 | | | 1,752,731 | | | 2022 | | | 1,270,773 | | | Thereafter | | | 1,269,943 | | | | | $ | 23,698,369 | |
Leases Operating LineThe Company leases office space for SQP for $1,500 per month. The lease, signed on March 25, 2021, is for a period of Credittwo 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.
On March 21, 2017,During fiscal year ended September 30, 2022, the Company entered into two lease agreements for construction equipment for a financing agreement (“Operating Linecombined $160,000. The leases have a term of Credit (2017)”) with United Bank, Inc. to provide the Companytwenty-two months with a $15.0 million revolving linestated interest rate of credit.0%, combined monthly installment payments of $6,645 and are cancellable at any time without penalty. The Company has the right to purchase the equipment at the expiration of the leases by applying the two-month deposit paid. The right-of-use assets and finance lease obligations associated with these lease agreements are included in the consolidated balance sheets within property, plant and equipment and long-term debt, respectively, and do not have a material impact on the Company’s consolidated financial statements.
The Company has two right-of-use operating leases acquired on April 29, 2022, as part of the Tri-State Paving 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 $205,000 at September 30, 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 $119,000 at September 30, 2022. The 4.5% interest rate on the lineoperating leases is based on the Company’s incremental borrowing rate at inception. The Company has a right-of-use operating lease with Enterprise Fleet Management, Inc. acquired on August 11, 2022, as part of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. The effective date of thisRyan Environmental acquisition. This lease agreement was February 27, 2017 andinitially for 31 vehicles to be used for Ryan Construction; however, the Company plans to add vehicles as it replacedfinds necessary. This lease had a net present value of $1.2 million at inception, which approximates the $15.0 million revolving line of credit (“Operating Line of Credit (2016)”) entered into with United Bank, Inc. effective February 27, 2016. carrying value at September 30, 2022. The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception. The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022, as part of the Ryan Environmental acquisition. This lease, for the Bridgeport, WV facility, had borrowed $6.0 million against the Operating Linea net present value of Credit (2016) as$140,000 at inception and a carrying value of $113,000 at September 30, 2016, and repaid $4.5 million for an outstanding balance of $1.5 million at December 31, 2016.2022. The Company repaid the remaining $1.5 million4.5% interest rate on the Operating Line of Credit (2016) subsequent to December 31, 2016, and borrowed $9.1 million against the Operating Line of Credit (2017) as of September 30, 2017. Cash available under the lineoperating lease is calculated based on 70.0%the Company’s incremental borrowing rate at inception.
The maturities of the Company’s eligible accounts receivable. Major items excluded from the calculation are receivables from bonded jobs and retainageoperating lease liabilities were as well as items greater than 90 days old.follows: | | | | 2023 | | $ | 588,653 | 2024 | | | 465,428 | 2025 | | | 373,397 | 2026 | | | 296,606 | | | | 1,724,084 | Less amounts representing interest | | | (119,807) | Present value of operating lease liabilities | | $ | 1,604,277 |
Under the terms of the agreement, the Company must meet the following loan covenants to access the first $12.5 million:
| 1. | Minimum tangible net worth of $17.0 million to be measured quarterly |
| 2. | Minimum traditional debt service coverage of 1.50x to be measured quarterly on a rolling twelve- month basis |
| 3. | Minimum current ratio of 1.50x to be measured quarterly |
| 4. | Maximum debt to tangible net worth ratio (“TNW”) of 1.50x to be measured semi-annually. |
Under the terms of the agreement, the Company must meet the following additional requirements for draw requests causing the borrowings to exceed $12.5 million:
| 1. | Minimum tangible net worth of $19.0 million to be measured quarterly |
| 2. | Minimum traditional debt service coverage of 2.0x to be measured quarterly on a rolling twelve-month basis |
| 3. | Full review of accounts receivable aging report and work in progress. The results of the review shall be satisfactory to the lender in its sole and unfettered discretion. |
The Company was in compliance with or has obtained a waiver for all covenants and additional requirements for the $15.0 million Operating Line of Credit (2017) at September 30, 2017.
Off-Balance Sheet Transactions Due to the nature of our industry, we often enter into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected inon our balance sheets. Though for the most part not material in nature, some of these are: Rental Agreements Leases
Our work often requires usThe Company rents equipment for use on construction projects with rental agreements being week to lease various facilities,week or month to month. Rental expense can vary by the fiscal year due to equipment requirements on construction projects and vehicles. These leases usually are short termthe availability of Company owned equipment. Rental expense, which is included in nature, one year or less though at times we may enter into longer term leases when warranted. By leasing equipment, vehiclescost of goods sold on the consolidated statements of income, was $9.8 million and facilities, we are able to reduce our capital outlay requirements$3.6 million for equipment, vehiclesthe twelve months ended September 30, 2022, and facilities that we may only need for short periods2021, respectively.
Letters of Credit Certain of our 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, vendors, etc. on various customer projects. At September 30, 2017,2022, the Company did not have any outstanding letters of credit.credit. Performance Bonds Some customers, particularly new ones or governmental agencies require the Company to post bid bonds, performance bonds and payment bonds (collectively, performance bonds). These performance bonds are obtained through insurance carriers and guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If the Company fails to perform under a contract or to pay subcontractors and vendors, the customer may demand that the insurer make payments or provide services under the bond. The Company must reimburse the insurer for any expenses or outlays it is required to make. In February 2014,Currently, the Company entered intohas an agreement with a surety company to provide bonding which will suit the Company’s immediate needs. The ability to obtain bonding for future contracts is an important factor in the contracting industry with respect to the type and amountvalue of contracts that can be bid.
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. The Company does not anticipate any claims in the foreseeable future. At September 30, 2017,2022, the Company had $11.0$82.8 million in performance bonds outstanding. Concentration of Credit Risk In the ordinary course of business, the Company grants credit under normal payment terms, generally without collateral, to our customers, which include natural gas and oil companies, general contractors, and various commercial and industrial customers located within the United States. Consequently, the Company is subject to potential credit risk related to business and economic factors that would affect these companies. However, the Company generally has certain statutory lien rights with respect to services provided. Under certain circumstances such as foreclosure, the Company may take title to the underlying assets in lieu of cash in settlement of receivables. The Company had twoPlease see the tables below for customers that exceededrepresent 10.0% or more of revenuesthe Company’s revenue or accounts receivable, net of retention for the yearfiscal years ended September 30, 2017.2022, and 2021:
| | | | | | Revenue | | FY 2022 | | FY 2021 | | TransCanada Corporation | | 16.6 | % | 11.0 | % | All other | | 83.4 | % | 89.0 | % | Total | | 100.0 | % | 100.0 | % |
* Less than 10.0% and included in “All other” if applicable | | | | | | Accounts receivable, net of retention | | FY 2022 | | FY 2021 | | TransCanada Corporation | | 11.6 | % | 13.2 | % | Kentucky American Water | | * | | 16.3 | % | All other | | 88.4 | % | 70.5 | % | Total | | 100.0 | % | 100.0 | % |
* Less than 10.0% and included in “All other” if applicable Virtually all work performed for major customers was awarded under competitive bid fixed price or unit price arrangements. The twoloss of a major customer could have a severe impact on the profitability of operations of the Company. However, due to the nature of the Company’s operations, the major customers Marathon Petroleum and Columbia Gas Distribution, represented 15.1% and 14.6%sources of revenues and 15.8% and 12.1%may change from year to year. Litigation In February 2018, the Company had two customers that exceeded 10.0% of revenuesfiled a lawsuit against a former customer (“Defendant”) in the United States District Court for the year ended September 30, 2016. These two customers, Marathon PetroleumWestern District of Pennsylvania. The lawsuit is related to a dispute over work performed on a pipeline construction project. On November 21, 2022, a Judgment Order was issued, and EQT, represented 18.2% and 17.6% of revenues and 40.6% and 11.3% of receivables net of retention, respectively. The Company’s consolidated operating revenues for the year ended September 30, 2017 were $140.5Company was awarded $13.1 million, of which 56.7%$5.8 million was attributable to gasthe jury award, $1.6 million was for attorney’s fees, and petroleum contract work, 37.4% to electrical$5.7 million was for penalties and mechanical contract services and 5.9% to water and sewer contract installations and other ancillary services.interest. The amounts awarded by the Judgment Order have not been recognized in the Company’s consolidated financial statements as of September 30, 2022. The Company’s consolidated operating revenuesattorney’s fees have been expensed as incurred. On December 16, 2022, the Defendant filed a notice of appeal with the court.
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. The Company has not performed covered work in their jurisdiction since 2011; however, the year endedCompany disagrees with the withdrawal claim and believes it is covered by an exemption under federal law. The demand called for thirty-four quarterly installment payments of $41,000 starting December 15, 2021. The Company must comply with the demand under federal pension law; however, the Company firmly believes no withdrawal liability exists. 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 September 30, 2016 were $155.5 million2022 and does not expect any future liabilities related to this claim. Other than described above, at September 30, 2022, the Company was not involved in any legal proceedings other than in the ordinary course of which 53.2% was attributable to gas and petroleum contract work, 37.8% to electrical and mechanical contract services and 9.0% to water and sewer contract installations and other ancillary services. Litigation
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. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. 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 September 30, 2017,2022, 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. Related Party Transactions We intend that all transactions between us and our executive officers, directors, holders of 10% or more of the shares of any class of our common stock and affiliates thereof, will be on terms no less favorable than those terms given to unaffiliated third parties and will be approved by a majority of our independent outside directors not having any interest in the transaction. InOn December 16, 2014, the Company’s Nitro subsidiary entered into a 20-year $1.2 million loan agreement with First Bank of Charleston, Inc. (West Virginia) to purchase the office building and property it had previously been leasing for $6,300 each month. The interest rate on the loan agreement is 4.82% with monthly payments of $7,800. As of September 30, 2022, the Company had paid approximately $333,000 in principal and approximately $370,000 in interest since the beginning of the loan. Mr. Douglas Reynolds, President of Energy Services, was a director and secretary of First Bank of Charleston. Mr. Samuel Kapourales, a director of Energy Services, was also a director of First Bank of Charleston. On October 15, 2018, First Bank of Charleston was merged into Premier Bank, Inc., a wholly owned subsidiary of Premier Financial Bancorp, Inc. Mr. Marshall Reynolds, Chairman of the Board of Energy Services, held the same position with Premier Financial Bancorp, Inc. Mr. Douglas Reynolds is the president and a director of Energy Services and was a director of Premier Financial Bancorp, Inc. On September 17, 2021, Peoples Bancorp, Inc., parent company of Peoples Bank, completed an acquisition of Premier Financial Bancorp, Inc. and its wholly owned subsidiaries, Premier Bank and Citizens Deposit Bank & Trust. On October 26, 2021, Mr. Douglas Reynolds was elected a director of Peoples Bancorp, Inc., and its subsidiary Peoples Bank.
On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises 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 $7,800 in accreted interest and has not made any principal payments on this note as of September 30, 2022. 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 $205,000 at September 30, 2022. SQP made an equity investment of $156,000 in 1030 Quarrier Development, LLC (“Development”) in August 2022. Development is a variable interest entity (“VIE”) that is 75% owned by 1030 Quarrier Ventures, LLC (“Ventures”) and 25% owned by SQP. SQP is not the primary beneficiary of the VIE and therefore, will not consolidate Development into its consolidated financial statements. Instead, SQP will apply the equity method of accounting for its investment in Development. Development, a 1% owner, and United Bank, a 99% owner, formed 1030 Quarrier Landlord, LLC (“Landlord”). Landlord decided to pursue the following development project (the “Project”): a historical building at 1030 Quarrier Street, Charleston, West Virginia as well as associated land (the “Property”) was purchased to be developed/rehabilitated into a commercial project including apartments and commercial space. Upon the completion of development, the Property will be used to generate rental income. SQP has been awarded the construction contract for the Project. 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 fiscal year ended September 30, 2022. 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. All revenue and related expense transactions, as well as the related accounts payable and accounts receivable have been eliminated in consolidation. Inflation Most significant project materials, such as pipe or electrical wire, are provided by the Company’s customers. The Company enters into transactions from time to time with related parties. These transactions typically would not be material in nature and would usually relate to real estate, vehicle or equipment rentals. Inflation
Due to relatively low levels of inflationdid experience costs increases on materials for fire protection projects, which had been bid several months prior, during the yearstwelve months ended September 30, 20172022. While significant to those smaller projects, the costs increases were immaterial to the overall operations of the Company. When possible, the Company attempts to lock in pricing with vendors and 2016,include qualifications regarding material costs increases in bids. Where allowed by contract, the Company will address fuel cost increases with customers. 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.
New Accounting Pronouncements
In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 for all entities by one year. In June 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers“ (“ASU 2014-09”). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contractsresults for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition,twelve months ended September 30, 2022, and most industry-specific guidance, and creates a Topic 606 Revenue from Contracts with Customers. With the amendments in ASU 2015-14, ASU 2014-09 will be effective for the Company beginning after December 15, 2017, including interim periods. In September 2017, the FASB issued ASU 2017-13 which amends the early adoption date option for certain companies related to the adoption of ASU 2014-09. The Company expects that the adoption of ASU 2014-09 will not have a material impact on its financial statements or disclosure.2021.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Among other things, lessees will be required to recognize the following for all leases (except for short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company expects that the adoption of ASU 2016-02 will not have a material impact on its financial statements or disclosure.
In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The effective date of ASU 2016-20 is the same date that Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liability, and Advertising Costs. The Company expects that the adoption of ASU 2016-20 will not have a material impact on its financial statements or disclosure.
Critical Accounting PoliciesEstimates 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. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates. Management believes the following accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Income Taxes
Revenues The Company recognizes revenue as performance obligations are satisfied and all subsidiaries file a consolidated federalcontrol of the promised good and various state income tax returns on a fiscal year basis. With few exceptions,service is transferred to the Companycustomer. For Lump Sum and Unit Price contracts, revenue is no longer subjectordinarily recognized over time as control is transferred to U.S. federal, state, or local income tax examinations for years ending priorthe customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost to September 30, 2014. cost”) method. For Cost Plus and Time and Material (“T&M”) contracts, revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward satisfaction of the performance obligation(s) using an output method. The Company followsalso does certain T&M service work that is generally completed in a short duration and is recognized at a point in time. The accuracy of our revenue and profit recognition in a given period depends on the liability methodaccuracy of accounting for income taxes in accordance with the Income Taxes topicour estimates of the ASC 740. Under this method, deferred tax assetscost to complete each project. We believe our experience allows us to create materially reliable estimates. There are a number of factors that can contribute to changes in estimates of contract cost and liabilities are recorded for future tax consequencesprofitability. The most significant of temporary differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the underlying assets or liabilities are recovered or settled. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a portion of the deferred tax asset will not be realized.GAAP prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or to be taken on a tax return.these include: Goodwill
In the quarter ended September 30, 2012, the Company recorded a goodwill impairment charge of $36.9 million, which represented the entire amount of goodwill carried on the Company’s balance sheet. The goodwill impairment test indicated that there was no residual goodwill of the Company. The Company had determined that its operating units meet the criteria for aggregation and could be deemed a single reporting unit because of their similar economic characteristics. Therefore, the goodwill impairment test was conducted at the Company level. See Note 4 of the Notes to the Consolidated Financial Statements.
| 21● | the completeness and accuracy of the original bid; |
| ● | costs associated with scope changes; |
| ● | changes in costs of labor and/or materials; |
| ● | extended overhead and other costs due to owner, weather and other delays; |
| ● | subcontractor performance issues; |
| ● | changes in productivity expectations; |
| ● | site conditions that differ from those assumed in the original bid; |
| ● | changes from original design on design-build projects; |
| ● | the availability and skill level of workers in the geographic location of the project; |
| ● | a change in the availability and proximity of equipment and materials; |
| ● | our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs; and |
| ● | the customer’s ability to properly administer the contract. |
Revenue Recognition
Revenues from fixed price contracts are recognized usingThe foregoing factors, as well as the percentage-of-completion method, measured by the percentagestage of costs incurred to date to total estimated costs at completion. These contracts provide for a fixed amount of revenues for the entire project. Such contracts provide that the customer accept completion of progresscontracts in process and the mix of contracts at different margins may cause fluctuations in gross profit from period to date and compensate us the services rendered, measuredperiod. Significant changes in terms of units installed, hours expended or some other measure of progress. Contract costs include all direct material, labor and subcontract costs and those indirect costs related to contract performance, such as indirect labor, tools and expendables. The cost estimates, are basedparticularly in our larger, more complex projects could have, a significant effect on the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Changes in job performance, job conditions, and others all affect the total estimated costs at completion. The effects of these changes are recognized in the period in which they occur. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. The current asset “Costsour profitability.
Our contract assets include cost and estimated earnings in excess of billings that represent amounts earned and reimbursable under contracts, including claim recovery estimates, but have a conditional right for billing and payment such as achievement of milestones or completion of the project. With the exception of customer affirmative claims, generally, such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next three months. Settlement with the customer of outstanding affirmative claims is dependent on uncompleted contracts” represents revenues recognizedthe claims resolution process and could extend beyond one year. Based on our historical experience, we generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced. Our contract liabilities consist of provisions for losses and billings in excess of amounts billedcosts and estimated earnings. Provisions for fixed price contracts. The current liability “Billingslosses 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. Billings in excess of costs and estimated earnings are billings to customers on uncompleted contracts” representscontracts 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 revenues recognized for fixed price contracts. Revenue on all costs plus and time and material contracts are recognized when services are performed or when units are completed. Claims
Claims are amounts in excess of the agreed contract price that a contractor seeks to collect from customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs. The Company records revenue on claims that have a high probability of success. Revenue from a claim is recorded only to the extent that contract costs relating to the claim have been incurred.
Self-Insurance
The Company has its workers’ compensation, general liability and auto insurance through a captive insurance company. While the Company believes that this arrangement has been very beneficial in reducing and stabilizing insurance costs the Company does have to maintain a restricted cash account to guarantee payments of premiums. That restricted account had a balance of $1.9 million as ofestimated earnings at September 30, 2017. Should the captive insurance company experience severe losses over an extended period, it could have a detrimental effect on the Company.2022 and 2021:
| | | | | | | | | September 30, 2022 | | September 30, 2021 | Costs incurred on contracts in progress | | $ | 192,957,145 | | $ | 64,903,618 | Estimated earnings, net of estimated losses | | | 28,150,060 | | | 13,280,334 | | | | 221,107,205 | | | 78,183,952 | Less billings to date | | | 211,025,190 | | | 72,606,840 | | | $ | 10,082,015 | | $ | 5,577,112 | | | | | | | | Costs and estimated earnings in excess of billed on | | | | | | | uncompleted contracts | | $ | 16,109,593 | | $ | 8,730,402 | Less billings in excess of costs and estimated earnings on | | | | | | | uncompleted contracts | | | 6,027,578 | | | 3,153,290 | | | | | | | | | | $ | 10,082,015 | | $ | 5,577,112 |
Allowance for doubtful accounts Current and Non-Current Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts when collection of an account is considered doubtful. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates relating to, among others, our customers’ access to capital, our customers’ willingness or ability to pay, general economic conditions and the ongoing relationship with the customers. While most of our customers are large well capitalized companies, should they experience material changes in their revenues and cash flows or incur other difficulties and not be able to pay the amounts owed, this could cause reduced cash flows and losses in excess of our current reserves. Materially incorrect estimates of bad debt reserves could result in an unexpected loss in profitability for the Company. Additionally, frequently changing reserves could be an indication of risky or unreliable customers. At September 30, 2017,2022, the management review deemed that the allowance for doubtful accounts was adequate. Please see the allowance for doubtful accounts table below: | | | | | | | | | Year Ended September 30, | | | 2022 | | 2021 | | | | | | | | Balance at beginning of year | | $ | 70,310 | | $ | 70,310 | Charged to expense | | | — | | | — | Deductions for uncollectible receivables written off, net of recoveries | | | — | | | — | Balance at end of year | | $ | 70,310 | | $ | 70,310 |
Impairment of goodwill and intangible assets The Company follows the guidance of Accounting Standards Codification (“ASC”) 350-20-35-3 “Intangibles-Goodwill and Other (Topic 350)” which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. Under the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0). If a company fails this test or decides to bypass this step, it must proceed with a quantitative assessment of goodwill impairment. The Company did not have a goodwill impairment at 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. A table of the Company’s intangible assets subject to amortization is below: | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | Accumulated | | Amortization and | | | | | | | | | | | Amortization and | | Amortization and | | Impairment | | | | | | Remaining Life at | | | | | Impairment at | | Impairment at | | Twelve Months Ended | | | | | | September 30, | | Original | | September 30, | | September 30, | | September 30, | | Net Book | Intangible assets: | | 2022 | | Cost | | 2022 | | 2021 | | 2022 | | Value | | | | | | | | | | | | | | | | | | | West Virginia Pipeline: | | | | | | | | | | | | | | | | | | Customer Relationships | | 99 months | | $ | 2,209,724 | | $ | 386,693 | | $ | 165,725 | | $ | 220,968 | | $ | 1,823,031 | Tradename | | 99 months | | | 263,584 | | | 46,136 | | | 19,772 | | | 26,364 | | | 217,448 | Non-competes | | 3 months | | | 83,203 | | | 72,806 | | | 31,202 | | | 41,604 | | | 10,397 | | | | | | | | | | | | | | | | | | | Revolt Energy: | | | | | | | | | | | | | | | | | | Employment agreement/non-compete | | 19 months | | | 100,000 | | | 77,779 | | | 13,889 | | | 63,890 | | | 22,221 | | | | | | | | | | | | | | | | | | | Tri-State Paving: | | | | | | | | | | | | | | | | | | Customer Relationships | | 115 months | | | 1,649,159 | | | 66,781 | | | — | | | 66,781 | | | 1,582,378 | Tradename | | 115 months | | | 203,213 | | | 8,368 | | | — | | | 8,368 | | | 194,845 | Non-competes | | 7 months | | | 39,960 | | | 16,590 | | | — | | | 16,590 | | | 23,370 | Total intangible assets | | | | $ | 4,548,843 | | $ | 675,153 | | $ | 230,588 | | $ | 444,565 | | $ | 3,873,690 |
Depreciation and Amortization The purpose of depreciation and amortization is to represent an accurate value of assets on the books. Every year, as assets are used, their values are reduced on the balance sheet and expensed on the income statement. As depreciation and amortization are a noncash expense, the amount must be estimated. Each year a certain amount of depreciation and amortization is written off and the book value of the asset is reduced. Property and equipment are recorded at cost. Costs which extend the useful lives or increase the productivity of the assets are capitalized, while normal repairs and maintenance that do not extend the useful life or increase productivity of the asset are expensed as incurred. Property and equipment are depreciated principally on the straight-line method over the estimated useful lives of the assets: buildings 39 years; operating equipment and vehicles 5-7 years; and office equipment, furniture and fixtures 5-7 years. Acquired intangible assets subject to amortization are amortized on a straight-line basis, which approximates the pattern in which the economic benefit of the respective intangible assets is realized, over their respective estimated useful lives. 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 twelve months ended September 30, 2022, and 2021 was $5.6 million and $4.7 million, respectively. In general, depreciation is included in “cost of revenues” on the Company’s consolidated statements of income. The Company’s amortization expense for the twelve months ended September 30, 2022, and 2021 was $445,000 and $231,000, respectively. In general, amortization is included in “cost of revenues” on the Company’s consolidated statements of income. 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. Income Taxes 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. 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 37.0% and (0.3%) for the twelve months ended September 30, 2022 and 2021, respectively. Our tax rate is affected by recurring items, such as non-deductible expenses, which we expect to be fairly consistent in the near term. On June 16, 2021, the Company received notice that the SBA had granted forgiveness and repaid $9.8 million of Paycheck Protection Program (“PPP”) borrowings to its lender. The forgiveness was recorded as “other nonoperating income” for the twelve months ended September 30, 2021. According to the CARES Act passed by Congress in March 2020, PPP loan forgiveness is not taxable. In accordance with the Consolidated Appropriations Act, 2021, the Company’s PPP related expenditures in the fiscal year 2020 were considered deductible expenses for federal income tax purposes. The PPP forgiveness had a significant impact on the effective income tax rate for the twelve months ended September 30, 2021, as taxable income was decreased by $9.8 million. 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 September 30, 2022, the Company had a net deferred income tax liability of $4.5 million as compared to $2.0 million at September 30, 2021. The Company’s deferred income tax liabilities at September 30, 2022 totaled $7.7 million and primarily related to depreciation on property and equipment. The Company’s deferred income tax assets at September 30, 2022, totaled $3.2 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. New Accounting Pronouncements On October 28, 2021, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The amendments of this ASU require entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for public business entities for the fiscal years, including interim periods within those the fiscal years, beginning after December 15, 2022. For all other entities they are effective for the fiscal years, including interim periods within those the fiscal years, beginning after December 15, 2023. Entities should apply the amendments prospectively to business combinations that occur after the effective date. Early adoption is permitted, including in any interim period, for public business entities for periods for which financial statements have not yet been issued, and for all other entities for periods for which financial statements have not yet been made available for issuance. The Company is currently assessing the effect that ASU 2021-08 will have on their results of operations, financial position and cash flows; however, the Company does not expect a significant impact. The FASB recently issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”, which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. Entities are required to provide the new disclosures prospectively for all transactions with a government entity that are accounted for under either a grant or a contribution accounting model and are reflected in the financial statements at the date of initially applying the new amendments, and to new transactions entered into after that date. Retrospective application of the guidance is permitted. The guidance in ASU 2021-10 is effective for financial statements of all entities for annual periods beginning after December 15, 2021, with early application permitted. ASU 2021-10 has not become effective for the Company; however, a significant impact is not expected. Subsequent Events On October 10, 2022, the Company entered into a $3.1 million promissory note agreement with United Bank to finance the Ryan Environmental acquisition. This is a five-year agreement with a fixed interest rate of 6.0% and monthly payments of $59,932 beginning on November 10, 2022. In February 2018, the Company filed a lawsuit against a former customer in the United States District Court for the Western District of Pennsylvania. The lawsuit is related to a dispute over work performed on a pipeline construction project. On November 16, 2022, a Judgement 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. None of the award had been recognized in the Company’s consolidated financial statements as of September 30, 2022. 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. Management has evaluated all subsequent events for accounting and disclosure. There have been no other material events during the period, other than noted above, that would either impact the results reflected in the report or the Company’s results going forward. ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies. ITEM 8.Financial Statements and Supplementary Data Financial Statements are included at page F-1 of this Annual Report on Form 10-K. ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. ITEM 9A.Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that Energy Services files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. (b) Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has used the framework set forth in the report entitled “Internal Control–Integrated Framework 2013” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has not identified any material weakness in the Company’s internal control over financial reporting. Management has concluded that the Company’s internal control over financial reporting was effective as of the end of the most recent the fiscal year. This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only Management’s report in this Annual Report. (c) Changes in Internal Controls Over Financial Reporting There has been no change in Energy Services of America Corporation’s internal control over financial reporting during Energy Services of America Corporation’s fourth quarter of the fiscal year 20172022, that has materially affected, or is reasonably likely to materially affect, Energy Services of America Corporation’s internal control over financial reporting. ITEM 9B.Other Information None. ITEM 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not Applicable. PART III ITEM 10.Directors, Executive Officers and Corporate Governance The principal occupation during the past five years of each director and executive officer is set forth below. All directors and executive officers have held their present positions since our inception in 2006 unless otherwise stated. Marshall T. Reynoldshas served as Chairman of the Board of Directors since our inception. Mr. Reynolds has served as Chief Executive Officer and Chairman of the Board Directors of Champion Industries, Inc., a commercial printer, business form manufacturer and supplier of office products and furniture, from 1992 to 2016, and sole stockholder from 1972 to 1993; President and General Manager of The Harrah and Reynolds Corporation, from 1964 (and sole stockholder since 1972) to present; and Chairman of the Board of Directors of McCorkle Machine and Engineering Company in Huntington, West Virginia. Mr. Reynolds is also Chairman of the Board of Directors of First Guaranty Bancshares, Inc., in Hammond, Louisiana; and Chairman of the Board of Directors of Premier Financial Bancorp, Inc., in Huntington, West Virginia and a director of Summit State Bank in Santa Rosa, CA since December 1998. Mr. Reynolds is the father of Jack M. Reynolds and Douglas V. Reynolds. Mr. Reynolds varied career as a business leader and experience in a number of industries qualifies him to be on the Board of Directors.
Douglas V. Reynoldswas appointed President and Chief Executive Officer of the Company on December 6, 2012, and has served as a Director since 2008. Mr. Reynolds is an attorney for Reynolds & Brown, PLLC. Mr. Reynolds is the President of the Transylvania Corporation and a director of The Harrah and Reynolds Corporation. Mr. Reynolds is a graduate of Duke University and holds a law degree from West Virginia University. Mr. Reynolds is the son of Director Marshall T. Reynolds and brother of Jack M. Reynolds. Mr. Reynolds’ varied experience and senior management roles with other companies make Mr. Reynolds a valuable member of the Board.
Jack M. Reynolds served as President and Chief Financial Officer from our inception until September 2008 and has been a member of our Board of Directors since our inception. Mr. Reynolds has been a Vice President of Pritchard Electric Company since 1998. Pritchard is an electrical contractor providing electrical services to both utility companies as well as private industries. Mr. Reynolds also serves as a Director of Citizens Deposit Bank of Vanceburg, Kentucky. Mr. Reynolds is the son of Marshall T. Reynolds and the brother of Douglas V. Reynolds. Mr. Reynolds lengthy service at Pritchard Electric and knowledge of the contracting industry provides hands on expertise to the Board of Directors.
Neal W. Scaggshas been a Director since our inception. Mr. Scaggs has been president of Basiden Brothers, Inc. (retail and wholesale hardware) from 1963 to the present. Mr. Scaggs is on the Boards of Directors of Premier Financial Bancorp, Inc. and Champion Industries, Inc. Mr. Scaggs also serves as Chairman of the Board of Directors of Bucane, Inc. Mr. Scaggs business experience in sales, marketing and capital markets provides a broad business perspective to the Board of Directors.
Joseph L. Williams has been a Director since our inception. Mr. Williams is the Chairman and Chief Executive Officer of Basic Supply Company, Inc., which he founded in 1977. Mr. Williams was one of the organizers and is a Director of First Sentry Bancshares, Inc., Huntington, West Virginia. Mr. Williams was Chairman, President and Chief Executive Officer of Consolidated Bank & Trust Co., in Richmond, Virginia from 2007 until it merged with Premier Financial Bancorp, Inc. in 2009. Mr. Williams is a former member of the West Virginia Governor’s Workforce Investment Council. He is a former Director of Unlimited Future, Inc. (a small business incubator) and a former Member of the National Advisory Council of the U.S. Small Business Administration. Mr. Williams is a former Mayor and City Councilman of the City of Huntington, West Virginia. He is a graduate of Marshall University with a degree in finance and is a former member of its Institutional Board of Governors. Mr. Williams' investment and management experience provides the board of directors an important perspective in business development.
Keith Molihan was appointed to the Board of Directors on August 15, 2008. Mr. Molihan is a retired executive director of the Lawrence County Community Action Organization. Mr. Molihan has served as Chairman of the Board of Directors of Ohio River Bank, Chairman of the Board of Directors of Farmers Bank of Eminence Kentucky and Chairman of the Board of EMEGA Turbine Technology, as well as President of the Lawrence County Ohio Port Authority and President of the Southeast Ohio Emergency Medical organization. Mr. Molihan’s experience provides insights in the industrial aspects of the Company’s business.
Nester S. Logan is the owner of S.S. Logan Packing Co. located in Huntington, West Virginia. Mr. Logan is a Director of First Sentry Bancshares, Inc., Huntington, West Virginia. Mr. Logan’s experience in the Company’s market area provides the Board with knowledge of business conditions in West Virginia and Ohio.
Samuel G. Kapourales is a Board Member of the West Virginia Health Care Authority and Kapourales Properties, LLC. Mr. Kapourales serves as a Director of First National Bank of Williamson and First Bank of Charleston. Mr. Kapourales’ varied business experience makes him a valuable member of the Board.
Bruce H. Elliott was appointed to the Board of Directors on August 20, 2014. Mr. Elliott graduated Magna Cum Laude from Bridgewater College (Bridgewater, VA) with a degree in Accounting.He is a certified public accountant and Principal of D'amelio, Cohen & Associates, LLC, an accounting firm located in Baltimore, Maryland. Mr. Elliott is licensed in Maryland, Virginia, and West Virginia, and is a member of each state’s CPA society. He is also active in various community service projects. Mr. Elliott’s accounting and financial background provides insight to issues important to shareholders and investors.
Charles Abraham, MD was appointed to the Board of Directors on January 1, 2016. Dr. Abraham is an Otolaryngology (Ear Nose & Throat) Specialist in Huntington, WV and is affiliated with multiple hospitals in the area, including Cabell Huntington Hospital, St. Mary’s Medical Center and Huntington Veterans Affairs Medical Center. He received his medical degree from West Virginia University School of Medicine and has been in practice since 1968. He also received a MBA degree from Marshall University in August 1996. Dr. Abraham is certified by the American Board of Otolaryngology and the West Virginia State Medical Association. Dr. Abraham’s healthcare experience and understanding of health insurance related matters makes him a valuable member of the Board.
Charles P. Crimmelwas appointed as Chief Financial Officer of the Company on November 1, 2013 after serving as Controller from 2008 to 2013. Mr. Crimmel graduated from West Virginia University in 1995 with a Bachelor of Science degree in Business Administration and Accounting. Mr. Crimmel was employed by Union Boiler Company as a Field Clerk and Staff Accountant from 1995 to 1996. From 1996-2005, Mr. Crimmel served as Staff Accountant and Controller for Williams Union Boiler/Williams Service Group. From 2005-2008, Mr. Crimmel was Controller for Nitro Electric Company.
Board Leadership Structure and Risk Oversight
Our board of directors is chaired by Mr. Marshall T. Reynolds, who is a non-executive director. We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The Chief Executive Officer is responsible for overseeing the day to day operations of the Company. The Chairman provides guidance to the Chief Executive Officer and, together with the entire board of directors helps develop the strategic plan for the Company.
The role of the board of directors in the Company’s risk oversight process includes receiving reports from senior management on areas of material risk to the Company, including operational, financial, legal, regulatory, strategic and reputational risk. The full board reviews such reports and follows up with senior management to best determine how to address such risks.
Section 16(a) Beneficial Ownership Reporting Compliance
Our common stock is registered with the Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934. The officers and directors and beneficial owners of greater than 10% of our common stock are required to file reports on Forms 3, 4 and 5 with the Securities and Exchange Commission disclosing beneficial ownership and changes in beneficial ownership of the common stock. Securities and Exchange Commission rules require disclosure in our Proxy Statement or Annual Report on Form 10-K of the failure of an officer, director or 10% beneficial owner of our common stock to file a Form 3, 4 or 5 on a timely basis. Based on our review of ownership reports required to be filed for the fiscal year ended September 30, 2017, all of our directors, officers and owners of more than 10% of our common stock filed these reports on a timely basis.
Meetings of the Board of Directors
During fiscal 2017, the Board of Directors held twelve regular meetings and no special meetings. No director attended fewer than 75% in the aggregate of the total number of board meetings held. All directors serving on our committees attended more than 75% of the total number of committee meetings on which they served during fiscal 2017. Although not required, attendance of Board members at the Annual Meeting of Stockholders is encouraged. All members of our Board of Directors attended the 2017 Annual Meeting of Stockholders.
Board Committees
Audit Committee.The Audit Committee consisted of Messrs. Scaggs, Logan, and Molihan, with Mr. Scaggs acting as chairman of the committee in fiscal 2017. The audit committee met four times during the fiscal year ended September 30, 2017. All of the directors appointed to the audit committee are independent members of the board of directors, as defined by Securities and Exchange Commission rules (Rule 10A-3 of the Securities Exchange Act of 1934) and the NYSE MKT corporate governance listing standards. Each member of the audit committee is financially literate, and the Board of Directors has determined that Mr. Molihan qualifies as audit committee financial expert, as such term is defined by Securities and Exchange Commission rules. The committee’s charter can be found at: www.energyservicesofamerica.com/posting/Audit_Committee_Charter_v1.pdf.
The Audit Committee reviews the professional services and independence of our independent registered public accounting firm and our accounts, procedures and internal controls. The audit committee also recommends the firm selected to be our independent registered public accounting firm, reviews and approves the scope of the annual audit, reviews and evaluates with the independent registered public accounting firm our annual audit and annual consolidated financial statements, reviews with management the status of internal accounting controls, evaluates problem areas having a potential financial impact on us that are brought to the committee’s attention by management, the independent registered public accounting firm or the board of directors, and evaluates all of our public financial reporting documents.
The Audit Committee approved the appointment of Arnett Carbis Toothman to be our independent registered public accounting firm for the 2018 fiscal year. A representative of Arnett Carbis Toothman is expected to attend the 2018 Annual Meeting of Stockholders.
Nominating Committee. The Board has determined that the independent members of the Board of Directors will perform the duties of the nominating committee of the Board of Directors. The nominating committee does not have a written charter. The nominating committee will (i) identify individuals qualified to become members of the Board of Directors and recommend to the Board of Directors the nominees for election to the Board of Directors; (ii) recommend director nominees for each committee to the Board of Directors; and (iii) identify individuals to fill any vacancies on the Board of Directors. The nominating committee met one time during the fiscal year ended September 30, 2017.
The nominating committee of the Board identifies nominees by first evaluating the current members of the Board of Directors willing to continue in service. Current members of the Board of Directors with skills and experience that are relevant to our business and who are willing to continue in service are first considered for re-nomination, balancing the value of continuity of service by existing members of the Board of Directors with that of obtaining a new perspective. If any member of the Board of Directors does not wish to continue in service, or if the Board decides not to re-nominate a member for re-election, or if the size of the Board of Directors is increased, the independent directors would solicit suggestions for director candidates from all board members. The independent directors would seek to identify a candidate who at a minimum satisfies the following criteria:
| · | has the highest personal and professional ethics and integrity and whose values are compatible with ours; |
| · | has experiences and achievements that have given him or her the ability to exercise and develop good business judgment; |
| · | is willing to devote the necessary time to the work of the Board of Directors and its committees, which includes being available for board and committee meetings; |
| · | is familiar with the communities in which we operate and/or is actively engaged in community activities; |
| · | is involved in other activities or interests that do not create a conflict with his or her responsibilities to us and our stockholders; and |
| · | has the capacity and desire to represent the balanced, best interests of our stockholders as a group, and not primarily a special interest group or constituency. |
The nominating committee will also take into account whether a candidate satisfies the criteria for “independence” under Securities and Exchange Commission or NYSE MKT rules and, if a nominee is sought for service on the audit committee, the financial and accounting expertise of a candidate, including whether an individual qualifies as an “audit committee financial expert.” The nominating committee will consider diversity in identifying nominees for director, but has no specific policy or established criteria in this regard. The nominating committee seeks candidates who have a broad range of business experience when considering nominees to the Board of Directors.
Procedures for the Nomination of Directors by Stockholders
The Board of Directors has adopted procedures for the submission of director nominees by stockholders. If a determination is made that an additional candidate is needed for the Board of Directors, the independent members of the Board of Directors will consider candidates submitted by our stockholders. Stockholders can submit the names of qualified candidates for director by writing to our Corporate Secretary at 75 West 3rd Ave., Huntington, West Virginia 25701. The Corporate Secretary must receive a submission not less than forty-five (45) days prior to the date of our proxy materials for the preceding year’s annual meeting. The submission must include the following information:
| · | a statement that the writer is a stockholder and is proposing a candidate for consideration by our independent directors; |
| · | the name and address of the stockholder as they appear on the our books and number of shares of our common stock that are owned beneficially by such stockholder (if the stockholder is not a holder of record, appropriate evidence of the stockholder’s ownership will be required); |
| · | the name, address and contact information for the candidate, and the number of shares of our common stock that are owned by the candidate (if the candidate is not a holder of record, appropriate evidence of the stockholder’s ownership should be provided); |
| · | a statement of the candidate’s business and educational experience; |
| · | such other information regarding the candidate as would be required to be included in the proxy statement pursuant to Securities and Exchange Commission Regulation 14A; |
| · | a statement detailing any relationship between the candidate and Energy Services of America Corporation; |
| · | a statement detailing any relationship between the candidate and any customer, supplier or competitor of Energy Services of America Corporation; |
| · | detailed information about any relationship or understanding between the proposing stockholder and the candidate; and |
| · | a statement that the candidate is willing to be considered and willing to serve as a director if nominated and elected. |
Stockholder Communications with the Board
A stockholder who wants to communicate with the Board of Directors or with any individual director can write to the Corporate Secretary at 75 West 3rd Ave., Huntington, West Virginia 25701, Attention: Corporate Secretary. The letter should indicate that the author is a stockholder and if shares are not held of record, should include appropriate evidence of stock ownership. Depending on the subject matter, the Secretary will:
| · | forward the communication to the director or directors to whom it is addressed; |
| · | attempt to handle the inquiry directly, i.e. where it is a request for information about us or it is a stock-related matter; or |
| · | not forward the communication if it is primarily commercial in nature, relates to an improper or irrelevant topic, or is unduly hostile, threatening, illegal or otherwise inappropriate. |
At each board meeting, management shall present a summary of all communications received since the last meeting that were not forwarded and make those communications available to the directors.
The Compensation Committee
The compensation committee consists of directors Joseph L. Williams, Keith Molihan and Nester S. Logan. Each member of the compensation committee is considered “independent” as defined in the NYSE corporate governance listing standards. The Board of Directors has not adopted a written charter for the Committee. The compensation committee met one time during fiscal year 2017.
The compensation committee is appointed by the Board of Directors to assist the Board in developing compensation philosophy, criteria, goals and policies for our executive officers that reflect our values and strategic objectives. The committee reviews the performance of our executive officers and annually recommends to the full Board the compensation and benefits for our executive officers (including the Chief Executive Officer). The committee administers our equity and long-term incentive plans. The committee establishes the terms of employment and severance agreements/arrangements for executive officers, if applicable. The committee recommends to the full Board the compensation to be paid to our directors and any affiliates for their service on the Board. Finally, the committee establishes annual compensation percentage increases for all employees. Our President and Chief Executive Officer provides recommendations to the compensation committee related to our compensation program. However, our President and Chief Executive Officer does not vote on and is not present for any discussion of his own compensation.
For 2017, in making compensation decisions, the compensation committee did not use strict numerical formulas to determine the compensation paid to our executive officers. However, the committee considered a variety of factors in its deliberations over executive compensation, emphasizing the profitability and scope of our operations, the experience, expertise and management skills of the named executive officers and their role in our future success, as well as compensation surveys prepared by professional firms to determine compensation paid to executives performing similar duties for comparable companies. While the quantitative and non-quantitative factors described above were considered by the committee in determining the compensation paid to our named executive officers, such factors were not assigned a specific weight in evaluating the performance of the named executive officers. In determining the Chief Executive Officer’s bonus, the Chairman of the Board also considers the above factors and makes a recommendation to the committee which authorizes such bonus. For the other named executive officer, the Chief Executive Officer considers the above factors and makes a recommendation to the committee which authorized his bonus. The Company paid $15,000 in bonuses in the aggregate to the named executive officers during fiscal year 2017.
The Compensation Committee has authority to approve the engagement of any compensation consultant it uses and the fees for those services. However, the Compensation Committee did not engage a compensation consultant to assist in determining the amount or form of executive and director compensation with respect to fiscal year 2017.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics was previously filed as an exhibit to our Registration Statement on Form S-1. A copy of the Code will be furnished without charge upon written request to the Corporate Secretary, Energy Services of America Corporation, 75 West 3rd Ave., Huntington, West Virginia 25701.
The information contained under the sections captioned “Proposal I – Election of Directors” in the Company’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of September 30, 2022 (the “Proxy Statement”) is incorporated herein by reference. ITEM 11.Executive Compensation The information contained under the section captioned “Proposal I – Election of Directors – Executive and Director Compensation We have adopted a compensation committee policy that reflects the compensation philosophy and objectives of the compensation committee.
Compensation Philosophy and Objectives
The compensation committee believes that an effective executive compensation program rewards the achievement of pre-established short term, long-term and strategic goals, and aligns executives’ interests with those of our stockholders. The committee regularly evaluates both performance and compensation relative to other comparable companies. We also manage our named executive officers’ compensation to align with the time horizon of our growth and development. As we grow, we strive to ensure that our compensation programs and practices remain consistent with our philosophy to provide competitive, performance-based, and risk appropriate compensation that enables us to attract, motivate and retain top performers who are essential to our successful growth and performance.
The primary objectives of our executive compensation program are to:
| · | provide pay for performance utilizing short and long-term incentives; |
| · | be competitive with the marketplace within which we compete for talent; |
| · | ensure compensation programs reward performance while appropriately managing risk; and |
| · | enable us to attract, motivate, and retain top talent. |
We accomplish all these objectives through a total compensation program that balances fixed and variable (i.e. incentive) compensation with a focus on providing rewards to named executive officers for their contributions towards achieving core business objectives and furthering our short and long-term performance. We balance our desire for superior performance with safeguards so that our programs do not result in excessive risk taking that can threaten our long-term value and stability.
We also recognize that our ability to attract and retain top talent has become even more critical as we grow.
Our executive compensation philosophy provides competitive ranges for each component of our compensation program and our compensation paidCompensation” in the aggregate. The starting point targets market median, butdefinitive Proxy Statement is incorporated herein by using performance-based instruments, actual compensation paid to our named executive officers varies depending on our performance against our stated objectives. We meet our compensation objectives for our named executive officers through the following components of their total compensation:reference.
| · | Base salaries are targeted at market median, but allow for recognition of each individual’s role, contribution, performance, and experience. |
| · | Bonuses, which are determined by the compensation committee, reflect market median levels although actual payouts will vary based on our performance relative to company-wide, team and individual contributions toward our strategic plan. |
| · | Long-term incentive awards are intended to provide significant focus on long-term performance through stock-based compensation. Long-term compensation is designed to balance multiple objectives: (1) reward for long-term, sustained performance and stock price growth; (2) align executive interests with stockholders through stock ownership; and (3) provide powerful retention of our highest performers through vesting periods. |
| · | Retirement, health, life insurance, disability, severance and other perquisites and benefits are provided, but their focus and value are intentionally set to be conservatively competitive in order to attract and retain talented individuals. |
Executive total compensation is expected to vary each year, and evolve over the long-term to reflect our performance relative to our peers and the industry, and to correspond with shareholder returns.
We review our executive compensation philosophy and programs annually to ensure that they are achieving desired objectives and supporting our needs as we grow to be a more complex organization.
Summary Compensation Table for Named Executive Officers. The following table shows the compensation of the Company’s executive officers for the years ended September 30, 2017 and 2016. Mr. Crimmel was the only executive officer who received total compensation in excess of $100,000 for services to the Company or any of its subsidiaries during the years ended September 30, 2017 or 2016.
| Summary Compensation Table | | Name and principal position | | Year | | Salary | | | Bonus | | | Stock awards | | | All other compensation (1) | | | Total | | | | | | | | | | | | | | | | | | | | | | Douglas V. Reynolds | | 2017 | | $ | 80,000 | | | $ | - | | | $ | - | | | $ | 3,046 | | | $ | 83,046 | | | President and Chief | | 2016 | | $ | 80,000 | | | $ | 15,000 | | | $ | - | | | $ | 1,379 | | | $ | 96,379 | | | Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Charles P. Crimmel | | 2017 | | $ | 102,661 | | | $ | 15,000 | | | $ | - | | | $ | 4,142 | | | $ | 121,803 | | | Secretary/Treasurer and | | 2016 | | $ | 100,000 | | | $ | 15,000 | | | $ | - | | | $ | 1,783 | | | $ | 116,783 | | | Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Other compensation in 2017 includes 401(k) plan matching contributions of $3,046 for Mr. Reynolds and $4,142 for Mr. Crimmel. Other compensation in 2016 includes 401(k) plan matching contributions of $1,379 for Mr. Reynolds and $1,783 for Mr. Crimmel. |
Benefit Plans
Stock Benefit Plans
Long Term Incentive Plan.In 2010, the Board of Directors adopted, and our stockholders approved, the Energy Services of America Corporation Long Term Incentive Plan (the “LTIP”), to provide our employees and directors with additional incentives to promote our growth and performance. The LTIP gives us the flexibility we need to continue to attract and retain highly qualified employees and directors by offering a competitive compensation program that is linked to the performance of our common stock.
The LTIP is administered by our compensation committee. The committee may determine the type of award and the terms and conditions of each award under the LTIP, which shall be set forth in an award agreement delivered to each participant. The LTIP authorizes the issuance of up to 1,200,000 shares of Company common stock pursuant to grants of restricted stock awards, performance share awards, restricted stock units, performance share units, incentive stock options, non-qualified stock options and stock appreciation rights, provided, however, that in any five-year period, no individual may receive a grant of any type for more than 180,000 shares.
The committee is authorized to grant awards, the vesting of which may be subject to the satisfaction of performance-based conditions. The vesting date of performance-based awards is the date on which all the performance measures are attained, and the performance period is concluded. Any unvested performance-based awards for which the performance measures are not satisfied will be forfeited without consideration. If the right to become vested in an award under the LTIP is conditioned on the completion of a specified period of service with the Company or its subsidiaries, without the achievement of performance measures or objectives, then the required period of service for full vesting shall be determined by the committee and evidenced in the award agreement. In general, no awards may vest at a rate exceeding one-third per year commencing one year after the date of grant.
Unless otherwise provided in an award agreement, in the event of a participant’s termination of service for any reason other than disability, retirement, death or termination for cause, then (i) any stock options and stock appreciation rights shall be exercisable only as to those awards that were vested on the date of termination of service and only for a period of three months following termination, and (ii) any restricted stock awards or restricted stock units that have not vested as of the date of termination of service shall expire and be forfeited. In the event of termination for cause, any awards that have not vested, or have vested but have not been exercised (in the case of stock options and stock appreciation rights) shall expire and shall be forfeited.
Upon termination of service due to death or disability, all stock options and stock appreciation rights shall be exercisable as to all shares subject to an outstanding award, whether or not then exercisable, and all restricted stock and restricted stock unit awards shall become fully vested at the date of termination of service. Stock options and stock appreciation rights may be exercised for a period of one year following such termination of service.
Unless otherwise provided in an award agreement, upon termination of service due to retirement, all stock options and stock appreciation rights shall be exercisable as to all shares subject to an outstanding award, whether or not then exercisable. Unless otherwise provided in an award agreement, all other awards, except performance-based awards subject to Section 162(m) of the Internal Revenue Code, shall become fully vested on retirement.
Unless otherwise provided in an award agreement, upon the occurrence of an involuntary termination of employment (or, as to a director, termination of service as a director) following a “change in control” of the Company (as defined in the LTIP), all outstanding options and stock appreciation rights then held by a participant will become fully exercisable and all restricted stock and restricted stock unit awards shall be fully earned and vested. In the event of a change in control, any performance measure attached to an award shall be deemed satisfied as of the date of the change in control.
If the committee determines that a present or former participant has (i) used for profit, or disclosed to unauthorized persons, our confidential information or trade secrets; (ii) breached any contract with or violated any fiduciary obligation to us; or (iii) engaged in any conduct which the committee determines is injurious to the Company, the committee may cause that participant to forfeit his or her outstanding awards under the Plan.
If we are required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, any participant who is an executive officer shall (i) reimburse the Company the amount of any bonus or incentive compensation paid to such participant that were subsequently reduced due to the restatement; (ii) have outstanding awards granted under the LTIP cancelled; and/or (iii) reimburse the Company for any gains realized in the exercise of options, vesting of or open market sales of vested, restricted stock awards or performance share awards, payment of any restricted stock units, performance share units or stock appreciation rights granted to such participant, regardless of when issued, but only if, and to the extent that (A) the amount of the bonus or incentive compensation was calculated based on achievement of the original financial results; (B) the executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement; and (C) the amount of the bonus or incentive compensation, as calculated under the restated financial results, is less than the amount actually paid or awarded under the original financial results.
The Board of Directors may, at any time, amend or terminate the LTIP or any award granted under the LTIP, provided that, except as provided in the LTIP, no amendment or termination may adversely impair the rights of an outstanding award without the participant’s (or affected beneficiary’s) written consent.
For fiscal year 2017, no awards were granted under LTIP to the named executive officers by the compensation committee.
Long Term Incentive Plan | | Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
| | | Weighted-average exercise
price of outstanding options,
warrants and rights
| | | Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities reflected
in column (a))
| | | | (a) | | | (b) | | | (c) | | Equity compensation plans approved by security holders | | | - | | | | - | | | | 1,149,000 | | Equity compensation plans not approved by security holders | | | - | | | | - | | | | - | | Total | | | - | | | | - | | | | 1,149,000 | |
Energy Services 401(k) Plan
401(k) Retirement Plans
We maintain the Energy Services of America Staff 401(k) Retirement Plan (the “Plan”). Our three wholly owned subsidiaries, C. J. Hughes Construction Company, Inc., Nitro Electric Company, Inc., and Contractors Rental Corporation adopted the Plan on behalf of their non-union employees. Employees are eligible to participate in the Plan upon completion of six months of service, but must wait until a quarterly entry date to join the Plan. Employees may contribute eligible wages up to the maximum indexed dollar amount set by the Internal Revenue Service, which was $18,000 for 2017. In addition, participants who are age 50 or older by the end of the Plan year may elect to defer up to an additional $6,000 into the 401(k) Plan for 2017. The Company provided a matching contribution to each participant’s account equal to 100% of each dollar contributed for the first 3% of eligible wages and 50% of each dollar contributed for the next 3% of eligible wages. The Company’s matching contribution is used by the Plan’s third-party administrator to purchase Energy Services of America stock from the open market. Additionally, each Plan year, the Company may make discretionary profit-sharing contributions for participants who are actively employed on the last day of the Plan year. The discretionary contributions will be allocated to a qualifying participant’s individual account based on the ratio of his or her compensation to the total compensation of all qualifying participants for the Plan year. No discretionary profit sharing contributions were made in 2017. Participants direct the investment of their account in the Plan, selecting from investment funds provided under the Plan. Participants receive quarterly benefit statements that provide information on their account balances and have immediate access to their account through an Interactive Voice Response System and the Internet. Plan benefits are paid as soon as administratively possible following the participant’s termination of employment. Lump sums, partial payments and installment payments are available if the participant’s account balance exceeds $1,000.
Energy Services of America Corporation 2009 Employee Stock Purchase Plan
The plan enables eligible employees to purchase common stock through payroll deductions. The plan is intended to qualify under Section 423 of the Internal Revenue Code and its regulations. Up to 1,200,000 shares of common stock, subject to adjustments, may be issued under this plan. An eligible employee’s stock purchases during a calendar year may not exceed the lesser of: (a) a percentage of the participant’s compensation or a total dollar amount as specified by the committee or (b) $25,000. During 2017, we did not utilize the plan.
Directors’ Compensation
Director Compensation.The table set forth below shows the compensation of our non-executive directors for the fiscal year ended September 30, 2017. We did not make any non-equity incentive plan awards to directors and there were no preferential earnings on nonqualified deferred compensation. Each Director received retainer fees of $1,000 per month. No fee payments were made for committee participation.
| Name | | Fees earned or paid in cash ($) | | | Stock Awards ($) | | | All other compensation ($) | | | Total | | | Marshall T. Reynolds | | $ | 12,000 | | | $ | - | | | $ | - | | | $ | 12,000 | | | Samuel G. Kapourales | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Jack M. Reynolds | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Neal W. Scaggs | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Joseph L. Williams | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Keith Molihan | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Nester S. Logan | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Bruce H. Elliott | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Charles Abraham | | | 12,000 | | | | - | | | | - | | | | 12,000 | | | Total | | $ | 108,000 | | | $ | - | | | $ | - | | | $ | 108,000 | |
ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Persons and groups who beneficially own in excess of five percent of our common stock are required to file certain reports with the
(a)Securities and Exchange Commission regarding such ownership. Authorized for issuance under Stock-Based Compensation Plans The following table sets forth,presents certain information regarding our Equity Compensation Plan in effect as of September 30, 2017, the shares of common stock beneficially owned by each person who was the beneficial owner of more than five percent of our outstanding shares of common stock, as well as the shares owned by our directors and executive officers as a group. | | | Amount of Shares Owned | | | Percent of Shares | | | | | | Percent of Shares | | | | | and Nature of Beneficial | | | of Common Stock | | | Preferred Shares | | | of Preferred Stock | | | Name and Address of Beneficial Owners | | Ownership (1) | | | Owned | | | Owned | | | Owned | | | | | | | | | | | | | | | | | All Directors and Executive Officers as a Group (11 persons) | | | 7,346,822 | (2) | | | 44.64 | % | | | 133 | | | | 64.56 | % | | | | | | | | | | | | | | | | | | | | Principal Stockholders: | | | | | | | | | | | | | | | | | | Marshall T. Reynolds | | | 2,375,685 | (3) | | | 15.66 | % | | | 56 | | | | 27.18 | % | | 75 West 3rd Ave. | | | | | | | | | | | | | | | | | | Huntington, WV 25701 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Douglas V. Reynolds | | | 1,613,930 | (4) | | | 11.14 | % | | | 15 | | | | 7.28 | % | | 75 West 3rd Ave. | | | | | | | | | | | | | | | | | | Huntington, WV 25701 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Samuel G. Kapourales | | | 761,474 | (5) | | | 5.25 | % | | | 16 | | | | 7.77 | % | | 75 West 3rd Ave. | | | | | | | | | | | | | | | | | | Huntington, WV 25701 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | GRT Capital Partners, L.L.C. | | | 936,675 | (6) | | | 6.58 | % | | | - | | | | - | | | One Liberty Square, 11th Floor | | | | | | | | | | | | | | | | | | Boston, Massachusettes 02109 | | | | | | | | | | | | | | | | |
2022: | (1) | In accordance with Rule 13d-3 under the Security Exchange Act | | | | | |
| Number of 1934, a person is deemedsecurities to be the beneficial owner |
| | | Number of securities | | | issued upon exercise of | | Weighted average | | remaining available for purposes of this table of any shares of common stock if he has sole or shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the date as of which beneficial ownership is being determined. As used herein, "voting power" is the power to vote or direct the voting of shares | Plan | | outstanding options and "investment power" is the power to dispose or direct the disposition of shares. Includes all shares held directly as well asrights | | exercise price | | issuance under plan | Equity compensation plans approved by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power.stockholders | | — | | — | | 1,500,000 |
Equity compensations plans not approved by stockholders | (2) | Includes 2,216,667 shares of common stock issuable upon conversion of shares of preferred stock.— | | — | | — |
Total | (3)
| Includes 933,333 shares of common stock issuable upon conversion of shares of preferred stock. |
— | (4)
| Includes 250,000 shares of common stock issuable upon conversion of shares of preferred stock. |
— | (5) | Includes 266,667 shares of common stock issuable upon conversion of shares of preferred stock. |
| (6) | From Schedule 13G/A dated December 31, 2016 and filed with the SEC on February 10, 2017.1,500,000 |
(b)Security Ownership of Certain Beneficial Owners The information required by this item is incorporated herein by reference to the section captioned “Security Ownership of Certain Beneficial Owners” in the Proxy Statement. (c)Security Ownership of Management The table below sets forth certain information regarding our Boardrequired by this item is incorporated herein by reference to the section captioned “Proposal I – Election of Directors and executive officers,Directors” in the Proxy Statement. (d)Changes in Control Management of the Company knows of no arrangements, including any pledge by any person of securities of the termsCompany, the operation of officewhich may at a subsequent date result in a change in control of board members and the ownership of our securities.registrant. | | | | | | | | | | | Shares of Common | | | | | | | | | | | | | | | | | | | | Current | | Stock Beneficially | | | Percent of | | | Preferred | | | Percent of | | | | | | | | | Director | | Term to | | Owned on Record | | | Common | | | Shares | | | Preferred | | | Names and Address (1) | | Age (2) | | Position Held | | Since | | Expire | | Date (3) | | | Shares | | | Owned | | | Shares | | | Directors and Executive Officers: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Marshall T. Reynolds | | 81 | | Chairman and Director | | 2006 | | 2017 | | | 2,375,685 | (4) | | | 15.66 | % | | | 56 | | | | 27.18 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Douglas V. Reynolds | | 41 | | President and Chief Executive Officer, | | 2008 | | 2017 | | | 1,613,930 | (5) | | | 11.14 | % | | | 15 | | | | 7.28 | % | | | | | | Director | | | | | | | | | | | | | | | | | | | | | | Samuel G. Kapourales | | 82 | | Director | | 2010 | | 2017 | | | 761,474 | (6) | | | 5.25 | % | | | 16 | | | | 7.77 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Jack M. Reynolds | | 52 | | Director | | 2006 | | 2017 | | | 458,216 | (7) | | | 3.21 | % | | | 1 | | | | 0.49 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Neal W. Scaggs | | 81 | | Director | | 2006 | | 2017 | | | 670,206 | (8) | | | 4.62 | % | | | 16 | | | | 7.77 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Joseph L. Williams | | 72 | | Director | | 2006 | | 2017 | | | 139,481 | (9) | | | 0.98 | % | | | 1 | | | | 0.49 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Keith Molihan | | 75 | | Director | | 2008 | | 2017 | | | 24,167 | (10) | | | 0.17 | % | | | 1 | | | | 0.49 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nester S. Logan | | 78 | | Director | | 2010 | | 2017 | | | 604,642 | (11) | | | 4.18 | % | | | 14 | | | | 6.80 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bruce H. Elliott | | 62 | | Director | | 2014 | | 2017 | | | 200,000 | | | | 1.40 | % | | | - | | | | 0.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Charles Abraham | | 74 | | Director | | 2016 | | 2017 | | | 493,921 | (12) | | | 3.42 | % | | | 13 | | | | 6.31 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Charles P. Crimmel | | 44 | | Chief Financial Officer | | n/a | | n/a | | | 5,101 | (13) | | | 0.04 | % | | | - | | | | 0.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Directors and Executive Officers as a Group (11 persons) | | | | | | | | | | | 7,346,822 | (14) | | | 44.64 | % | | | 133 | | | | 64.56 | % |
| (1) | The mailing address for each person is 75 West 3rd Ave., Huntington, WV 25701 |
| (2) | As of September 30, 2017. |
| (3) | In accordance with Rule 13d-3 under the Security Exchange Act of 1934, a person is deemed to be the beneficial owner for purposes of this table of any shares of common stock if he has sole or shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the date as of which beneficial ownership is being determined. As used herein, "voting power" is the power to vote or direct the voting of shares and "investment power" is the power to dispose or direct the disposition of shares. Includes all shares held directly as well as by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power. |
| (4) | Includes 933,333 shares of common stock issuable upon conversion of shares of preferred stock. |
| (5) | Includes 250,000 shares of common stock issuable upon conversion of shares of preferred stock and 19,870 common shares related to 401(k) match held by third party plan administrator. |
| (6) | Includes 266,667 shares of common stock issuable upon conversion of shares of preferred stock. |
| (7) | Includes 16,667 shares of common stock issuable upon conversion of shares of preferred stock. |
| (8) | Includes 266,667 shares of common stock issuable upon conversion of shares of preferred stock. |
| (9) | Includes16,667 shares of common stock issuable upon conversion of shares of preferred stock. |
| (10) | Includes 16,667 shares of common stock issuable upon conversion of shares of preferred stock. |
| (11) | Includes 233,333 shares of common stock issuable upon conversion of shares of preferred stock. |
| (12) | Includes 216,667 shares of common stock issuable upon conversion of shares of preferred stock. |
| (13) | Includes 5,101 shares of common stock related to 401(k) match held by third party plan administrator. |
| (14) | Includes 2,216,667 shares of common stock issuable upon conversion of shares of preferred stock. |
ITEM 13.Certain Relationships and Related Transactions, and Director Independence We intend that all transactions between us and our executive officers, directors, holders of 10% or more ofThe information required by this item is incorporated herein by reference to the shares of any class of our common stock and affiliates thereof, will be on terms no less favorable than those terms given to unaffiliated third parties and will be approved by a majority of our independent outside directors not having any interest in the transaction.
On December 16, 2014, the Company’s Nitro Electric subsidiary entered into a 20-year $1.2 million loan agreement with First Bank of Charleston, Inc. (West Virginia) to purchase the office building and property it had previously been leasing for $6,300 monthly. Mr. Douglas Reynolds, President of Energy Services, is a director and secretary of First Bank of Charleston. Mr. Nester Logan and Mr. Samuel Kapourales, directors of Energy Services, are also directors of First Bank of Charleston. The interest rate on the new loan agreement is 4.75% with monthly payments of $7,800. As of September 30, 2017, we have paid approximately $105,000 in principal and approximately $152,000 in interest since the beginning of the loan.
Other than as disclosed above, there were no related party transactions.
Board Independence
The Boardsections captioned “Proposal I – Election of Directors consists of a majority of “independent directors” within the meaning of the NYSE MKT corporate governance listing standards. The Board of Directors has determined that Messrs. Scaggs, Molihan, Logan, Williams, Kapourales, Abraham, and Elliott are “independent directors” within the meaning of such standards. There were no transactions not required to be reported under “—– Certain Relationships and Related Transactions” that were considered in determiningand “– Board Independence” of the independence of our directors.Proxy Statement.
ITEM 14.Principal Accountant Fees and Services Audit Fees
We were billedThe information required by Arnett Carbis Toothman, our independent registered public accountant, $111,798 and $148,116 forthis item is incorporated herein by reference to the services they have performed in connection with the audit of our financial statements included in our Annual Report for fiscal 2017 and 2016, respectively and for the review of interim financial statements included in our quarterly reports on Form 10-Q during these periods.
Audit-Related Fees
During fiscal years 2017 and 2016, we had no audit-related fees.
Tax Fees
During the fiscal years ended September 30, 2017 and 2016, we were billed by Arnett Carbis Toothman $22,822 and $34,209, respectively, for tax compliance services.
Employee Benefit Plan
During the fiscal years ended September 30, 2017 and 2016, we were billed by Arnett Carbis Toothman $38,619 and $30,000, respectively, for the services they performed in connection with the audit of our 401(k) Plan and Form 11-K filing.
All Other Fees
During fiscal years 2017 and 2016, we were billed by Arnett Carbis Toothman, $7,095 and $5,099, respectively, for fees billed for products and services provided by our independent registered public accounting firm other than those set forth above. These fees consisted primarily of travel and postage expenses.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Servicessection captioned “Proposal II – Ratification of Independent Registered Public Accounting Firm
The audit committee’s policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The audit committee has delegated pre-approval authority to its Chairman when expedition of services is necessary. The independent registered public accounting firm and management are required to periodically report to the full audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. AllFirm” of the fees paid in the audit-related, tax and all other categories during 2017 and 2016 were approved per the pre-approval policies.Proxy Statement.
PART IV ITEM 15.Exhibits and Financial Statement Schedules The exhibits and financial statement schedules filed as a part of this Form 10-K are as follows: | | | | | (a)(1) | | (a)(1) | Consolidated Financial Statements | | |
Energy Services of America Corporation
| | Energy Services of America Corporation | | | | | Report of Independent Registered Public Accounting Firm (PCAOB ID 23) | | F-1 | | | Consolidated Balance Sheets, September 30, 20172022 and September 30, 20162021. | F-2 | F-4 | | | Consolidated Statements of Income, Years Ended September 30, 20172022 and September 30, 20162021. | F-3 | F-5 | | | Consolidated Statements of Cash Flows, Years Ended September 30, 20172022 and September 30, 20162021. | F-4 | F-6 | | | Consolidated Statements of Changes in Shareholders’ Equity, Years Ended September 30, 20172022 and September 30, 20162021. | F-5 | F-7 | | | Notes to Consolidated Financial Statements.Statements. | F-6 | F-8 |
(a)(2) | (a)(2) | Consolidated Financial Statement Schedules | | | | | No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes. | | | (a)(3) | | Exhibits | | |
No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.
Exhibit No. | | Description | Exhibit No. |
| Description | 3.1 | | Amended and Restated Certificate of Incorporation (1) | 3.2 | | Bylaws (1) | 3.3 | | Certificate of Amendment to the Registrant’s Certificate of Incorporation (1) | 3.4 | | Certificate of Designations Series A Preferred Stock (5)(4) | 44.1 | | Form of Certificate of Common Stock (1) | 10.14.2 | | Description of Common Stock (5) | 10.1 | | Form of Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and the Registrant (1) | 10.2 | | Form of Stock Escrow Agreement between the Registrant, Continental Stock Transfer & Trust Company and the Initial Stockholders (1) | 10.3 | | Form of Letter Agreement between Chapman Printing Co. and the Registrant regarding administrative support (1) | 10.4 | | Form of Amended Registration Rights Agreement among the Registrant and the Initial Stockholders (1) | 10.5 | | Term Note Agreement with United Bank, Inc. (6)
| 10.6.1 | | Energy Services of America Corporation Employee Stock Purchase Plan (2) | 10.6.210.6 | | Severance Agreement, Waiver and Release of all Claims with Robert N. Riddle, Jr. (7) | 10.7 | | Energy Services of America Corporation Long Term2022 Equity Incentive Plan (3)(8) | 10.814 | | Line of Credit (2015) Agreement with United Bank, Inc. (7)
| 10.9 | | Line of Credit (2016) Agreement with United Bank, Inc. (8) | 14 | | Code of Ethics (1) | 2116.1 | | Letter disclosing combination dated November 1, 2021, from Baker Tilly US, LLP (6) | 16.2 | | Letter of Agreement dated November 1, 2021, form Baker Tilly US, LLP (6) | 21 | | List of subsidiaries | 23 | | Consent of Arnett Carbis ToothmanBaker Tilly US, LLP | 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 31.2 | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 32 | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | | | 101.INS | | XBRL Instance Document | 101.SCH | | XBRL Taxonomy Extension Schema Document | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | (1) | Incorporated by reference to the Registration Statement on Form S-1 of Energy Services of America Corp. (file no. 333-133111), originally filed with the Securities and Exchange Commission on April 7, 2006, as amended. |
(2)Filed as Appendix A to the Schedule 14-A filed with the Securities and Exchange Commission on October 16, 2008. (3) | (2) | Filed as Appendix A to the Schedule 14-A filed with the Securities and Exchange Commission on October 16, 2008. |
| (3) | Filed as Appendix A to the Schedule 14-A filed with the Securities and Exchange Commission on July 2, 2010. |
(4) | (4)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2013. |
(5) | Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 21, 2010.20, 2019. |
(6) | (5) | Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2013.November 5, 2021. |
(7) | (6)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2022. |
(8) | IncorporatedIncorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 4, 2014 |
| (7) | Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 3, 2015 |
| (8) | Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 201618, 2022. |
(b) The exhibits listed under (a)(3) above are filed herewith. (c) Not applicable. ITEM 16.Form 10-K Summary None. None.
Table of Contents Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | ENERGY SERVICES OF AMERICA CORPORATION | | | | Date: December 15, 201722, 2022 | By: | /s/ Douglas V. Reynolds | | | Douglas V. Reynolds | | | President and Chief Executive Officer | | | (Duly Authorized Representative) |
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | Name | | Position | | Date | | Name | | Position | | Date | By | | | | | | By | /s/ Marshall T. Reynolds | | Chairman of the Board | | December 15, 201722, 2022 | | Marshall T. Reynolds | | | | | | | | | | | By | /s/ Jack Reynolds | | Director | | December 15, 201722, 2022 | | Jack R. Reynolds | | | | | | | | | | | By | /s/ Charles P. Crimmel | | Chief Financial Officer | | December 15, 201722, 2022 | | Charles P. Crimmel | | (Principal Financial and Accounting Officer) | | | | | | Accounting Officer) | | | By | /s/ Amy E. Abraham | | Director | | | By | /s/ Neal W. ScaggsAmy E. Abraham | | Director | | December 15, 201722, 2022 | | Neal W. Scaggs | | | | | By | | | | | | By | /s/ Joseph L. Williams | | Director | | December 15, 201722, 2022 | | Joseph L. Williams | | | | | | | | | | | By | /s/ Keith MolihanMark S. Prince | | Director | | December 15, 201722, 2022 | | Keith MolihanMark S. Prince | | | | | | | | | | | By | /s/ NesterFrank S. LoganLucente | | Director | | December 15, 201722, 2022 | | NesterFrank S. LoganLucente | | | | | | | | | | | By | /s/ Bruce H. ElliottPatrick J. Farrell | | Director | | December 15, 201722, 2022 | | Bruce H. ElliottPatrick J. Farrell | | | | | | | | | | | By | /s/ Samuel G. Kapourales | | Director | | December 15, 201722, 2022 | | Samuel G. Kapourales | | | | | | | | | | | By | /s/ Charles Abraham | | Director | | December 15, 201722, 2022 | | Charles Abraham | | | | | | | | | | | By | /s/ Douglas V. Reynolds | | President and Chief | | December 15, 201722, 2022 | | Douglas V. Reynolds | | Executive Officer, and Director | | | | | | (Principal Executive Officer) | | |
Table of Contents | | | actcpas.com
101 Washington Street East
P.O. Box 2629
Charleston, WV 25329
304.346.0441 office│ 304.346.8333 fax
800.642.3601
|
Report of Independent Registered Public Accounting Firm REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Energy Services of America Corporation Huntington, West Virginia
Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Energy Services of America Corporation and subsidiaries (the Company) as of September 30, 20172022 and 2016, and2021, the related consolidated statements of income, stockholders’changes in shareholders’ equity and cash flows, for each of the two years then ended. in the period ended September 30, 2022, and the related notes (collectively referred to as, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of their operations and their cash flows for each of the two years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of itstheir internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion,
Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements referredthat were communicated or required to above present fairly,be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in allany way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Over-Time Revenue Recognition Critical Audit Matter Description As described in Notes 2 and 3 to the consolidated financial statements, the Company recognizes revenue from contracts with customers over time as performance obligations are satisfied and control of the promised good and service is transferred to the customer. The Company recognizes revenue on lump sum and unit price contracts by measuring the progress toward complete satisfaction of contractual performance obligations using an input method. For cost plus and time and material respects,contracts, the Company recognizes revenue from contracts with customers over time as control is transferred to the customer by measuring progress toward complete satisfaction of the performance obligations using an output method. We identified the evaluation of the Company’s estimates on significant construction contracts with customers and their effect on revenue recognition as a critical audit matter. The Company’s significant estimates include the determination of the performance obligations and allocation of transaction price and estimated costs to complete. Recognition of revenue and profit over time as performance obligations are satisfied for long-term lump sum and unit price contracts is highly judgmental as it requires the Company to prepare estimates of total contract revenue and total contract costs, including costs to complete in-process contracts. Auditing the Company’s estimates of total contract revenue and costs used to recognize revenue on construction contracts involved significant auditor judgement, as it required the evaluation of subjective factors such as assumptions related to project schedule and completion, forecasted labor, material and subcontract costs and variable consideration estimates related to incentive fees, unpriced change orders and contractual disputes and claims. These estimates are dependent upon significant management judgement, which affects the measurement of revenue recognized by the Company. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included: | ● | Evaluated the Company’s estimated revenue and costs to complete by obtaining and analyzing supporting documentation of management’s estimates of variable consideration and contract costs. |
| ● | Compared contract profitability estimates in the current year to historical estimates and actual performance. |
| ● | Tested samples of completed and in-process contracts and contract transactions by inspecting the underlying customer contracts, contract billing data, and contract cost source documentation, and evaluated the Company’s recognition of contract assets, liabilities, revenue, and costs of revenue in accordance with the Company’s revenue recognition policy. |
Valuation of Goodwill and Intangible Assets Associated with Business Combinations Critical Audit Matter Description As described in Note 24 to the consolidated financial positionstatements, the Company completed an asset purchase of Energy ServicesTri-State Paving & Sealcoating, LLC, for total consideration of America Corporation$9.9 million during the year ended September 30, 2022. The acquisition was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and subsidiariesthe liabilities assumed to be recognized at their fair values as of September 30, 2017the acquisition date. Auditing the accounting for these acquisitions was complex due to the significant estimation uncertainty in determining the fair values of assets acquired and 2016,liabilities assumed. We identified the valuation of intangible assets recorded in connection with the acquisition as a critical audit matter. The fair value estimates were based on underlying assumptions about future performance of the acquired business which involves significant estimation uncertainty. The significant assumptions used to form the basis of the forecasted results included revenue growth rates, earnings metrics, and discount rates. These significant assumptions were forward-looking and could be affected by future economic and market conditions. How We Addressed the results of their operations and their cash flows for the years then ended,Matter in conformity with U.S. generally accepted accounting principles.Our Audit The primary procedures we performed to address this critical audit matter included: | ● | Reviewed the valuation report prepared by the valuation specialist engaged by management to assist in the purchase price allocation, including the determination of fair values assigned to acquired intangible assets, and assessed the qualifications and objectivity of management’s specialist. |
| ● | Engaged an internal valuation specialist to assist the engagement team in evaluating the appropriateness of the Company’s selection of the valuation model, including the evaluation of significant assumptions, including growth rates, discount rate and economic lives. |
| ● | Evaluated the reasonableness of assumptions used by management in the cash flow model, which included comparing the significant assumptions to current industry, market and economic trends, historical results of the Company’s business, other companies within the same industry, and evidence obtained in other areas of the audit. |
| ● | Tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates used in the valuation reports, including historical and projected financial information. |
/s/ Arnett Carbis ToothmanBaker Tilly US, LLP Charleston, West Virginia
We have served as the Company’s auditor since 2008. Pittsburgh, Pennsylvania December 15, 201722, 2022 Bridgeport, WV • Buckhannon, WV • Charleston, WV • Columbus, OH • Meadville, PA • Morgantown, WV • New Castle, PA • Pittsburgh, PAF-3
ENERGY SERVICES OF AMERICA CORPORATION CONSOLIDATED BALANCE SHEETS As of September 30, 20172022 and 20162021 | | | 2017 | | | 2016 | | | Assets | | | | | | | | | | | | | | | | | Current assets | | | | | | | | | | Cash and cash equivalents | | $ | 1,663,222 | | | $ | 3,815,790 | | | Accounts receivable-trade | | | 23,140,272 | | | | 24,059,432 | | | Allowance for doubtful accounts | | | (108,200 | ) | | | (133,500 | ) | | Retainages receivable | | | 3,773,892 | | | | 5,810,474 | | | Other receivables | | | 96,242 | | | | 106,837 | | | Costs and estimated earnings in excess of billings on uncompleted contracts | | | 5,350,884 | | | | 5,953,818 | | | Prepaid expenses and other | | | 4,044,731 | | | | 2,485,101 | | | Assets of discontinued operations | | | 12,303 | | | | 12,303 | | | Total current assets | | | 37,973,346 | | | | 42,110,255 | | | | | | | | | | | | | Property, plant and equipment, at cost | | | 48,436,122 | | | | 39,375,505 | | | less accumulated depreciation | | | (29,243,614 | ) | | | (26,625,827 | ) | | Total fixed assets | | | 19,192,508 | | | | 12,749,678 | | | | | | | | | | | | | Deferred tax asset | | | 1,394,066 | | | | 1,399,152 | | | Long-term notes receivable | | | 137,281 | | | | 137,281 | | | | | | | | | | | | | Total assets | | $ | 58,697,201 | | | $ | 56,396,366 | | | | | | | | | | | | | Liabilities and shareholders' equity | | | | | | | | | | Current liabilities | | | | | | | | | | Current maturities of long-term debt | | $ | 4,562,918 | | | $ | 2,867,898 | | | Lines of credit and short term borrowings | | | 9,432,968 | | | | 6,232,943 | | | Accounts payable | | | 5,522,143 | | | | 5,006,427 | | | Accrued expenses and other current liabilities | | | 4,302,611 | | | | 5,933,571 | | | Billings in excess of costs and estimated earnings on uncompleted contracts | | | 2,173,965 | | | | 3,410,548 | | | Income tax payable | | | - | | | | 1,076,440 | | | Liabilities of discontinued operations | | | 28,671 | | | | 28,671 | | | Total current liabilities | | | 26,023,276 | | | | 24,556,498 | | | | | | | | | | | | | Long-term debt, less current maturities | | | 9,702,483 | | | | 7,390,099 | | | Deferred income taxes payable | | | 1,840,623 | | | | 1,926,077 | | | Total liabilities | | | 37,566,382 | | | | 33,872,674 | | | | | | | | | | | | | Shareholders' equity | | | | | | | | | | | | | | | | | | | | Preferred stock, $.0001 par value | | | | | | | | | | Authorized 1,000,000 shares, 206 issued at September 30, 2017 and 2016 | | | - | | | | - | | | | | | | | | | | | | Common stock, $.0001 par value | | | | | | | | | | Authorized 50,000,000 shares 14,839,836 issued and 14,239,836 outstanding at September 30, 2017 and 2016 | | | 1,484 | | | | 1,484 | | | | | | | | | | | | | Treasury stock, 600,000 shares at September 30, 2017 and 2016 | | | (60 | ) | | | (60 | ) | | | | | | | | | | | | Additional paid in capital | | | 61,289,260 | | | | 61,289,260 | | | Retained earnings (deficit) | | | (40,159,865 | ) | | | (38,766,992 | ) | | Total shareholders' equity | | | 21,130,819 | | | | 22,523,692 | | | Total liabilities and shareholders' equity | | $ | 58,697,201 | | | $ | 56,396,366 | |
| | | | | | | | | 2022 | | 2021 | Assets | | | | | | | Current assets | | | | | | | Cash and cash equivalents | | $ | 7,427,474 | | $ | 8,226,739 | Accounts receivable-trade | | | 38,525,223 | | | 21,092,517 | Allowance for doubtful accounts | | | (70,310) | | | (70,310) | Retainages receivable | | | 4,443,679 | | | 917,526 | Other receivables | | | 10,866 | | | 543,328 | Contract assets | | | 16,109,593 | | | 8,730,402 | Prepaid expenses and other | | | 3,945,968 | | | 3,541,000 | Total current assets | | | 70,392,493 | | | 42,981,202 | | | | | | | | Property, plant and equipment, at cost | | | 73,736,433 | | | 61,145,705 | less accumulated depreciation | | | (41,074,646) | | | (38,195,686) | Total fixed assets | | | 32,661,787 | | | 22,950,019 | | | | | | | | Right-of-use assets-operating lease | | | 1,611,321 | | | — | Intangible assets, net | | | 3,873,690 | | | 2,425,923 | Goodwill | | | 4,087,554 | | | 1,814,317 | | | | | | | | Total assets | | $ | 112,626,845 | | $ | 70,171,461 | | | | | | | | Liabilities and shareholders' equity | | | | | | | Current liabilities | | | | | | | Current maturities of long-term debt | | $ | 4,060,016 | | $ | 3,401,574 | Lines of credit and short term borrowings | | | 13,080,320 | | | 5,040,250 | Current maturities of operating lease liabilities | | | 588,653 | | | — | Accounts payable | | | 20,314,408 | | | 7,285,392 | Accrued expenses and other current liabilities | | | 11,266,008 | | | 5,599,702 | Contract liabilities | | | 6,027,578 | | | 3,153,290 | Total current liabilities | | | 55,336,983 | | | 24,480,208 | | | | | | | | Long-term debt, less current maturities | | | 13,494,084 | | | 9,020,774 | Long-term operating lease liabilities | | | 1,015,624 | | | — | Deferred tax liability | | | 4,455,079 | | | 2,033,433 | Total liabilities | | | 74,301,770 | | | 35,534,415 | | | | | | | | Shareholders' equity | | | | | | | | | | | | | | Preferred stock, $.0001 par value Authorized 1,000,000 shares, 0 issued and outstanding at September 30, 2022 and 206 issued and outstanding at September 30, 2021 | | | — | | | — | | | | | | | | Common stock, $.0001 par value Authorized 50,000,000 shares, 17,885,615 issued and 16,667,185 outstanding at September 30, 2022 and 14,839,836 issued and 13,621,406 outstanding at September 30, 2021 | | | 1,789 | | | 1,484 | | | | | | | | Treasury stock, 1,218,430 shares at September 30, 2022 and 2021 | | | (122) | | | (122) | | | | | | | | Additional paid in capital | | | 60,508,350 | | | 60,670,699 | Retained deficit | | | (22,184,942) | | | (26,035,015) | Total shareholders' equity | | | 38,325,075 | | | 34,637,046 | Total liabilities and shareholders' equity | | $ | 112,626,845 | | $ | 70,171,461 |
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements ENERGY SERVICES OF AMERICA CORPORATION CONSOLIDATED STATEMENTS OF INCOME For the years ended September 30, 20172022 and 20162021 | | | 2017 | | | 2016 | | | | | | | | | | | Revenue | | $ | 140,495,726 | | | $ | 155,481,145 | | | | | | | | | | | | | Cost of revenues | | | 132,711,810 | | | | 141,283,142 | | | | | | | | | | | | | Gross profit | | | 7,783,916 | | | | 14,198,003 | | | | | | | | | | | | | Selling and administrative expenses | | | 7,401,769 | | | | 7,293,323 | | | Income from operations | | | 382,147 | | | | 6,904,680 | | | | | | | | | | | | | Other income (expense) | | | | | | | | | | Other nonoperating income (expense) | | | (162,422 | ) | | | (158,246 | ) | | Interest expense | | | (833,424 | ) | | | (875,254 | ) | | Gain on sale of equipment | | | 145,575 | | | | 268,448 | | | | | | (850,271 | ) | | | (765,052 | ) | | Income (loss) from continuing operations before income taxes | | | (468,124 | ) | | | 6,139,628 | | | Income tax expense (benefit) | | | (80,368 | ) | | | 2,898,205 | | | Income (loss) from continuing operations | | | (387,756 | ) | | | 3,241,423 | | | Dividends on preferred stock | | | 309,000 | | | | 309,000 | | | Income (loss) from continuing operations available to common shareholders | | | (696,756 | ) | | | 2,932,423 | | | Income from discontinued operations net of tax expense of $0 in 2017 and 2016 | | | - | | | | - | | | Net income (loss) available to common shareholders | | $ | (696,756 | ) | | $ | 2,932,423 | | | | | | | | | | | | | Weighted average shares outstanding-basic | | | 14,239,836 | | | | 14,239,836 | | | Weighted average shares-diluted | | | 14,239,836 | | | | 17,673,169 | | | Earnings (loss) per share from continuing operations available to common shareholders | | $ | (0.049 | ) | | $ | 0.206 | | | Earnings (loss) per share from continuing operations-diluted available to common shareholders | | $ | (0.049 | ) | | $ | 0.166 | | | | | | | | | | | | | Earnings (loss) per share available to common shareholders | | $ | (0.049 | ) | | $ | 0.206 | | | | | | | | | | | | | Earnings (loss) per share-diluted available to common shareholders | | $ | (0.049 | ) | | $ | 0.166 | |
| | | | | | | | | 2022 | | 2021 | | | | | | | | Revenue | | $ | 197,590,000 | | $ | 122,465,826 | | | | | | | | Cost of revenues | | | 175,219,252 | | | 109,544,804 | | | | | | | | Gross profit | | | 22,370,748 | | | 12,921,022 | | | | | | | | Selling and administrative expenses | | | 15,878,138 | | | 14,044,232 | Income (loss) from operations | | | 6,492,610 | | | (1,123,210) | | | | | | | | Other income (expense) | | | | | | | Interest income | | | 576 | | | 286,645 | Paycheck Protection Program loan forgiveness | | | — | | | 9,839,100 | Other nonoperating expense | | | (248,006) | | | (58,742) | Interest expense | | | (887,931) | | | (557,320) | Gain on sale of equipment | | | 755,470 | | | 681,653 | | | | (379,891) | | | 10,191,336 | | | | | | | | Income before income taxes | | | 6,112,719 | | | 9,068,126 | | | | | | | | Income tax expense (benefit) | | | 2,262,646 | | | (29,129) | | | | | | | | Net income | | | 3,850,073 | | | 9,097,255 | | | | | | | | Dividends on preferred stock | | | — | | | 284,238 | | | | | | | | Net income available to common shareholders | | $ | 3,850,073 | | $ | 8,813,017 | | | | | | | | Weighted average shares outstanding-basic | | | 16,323,790 | | | 13,621,406 | | | | | | | | Weighted average shares-diluted | | | 16,323,790 | | | 16,988,424 | | | | | | | | Earnings per share | | | | | | | available to common shareholders | | $ | 0.24 | | $ | 0.65 | | | | | | | | Earnings per share-diluted | | | | | | | available to common shareholders | | $ | 0.24 | | $ | 0.52 |
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements ENERGY SERVICES OF AMERICA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended September 30, 20172022 and 20162021 | | | 2017 | | | 2016 | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | Net income (loss) available to common shareholders | | $ | (696,756 | ) | | $ | 2,932,423 | | | | | | | | | | | | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | Depreciation expense | | | 3,235,362 | | | | 2,503,471 | | | Gain on sale/disposal of equipment | | | (145,575 | ) | | | (268,448 | ) | | Provision for deferred taxes | | | (80,368 | ) | | | 1,470,498 | | | Decrease (increase) in contracts receivable | | | 893,860 | | | | (2,735,399 | ) | | Decrease (increase) in retainage receivable | | | 2,036,582 | | | | (2,496,479 | ) | | Decrease in other receivables | | | 10,595 | | | | 158,858 | | | Decrease in cost and estimated earnings in excess of billings on uncompleted contracts | | | 602,934 | | | | 791,559 | | | Increase in prepaid expenses | | | (1,559,630 | ) | | | (112,133 | ) | | Increase in accounts payable | | | 515,716 | | | | 1,254,235 | | | (Decrease) increase in accrued expenses | | | (1,630,960 | ) | | | 1,639,739 | | | (Decrease) increase in billings in excess of cost and estimated earnings on uncompleted contracts | | | (1,236,583 | ) | | | 738,254 | | | (Decrease) increase in income taxes payable | | | (1,076,440 | ) | | | 904,658 | | | Net cash provided by operating activities | | | 868,737 | | | | 6,781,236 | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | Investment in property & equipment | | | (2,788,272 | ) | | | (3,406,019 | ) | | Proceeds from sales of property and equipment | | | 275,122 | | | | 420,008 | | | Net cash used in investing activities | | | (2,513,150 | ) | | | (2,986,011 | ) | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | Dividends on common stock | | | (696,117 | ) | | | (695,367 | ) | | Borrowings on lines of credit and short term debt, net of (repayments) | | | 3,200,025 | | | | 1,716,708 | | | Principal payments on long term debt | | | (3,012,063 | ) | | | (2,500,054 | ) | | Net cash used in financing activities | | | (508,155 | ) | | | (1,478,713 | ) | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | (2,152,568 | ) | | | 2,316,512 | | | Cash beginning of period | | | 3,828,093 | | | | 1,511,581 | | | Cash end of period | | $ | 1,675,525 | | | $ | 3,828,093 | | | | | | | | | | | | | Supplemental schedule of noncash investing and financing activities: | | | | | | | | | | Purchases of property & equipment under financing agreements | | $ | 7,019,467 | | | $ | 3,579,023 | | | Insurance premiums financed | | $ | 3,524,350 | | | $ | 2,565,020 | | | | | | | | | | | | | Supplemental disclosures of cash flows information: | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | Interest | | $ | 833,424 | | | $ | 875,254 | | | Income taxes | | $ | 1,578,334 | | | $ | 310,401 | | | Insurance premiums | | $ | 3,203,954 | | | $ | 2,348,312 | | | Dividends paid on preferred stock | | $ | 309,000 | | | $ | 309,000 | |
| | | | | | | | | 2022 | | 2021 | | | | | | | | Cash flows from operating activities: | | | | | | | Net income | | $ | 3,850,073 | | $ | 9,097,255 | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | Depreciation expense | | | 5,568,929 | | | 4,661,789 | Paycheck Protection Program loan forgiveness | | | — | | | (9,839,100) | Gain on sale of equipment | | | (755,470) | | | (681,653) | Provision for deferred taxes | | | 2,421,646 | | | 211,677 | Provision for loss on contract | | | 248,770 | | | — | Amortization of intangible assets | | | 444,565 | | | 230,588 | Amortization of operating lease right-of-use assets | | | 98,711 | | | — | Accreted interest on operating lease right-of-use assets | | | 11,802 | | | — | Accreted interest on notes payable | | | 49,638 | | | — | Operating lease payments | | | (117,558) | | | — | Increase in contracts receivable | | | (17,432,706) | | | (2,845,528) | (Increase) decrease in retainage receivable | | | (3,526,153) | | | 1,566,283 | Decrease (increase) in other receivables | | | 532,462 | | | (533,870) | Increase in contract assets | | | (7,379,191) | | | (2,184,539) | Decrease (increase) in prepaid expenses and other | | | 2,948,003 | | | (202,057) | Increase in accounts payable | | | 13,029,016 | | | 2,063,170 | Increase in accrued expenses and other current liabilities | | | 5,417,842 | | | 953,534 | Increase (decrease) increase in contract liabilities | | | 2,874,288 | | | (1,698,610) | Net cash provided by operating activities | | | 8,284,667 | | | 798,939 | | | | | | | | Cash flows from investing activities: | | | | | | | Acquisition of Revolt Energy | | | — | | | (150,000) | Acquisition of West Virginia Pipeline, net of cash received of $250,000 | | | — | | | (3,250,000) | Investment in property and equipment | | | (5,308,189) | | | (6,047,693) | Acquisition of Ryan Environmental and Ryan Transport | | | (4,042,057) | | | — | Proceeds from sales of property and equipment | | | 1,071,723 | | | 758,391 | Net cash used in investing activities | | | (8,278,523) | | | (8,689,302) | | | | | | | | Cash flows from financing activities: | | | | | | | Preferred stock redemption | | | (1,210,525) | | | — | Preferred dividends paid | | | — | | | (309,000) | Borrowings on lines of credit and short-term debt, net of repayments | | | 4,687,099 | | | 8,030,407 | Principal payments on long-term debt | | | (4,281,983) | | | (2,821,125) | Net cash (used in) provided by financing activities | | | (805,409) | | | 4,900,282 | | | | | | | | Decrease in cash and cash equivalents | | | (799,265) | | | (2,990,081) | Cash and cash equivalents beginning of period | | | 8,226,739 | | | 11,216,820 | Cash and cash equivalents end of period | | $ | 7,427,474 | | $ | 8,226,739 | | | | | | | | Supplemental schedule of noncash investing and financing activities: | | | | | | | Purchases of property & equipment under financing agreements | | $ | 549,455 | | $ | 3,349,139 | Prepaid insurance premiums financed | | $ | 3,352,971 | | $ | 3,213,402 | Note payable to finance West Virginia Pipeline acquisition | | $ | — | | $ | 3,000,000 | Note payable to refinance short-term borrowing | | $ | — | | $ | 2,850,000 | Accrued dividends on preferred stock | | $ | — | | $ | 52,488 | Debt assumed in acquisitions for equipment | | $ | 390,445 | | $ | 205,829 | Sellers' note Tri-State Paving acquisition | | $ | 936,000 | | $ | — | Note payable to finance Tri-State Paving acquisition | | $ | 7,500,000 | | $ | — | Common stock issued to finance Tri-State Paving acquisition | | $ | 1,048,218 | | $ | — | Par value of common stock issued from preferred stock coversion | | $ | 263 | | $ | — | Operating lease right-of-use assets | | $ | 1,710,032 | | $ | — | | | | | | | | Supplemental disclosures of cash flows information: | | | | | | | Cash paid during the year for: | | | | | | | Interest | | $ | 846,129 | | $ | 557,320 | Income taxes | | $ | 50,231 | | $ | 251,996 |
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements of Cash Flows includes the discontinued operation, S.T. Pipeline. See the cash flows from discontinued operations on page F-12. ENERGY SERVICES OF AMERICA CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'SHAREHOLDERS’ EQUITY For the years ended September 30, 20172022 and 20162021 | | | | | | | | | | | | | | | | | | Total | | | | | Common Stock | | | Additional Paid | | | Retained | | | Treasury | | | Shareholders' | | | | | Shares | | | Amount | | | in Capital | | | Earnings (deficit) | | | Stock | | | Equity | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2015 | | | 14,239,836 | | | $ | 1,484 | | | $ | 61,289,260 | | | $ | (41,004,048 | ) | | $ | (60 | ) | | $ | 20,286,636 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income available to common shareholders | | | - | | | | - | | | | - | | | | 2,932,423 | | | | - | | | | 2,932,423 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends on common stock ($0.05 per share on 13,907,340 shares; 332,496 common shares are part of preferred units and were not eligible for the common dividend) | | | - | | | | - | | | | - | | | | (695,367 | ) | | | - | | | | (695,367 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2016 | | | 14,239,836 | | | $ | 1,484 | | | $ | 61,289,260 | | | $ | (38,766,992 | ) | | $ | (60 | ) | | $ | 22,523,692 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss available to common shareholders | | | - | | | | - | | | | - | | | | (696,756 | ) | | | - | | | | (696,756 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends on common stock ($0.05 per share on 13,922,336 shares; 317,500 common shares are part of preferred units and were not eligible for the common dividend) | | | - | | | | - | | | | - | | | | (696,117 | ) | | | - | | | | (696,117 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2017 | | | 14,239,836 | | | $ | 1,484 | | | $ | 61,289,260 | | | $ | (40,159,865 | ) | | $ | (60 | ) | | $ | 21,130,819 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | Common Stock | | Additional Paid | | Retained | | Treasury | | Shareholders' | | | Shares | | Amount | | in Capital | | Deficit | | Stock | | Equity | | | | | | | | | | | | | | | | | | | Balance at September 30, 2021 | | 13,621,406 | | $ | 1,484 | | $ | 60,670,699 | | $ | (26,035,015) | | $ | (122) | | $ | 34,637,046 | | | | | | | | | | | | | | | | | | | Net income | | — | | | — | | | — | | | 3,850,073 | | | — | | | 3,850,073 | | | | | | | | | | | | | | | | | | | Preferred share redemption, net of accrued dividends | | — | | | — | | | (1,210,525) | | | — | | | — | | | (1,210,525) | | | | | | | | | | | | | | | | | | | Preferred share conversion | | 2,626,492 | | | 263 | | | — | | | — | | | — | | | 263 | | | | | | | | | | | | | | | | | | | Shares issued for Tri-State Paving acquisition | | 419,287 | | | 42 | | | 1,048,176 | | | — | | | — | | | 1,048,218 | | | | | | | | | | | | | | | | | | | Balance at September 30, 2022 | | 16,667,185 | | $ | 1,789 | | $ | 60,508,350 | | $ | (22,184,942) | | $ | (122) | | $ | 38,325,075 | | | | | | | | | | | | | | | | | | | Balance at September 30, 2020 | | 13,621,406 | | $ | 1,484 | | $ | 60,670,699 | | $ | (34,848,032) | | $ | (122) | | $ | 25,824,029 | | | | | | | | | | | | | | | | | | | Net income | | — | | | — | | | — | | | 9,097,255 | | | — | | | 9,097,255 | | | | | | | | | | | | | | | | | | | Accrued preferred dividends | | — | | | — | | | — | | | (284,238) | | | — | | | (284,238) | | | | | | | | | | | | | | | | | | | Balance at September 30, 2021 | | 13,621,406 | | $ | 1,484 | | $ | 60,670,699 | | $ | (26,035,015) | | $ | (122) | | $ | 34,637,046 |
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements ENERGY SERVICES OF AMERICA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. | 1. | BUSINESS AND ORGANIZATION: |
Energy Services of America Corporation (“Energy Services” or the “Company”) was, formed in 2006, as a special purpose acquisition corporation, or blank check company. On August 15, 2008, Energy Services completed the acquisitions of S.T. Pipeline, Inc. (“S.T. Pipeline”) and C.J. Hughes Construction Company, Inc. (“C.J. Hughes”). Wholly owned subsidiary C.J. Hughes is a general contractor primarily engaged in pipeline construction for utility companies. C.J. Hughesand service company that operates primarily in the mid-Atlantic regionand central regions of the United States. Contractors Rental Corporation (“Contractors Rental”),States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries. For the gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. Energy Services is involved in the construction of both interstate and intrastate pipelines, with an emphasis on the latter. For the oil industry, the Company provides a wholly owned subsidiaryvariety of C.J. Hughes provides union building trade employees for projects managed by C.J. Hughes. Nitro Electric Company, Inc. (“Nitro Electric”), a wholly owned subsidiary of C. J. Hughes, is an electricalservices relating to pipeline, storage facilities and mechanical contractor that provides its services toplant work. For the power, chemical, and automotive industries. Nitro Electric operates primarilyindustries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, packaged buildings, transformers, and other ancillary work with regards thereto. Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction. The Company has also added the ability to install residential, commercial, and industrial solar systems and perform civil and general contracting services.
On October 6, 2021, the Company’s transfer agent completed the full redemption of all the Company’s 6.0% Convertible Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), which resulted in the mid-Atlantic regionissuance of 2,626,492 new shares of the Company’s common stock, the issuance of 317,500 common shares that were included in Series A Preferred Stock units, and cash redemption payments of $1.3 million. The Company’s total outstanding common shares after redemption was 16,247,898 as of October 6, 2021. On March 23, 2022, the Company’s common stock began trading on the Nasdaq Capital Market operated by The Nasdaq Stock Market, LLC under the symbol “ESOA”. Pursuant to the Asset Purchase Agreement signed on April 6, 2022, and amended on April 29, 2022, the Company acquired substantially all the assets (including but not limited to customer contracts, employees, and equipment) of Tri-State Paving, LLC for $7.5 million in cash, a $1.0 million promissory note, and $1.0 million in Energy Services common stock. The $7.5 million in cash was funded through a loan with United States. Pinnacle Technical Solutions,Bank, Inc., Huntington, West Virginia (“Pinnacle”United Bank”),. The transaction resulted in the issuance of 419,287 common shares. On August 11, 2022, Ryan Construction, a newly formed wholly owned subsidiary of Nitro Electric, operates as a data storage facility within Nitro Electric’s office building. Pinnacle is supportedEnergy Services, completed the acquisition of Ryan Environmental, LLC (“Ryan Environmental”), located in Bridgeport, WV, pursuant to an order issued by Nitro Electricthe United States Bankruptcy Court for the Northern District of West Virginia (the “Court”) on August 9, 2022 and has no employeesRyan Environmental Transport, LLC (“Ryan Transport”), located in Bridgeport, West Virginia, under the terms of its own. Allan Asset Purchase Agreement. As part of the C.J. Hughes, Nitro Electric, and Contractors Rental production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals. S.T. Pipeline engaged in the construction of natural gas pipelines for utility companies in various states, mostly in the mid-Atlantic area of the country. On May 14, 2013,business combination, the Company liquidated the operationacquired certain assets, including equipment, vehicles, and small tools, of S.T.Ryan Environmental for $3.0 million in cash and realized $1.9certain assets, including equipment and small tools, of Ryan Transport for $1.0 million from the sale of assets. The financial position and results of operations of S.T. Pipeline have been presented as discontinued operations in the accompanying financial statements for all presented periods.
cash. 2. | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
Revenue Recognition The Company recognizes revenue as performance obligations are satisfied and control of the promised good and service is transferred to the customer. For Lump Sum and Unit Price contracts, revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost to cost”) method. For Cost Plus and Time and Material (“T&M”) contracts, revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward satisfaction of the performance obligation(s) using an output method. The Company does have certain service and maintenance contracts in which each customer purchase order is considered its own performance obligation recognized over time and would be recognized depending on the type of contract mentioned above. The Company also does certain T&M service work that is generally completed in a short duration and is recognized at a point in time. All contract costs, including those associated with affirmative claims, change orders and back charges, are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors and outside equipment providers, direct overhead costs and internal equipment expense (primarily depreciation, fuel, maintenance and repairs). The Company recognizes revenue, but not profit, on certain uninstalled materials. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred), but the associated profit is not recognized until the materials are installed. The costs of uninstalled materials are tracked separately within the Company’s accounting software. Pre-contract and bond costs, if required, and mobilization costs on projects are generally immaterial to the total value of the Company’s contracts and are expensed when incurred. As a practical expedient, the Company recognizes these incremental costs as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. For projects expected to last greater than one year, mobilization costs are capitalized as incurred and amortized over the expected duration of the project. For these projects, mobilization costs will be tracked separately in the Company’s accounting software. This includes costs associated with setting up a project lot or lay-down yard, equipment, tool and supply transportation, temporary facilities and utilities and worker qualification and safety training. Contracts may require the Company to warranty that work is performed in accordance with the contract; however, the warranty is not priced separately, and the Company does not offer customers an option to purchase a warranty. Principles of Consolidation The consolidated financial statements of Energy Services include the accounts of Energy Services, and its wholly owned subsidiaries.subsidiaries West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving and C.J. Hughes and its subsidiaries, Contractors Rental, Nitro, and Pinnacle. All significant intercompany accounts and transactions have been eliminated in the consolidation. Unless the context requires otherwise, references to Energy Services include Energy Services, West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving and C.J. Hughes and its consolidated subsidiaries. Use of Estimates and Assumptions The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“U.S.GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and loss during the reporting period. Actual results could differ materially from those estimates. Cash and Cash Equivalents Energy Services considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Fair Value Measurements TheFair “Fair Value Measurements and DisclosuresMeasurement” Topicof the Financial Accounting Standards Board (FASB)(“FASB”) Accounting Standards Codification (“ASC”) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principlesaccordance with U.S. GAAP and expandsspecifies disclosures about fair value measurements. Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair“Fair Value MeasurementsMeasurement” Topic of the FASB Accounting Standards Codification establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. As noted above, there is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. Level 3 — Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market data. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying amount for borrowings under the Company’s revolving credit facility approximates fair value because of the variable market interest rate charged to the Company for these borrowings. The fair value of the Company’s long term fixed-rate debt to unrelated parties 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 $23.7$15.0 million at September 30, 20172022 was $23.6$14.5 million. The Company uses fair value measurements on a non-recurring basis in its assessment of goodwill and long-lived assets held and used. In accordance with its annual impairment test during the quarter ended September 30, 2012, the Company recorded a goodwill impairment charge of $36.9 million, which represented the entire amount of goodwill carried on the Company’s balance sheet. The fair value measurements were calculated using unobservable inputs, using a weighted average of the discounted cash flow approachaggregate principal amount of the Company’s fixed-rate debt of $10.0 million at September 30, 2021 was $9.9 million.
All other current assets and two market approach analyses, all ofliabilities are carried at net realizable value which are classified as Level 3 within theapproximates fair value hierarchy. The amount and timingbecause of future cash flows was based on our most recent operational budgets. The Company uses the assistance of third party specialiststheir short duration to develop valuation assumptions. Refer to Note 4, Goodwill and Intangible Assets, for further information. maturity. Accounts Receivable and Allowance for Doubtful Accounts The Company’s accounts receivable consists of amounts that have been billed to customers. Collateral is generally not required. A majority of the Company’s contracts have monthly billing terms and payment terms within 30 to 45 days after invoices have been issued. The Company attempts to negotiate two-week billing terms and 15-day payment terms on larger projects. The timing of billings to customers may generate contract assets or contract liabilities. Certain construction contracts include retention provisions to provide assurance to our customers that we will perform in accordance with the contract terms and are therefore not considered a financing benefit. The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the customer. We have determined there are no significant financing components in our contracts as of and for the years ended September 30, 2022 and 2021. Retainage billed but not paid pursuant to contract provisions will be due upon completion of the contracts. Based on the Company’s experience, management considers all amounts classified as retainage receivable to be collectible. All retainage receivable amounts are expected to be collected within the next fiscal year. The Company provides an allowance for doubtful accounts when collection of an account or note receivable is considered doubtful, and receivables are written off against the allowance when deemed uncollectible. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer’s access to capital, the customer’s willingness or ability to pay, general economic conditions and the ongoing relationship with the customer. Retainage billed but not paid pursuant to contract provisions will be due upon completion of the contracts. Based on the Company’s past experience management considers all amounts classified as retainage receivable to be collectible. All retainage receivable amounts are expected to be collected within the next fiscal year. Property and Equipment Property and equipment are recorded at cost. Costs which extend the useful lives or increase the productivity of the assets are capitalized, while normal repairs and maintenance that do not extend the useful life or increase productivity of the asset are expensed as incurred. Property and equipment are depreciated principally on the straight-line method over the estimated useful lives of the assets: buildings 39 years; operating equipment and vehicles 5-75-7 years; and office equipment, furniture and fixtures 5-75-7 years. Intangible Assets Goodwill and Other Intangibles
The Company’s goodwill was acquiredAcquired intangible assets subject to amortization are amortized on a straight-line basis, which approximates the pattern in two separate purchase transactions that were consummated on August 15, 2008. The Company selected July 1 for its annual impairment testing date, which is the first dayeconomic benefit of the fourth fiscal quarter. In accordance with U.S. Generally Accepted Accounting Principles, goodwill was to be tested for impairment between annual testing dates if an event occurred or circumstances changed that would have more likely than not reducedrespective intangible assets are realized, over their respective estimated useful lives. The definite-lived identifiable intangible assets recognized as part of the Company's business combinations are recorded at their estimated fair value of a reporting unit below its carrying amount. An impairment charge of $36.9 million was recorded in the fourth fiscal quarter of 2012 as further disclosed in Note 4 to the financial statements.
value. Impairment of Long-Lived Assets A long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to market value is required. Revenue Recognition
Revenues from fixed price contracts are recognized using the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs at completion. These contracts provide for a fixed amount of revenues for the entire project. Such contracts provide that the customer accept completion of progress to date and compensate us for the services rendered, measured in terms of units installed, hours expended or some other measure of progress. Contract costs include all direct material, labor and subcontract costs and those indirect costs related to contract performance, such as indirect labor, tools and expendables. The cost estimates are based on the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Changes in job performance, job conditions, and others all affect the total estimated costs at completion. The effects of these changes are recognized in the period in which they occur. Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined. The current asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed for fixed price contracts. The current liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized for fixed price contracts. Revenue on all costs plus and time and material contracts are recognized when services are performed or when units are completed.
Claims Claims are amounts in excess of the agreed contract price that a contractor seeks to collect from customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs. The Company records revenue on claims that have a high probability of success.management believes are probable. Revenue from a claim is recorded only to the extent that contract costs relating to the claim have been incurred. Self Insurance -Insurance The Company has its workers compensation, general liability and auto insurance through a captive insurance company. While the Company believes that this arrangement has been very beneficial in reducing and stabilizing insurance costs, the Company does havehas to maintain a restricted cash accountsurety deposit to guarantee payments of premiums. That restricted accountThe surety deposit had a balance of $1.9$1.8 million and $2.1 million as of September 30, 2017,2022 and 2021, respectively, which is in “Prepaid expenses and other” on the Company’s Consolidated Balance Sheets. Should the captive experience severe losses over an extended period, it could have a detrimental effect onincrease the Company. Company’s insurance expense or surety deposit required. Advertising All advertising costs are expensed as incurred. Total advertising expense was $102,000$17,000 and $81,000$55,000 for the years ended September 30, 20172022 and 2016,2021, respectively. Stock Compensation Plans The Company has issued restricted stock under its Long-Term Incentive Plan. The Company accounts for its equity basedequity-based compensation as prescribed by U.S. Generally Accepted Accounting PrinciplesGAAP for share-based payments. The Company has adopted a fair value basedvalue-based method of accounting for employee equity basedequity-based plans, whereby compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. As a result, compensation expense relating to stock compensation plans will be reflected in net income as part of “Salaries“Selling and employee benefits”administrative expenses” on the Consolidated Statements of Income. For the year ending September 30, 2017 and 2016 respectively, $0 and $0 was recognized as compensation expense.
Income Taxes The Company and all subsidiaries file a consolidated federal and various state income tax returns on a fiscal year basis. With few exceptions, the companyCompany is no longer subject to U.S. federal, state, or local income tax examinations for years ending prior to September 30, 2014.2019. The Company follows the liability method of accounting for income taxes in accordance with U.S. Generally Accepted Accounting Principles.GAAP. Under this method, deferred tax assets and liabilities are recorded for future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the underlying assets or liabilities are recovered or settled. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. U.S. GAAP also prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or to be taken on a tax return. This evaluation is a two-step process. First, the recognition process determines if it is more likely than not that a tax position will be sustained based on the merits of the tax position upon examination by the appropriate taxing authority. Second, a measurement process is calculated to determine the amount of benefit/expense to recognize in the financial statements if a tax position meets the more likely than not recognition threshold. The tax position is measured at the greatest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement. Any interest and penalty related to the unrecognized tax benefits, as the result of recognition of tax obligations resulting from uncertain tax positions, are included in the provision for income taxes. The Company had not recognized any uncertain tax positions at September 30, 2022 or 2021. Earnings Per Common Share Basic earnings per share is computed using the weighted average number of common shares outstanding during the year, and diluted earnings per share is computed using the weighted average number of common shares outstanding during the year adjusted for all potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalent would be anti-dilutive. Collective Bargaining Agreements Certain Energy Services subsidiaries are party to collective bargaining agreements with unions representing certain of their employees.members that are employed by the Company. The agreements require such subsidiaries to pay specified wages and provide certain benefits to the union employees. These agreements expire at various times and have typically been renegotiated and renewed on terms that are similar to the ones contained in the expiring agreements. Under certain collective bargaining agreements, the applicable Energy Services subsidiary is required to make contributions to multi-employer pension plans. If the subsidiary were to cease participation in one or more of these plans, a liability could potentially be assessed related to any underfunding of these plans. The amount of such assessment, were one to be made, cannot be reasonably estimated. Litigation Costs The Company recognizes reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Litigation costs are expensed as incurred. Reclassifications
Certain reclassifications have been made to prior year end financial statements to conform to the classification adopted of the current year.
New Accounting Pronouncements In August 2015,On October 28, 2021, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09released Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805): Accounting for all entities by one year. In June 2014, the FASB issued ASU 2014-09, “RevenueContract Assets and Contract Liabilities from Contracts with Customers“ (“Customers”. The amendments of this ASU 2014-09”). ASU 2014-09 affects any entity that either enters intorequire entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers to transfer goods or services or enters intoacquired in a business combination and revenue contracts for the transfer of nonfinancial assets unless those contractswith customers not acquired in a business combination. The amendments are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606 Revenue from Contracts with Customers. With the amendments in ASU 2015-14, ASU 2014-09 will be effective for the Company beginning after December 15, 2017, including interim periods. In September 2017, the FASB issued ASU 2017-13 which amends the early adoption date option for certain companies related to the adoption of ASU 2014-09. The Company expects that the adoption of ASU 2014-09 will not have a material impact on its financial statements or disclosure.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 is effective for public business entities for fiscal years, beginning after December 15, 2018 including interim periods within those fiscal years. Amongyears, beginning after December 15, 2022. For all other things, lesseesentities they are effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Entities should apply the amendments prospectively to business combinations that occur after the effective date. Early adoption is permitted, including in any interim period, for public business entities for periods for which financial statements have not yet been issued, and for all other entities for periods for which financial statements have not yet been made available for issuance. The Company is currently assessing the effect that ASU 2021-08 will behave on their results of operations, financial position and cash flows; however, the Company does not expect a significant impact.
The FASB recently issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”, which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. Entities are required to recognizeprovide the followingnew disclosures prospectively for all leases (excepttransactions with a government entity that are accounted for short-term leases)under either a grant or a contribution accounting model and are reflected in the financial statements at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company expects that the adoption of ASU 2016-02 will not have a material impact on its financial statements or disclosure. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The effective date of initially applying the new amendments, and to new transactions entered into after that date. Retrospective application of the guidance is permitted. The guidance in ASU 2016-20 is the same date that Topic 6062021-10 is effective for publicfinancial statements of all entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein.2021, with early application permitted. ASU 2021-10 has not become effective for the Company; however, a significant impact is not expected.
Subsequent Events On October 10, 2022, the Company entered into a $3.1 million promissory note agreement with United Bank to finance the Ryan Environmental acquisition. This is a five-year agreement with a fixed interest rate of 6.0% and monthly payments of $59,932 beginning on November 10, 2022. In February 2018, the Company filed a lawsuit against a former customer in the United States District Court for the Western District of Pennsylvania. The amendments in ASU 2016-20 affect narrow aspectslawsuit is related to a dispute over work performed on a pipeline construction project. On November 16, 2022, a Judgement 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. None of the guidance issuedaward had been recognized in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liability, and Advertising Costs. The Company expects that the adoption of ASU 2016-20 will not have a material impact on itsCompany’s consolidated financial statements as of September 30, 2022. 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. Management has evaluated all subsequent events for accounting and disclosure. There have been no other material events during the period, other than noted above, that would either impact the results reflected in the report or disclosure.the Company’s results going forward. Our revenue is primarily derived from construction contracts that can span several quarters. We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606” or “Topic 606”) which provides for a five-step model for recognizing revenue from contracts with customers as follows: | 2. | Identify performance obligations |
| 3. | DISCONTINUED OPERATIONSDetermine the transaction price |
| 4. | Allocate the transaction price |
The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project. We believe our experience allows us to create materially reliable estimates. There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include: | ● | the completeness and accuracy of the original bid; |
| ● | costs associated with scope changes; |
| ● | changes in costs of labor and/or materials; |
| ● | extended overhead and other costs due to owner, weather and other delays; |
| ● | subcontractor performance issues; |
| ● | changes in productivity expectations; |
| ● | site conditions that differ from those assumed in the original bid; |
| ● | changes from original design on design-build projects; |
| ● | the availability and skill level of workers in the geographic location of the project; |
| ● | a change in the availability and proximity of equipment and materials; |
| ● | our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs; and |
| ● | the customer’s ability to properly administer the contract. |
The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit from period to period. Significant changes in cost estimates, particularly in our larger, more complex projects, could have a significant effect on our profitability. Our contract assets include cost and estimated earnings in excess of billings that represent amounts earned and reimbursable under contracts, including claim recovery estimates, but have a conditional right for billing and payment such as achievement of milestones or completion of the project. With the exception of customer affirmative claims, generally, such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next three months. Settlement with the customer of outstanding affirmative claims is dependent on the claims resolution process and could extend beyond one year. Based on our historical experience, we generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced. 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. 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. 4. | DISAGGREGATION OF REVENUE |
Due to organizational changes and operating losses incurred in fiscal year 2012, the Company decided to discontinue the operations of the wholly owned subsidiary S.T. Pipeline, Inc. The Company liquidated the assets of S.T. Pipeline on May 14, 2013. The net proceeds of $7,233,913 went to a designated bank group to reduce the balancedisaggregates revenue based on the Company’s Linefollowing lines of Credit (LOC)service: (1) Gas & Water Distribution, (2) Gas & Petroleum Transmission, and term note balances.
There were no operating results(3) Electrical, Mechanical, & General services and construction. Certain reclassifications have been made to the year ended September 30, 2021, to reflect the current presentation. Our contract types are: Lump Sum, Unit Price, Cost Plus and T&M. The following tables present our disaggregated revenue for S.T. Pipeline, Inc. for the fiscal years ended September 30, 20172022 and 2016.2021:
| | | | | | | | | | | | | | | Year Ended September 30, 2022 | | | | | | | | | Electrical, | | | | | | Gas & Water | | Gas & Petroleum | | Mechanical, | | Total revenue | | | Distribution | | Transmission | | and General | | from contracts | Lump sum contracts | | $ | — | | $ | — | | $ | 49,451,175 | | $ | 49,451,175 | Unit price contracts | | | 53,311,569 | | | 55,637,622 | | | 525,092 | | | 109,474,283 | Cost plus and T&M contracts | | | — | | | 2,630,879 | | | 36,033,663 | | | 38,664,542 | Total revenue from contracts | | $ | 53,311,569 | | $ | 58,268,501 | | $ | 86,009,930 | | $ | 197,590,000 | | | | | | | | | | | | | | Earned over time | | $ | 34,493,112 | | $ | 54,551,248 | | $ | 83,557,477 | | $ | 172,601,837 | Earned at point in time | | | 18,818,457 | | | 3,717,253 | | | 2,452,453 | | | 24,988,163 | Total revenue from contracts | | $ | 53,311,569 | | $ | 58,268,501 | | $ | 86,009,930 | | $ | 197,590,000 |
| | | | | | | | | | | | | | | Year Ended September 30, 2021 | | | | | | | | | Electrical, | | | | | | Gas & Water | | Gas & Petroleum | | Mechanical, | | Total revenue | | | Distribution | | Transmission | | and General | | from contracts | Lump sum contracts | | $ | — | | $ | — | | $ | 37,691,770 | | $ | 37,691,770 | Unit price contracts | | | 40,440,195 | | | 20,928,518 | | | — | | | 61,368,713 | Cost plus and T&M contracts | | | — | | | 1,204,965 | | | 22,200,378 | | | 23,405,343 | Total revenue from contracts | | $ | 40,440,195 | | $ | 22,133,483 | | $ | 59,892,148 | | $ | 122,465,826 | | | | | | | | | | | | | | Earned over time | | $ | 26,244,396 | | $ | 20,928,518 | | $ | 58,796,767 | | $ | 105,969,681 | Earned at point in time | | | 14,195,799 | | | 1,204,965 | | | 1,095,381 | | | 16,496,145 | Total revenue from contracts | | $ | 40,440,195 | | $ | 22,133,483 | | $ | 59,892,148 | | $ | 122,465,826 |
5. CONTRACT BALANCES The following table shows the componentsCompany’s accounts receivable consists of assetamounts that have been billed to customers and liabilities that are classified as discontinued operations incollateral is generally not required. Most of the Company’s consolidated balances sheetscontracts have monthly billing terms; however, billing terms for some are based on project completion. Payment terms are generally within 30 to 45 days after invoices have been issued. The Company attempts to negotiate two-week billing terms and 15-day payment terms on larger projects. The timing of billings to customers may generate contract assets or contract liabilities. During the yearstwelve months ended September 30, 2017 and 2016. | | | September 30, | | | September 30, | | | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | Cash | | $ | 12,303 | | | $ | 12,303 | | | Assets of discontinued operations-current | | | 12,303 | | | | 12,303 | | | | | | | | | | | | | Total assets of discontinued operations | | | 12,303 | | | | 12,303 | | | | | | | | | | | | | Accrued expenses and other current liabilities | | | 28,671 | | | | 28,671 | | | Liabilities of discontinued operations-current | | | 28,671 | | | | 28,671 | | | Total liabilities of discontinued operations | | | 28,671 | | | | 28,671 | | | | | | | | | | | | | Net liabilities | | $ | (16,368 | ) | | $ | (16,368 | ) |
The $29,0002022, we recognized revenue of $3.0 million that was included in accrued expenses and other current liabilitiesthe contract liability balance at September 30, 20172021.
Accounts receivable-trade, net of allowance for doubtful accounts, contract assets and 2016 representscontract liabilities consisted of the following: | | | | | | | | | | | | September 30, 2021 | | September 30, 2022 | | Change | | | | | | | | | | | Accounts receivable-trade, net of allowance for doubtful accounts | | $ | 21,022,207 | | $ | 38,454,913 | | $ | 17,432,706 | | | | | | | | | | | Contract assets | | | | | | | | | | Cost and estimated earnings in excess of billings | | $ | 8,730,402 | | $ | 16,109,593 | | $ | 7,379,191 | | | | | | | | | | | Contract liabilities | | | | | | | | | | Billings in excess of cost and estimated earnings | | $ | 3,153,290 | | $ | 6,027,578 | | $ | 2,874,288 |
6. PERFORMANCE OBLIGATIONS For the year ended September 30, 2022, there was no revenue recognized as a reserve for any unexpected expensesresult of changes in contract transaction price related to performance obligations that were satisfied prior to September 30, 2021. The changes in contract transaction price were from items such as executed or estimated change orders, and unresolved contract modifications and claims. For the year ended September 30, 2021, we recognized revenue of $430,000 as a result of changes in contract transaction price related to performance obligations that were satisfied prior to September 30, 2020. The changes in contract transaction price may be incurred by the discontinued operation. As offor items such as executed or estimated change orders, and unresolved contract modifications and claims. At September 30, 2017,2022, the Company had paid all debts known$69.5 million in remaining unsatisfied performance obligations, in which revenue is expected to exist to the unsecured creditors of the discontinued operation.be recognized in less than twelve months. F-117. | ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Cash flows from discontinued operations for years ended September 30, 2017 and 2016 are as follows:
| | | 2017 | | | 2016 | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | Net income | | $ | - | | | $ | - | | | | | | | | | | | | | Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | | | Provision for deferred taxes | | | - | | | | 1,720,783 | | | Decrease in accounts payable | | | - | | | | (80,345 | ) | | Increase (decrease) in accrued expenses | | | - | | | | 7,607 | | | Advance from (to) parent | | | - | | | | (1,654,283 | ) | | Net cash used in operating activities | | | - | | | | (6,238 | ) | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | - | | | | - | | | Net cash used in investing activities | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | - | | | | - | | | Net cash used in financing activities | | | - | | | | - | | | | | | | | | | | | | Decrease in cash and cash equivalents | | | - | | | | (6,238 | ) | | Cash beginning of period | | | 12,303 | | | | 18,541 | | | Cash end of period | | $ | 12,303 | | | $ | 12,303 | | | | | | | | | | | | | Supplemental schedule of noncash investing and financing activities: | | | | | | | | | | None | | $ | - | | | $ | - | | | | | | | | | | | | | Supplemental disclosures of cash flows information: | | | | | | | | | | None | | $ | - | | | $ | - | |
The Company does not anticipate cash flow activity from the discontinued operation, S.T. Pipeline.
| 4. | GOODWILL AND INTANGIBLE ASSETS |
In the fourth fiscal quarter of 2012, the Company recorded a goodwill impairment charge of $36.9 million, which represented the entire amount of goodwill carried on the Company’s balance sheet. The Company determined that its goodwill was impaired largely due to lower revenue and profitability associated with the Company’s long term financial forecasts. The Company measured the amount of impairment by calculating the amount by which the carrying value exceeded the estimated fair value which was based on projected discounted cash flows (level 3).
The fair value measurements were calculated using unobservable inputs, using a weighted average of the discounted cash flow approach and two market approach analyses. The amount and timing of future free cash flows was based on current operational budgets and long range strategic plans. The Company used the assistance of third party specialists to develop valuation assumptions. The Company’s operating losses in fiscal years 2011 and 2012 and the Forbearance Agreement existing at that time were considered in the cash flow analysis.
Activity in the Company’s allowance for doubtful accounts consists of the following: | | | Year Ended September 30, | | | | | | 2017 | | | 2016 | | | | Continuing operations | | | | | | | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2022 | | 2021 | | | | | | | | | | Balance at beginning of year | | $ | 133,500 | | | $ | 147,922 | | | $ | 70,310 | | $ | 70,310 | | Charged to expense | | | - | | | | - | | | | — | | | — | | Deductions for uncollectible receivables written off, net of recoveries | | | (25,300 | ) | | | (14,422 | ) | | | — | | | — | | Balance at end of year | | $ | 108,200 | | | $ | 133,500 | | | $ | 70,310 | | $ | 70,310 |
8. | 6. | UNCOMPLETED CONTRACTS |
Costs and estimated earnings in excess of billings on uncompleted contracts are included in contract assets on the Consolidated Balance Sheets. Billings in excess of costs and estimated earnings on uncompleted contracts are included in contract liabilities on the Consolidated Balance Sheets. Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows: | | | Year Ended September 30, | | | | | | 2017 | | | 2016 | | | | | | | | | | | | | | September 30, | | September 30, | | | | 2022 | | 2021 | | Costs incurred on contracts in progress | | $ | 143,738,101 | | | $ | 134,163,585 | | | $ | 192,957,145 | | $ | 64,903,618 | | Estimated earnings, net of estimated losses | | | 9,573,781 | | | | 16,592,644 | | | | 28,150,060 | | | 13,280,334 | | | | | 153,311,882 | | | | 150,756,229 | | | | | | | 221,107,205 | | | 78,183,952 | | Less billings to date | | | 150,134,963 | | | | 148,212,959 | | | | 211,025,190 | | | 72,606,840 | | | | $ | 3,176,919 | | | $ | 2,543,270 | | | | | | | | | | | | | | | | | $ | 10,082,015 | | $ | 5,577,112 | | | | | | | | | | Costs and estimated earnings in excess of billed on uncompleted contracts | | $ | 5,350,884 | | | $ | 5,953,818 | | | $ | 16,109,593 | | $ | 8,730,402 | | | | | | | | | | | | | Less billings in excess of costs and estimated earnings on uncompleted contracts | | | 2,173,965 | | | | 3,410,548 | | | | 6,027,578 | | | 3,153,290 | | | | | | | | | | | | | | | $ | 3,176,919 | | | $ | 2,543,270 | | | | | | $ | 10,082,015 | | $ | 5,577,112 |
The Company’s unaudited backlog at September 30, 2022, and September 30, 2021, was $142.3 million and $72.2 million, respectively. The Company does not have any claims receivable as of September 30, 2017.2022 and 2021. Claims receivable is a component of cost and estimated earnings in excess of billing. contract assets. The Company has one project with a $248,000 provision for loss at September 30, 2022. The provision is recorded as cost of revenues on the Company’s 2022 consolidated statements of income and accrued expenses and other current liabilities on the Company’s consolidated balance sheet at September 30, 2022. 11. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consistsconsist of the following: | | | Year Ended September 30, | | | | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2022 | | 2021 | | | | | | | | | | Land | | $ | 2,081,101 | | | $ | 1,846,641 | | | $ | 2,942,190 | | $ | 2,748,532 | | Buildings and leasehold improvements | | | 4,361,550 | | | | 3,431,142 | | | | 9,291,898 | | | 8,194,827 | | Operating equipment and vehicles | | | 41,373,376 | | | | 33,533,462 | | | | 60,245,329 | | | 48,941,730 | | Office equipment, furniture and fixtures | | | 583,361 | | | | 532,401 | | | | 1,046,172 | | | 948,297 | | Assets not yet in service | | | 36,734 | | | | 31,859 | | | | 210,844 | | | 312,319 | | | | | 48,436,122 | | | | 39,375,505 | | | | | | | 73,736,433 | | | 61,145,705 | | Less accumulated depreciation | | | 29,243,614 | | | | 26,625,827 | | | | 41,074,646 | | | 38,195,686 | | | | | | | | | | | | | Property and equipment, net | | $ | 19,192,508 | | | $ | 12,749,678 | | | Property, plant and equipment, net | | | $ | 32,661,787 | | $ | 22,950,019 |
Short-term debt consists of the following: On March 21, 2017,July 13, 2022, the Company entered intoreceived a financing agreement (“Operating Lineone-year extension on its operating line of Credit (2017)”) with United Bank, Inc. to provide the Company with acredit effective June 28, 2022. The $15.0 million revolving line of credit. credit has a $12.5 million component and a $2.5 million component. The Company can borrow from the $12.5 million component first and then from the additional $2.5 million component if additional requirements are met. The covenant requirement for both components are below. Based on the borrowing base calculation, the Company borrowed all $12.5 million available on the line of credit as of September 30, 2022. The Company did not meet the requirements to borrow any from the $2.5 million component. The interest rate on the line of credit is the “Wall“Wall Street Journal”Journal” Prime Rate (the index) with a floor of 4.99%. The effective date of this agreementinterest rate at September 30, 2022, was February 27, 2017 and it replaced5.5%. Based on the $15.0borrowing base calculation, the Company was able to borrow up to $12.2 million revolving line of credit (“Operating Line of Credit (2016)”) entered into with United Bank, Inc. effective February 27, 2016. The Company had borrowed $6.0 million against the Operating Line of Credit (2016) as of September 30, 2016, and repaid2021. The Company had $4.5 million for an outstanding balance of $1.5 million at December 31, 2016. The Company repaid the remaining $1.5 millionin borrowings on the Operating Lineline of Credit (2016) subsequent to December 31, 2016, and borrowed $9.1credit, leaving $7.7 million againstavailable on the Operating Lineline of Credit (2017)credit as of September 30, 2017. Major items excluded from2021. The interest rate at September 30, 2021, was 4.99%. Under the borrowing base calculation are receivables from bonded jobs and retainage as well asterms of the agreement, the Company must meet the following loan covenants to access the first $12.5 million: | 1. | Minimum tangible net worth of $21.5 million to be measured quarterly, |
| 2. | Minimum traditional debt service coverage of 1.25x to be measured quarterly on a rolling twelve- month basis, |
| 3. | Minimum current ratio of 1.50x to be measured quarterly, |
| 4. | Maximum debt to tangible net worth ratio (“TNW”) of 1.5x to be measured semi-annually, |
| 5. | Full review of accounts receivable aging report and work in progress. The results of the review shall be satisfactory to the lender in its sole and unfettered discretion. |
Under the terms of the agreement, the Company must meet the following additional requirements for draw requests causing the borrowings to exceed $12.5 million: | 1. | Minimum traditional debt service coverage of 2.0x to be measured quarterly on a rolling twelve-month basis, |
| 2. | Minimum tangible net worth of $24.0 million to be measured quarterly. |
The Company was not in compliance with all items greater than ninety (90) days old. covenants but received a waiver on the $12.5 million component of the line of credit at September 30, 2022. The Company projects to be in compliance with all covenants associated with the $12.5 million component for the next twelve months. The Company also finances insurance policy premiums on a short-term basis through a financing company. These insurance policies include:include workers’ compensation, general liability, automobile, umbrella, and equipment policies. It is typical that theThe Company makes a down payment in January and finances the remaining premium amount over nine or ten monthly payments. In January 2017, The2022 and 2021, respectively, the Company financed $3.5$3.4 million and $3.2 million in insurance premium policies.premiums. At September 30, 2017,2022 and 2021, respectively, the remaining balance of the remaininginsurance premiums to be paid was $320,000.$580,000 and $540,000. | 10. | SHORT-TERM AND LONG-TERM DEBT |
A summary of short-term and long-term debt as of September 30, 20172022 and 20162021 is as follows: | | | | | | | | | 2022 | | 2021 | | | | | | | | Line of credit payable to bank, variable interest rate of 5.50% at September 30, 2022, final payment due by June 28, 2023, guaranteed by certain directors of the Company. See also Note 5. | | $ | 12,500,000 | | $ | 4,500,000 | | | | | | | | Term note payable to United Bank, WV Pipeline acquisition, due in monthly installments of $64,853, fixed interest at 4.25%, final payment due by March 25, 2026, secured by receivables and equipment, guaranteed by certain directors of the Company. | | | 2,529,421 | | | 3,183,549 | | | | | | | | Notes payable to finance companies, due in monthly installments totaling $59,500 at September 30, 2022 and $70,062 at September 30, 2021, including interest ranging from 0.00% to 5.50%, final payments due October 2022 through August 2026, secured by equipment. | | | 889,165 | | | 1,066,580 | | | | | | | | Note payable to finance company for insurance premiums financed, due in monthly installments totaling $282,297 in FY 2022 and $272,000 in FY 2021, including interest rate at 3.27%, final payment December 2022. | | | 580,320 | | | 540,250 | | | | | | | | Notes payable to bank, due in monthly installments totaling $7,848, including interest at 4.82%, final payment due November 2034 secured by building and property. | | | 867,383 | | | 919,017 | | | | | | | | Notes payable to bank, due in monthly installments totaling $12,193, variable interest of 7.25% at September 30, 2022, final payment due November 2025 secured by building and property, guaranteed by certain directors of the Company. | | | 412,917 | | | 530,750 | | | | | | | | Notes payable to bank, due in monthly installments totaling $98,865, including interest at 4.99%, final payment due June 2022 secured by equipment, guaranteed by certain directors of the Company. | | | — | | | 872,452 | | | | | | | | Notes payable to David Bolton and Daniel Bolton, due in annual installments totaling $500,000, including interest at 3.25%, final payment due December 31, 2026, unsecured | | | 2,380,000 | | | 2,850,000 | | | | | | | | Notes payable to bank, fixed interest at 4.25% of outstanding balance due in monthly installments between January 2021 and January 2022. Note payments due in monthly installments totaling $68,150, including variable interest rate of 7.25% at September 30, 2022, with final payment due September 2026, secured by equipment, guaranteed by certain directors of the Company. | | | 2,549,281 | | | 3,000,000 | | | | | | | | Term note payable to United Bank, Tri-State Paving acquisition, due in monthly installments of $129,910, fixed interest at 4.25%, final payment due by June 1, 2027, secured by receivables and equipment, guaranteed by certain directors of the Company. | | | 6,982,097 | | | — | | | | | | | | Notes payable to Corns Enterprises, due in annual installments totaling $250,000, including interest at 3.50%, final payment due April 29, 2026, unsecured | | | 943,836 | | | — | | | | | | | | Total debt | | $ | 30,634,420 | | $ | 17,462,598 | | | | | | | | Less current maturities | | | 17,140,336 | | | 8,441,824 | | | | | | | | Total long term debt | | $ | 13,494,084 | | $ | 9,020,774 |
| | | 2017 | | | 2016 | | | | | | | | | | | Line of credit payable to bank, monthly interest at 6.0%, final payment due by February 27, 2017. | | $ | - | | | $ | 6,000,000 | | | | | | | | | | | | | Line of credit payable to bank, monthly interest at 4.99%, final payment due by February 27, 2018. | | | 9,112,572 | | | | - | | | | | | | | | | | | | Notes payable to finance companies, due in monthly installments totaling $68,457 including interest ranging from 1.0% to 10.09%, final payments due October 2017 through June 2019, secured by equipment. | | | 2,042,524 | | | | 291,513 | | | | | | | | | | | | | Note payable to finance company for insurance premiums financed, due in monthly installments totaling $320,396 in FY 2017 and $232,943 in FY 2016, including interest rate at 1%, final payment due October 2017. | | | 320,396 | | | | 232,943 | | | | | | | | | | | | | Notes payable to bank, due in monthly installments totaling $7,799, including interest at 4.75%, final payment due November 2034 secured by building and property. | | | 1,094,631 | | | | 1,134,811 | | | | | | | | | | | | | Notes payable to bank, due in monthly installments totaling $11,506, including interest at 5.0%, final payment due November 2025 secured by building and property. | | | 949,481 | | | | 1,044,043 | | | | | | | | | | | | | Notes payable to bank, due in monthly installments totaling $172,473, including interest at 6.5%, final payment due February 2019 secured by equipment. | | | 2,655,515 | | | | 4,484,995 | | | | | | | | | | | | | Notes payable to bank, due in monthly installments totaling $30,914, including interest at 5.0%, final payment due February 2019 secured by equipment. | | | 507,507 | | | | 843,612 | | | | | | | | | | | | | Notes payable to bank, due in monthly installments totaling $94,333, including interest at 4.99%, final payment due September 2022 secured by equipment. | | | 5,000,000 | | | | - | | | | | | | | | | | | | Notes payable to bank, due in monthly installments totaling $46,405, including interest at 5.00%, final payment due September 2021 secured by equipment. | | | 2,015,743 | | | | 2,459,023 | | | | | | | | | | | | | Total debt | | | 23,698,369 | | | | 16,490,940 | | | | | | | | | | | | | Less current maturities | | | 13,995,886 | | | | 9,100,841 | | | | | | | | | | | | | Total long term debt | | $ | 9,702,483 | | | $ | 7,390,099 | |
FutureAt September 30, 2022, future expected payments due on short-term and long-term debt are as follows:
| 2018 | | $ | 13,995,886 | | | 2019 | | | 3,156,779 | | | 2020 | | | 2,252,257 | | | 2021 | | | 1,752,731 | | | 2022 | | | 1,270,773 | | | Thereafter | | | 1,269,943 | | | | | $ | 23,698,369 | |
| | | | 2023 | | $ | 17,140,336 | 2024 | | | 4,061,665 | 2025 | | | 4,170,114 | 2026 | | | 3,569,091 | 2027 | | | 1,069,272 | Thereafter | | | 623,942 | | | $ | 30,634,420 |
The components of income taxes are as follows: | | | Year Ended September 30, | | | | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2022 | | 2021 | | | | | | | | | | Federal | | | | | | | | | | | | | | | | Current | | $ | - | | | $ | 2,229,033 | | | $ | 78,000 | | $ | (187,829) | | Deferred | | | (67,132 | ) | | | 260,693 | | | | 1,686,864 | | | 165,108 | | Total | | | (67,132 | ) | | | 2,489,726 | | | | 1,764,864 | | | (22,721) | | | | | | | | | | | | | | | | | | | | | State | | | | | | | | | | | | | | | | Current | | | - | | | | 362,474 | | | | 22,000 | | | (52,977) | | Deferred | | | (13,236 | ) | | | 46,005 | | | | 475,782 | | | 46,569 | | Total | | | (13,236 | ) | | | 408,479 | | | | 497,782 | | | (6,408) | | | | | | | | | | | | | | | | | | | | | Total income tax expense (benefit) | | $ | (80,368 | ) | | $ | 2,898,205 | | | $ | 2,262,646 | | $ | (29,129) |
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. The Company’s provision for income taxes differs from the amountis computed by applying thea federal statutory rate of 34%21.0% and a state rate of 6.0% to taxable income or loss after consideration of non-taxable and non-deductible items. The income tax expense for fiscal year ended September 30, 2022 was $2.3 million and was due to an increase in taxable income. The income tax benefit for fiscal year ended September 30, 2021, was ($29,000). According to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed by Congress in March 2020, PPP loan forgiveness is not taxable. In accordance with the Consolidated Appropriations Act, 2021, the Company’s PPP related expenditures in fiscal year 2020 were considered deductible expenses for federal income tax purposes. The effective income tax rate for fiscal year ended September 30, 2022 was 37.0%. The effective income tax rate for fiscal year ended September 30, 2021, was (0.32%). The PPP forgiveness had a significant impact on the effective income tax rate for fiscal year ended September 30, 2021, as taxable income was decreased by $9.8 million. Effective income tax rates are estimates and may vary from operations, as indicatedperiod to period due to changes in the following analysis:amount of taxable income or loss, non-taxable and non-deductible expenses. | | | Year Ended September 30, | | | | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | Year Ended September 30, | | | | | 2022 | | 2021 | | | | | | | | | | Statutory rate | | | -34.00 | % | | | 34.00 | % | | 21.0 | % | 21.0 | % | | Meals and other | | | 22.62 | % | | | 7.30 | % | | | State income taxes | | | -5.78 | % | | | 5.90 | % | | 6.0 | % | 6.0 | % | Non-deductible meals and other | | | 10.0 | % | 5.7 | % | Credit from solar installation project | | | — | % | (2.8) | % | PPP loan forgiveness | | | — | % | (30.2) | % | | Effective tax rate | | | -17.16 | % | | | 47.20 | % | | 37.0 | % | (0.3) | % |
Deferred income taxes provide for significantarise from temporary differences between the tax basis of assets and liabilities forand their reported amounts in the consolidated financial reporting and income tax reporting.statements, which will result in taxable or deductible amounts in the future. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. At September 30, 2022, the Company expects all net operating loss carryforwards to be realized in the near future. The income tax effects of temporary differences giving rise to the deferred tax assets and liabilities are as follows: | | | Year Ended September 30, | | | | | 2017 | | | 2016 | | | | | | | | | | | Deferred income tax assets | | | | | | | | | | | | | | | | | | | | Long-term | | | | | | | | | | Net operating loss carryforward | | $ | 180,605 | | | $ | - | | | Other deferred assets | | | 1,213,461 | | | | 1,399,152 | | | Total deferred income tax assets | | | 1,394,066 | | | | 1,399,152 | | | | | | | | | | | | | Continuing operations | | | 1,394,066 | | | | 1,399,152 | | | Discontinued operations | | | - | | | | - | | | Total deferred income tax assets | | $ | 1,394,066 | | | $ | 1,399,152 | | | | | | | | | | | | | Deferred income tax liabilities | | | | | | | | | | | | | | | | | | | | Long-term | | | | | | | | | | Property and equipment | | $ | 1,857,088 | | | $ | 1,941,913 | | | Other deferred liabilities | | | (16,465 | ) | | | (15,836 | ) | | Total deferred income tax liabilities-LT | | | 1,840,623 | | | | 1,926,077 | | | | | | | | | | | | | Continuing operations | | | 1,840,623 | | | | 1,926,077 | | | Discontinued operations | | | - | | | | - | | | Total deferred income tax liabilities-LT | | $ | 1,840,623 | | | $ | 1,926,077 | |
| | | | | | | | | Year Ended September 30, | | | 2022 | | 2021 | Deferred tax liabilities | | | | | | | Property and equipment | | $ | 7,686,064 | | $ | 4,883,398 | Other | | | 7,632 | | | 37,582 | Total deferred tax liabilities | | $ | 7,693,696 | | $ | 4,920,980 | | | | | | | | Deferred income tax assets | | | | | | | Other | | $ | 404,093 | | $ | 358,400 | Net operating loss carryforward | | | 2,834,524 | | | 2,529,147 | Total deferred tax assets | | $ | 3,238,617 | | $ | 2,887,547 | | | | | | | | Total net deferred tax liabilities | | $ | 4,455,079 | | $ | 2,033,433 |
The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in general and administrative expenses. Earnings (loss) per share for the years ended September 30, 20172022, and 20162021 are as follow: | | | 2017 | | | 2016 | | | | | | | | | | | Income (loss) from continuing operations | | $ | (387,756 | ) | | $ | 3,241,423 | | | | | | | | | | | | | Dividends on preferred stock | | | 309,000 | | | | 309,000 | | | | | | | | | | | | | Income (loss) available to common shareholders-continuing operations | | $ | (696,756 | ) | | $ | 2,932,423 | | | | | | | | | | | | | Weighted average shares outstanding | | | 14,239,836 | | | | 14,239,836 | | | | | | | | | | | | | Weighted average shares outstanding-diluted | | | 14,239,836 | | | | 17,673,169 | | | | | | | | | | | | | Earnings (loss) per share from continuing operations available to common shareholders | | $ | (0.049 | ) | | $ | 0.206 | | | | | | | | | | | | | Earnings (loss) per share from continuing operations available to common shareholders-diluted | | $ | (0.049 | ) | | $ | 0.166 | | | | | | | | | | | | | Income from discontinued operations | | $ | - | | | $ | - | | | | | | | | | | | | | Weighted average shares outstanding | | | 14,239,836 | | | | 14,239,836 | | | | | | | | | | | | | Weighted average shares outstanding-diluted | | | 14,239,836 | | | | 17,673,169 | | | | | | | | | | | | | Earnings per share from discontinued operations | | $ | - | | | $ | - | | | | | | | | | | | | | Earnings per share from discontinued operations-diluted | | $ | - | | | $ | - | | | | | | | | | | | | | Net income (loss) | | $ | (387,756 | ) | | $ | 3,241,423 | | | | | | | | | | | | | Dividends on preferred stock | | | 309,000 | | | | 309,000 | | | | | | | | | | | | | Net income (loss) available to common shareholders | | $ | (696,756 | ) | | $ | 2,932,423 | | | | | | | | | | | | | Earnings (loss) per share available to common shareholders | | $ | (0.049 | ) | | $ | 0.206 | | | | | | | | | | | | | Earnings (loss) per share available to common shareholders-diluted | | $ | (0.049 | ) | | $ | 0.166 | |
| | | | | | | | | Twelve Months Ended | | Twelve Months Ended | | | September 30, | | September 30, | | | 2022 | | 2021 | | | | | | | | Net income | | $ | 3,850,073 | | $ | 9,097,255 | | | | | | | | Dividends on preferred stock | | | — | | | 284,238 | | | | | | | | Income available to common shareholders | | $ | 3,850,073 | | $ | 8,813,017 | | | | | | | | Weighted average shares outstanding-basic | | | 16,323,790 | | | 13,621,406 | | | | | | | | Weighted average shares outstanding-diluted | | | 16,323,790 | | | 16,988,424 | | | | | | | | Earnings per share available to common shareholders | | $ | 0.24 | | $ | 0.65 | | | | | | | | Earnings per share available to common shareholders-diluted | | $ | 0.24 | | $ | 0.52 |
16. | 13. | STOCK PURCHASE PLAN |
At the annual meeting of the shareholders on November 19, 2008, the shareholders approved the establishment of an employee stock purchase plan. The stock purchase plan authorizes the issuance of up to 1,200,000 shares of common stock for purchase by eligible employees. A participant’s stock purchased during a calendar year may not exceed the lesser of (a) a percentage of the participant’s compensation or a total amount as specified by the compensation committee of the Board, or (b) $25,000. The stock will be offered at a purchase price of at least 85% of its fair market value on the date of purchase. The major plan provisions cover the purposes of the plan, effective date and duration, administration, eligibility, stock type, stock purchase limitations, price of stock, participation election, payroll deductions, payment for stock, date of purchase, termination of agreement, termination of employment, recapitalization, change of control, assignability, Stockholder rights, compliance with Internal Revenue Code Section 423, amendment and termination, application of funds, tax withholdings, governing laws, employment at will and arbitration. There have been no agreements with any employees made under this plan as of the year ended September 30, 2017.2022. On July 6, 2022, the Company’s Board of Directors authorized a share repurchase program (the “Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate repurchase not to exceed 1,000,000 shares, which is approximately 6.0% of its outstanding common stock. The Program does not obligate the Company to purchase any number of shares, and there is no guarantee as to the exact number of shares to be repurchased by the Company. To date, no repurchases have been made in connection with the Program. 17. | 14.
| LONG TERM INCENTIVE PLAN |
AtOn February 16, 2022, the annual meetingstockholders of the shareholders on August 11, 2010, the shareholdersEnergy Services approved the Energy Services of America Corporation Long TermCompany’s 2022 Equity Incentive Plan (the “LTIP”“Plan”), which provides for the grant of stock-based awards to provideofficers and employees and directors of Energy Services of America Corporation (the “Company”) with additional incentives to promote the growth and performance of the Company. At September 30, 2011, future awards of 1,149,000 shares could be made under the plan.
On August 11, 2010, a total of 51,000 shares were granted to six officers of the Company at a grant date fair value per shareand its subsidiaries. The maximum number of $4.22. These grants vested over a periodshares of three years. Market valuestock, in the aggregate, that may be granted under the Plan as stock options, restricted stock or restricted stock units is 1,500,000 shares. A description of the grants was $215,220 and was recognized as compensation expense over the vesting period. For the years ending September 30, 2017 and 2016, respectively, $0 and $0 were recognized as compensation expense and $0 and $0 as deferred tax benefit as a result of these grants. The holdersmaterial terms of the restricted stock do not receive dividendsPlan is contained in the Company’s definitive proxy statement for the Annual Meeting of Stockholders filed with the Securities and do notExchange Commission on January 11, 2022. To date, no grants of stock-based awards have the right to vote the shares. All stock grants have vested or been forfeited as of September 30, 2017.made.
18. | 15. | RELATED PARTY TRANSACTIONS |
We intendThe Company intends that all transactions between usit and our executive officers, directors, holders of 10% or more of the shares of any class of our common stock and affiliates thereof, will be on terms no less favorable than those terms given to unaffiliated third parties and will be approved by a majority of our independent outside directors not having any interest in the transaction.
On December 16, 2014, the Company’s Nitro Electric subsidiary entered into a 20-year $1.2 million loan agreement with First Bank of Charleston, Inc. (West Virginia) to purchase the office building and property it had previously been leasing for $6,300 monthly.each month. The interest rate on the loan agreement is 4.82% with monthly payments of $7,800. As of September 30, 2022, the Company had paid approximately $333,000 in principal and approximately $370,000 in interest since the beginning of the loan. Mr. Douglas Reynolds, President of Energy Services, iswas a director and secretary of First Bank of Charleston. Mr. Nester Logan and Mr. Samuel Kapourales, directorsa director of Energy Services, arewas also directorsa director of First Bank of Charleston. The interest rateOn October 15, 2018, First Bank of Charleston was merged into Premier Bank, Inc., a wholly owned subsidiary of Premier Financial Bancorp, Inc. Mr. Marshall Reynolds, Chairman of the Board of Energy Services, held the same position with Premier Financial Bancorp, Inc. Mr. Douglas Reynolds is the president and a director of Energy Services and was a director of Premier Financial Bancorp, Inc. On September 17, 2021, Peoples Bancorp, Inc., parent company of Peoples Bank, completed an acquisition of Premier Financial Bancorp, Inc. and its wholly owned subsidiaries, Premier Bank and Citizens Deposit Bank & Trust. On October 26, 2021, Mr. Douglas Reynolds was elected a director of Peoples Bancorp, Inc., and its subsidiary Peoples Bank. On April 29, 2022, the Company entered into a $1.0 million promissory note agreement with Corns Enterprises 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 new loan agreement is 4.75% with monthlyprincipal balance remaining and shall be at the stated rate of 3.5% per year. The Company recorded $7,800 in accreted interest and has not made any principal payments of $7,800. Ason this note as of September 30, 2017, we had paid approximately $105,0002022. Subsequent to the April 29, 2022, acquisition of Tri-State Paving, the Company entered into a operating lease for facilities in principalHurricane, West Virginia with Corns Enterprises. This thirty-six-month lease is treated as a right to use asset and approximately $152,000has payments of $7,000 per month. The total net present value at inception was $236,000 with a carrying value of $205,000 at September 30, 2022. SQP made an equity investment of $156,000 in 1030 Quarrier Development, LLC (“Development”) in August 2022. Development is a variable interest sinceentity (“VIE”) that is 75% owned by 1030 Quarrier Ventures, LLC (“Ventures”) and 25% owned by SQP. SQP is not the beginningprimary beneficiary of the loan.VIE and therefore, will not consolidate Development into its consolidated financial statements. Instead, SQP will apply the equity method of accounting for its investment in Development. Development, a 1% owner, and United Bank, a 99% owner, formed 1030 Quarrier Landlord, LLC (“Landlord”). Landlord decided to pursue the following development project (the “Project”): An old building at 1030 Quarrier Street, Charleston, West Virginia as well as associated land (the “Property”) was purchased to be developed/rehabilitated into a commercial project including apartments and commercial space. Upon the completion of development, the Property will be used to generate rental income. SQP has been awarded the construction contract for the Project. 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 as disclosedmentioned above, there were no new material related party transactions. transactions entered into during the fiscal year ended September 30, 2022. 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. All revenue and related expense transactions, as well as the related accounts payable and accounts receivable have been eliminated.eliminated in consolidation. The Company leases office space for SQP for $1,500 per month. The lease, signed on March 25, 2021, is for a period of two years with five one-year renewals available immediately following the end of the base term. Rental terms for the option periods shall be negotiated and agreed mutually between the parties and shall not exceed five percent increases to rent, if any. The lease is expensed monthly and not treated as a right-to-use asset as it does not have a material impact on the Company’s consolidated financial statements. During the twelve months ended September 30, 2022, the Company entered into two lease agreements of construction equipment for a combined $160,000. The leases have a term of twenty-two months with a stated interest rate of 0%, combined monthly installment payments of $6,645 and are cancellable at any time without penalty. The Company has the right to purchase the equipment at the expiration of the leases by applying the two-month deposit paid. The right-of-use assets and finance lease obligations associated with these lease agreements are included in the consolidated balance sheets within property, plant and equipment and long-term debt, respectively, and do not have a material impact on the Company’s consolidated financial statements. The Company has two right-of-use operating leases various piecesacquired on April 29, 2022, as part of equipment underthe Tri-State Paving, LLC transaction. The first operating lease, agreements with terms up to 36 months. The future minimum lease payments under operating leases as of September 30, 2017, are as follows:
| 2018 | | $ | 168,932 | | | 2019 | | | 36,323 | | | 2020 | | | 62,260 | | | | | $ | 267,515 | |
Revenues for the year ending September 30, 2017 were $140.5 million. Two major customers, Marathon PetroleumHurricane, WV facility, had a net present value of $236,000 at April 29, 2022, and Columbia Gas Distribution, accounted for more than 10% each and totaled $41.8 million, which represented 29.7%a carrying value of revenues for fiscal year 2017. Receivables from two major customers, Marathon Petroleum and Columbia Gas Distribution, were greater than 10% each and totaled $6.4 million, which represented 27.9% of the total receivables$205,000 at September 30, 2017.
Revenues2022. The second operating lease, for the year ending September 30, 2016 were $155.5 million. Two major customers, EQTChattanooga, Tennessee facility, had a net present value of $144,000 at April 29, 2022, and Marathon Petroleum, accounted for more than 10% each and totaled $55.7 million, which represented 35.8%a carrying value of revenues for fiscal year 2016. Receivables from two major customers, EQT and Marathon Petroleum, were greater than 10% each and totaled $12.5 million, which represented 51.9% of the total receivables$119,000 at September 30, 2016.2022. The 4.5% interest rate on the operating leases is based on the Company’s incremental borrowing rate at inception.
The Company has a right-of-use operating lease with Enterprise Fleet Management, Inc. acquired on August 11, 2022, as part of the Ryan Environmental acquisition. This lease agreement was initially for 31 vehicles to be used for Ryan Construction; however, the Company plans to add vehicles as it finds necessary. This lease had a net present value of $1.2 million at inception, which approximates the carrying value at September 30, 2022. The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception. The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022, as part of the Ryan Environmental acquisition. This lease, for the Bridgeport, WV facility, had a net present value of $140,000 at inception and a carrying value of $113,000 at September 30, 2022. The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception. Schedules related to the Company’s operating leases at fiscal year ended September 30, 2022 can be found below: | | | | | | | | | | | Operating Lease-Weighted Average Remaining Term | | | | | | | | | | | | | Years left | | Remaining liability | | Lease end | | Fiscal year end | Operating lease 1 | | | 2.6 | | $ | 205,267 | | 4/30/2025 | | 2025 | Operating lease 2 | | | 1.8 | | | 119,032 | | 5/31/2024 | | 2024 | Operating lease 3 | | | 3.9 | | | 1,166,498 | | 8/10/2026 | | 2027 | Operating lease 4 | | | 1.0 | | | 113,480 | | 8/11/2023 | | 2023 | | | | | | $ | 1,604,277 | | | | | | | | | | | | | | | | Weighted average remaining term | | | | | | 3.4 | years | | | |
| | | | Operating Lease Maturity Schedule | | | | 2023 | | $ | 588,653 | 2024 | | | 465,428 | 2025 | | | 373,397 | 2026 | | | 296,606 | | | | 1,724,084 | Less amounts representing interest | | | (119,807) | Present value of operating lease liabilities | | $ | 1,604,277 |
| | | | | | Year ended | | | September 30, | Operating Lease Expense | | 2022 | | | | | Amortization | | | | Operating lease 1 | | $ | 30,933 | Operating lease 2 | | | 25,554 | Operating lease 3 | | | 22,672 | Operating lease 4 | | | 19,552 | Total amortization | | | 98,711 | | | | | Interest | | | | Operating lease 1 | | | 4,067 | Operating lease 2 | | | 2,411 | Operating lease 3 | | | 4,360 | Operating lease 4 | | | 964 | Total interest | | | 11,802 | Total amortization and interest | | $ | 110,513 |
| | | | | | Year ended | | | September 30, | Cash Paid for Operating Leases | | 2022 | | | | | Operating lease 1 | | $ | 35,000 | Operating lease 2 | | | 27,965 | Operating lease 3 | | | 27,032 | Operating lease 4 | | | 27,561 | | | $ | 117,558 |
The Company rents equipment for use on construction projects with rental agreements being week to week or month to month. Rental expense can vary by fiscal year due to equipment requirements on construction projects and the availability of Company owned equipment. Rental expense, which is included in cost of goods sold on the consolidated statements of income, was $9.8 million and $3.6 million for the years ended September 30, 2022, and 2021, respectively. The tables below present customers that represent 10.0% or more of the Company’s revenue or accounts receivable, net of retention as of or for the fiscal years ended September 30, 2022, and 2021: | | | | | | Revenue | | FY 2022 | | FY 2021 | | TransCanada Corporation | | 16.6 | % | 11.0 | % | All other | | 83.4 | % | 89.0 | % | Total | | 100.0 | % | 100.0 | % |
* Less than 10.0% and included in “All other” if applicable | | | | | | Accounts receivable, net of retention | | FY 2022 | | FY 2021 | | TransCanada Corporation | | 11.6 | % | 13.2 | % | Kentucky American Water | | * | | 16.3 | % | All other | | 88.4 | % | 70.5 | % | Total | | 100.0 | % | 100.0 | % |
* Less than 10.0% and included in “All other” if applicable Virtually all work performed for major customers was awarded under competitive bid fixed price or unit price arrangements. The loss of a major customer could have a severe impact on the profitability of operations of the Company. However, due to the nature of the Company’s operations, the major customers and sources of revenues may change from year to year. 21. | 18. | RETIREMENT AND EMPLOYEE BENEFIT PLANS |
In 20172022 and 2016,2021, C. J. Hughes Construction Company, Inc., maintained a tax-qualified 401(k) retirement plan for union employees. Employees can contribute up to 15% of eligible wages, provided the compensation deferred for a plan year diddoes not exceed the indexed dollar amount set by the Internal Revenue Service which was $18,000$20,500 for 20172022 and 2016.2021. C. J. Hughes matches $0.25 on each dollar contributed up to 6% of eligible wages. C. J. Hughes contributed $6,224 for the fiscal year ended September 30, 2017$22,000 and $26,000 to the union plan.plan for fiscal years September 30, 2022 and 2021, respectively. Additionally, each plan year, C. J. Hughes may make a discretionary profit-sharing contribution for participants who are actively employed on the last day of the plan year. No discretionary profit-sharing contribution was made for the 20172022 or 20162021 plan year. Effective January 1, 2010, Energy Services of America became the successor plan sponsor of the C. J. Hughes Construction Company, Inc. 401(k) Plan for non-union employees.employees (the “Plan”). The Plan was renamed the Energy Services of America Staff 401(k) Retirement Savings Plan. The four wholly owned subsidiaries, C. J. Hughes Construction Company, Inc., Nitro Electric Company, Inc., Contractors Rental Corporation, and ST Pipeline adopted the Plan on behalf of their non-union employees. Employees are eligible to participate in the Plan upon completion of six months of service but must wait until a quarterly entry to join the Plan. TheIn addition, participants who are age 50 or older by the end of the Plan was last restated as of January 1, 2015, and the corporate trustee is United Bank Inc. Employeesyear may contribute eligible wageselect to defer up to maximum indexed dollar amount set byan additional $6,500 into the Internal Revenue Service which was $18,000401(k) Plan for 2017 and 2016. 2022. Energy Services may make annual discretionary matching contributions and/or profit-sharing contributions to the Plan. The matching contribution formula for the 2016 Plan year was $0.25 on each dollar contributed up to 6% of eligible wages. In 2017, the match was increased to 100% of each dollar contributed for the first 3% of eligible wages and 50% of each dollar contributed for the next 3% of eligible wages. The Company’s matching contribution is used by the Plan’s third-party administrator to purchase Energy Services of America common stock from the open market. No restrictions on the match exist after it has been contributed. No profit-sharing contribution was made for the 20172022 or 20162021 plan year. Energy Services of America and its wholly owned subsidiaries contributed $196,821$402,000 and $64,949,$365,000, respectively, for the fiscal years ended September 30, 20172022, and 2016.2021 to the Plan. In addition, during fiscal year 2021, a one-time $651,000 Qualified Non-Elective Contribution (“QNEC”) was made to the Plan attributable to the 2021 Plan year to adjust Plan participant’s balances due to a third-party administrator’s actions. The Company contributes to a number of multi-employermulti-employers defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects: | ·● | Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stopsemployers stop contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. |
| ·● | If the Company chooses to stop participating in some of its multi-employer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
The following table presents our participation in these plans: | | | | | | | | | | | Contibutions of | | | | | | | | | | | | | | Pension Protection Act ("PPA") | | | | Energy Services of America | | | | | | | | | | | | | | Certified Zone Status (1) | | FIP/RP Status | | Companies | | | | | | | | Expiration Date of | | | | EIN/Pension
| | | | | | Pending/ | | | | | | | | | | | Surcharge | | Collective Bargaining | | Pension Fund | | Plan Number | | 2016 | | 2015 | | Implemented (2) | | 2016 | | | 2015 | | | 2014 | | | Imposed | | Agreement | | | | | | | | | | | | | | | | | | | | | | | | | Central States, Southeast and Southwest Areas Pension Fund | | 36-6044243/001 | | Red | | Red | | Implemented | | $ | - | | | $ | 35,907 | | | $ | 9,482 | | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | Southwest Ohio Regional Council of Carpenters Pension Plan | | 31-6127287/001 | | Yellow | | Yellow | | Implemented | | | - | | | | 8,695 | | | | 22,066 | | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | Plumbers & Pipefitters National Pension Fund | | 52-6152779/001 | | Yellow | | Yellow | | Implemented | | | 1,034,996 | | | | 841,370 | | | | 660,415 | | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sheet Metal Workers' National Pension Fund | | 52-6112463/001 | | Red | | Red | | Implemented | | | 182,991 | | | | - | | | | - | | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sheet Metal Workers Local Pension Fund | | 34-6666753/001 | | Red | | Yellow | | Implemented | | | - | | | | 99,809 | | | | 59,237 | | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | Plumbers and Pipefitters Local 152 Pension Fund | | 55-6029095/001 | | Yellow | | Yellow | | Implemented | | | - | | | | 11,178 | | | | 924 | | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other | | | | Green | | Green | | | | | 6,152,291 | | | | 5,429,598 | | | | 3,550,515 | | | no | | Various | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | $ | 7,370,278 | | | $ | 6,426,557 | | | $ | 4,302,639 | | | | | |
(1) The most recent PPA zone status available in 2016 and 2015 is the the plan's year-end during 2016 and 2015, respectively. The zone status is based on information that we received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the orange zone are less than 80 percent funded and have an Accumulated Funding Deficiency in the current year or projected into the next six years, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded.
(2) Indicates whether the plan has a financial improvement plan ("FIP") or a rehabilitation plan ("RP") which is either pending or has been implemented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Contributions of | | | | | | | | | Pension Protection Act ("PPA") | | | | Energy Services | | | | | | | | | Certified Zone Status (1) | | FIP/RP Status | | Companies | | | | Expiration Date of | | | EIN/Pension | | | | | | Pending/ | | | | | | | | Surcharge | | Collective Bargaining | Pension Fund | | Plan Number | | 2021 | | 2020 | | Implemented (2) | | 2022 | | 2021 | | Imposed | | Agreement | | | | | | | | | | | | | | | | | | | | Central States, Southeast and Southwest Areas Pension Fund | | 36-6044243/001 | | Red | | Red | | Implemented | | $ | 123,142 | | $ | — | | no | | Various | | | | | �� | | | | | | | | | | | | | | | Employer-Teamsters Local Nos. 175 and 505 | | 55-6021850/001 | | Red | | Red | | Implemented | | | — | | | — | | no | | Various | | | | | | | | | | | | | | | | | | | | Laborers National Pension Fund | | 75-1280827/001 | | Red | | Red | | Implemented | | | 384,908 | | | 394,563 | | no | | Various | | | | | | | | | | | | | | | | | | | | Laborers' District Council of Western Pennsylvania Pension Plan | | 25-6135576/001 | | Yellow | | Yellow | | Implemented | | | 269,915 | | | — | | no | | Various | | | | | | | | | | | | | | | | | | | | Operating Engineers Local 324 Pension Fund | | 38-1900637/001 | | Red | | Red | | Implemented | | | 66,757 | | | — | | no | | Various | | | | | | | | | | | | | | | | | | | | National Automatic Sprinkler Industry Pension Fund | | 52-6054620/001 | | Red | | Red | | Implemented | | | 199,984 | | | 121,133 | | no | | Various | | | | | | | | | | | | | | | | | | | | Iron Workers District Council of Southern Ohio &Vicinity Pension Trust | | 31-6038516/001 | | Yellow | | Yellow | | Implemented | | | 208,588 | | | 160,367 | | no | | Various | | | | | | | | | | | | | | | | | | | | Carpenters Pension Fund of WV | | 55-6027998/001 | | Red | | Red | | Implemented | | | 719,665 | | | 281,568 | | no | | Various | | | | | | | | | | | | | | | | | | | | Plumbers & Pipefitters National Pension Fund | | 52-6152779/001 | | Yellow | | Yellow | | Implemented | | | 660,324 | | | 616,568 | | no | | Various | | | | | | | | | | | | | | | | | | | | Sheet Metal Workers' National Pension Fund | | 52-6112463/001 | | Yellow | | Yellow | | Implemented | | | 175,643 | | | 538,286 | | no | | Various | | | | | | | | | | | | | | | | | | | | Sheet Metal Workers Local Pension Fund | | 34-6666753/001 | | Red | | Red | | Implemented | | | — | | | — | | no | | Various | | | | | | | | | | | | | | | | | | | | Plumbers and Pipefitters Local 152 Pension Fund | | 55-6029095/001 | | Red | | Red | | Implemented | | | — | | | 2,492 | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other | | | | Green | | Green | | | | | 3,611,624 | | | 2,783,713 | | no | | Various | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,420,550 | | $ | 4,898,691 | | | | |
| (1) | The most recent PPA zone status available in 2022 and 2021 is the plan’s year-end during 2021 and 2020, respectively. The zone status is based on information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the orange zone are less than 80 percent funded and have an Accumulated Funding Deficiency in the current year or projected into the next six years, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. |
| (2) | Indicates whether the plan has a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) which is either pending or has been implemented. |
The Company currently does not have intentions of withdrawing from any of the multi-employer pension plans in which it participates. 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. The Company has not performed covered work in their jurisdiction since 2011; however, the Company disagrees with the withdrawal claim and believes it is covered by an exemption under federal law. The demand called for thirty-four quarterly installment payments of $41,000 starting December 15, 2021. The Company must comply with the demand under federal pension law; however, the Company firmly believes no withdrawal liability exists. 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 September 30, 2022, and does not expect any future liabilities related to this claim. Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and contract receivables. The Company places its cash with high quality financial institutions. At times, the balances in such institutions may exceed the FDIC insurance limit of $250,000 per depositor, per insured bank, for each account ownership category. FDIC insurance covers all deposit accounts, including:including checking accounts, savings accounts, money market deposit accounts, and certificates of deposit. As of September 30, 2017,2022, the Company had $2.2$4.9 million of uninsured deposits. The Company performs periodic credit evaluations of its customer’s financial condition and generally does not require collateral. Consequently, the Company is subject to potential credit risk related to business and economic factors that would affect these companies. However, the Company generally has certain statutory lien rights with respect to services provided. Credit losses consistently have been within management’s expectations. 23. | 20. | COMMITMENTS AND CONTINGENCIES |
During the normal course of operations, the companies areCompany is subject to certain subcontractor claims, mechanic’s liens, and other litigation. Management is of the opinion that no material obligations will arise from any pending legal proceedings. Accordingly, no provision has been made in the financial statements for such litigation. Some customers, particularly new ones or governmental agencies require the Company to post bid bonds, performance bonds and payment bonds (collectively, performance bonds). These performance bonds are obtained through insurance carriers and guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If the Company fails to perform under a contract or to pay subcontractors and vendors, the customer may demand that the insurer make payments or provide services under the bond. The Company must reimburse the insurer for any expenses or outlays it is required to make. In February 2014, the Company entered into an agreement with a surety company to provide bonding which will suit the Company’s immediate needs. The ability to obtain bonding for future contracts is an important factor in the contracting industry with respect to the type and value of contracts that can be bid. 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. The Company does not anticipate any claims in the foreseeable future. At September 30, 2022, the Company had $82.8 million in performance bonds outstanding. In fiscal year 2021, the Company received notification of forgiveness on the $9.8 million in PPP loans received in calendar year 2020. The Company must retain PPP loan documentation in its files for six years after the date of forgiveness. The Company believes it meets the SBA’s certification requirement based on its limited access to capital, weakened business operations during the pandemic and small market value. The Company’s shares of common stock did not trade on a national exchange at that time. However, no assurance can be given as to the outcome if the SBA re-evaluates the Company’s loan certification. The SBA could determine that the Company does not qualify in whole or in part for loan forgiveness. In addition, it is unknown what type of penalties could be assessed against the Company if the SBA disagrees with the Company’s certification. The Company could be required to repay its PPP Loans. 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. 24. ACQUISITIONS Energy Services accounts for business combinations under the acquisition method in accordance with ASC Topic 805 “Business Combinations”. Accordingly, for the transaction, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition. In conjunction with ASC 805, upon receipt of final fair value estimates during the measurement period, which must be within one year of the acquisition date, Energy Services records any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. On April 29, 2022, the Company completed the acquisition of Tri-State Paving LLC, located in Hurricane, West Virginia. Pursuant to the Asset Purchase Agreement (“Agreement”) signed on April 6, 2022, and amended on April 29, 2022, the Company acquired substantially all the assets (including but not limited to customer contracts, employees, and equipment) of Tri-State Paving, LLC for $7.5 million in cash, a $1.0 million promissory note, and $1.0 million in Energy Services common stock. The $7.5 million in cash was funded through a loan with United Bank and the transaction resulted in the issuance of 419,287 common shares. | 21. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
As part of the Agreement, the Company entered into a four-year, $1.0 million note that requires $250,000 principal installment payments on or before the end of each twelve (12) full calendar month period beginning on the date of the Note, April 29, 2022. Interest payments due shall be calculated on the principal balance remaining and shall be at the stated rate of 3.5% per year. Quarterly financial dataThe non-cash purchase price, including $390,000 of debt assumed, for continuing operations for 2017 and 2016 are summarizedthe Tri-State Paving acquisition is allocated in the table below:
| 2017 | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Total | | | Continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 37,496,872 | | | $ | 25,371,605 | | | $ | 35,686,215 | | | $ | 41,941,034 | | | $ | 140,495,726 | | | Operating income (loss) | | | 2,489,177 | | | | (427,126 | ) | | | (3,038,995 | ) | | | 1,359,091 | | | | 382,147 | | | Net income (loss) from continuing operations | | | 1,238,657 | | | | (312,539 | ) | | | (1,867,148 | ) | | | 553,274 | | | | (387,756 | ) | | Dividends on preferred stock | | | 77,250 | | | | 77,250 | | | | 77,250 | | | | 77,250 | | | | 309,000 | | | Net income (loss) available to common shareholders | | $ | 1,161,407 | | | $ | (389,789 | ) | | $ | (1,944,398 | ) | | $ | 476,024 | | | $ | (696,756 | ) | | | | | | | | | | | | | | | | | | | | | | | | Weighted-basic shares outstanding | | | 14,239,836 | | | | 14,239,836 | | | | 14,239,836 | | | | 14,239,836 | | | | 14,239,836 | | | Weighted-diluted shares outstanding | | | 17,673,169 | | | | 14,239,836 | | | | 14,239,836 | | | | 17,673,169 | | | | 14,239,836 | | | | | | | | | | | | | | | | | | | | | | | | | Earnings (loss) per share from continuing operations available to common shareholders | | $ | 0.082 | | | $ | (0.027 | ) | | $ | (0.137 | ) | | $ | 0.033 | | | $ | (0.049 | ) | | | | | | | | | | | | | | | | | | | | | | | | Earnings (loss) per share from continuing operations-diluted available to common shareholders | | $ | 0.066 | | | $ | (0.027 | ) | | $ | (0.137 | ) | | $ | 0.027 | | | $ | (0.049 | ) |
| | | | Property and equipment | | $ | 5,709,094 | Goodwill | | | 2,273,237 | Customer relationships | | | 1,649,159 | Non-compete | | | 39,960 | Tradename | | | 203,213 | Total | | $ | 9,874,663 |
| 2016 | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Total | | | Continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 34,374,091 | | | $ | 28,005,021 | | | $ | 43,370,975 | | | $ | 49,731,058 | | | $ | 155,481,145 | | | Operating income (loss) | | | 1,455,015 | | | | (178,841 | ) | | | 2,391,479 | | | | 3,237,027 | | | | 6,904,680 | | | Net income (loss) from continuing operations | | | 698,856 | | | | (210,235 | ) | | | 1,077,225 | | | | 1,675,577 | | | | 3,241,423 | | | Dividends on preferred stock | | | 77,250 | | | | 77,250 | | | | 77,250 | | | | 77,250 | | | | 309,000 | | | Net income (loss) available to common shareholders | | $ | 621,606 | | | $ | (287,485 | ) | | $ | 999,975 | | | $ | 1,598,327 | | | $ | 2,932,423 | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-basic shares outstanding | | | 14,239,836 | | | | 14,239,836 | | | | 14,239,836 | | | | 14,239,836 | | | | 14,239,836 | | | Weighted-diluted shares outstanding | | | 17,673,169 | | | | 14,239,836 | | | | 17,673,169 | | | | 17,673,169 | | | | 17,673,169 | | | | | | | | | | | | | | | | | | | | | | | | | Earnings (loss) per share from continuing operations available to common shareholders | | $ | 0.044 | | | $ | (0.020 | ) | | $ | 0.070 | | | $ | 0.112 | | | $ | 0.206 | | | | | | | | | | | | | | | | | | | | | | | | | Earnings (loss) per share from continuing operations-diluted available to common shareholders | | $ | 0.035 | | | $ | (0.020 | ) | | $ | 0.057 | | | $ | 0.090 | | | $ | 0.166 | |
There were no results from discontinued operationsOn August 11, 2022, Ryan Construction, a newly formed wholly owned subsidiary of Energy Services, completed the acquisition of Ryan Environmental, located in Bridgeport, WV, pursuant to an order issued by the United States Bankruptcy Court for the Northern District of West Virginia (the “Court”) on August 9, 2022 and Ryan Transport, located in Bridgeport, West Virginia, under the terms of an Asset Purchase Agreement. As part of the business combination, the Company acquired certain assets, including equipment, vehicles, and small tools, of Ryan Environmental for $3.0 million in cash and certain assets, including equipment and small tools, of Ryan Transport for $1.0 million in cash.
The purchase price for the Ryan Environmental and Ryan Transport acquisitions is allocated in the table below: | | | | Property and equipment | | $ | 3,237,559 | Accounts receivable, net of $250,000 allowance | | | 677,254 | Unbilled receivable | | | 127,244 | Total | | $ | 4,042,057 |
ASC 805-10-50-2 requires public companies that present comparative financial statements to present pro forma financial statements as though the business combination that occurred during the current fiscal year had occurred as of the beginning of the comparable prior annual reporting period. As allowed under ASC 805-10-50-2, the Company finds this information impracticable to provide for the periods presented due to the lack of availability of meaningful financial statements of the acquired companies that comply with U.S. GAAP. 25. GOODWILL AND INTANGIBLE ASSETS The Company follows the guidance of ASC 350-20-35-3 “Intangibles-Goodwill and Other (Topic 350)” which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. Under the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0). If a company fails this test or decides to bypass this step, it must proceed with a quantitative assessment of goodwill impairment. The Company did not have a goodwill impairment at September 30, 2022 or 2021. A table of the Company’s goodwill is below: | | | | | | | | | September 30, | | September 30, | | | 2022 | | 2021 | | | | | | | | Beginning balance | | $ | 1,814,317 | | $ | — | | | | | | | | Acquired | | | 2,273,237 | | | 1,814,317 | | | | | | | | Ending balance | | $ | 4,087,554 | | $ | 1,814,317 |
A table of the Company’s intangible assets subject to amortization at September 30, 2022, is below: | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | Accumulated | | Amortization and | | | | | | | | | | Amortization and | | Amortization and | | Impairment | | | | | Remaining Life at | | | | | Impairment at | | Impairment at | | Twelve Months Ended | | | | | September 30, | | Original | | September 30, | | September 30, | | September 30, | | Net Book | Intangible assets: | | 2022 | | Cost | | 2022 | | 2021 | | 2022 | | Value | | | | | | | | | | | | | | | | | | | West Virginia Pipeline: | | | | | | | | | | | | | | | | | | Customer Relationships | | 99 months | | $ | 2,209,724 | | $ | 386,693 | | $ | 165,725 | | $ | 220,968 | | $ | 1,823,031 | Tradename | | 99 months | | | 263,584 | | | 46,136 | | | 19,772 | | | 26,364 | | | 217,448 | Non-competes | | 3 months | | | 83,203 | | | 72,806 | | | 31,202 | | | 41,604 | | | 10,397 | | | | | | | | | | | | | | | | | | | Revolt Energy: | | | | | | | | | | | | | | | | | | Employment agreement/non-compete | | 19 months | | | 100,000 | | | 77,779 | | | 13,889 | | | 63,890 | | | 22,221 | | | | | | | | | | | | | | | | | | | Tri-State Paving: | | | | | | | | | | | | | | | | | | Customer Relationships | | 115 months | | | 1,649,159 | | | 66,781 | | | — | | | 66,781 | | | 1,582,378 | Tradename | | 115 months | | | 203,213 | | | 8,368 | | | — | | | 8,368 | | | 194,845 | Non-competes | | 7 months | | | 39,960 | | | 16,590 | | | — | | | 16,590 | | | 23,370 | Total intangible assets | | | | $ | 4,548,843 | | $ | 675,153 | | $ | 230,588 | | $ | 444,565 | | $ | 3,873,690 |
The amortization on identifiable intangible assets for fiscal years ended September 30, 20172022 and 2016.2021 was $445,000 and $231,000, respectively. Amortization expense associated with the identifiable intangible assets is expected to be as follows: | | | | | | Amortization Expense | 2023 | | $ | 483,004 | 2024 | | | 438,122 | 2025 | | | 432,569 | 2026 | | | 432,569 | 2027 | | | 432,569 | After | | | 1,654,856 | Total | | $ | 3,873,690 |
26. SUBSEQUENT EVENTS ENERGY SERVICES OF AMERICA CORPORATION (Parent Only)
BALANCE SHEETSOn October 10, 2022, the Company entered into a $3.1 million promissory note agreement with United Bank to finance the Ryan Environmental acquisition. This is a five-year agreement with a fixed interest rate of 6.0% and monthly payments of $59,932 beginning on November 10, 2022.
AsIn February 2018, the Company filed a lawsuit against a former customer in the United States District Court for the Western District of Pennsylvania. The lawsuit is related to a dispute over work performed on a pipeline construction project. On November 16, 2022, a Judgement 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. None of the award had been recognized in the Company’s consolidated financial statements as of September 30, 20172022. 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.
Management has evaluated all subsequent events for accounting and 2016disclosure. There have been no other material events during the period, other than noted above, that would either impact the results reflected in the report or the Company’s results going forward. | | | 2017 | | | 2016 | | | Assets | | | | | | | | | | | | | | | | | | | | Current assets | | | | | | | | | | Cash and cash equivalents | | $ | 1,468,145 | | | $ | 595,757 | | | Other receivables | | | - | | | | 1,417 | | | Prepaid expenses and other | | | 4,013,332 | | | | 1,996,826 | | | Total current assets | | | 5,481,477 | | | | 2,594,000 | | | | | | | | | | | | | Property, plant and equipment, at cost | | | 248,402 | | | | 248,402 | | | less accumulated depreciation | | | (220,733 | ) | | | (215,181 | ) | | | | | 27,669 | | | | 33,221 | | | | | | | | | | | | | Due from subsidiaries | | | 11,604,780 | | | | 10,917,081 | | | Deferred tax asset | | | 731,088 | | | | 671,601 | | | Investment in subsidiaries | | | 24,079,884 | | | | 23,626,269 | | | | | | | | | | | | | Total assets | | $ | 41,924,898 | | | $ | 37,842,172 | | | | | | | | | | | | | Liabilities and shareholders' equity | | | | | | | | | | Current liabilities | | | | | | | | | | Current maturities of long-term debt | | $ | 3,777,504 | | | $ | 2,671,310 | | | Lines of credit and short term borrowings | | | 9,432,968 | | | | 6,232,943 | | | Accounts payable | | | 63,358 | | | | 12,693 | | | Accrued expenses and other current liabilities | | | 164,943 | | | | 236,033 | | | Total current liabilities | | | 13,438,773 | | | | 9,152,979 | | | | | | | | | | | | | Long-term debt, less current maturities | | | 7,350,742 | | | | 6,160,363 | | | Deferred income taxes payable | | | 4,564 | | | | 5,138 | | | | | | | | | | | | | Total liabilities | | | 20,794,079 | | | | 15,318,480 | | | | | | | | | | | | | Shareholders' equity | | | | | | | | | | | | | | | | | | | | Preferred stock, $.0001 par value Authorized 1,000,000 shares,206 issued at September 30, 2017 and 2016 | | | - | | | | - | | | | | | | | | | | | | Common stock, $.0001 par value Authorized 50,000,000 shares 14,839,836 issued and 14,239,836 outstanding at September 30, 2017 and 2016 | | | 1,484 | | | | 1,484 | | | | | | | | | | | | | Treasury stock, 600,000 shares at September 30, 2017 and 2016 | | | (60 | ) | | | (60 | ) | | | | | | | | | | | | Additional paid in capital | | | 61,289,260 | | | | 61,289,260 | | | Retained earnings (deficit) | | | (40,159,865 | ) | | | (38,766,992 | ) | | Total shareholders' equity | | | 21,130,819 | | | | 22,523,692 | | | Total liabilities and shareholders' equity | | $ | 41,924,898 | | | $ | 37,842,172 | |
ENERGY SERVICES OF AMERICA CORPORATION (Parent Only)
STATEMENTS OF INCOME
For the years ended September 30, 2017 and 2016
| | | 2017 | | | 2016 | | | | | | | | | | | General and administrative expenses | | $ | 1,360,216 | | | $ | 1,336,620 | | | | | | | | | | | | | Net loss from operations before taxes | | | (1,360,216 | ) | | | (1,336,620 | ) | | | | | | | | | | | | Other nonoperating expense | | | (318 | ) | | | (83 | ) | | Interest expense | | | (753,167 | ) | | | (780,376 | ) | | Interest allocation to subsidiaries | | | 730,486 | | | | 736,473 | | | | | | | | | | | | | Net loss before tax | | | (1,383,215 | ) | | | (1,380,606 | ) | | | | | | | | | | | | Income tax benefit | | | (541,844 | ) | | | (515,397 | ) | | | | | | | | | | | | Net loss from parent | | | (841,371 | ) | | | (865,209 | ) | | | | | | | | | | | | Equity in undistributed income income of subsidiaries | | | 453,615 | | | | 4,106,632 | | | | | | | | | | | | | Dividends on preferred stock | | | (309,000 | ) | | | (309,000 | ) | | | | | | | | | | | | Net income (loss) available to common shareholders | | $ | (696,756 | ) | | $ | 2,932,423 | | | | | | | | | | | | | Weighted average shares outstanding- basic | | | 14,239,836 | | | | 14,239,836 | | | | | | | | | | | | | Weighted average shares-diluted | | | 14,239,836 | | | | 17,673,169 | | | | | | | | | | | | | Net earnings (loss) per share-basic available to common shareholders | | $ | (0.049 | ) | | $ | 0.206 | | | | | | | | | | | | | Net earnings (loss) per share-diluted available to common shareholders | | $ | (0.049 | ) | | $ | 0.166 | |
ENERGY SERVICES OF AMERICA CORPORATION (Parent Only)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2017 and 2016
| | | 2017 | | | 2016 | | | Cash flows form operating activities: | | | | | | | | | | Net income (loss) available to common shareholders | | $ | (696,756 | ) | | $ | 2,932,423 | | | | | | | | | | | | | Adjustments to reconcile net income (loss) to net cash used in operating activities | | | | | | | | | | Provision for deferred taxes | | | (60,061 | ) | | | 113,725 | | | Depreciation expense | | | 5,552 | | | | 2,120 | | | Equity in undistributed income of subsidiaries | | | (453,615 | ) | | | (4,106,632 | ) | | Advances from subsidiaries | | | (687,699 | ) | | | (1,268,422 | ) | | Changes in: | | | | | | | | | | (Increase) decrease in prepaid expenses | | | (2,016,506 | ) | | | 47,676 | | | Decrease in other receivable | | | 1,417 | | | | - | | | Increase (decrease) in accounts payable | | | 50,665 | | | | (73,526 | ) | | Decrease in accrued expenses and other current liabilities | | | (71,090 | ) | | | (89,051 | ) | | Net cash used in operating activities | | | (3,928,093 | ) | | | (2,441,687 | ) | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | Investment in property & equipment | | | - | | | | (20,508 | ) | | Net cash used in investing activities | | | - | | | | (20,508 | ) | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | Borrowings on lines of credit and short-term debt, net of (repayments) | | | 3,200,025 | | | | 1,716,708 | | | Principal payments on long term debt | | | (2,703,427 | ) | | | (2,106,456 | ) | | Dividends on common stock | | | (696,117 | ) | | | (695,367 | ) | | Proceeds from long term debt | | | 5,000,000 | | | | 3,579,023 | | | Net cash provided by financing activities | | | 4,800,481 | | | | 2,493,908 | | | | | | | | | | | | | Increase in cash and cash equivalents | | | 872,388 | | | | 31,713 | | | Cash beginning of period | | | 595,757 | | | | 564,044 | | | Cash end of period | | $ | 1,468,145 | | | $ | 595,757 | | | | | | | | | | | | | Supplemental disclosures of cash flows information: | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | Income taxes | | $ | 1,578,334 | | | $ | 310,401 | | | Interest | | $ | 753,167 | | | $ | 780,376 | | | Insurance premiums financed | | $ | 3,524,350 | | | $ | 2,565,020 | | | Dividends on preferred stock | | $ | 309,000 | | | $ | 309,000 | |
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