Part 1. Financial Information

Item 1. Financial Statements (Unaudited):

Energy Services of America Corporation

Consolidated Balance Sheets

December 31, September 30,
2020 2020
(Unaudited)
Assets

Current assets
Cash and cash equivalents $ 12,345,745 $ 11,216,820
Accounts receivable-trade 17,096,770 18,246,989
Allowance for doubtful accounts (70,310 ) (70,310 )
Retainages receivable 1,658,513 2,483,809
Other receivables 6,677 9,458
Contract assets 4,418,599 6,545,863
Prepaid expenses and other 2,763,189 3,338,943
Total current assets 38,219,183 41,771,572

Property, plant and equipment, at cost 56,679,946 53,324,843
less accumulated depreciation (37,706,313 ) (36,933,129 )
Total fixed assets 18,973,633 16,391,714

Acquired intangible assets, net
300,000
-
Goodwill 4,220,829 -

Total assets $ 61,713,645 $ 58,163,286

Liabilities and shareholders' equity
Current liabilities
Current maturities of long-term debt $ 4,645,254 $ 4,028,900
Lines of credit and short term borrowings 3,500,000 509,843
Accounts payable 5,783,559 5,222,222
Accrued expenses and other current liabilities 3,255,740 4,237,172
Contract liabilities 3,721,385 4,851,900
Total current liabilities 20,905,938 18,850,037

Long-term debt, less current maturities 13,496,506 11,233,705
Deferred income taxes payable 2,212,084 2,255,515
Total liabilities 36,614,528 32,339,257

Shareholders' equity

Preferred stock, $.0001 par value
Authorized 1,000,000 shares, 206 issued at December 31, 2020 and September 30, 2020 - -

Common stock, $.0001 par value
Authorized 50,000,000 shares 14,839,836 issued and 13,621,406 outstanding at December 31, 2020 and September 30, 2020 1,484 1,484

Treasury stock, 1,218,430 shares at December 31, 2020 and September 30, 2020 (122 ) (122 )

Additional paid in capital 60,670,699 60,670,699
Retained deficit (35,572,944 ) (34,848,032 )
Total shareholders' equity 25,099,117 25,824,029

Total liabilities and shareholders' equity $ 61,713,645 $ 58,163,286


	December 31,		September 30,
	2021		2021
Assets
Current assets
Cash and cash equivalents	$	11,133,146	$	8,226,739
Accounts receivable-trade		25,358,268		21,092,517
Allowance for doubtful accounts		(70,310)		(70,310)
Retainages receivable		1,469,111		917,526
Other receivables		48,557		543,328
Contract assets		5,914,651		8,730,402
Prepaid expenses and other		2,790,154		3,541,000
Total current assets		46,643,577		42,981,202

Property, plant and equipment, at cost		60,831,236		61,145,705
less accumulated depreciation		(38,126,831)		(38,195,686)
Total fixed assets		22,704,405		22,950,019

Intangible assets, net		2,306,466		2,425,923
Goodwill		1,814,317		1,814,317

Total assets	$	73,468,765	$	70,171,461

Liabilities and shareholders’ equity
Current liabilities
Current maturities of long-term debt	$	3,181,197	$	3,401,574
Lines of credit and short term borrowings		4,500,000		5,040,250
Accounts payable		7,343,618		7,285,392
Accrued expenses and other current liabilities		5,568,259		5,599,702
Contract liabilities		7,529,065		3,153,290
Total current liabilities		28,122,139		24,480,208

Long-term debt, less current maturities		8,273,406		9,020,774
Deferred tax liability		2,475,456		2,033,433
Total liabilities		38,871,001		35,534,415

Shareholders’ equity

Preferred stock, $.0001 par value Authorized 1,000,000 shares, NaN issued at December 31, 2021 and 206 issued at September 30, 2021		—		—

Common stock, $.0001 par value Authorized 50,000,000 shares, 17,466,328 issued and 16,247,898 outstanding at December 31, 2021 and 14,839,836 issued and 13,621,406 outstanding at September 30, 2021		1,747		1,484

Treasury stock, 1,218,430 shares at December 31, 2021 and September 30, 2021		(122)		(122)

Additional paid in capital		59,460,174		60,670,699
Retained deficit		(24,864,035)		(26,035,015)

Total shareholders’ equity		34,597,764		34,637,046

Total liabilities and shareholders’ equity	$	73,468,765	$	70,171,461

The Accompanying Notes are an Integral Part of These Financial Statements

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Energy Services of America Corporation

Consolidated Statements of Income

Unaudited


	Three Months Ended		Three Months Ended
	December 31,		December 31,
	2021		2020
Revenue	$	42,659,125	$	32,009,796

Cost of revenues		37,350,752		29,166,737

Gross profit		5,308,373		2,843,059

Selling and administrative expenses		3,632,595		3,595,830
Income (loss) from operations		1,675,778		(752,771)

Other income (expense)
Interest income		576		151,765
Other nonoperating expense		(153,428)		(52,623)
Interest expense		(197,559)		(76,517)
Gain on sale of equipment		339,896		13,042
		(10,515)		35,667

Income (loss) before income taxes		1,665,263		(717,104)

Income tax expense (benefit)		494,283		(69,442)

Net income (loss)		1,170,980		(647,662)

Dividends on preferred stock		-		77,250

Net income (loss) available to common shareholders	$	1,170,980	$	(724,912)

Weighted average shares outstanding-basic		16,247,898		13,621,406

Weighted average shares-diluted		16,247,898		13,621,406

Earnings (loss) per share available to common shareholders	$	0.072	$	(0.053)

Earnings (loss) per share-diluted available to common shareholders	$	0.072	$	(0.053)

Three Months Ended Three Months Ended
December 31, December 31,
2020 2019
Revenue $ 32,009,796 $ 25,843,307

Cost of revenues 29,166,737 23,486,565

Gross profit 2,843,059 2,356,742

Selling and administrative expenses 3,595,830 2,595,772
Loss from operations (752,771 ) (239,030 )

Other income (expense)
Interest income 151,765 53,249
Other nonoperating expense (52,623 ) (33,938 )
Interest expense (76,517 ) (186,845 )
Gain on sale of equipment 13,042 295,991
35,667 128,457

Loss before income taxes (717,104 ) (110,573 )

Income tax benefit (69,442 ) (36,459 )

Net loss (647,662 ) (74,114 )

Dividends on preferred stock 77,250 77,250

Net loss available to common shareholders $ (724,912 ) $ (151,364 )

Weighted average shares outstanding-basic 13,621,406 13,911,610

Weighted average shares-diluted 13,621,406 13,911,610

Loss per share available to common shareholders $ (0.053 ) $ (0.011 )

Loss per share-diluted available to common shareholders $ (0.053 ) $ (0.011 )

The Accompanying Notes are an Integral Part of These Financial Statements

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Energy Services of America Corporation

Consolidated Statements of Cash Flows

Unaudited


	Three Months Ended		Three Months Ended
	December 31,		December 31,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	1,170,980	$	(647,662)

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

Depreciation expense		1,304,496		1,083,853
Gain on sale of equipment		(339,896)		(13,042)
Provision for deferred taxes		(367,010)		29,762
Amortization of intangible assets		119,456		—
(Increase) decrease in contracts receivable		(4,265,751)		1,150,219
(Increase) decrease in retainage receivable		(551,585)		825,296
Decrease in other receivables		494,771		2,781
Decrease in contract assets		2,815,751		2,127,264
Decrease in prepaid expenses		750,846		575,754
Increase in accounts payable		58,226		561,337
Increase (decrease) in accrued expenses		837,579		(977,375)
Increase (decrease) in contract liabilities		4,375,775		(1,130,515)
Net cash provided by operating activities		6,403,638		3,587,672

Cash flows from investing activities:
Acquisition of West Virginia Pipeline, net of cash received of $250,000		—		(3,250,000)
Investment in property and equipment		(942,703)		(1,467,091)
Proceeds from sales of property and equipment		463,862		13,500
Net cash used in investing activities		(478,841)		(4,703,591)

Cash flows from financing activities:
Par value of common stock issued from preferred stock conversion		—		—
Preferred stock redemption		(1,262,750)		—
Preferred dividends paid		—		(154,500)
Borrowings on lines of credit and short term debt, net of (repayments)		(540,250)		2,990,157
Principal payments on long term debt		(1,215,390)		(590,813)
Net cash (used in) provided by financing activities		(3,018,390)		2,244,844

Increase in cash and cash equivalents		2,906,407		1,128,925
Cash and cash equivalents beginning of period		8,226,739		11,216,820
Cash and cash equivalents end of period	$	11,133,146	$	12,345,745

Supplemental schedule of noncash investing and financing activities:
Purchases of property & equipment under financing agreements	$	240,145	$	349,139
Note payable to finance West Virginia Pipeline acquisition	$	—	$	3,000,000
Debt assumed in acquisitions	$	—	$	120,829
Par value of common stock issued from preferred stock conversion	$	263	$	—

Supplemental disclosures of cash flows information:

Cash paid during the year for:
Interest	$	186,580	$	76,517

Three Months Ended Three Months Ended
December 31, December 31,
Cash flows from operating activities: 2020 2019
Net loss $ (647,662 ) $ (74,114 )

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

Depreciation expense 1,083,853 1,095,282
Gain on sale of equipment (13,042 ) (295,991 )
Provision for deferred taxes 29,761 (105,996 )
Decrease in contracts receivable 1,150,219 8,424,777
Decrease in retainage receivable 825,296 276,961
Decrease in other receivables 2,781 100
Decrease in contract assets 2,127,264 2,082,158
Decrease in prepaid expenses 575,754 153,912
Increase in accounts payable 561,337 1,384,658
Decrease in accrued expenses (977,374 ) (713,221 )
Decrease in contract liabilities (1,130,515 ) (222,884 )
Decrease in income taxes payable - 21,811
Net cash provided by operating activities 3,587,672 12,027,453

Cash flows from investing activities:
Investment in property and equipment (1,467,091 ) (747,534 )
Proceeds from sales of property and equipment 13,500 334,234
Acquisition of West Virginia Pipeline, net of cash received of $250,000 (3,250,000 ) -
Net cash used in investing activities (4,703,591 ) (413,300 )

Cash flows from financing activities:
Dividends on common stock - (696,117 )
Preferred dividends paid (154,500 ) (154,500 )
Treasury stock purchased by company - (29,974 )
Borrowings on lines of credit and short term debt, net of (repayments) 2,990,157 (4,025,710 )
Principal payments on long term debt (590,813 ) (6,671,860 )
Net cash provided by (used in) financing activities 2,244,844 (11,578,161 )

Increase in cash and cash equivalents 1,128,925 35,992
Cash and cash equivalents beginning of period 11,216,820 4,578,275
Cash and cash equivalents end of period $ 12,345,745 $ 4,614,267

Supplemental schedule of noncash investing and financing activities:
Purchases of property & equipment under financing agreements $ 349,139 $ 392,820
Note payable for acquisition of West Virginia Pipeline $ 3,000,000 $ -
Debt assumed in acquisition of West Virginia Pipeline $ 120,829 $ -

Supplemental disclosures of cash flows information:
Cash paid during the year for:
Interest $ 76,517 $ 186,845
Income taxes $ - $ 48,000

The Accompanying Notes are an Integral Part of These Financial Statements

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Energy Services of America Corporation

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended December 31, ~~2020~~2021, and ~~2019~~2020


										Total
	Common Stock			Additional Paid		Retained		Treasury		Shareholders’
	Shares	Amount		in Capital		Deficit		Stock		Equity
Balance at September 30, 2020	13,621,406	$	1,484	$	60,670,699	$	(34,848,032)	$	(122)	$	25,824,029

Net loss	—		—		—		(647,662)		—		(647,662)

Accrued preferred dividends	—		—		—		(77,250)		—		(77,250)

Balance at December 31, 2020	13,621,406	$	1,484	$	60,670,699	$	(35,572,944)	$	(122)	$	25,099,117

Balance at September 30, 2021	13,621,406	$	1,484	$	60,670,699	$	(26,035,015)	$	(122)	$	34,637,046

Net income	—		—		—		1,170,980		—		1,170,980

Preferred share repemption, net of accrued dividends at September 30, 2021	—		—		(1,210,525)		—		—		(1,210,525)

Preferred share conversion	2,626,492		263		—		—		—		263

Balance at December 31, 2021	16,247,898	$	1,747	$	59,460,174	$	(24,864,035)	$	(122)	$	34,597,764

Total
Common Stock Additional Paid Retained Treasury Shareholders'
Shares Amount in Capital Earnings (deficit) Stock Equity
Balance at September 30, 2019 13,924,789 $ 1,484 $ 60,938,896 $ (36,275,932 ) $ (91 ) $ 24,664,357

Net loss - - - (74,114 ) - (74,114 )

Accrued preferred dividends - - - (77,250 ) - (77,250 )

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 )

Treasury stock purchased by company (34,687 ) - (29,970 ) - (4 ) (29,974 )

Balance at December 31, 2019 13,890,102 $ 1,484 $ 60,908,926 $ (37,123,413 ) $ (95 ) $ 23,786,902

Balance at September 30, 2020 13,621,406 $ 1,484 $ 60,670,699 $ (34,848,032 ) $ (122 ) $ 25,824,029

Net loss - - - (647,662 ) - (647,662 )

Preferred dividends - - - (77,250 ) - (77,250 )

Balance at December 31, 2020 13,621,406 $ 1,484 $ 60,670,699 $ (35,572,944 ) $ (122 ) $ 25,099,117

The Accompanying Notes are an Integral Part of These Financial Statements

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ENERGY SERVICES OF AMERICA CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.
1. BUSINESS AND ORGANIZATION
Energy Services of America Corporation (“Energy Services” or the “Company”), formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic region of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries. 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 ~~production~~construction personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.
~~On December 31, 2020, Energy Services completed the purchase of~~ West Virginia Pipeline, Inc. (“West Virginia Pipeline”), ~~a West Virginia corporation located in Princeton, West Virginia. West Virginia Pipeline,~~ a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia. 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 West Virginia ~~Pipeline’s employees~~Pipeline and SQP are non-union and ~~the company is~~are managed independently from ~~C.J. Hughes and Nitro.~~
~~The~~the Company’s ~~stock is quoted under the symbol “ESOA” on the OTC QB marketplace operated by the OTC Markets Group.~~
union subsidiaries.
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto for the years ended September 30, ~~2020~~2021, and ~~2019~~2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on ~~January 4,~~December 29, 2021. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to the interim financial reporting rules and regulations of the SEC. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations. The operating results for the three months ended December 31, ~~2020~~2021, and ~~2019~~2020 are not necessarily indicative of the results to be expected for the full year or any other interim ~~period~~.
period.
Principles of Consolidation
The consolidated financial statements of Energy Services include the accounts of Energy Services, its wholly owned subsidiaries West Virginia Pipeline, SQP and C.J. Hughes and its subsidiaries, Contractors Rental, Nitro, ~~Pinnacle,~~ and ~~Contractors Rental.~~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, and C.J. Hughes and its subsidiaries.
Use of Estimates and Assumptions

The preparation of financial statements, in conformity with 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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer to Note 2 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended September 30, 2021, for a more detailed discussion of our significant accounting policies. There were no material changes to these critical accounting policies during the three months ended December 31, 2021.

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3.REVENUE RECOGNITION

Our revenue is primarily derived from construction contracts that can span several quarters. We recognize revenue in accordance with Accounting Standards Codification (“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:

1.

Identify the contract

2.

Identify performance obligations

3.

Determine the transaction price

4.

Allocate the transaction price

5.

Recognize revenue

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 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, ~~have had, and can in future periods~~could have a significant effect on our profitability.

Our contract assets ~~may~~ 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

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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 ~~may~~ 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.

3. 

4.DISAGGREGATION OF REVENUE

~~We disaggregate our~~The Company disaggregates revenue based on our operating groups and contract types as it is the format that is regularly reviewed by management. Our reportable operating groups ~~are:~~are Gas & Water Distribution, Gas & Petroleum ~~and Gas, Water, Sewer and other~~Transmission, Electrical, Mechanical, & General services and ~~Electrical and Mechanical services.~~construction. The operating groups for the three months ended December 31, 2020, have been revised to reflect the current presentation. Our contract types are: Lump Sum, Unit Price, Cost Plus and Time and Materials (“T&M”). The following tables present our disaggregated revenue for the three months ended December 31, ~~2020~~2021, and ~~2019:~~  2020:

Three Months Ended December 31, 2020

Petroleum & Gas Water, Sewer and Other Electrical and Mechanical Total revenue from contracts

Three Months Ended December 31, 2021

Electrical,

Gas & Water

Gas & Petroleum

Mechanical, and

Total revenue


Distribution

Transmission

General

from contracts
Lump sum contracts $ - $ - $ 11,666,631 $ 11,666,631

$
—

$
—

$
10,939,201

$
10,939,201
Unit price contracts 11,827,050 3,707,181 - 15,534,231

11,962,034

11,238,517

—

23,200,551
Cost plus and T&M contracts 290,000 - 4,518,934 4,808,934

—

—

8,519,373

8,519,373
Total revenue from contracts $ 12,117,050 $ 3,707,181 $ 16,185,565 $ 32,009,796

$
11,962,034

$
11,238,517

$
19,458,574

$
42,659,125

Earned over time $ 8,402,592 $ 3,707,181 $ 16,013,755 $ 28,123,528

$
7,919,922

$
11,238,517

$
18,819,986

$
37,978,425
Earned at point in time 3,714,458 171,810 3,886,268

4,042,112

—

638,588

4,680,700
Total revenue from contracts $ 12,117,050 $ 3,707,181 $ 16,185,565 $ 32,009,796

$
11,962,034

$
11,238,517

$
19,458,574

$
42,659,125

Three Months Ended December 31, 2019

Petroleum & Gas Water, Sewer and Other Electrical and Mechanical Total revenue from contracts

Three Months Ended December 31, 2020

Electrical,

Gas &Water

Gas & Petroleum

Mechanical, and

Total revenue


Distribution

Transmission

General

from contracts
Lump sum contracts $ - $ - $ 7,448,512 $ 7,448,512

$
—

$
—

$
11,666,631

$
11,666,631
Unit price contracts 6,218,532 2,125,934 - 8,344,466

7,131,639

8,402,592

—

15,534,231
Cost plus and T&M contracts 3,311,566 1,274,832 5,463,931 10,050,329

—

290,000

4,518,934

4,808,934
Total revenue from contracts $ 9,530,098 $ 3,400,766 $ 12,912,443 $ 25,843,307

$
7,131,639

$
8,692,592

$
16,185,565

$
32,009,796








Earned over time $ 7,116,701 $ 3,400,766 $ 12,599,705 $ 23,117,172

$
3,707,181

$
8,402,592

$
16,013,755

$
28,123,528
Earned at point in time 2,413,397 - 312,738 2,726,135

3,424,458

290,000

171,810

3,886,268
Total revenue from contracts $ 9,530,098 $ 3,400,766 $ 12,912,443 $ 25,843,307

$
7,131,639

$
8,692,592

$
16,185,565

$
32,009,796

4.
5.CONTRACT BALANCES
The Company’s accounts receivable consists of amounts that have been billed to customers. Collateral is generally not required. ~~A majority of the~~The Company’s contracts have ~~monthly~~ billing terms including daily, weekly, monthly, and ~~payment~~at project completion depending on the customer and contract agreement. Payment terms are generally within 30 to 45 days after invoices have been issued. ~~The Company attempts to negotiate two-week billing terms and 15-day payment terms on larger projects.~~ The timing of billings to customers may generate contract assets or contract liabilities.
During the three months ended December 31, ~~2020,~~2021, we recognized revenue of ~~$4.6~~$1.9 million that was included in the contract liability balance at September 30, ~~2020.~~2021.

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

September 30, 2020 December 31, 2020 Change
Accounts receivable-trade, net of allowance for doubtful accounts $ 18,176,679 $ 17,026,460 $ (1,150,219 )

Contract assets Cost and estimated earnings in excess of billings $ 6,545,863 $ 4,418,599 $ (2,127,264 )

Contract liabilities Billings in excess of cost and estimated earnings $ 4,851,900 $ 3,721,385 $ (1,130,515 )

September 30, 2021

December 31, 2021

Change

Accounts receivable-trade, net of allowance for doubtful accounts

$
21,022,207

$
25,287,958

$
4,265,751






Contract assets






Cost and estimated earnings in excess of billings

$
8,730,402

$
5,914,651

$
(2,815,751)



Contract liabilities



Billings in excess of cost and estimated earnings

$
3,153,290

$
7,529,065

$
4,375,775

5.
6.PERFORMANCE OBLIGATIONS

~~The Company provides construction services that can be classified into several groups: petroleum and gas, water, sewer and other, and electrical and mechanical services.~~ Generally, our contracts contain one performance obligation that is satisfied over time because our performance typically creates or enhances an asset that the customer controls as the asset is created or enhanced. We recognize revenue as performance obligations are satisfied and control of the promised good and service is transferred to the customer. Revenue is ordinarily recognized over time as control is transferred to the customers by measuring the progress toward complete satisfaction of the performance obligation(s) using an input (i.e., “cost-to-cost”) method. Under the cost-to-cost method, costs incurred to-date are generally the best depiction of transfer of control. All contract costs, including those associated with affirmative claims, change orders and back charges, are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. Contract costs consist of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs and equipment expense (primarily depreciation, fuel, maintenance and repairs).
During the three months ended December 31, ~~2020, we~~2021, there was 0 revenue recognized ~~revenue of $1.0 million~~ as a result of changes in contract transaction price related to performance obligations that were satisfied prior to September 30, ~~2020. The changes~~2021. Changes in contract transaction price ~~were~~can result from such items ~~such~~ as changes in projected profit, executed or estimated change orders, and unresolved contract modifications and claims.
The Company does not sell warranties for its construction services. At December 31, ~~2020,~~2021, the Company had ~~$9.5~~$40.5 million in remaining unsatisfied performance obligations, in which revenue is expected to be recognized in less than twelve months.

8
6. 7.UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts as of December 31, ~~2020~~2021, and September 30, ~~2020~~2021, are summarized as follows:

December 31, September 30,
2020 2020

December 31, 2021

September 30, 2021
Costs incurred on contracts in progress $ 114,491,141 $ 74,996,405

$
71,979,534

$
64,903,618
Estimated earnings, net of estimated losses 19,336,835 16,067,668

14,076,321

13,280,334
133,827,976 91,064,073

86,055,855

78,183,952
Less billings to date 133,130,762 89,370,110

87,670,269

72,606,840
$ 697,214 $ 1,693,963

$
(1,614,414)

$
5,577,112
Costs and estimated earnings in excess of billed on uncompleted contracts $ 4,418,599 $ 6,545,863

$
5,914,651

$
8,730,402

Less billings in excess of costs and estimated earnings on uncompleted contracts 3,721,385 4,851,900

7,529,065

3,153,290

$ 697,214 $ 1,693,963

$
(1,614,414)

$
5,577,112

Backlog at December 31, ~~2020~~2021, and September 30, ~~2020~~2021, was ~~$60.7~~$101.6 million and ~~$63.8~~$72.2 million, respectively.

7. 8

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8.FAIR VALUE MEASUREMENTS

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

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 Value Measurements 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 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 for bank loans with similar terms and maturities. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of ~~$17.2~~$8.7 million at December 31, ~~2020~~2021, was ~~$16.1 million as of the same date.~~$8.8 million. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of ~~$15.8~~$10.0 million at September 30, ~~2020~~2021, was ~~$14.8~~$9.9 million.

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

~~8. LOSS~~9

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9.  EARNINGS (LOSS) PER SHARE
The amounts used to compute the ~~loss~~earnings (loss) per share for the three months ended December 31, ~~2020~~2021, and ~~2019~~2020 are summarized below.

Three Months Ended Three Months Ended
December 31, December 31,
2020 2019
Net loss $ (647,662 ) $ (74,114 )

Dividends on preferred stock 77,250 77,250

Net loss available to common shareholders $ (724,912 ) $ (151,364 )

Weighted average shares outstanding-basic 13,621,406 13,911,610

Weighted average shares-diluted 13,621,406 13,911,610

Loss per share available to common shareholders $ (0.053 ) $ (0.011 )

Loss per share available to common shareholders-diluted $ (0.053 ) $ (0.011 )

Three Months Ended

Three Months Ended

December 31,

December 31,


2021

2020
Net income (loss)

$
1,170,980

$
(647,662)

Dividends on preferred stock

—

77,250

Income (loss) available to common shareholders

$
1,170,980

$
(724,912)

Weighted average shares outstanding-basic

16,247,898

13,621,406

Weighted average shares outstanding-diluted

16,247,898

13,621,406

Earnings (loss) per share available to common shareholders

$
0.072

$
(0.053)

Earnings (loss) per share available to common shareholders-diluted

$
0.072

$
(0.053)

10
9.10.  INCOME TAXES
The components of income taxes are as follows:

Three Months Ended December 31,
2020 2019

Three Months Ended


December 31, 2021

December 31, 2020
Federal




Current $ (77,380 ) $ 54,240

$
671,808

$
(77,380)
Deferred 23,214 (82,678 )

(286,268)

23,214
Total $ (54,166 ) $ (28,438 )

385,540

(54,166)

State

Current $ (21,824 ) $ 15,298

189,485

(21,824)
Deferred 6,548 (23,319 )

(80,742)

6,548
Total $ (15,276 ) $ (8,021 )

108,743

(15,276)

Total income tax benefit $ (69,442 ) $ (36,459 )

Total income tax (benefit) expense

$
494,283

$
(69,442)

The effective income tax rate for the three months ended December 31, ~~2020~~2021, was ~~(9.7%)~~29.7%, as compared to ~~(33.0%)~~9.7% for the same period in ~~2019.~~2020. Effective income tax rates are estimates and may vary from period to period due to changes in the amount of taxable income and non-deductible expenses.
Per diem paid to employees on construction projects isand entertainment expenses are only partially deductible from taxable income and can have a significant impact on the effective tax rate. For the three months ended December 31, 2021, the non-deductible portion of per diem and entertainment expenses resulted in an approximate $129,000 increase in taxable income as compared to $76,000 for the same period in 2020.

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

December 31, September 30,
2020 2020
Deferred income tax liabilities
Long-term
Property and equipment $ 2,750,067 $ 2,746,331
Other (19,805 ) (19,805 )
Total deferred income tax liabilities $ 2,730,262 $ 2,726,526

Deferred income tax assets
Long-term
Other $ 518,178 $ 471,011
Total deferred income tax assets $ 518,178 $ 471,011

Total net deferred income tax liabilities $ 2,212,084 $ 2,255,515

December 31,

September 30,


2021

2021
Deferred tax liabilities




Property and equipment

$
4,005,237

$
4,883,398
Other

—

37,582
Total deferred tax liabilities

$
4,005,237

$
4,920,980

Deferred income tax assets

Other

$
314,633

$
358,400
Net operating loss carryforward

1,215,148

2,529,147
Total deferred tax assets

$
1,529,781

$
2,887,547

Total net deferred tax liabilities

$
2,475,456

$
2,033,433

The Company and all subsidiaries file a consolidated federal and various state income tax returns on a fiscal year basis. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for years ended prior to September 30, ~~2017.~~2018.
The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in ~~general~~selling and administrative ~~expenses~~.expenses.

~~10.~~11.  SHORT-TERM AND LONG-TERM DEBT
Short-term debt consists of the following:
On ~~July 30, 2020,~~August 3, 2021, the Company received a one-year extension on its line of credit (“Operating Line of credit ~~(2020)~~(2021)”) effective June 28, ~~2020.~~2021. The $15.0 million revolving line of credit has a $12.5 million component and a $2.5 million component, each with separate borrowing requirements. The interest rate on the line of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. ~~The line of credit expires on June 28, 2021.~~ Based on the borrowing base calculation, the Company was able to borrow up to ~~$9.9~~$12.5 million as of December 31, ~~2020.~~2021. The Company had ~~$3.5~~$4.5 million in borrowings on the line of credit, leaving ~~$6.4~~$8.0 million available on the line of credit as of December 31, ~~2020.~~2021. The interest rate at December 31, 2021, was 4.99%. Based on the borrowing base calculation, the Company was able to borrow up to ~~$11.1~~$12.2 million as of September 30, ~~2020.~~2021. The Company had no$4.5 million in borrowings on the line of credit, leaving ~~$11.1~~$7.7 million available on the line of credit as of September 30, ~~2020.~~
2021. The interest rate at September 30, 2021, was 4.99%.
Major items excluded from the borrowing base calculation are receivables from bonded jobs and retainage as well as all items greater than ninety (90) days old. Line of credit borrowings are collateralized by the Company’s accounts receivable. Cash available under the line is calculated based on 70.0% of the Company’s eligible accounts receivable. ~~Major items excluded from the calculation are receivables from bonded jobs and retainage as well as items greater than 90 days old.~~
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 $19.0 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 2.0x 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:

11

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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 $21.0 million to be measured quarterly.

The Company believes it was in compliance with all covenants for the $12.5 million component of Operating Line of Credit ~~(2020)~~(2021) at December 31, ~~2020.~~2021.

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. ~~It is typical that the~~The Company makes a down payment in January and finances the remaining premium amount over ten monthly payments. In January ~~2020,~~2021, the Company financed ~~$3.1~~$3.2 million in insurance ~~premium policies.~~premiums. At December 31, ~~2020, the~~2021, there was 0 outstanding balance for insurance premiums financed.

12

Table of ~~the premiums payments had been paid off.~~Contents

A summary of short-term and long-term debt as of December 31, ~~2020~~2021, and September 30, ~~2020~~2021, is as follows:

December 31, September 30,
2020 2020
Line of credit payable to bank, monthly interest at 4.99%, final payment due by June 28, 2021. 3,500,000 -

Notes payable to finance companies, due in monthly installments  totaling $70,062 including interest ranging from 0.00% to 6.03%, final payments due January 2021 through August 2026, secured by equipment. 1,668,998 1,334,566

Note payable to finance company for insurance premiums financed, due in monthly installments  totaling $254,922 in FY 2020 and $267,677 in FY 2019, including interest rate at 3.50%, final payment made November 2020. - 509,843

Notes payable to bank, due in monthly installments totaling  $7,799, including interest at 4.82%, final  payment due November 2034 secured by  building and property. 956,168 967,665

Notes payable to bank, due in monthly installments totaling  $11,602, including interest at 4.25%, final  payment due November 2025 secured by  building and property. 606,842 644,172

Notes payable to bank for $9.8 million in Paycheck Protection Program ("PPP") loan funds. Payments on the five-year note are expected to begin in March 2021 if PPP loan repayment is not forgiven, due in monthly installments totaling  $168,187, including interest at 1.0%, final  payment due December 2025. 9,839,100 9,839,100

Notes payable to bank, due in monthly installments totaling  $98,865, including interest at 4.99%, final  payment due September 2022 secured by  equipment. 1,711,220 1,983,911

Notes payable to bank, due in monthly installments totaling  $46,482, including interest at 5.00%, final  payment due September 2021 secured by  equipment. 359,432 493,191

Notes payable to David and Daniel Bolton, due in annual installments totaling $600,000, including interest at 3.25%, final payment due December 31, 2026, unsecured 3,000,000 -

Total debt 21,641,760 15,772,448

Less current maturities 8,145,254 4,538,743

Total long term debt $ 13,496,506 $ 11,233,705

December 31,

September 30,


2021

2021
Line of credit payable to bank, monthly interest at 4.99%, final payment due by June 28, 2022, guaranteed by certain directors of the Company.

$
4,500,000

$
4,500,000

Term note payable to United Bank, WV Pipeline acquisition, due in monthly installments of $64,853 interest at 4.25%, final payment due by March 25, 2026, secured by receivables and equipment, guaranteed by certain directors of the Company.

3,022,896

3,183,549

Notes payable to finance companies, due in monthly installments totaling $68,079 at December 31, 2021 and $70,062 at September 30, 2021, including interest ranging from 0.00% to 6.03%, final payments due January 2022 through August 2026, secured by equipment.

1,080,656

1,066,580

Note payable to finance company for insurance premiums financed, due in monthly installments totaling $272,000, including interest rate at 2.70%, final payment made November 2021.

—

540,250

Notes payable to bank, due in monthly installments totaling $7,799, including interest at 4.82%, final payment due November 2034 secured by building and property.

906,337

919,017

Notes payable to bank, due in monthly installments totaling $11,602, including interest at 4.25%, final payment due November 2025 secured by building and property, guaranteed by certain directors of the Company.

501,569

530,750

Notes payable to bank, due in monthly installments totaling $98,865, including interest at 4.99%, final payment due September 2022 secured by equipment, guaranteed by certain directors of the Company.

585,645

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

2,357,500

2,850,000



Notes payable to bank, monthly interest payments at 4.25% of outstanding balance between August 2021 and January 2022. Note payments due in monthly installments totaling $68,073, including interest at 4.25%, beginning February 2022 with final payment due January 2026, secured by equipment, guaranteed by certain directors of the Company.

3,000,000

3,000,000

Total debt

15,954,603

17,462,598

Less current maturities

7,681,197

8,441,824

Total long term debt

$
8,273,406

$
9,020,774
~~11. ACQUISITION~~

12. ACQUISITIONS
On December 31, 2020, Energy Services completed an asset purchase of West Virginia Pipeline, which became a wholly owned subsidiary of Energy Services that operates as a gas and water distribution contractor primarily in southern West Virginia. Energy Services paid $3.5 million in cash and acquired a $3.0 million seller note with a term of five years with an interest rate of 3.25%. ~~Previous owners, David Bolton and Daniel Bolton, have continued their roles~~The

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Company incurred approximately $150,000 in expenses related to the acquisition. West Virginia Pipeline earned revenues of $2.3 million for the three months ended December 31, 2021.
On April 30, 2021, the Company’s Nitro subsidiary completed an asset purchase of Revolt Energy, Inc. (“Revolt Energy”), a solar installation company located in Nitro, WV for $150,000 in cash. After the acquisition, Revolt Energy began to operate as ~~President and Vice President, respectively.~~ a division within Nitro. Revolt Energy earned revenues of $257,000 for the three months ended December 31, 2021.
ASC 805-10-50-2 requires public companies that present comparative financial statements to present pro forma financial statements as though the business combination that occurred during the current fiscal year had occurred as of the beginning of the comparable prior annual reporting period. As allowed under ASC 805-10-50-2, the Company finds this information impracticable to provide for the interim periods presented due to the lack of availability of meaningful financial statements of the acquired companies that comply with U.S. Generally Accepted Accounting Principles.
Energy Services accounts for business combinations under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, for each 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 the adoption of ASU 2015-16, 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. Energy Services is continuing to finalize the
The purchase price ~~allocations related to the West Virginia Pipeline acquisition. Based on management's preliminary valuation~~allocation of ~~tangible and intangible assets acquired and liabilities assumed, the purchase price for the West Virginia Pipeline~~each acquisition is allocated in the ~~table below. These allocations are subject to change.~~tables below:
Goodwill $ 4,220,829
Equipment and vehicles 1,565,000
Building 220,243
Land 64,757
Non-compete agreement 150,000
Customer list 150,000
Cash received in acquisition 250,000
Debt assumed in acquisition (120,829 )
Purchase price $ 6,500,000
West Virginia Pipeline
~~On January 7, 2021, the Company filed a Current Report on Form 8-K to announce the completion of the acquisition under~~ ~~Item 2.01 Completion of Acquisition of Disposition of Assets~~~~. The Company has seventy-one (71) days from the filing date to amend the Form 8-K to include the financial statements of the business acquired and pro forma financial information.~~

Goodwill

$
1,814,317
Equipment and vehicles

1,565,000
Building

220,243
Land

64,757
Customer relationships

2,209,724
Tradename

263,584
Non-competes

83,203
Cash received in acquisition

250,000
Debt assumed in acquisition

(120,828)
Purchase price

$
6,350,000

Revolt Energy
The Company has incurred approximately $50,000 in legal expenses and $5,000 in accounting software expenses as part of the acquisition. The Company estimates it will have $75,000 in auditing expenses related to the Securities and Exchange Commission’s required disclosures mentioned directly above.

Equipment and vehicles

$
135,000
Non-compete agreement

100,000
Debt assumed in acquisition

(85,000)
Purchase price

$
150,000

West Virginia Pipeline’s past financial performance, experienced management and workforce and relationships with its customers made it an attractive acquisition for the Company. Going back to 1963, West Virginia Pipeline has a long history of excellent work performance in southern West Virginia. Their geographic region compliments Energy ~~Services’~~Services as the two companies rarely competed for work previously. The ~~$4.2 million in~~ goodwill generated by the acquisition is largely the result of the ~~synergies and economies of scale expected from the combining the operation of the Company and~~high return on capital generated by West Virginia Pipeline. ~~Adding a non-union subsidiary will give Energy Services some flexibility in competing for work.~~ While West Virginia Pipeline ~~will be~~is managed separately from the Company’s other union operations, it is expected that relationships built by all the companies will help provide new opportunities within the organization.
Revolt Energy’s reputation as a leading solar installation company in southern West Virginia made it an attractive acquisition and assisted Nitro’s entry into the growing solar installation industry. Prior to the acquisition, Revolt installed the solar panels and subcontracted the electrical work. The acquisition will now allow Nitro to self-perform the complete solar installation process. Nitro’s and Revolt’s common union affiliations align to give Nitro flexibility on both solar installations and commercial electrical work.

13. 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

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the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0). If a company fails this test or decides to bypass this step, it must proceed with a two-step quantitative assessment of goodwill impairment. The Company did not have a goodwill impairment at December 31, 2021.
A table of the Company’s goodwill is below:


September 30,

December 31,


2021

2021
Beginning balance

$
—

$
1,814,317
Acquired

1,814,317

—
Impairment

—

—
Ending balance

$
1,814,317

$
1,814,317

A table of the Company’s intangible assets subject to amortization at December 31, 2021, is below:

Accumulated

Amortization and

Remaining Life at

Amortization at

Accumulated

Amortization and

Amortization and

Impairment Three


December 31,



December 31,

Impairment at

Impairment at

Impairment of

Months Ended

Net Book
Intangible assets:

2021

Original Cost

2021

December 31, 2021

December 31, 2021

September 30, 2021

December 31,

Value
West Virginia Pipeline














Customer Relationships

108 months

$
2,209,724

$
220,967

$
—

$
220,967

$
165,725

$
55,242

$
1,988,757
Tradename

108 months

263,584

26,363

—

26,363

19,772

6,591

237,221
Non-competes

12 months

83,203

41,603

—

41,603

31,202

10,401

41,600
Revolt Energy
















Employment agreement/non-compete

28 months

100,000

18,056

43,056

61,112

13,889

47,223

38,888
Total intangible assets

$
2,656,511

$
306,989

$
43,056

$
350,045

$
230,588

$
119,457

$
2,306,466

The amortization and impairment on identifiable intangible assets for the three months ended December 31, 2021, and 2020 was $119,000 and $0, respectively. The $43,000 intangible impairment charge for the three months ended December 31, 2021, was the result of a mutual parting of ways with a former employee.
Amortization expense associated with the identifiable intangible assets is expected to be as follows:


Amortization Expense
January 1-December 31, 2022

$
305,600
January 1-December 31, 2023

264,000
January 1-December 31, 2024

252,884
January 1-December 31, 2025

247,332
January 1-December 31, 2026

247,332
After

989,318
Total

$
2,306,466

14. LEASES
The Company leases office space for SQP Construction Group 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 three months ended December 31, 2021, the Company entered into 2 lease agreements of construction equipment for a combined $160,000. The leases have a term of twenty-two months with an 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 Company treated the transactions as capital leases.
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

15

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equipment. Rental expense, which is included in cost of goods sold on the Consolidated Income Statement, was $1.9 million and $1.0 million for the three months ended December 31, 2021, and 2020, respectively.

15. PAYCHECK PROTECTION PROGRAM LOANS

Due to the economic uncertainties created by COVID-19 and limited operating funds available, the Company applied for loans under the Paycheck Protection Program (“PPP”). On April 15, 2020, Energy Services of America Corporation and subsidiaries C.J. Hughes Construction Company, Contractors Rental Corporation and Nitro Construction Services, Inc. entered into separate Paycheck Protection Program notes effective April 7, 2020, with United Bank, Inc. as the lender (“Lender”) in an aggregate principal amount of $13,139,100 pursuant to the PPP (collectively, the “PPP Loan”). In a special meeting held on April 27, 2020, the Board of Directors of the Company unanimously voted to return $3.3 million of the PPP Loan funds after discussing the financing needs of the Company and subsidiaries. That left the Company and subsidiaries with $9.8 million in PPP Loans to fund operations.

In fiscal year 2021, the Company received notice that the SBA had granted forgiveness and repaid $9.8 million of the PPP borrowings to the Lender. Borrowers must retain PPP documentation for at least 6 years after the date the loan is forgiven or paid in full, and the SBA and SBA Inspector General must be granted these files upon request. The SBA could still revisit its forgiveness decision and determine that the Company does not qualify in whole or in part for loan forgiveness and demand repayment of the loans. In addition, it is unknown what type of penalties could be assessed against the Company if the SBA disagrees with the Company’s certification. Any penalties in addition to the potential return of the PPP Loan could negatively impact the Company’s business, financial condition and results of operations and prospects.

16. SUBSEQUENT EVENTS

On January 27, 2022, the Company announced that it submitted an application to list its common stock on the Nasdaq Capital Market. The Company believes that it meets or will meet the financial, liquidity, and corporate governance requirements for listing on the Nasdaq Capital Market; however, any move to Nasdaq is contingent upon fulfilling those requirements and Nasdaq approval.

Management has evaluated subsequent events through the date which the financial statements were available for issue. 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.

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ITEM 2. 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 “Financial Statements” appearing in this report as well as 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. The term “Energy Services” refers to the Company, West Virginia Pipeline, SQP and C.J. Hughes and C.J. Hughes’ wholly owned subsidiaries on a consolidated basis.
Forward Looking Statements
Within Energy Services’ consolidated financial statements and this discussion and analysis of the financial condition and results of operations, 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 of 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.
Company Overview
Energy Services of America Corporation (“Energy Services” or the “Company”), formed in 2006, is a contractor and ~~services~~service company that operates primarily in the mid-Atlantic region of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries. 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 ~~production~~construction personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.

On December 31, 2020, Energy Services completed ~~the~~an asset purchase of West Virginia Pipeline, Inc. (“West Virginia Pipeline”), a West Virginia corporation located in Princeton, West Virginia. West Virginia Pipeline, a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia. West Virginia Pipeline’s employees are non-union, and the company is managed independently from C.J. Hughes and Nitro.
On March 22, 2021, the Company established a new wholly owned subsidiary, SQP Construction Group, Inc. (“SQP”), that 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.

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On April 30, 2021, the Company’s Nitro subsidiary completed an asset purchase of Revolt Energy, Inc. (“Revolt Energy”), a West Virginia corporation located in Nitro, WV. Revolt Energy previously operated primarily as a residential solar installation company in southern West Virginia. As a division of Nitro, Revolt Energy continues to perform residential solar installations and has expanded its solar installation services to include commercial and industrial customers. Revolt Energy’s construction employees are members of the International Brotherhood of Electrical Workers.

On June 30, 2021, the Company provided notice to all holders of the Company’s 6.0% Convertible Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) that, subject to applicable law and in accordance with the Company’s certificate of incorporation, the Company intended to redeem all 206 shares of the Series A Preferred Stock, at a price equal to $25,000 per preferred share plus all accrued and unpaid dividends whether or not declared up to and excluding the Redemption Date of September 1, 2021 (the “Redemption Price”).

On October 6, 2021, the Company’s transfer agent completed the redemption, 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.

The Company’s stock is quoted under the symbol “ESOA” on the OTCQB marketplace operated by the OTC Markets Group.

Energy Services provides contracting services for utilities and energy related companies including gas, petroleum power, chemical, water & sewer and automotive industries. For the gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. Energy Services is involved in the construction of both interstate and intrastate pipelines, with an emphasis on the latter. For the oil industry, the Company provides a variety of services relating to pipeline, storage facilities and plant work. For the power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, packaged buildings, transformers and other ancillary work with regards thereto. Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction. The ~~majority of~~Company 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.

Energy Services’ customers include many of the leading companies in the industries it serves, including:

TransCanada Corporation

Columbia Gas Distribution

Marathon Petroleum

Mountaineer Gas

American Electric Power

Toyota Motor Manufacturing

~~Bayer Chemical~~Clearon Corporation

Dow Chemical

Kentucky American Water

WV American Water

Various state, county and municipal public service districts.

The majority of the Company’s customers are located in West Virginia, Virginia, Ohio, Pennsylvania, and Kentucky. However, the Company also performs work in other states including Alabama, Michigan, Illinois, Tennessee, and 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. The Company relies on direct contact between its sales force and customers’ engineering and contracting departments in order to obtain new business. The Company’s website address is www.energyservicesofamerica.com.

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COVID-19 Response

In March 2020, the World Health Organization recognized the novel strain of coronavirus, COVID-19, as a pandemic. This coronavirus ~~outbreak has~~and related variants have significantly impacted both the world and U.S. economies. In response ~~to this coronavirus outbreak,~~ the governments of many cities, counties, states, and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes which has created significant uncertainties inactions. In the ~~U.S. economy. In certain~~ geographic regions in which the Company operates, ~~temporary~~state ordered business closures ~~of businesses~~and masking policies have been ~~ordered or suggested~~lifted during 2021; however, some businesses may implement their own policies related to masks and ~~numerous other businesses have temporarily closed voluntarily. Further, individuals' ability to travel~~vaccination. While a federal vaccine mandate enforceable by OSHA has been ~~curtailed through mandated travel restrictions and~~overturned, certain customers, or potential customers, may require all construction employees working on a project to be ~~further limited through additional voluntary or mandated closures of travel-related businesses.~~

vaccinated.

Some of the procedures that the Company has implemented to help protect employees from COVID-19 and variant exposure are guidelines for social distancing, office sanitation, hand washing, mask wearing, limited office admittance, and immediate symptom reporting. The Company has provided personal protective equipment and hand-sanitizers to employees, ~~and has~~ made arrangements for administrative personnel to work from ~~home.~~home, and provided access to vaccines to employees. The Company works closely with our customers to limit exposure risk and cooperate with symptom reporting and contact tracing. Construction employees are required to meet all procedures established by our customers in addition to the Company’s own procedures. The Company also followed the paid sick and expanded family and medical leave guidelines set forth in the Families First Coronavirus Response Act, which expired on December 31, 2020. ~~As of~~

During the three months ended December 31, ~~2020,~~2021, the Company ~~has~~had employees test positive for or were exposed to COVID-19; however, it did not ~~had significant issues with COVID-19 exposure among its employees.~~

~~As of December 31, 2020, most~~have a material effect on the Company’s financial statements. Most of the Company’s existing customers had resumed projects that were affected by the March 2020 shutdowns. ~~As a result, the Company has increased its employment level of construction personnel as compared to March 31, 2020.~~ Given the uncertainty regarding the spread of this coronavirus and variants, the related financial impact on the Company’s results of operations, financial position, and liquidity or capital resources cannot be reasonably estimated at this time.

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 ~~causes~~cause 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.

19

~~First Quarter~~Table of Contents

Three Months Ended December 31, 2021, and 2020 Overview

The following is an overview of results from operations for the three months ended December 31, ~~2020~~2021, and ~~2019.~~2020:

Three Months Ended

Three Months Ended

December 31,

December 31,

2021

2020
Revenue

$
42,659,125

$
32,009,796

Cost of revenues

37,350,752

29,166,737

Gross profit

5,308,373

2,843,059

Selling and administrative expenses

3,632,595

3,595,830
Income (loss) from operations

1,675,778

(752,771)

Other income (expense)



Interest income

576

151,765
Other nonoperating expense

(153,428)

(52,623)
Interest expense

(197,559)

(76,517)
Gain on sale of equipment

339,896

13,042

(10,515)

35,667

Income (loss) before income taxes

1,665,263

(717,104)

Income tax expense (benefit)

494,283

(69,442)

Net income (loss)

1,170,980

(647,662)

Dividends on preferred stock

—

77,250

Net income (loss) available to common shareholders

$
1,170,980

$
(724,912)

Weighted average shares outstanding-basic

16,247,898

13,621,406

Weighted average shares-diluted

16,247,898

13,621,406

Earnings (loss) per share available to common shareholders

$
0.072

$
(0.053)

Earnings (loss) per share-diluted available to common shareholders

$
0.072

$
(0.053)

Three Months Ended Three Months Ended
December 31, December 31,
2020 2019
Revenue $ 32,009,796 $ 25,843,307

Cost of revenues 29,166,737 23,486,565

Gross profit 2,843,059 2,356,742

Selling and administrative expenses 3,595,830 2,595,772
Loss from operations (752,771 ) (239,030 )

Other income (expense)
Interest income 151,765 53,249
Other nonoperating expense (52,623 ) (33,938 )
Interest expense (76,517 ) (186,845 )
Gain on sale of equipment 13,042 295,991
35,667 128,457

Loss before income taxes (717,104 ) (110,573 )

Income tax benefit (69,442 ) (36,459 )

Net loss (647,662 ) (74,114 )

Dividends on preferred stock 77,250 77,250

Net loss available to common shareholders $ (724,912 ) $ (151,364 )

Weighted average shares outstanding-basic 13,621,406 13,911,610

Weighted average shares-diluted 13,621,406 13,911,610

Loss per share
available to common shareholders $ (0.053 ) $ (0.011 )

Loss per share-diluted
available to common shareholders $ (0.053 ) $ (0.011 )

Results of Operations for the Three Months Ended December 31, ~~2020~~2021, Compared to the Three Months Ended December 31, ~~2019~~
2020
Revenues. A table comparing the Company’s revenues for the three months ended December 31, 2021, compared to the three months ended December 31, 2020, is below:


Three Months Ended







December 31, 2021

% of total

December 31, 2020

% of total

Change

% Change

Gas & Water Distribution

$
11,962,034

28.04
%
$
7,131,639

22.28
%
$
4,830,395

67.73
%
Gas & Petroleum Transmission

11,238,517

26.34
%

8,692,592

27.16
%

2,545,925

29.29
%
Electrical, Mechanical, and General

19,458,574

45.61
%

16,185,565

50.56
%

3,273,009

20.22
%
Total

$
42,659,125

100.0
%
$
32,009,796

100.0
%
$
10,649,329

33.27
%

Total revenues increased by ~~$6.2~~$10.7 million ~~or 23.9%~~to $42.7 million for the three months ended December 31, 2021 as compared to $32.0 million for the three months ended December 31, 2020 ~~from $25.8~~as a result of increases in all categories of revenue.

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Gas & Water Distribution revenues totaled $12.0 million for the three months ended December 31, 2021, a $4.8 million increase from $7.1 million for the three months ended December 31, 2020. The revenue 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 West Virginia Pipeline. West Virginia Pipeline, acquired on December 31, 2020, contributed revenues of $2.3 million for the three months ended December 31, 2021. Favorable weather conditions during the first quarter of fiscal year 2022 also allowed the Company to work more efficiently and productively.

Gas & Petroleum Transmission revenues totaled $11.2 million for the three months ended December 31, 2021, a $2.5 million increase from $8.7 million for the three months ended December 31, 2020. The revenue increase was primarily related to transmission work that was awarded in fiscal year 2021 but was delayed from starting by the customer until late in fiscal year 2021.

Electrical, Mechanical, & General services and construction revenues totaled $19.5 million for the three months ended December 31, 2021, a $3.3 million increase from $16.2 million for the three months ended December 31, 2020. The revenue increase was primarily related to a $4.0 million increase in general building and civil construction during the three months ended December 31, 2021 as compared to the same period in 2019. The increase was primarily attributable to a $3.3 million revenue increase in electrical and mechanical services, a $2.6 million revenue increase in petroleum and gas work and a $306,000 revenue increase in water and sewer projects and other ancillary services.

the prior year.

Cost of ~~Revenues~~Revenues.. A table comparing the Company’s costs of revenues for the three months ended December 31, 2021, compared to the three months ended December 31, 2020, is below:

Three Months Ended




December 31, 2021

% of total

December 31, 2020

% of total

Change

% Change

Gas & Water Distribution

$
9,339,545

25.0
%
$
6,026,282

20.7
%
$
3,313,263

54.98
%
Gas & Petroleum Transmission

9,734,489

26.1
%

6,693,726

22.9
%

3,040,763

45.43
%
Electrical, Mechanical, and General

18,106,724

48.5
%

15,179,881

52.0
%

2,926,843

19.28
%
Unallocated Shop Expenses

169,994

0.5
%

1,266,848

4.3
%

(1,096,854)

(86.58)
%
Total

$
37,350,752

100.0
%
$
29,166,737

100.0
%
$
8,184,015

28.06
%

Total cost of revenues increased by ~~$5.7~~$8.2 million ~~or 24.2%~~to $37.4 million for the three months ended December 31, 2021 as compared to $29.2 million for the three months ended December 31, 2020 ~~from $23.5~~as result of increases in all categories to cost of revenues except for unallocated shop expenses.
Gas & Water Distribution cost of revenues totaled $9.3 million for the three months ended December 31, 2021, a $3.3 million increase from $6.0 million for the three months ended December 31, 2020. 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 West Virginia Pipeline. West Virginia Pipeline, acquired on December 31, 2020, incurred cost of revenues of $1.2 million for the three months ended December 31, 2021.
Gas & Petroleum Transmission cost of revenues totaled $9.7 million for the three months ended December 31, 2021, a $3.0 million increase from $6.7 million for the three months ended December 31, 2020. The cost of revenues increase was primarily related to transmission work that was awarded in fiscal year 2021 but was delayed from starting by the customer until late in fiscal year 2021. Also, legal expenses related to a lawsuit on a transmission project, referenced on page 30, increased by $360,000 during the three months ended December 31, 2021, as compared to the same period in ~~2019.~~2020.
Electrical, Mechanical, & General services and construction cost of revenues totaled $18.1 million for the three months ended December 31, 2021, a $2.9 million increase from $15.2 million for the three months ended December 31, 2020. The cost of revenues increase was primarily ~~attributable~~related to a ~~$2.9~~$3.4 million ~~cost~~ increase in ~~electrical~~general building and ~~mechanical services,~~civil construction during the three months ended December 31, 2021 as compared to the same period in the prior year.
Unallocated shop expenses totaled $170,000 for the three months ended December 31, 2021, a ~~$1.9~~$1.1 million ~~cost increase in petroleum and gas work, a $556,000 cost~~decrease from $1.3 million for the three months ended December 31, 2020. The decrease in ~~water and sewer~~unallocated shop expenses was due to increased internal equipment charges to projects ~~and other ancillary services~~for the three months ended December 31, 2021, as compared to to the same period in 2020 and a ~~$279,000 cost increase in equipment~~focused effort to manage project and ~~tool~~ shop ~~operations not allocated to projects.~~costs.

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Table of Contents

Gross Profit. A table comparing the Company’s gross profit for the three months ended December 31, 2021, compared to the three months ended December 31, 2020, is below:

Three Months Ended


December 31, 2021

% of revenue

December 31, 2020

% of revenue

Change

% Change

Gas & Water Distribution

$
2,622,489

21.9
%
$
1,105,357

15.5
%
$
1,517,132

137.3
%
Gas & Petroleum Transmission

1,504,028

13.4
%

1,998,866

23.0
%

(494,838)

(24.8)
%
Electrical, Mechanical, and General

1,351,850

6.9
%

1,005,684

6.2
%

346,166

34.4
%
Unallocated Shop Expenses

(169,994)

(1,266,848)

1,096,854

(86.6)
%
Total

$
5,308,373

12.4
%
$
2,843,059

8.9
%
$
2,465,314

86.7
%

Total gross profit increased by ~~$486,000 or 38.5%~~$2.5 million to $5.3 million for the three months ended December 31, 2021 as compared to $2.8 million for the three months ended December 31, 2020 ~~from $2.4~~as a result of increases in all categories except for a decrease in gas and petroleum transmission gross profit.
Gas & Water Distribution gross profit totaled $2.6 million for the three months ended December 31, 2021, a $1.5 million increase from $1.1 million for the three months ended December 31, 2020. 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 West Virginia Pipeline. West Virginia Pipeline, acquired on December 31, 2020, contributed gross profit of $1.1 million for the three months ended December 31, 2021. Favorable weather conditions during the first quarter of fiscal year 2022 also allowed the Company to work more efficiently and productively.
Gas & Petroleum Transmission gross profit totaled $1.5 million for the three months ended December 31, 2021, a $495,000 decrease from $2.0 million for the three months ended December 31, 2020. The gross profit decrease was primarily due to legal expenses related to a lawsuit on a transmission project, referenced on page 26, that increased by $360,000 during the three months ended December 31, 2021, as compared to the same period in ~~2019. The increase was primarily attributable to a $679,000~~2020.
Electrical, Mechanical, & General services and construction gross profit totaled $1.4 million for the three months ended December 31, 2021, a $346,000 increase in petroleum and gas work, a $336,000 gross profit increase in electrical and mechanical services, partially offset by a $279,000 gross profit decrease related to equipment and tool shop operations costs not allocated to projects and a $250,000 gross profit decrease in water and sewer projects and other ancillary services.
~~A table comparing~~from $1.0 million for the ~~Company’s revenue and~~three months ended December 31, 2020. More efficient production accounted for the increased gross profit for the three months ended December 31, ~~2020~~2021, as compared to the same period in 2020. The gross profit increase was primarily related to a $523,000 increase in general building and civil construction during the three months ended December 31, ~~2019 is below:~~2021 as compared to the same prior year period.
Revenue
Three Months Ended Three Months Ended
December 31, 2020 Pct December 31, 2019 Pct
Petroleum and gas $ 12,117,050 37.9 % $ 9,530,098 36.9 %
Electrical and Mechanical 16,185,565 50.6 % 12,912,443 50.0 %
Water, Sewer, and other 3,707,181 11.5 % 3,400,766 13.1 %
Total $ 32,009,796 100.0 % $ 25,843,307 100.0 %
Gross Profit
Three Months Ended Three Months Ended
December 31, 2020 Pct December 31, 2019 Pct
Petroleum and gas $ 2,427,412 85.4 % $ 1,748,249 74.2 %
Electrical and Mechanical 1,005,684 35.4 % 670,114 28.4 %
Water, Sewer, and other 660,939 23.2 % 910,506 38.6 %
Unallocated equipment and tool shop (1,250,976 ) -44.0 % (972,127 ) -41.2 %
Total $ 2,843,059 100.0 % $ 2,356,742 100.0 %

Gross profit percentage 8.9 % 9.1 %
Unallocated shop expenses gross profit totaled ($170,000) for the three months ended December 31, 2021, a $1.1 million increase from ($1.3 million) for the three months ended December 31, 2020. The increase in unallocated shop gross profit was due to increased internal equipment charges to projects for the three months ended December 31, 2021, as compared to the same period in 2020 and a focused effort to manage project and shop costs.
Selling and administrative expenses. Total selling and administrative expenses increased by ~~$1.0 million or 38.5%~~$37,000 to $3.6 million for the three months ended December 31, ~~2020 from $2.6 million for~~2021, as compared to the same period in ~~2019.~~
~~The increase in~~2020. Approximately, $760,000 of the selling and administrative expenses ~~was primarily~~for the three months ended December 31, 2021, were related to ~~higher salary and burden costs~~new business lines not in operation during the three months ended December 31, ~~2020 compared to the same period in 2019. Incentive~~2020. Employee compensation at the Company’s C.J. Hughes subsidiary increased by $481,000 in the three months ended December 31, 2020 compared to the same period in 2019. The overall increase in selling and administrative expense, including the increase in incentive compensation, relates to an initiative launched by C.J. Hughes to increase and incentivize operational talent within the company and increase revenue and profit margins.

~~Interest Expense.~~ ~~Interest expense~~ decreased by ~~$110,000 or 59.0% to $77,000~~approximately $800,000 for the three months ended December 31, 2021 as compared to the same period in 2020 due to a reduction in incentive compensation and increased labor charges to projects.
Interest income. Interest income totaled $600 for the three months ended December 31, 2021, a decrease of $151,400 from ~~$187,000~~$152,000 for the same period in ~~2019.~~
~~This~~2020. The decrease in interest income was primarily due to the timing of recognizing interest earned from the Company’s captive insurance surety deposit.
Interest expense. Interest expense totaled $198,000 for the three months ended December 31, 2021, an increase of $121,000 from $77,000 for the same period in 2020. The increase in interest expense was primarily due to the financing of the West Virginia Pipeline acquisition and equipment financing.

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Table of Contents

Other nonoperating expense. Other income totaled $153,000 for the three months ended December 31, 2021, an increase of $100,000 from $53,000 for the same period in 2020. The increase was primarily related to an increase in intangible asset amortization expense.

Gain on sale of equipment. Gain on sale of equipment totaled $340,000 for the three months ended December 31, 2021, an increase of $326,000 from $13,000 for the same period in 2020. The increase was related to an increase in equipment sold.

Net income (loss). Income before income taxes was $1.7 million for the three months ended December 31, 2021, compared to loss before income taxes of ($717,000) for the same period in 2020. The increase in income before income taxes for the three months ended December 31, 2021, was due to the items mentioned above.

Income tax expense for the three months ended December 31, ~~2020~~2021, was ~~primarily due to less long-term debt outstanding compared to the same period in 2019. This primarily relates to a $10.0 million term note that was paid off in January 2020.~~

~~Net loss.~~ Loss before income taxes was ($648,000) for the three months ended December 31, 2020, compared to loss before income taxes of ($111,000) for the same period in 2019. The loss before income taxes for the respective periods were due to the items mentioned above.

~~Income tax benefit for the three months ended December 31, 2020 was ($69,000)~~$494,000 compared to income tax benefit of ($~~36,000)~~69,000) for the same period in ~~2019. The higher income tax benefit for the three months ended December 31, 2020, was primarily due to a decrease in taxable income as compared to the same period in 2019.~~

2020. The effective income tax rate for the three months ended December 31, ~~2020~~2021, was ~~(9.7%)~~29.7%, as compared to ~~(33.0%~~(9.7%) for the same period in ~~2019Effective~~2020. Income tax expense (benefit) and effective income tax rates are estimates and may vary from period to period due to changes in the amount of taxable income and non-deductible expenses. Per diem paid to employees on construction projects isand entertainment expenses are only partially deductible from taxable income and can have a significant impact on the effective tax rate. For the three months ended December 31, 2021, the non-deductible portion of per diem and entertainment expenses resulted in an approximate $129,000 increase in taxable income as compared to $76,000 for the same period in 2020. In addition, income before income taxes increased for the three months ended December 31, 2021 as compared to the same prior year period.

There were no dividends on preferred stock for the three months ended December 31, 2021, due to the redemption date on the preferred stock being September 1, 2021. Dividends on preferred stock for the three months ended December 31, 2020, ~~and 2019~~ were $77,250.

Net ~~loss~~income available to common shareholders for the three months ended December 31, ~~2020~~2021, was ~~($725,000)~~$1.2 million compared to net loss available to common shareholders of ($~~151,000)~~725,000) for the same period in ~~2019.~~2020.

Comparison of Financial Condition at December 31, ~~2020~~2021, and September 30, ~~2020~~2021

The Company had total assets of ~~$61.7~~$73.5 million at December 31, ~~2020,~~2021, an increase of ~~$3.5~~$3.3 million from the prior fiscal year end balance of ~~$58.2~~$70.2 million. ~~Goodwill and acquired intangible assets resulting from the West Virginia Pipeline acquisition~~

Accounts receivable, which totaled ~~$4.5~~$25.4 million at December 31, ~~2020, an increase of $4.5 million from the prior fiscal year end. The Company had property, plant and equipment of $19.0 million at December 31, 2020, an increase of $2.6~~2021, increased by $4.3 million from the prior fiscal year end balance of ~~$16.4~~$21.1 million. The increase was primarily due to ~~$3.7~~the timing of cash collections and project invoicing since September 30, 2021. The Company received payment for several million dollars of past due invoices in ~~property, plant and equipment acquisitions, of which $1.9 million related to the acquisition of West Virginia Pipeline, partially offset by depreciation of $1.1 million.~~ early January 2022.

Cash and cash equivalents totaled ~~$12.3~~$11.1 million at December 31, ~~2020,~~2021, an increase of ~~$1.1~~$2.9 million from the prior fiscal year end balance of ~~$11.2~~$8.2 million. The increase was primarily due to ~~the decrease~~$6.4 million provided from operating activities, partially offset by $1.2 million in ~~accounts receivable. Accounts~~cash payments for redeemed preferred stock, $1.8 million in debt repayments, and a net $500,000 investment in property and equipment.

Retainages receivable ~~which~~ totaled ~~$17.1~~$1.5 million at December 31, ~~2020, decreased by $1.1 million~~2021, a $552,000 increase from the prior fiscal year end balance of ~~$18.2 million.~~$918,000. The ~~decrease~~increase was primarily due to ~~the collection of receivables from September 30, 2020.~~ more current year projects that require retainages to be withheld.

Contract assets totaled ~~$4.4~~$5.9 million at December 31, ~~2020,~~2021, a decrease of ~~$2.1~~$2.8 million from the prior fiscal year end balance of ~~$6.5~~$8.7 million. The decrease was due to a difference in the timing of project billings at December 31, ~~2020~~2021, compared to September 30, 2020. Retainages receivable totaled $1.7 million at December 31, 2020, a decrease of $825,000 from the prior fiscal year end balance of $2.5 million. The decrease was due to the timing of retainage billings and receipts compared to September 30, 2020. 2021.

Prepaid expenses and other totaled $2.8 million at December 31, ~~2020,~~2021, a decrease of ~~$576,000~~$751,000 from the prior fiscal year end balance of ~~$3.3~~$3.5 million. The decrease was primarily due to ~~a reduction in~~expensing prepaid insurance ~~that was expensed~~premiums during the three months ended December 31, ~~2020.~~2021.

Other receivables totaled $49,000 at December 31, 2021, a $495,000 decrease from the prior fiscal year end balance of $543,000. The decrease was primarily due to the receipt of insurance premium refunds receivable.

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The Company had property, plant and equipment of $22.7 million at December 31, 2021, a decrease of $246,000 from the prior fiscal year end balance of $23.0 million. The decrease was due to $1.3 million in depreciation expense and net equipment disposals of $124,000, partially offset by $1.2 million in property, plant and equipment acquisitions.

Intangible assets, net totaled $2.3 million at December 31 2021, a decrease of $119,000 from the prior fiscal year end balance of $2.4 million. The decrease was due to the amortization of intangible assets during the three months ended December 31, 2021.

Goodwill resulting from the West Virginia Pipeline and Revolt Energy acquisitions totaled $1.8 million at December 31, 2021, unchanged from the prior fiscal year end balance.

The Company had total liabilities of ~~$36.6~~$38.9 million at December 31, ~~2020,~~2021, an increase of $3.4 million from the prior fiscal year end balance of $35.5 million.

Contract liabilities totaled $7.5 million at December 31, 2021, an increase of $4.3 million from the prior fiscal year end ~~balance~~total of ~~$32.3~~$3.2 million. ~~Lines~~The increase was due to a difference in the timing of ~~credit and short-term borrowings~~project billings at December 31, 2021 compared to at September 30, 2021.

Deferred tax liabilities totaled ~~$3.5~~$2.5 million at December 31, ~~2020,~~2021, an increase of ~~$3.0 million~~$442,000 from the prior fiscal year end balance of ~~$510,000.~~$2.0 million. The increase was primarily ~~due to net line of credit borrowings of $3.5 million, partially offset by net short-term borrowing repayments~~ related to ~~insurance premiums financed~~the reduction of ~~$510,000. Long-term debt~~the net operating loss carry forward during the three months ended December 31, 2021.

Accounts payable totaled ~~$18.1~~$7.3 million at December 31, ~~2020,~~2021, an increase of ~~$2.8 million~~$58,000 from the prior fiscal year end balance of $15.3 million. The increase in long-term debt was due to the $3.0 million note payable related to the West Virginia Pipeline acquisition, partially offset by scheduled debt payments. Accounts payable totaled $5.8 million at December 31, 2020, an increase of $561,000 from the prior fiscal year end balance of $5.2 million.balance. The increase was due to the timing of accounts payable payments as compared to September 30, ~~2020. Contract liabilities~~2021.

Long-term debt totaled ~~$3.7~~$11.5 million at December 31, ~~2020,~~2021, a decrease of $1.2 million from the prior fiscal year end total of $4.9 million. The decrease was due to a difference in the timing of project billings at December 31, 2020 compared to at September 30, 2020. Accrued expenses and other current liabilities totaled $3.3 million at December 31, 2020, a decrease of $981,000$968,000 from the prior fiscal year end balance of ~~$4.2~~$12.4 million. The decrease in long-term debt was primarily due to ~~the payment~~$1.2 million in debt repayments, partially offset by $248,000 in new equipment debt.

Lines of ~~accrued expenses in the three months ended December 31, 2020. Deferred tax liabilities~~credit and short-term borrowings totaled ~~$2.2~~$4.5 million at December 31, ~~2020,~~2021, a decrease of ~~$43,000~~$540,000 from the prior fiscal year end balance of ~~$2.3~~$5.0 million. The decrease was ~~primarily related temporary book loss versus tax loss differences~~due to the repayment of insurance premiums financed.

Accrued expenses and other current liabilities totaled $5.6 million at December 31, 2021, a decrease of $31,000 from the prior fiscal year end balance. The decrease was due to the timing of accrued expense payments as compared to September 30, 2021.

Shareholders’ equity was $34.6 million at December 31, 2021, a decrease of $39,000 from the prior fiscal year end balance. This decrease was due to $1.2 million in preferred stock redemption payments and nearly offset by the net income available to common shareholders of $1.2 million for the three months ended December 31, ~~2020.~~2021.

~~Shareholders’ equity was $25.1 million at December 31, 2020, a decrease of $725,000 from the prior fiscal year end balance of $25.8 million.~~ ~~This decrease was due to the net loss available to common shareholders of ($725,000) for the three months ended December 31, 2020.~~

Liquidity and Capital Resources

Indebtedness

On 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 monthly. The interest rate on this loan agreement is 4.82% with monthly payments of $7,800. 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 December 31, ~~2020,~~2021, the Company had made principal payments of ~~$244,000.~~$294,000. The loan is collateralized by the building purchased under this agreement.

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 were converted to a five-year term note agreement with ~~an interest rate of 5.0%.~~ As of December 31, 2020, the Company had borrowed $2.46 million against this note and made principal payments of $2.1 million. The loan is collateralized by the equipment purchased under this agreement.

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 had previously been leasing for $12,900 each month. The interest rate on the ~~new~~ loan agreement is 4.25% with monthly payments of $11,602. As of December 31, ~~2020,~~2021, the Company had made principal payments of ~~$493,000.~~$598,000. The loan is collateralized by the building and property purchased under this agreement.

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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 with an interest rate of 4.99%. As of December 31, ~~2020,~~2021, the Company had borrowed $5.0 million against this note and made principal payments of ~~$3.3~~$4.4 million. The loan is collateralized by the equipment purchased under this agreement.

On May 30, 2019, the Company entered into Term Note 2019 with United Bank which refinanced the $10.0 million borrowed on Operating Line of Credit (2019) to a five-year term note with a fixed interest rate of 5.50%. ~~The purpose of this note was to finance a specific construction project completed in September 2019. The loan was collateralized by the Company’s equipment.~~ ~~The refinancing effectively reset the Company’s line of credit borrowings to zero as of May 30, 2019 and did not affect the conditions of subsequent borrowings.~~ ~~The~~ ~~Company paid off Term Note 2019 in January 2020.~~

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 ~~$6.5~~$6.35 million acquisition price, the ~~acquisition company~~Company paid $3.5 million in cash in addition to the note. The unsecured five-year term note requires ~~equal~~ annual payments of at least $500,000 with a fixed interest rate of 3.25%.

~~Paycheck Protection Program Loans~~

~~Due~~ on the $3.0 million sellers’ note, which equates to 5.35% on the ~~economic uncertainties created by COVID-19 and~~carrying value of the ~~limited operating funds available,~~note. As of December 31, 2021, the Company ~~applied for loans under~~had made annual installment payments of $500,000, interest payments of $97,500 and expensed $30,000 in accreted interest.

On January 4, 2021, the ~~Paycheck Protection Program (“PPP”). On April 15, 2020, Energy Services of America Corporation and subsidiaries C.J. Hughes Construction~~ Company ~~Contractors Rental Corporation and Nitro Construction Services, Inc.~~ entered into ~~separate Paycheck Protection Program Notes effective April 7, 2020~~a $3.0 million Non-Revolving Note agreement with United Bank, Inc. as the lender (“Lender”) in an aggregate principal amount of $13,139,100 pursuant to the PPP (collectively, the “PPP Loan”). In a special meeting held on April 27, 2020, the Board of Directors ofThis five-year agreement gave the Company ~~unanimously voted~~access to ~~return $3.3~~a $3.0 million line of credit (“Equipment Line of Credit 2021”), specifically for the ~~PPP Loan funds after discussing~~purchase of equipment, for a period of twelve months with a variable interest rate initially established at 4.25% as based on the ~~financing needs~~Prime Rate as published by The Wall Street Journal. After twelve months, all borrowings against the Equipment Line of the Company and subsidiaries. That left the Company and subsidiaries with $9.8 million in PPP Loans to fund operations. The Company had used all the available PPP Loan funds as of December 31, 2020 and is in the process of filing for loan forgiveness with its Lender. ~~Any portion of the loan that is not forgiven~~Credit 2021 will be converted to a ~~five-year~~four-year term note agreement with ~~1.0% interest.~~

a variable interest rate initially established at 4.25%. The ~~SBA has announced,~~loan is collateralized by the equipment purchased under this agreement. As of December 31, 2021, the Company borrowed $3.0 million against this line of credit with payments set to begin in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, following the lender’s submission of the borrower’s loan forgiveness application. The SBA will be reviewing a borrower’s required certification that current economic uncertainty makes 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.

February 2022. The Company ~~believes it meets~~has made interest payments of $66,000 on this note as of December 31, 2021.

On April 2, 2021, the ~~SBA’s certification requirement~~Company entered into a $3.5 million Non-Revolving Note agreement with United Bank, Inc. 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 a variable interest rate initially established at 4.25% as based on ~~its limited access to capital, weakening business operations and small market value~~the Prime Rate as ~~described above.~~ published by The ~~Company’s shares of common stock do not trade on a national exchange. However, no assurance can be given as to the outcome of the SBA’s audit of~~Wall Street Journal. The loan is collateralized by the Company’s ~~PPP Loan. The SBA could determine that~~equipment and receivables. As of December 31, 2021, the Company ~~does not qualify in whole or in part for loan forgiveness. In addition, it is unknown what type~~had made principal payments of penalties could be assessed against the Company if the SBA disagrees with the Company’s certification. The Company could be required to return its PPP Loan. Any penalties in addition to the potential return of the PPP Loan could negatively impact the Company’s business, financial condition and results of operations and prospects.$477,000.

Operating Line of Credit

On ~~July 30, 2020,~~August 3, 2021, the Company received a one-year extension on its line of credit (“Operating Line of credit ~~(2020)~~(2021)”) effective June 28, ~~2020.~~2021. The $15.0 million revolving line of credit has a $12.5 million component and a $2.5 million component, each with separate borrowing requirements. The interest rate on the line of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. ~~The line of credit expires on June 28, 2021.~~ Based on the borrowing base calculation, the Company was able to borrow up to ~~$9.9~~$12.5 million as of December 31, ~~2020.~~2021. The Company had ~~$3.5~~$4.5 million in borrowings on the line of credit, leaving ~~$6.4~~$8.0 million available on the line of credit as of December 31, ~~2020.~~2021. The interest rate at December 31, 2021, was 4.99%. Based on the borrowing base calculation, the Company was able to borrow up to ~~$11.1~~$12.2 million as of September 30, ~~2020.~~2021. The Company had no$4.5 million in borrowings on the line of credit, leaving ~~$11.1~~$7.7 million available on the line of credit as of September 30, ~~2020.~~2021. The interest rate at September 30, 2021, was 4.99%.

Major items excluded from the borrowing base calculation are receivables from bonded jobs and retainage as well as all items greater than ninety (90) days old. Line of credit borrowings are collateralized by the Company’s accounts receivable. Cash available under the line is calculated based on 70.0% of the Company’s eligible accounts receivable. ~~Major items excluded from the calculation are receivables from bonded jobs and retainage as well as items greater than 90 days old.~~

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 $19.0 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 2.0x 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.

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Table of Contents

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 $21.0 million to be measured quarterly.

The Company believes it was in compliance with all covenants for the $12.5 million component of Operating Line of Credit ~~(2020)~~(2021) at December 31, ~~2020.~~2021.

Off-Balance Sheet Arrangements

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 in our balance sheets. Though for the most part not material in nature, some of these are:

Leases

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 are 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. It is the Company’s preference to acquire equipment needed for long-term use through purchase, by cash or finance. For equipment needed on a short-term basis, the Company will enter into short-term rental agreements with the equipment provider where the agreement is cancellable at any time. The adoption of ASU 2016-02 had an immaterial impact, if any, on its consolidated financial statements.

The Company leases office space for SQP Construction Group 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 three months ended December 31, 2021, 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 an 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 Company treated the transactions as capital leases.

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 Income Statement, was ~~$1.0~~$1.9 million and ~~$788,000~~$1.0 million for the three months ended December 31, ~~2020~~2021, and ~~2019,~~2020, respectively.

22

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 and vendors on various customer projects. At December 31, ~~2020,~~ 2021, the Company did not have any letters of credit outstanding.

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 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.

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Table of Contents

The ability to obtain bonding for future contracts is an important factor in the contracting industry with respect to the type and number of contracts that can be bid. Depending upon the size and conditions of a 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 against outstanding performance bonds in the foreseeable future. At December 31, ~~2020,~~2021, the Company had ~~$5.7~~$37.5 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.

Please see the tables below for customers that represent 10.0% or more of the Company’s revenue or accounts receivable net of retention for the three months ended December 31, ~~2020~~2021, and ~~2019:~~2020:

Three Months Ended

Revenue

December 31, 2021

December 31, 2020

TransCanada Corporation

17.6
%
13.7
%
All other

82.4
%
86.3
%
Total

100.0
%
100.0
%

At

Accounts receivable net of retention

December 31, 2021

December 31, 2020

WV American Water

11.0
%
11.7
%
Kentucky American Water

10.9
%
10.3
%
All other

78.0
%
78.0
%
Total

100.0
%
100.0
%

Three Months Ended
Revenue December 31, 2020 December 31, 2019
TransCanada Corporation 13.7 % *
All other 86.3 % 100.0 %
Total 100.0 % 100.0 %

* Less than 10.0% and included in "All other" if applicable
At
Accounts receivable net of retention December 31, 2020 December 31, 2019
WV American Water 11.7 % 15.0 %
KY American Water 10.3 % *
All other 78.0 % 85.0 %
Total 100.0 % 100.0 %

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

Litigation
In 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 ~~changes~~work performed on a pipeline construction project. ~~The~~On November 9, 2021, the Company ~~is seeking $10.0~~was awarded $5.8 million, ~~in the lawsuit,~~ none of which has been recognized in the Company’s financial statements. ~~Although~~The Defendant has filed preliminary motions to request a new trial or a renewed judgement as a matter of law. The Company anticipates that all motions, counter motions, and replies will be submitted to the court by April 5, 2022. The Company believes the judgement order will be issued before the end of fiscal year 2022. A party to a civil lawsuit usually has 30 days from the entry of judgment to file a notice of appeal.
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 ~~trial date has been set,~~withdrawal liability exists and plans to seek arbitration to resolve the matter. If successfully arbitrated, the Company expects ~~the case~~ to ~~go to trial in fiscal year 2021 barring a mediation settlement between the parties.~~ receive repayment of all installment payments made.
Other than described above, at December 31, ~~2020,~~2021, the Company was not involved in any legal proceedings other than in the ordinary course of business. The Company is a party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. 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 December 31, ~~2020,~~2021, 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.

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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.

On 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 December 31, 2021, the Company had paid approximately $294,000 in principal and approximately $362,000 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, ~~holds the same position with Premier Financial Bancorp Inc. Mr. Neal Scaggs is a director of Energy Services and holds~~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 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, 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 ~~loan agreement is 4.82% with monthly payments~~$3.0 million sellers’ note, which equates to 5.35% on the carrying value of ~~$7,800.~~the note. As of December 31, ~~2020, we have paid approximately $244,000~~2021, the Company had made annual installment payments of $500,000, interest payments of $97,500 and expensed $30,000 in ~~principal and approximately $318,000 in interest since the beginning of the loan.~~ ~~There~~accreted interest.

Other than mentioned above, there were no new material related party transactions entered into during the three months ended December 31, ~~2020.~~

2021.

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

~~Inflation~~

~~Due to relatively low levels of inflation~~Most significant project materials, such as pipe or electrical wire, are provided by the Company’s customers. The Company did experience costs increases on materials for fire protection projects, which had been bid several months prior, during the three months ended December 31, ~~2020~~2021. 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 ~~2019,~~include qualifications regarding material costs increases in bids. 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.~~results for the three months ended December 31, 2021, and 2020.

Critical Accounting ~~Policies~~

Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. 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.

28

~~Revenue Recognition~~

~~On October 1, 2018, the Company adopted an Accounting Standard Update,~~ ~~Revenue from Contracts with Customers (Topic 606)~~~~. The core principle~~Table of Topic 606 is that revenue will be recognized when promised goods or services are transferred to customers in an amount that reflects consideration for which entitlement is expected in exchange for those goods or services. We adopted Topic 606 using a modified retrospective transition approach and elected to apply Topic 606 to contracts with customers that are not substantially complete, i.e. less than 90% complete, as of October 1, 2018. The adoption of Topic 606 did not have a material impact on the Company’s financial statements.Contents

In addition, as of October 1, 2018, we began to separately present contract assets and liabilities on the Company’s consolidated balance sheet. Contract assets may include costs and estimated earnings in excess of billings that were previously separately presented. Contract liabilities may include billings in excess of costs and estimated earnings that were previously separately presented as well as provisions for losses, when occurred, that were previously included in accrued expenses and other current liabilities.

~~The accounting policies that were affected by Topic 606 and the changes thereto are as follows:~~

~~Revenue Recognition:~~

Our revenue is primarily derived from construction contracts that can span several quarters. We recognize revenue in accordance with Topic 606. Topic 606 provides for a five-step model for recognizing revenue from contracts with customers as follows:

1.

~~Identify the contract,~~

2.

~~Identify performance obligations,~~

3.

~~Determine the transaction price,~~

4.

~~Allocate the transaction price~~

5.

~~Recognize revenue.~~

~~Identify the Contract~~

~~The first step in applying Accounting Standards Codification (ASC) 606 is to identify the contract(s) with the customer. To do so, the Company evaluates indicators of the existence of the contract.~~

~~Certain conditions must be present for there to be a contract with a customer:~~

~~The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations.~~

~~The Company can identify each party’s rights regarding the goods or services to be transferred.~~

~~The Company can identify the payment terms for the goods or services to be transferred.~~

~~The contract has commercial substance (that is, the risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract).~~

It is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, the Company shall consider only the customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to which the entity will be entitled may be less than the price stated in the contract if the consideration is variable because the entity may offer the customer a price concession.

~~Identify Performance Obligations~~

Once the Company has determined that it has a contract with a customer as defined in Accounting Standards Codification (ASC) 606, the Company must determine what the performance obligations are. A performance obligation is defined in the ASC Master Glossary as:

~~A promise in a contract with a customer to transfer to the customer either:~~

~~A good or service (or a bundle of goods or services) that is distinct;~~

~~A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.~~

~~Generally, performance obligations are clearly stated in the contract.~~ The Company’s contracts usually contain one performance obligation that is satisfied over time because our performance typically creates or enhances an asset that the customer controls as the asset is created or enhanced.

~~In assessing whether promises to transfer goods or service to the customer are separately identifiable, a company considers the following factors:~~

The entity provides a significant service of integrating the goods or services with other goods or services promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has contracted. In other words, the entity is using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. Combined output or outputs might include more than one phase, element, or unit.

~~One or more of the goods or services significantly modifies or customizes, or are significantly modified or customized by, one or more of the other goods or services promised in the contract.~~

The goods or services are highly interdependent or highly interrelated. In other words, each of the goods or services is significantly affected by one or more of the other goods or services in the contract. For example, in some cases, two or more goods or services are significantly affected by each other because the entity would not be able to fulfill its promise by transferring each of the goods or services independently.

Under ASC 606, contracts will be required to be combined when certain criteria are met. The new accounting standard requires contracts be combined prior to further assessment of the five elements, if one or more of the following criteria are met:

~~Negotiated at the same time with the same customer (or related party) with a single commercial objective in mind;~~

~~The consideration to be paid for one contract is dependent on another contract;~~

~~The promised goods and services in the contracts are a single performance obligation in accordance with the guidance.~~

If the promises do not meet the requirements for separating, the performance obligations shall be combined into one performance obligation. A contract could have several performance obligations which in themselves include sets of promises that are not distinct and cannot be separated.

Management has made the assessment that the company is acting as a principal rather than as an agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer) in all contract performed by the Company.

~~Determine Transaction Price~~

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods and services to the customer. The consideration promised in a contract with customers may include both fixed amounts and variable amounts (e.g. bonuses/incentives or penalties/liquidated damages) to the extent that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved (i.e., probable and estimable).

Variable consideration is defined broadly and can take many forms, such as incentives, penalty provisions, price concessions, rebates or refunds. Consideration is also considered variable if the amount the Company will receive is contingent on a future event occurring or not occurring, even though the amount itself is fixed.

~~The following are examples of variable considerations within a contract:~~

~~Claims and pending change orders;~~

~~Unpriced change orders;~~

~~Incentive and penalty provisions within the contract;~~

~~Shared savings;~~

~~Price concessions;~~

~~Liquidating damages; and~~

~~Unit price contracts with variable consideration.~~

Subsequent to the inception of a contract, the transaction price could change for various reasons, including the executed or estimated amount of change orders and unresolved contract modifications and claims to or from owners. Changes that are accounted for as an adjustment to existing performance obligations are allocated on the same basis at contract inception. Otherwise, changes are accounted for as separate performance obligation(s) and the separate transaction price is allocated as discussed above. Changes are made to the transaction price from unapproved change orders to the extent the amount can be reasonably estimated, and recovery is probable. On certain projects we have submitted and have pending unresolved contract modifications and affirmative claims (“affirmative claims”) to recover additional costs and the associated profit, if applicable, to which the Company believes it is entitled under the terms of contracts with customers, subcontractors, vendors or others. The owners or their authorized representatives and/or other third parties may be in partial or full agreement with the modifications or affirmative claims or may have rejected or disagree entirely or partially as to such entitlement.

~~Allocate Transaction Price~~

When a contract has a single performance obligation, the entire transaction price is attributed to that performance obligation. When a contract has more than one performance obligation, the transaction price is allocated to each performance obligation based on estimated relative standalone selling prices of the goods or services at the inception of the contract, which typically is determined using cost plus an appropriate margin.

In accordance with Topic 606, the Company is required to estimate variable consideration when determining the contract transaction price by taking into account all the information (historical, current and forecasted) that is reasonably available and identifying a reasonable number of possible consideration amounts. Management must include an estimate of any variable consideration using either the “~~expected value~~~~” method or the “~~~~most likely amount~~~~” method.~~

The “expected value” method estimates variable consideration based on the range of possible outcomes and the probabilities of each outcome. This method might be most appropriate when the Company has a large number of contracts that have similar characteristics because it will likely have better information about the probabilities of various outcomes when there are a large number of similar transactions.

The “most likely amount” method estimates variable consideration based on the single most likely amount in a range of possible consideration amounts. This method might be the most predictive if the Company will receive one of only two possible amounts.

The method used is not a policy choice and should be applied consistently throughout a contract, however, is subject to guidance on constraining estimates of variable consideration. The Company may only include variable consideration within the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty is subsequently resolved. This assessment will require the application of judgment. While no single factor is determinative, the revenue standard includes factors to consider when assessing whether variable consideration should be constrained.

~~The following factors may increase the likelihood or the magnitude of a revenue reversal:~~

~~The amount of consideration is highly susceptible to factors outside the entity’s influence,~~

~~The uncertainty is not expected to be resolved for a long period of time,~~

~~The entity’s experience with similar types of contracts is limited,~~

~~The entity has a practice of offering a broad range of price concessions or changing the payment terms frequently; and~~

~~The contract has a broad range of possible consideration amounts.~~

~~Recognize Revenue~~

The Company disaggregates revenue based on our operating groups and contract types as it is the format that is regularly reviewed by management. Our reportable operating groups are: Petroleum and Gas, Water, Sewer and other services, and Electrical and Mechanical services. Our contract types are: Lump Sum, Unit Price, and Cost Plus and Time and Material (T&M).

Revenues

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 ~~Unit Price,~~ Cost Plus and Time and Material (“T&M&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 end of the project. The costs of uninstalled materials will be tracked separately within the Company’s accounting software.

Pre-contract and bond costs, if required, on projects are generally immaterial to the total value of the Company’s contracts and are expensed when incurred. Project mobilization costs are also generally immaterial and charged to project costs as 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 will be 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. As of December 31, 2020, the Company does not have a material amount of costs expensed that would otherwise be capitalized and amortized.~~

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 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 ~~have had, and can in future periods~~could have, a significant effect on our profitability.

~~Contract Assets:~~

Our contract assets ~~may~~ 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.

~~Contract Liabilities:~~

Our contract liabilities ~~may~~ consist of provisions for losses and billings in excess of costs and estimated earnings. Provisions for losses are recognized in the consolidated statements of income at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue. 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.

29

~~Income Taxes~~Table of Contents

The ~~Company~~following table presents our costs and ~~all subsidiaries file a consolidated federal~~estimated earnings in excess of billings and various state income tax returns on a fiscal year basis. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for years ended prior to September 30, 2017.

~~The Company follows the liability method~~billings in excess of ~~accounting for income taxes in accordance with the Income Taxes topic of the ASC 740. Under this method, deferred tax assets~~costs 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 portion of the 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 positionsestimated earnings at December 31, ~~2020.~~2021, and September 30, 2021:

December 31, 2021

September 30, 2021
Costs incurred on contracts in progress

$
71,979,534

$
64,903,618
Estimated earnings, net of estimated losses

14,076,321

13,280,334

86,055,855

78,183,952
Less billings to date

87,670,269

72,606,840

$
(1,614,414)

$
5,577,112
Costs and estimated earnings in excess of billed on




uncompleted contracts

$
5,914,651

$
8,730,402
Less billings in excess of costs and estimated earnings on




uncompleted contracts

7,529,065

3,153,290

$
(1,614,414)

$
5,577,112

~~Claims~~
~~Claims are amounts in excess of the agreed contract price that a contractor seeks to collect from customers or others~~Allowance 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 surety deposit to guarantee payments of premiums. That account had a balance of $2.1 million as of December 31, 2020. Should the captive insurance company experience severe losses over an extended period, it could have a detrimental effect on the Company.
~~Current and Non-Current Accounts Receivable and Provision for Doubtful Accounts~~
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 December 31, ~~2020,~~2021, the management review deemed that the allowance for doubtful accounts was adequate.
Please see the allowance for doubtful accounts table below:


December 31, 2021

September 30, 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

~~Operating Leases~~Impairment of 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 two-step quantitative assessment of goodwill impairment. The Company did not have a goodwill impairment at December 31, 2021.
Materially incorrect estimates could cause an impairment to goodwill or intangible assets and result in a loss in profitability for the Company.

30

Table of Contents

A table of the Company’s intangible assets subject to amortization is below:

Amortization and

Accumulated

Impairment Three


Remaining Life at



Amortization at

Accumulated

Amortization and

Amortization and

Months Ended



December 31,

December 31,

Impairment at

Impairment at

Impairment at

December 31,

Net Book
Intangible assets:

2021

Original Cost

2021

December 31, 2021

December 31, 2021

September 30, 2021

2021

Value
West Virginia Pipeline

Customer Relationships

108 months

$
2,209,724

$
220,967

$
—

$
220,967

$
165,725

$
55,242

$
1,988,757
Tradename

108 months

263,584

26,363

—

26,363

19,772

6,591

237,221
Non-competes

12 months

83,203

41,603

—

41,603

31,202

10,401

41,600
Revolt Energy
















Employment agreement/non-compete

28 months

100,000

18,056

43,056

61,112

13,889

47,223

38,888

Total intangible assets

$
2,656,511

$
306,989

$
43,056

$
350,045

$
230,588

$
119,457

$
2,306,466

Depreciation
The purpose of depreciation 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 is a noncash expense, the amount must be estimated. Each year a certain amount of depreciation 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.
The Company’s depreciation expense for the three months ended December 31, 2021, and 2020 was $1.3 million and $1.1 million, respectively. In ~~February 2016,~~general, depreciation is included in “cost of revenues” on the Company’s Consolidated Statements of Income.
Materially incorrect estimates of depreciation and/or the useful lives of assets could significantly impact the value of property, plant, and equipment on the Company’s 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%.
Permanent income tax differences result in an increase or decrease to taxable income and impact the Company’s effective tax rates, which were 29.7% and 9.7% for the three months ended December 31, 2021, and 2020, respectively. Our tax rate is affected by recurring items, such as non-deductible portions of per diem paid to construction personnel, which we expect to be fairly consistent in the near term. For the three months ended December 31, 2021, and 2020, the non-deductible portion of per diem and entertainment

31

Table of Contents

expenses resulted in approximate increases in taxable income of $129,000 and $76,000, respectively. Our tax estimates are also affected by discrete items that may occur in any given year but are not consistent from year to year.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. At December 31, 2021, the Company had a net deferred income tax liability of $2.5 million as compared to $2.0 million at September 30, 2021. The Company’s deferred income tax liabilities at December 31, 2021 was $4.0 million and primarily related to depreciation on property and equipment. The Company’s deferred income tax assets at December 31, 2021 was $1.5 million and primarily related to a net operating loss (“NOL”) carryforward. The Company believes that it is more likely than not that all NOL carryforwards will be realized.

The Company’s tax provision is evaluated annually; however, a material difference between the provision and actual income tax filings could result in adjustments to income tax benefits or expenses and deferred tax assets and liabilities. Changes in tax laws and rates may also affect recorded deferred tax assets and liabilities and our effective tax rate in the future.

New Accounting Pronouncements

On October 28, 2021, the FASB ~~issued~~released ASU ~~2016-02, “Leases~~2021-08, “Business Combinations (Topic ~~842)”~~805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The amendments of this ASU ~~2016-02 is~~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 fiscal years, ~~beginning after December 15, 2018~~ including interim periods within those fiscal ~~years. Among~~years, beginning after December 15, 2022. For all other ~~things, lessees~~entities they are 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. It is the Company’s preference to acquire equipment needed for long-term use through purchase, by cash or finance. For equipment needed on a short-term basis, the Company will enter into short-term rental agreements with the equipment provider where the agreement is cancellable at any time. The adoption of ASU 2016-02 had an immaterial impact, if any, on its consolidated financial statements.

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 Income Statement, was $1.0 million and $788,000 for the three months ended December 31, 2020 and 2019, respectively.

~~Goodwill and other intangible assets~~

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis, including the identification of our reporting units, identification and allocation of the assets and liabilities to each of our reporting units and determination of fair value. In estimating the fair value of a reporting unit for the purposes of our annual or periodic impairment analyses, we make estimates and significant judgments about the future cash flows of that reporting unit. Our cash flow forecasts are based on assumptions that represent the highest and best use for our reporting units. Changes in judgment on these assumptions and estimates could result in further goodwill impairment charges.

~~New Accounting Pronouncements~~

~~In January 2017, the FASB issued ASU 2017-04, “~~~~Intangibles-Goodwill and Other~~ ~~(Topic 350):~~ ~~Simplifying the Test for Goodwill Impairment~~~~”. ASU 2017-04 is~~ effective for ~~public business entities for~~fiscal years, including interim periods within those fiscal years, beginning after December 15, ~~2019 including interim periods within those fiscal years. The update was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under~~2023. Entities should apply the amendments prospectively to business combinations that occur after the effective date. Early adoption is permitted, including in ~~this Update,~~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 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, including private companies, for annual periods beginning after December 15, 2021, with early application permitted.

Subsequent Events

On January 27, 2022, the Company announced that it submitted an ~~entity should perform~~application to list its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwillcommon stock on the ~~carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.~~Nasdaq Capital Market. The Company ~~has adopted ASU 2017-04~~believes that it meets or will meet the financial, liquidity, and ~~it did not have a material impact on its financial statements or disclosure.~~

~~Subsequent Events~~

On January 5, 2021, the Company entered into a $3.0 million Non-Revolving Note agreement with United Bank, Inc. This five-year agreement gave the Company access to a $3.0 million line of credit (“Equipment Line of Credit 2021”), specificallycorporate governance requirements for ~~the purchase of equipment, for a period of twelve months with a variable interest rate initially established at 4.25% as based~~listing on the ~~Prime Rate as published by~~ ~~The Wall Street Journal~~~~. After twelve months, all borrowings against the Equipment Line of Credit 2021 will be converted~~Nasdaq Capital Market; however, any move to ~~a four-year term note agreement with~~ ~~a variable interest rate initially established at 4.25%.~~ ~~The loan will be collateralized by the equipment purchased under this agreement. As of February 12, 2021, the Company had not borrowed against this line of credit.~~

~~On December 21, 2020, the Company’s 401(k) plan (“Plan”) initiated a change in 401(k) third party administrators. Contrary to industry-standard~~Nasdaq is contingent upon fulfilling those requirements and without proper authorization from the Company, the departing third party administrator began to liquidate the collective trust holding shares of the Company’s stock on December 23, 2020. The Company did not realize the liquidation had occurred until after it was complete and is investigating the departing third party administrator’s actions. A total of 812,310 shares of Company stock in the collective trust was liquidated at a weighted price per share of approximately $1.12. On February 10, 2021, the Company’s Board of Directors approved a plan to correct the departing third party administrator’s actions by making Plan participants whole for the appreciation in the Company’s stock price through a Qualified Non-Elective Contribution (“QNEC”) attributable to the 2021 Plan year. The QNEC will allow for a one-time $651,000 contribution to the collective trust based on the $1.92 closing price of the Company’s stock on February 9, 2021. Employees will have the option to leave their funds in the collective trust in order to repurchase Company stock or reallocate to a fund of their choice.

Nasdaq approval.

Management has evaluated subsequent events through February ~~16, 2021,~~11, 2022, the date which the financial statements were available for issue. 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.

Outlook

The following statements are based on current expectations. These statements are forward looking, and actual results may differ materially.

As a contractor providing electrical, mechanical, ~~HVAC~~HVAC/R and underground piping installation and maintenance services to customers in the petroleum, natural gas, public utilities and power industries, the Company and its subsidiaries are considered an “Essential Business” in the various states in which it operates. While it is unknown how long the COVID-19 virus will last and what the complete financial effect will be to the Company, the coronavirus outbreak is expected to have a significant effect on the Company's 2021 operating results. As of December 31, 2020, many of the Company’s existing customers had resumed projects that were affected by the March 2020 shutdowns. As a result, the Company has increased its employment level of construction personnel as compared to March 31, 2020. Given the uncertainty regarding the spread of ~~this coronavirus,~~COVID-19, the related

32

Table of Contents

financial impact on the Company’s results of operations, financial position, and liquidity or capital resources cannot be reasonably estimated at this time. The Company was not significantly impacted by COVID-19 during the three months ended December 31, 2021.

~~Currently,~~Major transmission pipeline construction opportunities have decreased in the past several years; however, the Company has been successful in securing several transmission projects for fiscal year 2022. The Company is ~~receiving bid opportunities from existing and potentially new customers. However, with potential economic uncertainties, such as~~experiencing a ~~worsening of the COVID-19 pandemic, the continued depressed prices of oil and natural~~greater demand for its gas and ~~the potential impact of environmental regulations, the demand for our customers’ projects could wane~~water distribution, and ~~their ability to fund planned projects could be reduced. Also, a shortage of qualified labor could lead to inefficient production~~electrical and ~~could make bidding and managing projects more difficult.~~mechanical services. The Company’s backlog at December 31, 2021, was $101.6 million, as compared to $60.7 million and $72.2 million at December 31, 2020 ~~was $55.2 million, which included the newly acquired West Virginia Pipeline subsidiary.~~and September 30, 2021, respectively. While adding additional projects appears likely, no assurances can be given that the Company will be successful in bidding on projects that become available. Moreover, even if the Company obtains contracts, there can be no guarantee that the projects will go forward.

ITEM 3. Quantitative and Quantitative Disclosures About Market Risk
Not required for a smaller reporting company.

32
ITEM 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we 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 of America Corporation files or submits under the Securities Exchange Act of 1934, is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in Energy Services of America Corporation’s internal control over financial reporting during Energy Services of America Corporation’s first quarter of fiscal year ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, Energy Services of America Corporation’s internal control over financial reporting.

33

Table of Contents

PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings

In 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 ~~changes~~work performed on a pipeline construction project. ~~The~~On November 9, 2021, the Company ~~is seeking $10.0~~was awarded $5.8 million, ~~in the lawsuit,~~ none of which has been recognized in the Company’s financial statements. ~~Although~~The Defendant has filed preliminary motions to request a new trial or a renewed judgement as a matter of law. The Company anticipates that all motions, counter motions, and replies will be submitted to the court by April 5, 2022. The Company believes the judgement order will be issued before the end of fiscal year 2022. A party to a civil lawsuit usually has 30 days from the entry of judgment to file a notice of appeal.
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 ~~trial date has been set,~~withdrawal liability exists and plans to seek arbitration to resolve the matter. If successfully arbitrated, the Company expects ~~the case~~ to ~~go to trial in fiscal year 2021 barring a mediation settlement between the parties.~~ receive repayment of all installment payments made.
Other than described above, at December 31, ~~2020,~~2021, the Company was not involved in any legal proceedings other than in the ordinary course of business. The Company is a party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. 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 December 31, ~~2020,~~2021, 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.

ITEM 1A. Risk Factors
Please see the information disclosed in the “Risk Factors” section of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on ~~January 4,~~December 29, 2021. There have been no material changes to the risk factors since the filing of the Annual Report on Form 10-K.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
~~(a)~~
(a) There have been no unregistered sales of equity securities during the period covered by the report.
(b) None.
(c) There were no repurchases of Energy Services of America Corporation’s shares of its common stock during the three months ended December 31, 2021.

34

Table of ~~equity securities during the period covered by the report.~~Contents

~~(b) None.~~

~~(c) There were no repurchases of Energy Services of America Corporation’s shares of its common stock during the three months ended December 31, 2020.~~

ITEM 6. Exhibits

31.1

~~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.SCH~~
~~101.CAL~~
~~101.DEF~~
~~101.LAB~~
~~101.PRE~~

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

35
Table of Contents
SIGNATURES
Pursuant to the requirements 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: February ~~16, 2021~~11, 2022
By:
~~/s/~~
/s/ Douglas V. Reynolds
Douglas V. Reynolds
Chief Executive Officer
Date: February 11, 2022
~~Date:~~ ~~February 16, 2021~~
By:
~~By:~~ ~~/s/~~
/s/ Charles P. Crimmel
Charles P. Crimmel
Chief Financial Officer

36

~~Delaware~~	~~20-4606266~~
Delaware		20-4606266
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)


75 West ~~3rd Ave.~~3^rd Ave., Huntington, West Virginia		25701
(Address of Principal Executive Office)		(Zip Code)

Title of Each Class		Trading Symbols		Name of Each Exchange On Which Registered
None	~~None~~	None		None


Large accelerated filer	¨ ☐	Accelerated filer	¨ ☐

Non-accelerated filer	x ☒	Smaller reporting company	x ☒

		Emerging growth company	¨ ☐


☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~Part 1:~~	~~Financial Information~~
Part 1: Financial Information

Item 1.	Financial Statements (Unaudited):

	Consolidated Balance Sheets		1

	Consolidated Statements of Income		2

	Consolidated Statements of Cash Flows		3

	Consolidated Statements of Changes in Shareholders’ Equity		4

	Notes to Unaudited Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32	33

Item 4.	Controls and Procedures		33

Part II:	Other Information

Item 1.	Legal Proceedings	33	34

Item 1A.	Risk Factors	33	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33	34

Item 6. Exhibits	~~Exhibits~~	34 35

Signatures	35	36

Three Months Ended December 31, 2020

	Petroleum & Gas		Water, Sewer and Other		Electrical and Mechanical		Total revenue from contracts

									Three Months Ended December 31, 2021
													Electrical,
									Gas & Water		Gas & Petroleum		Mechanical, and		Total revenue
									Distribution		Transmission		General		from contracts
Lump sum contracts	$	-	$	-	$	11,666,631	$	11,666,631	$	—	$	—	$	10,939,201	$	10,939,201
Unit price contracts		11,827,050		3,707,181		-		15,534,231		11,962,034		11,238,517		—		23,200,551
Cost plus and T&M contracts		290,000		-		4,518,934		4,808,934		—		—		8,519,373		8,519,373
Total revenue from contracts	$	12,117,050	$	3,707,181	$	16,185,565	$	32,009,796	$	11,962,034	$	11,238,517	$	19,458,574	$	42,659,125

Earned over time	$	8,402,592	$	3,707,181	$	16,013,755	$	28,123,528	$	7,919,922	$	11,238,517	$	18,819,986	$	37,978,425
Earned at point in time		3,714,458				171,810		3,886,268		4,042,112		—		638,588		4,680,700
Total revenue from contracts	$	12,117,050	$	3,707,181	$	16,185,565	$	32,009,796	$	11,962,034	$	11,238,517	$	19,458,574	$	42,659,125

Three Months Ended December 31, 2019

	Petroleum & Gas		Water, Sewer and Other		Electrical and Mechanical		Total revenue from contracts

									Three Months Ended December 31, 2020
													Electrical,
									Gas &Water		Gas & Petroleum		Mechanical, and		Total revenue
									Distribution		Transmission		General		from contracts
Lump sum contracts	$	-	$	-	$	7,448,512	$	7,448,512	$	—	$	—	$	11,666,631	$	11,666,631
Unit price contracts		6,218,532		2,125,934		-		8,344,466		7,131,639		8,402,592		—		15,534,231
Cost plus and T&M contracts		3,311,566		1,274,832		5,463,931		10,050,329		—		290,000		4,518,934		4,808,934
Total revenue from contracts	$	9,530,098	$	3,400,766	$	12,912,443	$	25,843,307	$	7,131,639	$	8,692,592	$	16,185,565	$	32,009,796

Earned over time	$	7,116,701	$	3,400,766	$	12,599,705	$	23,117,172	$	3,707,181	$	8,402,592	$	16,013,755	$	28,123,528
Earned at point in time		2,413,397		-		312,738		2,726,135		3,424,458		290,000		171,810		3,886,268
Total revenue from contracts	$	9,530,098	$	3,400,766	$	12,912,443	$	25,843,307	$	7,131,639	$	8,692,592	$	16,185,565	$	32,009,796

	September 30, 2020		December 31, 2020		Change
Accounts receivable-trade, net of allowance for doubtful accounts	$	18,176,679	$	17,026,460	$	(1,150,219	)

Contract assets Cost and estimated earnings in excess of billings	$	6,545,863	$	4,418,599	$	(2,127,264	)

Contract liabilities Billings in excess of cost and estimated earnings	$	4,851,900	$	3,721,385	$	(1,130,515	)


	September 30, 2021		December 31, 2021		Change

Accounts receivable-trade, net of allowance for doubtful accounts	$	21,022,207	$	25,287,958	$	4,265,751

Contract assets
Cost and estimated earnings in excess of billings	$	8,730,402	$	5,914,651	$	(2,815,751)

Contract liabilities
Billings in excess of cost and estimated earnings	$	3,153,290	$	7,529,065	$	4,375,775

	Three Months Ended December 31,
	2020			2019

							Three Months Ended
							December 31, 2021		December 31, 2020
Federal
Current	$	(77,380	)	$	54,240		$	671,808	$	(77,380)
Deferred		23,214			(82,678	)		(286,268)		23,214
Total	$	(54,166	)	$	(28,438	)		385,540		(54,166)


State
Current	$	(21,824	)	$	15,298			189,485		(21,824)
Deferred		6,548			(23,319	)		(80,742)		6,548
Total	$	(15,276	)	$	(8,021	)		108,743		(15,276)

Total income tax benefit	$	(69,442	)	$	(36,459	)

Total income tax (benefit) expense							$	494,283	$	(69,442)

Goodwill	$	4,220,829
Equipment and vehicles		1,565,000
Building		220,243
Land		64,757
Non-compete agreement		150,000
Customer list		150,000
Cash received in acquisition		250,000
Debt assumed in acquisition		(120,829	)
Purchase price	$	6,500,000


Equipment and vehicles	$	135,000
Non-compete agreement		100,000
Debt assumed in acquisition		(85,000)
Purchase price	$	150,000


				Accumulated								Amortization and
	Remaining Life at			Amortization at		Accumulated		Amortization and		Amortization and		Impairment Three
	December 31,			December 31,		Impairment at		Impairment at		Impairment of		Months Ended		Net Book
Intangible assets:	2021	Original Cost		2021		December 31, 2021		December 31, 2021		September 30, 2021		December 31,		Value
West Virginia Pipeline
Customer Relationships	108 months	$	2,209,724	$	220,967	$	—	$	220,967	$	165,725	$	55,242	$	1,988,757
Tradename	108 months		263,584		26,363		—		26,363		19,772		6,591		237,221
Non-competes	12 months		83,203		41,603		—		41,603		31,202		10,401		41,600
Revolt Energy
Employment agreement/non-compete	28 months		100,000		18,056		43,056		61,112		13,889		47,223		38,888
Total intangible assets		$	2,656,511	$	306,989	$	43,056	$	350,045	$	230,588	$	119,457	$	2,306,466


	Amortization Expense
January 1-December 31, 2022	$	305,600
January 1-December 31, 2023		264,000
January 1-December 31, 2024		252,884
January 1-December 31, 2025		247,332
January 1-December 31, 2026		247,332
After		989,318
Total	$	2,306,466


	Three Months Ended
	December 31, 2021		% of total		December 31, 2020		% of total		Change		% Change
Gas & Water Distribution	$	11,962,034	28.04	%	$	7,131,639	22.28	%	$	4,830,395	67.73	%
Gas & Petroleum Transmission		11,238,517	26.34	%		8,692,592	27.16	%		2,545,925	29.29	%
Electrical, Mechanical, and General		19,458,574	45.61	%		16,185,565	50.56	%		3,273,009	20.22	%
Total	$	42,659,125	100.0	%	$	32,009,796	100.0	%	$	10,649,329	33.27	%


	Three Months Ended
	December 31, 2021		% of revenue		December 31, 2020		% of revenue		Change		% Change
Gas & Water Distribution	$	2,622,489	21.9	%	$	1,105,357	15.5	%	$	1,517,132	137.3	%
Gas & Petroleum Transmission		1,504,028	13.4	%		1,998,866	23.0	%		(494,838)	(24.8)	%
Electrical, Mechanical, and General		1,351,850	6.9	%		1,005,684	6.2	%		346,166	34.4	%
Unallocated Shop Expenses		(169,994)				(1,266,848)				1,096,854	(86.6)	%
Total	$	5,308,373	12.4	%	$	2,843,059	8.9	%	$	2,465,314	86.7	%


	At
Accounts receivable net of retention	December 31, 2021		December 31, 2020
WV American Water	11.0	%	11.7	%
Kentucky American Water	10.9	%	10.3	%
All other	78.0	%	78.0	%
Total	100.0	%	100.0	%

	At
Accounts receivable net of retention	December 31, 2020			December 31, 2019
WV American Water		11.7	%		15.0	%
KY American Water		10.3	%		*
All other		78.0	%		85.0	%
Total		100.0	%		100.0	%

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


	December 31, 2021		September 30, 2021
Costs incurred on contracts in progress	$	71,979,534	$	64,903,618
Estimated earnings, net of estimated losses		14,076,321		13,280,334
		86,055,855		78,183,952
Less billings to date		87,670,269		72,606,840
	$	(1,614,414)	$	5,577,112
Costs and estimated earnings in excess of billed on
uncompleted contracts	$	5,914,651	$	8,730,402
Less billings in excess of costs and estimated earnings on
uncompleted contracts		7,529,065		3,153,290

	$	(1,614,414)	$	5,577,112


	December 31, 2021		September 30, 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