The Accompanying Notes are an Integral Part of These Financial Statements

Energy Services of America Corporation

Consolidated Statements of IncomeCash Flows

Unaudited

The Accompanying Notes are an Integral Part of These Financial Statements

Energy Services of America Corporation

Consolidated Statements of Cash FlowsChanges in Shareholders’ Equity

UnauditedFor the three months ended December 31, 2020 and 2019

The Consolidated Statements of Cash Flows includes the discontinued operation, S.T. Pipeline.

The Accompanying Notes are an Integral Part of These Financial Statements

Energy Services of America Corporation

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended December 31, 2017 and 2016

The Accompanying Notes are an Integral Part of These Financial Statements

ENERGY SERVICES OF AMERICA CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Energy Services of America Corporation (“Energy Services” or the “Company”) was formedis a contractor and service company that operates primarily in 2006 as a special purpose acquisition corporation, or blank check company. On August 15, 2008, Energy Services completed the acquisitionsmid-Atlantic region of S.T. Pipeline, Inc. (“S.T. Pipeline”)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”).

Wholly, a wholly owned subsidiary C.J. Hughesof the Company, is a general contractor primarily engaged in pipeline construction for utility companies. C.J. Hughes operates primarily in the mid-Atlantic region of the United States. 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 Electric Company,Construction Services, Inc. (“Nitro Electric”Nitro”), a wholly owned subsidiary of C. J.C.J. Hughes, is anprovides electrical, mechanical, HVAC/R and mechanical contractor that provides itsfire protection services to the power, chemical and automotive industries. Nitro Electric operatescustomers primarily in the mid-Atlantic region of the United States.automotive, chemical and power industries. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of Nitro, Electric, operates as a data storage facility within Nitro Electric’sNitro’s office building. Pinnacle is supported by Nitro Electric and has no employees of its own. All of the C.J. Hughes, Nitro, Electric, and Contractors Rental production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals. S.T.

On December 31, 2020, Energy Services completed the purchase of West Virginia Pipeline, engagedInc. (“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 construction of natural gas pipelines for utility companies in various states, mostly in the mid-Atlantic area of the country. On May 14, 2013, the Company liquidated the operations of S.T. Pipelinecompany is managed independently from C.J. Hughes and realized $1.9 million from the sale of assets. The financial position and results of operations of S.T. Pipeline have been presented as discontinued operations in the accompanying financial statements for all presented periods.Nitro.

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

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, 20172020 and 20162019 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 15, 2017.January 4, 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 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, 20172020 and 2019 are not necessarily indicative of the results to be expected for the full year or any other interim period.

Principles of Consolidation

The consolidated financial statements of Energy Services include the accounts of Energy Services, and its wholly owned subsidiary,subsidiaries West Virginia Pipeline and C.J. Hughes and its subsidiaries, Nitro, Electric, Pinnacle, and Contractors Rental. S.T. Pipeline has been shown as discontinued operations for the three months ended December 31, 2017 and 2016. 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 and C.J. Hughes and C.J. Hughes’its subsidiaries.

Reclassifications2. REVENUE RECOGNITION

Certain reclassifications

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

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 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 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 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 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. DISAGGREGATION OF REVENUE

We disaggregate our 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, Cost Plus and Time and Materials (“T&M”). The following tables present our disaggregated revenue for the three months ended December 31, 2020 and 2019:  

4. CONTRACT BALANCES

The Company’s accounts receivable consists of amounts that have been made in prior years’ financial statementsbilled to conformcustomers. Collateral is generally not required. A majority of the Company’s contracts have monthly billing terms and payment terms within 30 to classifications used45 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, we recognized revenue of $4.6 million that was included in the current year.contract liability balance at September 30, 2020.

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

5. 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 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 in contract transaction price were from 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, the Company had $9.5 million in remaining unsatisfied performance obligations, in which revenue is expected to be recognized in less than twelve months.

6. UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts as of December 31, 2017,2020 and September 30, 20172020 are summarized as follows:

Backlog at December 31, 20172020 and September 30, 20172020 was $54.2$60.7 million and $62.5$63.8 million, respectively.

The Company does not have any claims recorded as of December 31, 2017. Claims receivable is a component of cost and estimated earnings in excess of billing.

TheFair Value Measurements and Disclosures Topicof 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 $12.0$17.2 million at December 31, 20172020 was $12.0$16.1 million as of the same date. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $15.8 million at September 30, 2020 was $14.8 million.

The Company usesAll receivables and payables are carried at net realizable value which approximates fair value measurements on a non-recurring basis in its assessmentbecause of goodwill and long-lived assets held and used. In accordance with its annual impairment test during the quarter ended September 30, 2012, the Company recorded a goodwill impairment charge of $36.9 million, which represented the entire amount of goodwill carried on the Company’s balance sheet. Refertheir short duration to Note 4, Goodwill and Intangible Assets, of the Company’s Annual Report on Form 10-K for the year ended September 30, 2017 for further information.

Due to organizational changes and operating losses incurred in fiscal year 2012, the Company decided to discontinue the operations of its wholly owned subsidiary S.T Pipeline. On May 14, 2013, the Company liquidated the operations of S.T. Pipeline and realized $1.9 million from the sale.maturity.

The Company did not have income from discontinued operations for the three months ended December 31, 2017 and 2016.8. LOSS PER SHARE

The following table shows the components of assets and liabilities that are classified as discontinued operations in the Company’s consolidated balance sheets at December 31, 2017 and at September 30, 2016.

The $29,000 in accrued expenses and other current liabilities at December 31, 2017 represents a reserve for any unexpected expenses that may be incurred by the discontinued operation. As of December 31, 2017, the Company had paid all debts known to exist to the unsecured creditors of the discontinued operation.

The amounts used to compute the earningsloss per share for the three months ended December 31, 20172020 and 20162019 are summarized below.

9. INCOME TAXES

The components of income taxes are as follows:

The effective income tax rate for the three months ended December 31, 2020 was (9.7%), as compared to (33.0%) for the same period in 2019. 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 is only partially deductible from taxable income and can have a significant impact on the effective tax rate.

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

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.

The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in general and administrative expenses.

10. SHORT-TERM AND LONG-TERM DEBT

Short-term debt consists of the following:

On July 30, 2020, the Company received a one-year extension on its line of credit (“Operating Line of credit (2020)”) effective June 28, 2020. 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 million as of December 31, 2020. The Company had $3.5 million in borrowings on the line of credit, leaving $6.4 million available on the line of credit as of December 31, 2020. Based on the borrowing base calculation, the Company was able to borrow up to $11.1 million as of September 30, 2020. The Company had no borrowings on the line of credit, leaving $11.1 million available on the line of credit as of September 30, 2020.

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:

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:

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

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 Company makes a down payment in January and finances the remaining premium amount over ten monthly payments. In January 2020, the Company financed $3.1 million in insurance premium policies. At December 31, 2020, the balance of the premiums payments had been paid off.

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

11. ACQUISITION

On December 31, 2020, Energy Services completed an asset purchase of West Virginia Pipeline, 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 as President and Vice President, respectively. 

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 purchase price allocations related to the West Virginia Pipeline acquisition. Based on management's preliminary valuation of tangible and intangible assets acquired and liabilities assumed, the purchase price for the West Virginia Pipeline acquisition is allocated in the table below. These allocations are subject to change.

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.

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.

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’ 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 West Virginia Pipeline. Adding a non-union subsidiary will give Energy Services some flexibility in competing for work. While West Virginia Pipeline will be 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.

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 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”) was formedis a contractor and services company that operates primarily in 2006 as a special purpose acquisition corporation, or blank check company. On August 15, 2008, Energy Services completed the acquisitionsmid-Atlantic region of S.T. Pipeline, Inc. (“S.T. Pipeline”)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”).

Wholly, a wholly owned subsidiary C.J. Hughesof the Company, is a general contractor primarily engaged in pipeline construction for utility companies. C.J. Hughes operates primarily in the mid-Atlantic region of the United States. 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 Electric Company,Construction Services, Inc. (“Nitro Electric”Nitro”), a wholly owned subsidiary of C. J.C.J. Hughes, is anprovides electrical, mechanical, HVAC/R and mechanical contractor that provides itsfire protection services to the power, chemical and automotive industries. Nitro Electric operatescustomers primarily in the mid-Atlantic region of the United States.automotive, chemical and power industries. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of Nitro, Electric, operates as a data storage facility within Nitro Electric’sNitro’s office building. Pinnacle is supported by Nitro Electric and has no employees of its own. All of the C.J. Hughes, Nitro, Electric, and Contractors Rental production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals. S.T.

On December 31, 2020, Energy Services completed the purchase of West Virginia Pipeline, engagedInc. (“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 construction of natural gas pipelines for utility companies in various states, mostly in the mid-Atlantic area of the country. On May 14, 2013, the Company liquidated the operations of S.T. Pipelinecompany is managed independently from C.J. Hughes and realized $1.9 million from the sale of assets. The financial position and results of operations of S.T. Pipeline have been presented as discontinued operations in the accompanying financial statements for all presented periods.Nitro.

Energy Services is engaged in providingprovides contracting services for utilities and energy related companies. Currently Energy Services primarily services thecompanies including gas, petroleum power, chemical, water & sewer and automotive industries, though it does some other incidental work such as water and sewer projects.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 the Company’s customers are located in West Virginia, Virginia, Ohio, Pennsylvania, and Kentucky. The Company builds, but does not own, natural gas pipelines for its customers that are part of both interstate and intrastate pipeline systems that move natural gas from producing regions to consumption regions as well as build and replace gas line services to individual customers of the various utility companies.

The Company’s consolidated operating revenues for the three months ended December 31, 2017 were $32.5 million of which 52.7% was attributable to electrical and mechanical services, 39.3% to gas & petroleum contract work and 8.0% to water and sewer contract installations and other ancillary services. The Company had consolidated operating revenues of $37.5 million for the three months ended December 31, 2016, of which 57.5% was attributable to gas & petroleum contract work, 35.8% to electrical and mechanical contract services, and 6.7% to water and sewer contract installations and other ancillary services.

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

EQTTransCanada Corporation

Rice Energy

Columbia Gas Transmission

Columbia Gas Distribution

Marathon Petroleum

Mountaineer Gas

American Electric Power

Toyota Motor Manufacturing

Bayer Chemical

Dow Chemical

Kentucky American Water

WV American Water

Various state, county and municipal public service districts.

The Company enters into various types of contracts, including competitive unit price, cost-plus (or time and materials basis) and fixed price (lump sum) contracts. The terms of the contracts will vary from job to job and customer to customer though most contracts are on the basis of either unit pricing, in which the Company agrees to do the work for a price per unit of work performed or for a fixed amount for the entire project. Most of the Company’s projects are completed within one year of the start of the work. On occasion, the Company’s customers will require the posting of performance and/or payment bonds upon execution of the contract, depending upon the nature of the work performed. The Company generally recognizes revenue on unit price and cost-plus contracts when units are complete, or services are performed. Fixed price contracts usually result in recording revenues as work on the contract progresses on a percentage of completion basis. Under this accounting method, revenue is recognized based on the percentage of total costs incurred to date in proportion to total estimated costs at completion. Many contracts also include retention provisions under which a percentage of the contract price is withheld until the project is complete and has been accepted by the customer.

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.

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 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 in the U.S. economy. In certain geographic regions in which the Company operates, temporary closures of businesses have been ordered or suggested and numerous other businesses have temporarily closed voluntarily. Further, individuals' ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of travel-related businesses.

Some of the procedures that the Company has implemented to help protect employees from COVID-19 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. 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 December 31, 2020, the Company has not had significant issues with COVID-19 exposure among its employees.

As of December 31, 2020, 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, 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 delays in production and customers usually do not plan large projects during that time. While usually better than the first quarter, the second calendar year quarter often has some inclement weather which can cause delays in production, reducing the revenues the Company receives and/or increasing the production costs. The third and fourth calendar year quarters usually are less impacted by weather and usually have the largest number of projects underway. Many projects are completed in the fourth calendar year quarter and revenues are often impacted by customers seeking to either spend their capital budget for the year or scale back projects due to capital budget overruns.

In addition to the fluctuations discussed above, the pipeline industry can be highly cyclical, reflecting variances in capital expenditures in proportion to energy price fluctuations. As a result, our volume of business may be adversely affected by where our customers are in the cycle and thereby their financial condition as to their capital needs and access to capital to finance those needs. Accordingly, our operating results in any particular quarter or year may not be indicative of the results that can be expected for any other quarter or any other year.

First Quarter Overview

Forbearance AgreementThe following is an overview of results from operations for the three months ended December 31, 2020 and Financing Arrangements2019.

Results of Operations for the Three Months Ended December 31, 2020 Compared to the Three Months Ended December 31, 2019

On November 28, 2012,Revenues. Total revenues increased by $6.2 million or 23.9% to $32.0 million for the Company entered intothree months ended December 31, 2020 from $25.8 million for the same period in 2019. The increase was primarily attributable to a Forbearance Agreement with United Bank, Inc. (West Virginia), Summit Community Bank (West Virginia),$3.3 million revenue increase in electrical and First Guaranty Bank (Louisiana)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.

Cost of Revenues. Total cost of revenues increased by $5.7 million or 24.2% to $29.2 million for the three months ended December 31, 2020 from $23.5 million for the same period in 2019. The increase was primarily attributable to a $2.9 million cost increase in electrical and mechanical services, a $1.9 million cost increase in petroleum and gas work, a $556,000 cost decrease in water and sewer projects and other ancillary services and a $279,000 cost increase in equipment and tool shop operations not allocated to projects.

Gross Profit. Total gross profit increased by $486,000 or 38.5% to $2.8 million for the three months ended December 31, 2020 from $2.4 million for the same period in 2019. The increase was primarily attributable to a $679,000 gross profit 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 our revolving line of creditequipment and term debt as reportedtool 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 the Company’s revenue and gross profit for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 is below:

Selling and administrative expenses. Total selling and administrative expenses increased by $1.0 million or 38.5% to $3.6 million for the three months ended December 31, 2020 from $2.6 million for the same period in 2019.

The increase in selling and administrative expenses was primarily related to higher salary and burden costs during the three months ended December 31, 2020 compared to the same period in 2019. Incentive compensation at the Company’s C.J. Hughes subsidiary increased by $481,000 in the Company’s November 29, 2012 Form 8-K filing. The Forbearance Agreement, among other things, required the Company to close S.T. Pipeline and dispose of its assets. The Company was also required to prepare recommendations relatingthree months ended December 31, 2020 compared to the on-going operations of Nitro Electric,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 Contractors Rental, including refinancing, sale or liquidation ofincentivize operational talent within the companies by May 31, 2013.company and increase revenue and profit margins.

OnThis decrease in interest expense for the three months ended December 31, 2020 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, 2014,2020, compared to loss before income taxes of ($111,000) for the Company entered intosame 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) compared to income tax benefit of ($36,000) for the same period in 2019. The higher income tax benefit for the three months ended December 31, 2020, was primarily due to a financing arrangement (“Term Note”decrease in taxable income as compared to the same period in 2019.

The effective income tax rate for the three months ended December 31, 2020 was (9.7%), as compared to (33.0%) with United Bank, Inc.for the same period in 2019Effective income tax rates are estimates and Summit Community Bank. The financing arrangement is a five-year term loanmay vary from period to period due to changes in the amount of $8.8taxable income and non-deductible expenses. Per diem paid to employees on construction projects is only partially deductible from taxable income and can have a significant impact on the effective tax rate.

Dividends on preferred stock for the three months ended December 31, 2020 and 2019 were $77,250.

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

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

The Company had total assets of $61.7 million at December 31, 2020, an increase of $3.5 million from the prior fiscal year end balance of $58.2 million. In addition,Goodwill and acquired intangible assets resulting from the West Virginia Pipeline acquisition totaled $4.5 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 million from the prior fiscal year end balance of $16.4 million. The increase was due to $3.7 million 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. Cash and cash equivalents totaled $12.3 million at December 31, 2020, an increase of $1.1 million from the prior fiscal year end balance of $11.2 million. The increase was primarily due to the decrease in accounts receivable. Accounts receivable, which totaled $17.1 million at December 31, 2020, decreased by $1.1 million from the prior fiscal year end balance of $18.2 million. The decrease was primarily due to the collection of receivables from September 30, 2020. Contract assets totaled $4.4 million at December 31, 2020, a decrease of $2.1 million from the prior fiscal year end balance of $6.5 million. The decrease was due to a difference in the timing of project billings at December 31, 2020 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. Prepaid expenses and other totaled $2.8 million at December 31, 2020, a decrease of $576,000 from the prior fiscal year end balance of $3.3 million. The decrease was primarily due to a reduction in prepaid insurance that was expensed during the three months ended December 31, 2020.

The Company had total liabilities of $36.6 million at December 31, 2020, an increase of $4.3 million from the prior fiscal year end balance of $32.3 million. Lines of credit and short-term borrowings totaled $3.5 million at December 31, 2020, an increase of $3.0 million from the prior fiscal year end balance of $510,000. 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 of $510,000. Long-term debt totaled $18.1 million at December 31, 2020, an increase of $2.8 million 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. The increase was due to the timing of accounts payable payments as compared to September 30, 2020. Contract liabilities totaled $3.7 million at December 31, 2020, 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 from the prior fiscal year end balance of $4.2 million. The decrease was primarily due to the payment of accrued expenses in the three months ended December 31, 2020. Deferred tax liabilities totaled $2.2 million at December 31, 2020, a decrease of $43,000 from the prior fiscal year end balance of $2.3 million. The decrease was primarily related temporary book loss versus tax loss differences for the three months ended December 31, 2020.

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 separate five-year term20-year $1.2 million loan agreement with First Guaranty Bank of Charleston, Inc. (West Virginia) to purchase the office building and property it had previously been leasing for $1.6 million. Taken together,$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 $10.4 million in new financings superseded the prior financing arrangementsFederal Reserve weekly. As of December 31, 2020, the Company had with United Bank, Inc. and other lenders. As a resultmade principal payments of entering into$244,000. The loan is collateralized by the new financings, United Bank, Inc. and the other lenders of the Company agreed to terminate their Forbearance Agreement with the Company. This was reported in the Company’s February 4, 2014 Form 8-K filing.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 will bewere converted to a five-year term note agreement withan interest rate of 5.0%.As of December 31, 2017,2020, the Company had borrowed $2.46 million against this line of creditnote and made principal payments of $558,000.$2.1 million. The loan is collateralized by the equipment purchased under this agreement.

On March 21, 2017,November 13, 2015, the Company entered into a financing10-year $1.1 million loan agreement (“Operating Line of Credit (2017)”) with United Bank, Inc. to providepurchase the Company with a $15.0 million revolving line of credit.fabrication shop and property Nitro had previously been leasing for $12,900 each month. The interest rate on the linenew loan agreement is 4.25% with monthly payments of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. The effective date of this agreement was February 27, 2017 and it replaced the $15.0 million revolving line of credit (“Operating Line of Credit (2016)”) entered into with United Bank, Inc. effective February 27, 2016. The Company had borrowed $1.5 million against Operating Line of Credit (2016) at December 31, 2016, which was repaid in January 2017. The Company had borrowed $9.6 million against the Operating Line of Credit (2017) as$11,602. As of December 31, 2017. Subsequent to December 31, 2017 and prior to this Form 10-Q filing,2020, the Company repaid $4.0 million against Operating Linehad made principal payments of Credit (2017).$493,000. The loan is collateralized by the building and property purchased under this agreement.

On June 28, 2017, the Company entered into a $5.0 million Non-Revolving Note agreement with United Bank, Inc. This five-year agreement gave the Company access to a $5.0 million line of credit (“Equipment Line of Credit 2017”), specifically for the purchase of equipment, for a period of three months with an interest rate of 4.99%. After three months, all borrowings against the Equipment Line of Credit 2017 were converted to a five-year term note agreement withan interest rate of 4.99%.As of December 31, 2017,2020, the Company had borrowed $5.0 million against this line of creditnote and made principal payments of $235,000.$3.3 million. The loan is collateralized by the equipment purchased under this agreement.