UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q10-Q/A

Amendment No. 1

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31September 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-36335

ENSERVCO CORPORATION

(Exact nameName of registrant as specifiedSpecified in its charter)Charter)

Registrant’s telephone number: (303) 333-3678

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantEnservco was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).   Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐                                                                             Accelerated filer ☐

Non-accelerated filer ☒                                                                              Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐    No ☒

Indicate the number of shares outstanding of each of the registrant'sIssuer's classes of common stock as of the latest practicable date.

TABLE OF CONTENTS 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENSERVCO CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

Enservco Corporation ("Enservco"(“Enservco”) through its wholly-owned subsidiaries (collectively referred to as the "Company"“Company”, "we"“we” or "us"“us”) provides various services to the domestic onshore oil and natural gas industry. These services include frac water heating (completion and other services) and hot oiling and acidizing ("Production Services") and frac water heating ("Completion and Other Services")(production services).

The accompanying unaudited condensed consolidated financial statements have been derived from the accounting records of Enservco Corporation, Heat Waves Hot Oil Service LLC ("(“Heat Waves"Waves”), Dillco Fluid Service, Inc. ("Dillco"(“Dillco”), Heat Waves Water Management LLC ("HWWM"(“HWWM”), and Adler Hot Oil Service, LLC ("Adler") (collectively, the "Company"“Company”) as of September 30,March 31, 2021 and December 31, 2020 and the results of operations for the three and ninemonths ended September 30,March 31, 2021 and 2020.

The below table provides an overview of the Company’s current ownership hierarchy:

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles in the United States of America ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the expected operating results of a full year or of future years.

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with GAAPgenerally accepted accounting principles in the United States of America (“GAAP”) and follow the same accounting policies and methods of their application as the most recent annual financial statements. These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Annual Report on Form 10-K of Enservco Corporation for the year ended December 31, 2020. All intercompanyinter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

Note 2 – Restatement of Previously Issued Financial Statements

In accordance with Accounting Standards Codification ("ASC") 470-50, as well as guidance from a speech given by an SEC staff member at a 2010 AICPA conference, for debt extinguishments and conversions with related parties that meet certain criteria and give rise to a loss, an extinguishment loss should be recognized. In February 2021, the Company and Cross River Partners, L.P. entered into an agreement whereby the remaining principal amount of subordinated debt held by Cross River Partners, L.P. totaling $1.25 million, as well as $62,000 in accrued interest, was converted to 601,674 shares of Company common stock, at a conversion price equal to $2.18 per share, which was the closing price of the Company's stock reported on the NYSE American on the date of the conversion. In connection with such conversion, the Company issued a warrant to Cross River Partners, L.P. to purchase up to 150,418 additional shares of Company common stock in the future at an exercise price of $2.507 per share. The warrant for the 150,418 shares has a five-year term and is exercisable beginning February 3, 2022 until February 3, 2026. While the conversion of common stock was done for no gain or loss, the issuance of the warrant should have been accounted for as a loss equal to the warrant fair value at the date of issuance, or approximately $304,000. The Company restated its consolidated financial statements to recognize the loss attributable to the issuance of the warrant during the first quarter of 2021. The Company did a similar conversion during the third quarter of 2020 with Cross River Partners, L.P., but that transaction gave rise to a gain, and transactions such as these with related parties that result in gains are not recognized.

The following tables summarize the effect of the restatement on each financial statement line item as of the date, and for the period, indicated (in thousands except per share amounts):

–Note 3 - Summary of Significant Accounting Policies

Going Concern Recent Developments

On August 10, 2017, the Companywe entered into a Loan and Securitythe 2017 Credit Agreement, as amended, with East West Bank (the "2017 Amended"2017 Credit Agreement") which provided for a three-year,three-year, $37.0 million senior secured revolving credit facility (the "Credit Facility"). On September 23, 2020, the Company and East West Bank entered into the Fifth Amendment to Loan and Security Agreement and Waiver (the "Fifth Amendment") which, among other things, provided for a loan concession of $16.0 million in exchange for 533,334 shares of Company common stock and a five-year warrant to purchase up to 1,000,000 additional shares of Company common stock in the future, as well as further extending the maturity date for the repayment of the Credit Facility to October 15, 2021. On February 1, 2021, we entered into the Sixth Amendment to Loan and Security Agreement (the "Sixth Amendment") which extended the maturity date of the loan for an additional year to October 15, 2022, and modified certain covenants. TheOn April 26, 2021, we entered into the Seventh Amendment to the Credit Facility dated April 26, 2021 (theLoan and Security Agreement (the "Seventh Amendment") which provided for amortization of the loan on a 10-year straight-line basis commencing on November 15, 2021. As the terms of the Seventh Amendment were contemplated prior to March 31, 2021, and continuing until maturitythe principal payments due over the next twelve months have been classified as current on October 15, 2022. the consolidated balance sheets as of March 31, 2021.

SubsequentOn August 13, 2020, the Company's Board of Directors approved a transaction to exchange 50%, or $1.25 million, of our subordinated debt with Cross River Partners, L.P., a related party, as well as $265,000 in accrued interest, for 403,602 shares of Company common stock. This transaction was finalized on September 30,15, 2020. On February 3, 2021, Cross River Partners, L.P. converted the remaining principal amount of such subordinated debt, or $1.25 million, as well as $62,000 in accrued interest, for 601,674 shares of Company common stock, at a conversion price equal to $2.18 per share, which was the closing price of the Company's stock reported on the NYSE American on the date of the conversion. In connection with such conversion, the Company determinedissued a warrant to Cross River Partners, L.P. to purchase up to 150,418 additional shares of Company common stock in the future at an exercise price of $2.507 per share. The warrant for the 150,418 shares has a five-year term and is exercisable beginning February 3, 2022 until February 3, 2026. The issuance of the warrant at its grant date fair value of $2.02 per share caused the Company to record a loss of approximately $304,000 upon the conversion of the subordinated debt in the first quarter of 2021.

On September 28, 2020, the Company filed a final prospectus to its registration statement on Form S-3 (the "Shelf Registration Statement") that it would bewas filed with the Securities and Exchange Commission (the "SEC") on July 24, 2020, and declared effective on August 20, 2020. On September 29, 2020, pursuant to the Shelf Registration Statement, the Company, through its sales agent Alliance Global Partners ("AGP"), commenced an at-the-market offering (the "ATM Offering") which was designed to raise capital by issuing securities into the trading market, over-time, at the then-market price of the securities at the time they are sold. The Company sold 1,694,219 shares of Company common stock in non-compliancethe ATM Offering and collected net proceeds of its trailing three-month revenue covenant under$3.5 million.

On February 8, 2021, the Company entered into an Underwriting Agreement with AGP for a firm commitment underwritten public offering of the Company’s common stock pursuant to a registration statement on Form S-1 originally filed with the SEC on January 21, 2021 and declared effective on February 8, 2021 (the "February 2021 Public Offering"). Pursuant to the Underwriting Agreement, the Company issued and sold 4,199,998 shares of Company common stock, including shares issued and sold pursuant to AGP’s over-allotment option, at a public offering price of $2.30 per share. The Company collected net proceeds of $8.8 million in the February 2021 Public Offering, which closed on February 10, 2021. The Company made a $3.0 million principal payment on the Credit Facility forupon the month ended October 31, 2021, and would likely also be in non-compliance for the trailing three-month period ending November 30, 2021. This covenant requires the Company to achieve actual revenues in an amount not less than 70%closing of the revenue projections previously delivered byFebruary 2021 Public Offering.

Recent Market Conditions

The COVID-19 pandemic has significantly impacted the Company (and accepted by East West Bank) for each trailing three-month period. The Company’s non-compliance with the covenant resulted from October’s revenues being approximately $172,000 lower than what was required to meet the requirements of the covenant. The Company has determined that October’s lower revenues were the result of warmer than usual temperatures that have existedworld economic conditions including in the areas that the Company operates which caused the Company's frac water heating season to begin later than anticipated. 

On November 12, 2021, we entered into the Eighth Amendment to Loan and Security AgreementUnited States, with East West Bank (the "Eighth Amendment") which, among other things, provides for a waiver of default of the revenue covenant based upon our October trailing three-month period gross revenue and a reforecasting of our November and December revenues from what was previously provided to East West Bank. Per the Eighth Amendment, the revenue covenant utilizing October’s revenues is waived and will not be usedsignificant effects beginning in any future three-month period gross revenue covenant calculation. For the month ended November 30, 2021, covenant compliance will be measured at 80% of reforecast November revenues. Covenant compliance for the month ended December 31, 2021 will be measured at 80% of the reforecast November and December revenues. Beginning for the month ended January 31, 2022 and continuing until March 31, 2022, revenue covenant compliance will be measured at 80% of the trailing three months forecast gross revenues. Beginning the month ended April 30, 2022 February 2020, and continuing through September 30, 2022, covenant compliance will be measured at 70%the issuance of this report, as federal, state and local governments react to the trailing three months forecasted gross revenues, except forpublic health crisis, creating significant uncertainties relating to the months ended April 30, 2022 and May 31, 2022, as those will include an 80% requirement for the months of February 2022 and March 2022. Upon execution of the Eighth Amendment, the Company paid East West Bank a fee of $70,000 for the October revenue waiver and the Eight Amendment.

Our condensed consolidated financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realization of assets and settlement of liabilities in the normal course of business. For the three and nine months ended September 30, 2021, we incurred net losses of approximately $177,000 and $4.0 million, respectively. As of September 30, 2021, we had total current assets of $7.3 million and total current liabilities of $4.5 million, or working capital of $2.8 million.AlthoughUnited States economy. Consequently, the Company has made substantial progressexperienced and expects to further experience a material adverse impact on its revenues, results of operations and cash flows. COVID-19 related quarantines and business restrictions have had a depressing impact on United States oil demand, and hence our business, which continues through the filing date of this report. The situation continues to change rapidly and additional impacts to our business may arise that we are not aware of currently. We cannot predict whether, when or the manner in improving its capitalizationwhich the conditions surrounding COVID-19 will change including the timing of lifting any restrictions or office closure requirements.

In addition, certain producing countries within the Organization of Petroleum Exporting Countries and their allies ("OPEC+") group attempted to increase market share through pricing activity that has had limited impact on the severe decline in domestic oil prices that occurred during the first quarter of 2020, and drilling and operating activity within our markets has remained depressed. There is no assurance that such efforts will not re-occur in the future.

The full extent of the impact of COVID-19 and OPEC+ actions on our operations and financial position overperformance depends on future developments that are uncertain and unpredictable, including the past twelve months, the current maturity dateduration and spread of the Credit Facility is October 15, 2022. This maturity datepandemic, its impact on capital and financial markets, any new information that may emerge concerning the severity of the Credit Facility creates substantial doubt over our abilityvirus, its spread to continueother regions as a going concern from one year afterwell as the dateactions taken to contain it, production response of issuancedomestic oil producers to lower oil prices, and the adherence to and continuity of this current report, or November 15, 2022. We continue to work with East West Bank on repayment strategies and are working diligently to secure a refinancing of the Credit Facility.OPEC+ production cuts, among others.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Enservco maintains its excess cash in onevarious financial institution,institutions, where deposits may exceed federally insured amounts at times. 

Accounts Receivable

Accounts receivable are stated at the amounts billed to customers, net of an allowance for uncollectible accounts. The Company provides an allowance for uncollectible accounts based on a review of outstanding receivables, historical collection information and existing economic conditions. The allowance for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover potential future losses. ThisThe allowance is management's best estimate of uncollectible amounts and is determined based on historical collection experience related to accounts receivable coupled with a review of the current status of existing receivables. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining thisthe allowance. As of September 30,March 31, 2021, and December 31, 2020, the Company had an allowance for doubtful accounts of approximately $195,000approximately $359,000 and $322,000, respectively. For the the three and nine months ended September 30,March 31, 2021 and 2020, the CompanyCompany recorded approximately $18,000$38,000 and $15,000, respectively,$300,000 to bad debt recovery. For the three and nine months ended September 30, 2020, the Company recorded approximately $64,000 and $362,000, respectively, to bad debt expense.expense, respectively.

Inventories

Inventories consist

Inventory consists primarily of propane, diesel fuel and chemicals that are used in the servicing of oil wells and areis carried at the lower of cost or net realizable value in accordance with the first in, first out method of accounting ("FIFO")(FIFO). The Company periodically reviews the value of items in inventoriesinventory and provides write-downs or write-offs, of inventoriesinventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. For the three months ended March 31, 2021 and nine months ended September 30, 2021 and 2020, the Company did not recognize any write-downs or write-offs of inventoriesinventory.

Property and Equipment

Property and equipment consistsconsist of (i) trucks, trailers and pickups; (ii) water transfer pumps, pipe, lay flat hose, trailers, and other support equipment; (iii) real property which includes land and buildings used for office and shop facilities and wells used for the disposal of water; (iv) other equipment such as tools used for maintaining and repairing vehicles;vehicles, and (v) office furniture and fixtures, and computer equipment. Property and equipment is stated at cost less accumulated depreciation. The Company capitalizes interest on certain qualifying assets that are undergoing activities to prepare them for their intended use. Interest costs incurred during the fabrication period are capitalized and amortized over the life of the assets. The Company did not capitalize any interest forduring the three and nine months ended September 30,March 31, 2021 or 2020.The Company charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the remaining useful life, or expand the capacity or efficiency of the assets. Depreciation is recorded on a straight-line basis over estimated useful lives ranging from of 5 to 30 years.

Any difference between the net book value of the property and equipment and the proceeds of an asset’sassets’ sale or settlement of an insurance claim is recorded as a gain or loss in the Company’s condensed consolidated statements of operations.earnings.

Leases

The Company assesses whether an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We have elected the practical expedient to not separate lease and non-lease components for all assets. Operating lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future lease payments. The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. The depreciable life of lease assets and leasehold improvements are limited by the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company conducts a major part of its operations from leased facilities. Each of these leases is accounted for as an operating lease. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets.

The Company amortizes leasehold improvements over the shorter of the life of the lease or the life of the improvements. 

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstancescircumstances indicate that the carrying amount of the asset may not be recovered. ForDuring the three and nine months ended September 30,first quarter of 2021, the Company concluded that there were no further triggering events which could indicate potential impairment of its long-lived assets. DuringDuring the first quarter of 2020, the combination of the COVID-19COVID-19 pandemic and actions taken by the Organization of Petroleum Exporting Countries and their allies ("OPEC+") countries caused oil and gas commodity demand to decrease significantly. The Company determined that these were triggering events which could indicate potential impairment of its long-lived assets. The Company reviewed both qualitative and quantitative aspects of the business during the analysis of potential impairment. During the quantitative review, the Company reviewedCompany reviews the undiscounted future cash flows in its assessment of whether long-lived assets hadhave been impaired. The Company concludeddetermined that there was 0no impairment of its long-lived assets forduring the three and nine months ended September 30, 2020.March 31, 2021.

Assets Held for Sale

The Company classifies long-lived assets intended to be sold as held for sale in the period in which all of the following criteria are met: (1)(1) management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; (2)(2) the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (3)(3) an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; (4)(4) the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; (5)(5) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6)(6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for saleheld-for-sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group less any costs to sell each reporting period it remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. Forsale. During the years three and nine months ended September 30,March 31, 2021 and 2020, the Company recorded 0no impairment charges on its held for sale assets.

Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, the Company ceases depreciation and reports long-lived assets and/or the assets and liabilities of the disposal group, if material, in the line item "Assetsitems assets held for sale"sale in our condensed consolidated balance sheets.

Goodwill and Other Intangible Assets

Goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business acquisitions and combinations. Goodwill and other intangible assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate impairment may exist, such as a significant adverse change in the business climate. In assessing the value of goodwill, assets and liabilities are assigned to the reporting units and the appropriate valuation methodologies are used to determine fair value at the reporting unit level. Identified intangible assets are amortized using the straight-line method over their estimated useful lives.

ForDuring the three and nine months ended September 30,first quarter of 2021, the Company concluded that there were no further triggering events which could indicate potential impairment of its goodwill and other intangible assets. During the the first quarter of 2020, the combination of the COVID-19COVID-19 pandemic and actions taken by the OPEC+ countries caused oil and gas commodity demand to decrease significantly. The Company determined that these were triggering events which could indicate potential impairment of its goodwill and other intangible assets. The Company reviewed both qualitative and quantitative aspects of the business during the analysis of impairment. During the quantitative review, the Company useduses both the fair value and discounted future cash flows in its assessment of whether goodwill and other intangible assets hadhave been impaired. The Company concludeddetermined that there was 0no impairment of its goodwill and other intangible assets forduring the three and nine months ended September 30,March 31, 2020.

Revenue Recognition 

The Company evaluates revenue when we can identify the contract with the customer, the performance obligations in the contract, the transaction price, and we are certain that the performance obligations have been met. Revenue is recognized when the service has been provided to the customer. The vast majority of the Company's services and product offerings are short-term in nature. The time between invoicing and when payment is due under these arrangements is generally 30 to 60 days. Revenue is not generated from contractual arrangements that include multiple performance obligations.

The Company’s agreements with its customers are often referred to as "price sheets"“price sheets” and sometimes provide pricing for multiple services. However, these agreements generally do not authorize the performance of specific services or provide for guaranteed throughput amounts. As customers are free to choose which services, if any, to use based on the Company’s price sheet, the Company prices its separate services on the basis of their standalone selling prices. Customer agreements generally do not provide for performance, cancellation, termination, or refund type provisions. Services based on price sheets with customers are generally performed under separately issued "work orders"“work orders” or "field tickets"“field tickets” as services are requested.

Revenue is recognized for certain projects that take more than one day as projects over time based on the number of days during the reporting period and the agreed upon price as work progresses on each project.

Disaggregation of Revenuerevenue

See Note 1012 - Segment Reporting for disaggregation of revenue.

Employee Retention Credits

The Employee Retention Credits, a provision of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was extended through December 31, 2021 through the American Rescue Plan Act. On November 15, 2021, the Infrastructure Investment and Jobs Act was signed into law and retroactively ends the Employee Retention Credits on September 30, 2021. For 2021, the Employee Retention Credits are up to $7,000 per employee per quarter on qualified wages for the firstthree quarters of 2021. During the second quarter of 2021, the Company amended payroll tax returns originally filed for the third and fourth quarters of 2020 in order to claim refundable Employee Retention Credits for those periods. For the three and nine months ended September 30, 2021, the Company recorded $612,000 and $2.1 million, respectively, to other income in the condensed consolidated statements of operations.

Earnings (Loss) Per Share 

Basic earningsEarnings per common shareCommon Share - Basic is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Earnings per Common Share - Diluted earnings per common share is calculated by dividing net income (loss) by the diluted weighted average number of common shares outstanding for the period.shares. The diluted weighted average number of common shares outstanding for the period is computed using the treasury stock method for Company common stock that may be issued for outstanding stock options, restricted stock orand warrants.

As of March September 30,31, 2021 and 2020, there were outstanding stock options, unvested restricted stock awards and warrants to acquire an aggregate aggregate of 1,376,2391,383,489 and 1,166,733247,048 shares of Company common stock, respectively, which have a potentially dilutive impact on earnings per share. As of March September 30,31, 2021 and 2020,the outstanding stock options and warrants had 0no aggregate intrinsic value (the difference between the estimated fair value of the Company’s common stock on March 31September 30,, 2021 and 2020,and the exercise price, multiplied by the number of in-the-money instruments). Dilution is not permitted if there are net losses during the period. As such, the Company does not show diluted earnings per share for the three months ended March 31, 2021 and 2020.

Income Taxes

The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in income in the period that includes the enactment date. A deferred tax asset or liability that is not related to an asset or liability for financial reporting is classified according to the expected reversal date. The Company records a valuation allowance to reduce deferred tax assets to an amount that it believes is more likely than not expected expected to be realized.

The Company accounts for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if, in the Company’s opinion, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous.  As such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to the Company’s subjective assumptions and judgments which can materially affect amounts recognized in the condensed consolidated balance sheets and condensed consolidated statements of operations.income. The result of the reassessment of the Company’s tax positions did not have an impact on the condensed consolidated financial statements.

Interest and penalties associated with tax positions are recorded in the period assessed as "Other expense" in the condensed consolidated statements of operations.Other expense. The Company files income tax returns in the United States of America ("USA") and in the states in which it conducts its business operations. The Company’s USAUnited States federal income tax filings for tax years 2017 through 2020 remain open to examination. In general, the Company’s various state tax filings remain open for tax years 2016 to 2020.

Fair Value

The Company follows authoritative guidance that applies to all financial assets and liabilities required to be measured and reported on a fair value basis. The Company also applies the guidance to non-financial assets and liabilities measured at fair value on a nonrecurring basis, including non-competition agreements and goodwill. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability ("(an exit price")price) in an orderly transaction between market participants at the measurement date.  The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances.  Beginning in 2017 the Company valued its warrants using the Binomial Lattice model ("("Lattice"). Specific inputs used in the Lattice are the underlying stock price, the exercise price of the warrant, expected dividends, historical volatility, term to expiration and risk-free interest rates. The Company did not have any transfers between hierarchy levels forduring the three months andended March nine31, 2021 months ended September 30, 2021. . The financial and non-financialnonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Stock-based Compensation

Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award as described below, and is recognized over the requisite service period, which is generally the vesting period of the equity grant.

The Company uses the Black-Scholes pricing model as a method for determining the estimated grant date fair value for all stock options awarded to employees, independent contractors, officers, and directors. The expected term of the options is based upon evaluation of historical and expected exercise behavior. The risk-free interest rate is based upon USAU.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of our stock and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be zeronone as we have not historically paid dividends, nor do we anticipate paying any dividends in the foreseeable future.

The Company uses a Lattice model to determine the fair value of certain warrants. The expected term used was the remaining contractual term. Expected volatility is based upon historical volatility over a term consistent with the remaining term. The risk-free interest rate is derived from the yield on zero-coupon USAU.S. government securities with a remaining term equal to the contractual term of the warrants. The dividend yield is assumed to be zero.

The Company used the market-value of Company common stock to determine the fair value of the performance-based restricted stock awarded in 2018 and 2019. Stock-based Stock based compensation is updated quarterly based on actual forfeitures. The Company used either a Lattice model or the Black-Scholes pricing model to determine the fair value of market-based restricted stock awarded in 2021 and 2020.

Management Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAPaccounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Significant estimates include the realization of accounts receivable, evaluation of impairment of long-lived assets, stock-based compensation expense, income tax provisionsprovision and the valuation of deferred taxes. Actual results could differ from those estimates.

Reclassifications

Certain prior-period amounts have been reclassified for comparative purposes to conform to the current presentation. These reclassifications have no effect on the Company’s condensed consolidated statementsstatement of operations.

Accounting Pronouncements 

In June 2016, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update ("ASU") 2016-13,ASU 2016-13, Financial Statements - Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to ascertain credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2022. The Company does not expect the adoption of ASU 2016-132016-13 to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12,2019-12, Income Taxes (Topic 740)740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, and improves consistent application by clarifying and amending existing guidance. The Company adopted ASU 2019-12 on January 1, 2021, and the adoption of this guidance did not have a material impact on the Company's consolidated financial statements. The standard is effective for fiscal years beginning after December 15, 2020. The Company adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on its consolidated financial statements.

Note 34– - Property and Equipment

Property and equipment consist of the following (in(amounts in thousands):

For the three and nine months ended September 30,March 31, 2021 the Company recorded depreciation expense of approximately $1.2 million and $3.8 million, respectively. For the three and nine months ended September 30, 2020, the Company recorded depreciation expense of approximately $1.2$1.3 million and $3.7$1.4 million, respectively.

Note 45 – Intangible Assets 

The components of our intangible assets as of March 31, 2021, and December 31, 2020, are as follows (in thousands):

The useful lives of our intangible assets are estimated to be five years. For the three and nine months ended September 30,March 31, 2021 amortization expense was approximately $54,000 and $163,000, respectively. For the three and nine months ended September 30, 2020, amortization expense was approximately $54,000 and $156,000,$51,000, respectively. 

The following table represents the amortization expense for the next five years for the twelve months ending September 30 (inMarch 31 (in thousands): 

Note 56 – Discontinued Operations 

Heat Waves Water Management