SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Fiscal Year Ended September 30, 2006
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: 001-32998
Energy Services Acquisition Corp.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 20-4606266
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(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
2450 First Avenue, Huntington, West Virginia 25703
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(Address of Principal Executive Office) (Zip Code)
(304) 528-2791
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(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class On Which Registered
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Common Stock, par value $0.0001 per share American Stock Exchange
Units (each Unit consisting of one share
of Common Stock and two Warrants) American Stock Exchange
Warrants (each Warrant is exercisable American Stock Exchange
for one share of Common Stock)
Securities Registered Pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. YES X NO
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Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES NO X
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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 twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES X NO.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X].
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]
As of December 8, 2006, there were issued and outstanding 10,750,000 shares
of the Registrant's Common Stock.
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES X NO
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The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant, computed by reference to the last sale
price on March 31, 2006, as reported by the American Stock Exchange, was zero,
as the Company's securities commenced trading on August 31, 2006.
DOCUMENTS INCORPORATED BY REFERENCE
Energy Services Acquisition Corp.
Annual Report On Form 10-K
For The Fiscal Year Ended
September 30, 2006
Table Of Contents
PART I
ITEM 1. Business.........................................................1
ITEM 1A. Risk Factors.....................................................9
ITEM 2. Properties......................................................22
ITEM 3. Legal Proceedings...............................................22
ITEM 4. Submission of Matters to a Vote of Security Holders.............22
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities..............22
ITEM 6. Selected Financial Data.........................................24
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................24
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk......26
ITEM 8. Financial Statements and Supplementary Data.....................26
ITEM 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure............................26
ITEM 9A. Controls and Procedures.........................................26
ITEM 9B. Other Information...............................................26
PART III
ITEM 10. Directors and Executive Officers of the Registrant..............26
ITEM 11. Executive Compensation..........................................28
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.....................29
ITEM 13. Certain Relationships and Related Transactions..................30
ITEM 14. Principal Accountant Fees and Services..........................31
PART IV
ITEM 15. Exhibits and Financial Statement Schedules......................31
Signatures ................................................................33
PART I
ITEM 1. Business
Forward Looking Statements
This Annual Report contains certain "forward-looking statements" which may
be identified by the use of words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage, and other loans,
real estate values, competition, changes in accounting principles, policies, or
guidelines, changes in legislation or regulation, and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing products and services.
Overview
We are a blank check company incorporated in Delaware on March 31, 2006, in
order to serve as a vehicle for a business combination with an operating
business or businesses. Our efforts in identifying a prospective target business
will not be limited to a particular industry, although we intend to focus our
efforts on cash flow positive companies that have historically generated
positive earnings before interest, taxes and depreciation in basic industry
opportunities involving energy services. Although we intend to focus our efforts
on acquiring an operating business in the energy services sector headquartered
in North America, we will consider opportunities to acquire a business unrelated
to the energy services sector should such an opportunity be presented to us.
Consequently, we are not limited to acquiring a company in any particular
industry or type of business.
On September 6, 2006, we completed our initial public offering of 8,600,000
units. Each unit consists of one share of our common stock and two warrants,
each to purchase one share of our common stock at an exercise price of $5.00 per
share. The units were sold at an offering price of $6.00 per unit, generating
gross proceeds of $51,600,000. After deducting the underwriting discounts and
commissions and the offering expenses, the total net proceeds to us from the
public offering that were deposited into a trust fund were $48,972,000. The net
proceeds deposited into the trust fund remain on deposit in the trust fund
earning interest and dividends. As of September 30, 2006, there was $50,181,173
held in the trust fund, which includes $2,000,000 raised in connection with a
prior private placement of common stock and warrants.
On October 3, 2006, we were informed by Ferris, Baker Watts, Incorporated,
the lead underwriter for our initial public offering of units, that the separate
trading of the our common stock and warrants may commence on or about October 3,
2006. On October 3, 2006, the common stock and warrants began to trade on the
American Stock Exchange under the symbols "ESA" and "ESA-WS," respectively.
We are not presently engaged in, and we will not engage in, any substantive
commercial business until we consummate a business combination. We intend to
utilize our cash, including the funds held in the trust fund, capital stock,
debt or a combination of the foregoing in effecting a business combination. A
business combination may involve the acquisition of, or merger with, a company
which does not need substantial additional capital but which desires to
establish a public trading market for its shares, while avoiding what it may
deem to be adverse consequences of undertaking a public offering itself. These
include time delays, significant expense, loss of voting control and compliance
with various Federal and state securities laws. In the alternative, we may seek
to consummate a business combination with a company that may be financially
unstable or in its early stages of development or growth.
Examples of qualities we will look for in a target company include:
o experienced operating management groups;
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o demonstrated track records of historical growth in revenues and
positive cash flow;
o involvement in an industry providing opportunity for additional
acquisitions;
o regulatory or technical barriers to entry; and/or
o companies with identifiable growth prospects with a need for growth
capital.
We intend to seek our target business opportunities from various internal
and external sources. We believe that we will be able to generate deal flow from
internal sources primarily resulting from personal contacts and relationships
that our officers and directors have developed and maintain in the private
equity and mergers and acquisition industry, as well as through relationships
they have developed and maintain with various professionals, including
accountants, consultants, commercial bankers, attorneys, regional brokers and
other investors. Initially, we intend to utilize these contacts for the purpose
of assisting us in identifying and evaluating potential acquisition candidates,
although no such activities have been initiated yet. We will also seek to
generate potential transactions from external sources by contacting investment
bankers, venture capital funds, private equity funds, and other members of the
financial community which may present solicited or unsolicited proposals. While
our management team is experienced in running companies in a variety of
industries we have not run a company in the energy services sector. We are
working with our advisors to identify persons with expertise in the energy
services sector. Such individuals, it is hoped, will assist us in identifying
and evaluating acquisition opportunities in the energy services sector.
Selection of a target business and structuring of a business combination
Marshall T. Reynolds is supervising the process of evaluating prospective
target businesses, and we expect that he will devote substantial time to our
business once we have signed a term sheet with a target business that provides
for a business combination conditioned in part on the completion of due
diligence. Marshall T. Reynolds will be assisted in his efforts by us, together
with our outside attorneys, accountants and other representatives.
Subject to the requirement that our initial business combination, which may
be a transaction to acquire one or more businesses simultaneously, must be with
a target business with a fair market value that is at least 80% of our net
assets (excluding deferred non-accountable expense allocation of the
underwriters held in trust) at the time of such acquisition, our management will
have virtually unrestricted flexibility in identifying and selecting a
prospective target business. In evaluating a prospective target business, our
management will consider, among other factors, the following:
o financial condition and results of operation;
o cash flow potential;
o growth potential;
o experience and skill of management and availability of additional
personnel;
o capital requirements;
o competitive position;
o barriers to entry;
o stage of development of the products, processes or services;
o customer base;
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o security measures employed to protect technology, trademarks or trade
secrets;
o degree of current or potential market acceptance of the products,
processes or services;
o proprietary features and degree of intellectual property or other
protection of the products, processes or services;
o regulatory environment of the industry; and
o costs associated with effecting the business combination.
These criteria are not intended to be exhaustive and we have not
established any specific quantitative criteria or formula to evaluate a
prospective target business. We will consider acquiring an underperforming or
distressed company based on the above-listed factors, although we do not intend
to focus our efforts on acquiring such a company. Any evaluation relating to the
merits of a particular business combination will be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by our management in effecting a business combination consistent with our
business objective. In evaluating a prospective target business, we will conduct
an extensive due diligence review which will encompass, among other things,
meetings with incumbent management and inspection of facilities, as well as
review of financial and other information which will be made available to us.
The structure of a particular business combination may take the form of a
merger, capital stock exchange, asset acquisition or other similar structure.
Although we have no current commitments to issue our securities, we may issue a
substantial number of additional shares of our common stock or preferred stock,
a combination of common and preferred stock, or debt securities, to complete a
business combination.
The time and costs required to select and evaluate a target business and to
structure and complete the business combination cannot presently be ascertained
with any degree of certainty. Any costs incurred with respect to the
identification and evaluation of a prospective target business with which a
business combination is not ultimately completed will result in a loss to us and
reduce the amount of capital available to otherwise complete a business
combination. However, we will not pay any finder's or consulting fees to our
initial stockholders, or any of their respective affiliates, for services
rendered to or in connection with a business combination. We will not, and no
other person or entity will, pay any finder's or consulting fees to our existing
directors, officers or stockholders, or any of their respective affiliates, for
services rendered to or in connection with a business combination. In addition,
we will not make any other payment to them out of the proceeds of our initial
public offering (or the funds held in trust) other than reimbursement for any
out-of-pocket expenses they incur in conducting due diligence, the payments to
Chapman Printing Co. for reimbursable expenses and for the repayment of the
$225,000 in advances from Marshall T. Reynolds to us (which consists of a
$150,000 loan plus the advance of $75,000 for the American Stock Exchange
listing fee). This arrangement is being agreed to by Chapman Printing Co. for
our benefit and is not intended to provide Marshall T. Reynolds compensation in
lieu of salary.
Fair market value of target business
The initial target business or businesses that we acquire must have a fair
market value equal to at least 80% of our net assets at the time of such
acquisition. Deferred non-accountable expense allocation of the underwriters
held in trust shall be excluded from our net assets when calculating the 80%
fair market value requirement. The fair market value of such business will be
determined by our board of directors based upon standards generally accepted by
the financial community, such as actual and potential sales, earnings and cash
flow and book value. To further minimize the potential appearance of a conflict
of interest, we will not consummate a business combination with an entity which
is affiliated with any of our initial stockholders, officers or directors unless
we obtain an opinion from an independent investment banking firm that the
business combination is fair to our stockholders from a financial point of view.
In the event that we obtain such opinion, we will file it with the Securities
and Exchange Commission.
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Stockholder approval of business combination
Prior to the completion of a business combination, we will submit the
transaction to our stockholders for approval, even if the nature of the
acquisition is such as would not ordinarily require stockholder approval under
applicable state law. In connection with seeking stockholder approval of a
business combination, we will furnish our stockholders with proxy solicitation
materials prepared in accordance with the Securities Exchange Act of 1934,
which, among other matters, will include a description of the operations of the
target business and audited historical financial statements of the business.
In connection with the vote required for any business combination, all of
our initial stockholders, including all of our officers and directors, have
agreed to vote their respective shares of common stock owned by them immediately
prior to our initial public offering, as well as any shares of common stock
acquired in connection with or following our initial public offering, in
accordance with the majority of the shares of common stock voted by the public
stockholders. We will proceed with the business combination only if a majority
of the shares of common stock voted by the public stockholders are voted in
favor of the business combination and public stockholders owning less than 20%
of the shares sold in our initial public offering both vote against the business
combination and exercise their conversion rights. We will only structure or
consummate a business combination in which all stockholders exercising their
conversion rights, up to 19.99%, are entitled to receive their pro rata portion
of the trust account (net of taxes payable). Additionally, we will not propose a
business combination to our stockholders which includes a provision that such
business combination will not be consummated if stockholders owning less than
19.99% vote against such business combination and exercise their conversion
rights as described herein. In addition, if we seek approval from our
stockholders to consummate a business combination within 90 days of the
expiration of 24 months (assuming that the period in which we need to consummate
a business combination has been extended, as provided in our amended and
restated certificate of incorporation) from the date of our initial public
offering, the proxy statement related to such business combination will also
seek stockholder approval for our board's recommended plan of dissolution and
distribution, in the event our stockholders do not approve such business
combination.
Conversion rights
At the time we seek stockholder approval of any business combination, we
will offer each public stockholder the right to have such stockholder's shares
of common stock converted to cash if the stockholder votes against the business
combination and the business combination is approved and completed. The actual
per-share conversion price will be equal to the amount in the trust account,
inclusive of any interest (calculated as of two business days prior to the
consummation of the proposed business combination), divided by the number of
shares of common stock sold in our initial public offering. Without taking into
account any interest earned on the trust account or related income taxes, the
initial per-share conversion price would be approximately $5.81 or $0.19 less
than the per-unit offering price of $6.00. We will take steps to try to protect
the assets held in trust from third-party claims. However, to the extent that
such claims are successfully made against the trust assets, they may reduce the
per-share conversion price below approximately $5.81.
An eligible stockholder may request conversion at any time after the
mailing to our stockholders of the proxy statement and prior to the vote taken
with respect to a proposed business combination at a meeting held for that
purpose, but the request will not be granted unless the stockholder votes
against the business combination and the business combination is approved and
completed. Any request for conversion, once made, may be withdrawn at any time
up to the date of the meeting. It is anticipated that the funds to be
distributed to stockholders entitled to convert their shares who elect
conversion will be distributed promptly after completion of a business
combination. Public stockholders who convert their stock into their share of the
trust account still have the right to exercise the warrants that they received
as part of the units. We will not complete any business combination if public
stockholders, owning an aggregate of 20% or more of the shares sold in our
initial public offering both vote against a business combination and exercise
their conversion rights. We will only structure or consummate a business
combination in which all stockholders exercising their conversion rights, up to
19.99%, are entitled to receive their pro rata portion of the trust account (net
of taxes payable). Additionally, we will not propose a business combination to
our stockholders which includes a provision that such business combination will
not be consummated if stockholders owning less than 19.99% vote against such
business combination and exercise their conversion rights as described herein.
In addition, if we seek approval from our stockholders to consummate a business
combination within 90 days of the expiration of 24 months (assuming that the
period in which we need to consummate a business combination has been extended,
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as provided in our amended and restated certificate of incorporation) from the
date of our initial public offering, the proxy statement related to such
business combination will also seek stockholder approval for our board's
recommended plan of dissolution and distribution, in the event our stockholders
do not approve such business combination.
Dissolution and liquidation if no business combination
If we do not complete a business combination within 18 months after
September 6, 2006, the date we completed our initial public offering, or within
24 months if the extension criteria described below have been satisfied, we will
be dissolved and distribute to all of our public stockholders, in proportion to
their respective equity interests, an aggregate sum equal to the amount in the
trust account, inclusive of any interest, plus any remaining net assets. Our
initial stockholders have waived their rights to participate in any liquidation
distribution with respect to shares of common stock owned by them immediately
prior to our initial public offering and with respect to the 3,076,923 warrants
purchased in the private placement. There will be no distribution from the trust
account with respect to our warrants, which will expire worthless.
We currently believe that any plan of dissolution and distribution
subsequent to the expiration of the 18 and 24 month deadlines would proceed in
the following manner:
o our board of directors will, prior to the passing of such deadline,
convene and adopt a specific plan of dissolution and distribution,
which it will then vote to recommend to our stockholders; at such time
it will also cause to be prepared a preliminary proxy statement
setting out such plan of dissolution and distribution and the board's
recommendation of such plan;
o upon such deadline, we would file the preliminary proxy statement with
the Securities and Exchange Commission;
o if the Securities and Exchange Commission does not review the
preliminary proxy statement, then 10 days following the passing of
such deadline, we will mail the proxy statements to our stockholders,
and 30 days following the passing of such deadline we will convene a
meeting of our stockholders at which they will either approve or
reject our plan of dissolution and distribution; and
o if the Securities and Exchange Commission does review the preliminary
proxy statement, we currently estimate that we will receive their
comments 30 days following the passing of such deadline. We will mail
the proxy statements to our stockholders following the conclusion of
the comment and review process (the length of which we cannot predict
with any certainty), and we will convene a meeting of our stockholders
at which they will either approve or reject our plan of dissolution
and distribution.
In the event we seek stockholder approval for a plan of dissolution and
distribution and do not obtain such approval, we will nonetheless continue to
pursue stockholder approval for our dissolution. Pursuant to the terms of our
amended and restated certificate of incorporation, our powers following the
expiration of the permitted time periods for consummating a business combination
will automatically thereafter be limited to acts and activities relating to
dissolving and winding up our affairs, including liquidation. The funds held in
our trust account may not be distributed except upon our dissolution and, unless
and until such approval is obtained from our stockholders, the funds held in our
trust account will not be released. Consequently, holders of a majority of our
outstanding stock must approve our dissolution in order to receive the funds
held in our trust account and the funds will not be available for any other
corporate purpose. In addition, if we seek approval from our stockholders to
consummate a business combination within 90 days of the expiration of 24 months
(assuming that the period in which we need to consummate a business combination
has been extended, as provided in our amended and restated certificate of
incorporation) from the date of our initial public offering, the proxy statement
related to such a business combination will also seek stockholder approval for
our board's recommended plan of distribution and dissolution, in the event our
stockholders do not approve such a business combination. If we seek approval
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from our stockholders to consummate a business combination more than 90 days
before the expiration of 24 months (assuming that the period in which we need to
consummate a business combination has been extended, as provided in our amended
and restated certificate of incorporation) from the date of our initial public
offering, the proxy statement related to such business combination will not be
required to seek stockholder approval for our board's recommended plan of
dissolution and distribution, in the event our stockholders do not approve such
business combination, although we may include such proposal in our discretion.
If no proxy statement seeking the approval of our stockholders for a business
combination has been filed 30 days prior to the date which is 24 months from the
date of our initial public offering, our board will, prior to such date,
convene, adopt and recommend to our stockholders a plan of dissolution and
distribution, and on such date file a proxy statement with the Securities and
Exchange Commission seeking stockholder approval for such plan. Immediately upon
the approval by our stockholders of our plan of dissolution and distribution, we
will liquidate our trust account to our public stockholders.
If we were to expend none of the net proceeds of our initial public
offering, other than the proceeds deposited in the trust account, and without
taking into account interest, if any, earned on the trust account, the initial
per-share liquidation price would be approximately $5.81, plus available
interest or $0.19 less than the per-unit offering price of $6.00. The proceeds
deposited in the trust account could, however, become subject to the claims of
our creditors which could be senior to the claims of our public stockholders.
Although we will seek to have all vendors, prospective target businesses or
other entities we engage execute agreements with us waiving any right, title,
interest or claim of any kind in or to any monies held in the trust account for
the benefit of our public stockholders, there is no guarantee that they will
execute such agreements or even if they execute such agreements that they would
be prevented from bringing claims against the trust fund. If any third party
refused to execute an agreement waiving such claims to the monies held in the
trust account, we would perform an analysis of the alternatives available to us
if we chose not to engage such third party and evaluate if such engagement would
be in the best interest of our stockholders if such third party refused to waive
such claims. Examples of possible instances where we may engage a third party
that refused to execute a waiver include the engagement of a third party
consultant whose particular expertise or skills are believed by management to be
significantly superior to those of other consultants that would agree to execute
a waiver or in cases where management is unable to find a provider of required
services willing to provide the waiver. In any event, our management would
perform an analysis of the alternatives available to it and would only enter
into an agreement with a third party that did not execute a waiver if management
believed that such third party's engagement would be significantly more
beneficial to us than any alternative. In addition, there is no guarantee that
such entities will agree to waive any claims they may have in the future as a
result of, or arising out of, any negotiations, contracts or agreements with us
and will not seek recourse against the trust account for any reason. If we
liquidate before the completion of a business combination and distribute the
proceeds held in trust to our public stockholders, Marshall T. Reynolds has
agreed to indemnify us against any claims by any vendor, prospective target
business or other entities that would reduce the amount of the funds in trust.
However, we cannot assure you that Marshall T. Reynolds will be able to satisfy
those obligations. Furthermore, we cannot assure you that the actual per-share
liquidation price will not be less than $5.81, plus available interest, due to
claims of creditors.
If we enter into either a letter of intent, an agreement in principle or a
definitive agreement to complete a business combination prior to the expiration
of 18 months after the consummation of our initial public offering, but are
unable to complete the business combination within the 18-month period, then we
will have an additional six months in which to complete the business combination
contemplated by the letter of intent, agreement in principle or definitive
agreement. If we are unable to do so within 24 months following the consummation
of our initial public offering, we will then liquidate. Upon notice from us, the
trustee of the trust account will commence liquidating the investments
constituting the trust account and will turn over the proceeds to our transfer
agent for distribution to our public stockholders. We anticipate that our
instruction to the trustee would be given after the expiration of the applicable
18-month or 24-month period. We cannot provide investors a specific timetable
for our dissolution and liquidation and there will be delays in the distribution
of funds from the trust account due to the time involved in the dissolution
process.
If we do not complete a business combination within 18 months after
September 6, 2006, the date we completed our initial public offering (or within
24 months after the consummation of our initial public offering if a letter of
intent, agreement in principle or definitive agreement is executed within 18
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months after the consummation of our initial public offering and the business
combination relating thereto is not consummated within such 18-month period), we
will dissolve and distribute to our public stockholders an amount equal to the
amount in the trust account, inclusive of any interest, net of taxes plus any
remaining assets. The Delaware General Corporation Law provides two procedures
for persons to file a claim against a corporation that dissolves. Under Delaware
law, creditors of a corporation have a superior right to stockholders in the
distribution of assets upon dissolution. Consequently, if the trust account is
dissolved and paid out prior to all creditors being paid on their claims,
stockholders may be held liable for claims by third parties against a
corporation to the extent of distributions received by them in a dissolution.
If the corporation complies with procedures set forth at Section 280 of the
Delaware General Corporation Law, it must provide a 60-day notice period during
which any third-party claims can be brought against the corporation, a 90-day
period during which the corporation may reject any claims brought, and an
additional 150-day waiting period before any liquidating distributions are made
to stockholders, any liability of stockholders with respect to a liquidating
distribution is limited to the lesser of such stockholder's pro rata share of
the claim or the amount distributed to the stockholder, and any liability of the
stockholder would be barred after the third anniversary of the dissolution. If
reasonable provision for claims cannot be made out of funds generated by the
interest on the trust account, such provision could reduce the amount
immediately distributable in liquidation. Consequently, final liquidating
distribution of amounts remaining in provision for claims could be delayed.
In the event that the corporation chooses not to follow the procedures set
forth at Section 280 of the Delaware General Corporation Law for permitting
claims to be filed against a corporation, Section 281(b) of the Delaware General
Corporation Law requires that the corporation, or any successor entity, adopt a
plan of distribution under which the dissolved corporation: (i) pays, or makes
reasonable provision to pay all claims and obligations, including contingent,
conditional, or unmatured contractual claims known to the corporation or
successor entity; (ii) makes provisions which are reasonably sufficient to
provide compensation for any claim against the corporation which is the subject
of a pending action, suit or proceeding to which the corporation is a party; and
(iii) provides compensation for claims that have not been made against the
corporation, but based on facts known to the corporation or successor entity are
likely to arise within 10 years after the date of dissolution. The plan of
dissolution must provide that all claims will be paid in full. If there are
insufficient assets to satisfy such claims the plan must indicate that claims
shall be paid, or provided for according to their priority and, among claims of
equal priority, ratably to the extent there are assets legally available. Any
remaining assets shall be distributed to the stockholders of the dissolved
corporation.
We cannot predict at this time whether we will comply with the procedures
set forth in Sections 280 or 281(b) of the Delaware General Corporation Law.
Compliance with Sections 280 and 281(b) is designed to provide a "safe harbor"
such that directors (or governing persons of a successor entity) will not be
held personally liable to unpaid claimants of the corporation for having
improperly distributed assets. If we elect to comply with Section 280 of the
Delaware General Corporation Law, we would obtain greater certainty as to
potential claims, and we, or our successor entity may reject, in whole or in
part, claims that are made. In addition, should we choose to comply with Section
280, a claimant who receives actual notice as required by Section 280 would be
barred from receiving payment if the claimant failed to present the claim in
accordance with the timeframes described above. If we elect to comply with the
procedures set forth at Section 281(b) of the Delaware General Corporation Law,
stockholders will not know at the time of dissolution the scope of potential
claims against the corporation. Our stockholders could therefore, potentially be
liable for claims to the extent of distributions received by them in a
dissolution and any liability of our stockholders will extend beyond the third
anniversary of such dissolution.
We intend to pay the costs of any dissolution from our working capital.
Dissolution of a company under Delaware law requires filing a Plan of
Dissolution with the State of Delaware and will require an affirmative vote of
stockholders; therefore we cannot provide investors a specific timetable for our
dissolution and liquidation and there will be delays with distributing the funds
in the trust account due to the process of dissolving the company. In addition,
we estimate our total costs and expenses for implementing and completing a plan
of dissolution and liquidation will be in the range of $50,000 to $75,000. This
amount includes all costs and expenses relating to filing of our dissolution in
the State of Delaware, the winding up of our company and the costs of a proxy
statement and meeting relating to the approval by our stockholders (if required)
of our plan of dissolution and liquidation. We believe that there should be
sufficient interest on the trust account available to us to fund the $50,000 to
$75,000 of expenses, although we cannot give you assurances that these will be
sufficient funds for such purposes. If these funds are not sufficient, we will
use funds from the trust fund to pay these costs. Delaware law provides that
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stockholders must approve the dissolution of the corporation. In the event that
stockholders do not approve the dissolution of the corporation the Board of
Directors will request that the trust account be distributed to stockholders,
and the corporate charter will continue to exist; however, we will become
inactive. We will not invest, reinvest or trade in securities, nor will we take
any other action that would cause us to be considered an "investment company"
under the Investment Company Act of 1940. Since creditors have a priority claim
to the corporate assets, perfected claims against us would result in reduced
distributions from the trust to stockholders. Furthermore, in the event that we
file for bankruptcy, protection or an involuntary bankruptcy case is filed
against us, a bankruptcy court may prohibit the payment of trust funds to
stockholders during the pendency of bankruptcy proceeding. If we liquidate
before the completion of a business combination and distribute the proceeds held
in trust to our public stockholders, Marshall T. Reynolds has agreed to
indemnify us against any claims by any vendor, prospective target business or
other entities that would reduce the amount of the funds in the trust. For
example, a potential target business may bring an action claiming that we failed
to bargain in good faith, resulting in a lost opportunity and claiming damages.
Under such circumstances, we may seek indemnification for any losses that may be
adjudged against us.
Our public stockholders will receive funds from the trust account only in
the event of our dissolution and liquidation (assuming there are no outstanding
claims against the trust) or if the stockholders seek to convert their
respective shares into cash upon a business combination which the stockholder
voted against and which is completed by us. In no other circumstances will a
stockholder have any right or interest of any kind to or in the trust account.
Competition
In identifying, evaluating and selecting a target business, we may
encounter intense competition from other entities having a business objective
similar to ours. Many of these entities are well established and have extensive
experience identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater technical, human and other
resources than us and our financial resources will be relatively limited when
contrasted with those of many of these competitors. Further:
o our obligation to seek stockholder approval of a business combination
may delay or threaten the completion of a transaction;
o our obligation to convert into cash shares of common stock held by our
public stockholders in certain instances may reduce the resources
available to us for a business combination; and
o our outstanding warrants and the option, and the future dilution they
potentially represent, may not be viewed favorably by certain target
businesses.
Any of these factors may place us at a competitive disadvantage in
successfully negotiating a business combination. Our management believes,
however, that to the extent that our target business is a privately held entity,
our status as a well-financed public entity may give us a competitive advantage
over entities having a similar business objective as ours in acquiring a target
business with significant growth potential on favorable terms.
If we succeed in effecting a business combination, there will be, in all
likelihood, intense competition from competitors of the target business. We
cannot assure you that, subsequent to a business combination, we will have the
resources or ability to compete effectively.
Employees
We have two executive officers, both of whom are members of our board of
directors. These individuals are not obligated to devote any specific number of
hours to our matters and intend to devote only as much time as they deem
necessary to our affairs, although we expect for Marshall T. Reynolds to devote
substantial time to our business once we have signed a letter of intent or
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agreement in principle with a target business that provides for a business
combination conditioned in part on the completion of due diligence. The amount
of time they will devote in any time period will vary based on the availability
of suitable target businesses to investigate. We do not intend to have any full
time employees prior to the consummation of a business combination.
ITEM 1A. Risk Factors
We are a development stage company with no operating history and, accordingly,
you will not have any basis on which to evaluate our ability to achieve our
business objectives.
We are a recently incorporated development stage company with no operating
results to date. Since we do not have any operating history, you will have no
basis upon which to evaluate our ability to achieve our business objective,
which is to acquire an operating business. We have no plans, arrangements or
understandings with any prospective acquisition candidates. We will not generate
any revenues (other than interest income on the proceeds from our offering)
until, at the earliest, after the consummation of a business combination. We
cannot assure you as to when or if a business combination will occur.
We may not be able to consummate a business combination within the required time
frame, in which case we would be forced to liquidate.
We must complete a business combination, which may be a transaction to
acquire one or more businesses simultaneously, with a fair market value of at
least 80% of our net assets (excluding deferred compensation of the underwriters
held in trust) at the time of acquisition within 18 months after September 6,
2006, the date we completed our initial public offering (or within 24 months
after the consummation of our initial public offering if a letter of intent,
agreement in principle or a definitive agreement has been executed within 18
months after the consummation of our initial public offering and the business
combination relating thereto has not yet been consummated within such 18-month
period). If we fail to consummate a business combination within the required
time frame, we will be forced to liquidate our assets. We may not be able to
find a suitable target business within the required time frame. In addition, our
negotiating position and our ability to conduct adequate due diligence on any
potential target may be reduced as we approach the deadline for the consummation
of a business combination. We do not have any specific business combination
under consideration and we have not had any preliminary contacts or discussions
with any target business regarding a business combination.
If we are unable to complete a business combination and are forced to liquidate
and distribute the trust account, our public stockholders may receive less than
$6.00 per share upon distribution of the trust account and our warrants will
expire worthless.
If we are unable to complete a business combination and are forced to
liquidate our assets, the per-share liquidation distribution may be less than
$6.00 because of the expenses of our offering, our general and administrative
expenses and the anticipated costs of seeking a business combination. Without
taking into account interest earned on the trust account or related income taxes
(net of tax, income used for working capital and loan repayment), the initial
per-share conversion price would be approximately $5.81, or $0.19 less than the
offering price of $6.00. Interest earned on the trust account, net of taxes,
will be included in payments to our stockholders in the event of a liquidation;
however, such interest will be reduced by the up to $1,200,000 that is available
to be used for working capital purposes. Furthermore, there will be no
distribution with respect to our outstanding warrants, which will expire
worthless if we liquidate before the completion of a business combination. For a
more complete discussion of the effects on our stockholders if we are unable to
complete a business combination, see the section appearing elsewhere in this
annual report entitled "Dissolution and liquidation if no business combination."
We expect that all costs associated with implementing our plan of
dissolution and liquidation as well as payments to any creditors will be funded
from the interest on the trust account available to us as working capital, but
if those funds are not sufficient for those purposes or to cover our liabilities
and obligations, the amount distributed to our public stockholders would be less
than $5.81 per share. We estimate that our total costs and expenses for
implementing and completing our stockholder-approved plan of dissolution and
liquidation will be in the range of $50,000 to $75,000. This amount includes all
costs and expenses relating to filing of our dissolution in the State of
Delaware, the winding up of our company and the costs of a proxy statement and
meeting relating to the approval by our stockholders of our plan of dissolution
and liquidation. We believe that there should be sufficient interest on the
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trust account available to us to fund the $50,000 to $75,000 of expenses,
although we cannot give you assurances that these will be sufficient funds for
such purposes.
Under Delaware law, the requirements and restrictions relating to our initial
public offering contained in our certificate of incorporation may be amended,
which could reduce or eliminate the protection afforded to our stockholders by
such requirements and restrictions.
Our certificate of incorporation set forth certain requirements and
restrictions relating to our initial public offering that shall apply to us
until the consummation of a business combination. Specifically, our certificate
of incorporation provides, among other things, that:
o prior to the consummation of our initial business combination, we
shall submit such business combination to our stockholders for
approval;
o we may consummate our initial business combination if: (i) approved by
a majority of the shares of common stock voted by the public
stockholders (holders of shares contained in the units sold in this
offering), and (ii) public stockholders owning less than 20% of the
shares contained in the units purchased by the public stockholders in
this offering exercise their conversion rights;
o if our initial business combination is approved and consummated,
public stockholders who voted against the business combination and
exercised their conversion rights will receive their pro rata share of
the trust account;
o if a business combination is not consummated or a letter of intent, an
agreement in principle or a definitive agreement is not signed within
the time periods specified, then we will be dissolved and distribute
to all of our public stockholders their pro rata share of the trust
account; and
o we may not consummate any other merger, capital stock exchange, stock
purchase, asset acquisition or similar transaction other than a
business combination that meets the conditions specified in this
prospectus, including the requirement that our initial business
combination (or series of business combinations) be with one or more
operating businesses whose fair market value, either individually or
collectively, is equal to at least 80% of our net assets (excluding
deferred compensation of the underwriters held in trust) at the time
of such business combination.
Our certificate of incorporation prohibits the amendment of the
above-described provisions. However, the validity of provisions prohibiting
amendment of the certificate of incorporation under Delaware law has not been
settled. A court could conclude that the prohibition on amendment violates the
stockholders' implicit rights to amend the corporate charter. In that case, the
above-described provisions would be amendable and any such amendment could
reduce or eliminate the protection afforded to our stockholders. However, we
view the foregoing provisions as obligations to our stockholders, and we will
not take any actions to waive or amend any of these provisions.
Since we have not yet selected any target business with which to complete a
business combination, we are unable to currently ascertain the merits or risks
of any particular target business' operations or the industry or business in
which we may ultimately operate.
Although we intend to focus on acquiring an operating business in the
energy service sector headquartered in North America, we may acquire a company
operating in any industry we choose. There is no reliable basis for you to
currently evaluate the possible merits or risks of the particular industry in
which we may ultimately operate or the target business which we may ultimately
acquire. To the extent we complete a business combination with an entity in its
development stage, we may be affected by numerous risks inherent in the business
operations of those entities. If we complete a business combination with an
entity in an industry characterized by a high level of risk, we may be affected
by the currently unascertainable risks of that industry. Although our management
will endeavor to evaluate the risks inherent in a particular industry or target
business, we cannot assure you that we will properly ascertain or assess all of
the significant risk factors.
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We may acquire a target business with a history of poor operating performance
and there is no guarantee that we will be able to improve the operating
performance of that target business.
Due to the competition for business combination opportunities, we may
acquire a target business with a history of poor operating performance if we
believe that target business has attractive technology or presents a business
opportunity that can take advantage of trends in the energy services sector.
However, we have not identified any specific technology or business that we wish
to acquire. Furthermore, we may acquire a poorly performing target business
outside the energy services sector that has an attractive technology or presents
a business opportunity. Moreover, acquiring a target company with a history of
poor operating performance can be extremely risky and we may not be able to
improve operating performance. If we cannot improve the operating performance of
such a target business following our business combination, then our business,
financial condition and results of operations will be adversely affected.
Factors that could result in us not being able to improve operating performance
include, among other things:
o inability to predict changes in technological innovation;
o inability to hire personnel with appropriate experience to assist us
in achieving our turnaround goals;
o competition from superior or lower-priced products;
o loss of a material contract or goodwill associated with prior
ownership;
o lack of financial resources;
o inability to attract and retain key executives and employees;
o inability to compete with businesses offering similar services;
o claims for infringement of third-party intellectual property rights
and/or the availability of third-party licenses; and
o changes in, or costs imposed by, government regulation.
Our management team has been successful in improving the profitability of a
number of companies.
Our officers and directors will allocate their time to other businesses, thereby
causing conflicts of interest in their determination as to how much time to
devote to our affairs, which could have a negative impact on our ability to
consummate a business combination.
Our officers and directors are not required to commit their full time to
our affairs, which may result in a conflict of interest in allocating their time
between our operations and other businesses. This could have a negative effect
on our ability to consummate a business combination. We do not intend to have
any full-time employees prior to the consummation of a business combination. All
of our executive officers are engaged in several other business endeavors and
are not obligated to contribute any specific number of hours to our affairs,
although we expect Marshall T. Reynolds to devote substantial time to our
business during the process of conducting due diligence on a potential target
company. If our executive officers' or directors' other business affairs require
them to devote more substantial amounts of time to such affairs, it could limit
their ability to devote time to our affairs and could have a negative impact on
our ability to consummate a business combination. We cannot assure you that
these conflicts will be resolved in our favor.
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Stockholders may be held liable for claims by third parties against us to the
extent of distributions received by them in a dissolution.
Upon the approval by our stockholders of our plan of dissolution and
distribution, we will liquidate our trust account to our public stockholders and
pay, or reserve for payment in accordance therewith, from funds not held in
trust, our liabilities and obligations. If we do not complete a business
combination within 18 months after the consummation of our initial public
offering on September 6, 2006 (or within 24 months after the consummation of our
initial public offering if a letter of intent, agreement in principle or
definitive agreement is executed within 18 months after the consummation of our
initial public offering and the business combination relating thereto is not
consummated within such 18-month period), we will dissolve. Under Sections 280
through 282 of the Delaware General Corporation Law, stockholders may be held
liable for claims by third parties against a corporation to the extent of
distributions received by them in a dissolution. If the corporation complies
with certain procedures under Section 281(b) intended to ensure that it adopts a
plan of dissolution under which the plan (i) makes reasonable provision for all
claims against it, (ii) makes such provisions as will be reasonably likely to be
sufficient to provide compensation for any claims against the corporation which
is the subject of a proceeding or action, and (iii) makes such provision as will
be reasonably likely to be sufficient to provide compensation for claims that
have not been made known to the corporation within ten years after the date of
dissolution, any liability of stockholders with respect to a liquidating
distribution is limited to the lesser is such stockholder's pro rata share of
the claim or the amount distributed to the stockholder. If reasonable provision
for claims cannot be made out of funds generated by the interest on the trust
account or otherwise are not paid by Mr. Reynolds in accordance with his
indemnification, such claims could reduce the amount immediately distributable
in liquidation. We intend to comply with the procedures set forth in Section
281(b) of the Delaware General Corporation Law. However, if we do not comply
with those procedures, our stockholders could potentially be liable for any
claims to the extent of distributions received by them in a dissolution and any
liability of our stockholders will extend beyond the third anniversary of such
dissolution, in accordance with Section 278 of the Delaware General Corporation
Law. We cannot predict at this time which procedure of Delaware law we would
comply with in the event of liquidation. If we elect to comply with Section 280
of the Delaware General Corporation Law, we would obtain greater certainty as to
potential claims, and the corporation, or successor entity may reject, in whole
or in part, claims that are made. In addition, should we choose to comply with
Section 280, a claimant who receives actual notice as required by Section 280
would be barred from receiving payment if the claimant failed to present the
claim in accordance with the required timeframes. Specifically if the
corporation complies with certain procedures intended to ensure that it makes
reasonable provision for all claims against it, including a 60-day notice period
during which any third-party claims can be brought against the corporation, a
90-day period during which the corporation may reject any claims brought, and an
additional 150-day waiting period before any liquidating distributions are made
to stockholders, any liability of stockholders with respect to a liquidating
distribution is limited to the lesser of such stockholder's pro rata share of
the claim or the amount distributed to the stockholder, and any liability of the
stockholder would be barred after the third anniversary of the dissolution. If
we elect to comply with the procedures set forth at Section 281(b) of the
Delaware General Corporation Law, stockholders will not know at the time of
dissolution the scope of potential claims against the corporation. Our
stockholders could therefore, potentially be liable for claims to the extent of
distributions received by them in a dissolution and any liability of our
stockholders will extend beyond the third anniversary of such dissolution.
A significant portion of working capital could be expended in pursuing
acquisitions that are not consummated.
It is anticipated that the investigation of each specific target business
and the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. In
addition, we may opt to make a deposit or down payment or pay exclusivity or
similar fees in connection with structuring and negotiating a business
combination. If a decision is made not to complete a specific business
combination, the costs incurred up to that point in connection with the
abandoned transaction, potentially including a deposit or down payment or
exclusivity or similar fees, would not be recoverable. Furthermore, even if an
agreement is reached relating to a specific target business, we may fail to
consummate the transaction for any number of reasons, including those beyond our
control such as the shares representing 20% or more of the shares of common
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stock purchased by our public stockholder vote against the transaction and
exercise their conversion rights even though a majority of our public
stockholders approve the transaction. Any such event will result in a loss to us
of the related costs incurred, which could adversely affect subsequent attempts
to locate and acquire or merge with another business. For more information, see
the section entitled "Selection of a target business and structuring of a
business combination."
You will not be entitled to protections normally afforded to investors of blank
check companies.
Since the net proceeds of our initial public offering are intended to be
used to complete a business combination with a target business that we have not
yet identified, we may be deemed to be a "blank check" company under the United
States securities laws. However, since we have net tangible assets in excess of
$5,000,000 and have filed a Current Report on Form 8-K with the Securities and
Exchange Commission, or SEC, including an audited balance sheet demonstrating
this fact, we believe that we are exempt from rules promulgated by the SEC to
protect investors of blank check companies, such as Rule 419 promulgated under
the Securities Act of 1933, as amended. Accordingly, investors will not be
afforded the benefits or protections of those rules. Because we do not believe
we are subject to Rule 419, our units were immediately tradable and we have a
longer period of time to complete a business combination in certain
circumstances.
If third parties bring claims against us, the proceeds held in trust could be
reduced and the per share liquidation or conversion price received by
stockholders could be less than $5.81 per share.
Our placing of funds in trust may not protect those funds from third party
claims against us or in the event a third party forces us into bankruptcy.
Although we will seek to have all vendors, prospective target businesses or
other entities we engage execute agreements with us waiving any right, title,
interest or claim of any kind in or to any monies held in the trust account for
the benefit of our public stockholders, there is no guarantee that they will
execute such agreements or even if they execute such agreements that they would
be prevented from bringing claims against the trust fund. If any third party
refused to execute an agreement waiving such claims to the monies held in the
trust account, we would perform an analysis of the alternatives available to us
if we chose not to engage such third party and evaluate if such engagement would
be in the best interest of our stockholders if such third party refused to waive
such claims. Examples of possible instances where we may engage a third party
that refused to execute a waiver include the engagement of a third party
consultant whose particular expertise or skills are believed by management to be
significantly superior to those of other consultants that would agree to execute
a waiver or in cases where management is unable to find a provider of required
services willing to provide the waiver. In any event, our management would
perform an analysis of the alternatives available to it and would only enter
into an agreement with a third party that did not execute a waiver if management
believed that such third party's engagement would be significantly more
beneficial to us than any alternative. If we engage any vendor that refuses to
execute such a waiver, the proceeds held in trust could be subject to claims
which could take priority over the claims of our public stockholders and the
per-share liquidation price could be less than $5.81, plus interest, due to
claims of such creditors. Moreover, a court may conclude that any third party
waivers are unenforceable. Marshall T. Reynolds has agreed to indemnify us
against any claims by any vendor, prospective target business or other entities
that would reduce the amount of the funds in the trust, including indemnifying
us against claims that could be made in the event a third party waiver is deemed
to be unenforceable. For example, a potential target business may bring an
action claiming that we failed to bargain in good faith, resulting in a lost
opportunity and claiming damages. Under such circumstances, we may seek
indemnification for any losses that may be adjudged against us. However, we
cannot assure you that Marshall T. Reynolds will be able to satisfy those
obligations. We sought to confirm that Mr. Reynolds has sufficient funds to
satisfy his obligations by reviewing his ownership in other public and private
companies, and based on such review, we believe that Mr. Reynolds has access to
sources of liquidity (including his marketable securities, and access to funding
sources) in the event he is required to satisfy those obligations. In addition,
to the extent such claims are successfully made against us prior to the approval
of a business combination, such third party claims may result in the per share
conversion price received by the stockholders who vote against a business
combination and elect to convert their shares into cash being less than
approximately $5.81 per share because such claims would be paid directly by us,
thereby decreasing the funds available to such stockholders.
In addition, successful third party claims against us which result in the
payment in monies from the trust will reduce the funds available for the
acquisition of a target business.
Additionally, if we are forced to file a bankruptcy case or an involuntary
bankruptcy case is filed against us which is not dismissed, the funds held in
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our trust account will be subject to applicable bankruptcy law, and may be
included in our bankruptcy estate and subject to the claims of third parties
with priority over the claims of our stockholders. To the extent any bankruptcy
claims deplete the trust account we cannot assure you we will be able to return
to our public stockholders the liquidation amounts due them.
We may issue shares of our capital stock or debt securities to complete a
business combination which would reduce the equity interest of our stockholders
and could likely cause a change in control of our ownership.
Our certificate of incorporation authorizes the issuance of up to
50,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000
shares of preferred stock, par value $0.0001 per share. Immediately after our
initial public offering, there were 17,623,077 authorized but unissued shares of
our common stock available for issuance (after appropriate reservation for the
issuance of shares upon full exercise of our outstanding warrants and the
purchase option granted to Ferris, Baker Watts, Incorporated), and all of the
1,000,000 shares of preferred stock available for issuance. Although we have no
commitment as of the date of this annual report to issue our securities, we may
issue a substantial number of additional shares of our common stock or preferred
stock, a combination of common and preferred stock, or debt securities, to
complete a business combination. Although we anticipate that any business
combination will be structured such that our company is the surviving entity and
the stockholders of the target company would not control the combined company,
there is a possibility of a change in control if we issue capital securities or
convertible debt to complete a business combination. The issuance of additional
shares of our common stock or any number of shares of our preferred stock:
o may significantly dilute the equity interest of investors in our
initial public offering;
o may subordinate the rights of holders of common stock if the preferred
stock is issued with rights senior to those afforded to our common
stock;
o could likely cause a change in control if a substantial number of our
shares of common stock are issued, which may affect, among other
things, our ability to use our net operating loss carry forwards, if
any, and most likely also result in the resignation or removal of our
present officers and directors; and
o may adversely affect prevailing market prices for our common stock.
Similarly, if we issue debt securities, it could result in:
o default and foreclosure on our assets if our operating revenues after
a business combination were insufficient to service our debt
obligations;
o acceleration of our obligations to repay the indebtedness even if we
have made all principal and interest payments when due if the debt
security contains covenants that require the maintenance of certain
financial ratios or reserves and any such covenant is breached without
a waiver or renegotiation of that covenant;
o our immediate payment of all principal and accrued interest, if any,
if the debt security is payable on demand; and
o our inability to obtain additional financing, if necessary, if the
debt security contains covenants restricting our ability to obtain
additional financing while such security is outstanding.
For a more complete discussion of the possible structure of a business
combination, see the section entitled "Selection of a target business and
structuring of a business combination."
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The ability of our stockholders to exercise their conversion rights may not
allow us to effectuate the most desirable business combination or optimize our
capital structure.
At the time we seek stockholder approval of any business combination, we
will offer each public stockholder the right to have such stockholder's shares
of common stock converted to cash if the stockholder votes against the business
combination and the business combination is approved and completed. Accordingly,
if a business combination requires us to use substantially all of our cash to
pay the purchase price, because we will not know how many stockholders may
exercise such conversion rights, we may either need to reserve part of the trust
fund for possible payment upon such conversion, or we may need to arrange third
party financing to help fund the business combination in case a larger
percentage of stockholders exercise their conversion rights than we expected.
Therefore, we may not be able to consummate a business combination that requires
us to use all of the funds held in the trust account as part of the purchase
price, or the business combination may be more highly leveraged than desirable.
As a result, we may not be able to effectuate the most attractive business
combination available to us.
Our ability to effect a business combination and to execute any potential
business plan afterwards will be dependent upon the efforts of our key
personnel.
Our ability to effect a business combination will be totally dependent upon
the efforts of our key personnel. The future role of our key personnel following
a business combination, however, cannot presently be fully ascertained. Although
some of our key personnel (most likely, Marshall T. Reynolds, Jack M. Reynolds
and Edsel R. Burns) may remain associated with the target business following a
business combination, some or all of the management of the target business may
remain in place. While we intend to closely scrutinize any additional
individuals we engage after a business combination, we cannot assure you that
our assessment of these individuals will prove to be correct. The individuals
may be unfamiliar with the requirements of operating a public company as well as
with United States securities laws, which could cause us to have to expend time
and resources helping them become familiar with such laws. This could be
expensive and time consuming and could lead to various regulatory issues which
may adversely affect our operations. Moreover, our current management will only
be able to remain with the combined company after the consummation of a business
combination if they are able to negotiate and agree to mutually acceptable
employment terms, which would be determined at such time between the respective
parties and which may be a term of the business combination, as part of any such
combination, which terms would be disclosed to stockholders in any proxy
statement relating to a business combination. If we acquired a target business
in an all cash transaction, it would be more likely that current members of
management would remain with us if they chose to do so. If a business
combination were structured as a merger whereby the stockholders of the target
company were to control the combined company following a business combination,
it may be less likely that management would remain with the combined company
unless it was negotiated as part of the transaction as part of the acquisition
agreement; an employment agreement or other arrangement. In making the
determination as to whether current management should remain with us following
the business combination, management will analyze the experience and skill set
of the target business's management and negotiate as part of the business
combination that certain members of current management remain if it is believed
that it is in the best interests of the combined company post-business
combination.
The financial interest of our officers and directors, including any
compensation arrangements they may seek, could influence their motivation in
selecting, negotiating and structuring a transaction with a target business.
This would result in the current directors and officers having a conflict of
interest when determining whether a particular business combination is in the
stockholders' or company's best interest.
An effective registration statement may not be in place when an investor desires
to exercise warrants, thus precluding such investor from being able to exercise
his, her or its warrants.
No warrants will be exercisable and we will not be obligated to issue
shares of common stock unless at the time a holder seeks to exercise, a
prospectus relating to common stock issuable upon exercise of the warrants is
current and the common stock has been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of the
warrants. Under the terms of the warrant agreement, we have agreed to use our
best efforts to meet these conditions and to maintain a current prospectus
relating to common stock issuable upon exercise of the warrants until the
expiration of the warrants. However, we cannot assure you that we will be able
to do so. Additionally, we have no obligation to settle the warrants for cash in
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the absence of an effective registration statement or under any other
circumstances. The warrants may be deprived of any value, the market for the
warrants may be limited and the holders of warrants may not be able to exercise
their warrants if the prospectus relating to the common stock issuable upon the
exercise of the warrants is not current or if the common stock is not qualified
or exempt from qualification in the jurisdictions in which the holders of the
warrants reside. Consequently, the warrants may expire unexercised or
unredeemed.
We may redeem your unexpired warrants prior to their exercise while a prospectus
is not current, thereby making your warrants worthless.
We have the ability to redeem outstanding warrants, in whole or in part, at
any time after they become exercisable and prior to their expiration, at the
price of $0.01 per warrant, provided that the last reported sales price of the
common stock equals or exceeds $8.50 per share for any 20 trading days within a
30 trading-day period following proper notice of such redemption. Such
redemption can and may occur while a prospectus is not current and therefore the
warrants are not exercisable. If this occurs, your warrants would be worthless.
Private placement warrants have a superior exercise right to warrants received
in our initial public offering.
Warrants issued in the private placement may be exercised pursuant to an
exemption to the requirement that the securities underlying such warrant be
registered pursuant to an effective registration statement. Therefore, such
warrants may be exercised whether or not a current registration statement is in
place. The warrants received in our initial public offering are not issued under
this exemption, therefore they may only be exercised if a current registration
statement is in place. We are required only to use our best efforts to maintain
a current registration statement; therefore, the warrants issued in our initial
public offering may expire worthless.
The loss of key executives could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of key
executives consisting of Marshall T. Reynolds, our Chairman and Chief Executive
Officer, and Jack M. Reynolds, a director and our President. We believe that our
success depends on the continued service of our executive management team.
Although we currently intend to retain our existing management and enter into
employment or other compensation arrangements with them following our initial
business combination, the terms of which have not yet been determined, we cannot
assure you that such individuals will remain with us for the immediate or
foreseeable future. We do not have employment contracts with any of our current
executives. The unexpected loss of the services of one or more of these
executives could have a detrimental effect on us.
Our officers and directors may not have significant experience or knowledge of
the industry of the target business. This inexperience may adversely affect our
ability to successfully operate the business we acquire.
We cannot assure you that our officers and directors will have experience
or sufficient knowledge relating to the industry of the target business to make
an appropriate acquisition decision. As a consequence, once we acquire a target
business, we may not have the ability to successfully operate it.
Some of our officers and directors may in the future become affiliated with
entities engaged in business activities similar to those intended to be
conducted by us and, accordingly, may have conflicts of interest in determining
to which entity a particular business opportunity should be presented.
Some of our officers and directors may in the future become affiliated with
entities, including other "blank check" companies engaged in business activities
similar to those intended to be conducted by us. Additionally, our officers and
directors may become aware of business opportunities which may be appropriate
for presentation to us as well as the other entities to which they have
fiduciary obligations. Accordingly, they may have conflicts of interest in
determining to which entity a particular business opportunity should be
presented. We cannot assure you that these conflicts will be resolved in our
favor.
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All of our officers and directors directly or indirectly own shares of our
common stock that will not participate in liquidation distributions and
therefore they may have a conflict of interest in determining whether a
particular target business is appropriate for a business combination.
All of our officers and directors directly or indirectly own stock in us,
but do not have a right with respect to those shares of common stock acquired by
them prior to our initial public offering to receive distributions upon our
liquidation. Our initial stockholders paid $25,000 or approximately $0.01 per
share for the 2,150,000 shares. Additionally, our five directors (as well as a
sixth individual) in accordance with an agreement with Ferris, Baker Watts,
Incorporated purchased an aggregate of 3,076,923 warrants in a private placement
that occurred prior to our initial public offering. Such warrants have no right
to liquidation distributions. The shares and warrants owned by our officers and
directors will be worthless if we do not consummate a business combination. The
personal and financial interests of our officers and directors may influence
their motivation in identifying and selecting a target business and completing a
business combination within the required time frame. Consequently, our officers'
and directors' discretion in identifying and selecting a suitable target
business may result in a conflict of interest when determining whether the
terms, conditions and timing of a particular business combination are
appropriate and in our stockholders' best interest.
It is probable that we will only complete one business combination, which will
cause us to be solely dependent on a single business and a limited number of
products or services.
The net proceeds from our initial public offering and the private placement
provided us with approximately $48,972,000, which we may use to complete a
business combination. Our initial business combination must be with a business
or businesses with a fair market value of at least 80% of our net assets
(excluding deferred compensation of the underwriters held in trust) at the time
of such acquisition. Should we complete only a single business combination with
one target business, the prospects for our success may be:
o solely dependent upon the performance of a single business; or
o dependent upon the development or market acceptance of a single or
limited number of products, processes or services.
In this case, we will not be able to diversify our operations or benefit
from the possible spreading of risks or offsetting of losses, unlike other
entities which may have the resources to complete several business combinations
in different industries or different areas of a single industry.
None of our officers or directors has ever been a principal of, or has ever been
affiliated with, a company formed with a business purpose similar to ours. As a
result, they may be unable to successfully evaluate the profitability of a
target business or complete an acquisition within the time frames required.
Our officers and directors have never served as officers or directors of a
development stage public company with the business purpose of raising funds to
acquire an operating business. We may be unable to successfully evaluate the
profitability of a target business or complete an acquisition within the time
frame required and forced to liquidate and distribute the trust account, in
which case our public stockholders may receive less than $6.00 per share upon
distribution of the trust account because of the expense of our initial public
offering, taxes paid with respect to interest earned on the trust account
applied toward working capital and our general and administrative expenses,
resulting in a partial loss to investors' initial investment. Accordingly, you
may not be able to adequately evaluate their ability to successfully consummate
a business combination.
Because of our limited resources and the significant competition for business
combination opportunities, we may not be able to consummate an attractive
business combination.
We expect to encounter intense competition from other entities having a
business objective similar to ours, including venture capital funds, leveraged
buyout funds, operating businesses and other financial buyers competing for
acquisitions. Many of these entities are well established and have extensive
experience in identifying and effecting business combinations directly or
through affiliates. Many of these competitors possess greater technical, human
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and other resources than we do and our financial resources will be relatively
limited when contrasted with those of many of these competitors. Our ability to
compete in acquiring certain sizable target businesses will be limited by our
available financial resources. This inherent competitive limitation gives others
an advantage in pursuing the acquisition of certain target businesses. Further,
the obligation that we have to seek stockholder approval of a business
combination may delay the consummation of a transaction, and our obligation to
convert into cash the shares of common stock held by public stockholders in
certain instances may reduce the resources available for a business combination.
Additionally, our outstanding warrants, and the future dilution they potentially
represent, may not be viewed favorably by certain target businesses. Any of
these obligations may place us at a competitive disadvantage in successfully
negotiating a business combination.
If we do not consummate a business combination and dissolve, payments from the
trust account to our public stockholders may be delayed.
We currently believe that any plan of dissolution and distribution
subsequent to the expiration of the 18 and 24 month deadlines would proceed in
the following manner:
o our board of directors will convene and adopt a specific plan of
dissolution and distribution, which it will then vote to recommend to
our stockholders; at such time it will also cause to be prepared a
preliminary proxy statement setting out such plan of dissolution and
distribution and the board's recommendation of such plan;
o upon such deadline, we would file the preliminary proxy statement with
the Securities and Exchange Commission;
o if the Securities and Exchange Commission does not review the
preliminary proxy statement, then 10 days following the passing of
such deadline, we will mail the proxy statements to our stockholders,
and 30 days following the passing of such deadline we will convene a
meeting of our stockholders at which they will either approve or
reject our plan of dissolution and distribution; and
o if the Securities and Exchange Commission does review the preliminary
proxy statement, we currently estimate that we will receive their
comments 30 days following the passing of such deadline. We will mail
the proxy statements to our stockholders following the conclusion of
the comment and review process (the length of which we cannot predict
with any certainty), and we will convene a meeting of our stockholders
at which they will either approve or reject our plan of dissolution
and distribution.
In the event we seek stockholder approval for a plan of dissolution and
distribution and do not obtain such approval, we will nonetheless continue to
pursue stockholder approval for our dissolution. Our powers following the
expiration of the permitted time periods for consummating a business combination
will automatically thereafter be limited to acts and activities relating to
dissolving and winding up our affairs, including liquidation. The funds held in
our trust account may not be distributed except upon our dissolution and, unless
and until such approval is obtained from our stockholders, the funds held in our
trust account will not be released. Consequently, holders of a majority of our
outstanding stock must approve our dissolution in order to receive the funds
held in our trust account and the funds will not be available for any other
corporate purpose.
These procedures, or a vote to reject any plan of dissolution and
distribution by our stockholders, may result in substantial delays in the
liquidation of our trust account to our public stockholders as part of our plan
of dissolution and distribution.
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If additional financing is required, we may be unable to complete a business
combination or to fund the operations and growth of the target business, which
could compel us to restructure the transaction or abandon a particular business
combination.
We cannot currently ascertain the capital requirements for any particular
transaction. If the net proceeds of our initial public offering and the private
placement prove to be insufficient, either because of the size of the business
combination or the depletion of the available net proceeds in search of a target
business, or because we become obligated to convert into cash a significant
number of shares from dissenting stockholders, we will be required to seek
additional financing. We cannot assure you that such financing would be
available on acceptable terms, if at all. To the extent that additional
financing proves to be unavailable when needed to consummate a particular
business combination, we would be compelled to restructure the transaction or
abandon that particular business combination and seek an alternative target
business candidate. In addition, if we consummate a business combination, we may
require additional financing to fund the operations or growth of the target
business. The failure to secure additional financing could have a material
adverse effect on the continued development or growth of the target business.
None of our officers, directors or stockholders are required to provide any
financing to us in connection with or after a business combination.
The American Stock Exchange may delist our securities from quotation on its
exchange which could limit investors' ability to make transactions in our
securities and subject us to additional trading restrictions.
We currently list our securities on the American Stock Exchange, a national
securities exchange. We cannot assure you that our securities will continue to
be listed on the American Stock Exchange. Additionally, in connection with our
business combination, it is likely that the American Stock Exchange may require
us to file a new initial listing application and meet its initial listing
requirements as opposed to its more lenient continued listing requirements. We
cannot assure you that we will be able to meet those initial listing
requirements at that time. If the American Stock Exchange delists our securities
from trading on its exchange, we could face significant material adverse
consequences, including:
o reduced liquidity with respect to our securities;
o a determination that our common stock is a "penny stock" which will
require brokers trading in our common stock to adhere to more
stringent rules and possibly resulting in a reduced level of trading
activity in the secondary trading market for our common stock;
o limited amount of news and analyst coverage for us; and
o a decreased ability to issue additional securities or obtain
additional financing in the future.
We may enter into a business transaction with an affiliate of our officers,
directors or initial shareholders. Such a transaction may create a conflict of
interest.
While we intend to focus primarily on acquiring an operating business in
the energy services sector, the possibility exists that we may acquire a
business affiliated with one of our officers, directors or initial shareholders.
The only two companies affiliated with our officers or directors that may be
considered as possible combination candidates are C.J. Hughes Construction Co.,
Inc., an underground utility contracting company, and Pritchard Electric
Company, Inc., an electrical contractor in West Virginia, Ohio and Kentucky.
These companies are the only two affiliated companies that may offer products or
services to enhance the acquisition of a third party. We would enter into a
business combination with an affiliate only in conjunction with or subsequent to
an acquisition of an unaffiliated company to the extent the unaffiliated members
of our Board of Directors determine the affiliated company added a complementary
component to the unaffiliated company transaction in the form of a product or
service that the unaffiliated company needed but did not have. For example, if
an unaffiliated company required a service or product (for example, electrical
contracting) that may be supplied by either C.J. Hughes Construction Co. or
Pritchard Electrical Company, we may consider a combination with such affiliated
company in conjunction with our business combination with an unaffiliated
company. These companies are the only two affiliated companies that may offer
products or services to enhance the acquisition of a third party. In no instance
would we acquire an affiliated company unless such acquisition was part of a
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business combination with an unaffiliated company or subsequent to a business
combination with an unaffiliated company that satisfied the net asset valuation
threshold. We (including all of our officers, directors, existing shareholders
or their affiliates) have had no direct or indirect contact with either C.J.
Hughes Construction Co., Inc. or Pritchard Electrical Company, Inc. in the
context of a possible business combination and we (including all of our
officers, directors, existing shareholders or their affiliates) are not aware of
any opportunities to combine with these two companies. Jack Reynolds serves as a
Vice President of Pritchard Electrical Company. Marshall T. Reynolds and Jack
Reynolds are shareholders of Prichard Electrical Company. Marshall T. Reynolds
and Neal Scaggs are shareholders and Edsel R. Burns is the President and a
shareholder of C.J. Hughes Construction Co., Inc.
Should we seek to acquire an affiliated business, a potential or actual
conflict of interest would exist. For example, such a transaction may create an
appearance that a director or officer recommended a business combination solely
for personal profit and not because it was in our best interest. Our management
and board intend to act in accord with their fiduciary duties to us, and to our
shareholders, including obtaining an independent fairness opinion in the event
we decide to pursue a business transaction with an affiliate of our directors,
officers or initial shareholders. None of us, our directors, and our officers,
contacts or sources are aware of any current opportunity to acquire an
affiliated company.
Our initial stockholders, including our officers and directors, control a
substantial interest in us and this may influence certain actions requiring a
stockholder vote.
Our initial stockholders (including all of our officers and directors)
collectively own approximately 23.0% of our issued and outstanding shares of
common stock. In connection with the vote required for our initial business
combination, all of our initial stockholders, including all of our officers and
directors, have agreed to vote the shares of common stock owned by them
immediately before our initial public offering, as well as any shares of common
stock acquired in connection with or following our initial public offering, in
accordance with the majority of the shares of common stock voted by the public
stockholders.
Failure to maintain a current prospectus relating to the common stock underlying
our warrants may allow our warrants to expire worthless.
No warrants will be exercisable unless at the time of exercise a prospectus
relating to common stock issuable upon exercise of the warrants is current and
the common stock has been registered or qualified or deemed to be exempt under
the securities laws of the state of residence of the holder of our warrants.
Under the terms of a warrant agreement between Continental Stock Transfer &
Trust Company, New York, New York, as warrant agent, and us, we have agreed only
to use our best efforts to maintain a current prospectus relating to common
stock issuable upon exercise of the warrants until the expiration of the
warrants. However, we cannot assure you that we will be able to maintain a
current prospectus. In the absence of an effective registration statement, we
have no obligation to settle the warrants in cash, and the warrants may expire
unexecuted or unredeemed. The warrants may be deprived of any value and the
market for the warrants may be limited if the prospectus relating to the common
stock issuable upon the exercise of the warrants is not current or if the common
stock is not qualified or exempt from qualification in the jurisdictions in
which the holders of the warrants reside.
Our outstanding warrants may have an adverse effect on the market price of our
common stock and make it more difficult to effect a business combination using
our common stock as consideration.
In connection with our initial public offering and the private placement,
as part of the units, we issued warrants to purchase 20,276,923 shares of common
stock. We also issued an option to purchase up to 450,000 units to Ferris, Baker
Watts, Incorporated, which, if exercised, will result in the issuance of an
additional 900,000 warrants. To the extent we issue shares of common stock to
effect a business combination, the potential for the issuance of substantial
numbers of additional shares upon exercise of these warrants and the option
could make us a less attractive acquisition vehicle in the eyes of a target
business as such securities, when exercised, will increase the number of issued
and outstanding shares of our common stock and reduce the value of any shares
issued to complete the business combination. Accordingly, our warrants and the
option may make it more difficult to effectuate a business combination or
increase the cost of the target business. Additionally, the sale, or even the
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possibility of sale, of the shares underlying the warrants and the option could
have an adverse effect on the market price for our securities or on our ability
to obtain future public financing. If and to the extent these warrants and the
option are exercised, you may experience dilution to your holdings.
If our initial stockholders exercise their registration rights, it may have an
adverse effect on the market price of our common stock and the existence of
these rights may make it more difficult to effect a business combination.
Our initial stockholders may request that we register the resale of the
2,150,000 shares of common stock they acquired prior to our initial public
offering and our five directors (as well as a sixth individual) may request us
to register for resale of the shares of common stock underlying the 3,076,923
warrants they purchased in the private placement at any time after we announce
that we have entered a letter of intent, an agreement in principle or a
definitive agreement in connection with a business combination. If our initial
stockholders exercise their registration rights with respect to all of their
initial shares of common stock as well as have the securities underlying their
warrants registered, then there will be an additional 5,226,923 shares of common
stock eligible for trading in the public market. The presence of this additional
number of shares of common stock eligible for trading in the public market may
have an adverse effect on the market price of our common stock. In addition, the
existence of these rights may make it more difficult to effectuate a business
combination or increase the cost of the target business, as the stockholders of
the target business may be discouraged from entering into a business combination
with us or will request a higher price for their securities as a result of these
registration rights and the potential future effect their exercise may have on
the trading market for our common stock.
If we are deemed to be an investment company, we may be required to institute
burdensome compliance requirements and our activities may be restricted, which
may make it difficult for us to complete a business combination.
If we are deemed to be an investment company under the Investment Company
Act of 1940, our activities may be restricted, including:
o restrictions on the nature of our investments; and
o restrictions on the issuance of securities,
which may make it difficult for us to complete a business combination. In
addition, we may have imposed upon us burdensome requirements, including:
o registration as an investment company;
o adoption of a specific form of corporate structure;
o reporting, record keeping, voting, proxy, compliance and disclosure
requirements; and
o complying with other rules and regulations.
We do not believe that our anticipated principal activities will subject us
to the Investment Company Act of 1940. To this end, the proceeds held in trust
may only be invested by the trust agent in "government securities" (within the
meaning of the Investment Company Act of 1940) with specific maturity dates. By
restricting the investment of the proceeds to these instruments, we intend to
meet the requirements for the exemption provided in Rule 3a-1 promulgated under
the Investment Company Act of 1940. If we were deemed to be subject to the
Investment Company Act of 1940, compliance with these additional regulatory
burdens would require additional expense.
If our common stock becomes subject to the SEC's penny stock rules,
broker-dealers may experience difficulty in completing customer transactions and
trading activity in our securities may be adversely affected.
If at any time we have net tangible assets of $5,000,000 or less and our
common stock has a market price per share of less than $5.00, transactions in
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our common stock may be subject to the "penny stock" rules promulgated under the
Securities Exchange Act of 1934, as amended. Under these rules, broker-dealers
who recommend such securities to persons other than institutional accredited
investors must:
o make a special written suitability determination for the purchaser;
o receive the purchaser's written agreement to a transaction prior to
sale;
o provide the purchase with risk disclosure documents that identify
certain risks associated with investing in "penny stocks" and that
describe the market for these "penny stocks," as well as a purchaser's
legal remedies; and
o obtain a signed and dated acknowledgement from the purchaser
demonstrating that the purchaser has actually received the required
risk disclosure document before a transaction in a "penny stock" can
be completed.
If our common stock becomes subject to these rules, broker-dealers may find
it difficult to effect customer transactions and trading activity in our
securities may be adversely affected. As a result, the market price of our
securities may be depressed, and you may find it more difficult to sell our
securities.
ITEM 2. Properties
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We maintain our executive offices at 2450 First Avenue, Huntington, West
Virginia 25703. Chapman Printing Co. has agreed to provide us with certain
administrative, technology and secretarial services, as well as the use of
certain limited office space, including a conference room, at this location
pursuant to a letter agreement between us and Chapman Printing Co. We will
reimburse Chapman Printing Co. for expenses up to $5,000 per month. We consider
our current office space adequate for our current operations.
ITEM 3. Legal Proceedings
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At September 30, 2006, we were not involved in any legal proceedings, the
outcome of which would be material to our financial condition or results of
operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year under report.
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
- --------------------------------------------------------------------------------
(a)Our units, common stock and warrants are listed on the American Stock
Exchange under the symbols ESA.U, ESA and ESA.WS, respectively. Prior to October
3, 2006, only the units traded on the American Stock Exchange. The following
table sets forth the range of high and low sales prices for the units for the
period indicated since the units commenced public trading on September 6, 2006.
Fiscal 2006 High Low Dividends
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Quarter ended September 30, 2006 $ 6.00 $ 5.75 $ --
As of September 30, 2006, there were one holder of record of our units,
nine holders of record of our common stock and one holder of record of our
warrants.
We have not paid any cash dividends on our common stock to date and do not
intend to pay cash dividends prior to the completion of a business combination.
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The payment of cash dividends in the future will be contingent upon our revenues
and earnings, if any, capital requirements and general financial condition
subsequent to completion of a business combination. The payment of any dividends
subsequent to a business combination will be within the discretion of our then
board of directors. It is the present intention of our board of directors to
retain all earnings, if any, for use in our business operations and,
accordingly, our board does not anticipate declaring any dividends in the
foreseeable future.
Recent Sales of Unregistered Securities and Use of Proceeds
Prior to completing our public offering, we sold the following shares
of common stock without registration under the Securities Act of 1933, as
amended:
Name Number of Shares Relationship to Us
Marshall T. Reynolds....................... 537,500 Chairman of the Board, Chief Executive
Officer and Secretary
Jack M. Reynolds........................... 430,000 Director, President and Chief Financial
Officer
Edsel R. Burns............................. 537,500 Director
Neal W. Scaggs............................. 107,500 Director
Joseph L. Williams......................... 107,500 Director
Douglas Reynolds........................... 430,000 (1)
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(1) Douglas Reynolds is the son of Marshall T. Reynolds and the brother of Jack
M. Reynolds.
Such shares were issued in connection with our organization pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act as
they were sold to sophisticated, wealthy individuals or entities. The shares
issued to the individuals and entities above were sold at a purchase price of
approximately $0.01 per share.
On April 5, 2006, we entered into a warrant placement agreement with our
initial stockholders for the sale of the following warrants without registration
under the Securities Act of 1933, as amended:
Number of
Name Warrants Relationship to Us
Marshall T. Reynolds..................... 2,692,303 Chairman of the Board, Chief Executive
Officer and Secretary
Jack M. Reynolds......................... 76,924 Director, President and Chief Financial
Officer
Edsel R. Burns........................... 76,924 Director
Neal W. Scaggs........................... 76,924 Director
Joseph L. Williams....................... 76,924 Director
Douglas Reynolds......................... 76,924 (1)
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(1) Douglas Reynolds is the son of Marshall T. Reynolds and the brother of Jack
M. Reynolds.
A total of 3,076,923 warrants at a price of $0.65 per warrant, generating
total gross proceeds of $2,000,000 were sold pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act as they were sold
to sophisticated, wealthy individuals or entities. Each warrant entitles the
holder to purchase from us one share of our common stock at an exercise price of
$5.00.
(b) On September 6, 2006, we closed our initial public offering of
8,600,000 units. Each unit consisted of one share of our common stock and two
warrants, each to purchase one share of our common stock at an exercise price of
$5.00 per share. The units were sold at an offering price of $6.00 per unit,
generating gross proceeds of $51,600,000. The managing underwriter in the
offering was Ferris, Baker Watts, Incorporated. The securities sold in the
offering were registered under the Securities Act of 1933 on a registration
statement on Form S-1 (No. 333-133111). The Securities and Exchange Commission
declared the registration statement effective on August 30, 2006.
We paid a total of $4,128,000 in underwriting discounts and commissions,
including $1,032,000 for the underwriters' non-accountable expense allowance of
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2.0 % of the gross proceeds, and approximately $774,000 for other costs and
expenses related to the offering. After deducting the underwriting discounts and
commissions and the other offering expenses, the total net proceeds to us from
the offering that were deposited into a trust fund were $48,972,000. The net
proceeds deposited into the trust fund remain on deposit in the trust fund and
have earned $177,174 in interest and dividends through September 30, 2006.
(c) Energy Services Acquisition Corp. did not repurchase any shares of
its common stock during the relevant period.
ITEM 6. Selected Financial Data
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The selected financial data presented below summarizes certain financial
data which has been derived from and should be read in conjunction with our
financial statements and notes thereto included in Item 8.
Period from
March 31, 2006
(Date of
Inception)
through
September 30,
2006
---------------
Statement of Operations Data:
Operating expenses........................... $ 48,754
Other income................................. 177,174
Net income................................... 87,420
Basic and diluted net income per share....... .02
September 30,
2006
--------------
Balance Sheet Data:
Cash and short term investments (including
interest receivable of $145,014) held
in trust fund............................... $50,258,554
Working capital............................... 48,811,014
Total assets.................................. 50,258,554
Total liabilities............................. 1,447,540
Value of common stock which may be
converted to cash (1)....................... 9,988,200
- ------------------
(1) If the business combination is approved and completed, public stockholders
who voted against the combination will be entitled to redeem their stock
for approximately $5.81 per share, which amount represents approximately
$5.69 per share representing the net proceeds of the offering and the
private placement deposited in the trust account and $0.12 per share
representing the underwriters' non-accountable expense allowance which the
underwriters have agreed to deposit into the trust account and to forfeit
on a pro-rata basis to pay redeeming stockholders, without taking into
account interest earned on the trust account.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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The following discussion should be read in conjunction with our
Consolidated Financial Statements and footnotes thereto contained in this
report.
Forward Looking Statements
The statements discussed in this Report include forward looking statements
that involve risks and uncertainties detailed from time to time in our reports
filed with the Securities and Exchange Commission.
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Overview
We were formed on March 31, 2006, to serve as a vehicle to effect a merger,
capital stock exchange, asset acquisition or other similar business combination
with an operating business. We intend to utilize cash derived from the proceeds
of our recently completed public offering, our capital stock, debt or a
combination of cash, capital stock and debt, in effecting a business
combination.
Results of Operations for the Period from March 31, 2006 (Date of Inception) to
September 30, 2006
For the period from March 31, 2006 (inception) through September 30, 2006,
we had net income of $87,420, attributable to interest and dividend income less
formation and operating expenses and federal and state income and capital taxes.
Our interest and dividend income of $177,174 for the period ended September 30,
2006 were principally derived from money market funds and Treasury Bills. For
the period ended September 30, 2006, our expenses consisted of formation and
operating costs of $48,754 and federal and state income taxes of $41,000.
Liquidity and Capital Resources
We consummated our initial public offering on September 6, 2006. Gross
proceeds from our initial public offering were $51,600,000. We paid a total of
$4,128,000 in underwriting discounts and commissions, and approximately $774,000
was paid for costs and expenses related to the offering. After deducting the
underwriting discounts and commissions and the offering expenses, the total net
proceeds to us from the offering that were deposited into a trust fund were
$48,972,000 (or approximately $5.69 per unit sold in the offering). An
additional $1,032,000, representing the underwriter's non-accountable expense
allowance, was also placed in the trust account. As of September 30, 2006,
approximately $49,149,173 (or approximately $5.72 per share sold in the
offering) is being held in the trust account. We intend to use substantially all
of the net proceeds of this offering to acquire a target business. To the extent
that our capital stock is used in whole or in part as consideration to effect a
business combination, the proceeds held in the trust fund as well as any other
net proceeds not expended will be used to finance the operations of the target
business. Our working capital will be generated solely from interest earned on
the amount held in trust. We are limited to $1,200,000 of such interest (net of
taxes) to fund working capital. We believe the interest earned on the amount
held in trust will be sufficient to fund our operations. From September 6, 2006
through September 6, 2008, we anticipate approximately $350,000 of expenses for
legal, accounting and other expenses attendant to the due diligence
investigations, structuring and negotiating of a business combination, $240,000
for expenses for the due diligence and investigation of a target business,
$120,000 in reimbursement expenses to Chapman Printing Co. ($5,000 per month for
two years), $110,000 of expenses in legal and accounting fees relating to our
SEC reporting obligations and $305,000 for general working capital that will be
used for tax payments, miscellaneous expenses and reserves, including
approximately $100,000 (through January 1, 2008) for director and officer
liability insurance premiums. We do not believe we will need to raise additional
funds following this offering in order to meet the expenditures required for
operating our business. However, we may need to raise additional funds through a
private offering of debt or equity securities if such funds are required to
consummate a business combination that is presented to us. We would only
consummate such a financing simultaneously with the consummation of a business
combination.
In connection with our initial public offering, we issued to the
underwriters, for $100, an option to purchase up to a total of 450,000 units.
The units issuable upon exercise of this purchase option are identical to the
units we sold in our initial public offering except that the warrants included
in the option have an exercise price of $6.25. We estimated that the fair value
of this option was approximately $1,642,500 ($3.65 per unit underlying such
option) using a Black-Scholes option-pricing model. The fair value of the option
granted to the underwriter was estimated as of the date of grant using the
following assumptions: (1) expected volatility of 75.7%, (2) risk-free interest
rate of 5.1% and (3) expected life of five years.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and
have never established any special purpose entities. We have not guaranteed any
debt or commitments of other entities or entered into any options on
non-financial assets.
25
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Contractual Obligations
We do not have any long term debt, capital lease obligations, operating
lease obligations, purchase obligations or other long term liabilities.
Financial Condition
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------------------
Market risk is the sensitivity of income to changes in interest rates,
foreign exchanges, commodity prices, equity prices, and other market-driven
rates or prices. We are not presently engaged in and, if a suitable business
target is not identified by us prior to the prescribed liquidation date of the
trust fund, we may not engage in, any substantive commercial business.
Accordingly, we are not and, until such time as we consummate a business
combination, we will not be, exposed to risks associated with foreign exchange
rates, commodity prices, equity prices or other market-driven rates or prices.
The net proceeds of our initial public offering held in the trust fund have been
invested only in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940. Given our limited risk in
our exposure to money market funds, we do not view the interest rate risk to be
significant.
ITEM 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
Financial Statements are included as Exhibit 13 to this Annual Report on
Form 10-K.
ITEM 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
ITEM 9A. Controls and Procedures
- --------------------------------------------------------------------------------
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports that Energy Services Acquisition Corp. files or submits
under the Securities Exchange Act of 1934, is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.
There has been no change in Energy Services Acquisition Corp.'s internal
control over financial reporting during Energy Services Acquisition Corp.'s
fourth quarter of fiscal year 2006 that has materially affected, or is
reasonably likely to materially affect, Energy Services Acquisition Corp.'s
internal control over financial reporting.
ITEM 9B. Other Information
- --------------------------------------------------------------------------------
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Directors and Officers
Our current directors and executive officers are as follows:
26
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Name Age Position
- --------------------------------------------------------------------------------
Marshall T. Reynolds 69 Chairman of the Board, Chief Executive
Officer and Secretary
Jack M. Reynolds 41 Director, President and Chief Financial
Officer
Edsel R. Burns 55 Director
Neal W. Scaggs 69 Director
Joseph L. Williams 61 Director
Marshall T. Reynolds has served as our Chairman of the Board of Directors
since our inception. Mr. Reynolds has served as Chief Executive Officer and
Chairman of the Board Directors of Champion Industries, Inc., a commercial
printer, business form manufacturer and supplier of office products and
furniture, from 1992 to the present, and sole shareholder from 1972 to 1993;
President and General Manager of The Harrah & Reynolds Corporation, from 1964
(and sole shareholder since 1972) to present; Chairman of the Board of Directors
of Portec Rail Products, Inc.; Chairman of the Board of Directors of the
Radisson Hotel in Huntington, West Virginia; and Chairman of the Board of
Directors of McCorkle Machine and Engineering Company in Huntington, West
Virginia. Mr. Reynolds also serves as a Director of the Abigail Adams National
Bancorp, Inc. in Washington, D.C.; Chairman of the Board of Directors of First
Guaranty Bank in Hammond, Louisiana; and Chairman of the Board of Directors of
Premier Financial Bancorp, Inc. in Huntington, West Virginia. Mr. Reynolds is
the father of Jack Reynolds.
Jack Reynolds has served as President, Chief Financial Officer and a member
of our Board of Directors of since our inception. Mr. Reynolds has been a Vice
President of Pritchard Electric Company since 1998. Pritchard is an electrical
contractor providing electrical services to both utility companies as well as
private industries. Mr. Reynolds also serves as a Director of Citizens Deposit
Bank of Vanceburg, Kentucky.
Edsel R. Burns has been a Director since our inception. Mr. Burns has been
President and Chief Executive Officer of C. J. Hughes Construction Company, Inc.
from September of 2002 to the present. C. J. Hughes is an underground utility
construction company specializing in gas and water line replacement as well as
utility environmental issues. From January 2002 to September of 2002, Mr. Burns
was self-employed as an independent financial consultant to banks. From June of
2001 to December 2001, Mr. Burns was the Chief Financial Officer for Genesis
Health Systems, a holding company for a collaborative group of three hospitals,
two in Huntington, West Virginia and one in Point Pleasant, West Virginia. Mr.
Burns is a Certified Public accountant and is a member of the American Institute
of Certified Public Accountants as well as the West Virginia and Ohio societies
of CPAs. He also is on the Board of Directors of Premier Financial Bancorp, Inc.
Neal W. Scaggs has been a Director since our inception. Mr. Scaggs has been
president of Basiden Brothers, Inc. (retail and wholesale hardware) from 1963 to
the present. Mr. Scaggs is on the Boards of Directors of Premier Financial
Bancorp, Inc., Champion Industries, Inc. and Portec Rail Products, Inc.
Joseph L. Williams has been a Director since our inception. Mr. Williams is
the Chairman and Chief Executive Officer of Basic Supply Company, Inc., which he
founded in 1977. Mr. Williams was one of the organizers and is a Director of
First Sentry Bank, Huntington, West Virginia. Mr. Williams also serves as a
Director of Abigail Adams National Bancorp, Inc., in Washington, D.C. Mr.
Williams is also a Director of Consolidated Bank & Trust Co., in Richmond,
Virginia. Mr. Williams is a Director of the West Virginia Capital Corporation
and the West Virginia Governor's Workforce Investment Council. He is a former
Director of Unlimited Future, Inc. (a small business incubator) and a former
Member of the National Advisory Council of the U.S. Small Business
Administration. Mr. Williams is a former Mayor and City Councilman of the City
of Huntington, West Virginia. He is a graduate of Marshall University with a
degree in finance and is a member its Institutional Board of Governors.
Section 16(a) Beneficial Ownership Reporting Compliance
Our executive officers and directors and beneficial owners of greater than
10% of the outstanding shares of common stock are required to file reports with
the Securities and Exchange Commission disclosing beneficial ownership and
changes in beneficial ownership of our common stock. Securities and Exchange
27
<Page>
Commission rules require disclosure if an executive officer, director or 10%
beneficial owner fails to file these reports on a timely basis. Based on our
review of ownership reports required to be filed for the year ended September
30, 2006, no executive officer, director or 10% beneficial owner of our shares
of common stock failed to file ownership reports on a timely basis.
Code of Ethics
Energy Services Acquisition Corp. has adopted a Code of Ethics that applies
to Energy Services Acquisition Corp.'s principal executive officer, principal
financial officer, principal accounting officer or controller or persons
performing similar functions. The Code of Ethics is filed as Exhibit 14 to this
Form 10-K. A copy of the Code will be furnished without charge upon written
request to the Secretary, Energy Services Acquisition Corp., 2450 First Avenue,
Huntington, West Virginia.
Board Committees
Our board of directors has an audit committee. Our board of directors has
adopted a charter for this committee as well as a code of ethics that governs
the conduct of our officers and employees.
Audit Committee
Our audit committee consists of Messrs. Burns, Scaggs, and Williams. The
independent directors we appoint to our audit committee is an independent member
of our board of directors, as defined by the rules of the SEC. Each member of
our audit committee is financially literate, and our board of directors has
determined that Mr. Burns qualifies as an audit committee financial expert, as
such term is defined by SEC rules.
The audit committee reviews the professional services and independence of
our independent registered public accounting firm and our accounts, procedures
and internal controls. The audit committee also recommends the firm selected to
be our independent registered public accounting firm, reviews and approves the
scope of the annual audit, reviews and evaluates with the independent public
accounting firm our annual audit and annual consolidated financial statements,
reviews with management the status of internal accounting controls, evaluates
problem areas having a potential financial impact on us that are brought to the
committee's attention by management, the independent registered public
accounting firm or the board of directors, and evaluates all of our public
financial reporting documents.
Other Committees
Our board has determined that the independent members of our board of
directors will perform the duties of the nominating committee and the
compensation committee of the board of directors. As a result, the independent
directors will (i) identify individuals qualified to become members of the board
of directors and recommend to the board of directors the nominees for election
to the board of directors, (ii) recommend director nominees for each committee
to the board of directors, (iii) identify individuals to fill any vacancies on
the board of directors, (iv) discharge the board of directors' responsibilities
relating to compensation of our directors and officers and (v) review and
recommend to the board of directors, compensation plans, policies and benefit
programs, as well as approve chief executive officer compensation.
ITEM 11. Executive Compensation
- --------------------------------------------------------------------------------
No executive officer or director has received any cash compensation for
services rendered. Commencing on August 30, 2006 through the acquisition of a
target business, we will pay Chapman Printing Co., an entity associated with and
owned in part by Marshall T. Reynolds, up to $5,000 per month for reimbursable
expenses (such as administrative expenses, postage and telephone expenses) at
cost. However, this arrangement is solely for our benefit and is not intended to
provide Marshall T. Reynolds compensation in lieu of a salary.
Other than this expense reimbursement, no compensation of any kind,
including finder's and consulting fees, will be paid to any of our initial
stockholders, our officers or directors, or any of their respective affiliates,
28
<Page>
for services rendered prior to or in connection with a business combination.
However, our initial stockholders will be reimbursed for any out-of-pocket
expenses incurred in connection with activities on our behalf such as
identifying potential target businesses and performing due diligence on suitable
business combinations. There is no limit on the amount of these out-of-pocket
expenses and there will be no review of the reasonableness of the expenses by
anyone other than our board of directors, which includes persons who may seek
reimbursement, or a court of competent jurisdiction if such reimbursement is
challenged. If none of our directors are deemed "independent," we will not have
the benefit of independent directors examining the propriety of expenses
incurred on our behalf and subject to reimbursement. Our current management may
only be able to remain with the combined company after the consummation of a
business combination if they are able to negotiate mutually agreeable employment
terms as part of any such combination, which terms would be disclosed to
stockholders in any proxy statement relating to such transaction. The financial
interest of our offices and directors, including any compensation arrangements,
could influence their motivation in selecting, negotiating and structuring a
transaction with a target business, and thus, there may be a conflict of
interest when determining whether a particular business combination is in the
stockholder's best interest.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
- --------------------------------------------------------------------------------
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 30, 2006 by:
o each person known by us to be the beneficial owner of more than 5% of our
outstanding shares of common stock;
o each of our officers and directors; and
o all our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them.
Amount and
Nature of
Beneficial
Name and Address of Beneficial Owner(1) Ownership(2) Percent of Class
Marshall T. Reynolds................... 862,500 8.0%
Jack M. Reynolds....................... 430,000 4.0%
Edsel R. Burns......................... 537,500 5.0%
Neal W. Scaggs......................... 107,500 1.0%
Joseph L. Williams..................... 107,500 1.0%
Douglas Reynolds(3).................... 430,000 4.0%
All directors and officers as a group
(5 individuals)....................... 19.0%
- ------------------------
(1) The business address of each person is 2450 First Avenue, Huntington, West
Virginia 25703.
(2) Unless otherwise indicated, all ownership is direct beneficial ownership.
Beneficially owned shares do not include any warrants which are exercisable
only upon the later of August 29, 2007 or the successful completion of a
Business Combination.
(3) Douglas Reynolds is the son of Marshall T. Reynolds and the brother of Jack
M. Reynolds. Mr. Douglas Reynolds' address is Reynolds and Brown, PLLC, 703
5th Avenue, Huntington, West Virginia 25701.
All of the shares of our common stock outstanding prior to our initial
public offering have been placed in escrow with Continental Stock Transfer &
Trust Company, as escrow agent. Subject to certain limited exceptions (each of
which requires that the shares remain in escrow for the required period), these
shares will not be transferable during the escrow period and will not be
released until six months after the consummation of a business combination.
29
<Page>
ITEM 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
As of August 30, 2006, we issued 2,150,000 shares of our common stock to
the parties set forth below for $25,000 in cash, as follows:
Name Number of Shares Relationship to Us
- ----------------------------------------------------------------------------------------------------
Marshall T. Reynolds..................... 537,500 Chairman of the Board, Chief Executive
Officer and Secretary
Jack M. Reynolds......................... 430,000 Director, President and Chief Financial
Officer
Edsel R. Burns........................... 537,500 Director
Neal W. Scaggs........................... 107,500 Director
Joseph L. Williams....................... 107,500 Director
Douglas Reynolds......................... 430,000 (1)
- -----------------------
(1) Douglas Reynolds is the son of Marshall T. Reynolds and the brother of Jack
M. Reynolds.
The holders of the majority of these shares may request that we register
these shares pursuant to an agreement signed on September 6, 2006. We will use
our best efforts to prepare and file such registration statement, although we
are not obligated to do so. The holders of the majority of these shares may
elect to exercise these registration rights at any time after the date on which
these shares of common stock are released from escrow. In addition, these
stockholders may request certain "piggy-back" registration rights on
registration statements filed subsequent to the date on which these shares of
common stock are released from escrow. We will use our best efforts to prepare
and file such registration statements although we are not obligated to do so. We
will bear the expenses incurred in connection with the filing of any such
registration statements.
Our five directors as well as Douglas Reynolds and as agreed with Ferris,
Baker Watts, Incorporated, purchased in the aggregate 3,076,923 warrants in a
private placement that occurred prior to our initial public offering at a price
equal to the price of our initial public offering, $0.65 per warrant. In no
event shall we be obligated to settle these warrants, in whole or in part, for
cash. Therefore any and all such warrants can expire unexercised or unredeemed.
The existing stockholders have agreed that to the extent any of them are
warrantholders they have no rights to participate in any liquidation
distribution occurring upon our failure to consummate a business combination,
but only with respect to those shares of common stock acquired by them prior to
our initial public offering, and the 3,076,923 warrants included in the private
placement, therefore, they will participate in any liquidation distribution with
respect to any shares of common stock acquired in connection with or following
our initial public offering. In addition, in connection with the vote required
for our initial business combination, all of our existing stockholders,
including all of our officers and directors, have agreed to vote all of the
shares of common stock owned by them, including those acquired in the private
placement or during or after our initial public offering, in accordance with the
majority of the shares of common stock voted by the public stockholders.
Chapman Printing Co., an entity associated with, and owned in part by
Marshall T. Reynolds has agreed that, commencing on August 30, 2006 through the
acquisition of a target business, it will make available to us at certain
limited administrative, technology and secretarial services, as well as the use
of certain limited office space, including a conference room, in Huntington,
West Virginia, as we may require from time to time. We have agreed to pay
Chapman Printing Co. up to $5,000 per month for reimbursable expenses. Marshall
T. Reynolds is a part owner of Chapman Printing Co.
However, this arrangement is solely for our benefit and is not intended to
provide Marshall T. Reynolds compensation in lieu of a salary. However, if our
directors are not deemed "independent," we will not have had the benefit of
disinterested directors approving this transaction.
Marshall T. Reynolds has advanced a total of $150,000, on a non-interest
bearing basis, to us as of September 30, 2006 for working capital purposes.
We will reimburse our officers and directors for any reasonable
out-of-pocket business expenses incurred by them in connection with certain
activities on our behalf such as identifying and investigating possible target
businesses and business combinations. There is no limit on the amount of
30
<Page>
accountable out-of-pocket expenses reimbursable by us, which will be reviewed
only by our board or a court of competent jurisdiction if such reimbursement is
challenged.
Other than the payment of up to $5,000 per-month for reimbursable
out-of-pocket expenses (such as administrative expenses, postage and telephone
expenses) at cost payable to Chapman Printing Co., no compensation or fees of
any kind, including finder's and consulting fees, will be paid to any of our
initial stockholders, officers or directors who owned our common stock prior to
our initial public offering, or to any of their respective affiliates for
services rendered to us prior to or with respect to the business combination.
Marshall T. Reynolds is deemed to be our "promoter" as such term is defined
under the Federal securities laws.
ITEM 14. Principal Accountant Fees and Services
- --------------------------------------------------------------------------------
The firm of Castaing, Hussey & Lolan, LLC, CPAs ("CHL") acts as our
principal accountant. The following is a summary of fees paid or to be paid to
CHL for services rendered.
Audit Fees
During the fiscal year ended September 30, 2006, we paid our principal
accountant $42,966 for the services they performed in connection with our
initial public offering, including the financial statements included in the
Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 6, 2006. Additionally, we expect to pay our principal accountant
$6,860 for the services they have performed in connection with the audit of our
financial statements included in this Annual Report.
Audit-Related Fees
During 2006, except as described above, our principal accountant did not
render any audit assurance and related services reasonably related to the
performance of the audit or review of financial statements.
Tax Fees
During 2006, our principal accountant did not render services to us for tax
compliance, tax advice and tax planning.
All Other Fees
During 2006, there were no fees billed for products and services provided
by the principal accountant other than those set forth above.
Audit Committee Approval
Since our audit committee was not formed until April 2006, the audit
committee did not pre-approve all of the foregoing services although any
services rendered prior to the formation of our audit committee were approved by
our board of directors. Since the formation of our audit committee and on a
going-forward basis, in accordance with Section 10A(i) of the Securities
Exchange Act of 1934, before we engage our independent accountant to render
audit or non-audit services, the engagement has been and will be approved by our
audit committee.
ITEM 15. Exhibits and Financial Statement Schedules
- --------------------------------------------------------------------------------
The exhibits and financial statement schedules filed as a part of this Form
10-K are as follows:
(a)(1) Financial Statements-filed as Exhibit 13
--------------------
o Report of Independent Registered Public Accounting Firm
31
<Page>
o Balance Sheet,
September 30, 2006
o Statement of Income,
Period Ended September 30, 2006
o Statement of Shareholders' Equity,
Period Ended September 30, 2006
o Statement of Cash Flows,
Period Ended September 30, 2006
o Notes to Financial Statements.
(a)(2) Financial Statement Schedules
-----------------------------
No financial statement schedules are filed because the
required information is not applicable or is included in the
consolidated financial statements or related notes.
(a)(3) Exhibits
---------
Exhibit No. Description
---------- -----------
3.1 Amended and Restated Certificate of Incorporation.*
3.2 Bylaws.*
3.3 Certificate of Amendment to the Registrant's Certificate of
Incorporation.*
4.1 Specimen Unit Certificate.*
4.2 Specimen Common Stock Certificate.*
4.3 Specimen Warrant Certificate.*
4.4 Form of Unit Purchase Option.*
4.5 Form of Warrant Agreement between Continental Stock Transfer &
Trust Company and the Registrant.*
10.1 Letter Agreements among the Registrant, Ferris, Baker Watts,
Incorporated, and Officers and
Directors.*
10.2 Form of Investment Management Trust Agreement between
Continental Stock Transfer & Trust Company and the
Registrant.*
10.3 Form of Stock Escrow Agreement between the Registrant,
Continental Stock Transfer & Trust Company and the Initial
Stockholders.*
10.4 Form of Letter Agreement between Chapman Printing Co. and the
Registrant regarding administrative support.*
10.5 Advance Agreement between the Registrant and Marshall T.
Reynolds, dated March 31, 2006.*
10.6 Form of Amended Registration Rights Agreement among the
Registrant and the Initial Stockholders.*
10.7 Warrant Placement Agreement between Marshall T. Reynolds,
Edsel Burns, Douglas Reynolds, Jack Reynolds, Neal Scaggs,
Joseph Williams and Ferris, Baker Watts, Incorporated.*
13 Audited Financial Statements
14 Code of Ethics*
23.1 Consent of Castaing, Hussey & Lolan, LLC, CPAs.
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- ------------------------------
* Incorporated by reference to the Registration Statement on Form S-1 of
Energy Services Acquisition Corp. (file no. 333-133111), originally filed
with the Securities and Exchange Commission on April 7, 2006, as amended.
(b) The exhibits listed under (a)(3) above are filed herewith.
(c) Not applicable.
32
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ENERGY SERVICES ACQUISITION CORP.
Date: December 18, 2006 By: /s/ Marshall T. Reynolds
---------------------------------
Marshall T. Reynolds
Chairman and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Position Date
- ---------------------------------------------------------------------------------------------------------------------
By: /s/Marshall T. Reynolds Chairman of the Board, December 18, 2006
-------------------------------------- Chief Executive Officer and Secretary
Marshall T. Reynolds (Principal Executive Officer)
By: /s/ Jack R. Reynolds President, Chief Financial Officer December 18, 2006
-------------------------------------- and Director
Jack R. Reynolds (Principal Financial and Accounting Officer)
By: /s/ Edsel R. Burns Director December 18, 2006
--------------------------------------
Edsel R. Burns
By: /s/ Neal W. Scaggs Director December 18, 2006
--------------------------------------
Neal W. Scaggs
By: /s/ Joseph L. Williams Director December 18, 2006
--------------------------------------
Joseph L. Williams
Exhibit 13
<Page>
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
BALANCE SHEET F-3
STATEMENT OF INCOME F-4
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY F-5
STATEMENT OF CASH FLOWS F-6
NOTES TO THE FINANCIAL STATEMENTS F-7 to F-11
F-1
<page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Energy Services Acquisition Corp.
Huntington, West Virginia
We have audited the accompanying balance sheet of Energy Services Acquisition
Corp. (a development stage enterprise) (the "Company") as of September 30, 2006
and the related statements of income, stockholders' equity and cash flows for
the period from March 31, 2006 (inception) to September 30, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Energy Services Acquisition
Corp. as of September 30, 2006, and the results of its operations and its cash
flows for the period from March 31, 2006 (inception) to September 30, 2006 in
conformity with United States generally accepted accounting principles.
/s/ Castaing, Hussey & Lolan, LLC
New Iberia, LA
December 8, 2006
F-2
<page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Balance Sheet
September 30, 2006
ASSETS
Cash $ 77,381
Investments held in trust, including interest receivable of $145,014 49,149,173
Cash held in trust from underwriter 1,032,000
------------
Total Assets $ 50,258,554
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued offering costs $ 178,015
Accrued expenses 87,525
Notes Payable to Stockholder 150,000
Due to Underwriter 1,032,000
------------
Total Liabilities 1,447,540
------------
Common stock subject to possible redemption -
1,719,140 shares at redemption value 9,988,200
------------
Commitments
Stockholders' Equity
Preferred stock, $.0001 par value
Authorized 1,000,000 shares; none issued -
Common Stock, $.0001 par value
Authorized 50,000,000 shares
Issued and outstanding 10,750,000 shares, inclusive of 1,719,140 shares
subject to possible redemption 903
Additional paid-in capital 38,734,491
Retained Earnings accumulated during the development stage 87,420
------------
Total Stockholders' Equity 38,822,814
------------
Total Liabilities and Stockholders' Equity $ 50,258,554
============
The accompanying notes are an integral part of these financial statements.
F-3
<page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Statement of Income
For the period from March 31, 2006 (inception) to September 30, 2006
Operating Expenses:
Formation and operating costs $ 18,754
Franchise taxes 30,000
---------
Loss from operations before taxes (48,754)
Income from trust fund investments 177,174
---------
Income before income taxes 128,420
Income taxes 41,000
---------
Net Income $ 87,420
=========
Weighted average shares outstanding basic and diluted 3,607,609
---------
Basic and diluted net income per share $ 0.02
=========
The accompanying notes are an integral part of these financial statements.
F-4
<page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Equity
For the period from March 31, 2006 (inception) to September 30, 2006
Retained
Earnings
Common Stock Additional Accumulated Total
--------------- Paid in Treasury During the Stockholders'
Shares Amount Capital Stock Development Stage Equity
------------------ ---------- -------- ----------------- -----------
Issuance of common stock to initial
stockholders on March 31, 2006
at $.01 Per share 2,500,000 $ 250 $ 24,750 $ 25,000
Return of 350,000 shares on
August 30, 2006 by initial stockholders 1,645,000 $(1,645,000) -
Cancellation of Common Stock to
initial stockholders (350,000) (35) (1,644,965) 1,645,000 -
Sale of Private Placement Warrants 2,000,000 2,000,000
Sale of 8,600,000 units net of underwriter's
discount and offering expenses 8,600,000 860 46,697,634 46,698,494
Sale of underwriter option 100 100
Shares reclassified to "Common Stock
subject to possible redemption" (1,719,140) (172) (9,988,028) (9,988,200)
Net Income $ 87,420 $ 87,420
Balance at September 30, 2006 9,030,860 $ 903 $38,734,491 $ - $ 87,420 $ 38,822,814
The accompanying notes are an integral part of these financial statements.
F-5
<page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Statement of Cash Flows
For the period from March 31, 2006 (inception) to September 30, 2006
Cash flow from operating activities
Net Income $ 87,420
Adjustment to reconcile net loss to net cash used in operating activities:
Changes in:
Accrued Income and accretion on investments held in trust fund (177,173)
Accrued Expenses 87,525
Net cash used in operating activities (2,228)
Cash flows from investing Activities
Purchase of investments held in trust fund (50,004,000)
Cash flows from financing activities
Proceeds from Public Offering 51,600,000
Proceeds from Private Placement of warrants 2,000,000
Proceeds from issuance of underwriting options 100
Proceeds from issuance of common stock to initial stockholders 25,000
Loans from Stockholder 375,000
Payment of Loan from Stockholder (225,000)
Payment of Offering Costs (3,691,491)
Net cash provided by financing activities 50,083,609
Net increase in cash and cash equivalents at end of period $ 77,381
Supplemental disclosure of non-cash financing activity:
Accrued and unpaid offering costs $ 178,015
Income taxes paid $ -
The accompanying notes are an integral part of these financial statements.
F-6
<page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
1. Organization, Business Operations and Significant Policies
Nature of Business
Energy Services Acquisition Corp. (the "Company") was incorporated in
Delaware on March 31, 2006 as a blank check company whose objective is to
acquire an operating business.
Activity through September 30, 2006 relates to the Company's formation and
the public offering described below. The Company has selected September 30 as
its fiscal year-end.
The registration statement for the Company's initial public offering (the
"Public Offering") (as described in note 2) was declared effective August 29,
2006. The Company consummated the Public Offering on September 6, 2006 and
preceding the consummation of the Public Offering on September 6, 2006, certain
officers, directors and initial shareholders of the Company purchased an
aggregate of 3,076,923 warrants at $0.65 per warrant from the Company in a
private placement (the "private placement"). The warrants sold in the Private
Placement were identical to the warrants sold in the offering, except that the
private placement warrants are not registered at this time. The Company received
net proceeds from the Private Placement and the Offering of approximately
$48,698,494 (note 2).
The Company's management has broad discretion with respect to the specific
application of the net proceeds of this Public Offering, although substantially
all of the net proceeds of this Public Offering are intended to be generally
applied toward consummating a business combination with an operating business
("Business Combination"). Furthermore, there is no assurance that the company
will be able to successfully affect a Business Combination. Upon the closing of
the Public Offering, $50,004,000 (including $1,032,000 for the Underwriters
non-accountable expense allowance) was deposited in a trust account ("Trust
Account") and invested in United States Government Securities defined as any
Treasury Bill issued by the United States having a maturity of one hundred and
eighty days or less or in money market funds meeting certain conditions under
Rule 2a-7 promulgated under the Investment Company Act of 1940. Such funds will
be invested in the manner outlined until the earlier of (i) the consummation of
its first Business Combination or (ii) liquidation of the Company. The placing
of the funds in the Trust Account may not protect those funds from third party
claims against the Company. Although the Company will seek to have all vendors,
prospective target businesses or other entities it engages, execute agreements
with the Company waiving any right, title, interest or claim of any kind in or
to any monies held in the Trust Account, there is no guarantee that they will
execute such agreements. If the Company liquidates prior to the consummation of
a Business Acquisition, the officers and directors shall under certain customary
circumstances, be personally liable to pay any debts, obligations and
liabilities of the Company to various vendors, prospective target businesses or
other entities that are owed money by it for services rendered or contracted for
or products sold to it in excess of the working capital not held in the Trust
Fund. Interest or earnings from funds invested in the Trust Account up to
$1,200,000 net of taxes may be used to pay for business, legal and accounting
due diligence on prospective acquisitions, continuing general and administrative
expenses, and income taxes. The Company, after signing a definitive agreement
for the acquisition of a target business, is required to submit such transaction
for stockholder approval. In the event that stockholders owning 20% or more of
the shares sold in the Public Offering vote against the Business Combination and
exercise their conversion rights described below, the Business Combination will
not be consummated. All of the Company's stockholders prior to the public
offering, including all of the officers and directors of the Company ("Initial
Stockholders"), have agreed to vote their 2,150,000 founding shares of common
stock in accordance with the vote of the majority in interest of all other
stockholders of the Company ("Public Stockholders") with respect to any Business
Combination. After consummation of a Business Combination, these voting
safeguards will no longer be applicable.
F-7
<page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
With respect to a Business Combination which is approved and consummated,
any public stockholder presented with the right to approve a Business
Acquisition can instead demand that his stock be converted into his pro rata
share of the Trust Fund upon the consummation of the transaction if he votes
against such transaction. Such Public Stockholders are entitled to receive their
per share interest in the Trust Account computed without regard to the shares
held by the Initial Stockholders.
The Company's Certificate of Incorporation provides for mandatory
liquidation of the Company in the event that the Company does not consummate a
Business Combination within 18 months from the date of the consummation of the
Public Offering, or 24 months from the consummation of the Public offering if
certain extension criteria have been satisfied. In the event of liquidation, it
is likely that the per share value of the residual assets remaining available
for distribution (including Trust Fund assets) will be less than the initial
public offering price per share in the Public Offering.
Investments Held in Trust
The Company's restricted investments held in the Trust Fund at September
30, 2006 are comprised of an institutional money fund and a United States
Treasury Bill with a maturity of November 30, 2006 in the amounts of $40,148,572
and $10,032,601, respectively.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
("SFAS No. 109), "Accounting for Income Taxes" which establishes financial
accounting and reporting standards for the effects of income taxes that result
from an enterprise's activities during the current and preceding years. It
requires an asset and liability approach for financial accounting and reporting
for income taxes.
Earnings Per Share
Net income per share is computed on the basis of the weighted average
number of common shares outstanding during the period.
Fair Value of Financial Instruments
The fair values of the Company's assets and liabilities that qualify as
financial instruments under SFAS No. 107 approximate their carrying amounts at
September 30, 2006.
Use of Estimates
The preparation of financial statements in conformity with United States
generally accepted accounting principles 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. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of presentation in the financial statements, cash and cash
equivalents are defined as cash, interest bearing deposits and non interest
bearing demand deposits at financial institutions and trust companies with
maturities of less than one year.
Recently Issued Accounting Pronouncements
Energy Services Acquisition Corp. does not expect the adoption of recently
issued accounting pronouncements to have a significant impact on the Company's
results of operations, financial position or cash flow.
F-8
<page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
2. Public Offering
On September 6, 2006, the Company sold 8,600,000 units ("Units") in the
Public Offering at a price of $6.00 per Unit. Each Unit consists of one share of
the Company's common stock, $.0001 par value, and two Redeemable Common Stock
Purchase Warrants ("Warrants"). Each Warrant entitles the holder to purchase
from the Company one share of common stock at an exercise price of $5.00 per
share commencing on the later of the consummation by the Company of a Business
Acquisition, as defined below, or one year after the Effective Date and
terminating on the fifth anniversary of the date of the Public Offering. The
Company may redeem the Warrants for a redemption price of $0.01 per Warrant at
any time if notice of not less than 30 days is given and the last sale price of
the Common Stock has been at least $8.50 on 20 of the 30 trading days ending on
the third day prior to the day on which notice is given.
On the 90th day after the date of the prospectus or earlier, at the
discretion of the Underwriter, the warrants will separate from the units and
begin to trade. Separate trading of the warrants and the share of common stock
began on or about October 3, 2006.
For the warrants, the Company is only required to use its best efforts to
cause a registration statement covering issuance of the shares of common stock
underlying the warrants to be declared effective and, once effective, only to
use its best efforts to maintain the effectiveness of the registration
statement. The Company will not be obligated to deliver securities, and there
are no contractual penalties for failure to deliver securities, if a
registration statement is not effective at the time of exercise. Additionally,
in no event is the Company obligated to settle any warrant, in whole or in part,
for cash in the event it is unable to deliver registered shares of common stock
and, if it is unable to do so, the warrants could expire unexercised. The
holders of warrants do not have the rights or privileges of holders of common
stock, including any voting rights, until such holders exercise their warrants
and receive shares of the Company's common stock.
In connection with the offering, the Company paid the underwriters of the
Public Offering an underwriting discount of 6% of the gross proceeds of the
Public Offering ($3,096,000) and a non-accountable expense allowance of 2% of
the gross proceeds ($1,032,000). However, the underwriters have agreed that the
expense allowance amount will be placed in the Trust Account until the earlier
of the completion of a business combination or the liquidation of the Trust
Account. In the event that the business combination is not consummated, the
underwriter will forfeit the 2.0% being deferred.
The Company also issued to the underwriter at the time of closing of the
Offering a unit purchase option, for $100, to purchase up to 450,000 units at an
exercise price of $7.50. The unit purchase option shall be exercisable any time,
in whole or in part, between the first anniversary date and the fifth
anniversary date of the Public Offering.
For the option, the Company is only required to use its best efforts to
cause a registration statement covering the resale of the units and the
securities comprising the units and, once effective, only to use its best
efforts to maintain the effectiveness of the registration statement. There are
no contractual penalties for failure to effect the registration of the units and
the securities comprising the units. Additionally, in no event, is the Company
obligated to settle the option, the units or the warrants included in the units,
in whole or in part, for cash in the event it is unable to effect the
registration of the units and the securities comprising the units. The holder or
holders of the options do not have the rights or privileges of holders of common
stock, including any voting rights, until such holder or holders exercise the
options and receive shares of the Company's common stock.
The Company intends to account for the fair value of the unit purchase
option, inclusive of the receipt of $100 cash payment, as an expense of the
Public Offering resulting in a charge directly to stockholders' equity. The
Company estimates that the fair value of this unit purchase option is
approximately $1,642,500 ($ 3.65 Per Unit) using a Black-Scholes option pricing
model. The fair value of the unit purchase option granted to the underwriter is
estimated as of the date of grant using the following assumptions: (I) expected
volatility of 75.7 %, (2) risk free interest rate of 5.1 % and (3) expected life
of 5 years.
F-9
<Page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
3. Commitments
The Company presently occupies office space provided by an affiliate of one
of the Company's executive officers. Such affiliate has agreed that until the
Company consummates a Business Combination, it will make such office space, as
well as certain office and secretarial services available to the Company, as may
be required by the Company from time to time. The Company has agreed to pay such
affiliate up to $5,000 per month for reimbursement of expenses expended on
behalf of the Company commencing on the date of the effective date of the Public
Offering.
Pursuant to letter agreements with the Company and the Underwriter, the
Initial Stockholders have waived their right to receive distributions with
respect to their founding shares upon the Company's liquidation.
The Company's Initial Stockholders purchased in the aggregate, 3,076,923 of
the Warrants from the Company at a purchase price of $.65 per Warrant
($2,000,000 in the aggregate) in a private placement. These warrants, and the
warrants issued as part of the Units in the Public Offerings, do not have any
liquidation rights.
The Initial Stockholders are entitled to registration rights with respect
to their founding shares pursuant to an agreement signed on the effective date
of the Public Offering. The Holders of the majority of these shares are entitled
to make up to two demands that the Company register these shares at any time and
from time to time, commencing with the date the initial shares are disbursed
from the escrow account. In addition, the Initial Stockholders have certain
"piggyback" registration rights on the registration statements filed subsequent
to the release date from escrow.
At any time and from time to time after the release date from escrow and
prior to the fifth anniversary date hereof, the holders of at least 51 % of the
Registrable Securities initially held by the underwriters may make two written
demands for a Demand Registration.
4. Note Payable
Prior to the offering, the Company issued an unsecured non-interest bearing
promissory note for $150,000 to Marshall T. Reynolds, Chairman and Chief
Executive Officer. The note was repaid on September 6, 2006 from the proceeds of
the Public Offering. On September 6, 2006, Mr. Reynolds loaned the Company
$150,000. The loan will be repaid without interest from working capital and is
also unsecured.
5. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with
such designations, voting and other rights and preferences as may be determined
from time to time by the Board of Directors.
6. Common Stock
On March 31, 2006, the Company issued 2,500,000 shares to the initial
stockholders. On August 30, 2006 the Company entered into an underwriting
agreement with respect to the public sale of up to 8,600,000 units, reflecting a
reduction in the size of the Public Offering from 10,000,000 units as previously
contemplated to 8,600,000 units. In connection with such modification, and in
order to maintain the percentage ownership of its stockholders prior to the
Public Offering, the Company's initial stockholders surrendered for cancellation
an aggregate of 350,000 shares of common stock. On the date the shares were
surrendered, management determined the fair value of the Company's common stock
to be $4.70 per share.
F-10
<Page>
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
7. Concentration of Credit Risk
At September 30, 2006, the Company maintained a checking account at a
financial institution, the balance of which exceeded the federally insured limit
by $7,575.
8. Income Taxes
Energy Services Acquisition Corp. (ESA) uses the liability method, where
deferred tax assets and liabilities are determined based on the expected future
tax consequences of temporary differences between the carrying amounts of assets
and liabilities for financial and income tax reporting purposes. There are no
timing differences and therefore no deferred tax asset or liability at September
30, 2006. There are no net operating loss carry forwards at September 30, 2006.
At September 30, 2006, income tax expense consisted of the following:
Taxes currently payable
Federal $ 32,000
State 9,000
------------------
Total $ 41,000
==================
The Company is incorporated in Delaware and is subject to franchise taxes, which
are shown as a component of operating expenses.
F-11
<page>
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Marshall T. Reynolds, certify that:
1. I have reviewed this Annual Report on Form 10-K of Energy Services
Acquisition Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting;
December 18, 2006 /s/ Marshall T. Reynolds
- ------------------ ------------------------------------
Date Marshall T. Reynolds
Chairman and Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jack M. Reynolds, certify that:
1. I have reviewed this Annual Report on Form 10-K of Energy Services
Acquisition Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting;
December 18 , 2006 /s/ Jack M. Reynolds
- ------------------- -------------------------------------
Date Jack M. Reynolds
President and Chief Financial Officer
Exhibit 32
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Marshall T. Reynolds, Chairman and Chief Executive Officer and Jack M. Reynolds,
President and Chief Financial Officer of Energy Services Acquisition Corp. (the
"Company") each certify in their capacity as officers of the Company that they
have reviewed the annual report of the Company on Form 10-K for the fiscal year
ended September 30, 2006 and that to the best of their knowledge:
1. the report fully complies with the requirements of Sections 13(a) of the
Securities Exchange Act of 1934; and
2. the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
December 18 , 2006 /s/ Marshall T. Reynolds
- ------------------ -------------------------------------
Date Marshall T. Reynolds
Chairman and Chief Executive Officer
December 18 , 2006 /s/ Jack M. Reynolds
- ------------------ -------------------------------------
Date Jack M. Reynolds
President and Chief Financial Officer
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
A signed original of this written statement required by Section 906 has been
provided to Energy Services Acquisition Corp. and will be retained by Energy
Services Acquisition Corp. and furnished to the Securities and Exchange
Commission or its staff upon request.