UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2007
[ ] Transition report under 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.
---------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 20-4606266
- -------------------------------- ---------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
2450 First Avenue, Huntington, West Virginia 25703
- --------------------------------------------- ------------------
(Address of Principal Executive Office) (Zip Code)
(304) 528-2791
(Registrant's Telephone Number including area code)
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. -- 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 August 3, 2007, 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
------- -------
Transitional Small Business Disclosure Format (check one) Yes No X
----- -----
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Part 1: Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets 3
Statements of Income 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Unaudited Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 14
Part II: Other Information
Item 1A. Risk Factors 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 6. Exhibits 16
Signatures 17
2
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Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Balance Sheets
June 30, September 30,
2007 2006
--------------------------------------------------
(Unaudited)
ASSETS
Cash $ 967,790 $ 77,381
Cash and Cash Equivalents in trust 49,268,145 49,149,173
Cash held in trust from Underwriter 1,032,000 1,032,000
Prepaid Expenses 51,313 -
--------------------------------------------------
Total Assets $ 51,319,248 $ 50,258,554
==================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued offering costs $ - $ 178,015
Accrued Expenses 316,965 87,525
Notes Payable Stockholder 150,000 150,000
Due to Underwriter 1,032,000 1,032,000
--------------------------------------------------
Total Liabilities 1,498,965 1,447,540
--------------------------------------------------
Common Stock subject to Possible redemption
1,719,140 shares at redemption value 9,988,200 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 903 903
Additional paid-in capital 38,719,510 38,734,491
Retained Earnings 1,111,670 87,420
--------------------------------------------------
Total Stockholders' Equity 39,832,083 38,822,814
--------------------------------------------------
Total Liabilities and Stockholders' Equity $ 51,319,248 $ 50,258,554
==================================================
3
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Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Statements of Income
For the Period For the Period
For the three For the three For the Nine from March 31, from March 31,
months ended months ended months ended 2006 (inception) 2006 (inception)
June 30, June 30, June 30, June 30, To June 30,
2007 2006 2007 2006 2007
Operating Expenses:
Formation and operating costs $ 134,378 $ --- $ 257,946 $ 2,200 $ 276,700
Franchise taxes 11,205 37,347 67,347
-------------- -------------- ------------- ------------ ------------
Loss from operations before taxes (145,583) --- (295,293) (2,200) (344,047)
Income from trust fund investments
and Interest 648,941 1,945,543 2,122,717
-------------- -------------- ------------- ------------ ------------
Income before income taxes 503,358 --- 1,650,250 (2,200) 1,778,670
Income taxes 195,900 626,000 667,000
-------------- -------------- ------------- ------------ ------------
Net Income $ 307,458 $ --- $ 1,024,250 $ (2,200) 1,111,670
============== ============== ============= ============ ============
Weighted average shares
outstanding - basic 10,750,000 2,500,000 10,750,000 2,500,000
============== ============== ============= ============
Weighted average shares
outstanding - diluted 13,114,447 2,500,000 12,552,371 2,500,000
============== ============== ============= ============
Net income per share- basic $ 0.03 $ (0.00) $ 0.10 $ (0.00)
============== ============== ============= ============
Net income per share- diluted $ 0.02 $ (0.00) $ 0.08 $ (0.00)
============== ============== ============= ============
The accompanying notes are an integral part of these financial statements.
4
Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity
Common Stock Income
-------------------- Additional Accumulated
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 Shareholders 1,645,000 (1,645,000) -
Cancellation of Common Stock to Initial
Shareholders (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
Additional offering costs (14,981) (14,981)
Net Income for the period (unaudited) 1,024,250 1,024,250
---------------------- ------------- ------------ ----------- ---------------
Balance at June 30, 2007 9,030,860 $ 903 $38,719,510 $ - $1,111,670 $39,832,083
====================== ============= ============ =========== ===============
The accompanying notes are an integral part of these financial statements.
5
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Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Statements of Cash Flows
For the Period For the Period
For the Nine from March 31, from March 31,
months ended 2006 (inception) 2006 (inception)
June 30, to June 30, to June 30,
2007 2006 2007
Cash flow from operating activities
Net Income $ 1,024,250 $ (2,200) $ 1,111,670
Adjustment to reconcile net income to net cash used in
operating activities:
Changes in:
Accrued Income and accretion on investments held
in trust fund (118,971) (124,543)
Accrued Expenses 229,439 128,918 145,363
Other Assets (51,313) (270,293) (51,313)
---------------- --------------- ----------------
Net cash provided by operating activities 1,083,405 (143,575) 1,081,177
---------------- --------------- ----------------
Cash flows from investing activities
Purchase of investments held in trust fund (30,639,000) - (80,643,000)
Proceeds from maturities of Investments held in trust fund 30,639,000 - 30,639,000
---------------- --------------- -----------------
Net cash provided (used in) Investment activities - - (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 25,000
Loans from Stockholder 150,000 375,000
Payment of Loan from Stockholder (225,000)
Payment of Offering Costs (192,996) (3,884,487)
---------------- --------------- ----------------
Net cash provided by (used in ) financing activities (192,996) 175,000 49,890,613
---------------- --------------- ----------------
Net increase in cash and cash equivalents at end of period 890,409 (31,425) 967,790
Cash and Cash Equivalents Beginnng of Period 77,381 -
---------------- --------------- ----------------
Cash and Cash Equivalents End of Period $ 967,790 $ (31,425) $ 967,790
================ =============== ================
Supplemental disclosure of non-cash financing activity:
Accrued and unpaid offering costs $ - $ 128,918 $ -
Supplemental disclosure of cash flow information:
Income taxes paid $ 428,500 $ - $ 428,500
================ =============== ================
The accompanying notes are an integral part of these financial statements.
6
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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 a operating business or businesses.
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. Activity from September 30, 2006 through June 30, 2007 has
been limited to the identification and analysis of potential acquisition
candidates for the Company.
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 completed the Public Offering on September 6, 2006. Preceding
the completion of the Public Offering 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 public 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.
7
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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.
We have neither engaged in any business operations nor generated any
operating revenue to date. Our only activities since inception have been
organizational activities and those necessary to prepare for our public
offering, and thereafter, pursuing potential acquisitions of target businesses.
We will not generate any operating revenues until after completion of a business
combination. We have generated non-operating income in the form of interest
income on our cash and cash equivalents and short term investments.
Interim Financial Statements
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC")
and should be read in conjunction with the Company's audited financial
statements and footnotes thereto for the period from inception (March 31, 2006)
through September 30, 2006 included in the Company's Form 10-K filed December
18, 2006. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to such
rules and regulations. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. The financial
statements reflect all adjustments (consisting primarily of normal recurring
adjustments) that are, in the opinion of management necessary for a fair
presentation of the Company's financial position and results of operations. The
operating results for the period ended June 30, 2007 are not necessarily
indicative of the results to be expected for any other interim period of any
future year.
Investments Held in Trust
The Company's restricted investments held in the Trust Fund at June 30,
2007 are comprised of an institutional money fund and a United States Treasury
Bill with a maturity of August 9, 2007 in the amounts of $39,919,565 and
$10,380,580, 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
8
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Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
from an enterprise's activities during the current and preceding years. It
Energy Services Acquisition Corp. (A Development Stage Enterprise) Notes to the
Financial Statements 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.
Basic net income per share is computed by dividing income available to
common shareholders by the weighted average common shares outstanding for the
period including shares subject to possible redemption. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then share in the earnings of the
entity.
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 and at June 30, 2007.
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 flows.
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
9
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Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
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. 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 accounted 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
estimated the fair value of this unit purchase option at $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: (1) expected volatility of 75.7 %, (2) risk
free interest rate of 5.1 % and (3) expected life of 5 years.
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.
10
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Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
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.
7. Concentration of Credit Risk
At June 30, 2007, the Company maintained a checking account at a financial
institution, the balance of which exceeded the federally insured limit by $7,575
at September 30, 2006 and by $873,091 at June 30, 2007.
11
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Energy Services Acquisition Corp.
(A Development Stage Enterprise)
Notes to the Financial Statements
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 June 30,
2007. There are no net operating loss carry forwards at June 30, 2007.
At June 30, 2007, income tax expense consisted of the following:
Nine Months March 31, 2006
ended June 30, June 30,
2007 2007
Taxes currently payable
Federal $ 511,000 $ 543,000
State 115,000 124,000
----------- ------------
Total $ 626,000 $ 667,000
=========== ============
The Company is incorporated in Delaware and is subject to franchise taxes, which
are shown as a component of operating expenses.
12
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward looking Statements
The statements discussed in this Report include forward looking statements that
involve risks and uncertainties, including the timely delivery and acceptance of
the Company's products and the other risks detailed from time to time in the
Company's reports filed with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the Company's
unaudited financial statements and footnotes thereto contained in this quarterly
report filed on Form 10-Q and the Company's audited financial statements and the
footnotes thereto for the period from inception (March 31, 2006) to September
30, 2006 included in the Company's Annual Report on Form 10-K filed on December
18, 2006.
The Company was 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 entity or entities that have operating businesses. We
completed our initial public offering ("IPO") on September 6, 2006. Our entire
activity from inception through consummation of the IPO on September 6, 2006 was
to prepare for and complete our IPO. Since the consummation of our IPO on
September 6, 2006, our activity has been limited.
We are currently in the process of evaluating and identifying targets for a
business combination. We intend to utilize cash derived from the proceeds of our
IPO, our capital stock, debt or a combination of cash, capital stock and debt in
effecting a business combination.
Results of Operations
Net income for the quarter ended June 30, 2007 was $307,458, which consisted of
interest from the trust fund totaling $648,941 offset by $145,583 of expenses,
$97,119 of which related to formation and operating cost, $37,259 of which
related to due diligence expenses relating to potential acquisitions, $11,205
relating to Delaware franchise tax and income taxes of $195,900. This income
compares to a loss of $6,124 for the same period the prior year. The June 30,
2006 loss reflected primarily the original organization expenses and operating
expenses prior to the public offering.
Net income for the nine months ended June 30, 2007 was $1,024,250 which
consisted of interest from the trust fund totaling $1,945,543 offset by $295,293
of expenses, $184,622 of which related to formation and operating costs, due
diligence expenses relating to potential acquisitions of $73,324, $37,347
relating to Delaware franchise tax and income taxes of $626,000. This compares
to a loss of $8,324 for the period from inception (March 31, 2006) through June
30, 2006. The 2006 loss was due to the organization and operating expenses prior
to the completion of the public offering.
Net income from inception (March 31, 2006) to June 30, 2007 was $1,111,670,
which consisted of interest income from the trust fund totaling $2,122,717 which
was offset by $344,047 of expenses. $203,376 of the expenses related to
formation and operating costs, $73,324 related to due diligence expenses
relating to potential acquisitions, $67,347 related to Delaware franchise tax
and income taxes of $667,000.
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 $789,000 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 June 30, 2007, approximately $49,268,145(or
13
<Page>
approximately $5.77 per share sold in the offering) is being held in the trust
account. We intend to use substantially all of the net proceeds of the 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.
Item 3. 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 4. Controls and Procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports that Energy Services 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 third
quarter of fiscal year 2007 that has materially affected, or is reasonably
likely to materially affect, Energy Services Acquisition Corp.'s internal
control over financial reporting.
14
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PART II
OTHER INFORMATION
ITEM 1A. Risk Factors
Please see the information disclosed in the "Risk Factors" section of our Form
10-K as filed with the Securities and Exchange Commission on December 18, 2006,
and which is incorporated herein by reference.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Prior to completing our public offering on September 6, 2006, 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)
- ---------------------------
(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:
Name Number of 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)
- ---------------------------
(1) Douglas Reynolds is the son of Marshall T. Reynolds and the brother of Jack
M. Reynolds.
15
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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
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 $1,473,777 in interest and dividends through March 31, 2007.
(c) Energy Services Acquisition Corp. did not repurchase any shares of its
common stock during the relevant period.
ITEM 4. Submission of matters to a vote of Security holders
Energy Services` annual meeting of shareholders was held on April 23, 2007.
At this meeting shareholders were asked to vote on the election of directors and
the certification of the independent auditors. The number of shares outstanding
was 10,750,000, the number of shares entitled to vote was 10,750,000 shares, and
the number of shares present in person or by proxy was 9,442,718.
1. As to the election of directors, the vote was as follows:
For Witheld
Marshall T. Reynolds 9,388,847 53,871
Jack M. Reynolds 9,388,847 53,871
Edsel R. Burns 9,411,418 31,300
Neal W. Scaggs 9,411,418 31.300
Joseph L. Williams 9,411,418 31,300
16
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2. As to the ratification of the appointment of Castaing, Hussey & Lolan LLC
as independent auditors, the vote was as follows:
For Against Abstain
9,431,136 1,000 10,582
ITEM 6. Exhibits
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
17
<Page>
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: August 3, 2007 By: /s/ Marshall T. Reynolds
--------------------------------
Marshall T. Reynolds
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 2007 By: /s/ Jack M. Reynolds
-----------------------------------
Jack M. Reynolds
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
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 Quarterly Report on Form 10-Q 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;
August 3, 2007 /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 Quarterly Report on Form 10-Q 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;
August 3, 2007 /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 Quarterly report of the Company on Form 10-Q for the quarter
ended June 30, 2007 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.
August 3, 2007 /s/ Marshall T. Reynolds
- --------------- ------------------------------------
Date Marshall T. Reynolds
Chairman and Chief Executive Officer
August 3, 2007 /s/ Jack M. Reynolds
- --------------- ------------------------------------
Date Jack M. Reynolds
President and Chief Financial Officer