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 March 31, 2010
[ ] 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 of America Corporation
--------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 20-4606266
- ------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
100 Industrial Lane, Huntington, West Virginia 25702
- ---------------------------------------------- ---------
(Address of Principal Executive Office) (Zip Code)
(304) 399-6315
---------------
(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 has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES __ 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 [ ]
Smaller Reporting Company [X]
As of May14, 2010 there were issued and outstanding 12,092,307 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 NO X
------ --------
Transitional Small Business Disclosure Format (check one) Yes No X
---- ---
Part 1: Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Consolidated Statements of Changes in Stockholders' Equity 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4T. Controls and Procedures 17
Part II: Other Information
Item 1A. Risk Factors 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 4.. Removed and Reserved 18
Item 6. Exhibits 18
Signatures 19
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
Assets 2010 2009
------------- ------------
(Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 1,179,477 $ 2,829,988
Accounts receivable-trade 9,953,066 16,636,095
Allowance for doubtful accounts (283,207) (283,207)
Retainages receivable 2,979,929 3,135,461
Other receivables 89,111 141,530
Costs and estimated earnings in excess of billings on uncompleted contracts 10,139,901 7,870,120
Deferred tax asset 3,743,385 2,991,173
Prepaid expenses and other 4,641,664 2,320,679
------------- ------------
Total Current Assets 32,443,326 35,641,839
------------- ------------
Property, plant and equipment, at cost 36,500,846 35,350,004
less accumulated depreciation (9,256,257) (6,424,355)
------------- ------------
27,244,589 28,925,649
Goodwill 38,469,163 38,469,163
------------- ------------
Total Assets $ 98,157,078 $ 103,036,651
============ =============
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt $ 7,308,144 $ 7,254,624
Lines of credit and short term borrowings 8,422,730 7,885,579
Accounts payable 5,044,309 5,375,962
Accrued expenses and other current liabilities 4,332,804 5,717,730
Billings in excess of costs and estimated earnings on uncompleted contracts 409,762 4,501
------------- ------------
Total Current Liabilities 25,517,749 26,238,396
------------- ------------
Long-term debt, less current maturities 9,112,608 10,497,844
Long-term debt, payable to shareholder 5,100,000 5,600,000
Deferred income taxes payable 6,046,523 6,364,968
------------- ------------
Total Liabilities 45,776,880 48,701,208
------------- ------------
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 12,092,307
shares 1,209 1,209
Additional paid in capital 55,976,368 55,976,368
Retained earnings (3,597,379) (1,642,134)
------------- ------------
Total Stockholders' equity 52,380,198 54,335,443
------------- ------------
Total liabilities and stockholders' equity $ 98,157,078 $ 103,036,651
============ =============
The Accompanying Notes are an Integral Part of These Financial Statements
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ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2010 2009 2010 2009
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------ ------------------ ----------------- ----------------
Revenue $ 20,295,342 $ 18,944,621 $ 50,247,079 $ 52,623,667
-
Cost of revenues 21,468,697 21,202,424 46,654,708 56,477,545
------------------ ------------------ ----------------- ----------------
Gross profit (loss) (1,173,355) (2,257,803) 3,592,371 (3,853,878)
Selling and administrative expenses 2,766,444 1,952,884 6,183,835 3,667,634
------------------ ------------------ ----------------- ----------------
Income (loss) from operations (3,939,799) (4,210,687) (2,591,464) (7,521,512)
Other income (expense)
Interest income 11,099 13,537 27,177 49,810
Other nonoperating income (expense) 199,275 (406,900) 319,722 (245,085)
Interest expense (383,037) (456,197) (804,571) (872,969)
Gain (loss) on sale of equipment 13,866 (1,533) 13,247 (9,097)
------------------ ------------------ ----------------- ----------------
(158,797) (851,093) (444,425) (1,077,341)
------------------ ------------------ ----------------- ----------------
Income (loss) before income taxes (4,098,596) (5,061,780) (3,035,889) (8,598,853)
Income tax expense (benefit) (1,505,791) (2,193,738) (1,080,644) (3,536,302)
------------------ ------------------ ----------------- ----------------
Net income (loss) $ (2,592,805) $ (2,868,042) $ (1,955,245) $ (5,062,551)
================== ================== ================= ================
Weighted average shares outstanding-basic 12,092,307 12,092,307 12,092,307 12,092,307
Weighted average shares-diluted 12,092,307 12,092,307 12,092,307 12,092,307
Net income (loss) per share basic $ (0.21) $ (0.24) $ (0.16) $ (0.42)
================== ================== ================= ================
Net income (loss) per share diluted $ (0.21) $ (0.24) $ (0.16) $ (0.42)
================== ================== ================= ================
The Accompanying Notes are an Integral Part of These Financial Statements
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ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six Months Ended Six Months Ended
March 31, March 31,
Operating activities 2010 2009
-------------- --------------
Net income (loss) $ (1,955,245) $ (5,062,551)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation expense 3,052,041 2,911,986
(Gain) loss on sale/disposal of equipment (13,247) 9,097
Provision for deferred taxes (1,070,657) -
(Increase) decrease in contracts receivable 6,683,029 24,445,366
(Increase) decrease in retainage receivable 155,532 1,463,098
(Increase) decrease in other receivables 52,419 7,366
(Increase) decrease in cost and estimated earnings in excess of billings
on uncompleted contracts (2,269,781) 2,746,343
(Increase) decrease in prepaid expenses (1,053,879) (2,717,154)
Increase (decrease) in accounts payable (331,653) (6,702,143)
Increase (decrease) in accrued expenses (1,272,734) (3,204,943)
Increase (decrease) in billings in excess of cost and estimated earnings
on uncompleted contracts 405,261 (72,398)
Increase (decrease) in income taxes payable - (1,461,461)
Increase (decrease) in deferred income taxes payable - (1,662,463)
-------------- -------------
Net cash provided by (used in) operating activities 2,381,086 10,700,143
-------------- -------------
Cash flows from investing activities:
Investment in property & equipment (1,152,614) (984,596)
Proceeds from sales of property and equipment 441,622 7,232
-------------- -------------
Net cash provided by (used in) investing activities (710,992) (977,364)
-------------- -------------
Cash flows from financing activities:
Repayment of loans from shareholders (500,000) (100,000)
Borrowings on lines of credit and short term debt, net of (repayments) 70,045 (3,246,209)
Proceeds from long term debt - 834,019
Principal payments on long term debt (2,890,650) (10,627,911)
-------------- -------------
Net cash provided by (used in) financing activities (3,320,605) (13,140,101)
-------------- -------------
Increase (decrease) in cash and cash equivalents (1,650,511) (3,417,322)
Cash beginning of period 2,829,988 13,811,661
-------------- -------------
Cash end of period $ 1,179,477 $ 10,394,339
============== =============
Supplemental schedule of noncash investing and financing activities:
Insurance premiums financed $ 1,267,160 $ -
============== =============
Purchases of property & equipment under financing agreements $ 646,742 $ 48,566
============== =============
Short term borrowing renewed as long term note $ 800,000 $ -
============== =============
Supplemental disclosures of cash flows information:
Cash paid during the year for:
Interest $ 813,124 $ 916,326
============== =============
Income taxes $ 78,700 $ 1,500,000
============== =============
The Accompanying Notes are an Integral Part of These Financial Statements
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ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For Six Months Ended March 31, 2010 and 2009
Common Stock Total
------------------------ Additional Paid Retained Stockholders'
Shares Amount in Capital Earnings Equity
---------- -------- ----------- ----------- -----------
Balance at September 30, 2008 12,092,307 $ 1,209 $55,976,368 $ 4,279,640 $60,257,217
Net Income (Loss) - - - (5,062,551) (5,062,551)
---------- -------- ----------- ----------- -----------
Balance at March 31, 2009 12,092,307 $ 1,209 $55,976,368 $ (782,911) $55,194,666
========== ======== =========== =========== ===========
Balance at September 30, 2009 12,092,307 $ 1,209 $55,976,368 $(1,642,134) $54,335,443
Net Income (Loss) - - - (1,955,245) (1,955,245)
---------- -------- ----------- ----------- -----------
Balance at March 31, 2010 12,092,307 $ 1,209 $55,976,368 $(3,597,379) $52,380,198
========== ======== =========== =========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements
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ENERGY SERVICES OF AMERICA CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Energy Services of America Corporation, formerly known as Energy Services
Acquisition Corp., (the Company) was incorporated in Delaware on March 31, 2006
as a blank check company whose objective was to acquire an operating business or
businesses. On September 6, 2006 the Company sold 8,600,000 units in the public
offering at a price of $6.00 per unit. Each unit consisted of one share of the
Company's common stock and two common stock purchase warrants for the purchase
of a share of common stock at $5.00. The warrants could not be exercised until
the later of the completion of the business acquisition or one year from issue
date. The Company operated as a blank check company until August 15, 2008. On
that date the Company acquired S.T. Pipeline, Inc. and C.J. Hughes Construction
Company, Inc. with proceeds from the Company's Initial Public Offering. S. T.
Pipeline and C. J Hughes are operated as wholly owned subsidiaries of the
Company.
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 years ended September 30, 2009 and 2008 included
in the Company's Form 10-K filed December 23, 2009. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been omitted pursuant to interim financial reporting rules and
regulations of the SEC. 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 periods ended March 31, 2010 and 2009 are not
necessarily indicative of the results to be expected for the full year.
Principles of Consolidation
The consolidated financial statements of Energy Services include the accounts of
Energy Services and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Unless the
context requires otherwise, references to Energy Services include Energy
Services and its consolidated subsidiaries.
Reclassifications
Certain reclassifications have been made in prior years' financial statements to
conform to classifications used in the current year.
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2. UNCOMPLETED CONTRACTS
Costs, estimated earnings, and billings on uncompleted contracts as of March 31,
2010 and September 30, 2009 are summarized as follows:
March 31, 2010 September 30, 2009
-------------- ------------------
Costs incurred on contracts in progress $ 63,917,330 $ 37,568,730
Estimated earnings, net of estimated losses 3,573,552 7,102,336
------------ ------------
67,490,882 44,671,066
Less Billings to date 57,760,743 36,805,447
------------ ------------
$ 9,730,139 $ 7,865,619
============ ============
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 10,139,901 $ 7,870,120
Less Billings in excess of costs and estimated earnings
on uncompleted Contracts 409,762 4,501
------------ ------------
$ 9,730,139 $ 7,865,619
============ ============
Backlog at March 31, 2010 and September 30, 2009 was $136.0 million and $144.0
million respectively.
3. FAIR VALUE MEASUREMENTS
The carrying amount for borrowings under the Company's revolving credit facility
approximates fair value because of the variable market interest rate charged to
the Company for these borrowings. The fair value of the Company's long term
fixed rate debt to unrelated parties was estimated using a discounted cash flow
analysis and a yield rate that was estimated based on the borrowing rates
currently available to the Company for bank loans with similar terms and
maturities, which is a level 3 input. It was not practicable to estimate the
fair value of notes payable to related parties, The fair value of the aggregate
principal amount of the Company's fixed-rate debt of $14.0 million at March 31,
2010 was $14.3 million.
4. EARNINGS PER SHARE
The amounts used to compute the basic and diluted earnings per share for the
three months ended March 31, 2010 and the six months ended March 31, 2010 and
the three months ended March 31, 2009 and the six months ended March 31, 2009
are illustrated below:
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Three Months Ended Six Months Ended
March 31 March 31,
2010 2009 2010 2009
---- ---- ---- ----
Net Income (Loss) from continuing operations $ (2,592,805) $ (2,868,042) $ (1,955,245) $(5,062,551)
available to common shareholders
Weighted average shares outstanding basic 12,092,307 12,092,307 12,092,307 12,092,307
Effect of dilutive warrants -0- -0- -0- -0-
------------ ------------ ------------ -----------
Weighted average shares outstanding diluted 12,092,307 12,092,307 12,092,307 12,092,307
Net Income (Loss) per share-basic $ (0.21) $ (0.24) $ (0.16) $ (0.42)
============ ============ ============ ==========
Net Income (Loss) per share-diluted $ (0.21) $ (0.24) $ (0.16) $ (0.42)
============ ============ ============ ==========
Warrants to purchase share of common stock that have been excluded from the
determination of diluted earnings per share because they are antidilutive (the
exercise price is higher than the current market price) is 20,276,923 warrants
for all periods presented.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued an Account Standards Update (ASU) entitled
Improving Disclosures about Fair Value Measurements. The ASU amends the FASB
accounting standards regarding disclosures of fair value measurements and
requires new disclosures about transfers in and out of Levels 1 and 2 of the
fair value hierarchy, and also disclosures about activity in Level 3 fair value
measurements. Portions of this ASC update on disclosures is effective for
reporting periods beginning after December 15, 2009, and the adoption by the
Company will not have an impact on financial results.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion of the financial condition and results
of operations of Energy Services in conjunction with the " Consolidated
Financial information " appearing in this section of this report as well as the
historical financial statements and related notes contained elsewhere herein.
Among other things, those historical consolidated financial statements include
more detailed information regarding the basis of presentation for the following
information.
Forward Looking Statements
Within Energy Services' financial statements and this discussion and analysis of
the financial condition and results of operations, there are
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included statements reflecting assumptions, expectations, projections,
intentions or beliefs about future events that are intended as "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. They use words such as "anticipate," "estimate,"
"project," "forecast," "may," "will," "should," "could," "expect," "believe,"
"intend" and other words of similar meaning.
These forward-looking statements are not guarantees of future performance and
involve or rely on a number of risks, uncertainties, and assumptions that are
difficult to predict or beyond Energy Services' control. Energy Services has
based its forward-looking statements on management's beliefs and assumptions
based on information available to management at the time the statements are
made. Actual outcomes and results may differ materially from what is expressed,
implied and forecasted by forward-looking statements and any or all of Energy
Services' forward-looking statements may turn out to be wrong. They can be
affected by inaccurate assumptions and by known or unknown risks and
uncertainties.
All of the forward-looking statements, whether written or oral, are expressly
qualified by these cautionary statements and any other cautionary statements
that may accompany such forward-looking statements or that are otherwise
included in this report. In addition, Energy Services does not undertake and
expressly disclaims any obligation to update or revise any forward-looking
statements to reflect events or circumstances after the date of this report or
otherwise.
Company Overview
Energy Services 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 operating business. It operated as a "Blank Check Company"
until August 15, 2008 at which time it completed the acquisitions of S.T.
Pipeline, Inc. and C.J. Hughes Construction Company, Inc. The Company acquired
S.T. Pipeline for $16.2 million in cash and $3.0 million in a promissory note.
As of May 14, 2010 no payments have been made on the promissory note. The C.J.
Hughes purchase price totalled $34.0 million, one half of which was in cash and
one half in Energy Services common stock. The acquisitions are accounted for
under the purchase method and the financial results of both acquisitions are
included in the results of Energy Services from the date of acquisition.
Since the acquisitions, Energy Services has been engaged in one segment of
operations which is providing contracting services for energy related companies.
Currently Energy Services primarily services the gas, oil and electrical
industries though it does some other incidental work. For the gas industry, the
Company is primarily engaged in the construction, replacement and repair of
natural gas pipelines and storage facilities for utility companies and private
natural gas companies. Energy Services is involved in the construction of both
interstate and intrastate pipelines, with an emphasis on the latter. For the oil
industry the Company provides a variety of services relating to pipeline,
storage facilities and plant work. For the electrical industry, the Company
provides a full range of electrical installations and repairs including
substation and switchyard services, site preparation, packaged buildings,
transformers and other ancillary work with regards thereto. Energy Services'
other services include liquid pipeline construction, pump station construction,
production facility construction, water and sewer pipeline installations,
various maintenance and repair services and other services related to pipeline
construction. The majority of the Company's customers are located in West
Virginia, Virginia, Ohio, Kentucky and North Carolina. The Company builds, but
does not own, natural gas pipelines for its customers that are part of both
interstate and intrastate pipeline systems that move natural gas from producing
regions to consumption regions as well as building and replacing gas line
services to individual customers of the various utility companies.
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The Company enters into various types of contracts, including competitive unit
price, cost-plus (or time and materials basis) and fixed price (lump sum)
contracts. The terms of the contracts will vary from job to job and customer to
customer though most contracts are on the basis of either unit pricing in which
the Company agrees to do the work for a price per unit of work performed or for
a fixed amount for the entire project. Most of the Company's projects are
completed within one year of the start of the work. On occasion, the Company's
customers will require the posting of performance and/or payment bonds upon
execution of the contract, depending upon the nature of the work performed.
The Company generally recognizes revenue on unit price and cost-plus contracts
when units are completed or services are performed. Fixed price contracts
usually result in recording revenues as work on the contract progresses on a
percentage of completion basis. Under this accounting method, revenue is
recognized based on the percentage of total costs incurred to date in proportion
to total estimated costs to complete the contract. Many contracts also include
retainage provisions under which a percentage of the contract price is withheld
until the project is complete and has been accepted by the customer.
Second Quarter Overview
The following is an overview for the three months and six months ended March 31,
2010:
Three Months Ended Six Months Ended
March 31, 2010 March 31, 2010
(In Millions) (In Millions)
Sales $ 20.3 $ 50.2
Cost of Revenues 21.5 46.6
-------- --------
Gross Profit (Loss) (1.2) 3.6
Selling & Adm. Expense 2.7 6.2
Other Income (Expense) (0.2) (0.4)
-------- --------
Net Income (Loss) before income taxes (4.1) (3.0)
Income Taxes (Benefit) (1.5) (1.1)
-------- --------
Net Income (Loss) $ (2.6) $ (1.9)
======== ========
The second quarter for the Company is typically a very slow period for our
business line. The weather plays a major role in our operations during this
period of time. The weather in the Mid Atlantic states this year was extreme and
caused major work stoppages which resulted in larger than expected losses.
While the inclement weather caused a delay in projects starting, we do not
expect any contracts to have a loss at completion, or for the profit margin to
be lower than bid.
The Company's cash and cash equivalents decreased by $5.3 million, with working
capital decreasing by $3.1 million during the quarter ending March 31, 2010.
Accounts receivable and retainage receivable decreased by $2.8 million during
the quarter ending March 31, 2010 and long-term debt increased by $22.0
thousand.
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Quarter Ending and Year To Date March 31, 2010 and 2009 Comparison
Revenues. Revenues increased by $1.4 million (7.1%) to $20.3 million for the
three months ended March 31, 2010 and decreased by $2.4 million (4.5%) to $50.2
million for the six months ended March 31, 2010 compared to the same periods in
2009. The increase in revenues for the three months ended March 31, 2010 was due
to the company wrapping up some projects during that period. The decreases in
revenues for the six month period resulted from the completion of some larger
projects during the period in 2009 which did not reoccur in 2010. Severe weather
conditions also limited our ability to generate revenue during this quarter.
Cost of Revenues. The Cost of Revenues increased by $0.3 million (1.3%) to $21.5
million for the three months ended March 31, 2010 and decreased by $9.8 million
(17.4%) to $46.7 million for the six months ended March 31, 2010 compared to the
same periods ending in 2009. The increase in cost is related to the increase in
revenue for the three months ended March 31, 2010. The large decrease in cost
for the current six month period was a result of large losses during the period
in 2009 which did not reoccur in fiscal 2010.
Gross Profit (Loss). Gross loss decreased by $1.1 million (48%) to a loss of
$1.2 million for the three months ended March 31, 2010 compared to a gross loss
of $2.3 million for the prior year. The gross loss for the three months ended
was driven primarily by severe winter weather conditions in January and February
that impacted the entire Mid Atlantic states. Weather conditions in our
operating region were severe during this quarter which forced many pieces of
equipment, both owned and rented, to be under utilized or to sit idle. In
preparation for the upcoming work in the third and fourth quarter of this year
the Company spent $1.1 million over and above what was allocated to the jobs to
ensure the equipment was in good shape when it would go to the field in April
and May of 2010, which is included in cost of revenues. Productivity and thereby
profits on the few jobs that attempted to work during this period was reduced by
the weather conditions as well. Gross Profit was $3.6 million for the six months
ended March 31, 2010 compared to a gross loss of $3.9 million for the same
period ending in 2009. This return to profitability during the six month period
reflects the fact that the Company had two particular projects at one of the
operating subsidiaries which lost $3.2 million for the quarter ended December
31, 2008, resulting in a gross loss for the six months ended March 31, 2009.
There was a combination of events that resulted in the losses on these jobs.
First, the customer had several other projects that were supposed to start in
the quarter that they decided to delay. The pricing had been established on
these projects under the assumption that all of the projects would be completed.
When that did not occur many costs that would have been spread over all the jobs
then had to be absorbed into these two existing jobs. In addition, there were
unplanned work stoppages initiated by the customer for the Thanksgiving and
Christmas holidays which resulted in added payroll costs of approximately
$450,000. These jobs have been completed and we believe that the results of
these jobs are not indicative of future performance.
Based on the Company's current backlog it is anticipated that the third and
fourth fiscal quarters will show marked improvement in both revenues and gross
margin.
Selling and administrative expenses. Selling and administrative expenses
increased by $0.8 million (41.7%) for the three months ended March 31, 2010 and
increased by $2.5 million (68.6%) for the six months ended March 31, 2010
compared to the same period ending in 2009. These increases were primarily due
to additional administrative expenses, such as accounting, professional fees,
taxes and insurance costs to support our informational and regulatory compliance
needs.
Income (Loss) from Operations. Loss from operations decreased $0.3 million
(6.4%) to a loss of $3.9 million for the three months ended March 31, 2010 and
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decreased $4.9 million (65.5%) to a loss of $2.6 million for the six months
ended March 31, 2010 compared to the same periods ending in 2009. This is a
function of the previous categories.
Other Income (Expense). Other income and expense decreased by $0.69 million
(81.3%) for the three months ended March 31, 2010 and decreased by $0.63 million
(58.7%) for the six months ended March 31, 2010 compared to the same period
ending in 2009. These decreases were primarily due to the fact the Company
incurred penalties and interest expenses in 2009 that did not occur in the
current year.
Net Income (Loss). Net (Loss) decreased by $0.28 million (9.6%) to a net $2.6
million loss for the three months ended March 31, 2010 and decreased by $3.1
million (61.4%) to a net loss of $1.96 million for the six month period ended
March 31, 2010 compared to the same periods in the prior year. The decrease
occurred due to the various changes as previously discussed, principally the
increase in selling and administrative expenses, partially offset by an increase
in gross profit.
Comparison of Financial Condition
The Company had total assets at March 31, 2010 of $98.2 million, a decrease from
$103.0 million at September 30, 2009. Some of the primary components of the
balance sheet were accounts receivable which totaled $9.95 million a decrease
from $16.6 million at September 30, 2009. This reduction resulted from the
reduced revenue earned during the six months ending March 31, 2010 compared to
the same period in the previous year as well as collections of prior quarter
receivables. Other major categories of assets at March 31, 2010 included cash of
$1.2 million and fixed assets less accumulated depreciation of $27.2 million.
Liabilities totaled $45.8 million, a decrease from $48.7 million at September
30, 2009. This decrease was primarily due to reductions in accounts payable and
debt which were paid down with the collections on accounts receivable.
Stockholders' Equity. Stockholders' equity decreased from $54.3 million at
September 30, 2009 to $52.4 million at March 31, 2010. This decrease was due to
the net loss of $1.9 million for the six months ended March 31, 2010. We have
not paid any dividends on our common stock, nor have we repurchased shares of
our common stock.
Liquidity and Capital Resources
Cash Requirements
We anticipate that our cash and cash equivalents on hand at March 31, 2010 which
totaled $1.2 million along with our credit facilities available to us and our
anticipated future cash flows from operations will provide sufficient cash to
meet our operating needs. However, with the anticipated future energy shortage
nationwide and the increased demand for our services, we could be faced with
needing significant additional working capital. Also, current general credit
tightening resulting from the general banking and other economic contraction
that occurred in the second half of 2008, has impaired the availability of
credit facilities for future operational needs. A prolonged restriction in
borrowing capacity may limit the growth of the Company.
Sources and uses of Cash
The net loss for the six months ended March 31, 2010 was $2.0 million. The
depreciation expense was $3.1 million. Contracts, other receivables and prepaids
provided $3.6 million while accounts payable and accrued expenses used $1.6
11
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million. Net cash provided by operating activities was $2.4 million. Financing
activities consumed $3.3 million. The lines of credit and short-term borrowings
increased by $70 thousand and long term debt was reduced by $2.9 million during
this period.
As of March 31, 2010, we had $1.2 million in cash, working capital of $6.9
million and long term debt, net of current maturities of $14.2 million.
Long Term Debt and Loan Covenants
The Company entered into a fifteen million dollar ($15,000,000) Line of Credit
agreement with a regional bank on August 20, 2009. Interest will accrue on the
line of credit at an annual rate based on "Wall Street Journal" Prime Rate (the
Index) with a floor of six percent (6.0%). Cash available under the line is
calculated based on a percentage of the Company's accounts receivable with
certain exclusions along with seventy five percent of certain unencumbered fixed
assets. Major items excluded from calculation are seventy-five percent (75%) of
receivables from bonded jobs, seventy-five percent (75%) of retainage
receivables, and items greater than one hundred twenty (120) days old.
At March 31, 2010 the Company had access to $12.6 million on the Line of Credit
based on its borrowing base certificate, of which it had drawn $ 7.5 million. As
receivables increase during the next few months access to the entire $15 million
Line of Credit should occur. The access to the additional cash from the Line
along with anticipated collections of receivables should provide ample operating
capital.
If additional working capital isn't available the company's growth and ability
to undertake larger projects will be reduced significantly which could have a
significant negative impact on the Company's operating margins and overall
financial strength.
The following are the major covenants of the line:
Current Ratio must be not less than 1.1 in the first year. As of March 31, 2010
our current ratio was 1.27.
Debt to tangible net worth must not exceed 3.5 during the first year. Our debt
to tangible net worth at March 31, 2010 was 3.29.
Capital Expenditures (CAPEX) must not exceed $7.5 million. CAPEX from the loan
date was approximately $1.2 million.
Dividends shall not exceed 50% of taxable income without prior bank approval. No
dividends have been declared.
The Company was in compliance with all loan covenants as of the period ending
March 31, 2010.
Off-Balance Sheet transactions
Due to the nature of our industry, we often enter into certain off-balance sheet
arrangements in the ordinary course of business that result in risks not
directly reflected in our balance sheets. Though for the most part not material
in nature, some of these are:
12
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Leases
Our work often requires us to lease various facilities, equipment and vehicles.
These leases usually are short term in nature, one year or less, though when
warranted we may enter into longer term leases. By leasing equipment, vehicles
and facilities, we are able to reduce our capital outlay requirements for
equipment vehicles and facilities that we may only need for short periods of
time. The Company currently rents two parcels of real estate from
stockholders-directors of the company under long-term lease agreements. The
first agreement calls for monthly rental payments of $5,000 and extends through
January 1, 2012. The second agreement is for the Company's headquarter offices
and is rented from a corporation in which two of the Company's directors are
shareholders. The second agreement began November 1, 2008 and runs through 2011
with options to renew. This second agreement provides for a monthly rental of
$7,500.
Letters of Credit
Certain customers or vendors may require letters of credit to secure payments
that the vendors are making on our behalf or to secure payments to
subcontractors, vendors, etc. on various customer projects. At March 31, 2010,
the Company was contingently liable on an irrevocable Letter of Credit for
$950,000 to guarantee payments of insurance premiums to the group captive
insurance company through which one of the wholly owned subsidiaries obtains its
auto, workers compensation and general liability insurance.
Performance Bonds
Some customers, particularly new ones, or governmental agencies require us to
post bid bonds, performance bonds and payment bonds. These bonds are obtained
through insurance carriers and guarantee to the customer that we will perform
under the terms of a contract and that we will pay subcontractors and vendors.
If we fail to perform under a contract or to pay subcontractors and vendors, the
customer may demand that the insurer make payments or provide services under the
bond. We must reimburse the insurer for any expenses or outlays it is required
to make. Depending upon the size and conditions of a particular contract, we may
be required to post letters of credit or other collateral in favor of the
insurer. Posting of these letters or other collateral reduce our borrowing
capabilities. Historically, the Company has never had a payment made by an
insurer under these circumstances and does not anticipate any claims in the
foreseeable future. At March 31, 2010, we had $161.9 million in performance
bonds outstanding.
Concentration of Credit Risk
In the ordinary course of business the company grants credit under normal
payment terms, generally without collateral, to our customers, which include
natural gas and oil companies, general contractors, and various commercial and
industrial customers located within the United States. Consequently, we are
subject to potential credit risk related to business and economic factors that
would affect these companies. However, we generally have certain statutory lien
rights with respect to services provided. Under certain circumstances such as
foreclosure, we may take title to the underlying assets in lieu of cash in
settlement of receivables. The Company had three customers that exceeded ten
percent of revenues for the six months ended March 31, 2010. At March 31, 2010
those customers accounted for 38.3% of revenue. One customer exceeded ten
percent of accounts receivable with 12.5%.
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Litigation
The Company is a party from time to time to various lawsuits, claims and other
legal proceedings that arise in the ordinary course of business. These actions
typically seek, among other things, compensation for alleged personally injury,
breach of contract and/or property damages, punitive damages, civil penalties or
other losses, or injunctive or declaratory relief. With respect to all such
lawsuits, claims, and proceedings, we record reserves when it is probable that a
liability has been incurred and the amount of loss can be reasonably estimated.
We do not believe that any of these proceedings, separately or in aggregate,
would be expected to have a material adverse effect on our financial position,
results of operations or cash flows.
Related Party Transactions
Total long-term debt at March 31, 2010 was $21.5 million, of which, $8.1 million
was payable to certain directors, officers and former owners of an acquired
company. The related party debt consist of a $5.1 million note due in August
2011, a $3.0 million note payable in three payments of $1.0 million each on
August 15, 2009, 2010 and 2011.
Inflation
Due to relatively low levels of inflation during the six months ended March 31,
2009 and 2010, inflation did not have a significant effect on our results.
Recent Accounting Pronouncements
In January 2010, the FASB issued an Account Standards Update (ASU) entitled
Improving Disclosures about Fair Value Measurements. The ASU amends the FASB
accounting standards regarding disclosures of fair value measurements and
requires new disclosures about transfers in and out of Levels 1 and 2 of the
fair value hierarchy, and also disclosures about activity in Level 3 fair value
measurements. Portions of this ASC update on disclosures is effective for
reporting periods beginning after December 15, 2009, and the adoption by the
Company will not have an impact on financial results.
Critical Accounting Policies
The discussion and analysis of the Company's financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosures of contingent assets and liabilities
known to exist at the date of the consolidated financial statements and reported
amounts of revenues and expenses during the reporting period. We evaluate our
estimates on an ongoing basis, based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances.
There can be no assurance that actual results will not differ from those
estimates. Management believes the following accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
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Revenue Recognition. Revenues from fixed price contracts are recognized using
the percentage-of-completion method, measured by the percentage of costs
incurred to date to total estimated costs for each contract. These contracts
provide for a fixed amount of revenues for the entire project. Such contracts
provide that the customer accept completion of progress to date and compensate
us the services rendered, measured in terms of units installed, hours expended
or some other measure of progress. Contract costs include all direct material,
labor and subcontract costs and those indirect costs related to contract
performance, such as indirect labor, tools and expendables. The cost estimates
are based on the professional knowledge and experience of the Company's
engineers, project managers and financial professionals. Changes in job
performance, job conditions, and others all affect the total estimated costs at
completion. The effects of these changes are recognized in the period in which
they occur. Provisions for the total estimated losses on uncompleted contracts
are made in the period in which such losses are determined. The current asset
"Costs and estimated earnings in excess of billings on uncompleted contracts"
represents revenues recognized in excess of amounts billed for fixed price
contracts. The current liability "Billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenues
recognized for fixed price contracts.
Revenue on all costs plus and time and material contracts are recognized when
services are performed or when units are completed.
Goodwill. The Company has selected July 1 as the date of the annual goodwill
impairment evaluation, which is the first day of our fourth fiscal quarter.
Goodwill was assigned to the operating units at the time of acquisition. The
reporting units to which goodwill was assigned are CJ Hughes ("CJ") and its
subsidiary Contractors Rental Corp ("CRC") as one unit, Nitro Electric (a
subsidiary of CJ Hughes-"Nitro") and to ST Pipeline. The assignment to CJ
consolidated and ST Pipeline was based on the purchase price of each company.
Both purchases were supported by fairness opinions. The allocation of the
goodwill arising from the purchase of CJ was allocated between CJ/CRC and Nitro
based on an internally prepared analysis of the relative fair values of each
unit.
CJ Hughes and its subsidiary CRC are considered one reporting unit because CRC
almost exclusively provides labor for CJ as a subcontractor. There have been no
material operational changes to any reporting units since the date of
acquisition. Although the Company uses a centralized management approach, the
reporting units have continued to perform similar services to those performed
prior to the acquisition. There have been no sales of equipment, other than in
the ordinary course of business, or dispositions of lines of business by any of
the operating units.
The Company's annual impairment analysis at July 1, 2009 indicated a control
value for the Company and for each of the reporting units in excess of their
respective book values. Accordingly, no loss from impairment was charged against
earnings. Management considered the fact that fair value estimates contain
assumptions, and note that a ten percent (10%) decline in fair value of each
reporting unit would not change the results of our assessment.
The Company's valuation was based on management's projected operating results
for the next fiscal year. The fair value of the reporting units was determined
using a weighted combination of a market approach to value utilizing pricing
multiples of guideline publicly traded companies, a market approach to value
utilizing pricing multiples of guideline merger and acquisition transactions,
and an income approach to value utilizing a discounted cash flow model.
15
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The Company's market capitalization, including the market cap of both the common
stock and the outstanding warrants, continues to be at a level below book value,
and has been since shortly after the acquisition of the operating companies and
the associated redemption of common shares. At March 31, 2010 the market cap of
the Company was at 99% of book value. The Company believes that the low stock
price is attributable to larger than usual discounts for minority shares and
lack of marketability due to the low trading volume and the complex capital
structure that includes warrants and a unit purchase option. While stock price
is generally viewed as one indication of fair value (before application of a
control premium), for the reasons stated the Company believes it should not
place too much reliance on stock price alone. For the July 1, 2009 impairment
testing management obtained a valuation of the Company that indicated no
impairment. The Company's stock price since that date has been generally flat
and trading has been sporadic. However, the stock price has generally been above
the level that it was at during the period immediately before and after July 1,
2009 including at the quarterly reporting dates, which management believes is
indicative of no further deterioration in fair value of the Company.
Management will continue to assess at each reporting date the need for a
goodwill impairment test under the Accounting Standards Codification if an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. Management will also
continue to monitor the stock price of the Company, including trading volume,
for any trends since the last annual impairment test that might indicate a
decline in fair value of the Company.
Income Taxes. The Company has recorded a deferred tax asset of $2.7 million for
the tax benefits attributable to deductible temporary differences and carry
forwards. The majority of the Company's deferred tax asset relates to a net
operating loss of $5.7 million incurred in the prior year. The recorded deferred
tax asset must be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
Management has determined that the prior year operating loss was attributable in
large part to losses on two large contracts, and does not expect such losses to
repeat. Current operating profits and projected profits based on current backlog
with historical gross margins, will be more than sufficient to produce taxable
income in an amount equal to or greater than the operating loss carryover.
Additional work continues to be negotiated and bid at levels that should
maintain backlog at or near the current level. It is also noted that prior to
acquisition the operating companies had a history of operating profits.
Management also considered the deferred tax liability of $6.4 million associated
with the book to tax differences in the basis of fixed assets resulting from the
purchase accounting adjustments at the time of the acquisitions. This timing
difference will reverse over the next seven years. Management has concluded that
no valuation allowance against the deferred tax asset should be recorded at this
time.
Management's conclusion that the realization of the net operating loss carryover
is more likely than not was based on all available evidence at the balance sheet
date, and will be reassessed at each reporting date. Failure to maintain
historical revenues and gross margins may call into question the Company's
ability to realize the deferred tax asset and a valuation allowance may be
established at that time.
Outlook
The following statements are based on current expectations. These statements are
forward looking, and actual results may differ materially.
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We expect to see spending from our customers on their transmission and
distribution systems increasing over the next few years as demand returns to
normalized levels. The Company's backlog at March 31, 2010 was $136 million and
while adding additional business projects appears likely, no assurances can be
given that the Company will be successful in bidding on projects that become
available.
If the increased demand moves to expected levels in fiscal 2010 and beyond, we
believe that the Company will continue to have opportunities to continue to
improve both revenue volumes and the margins thereon.
If growth continues, we will be required to make additional capital expenditures
for equipment to keep up with that need. Currently, it is anticipated that in
fiscal 2010, the Company's capital expenditures will be between $2.0 million and
$4.0 million. However, if the customer demands grow, this number could be
significantly higher. Significantly higher capital expenditure requirements
could impair our cash flows and require additional borrowings. Please see Long
Term Debt and Loan Covenants on page 12.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, primarily related to increases in fuel prices
and adverse changes in interest rates, as discussed below.
Fuel Prices. Our exposure to market risk for changes in fuel prices relates to
our consumption of fuel and the price we have to pay for it. As prices rise, our
total fuel cost rises. We do not feel that this risk is significant due to the
fact that we would be able to pass a portion of those increases on to our
customers.
Interest Rate. Our exposure to market rate risk for changes in interest rates
relates to our borrowings from banks. Some of our loans have variable interest
rates. Accordingly, as rates rise, our interest cost would rise. We do not feel
that this risk is significant.
ITEM 4T. Controls and Procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports that Energy Services of America Corporation files or
submits under the Securities Exchange Act of 1934, is (1) recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms, and (2) accumulated and communicated to our management including our
Chief Executive Officer, as appropriate to allow timely decisions regarding
required disclosure.
There has been no change in Energy Services of America Corporation's internal
control over financial reporting during Energy Services of America Corporation's
second quarter of fiscal year 2010 that has materially affected, or is
reasonably likely to materially affect, Energy Services of America Corporation's
internal control over financial reporting.
17
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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 23, 2009,
and which is incorporated herein by reference.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) There have been no unregistered sales of securities during the
past two years.
(b) None.
(c) Energy Services of America Corporation did not repurchase any
shares of its common stock during the relevant period.
ITEM 4. Removed and Reserved
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
18
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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 OF AMERICA CORPORATION
Date: May 14, 2010 By: /s/ Edsel R. Burns
------------ ---------------------------------
Edsel R. Burns
Chief Executive Officer
Date: May 14, 2010 By: / s/ Larry A. Blount
------------- -----------------------------
Larry A. Blount
Chief Financial Officer
19
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Edsel R. Burns, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Energy Services of
America Corporation;
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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f) 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) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principals;
c) 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
d) 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.
Date: May 14, 2010 /s/ Edsel R. Burns
------------ --------------------------------------------
Edsel R. Burns
Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Larry A. Blount, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Energy Services of
America Corporation;
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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f) 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) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principals;
c) 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
d) 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.
Date: May 14, 2010 /s/ Larry A. Blount
------------ ------------------------------------
Larry A. Blount
Chief Financial Officer
<page>
Exhibit 32
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Edsel R. Burns Chief Executive Officer and Larry A. Blount, Chief Financial
Officer of Energy Services of America Corporation (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 March 31,
2010 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.
Date: May 14, 2010 /s/ Edsel R. Burns
------------ --------------------------------------------
Edsel R. Burns
Chief Executive Officer
Date: May 14, 2010 /s/ Larry A. Blount
------------ --------------------------------------------
Larry A. Blount
Chief Financial Officer