UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number
ENSERVCO CORPORATION
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
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Registrant’s telephone number: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| | | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Emerging growth company
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of December 29, 2024, there were 3,476,965 and
ENSERVCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
| September 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Inventories | ||||||||
| Marketable securities | ||||||||
| Current assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Right-of-use asset - finance, net | ||||||||
| Right-of-use asset - operating, net | ||||||||
| Other assets | ||||||||
| Long-term assets of discontinued operations | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Utica Facility | ||||||||
| LSQ Facility | ||||||||
| Buckshot Notes | ||||||||
| Libertas Notes | ||||||||
| Star Note | ||||||||
| September and October 2023 Convertible Notes, related parties | ||||||||
| November 2022 Convertible Note, related party | ||||||||
| Current portion of long-term debt | ||||||||
| Utica Residual Liability | ||||||||
| Financed insurance | ||||||||
| Lease liability - finance | ||||||||
| Lease liability - operating | ||||||||
| Other current liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Utica Facility, less current portion | ||||||||
| September and October 2023 Convertible Notes, related parties, less current portion | ||||||||
| Long-term debt | ||||||||
| Utica Residual Liability, less current portion | ||||||||
| Lease liability - finance, less current portion | ||||||||
| Lease liability - operating, less current portion | ||||||||
| Deferred tax liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Long-term liabilities of discontined operations | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Equity (Deficit): | ||||||||
| Series A Preferred stock, $ par value, shares authorized; and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued as of September 30, 2024 and December 31, 2023, respectively; shares of treasury stock as of September 30, 2024 and December 31, 2023; and and shares outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
ENSERVCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| For the Three Months Ended |
For the Nine Months Ended |
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| September 30, |
September 30, |
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| 2024 |
2023 |
2024 |
2023 |
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| Revenues: |
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| Production services |
$ | $ | $ | $ | ||||||||||||
| Logistics services |
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| Total revenues |
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| Expenses: |
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| Production services |
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| Logistics services |
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| Sales, general, and administrative |
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| Depreciation and amortization |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other (expense) income: |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other (expense) income |
( |
) | ( |
) | ||||||||||||
| Total other expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss from continuing operations before taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Deferred income tax benefit |
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| Loss from continuing operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| (Loss) income from discontinued operations |
( |
) | ( |
) | ( |
) | ||||||||||
| Gain (loss) from disposal of assets of discontinued operations |
( |
) | ||||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss from continuing operations per common share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| (Loss) income from discontinued operations per common share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Net loss per common share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of common shares outstanding - basic and diluted |
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See accompanying notes to the condensed consolidated financial statements.
ENSERVCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands)
(Unaudited)
| Additional |
Total Stockholders' |
|||||||||||||||||||||||||||
| Series A Preferred Shares |
Common Shares |
Series A Preferred Stock |
Common Stock |
Paid-in Capital |
Accumulated Deficit |
Equity (Deficit) |
||||||||||||||||||||||
| Balance at January 1, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||
| Restricted share issuance |
||||||||||||||||||||||||||||
| Restricted share cancellation |
( |
) | ||||||||||||||||||||||||||
| Common shares issued to Cross River Partners, L.P. in connection with partial conversion of March 2022 Convertible Note |
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| Common shares issued in February 2023 Offering, net of offering costs |
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| Warrants issued in February 2023 Offering, net of offering costs |
- | |||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||
| Restricted share issuance |
||||||||||||||||||||||||||||
| Exercise of pre-funded warrants associated with February 2023 Offering |
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| Common shares issued to Cross River Partners, L.P. in connection with conversion of outstanding balance of March 2022 Convertible Note |
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| Common shares issued to Cross River Partners, L.P. in connection with conversion of July 2022 Convertible Note |
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| Warrants issued to Cross River Partners, L.P. in connection with conversion of July 2022 Convertible Note |
- | - | ||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||
| Exercise of pre-funded warrants associated with February 2023 Offering |
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| Acquisition of assets of OilServ, LLC through issuance of common shares |
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| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Additional |
Total Stockholders' |
|||||||||||||||||||||||||||
| Series A Preferred Shares |
Common Shares |
Series A Preferred Stock |
Common Stock |
Paid-in Capital |
Accumulated Deficit |
Equity (Deficit) |
||||||||||||||||||||||
| Balance at January 1, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||
| Board compensation issued in equity |
||||||||||||||||||||||||||||
| Unamortized Board compensation issued in equity |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Common shares issued through release of OilServ, LLC indemnification provisions |
||||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||
| Balance at March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||
| Common shares issued for interest owed on subordinated debt |
||||||||||||||||||||||||||||
| Common shares issued in connection with conversion of November 2022 Convertible Note |
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| Common shares issued in connection with conversion of certain September and October 2023 Convertible Notes |
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| Common shares issued in connection with conversion of interest owed on November 2022 Convertible Note and certain September and October 2023 Convertible Notes |
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| Inducement costs related to note conversions charged to equity |
- | - | ||||||||||||||||||||||||||
| Conversion of unamortized debt discount to equity |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Common shares issued in establishment of Keystone equity line of credit |
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| Board compensation issued in equity, in lieu of cash |
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| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at June 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||
| Board compensation issued in equity |
||||||||||||||||||||||||||||
| Cancellation of restricted shares |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Common shares issued in connection with conversion of certain September and October 2023 Convertible Notes |
||||||||||||||||||||||||||||
| Inducement costs related to note conversions charged to equity |
- | - | ||||||||||||||||||||||||||
| Common shares issued through Keystone equity line of credit, net of issuance costs |
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| Star share exchange |
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| Common shares issued in acquisition of Buckshot |
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| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance at September 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
ENSERVCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Income (loss) from discontinued operations | ( | ) | ||||||
| Gain from disposal of discontinued operations | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Write-off of inventories | ||||||||
| Interest paid-in-kind on LSQ Facility | ||||||||
| Stock-based compensation expense | ||||||||
| Amortization of debt issuance costs and discount | ||||||||
| Mark-to-mark adjustment for marketable securities | ||||||||
| Inducement costs related to note conversions | ||||||||
| Deferred income tax benefit | ( | ) | ||||||
| Bad debt recovery | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expense and other current assets | ||||||||
| Amortization of operating lease assets | ||||||||
| Other assets | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ||||||
| Net cash used in operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities - discontinued operations | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible | ( | ) | ||||||
| Payments made in acquisition of Buckshot, net of cash acquired | ( | ) | ||||||
| Net cash used in investing activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by investing activities - discontinued operations | ||||||||
| Net cash provided by investing activities | ||||||||
| Financing Activities: | ||||||||
| Proceeds from February 2023 Offering, net | ||||||||
| Proceeds from exercise of pre-funded warrants | ||||||||
| Proceeds from Libertas Notes, net | ||||||||
| Proceeds from Star Note | ||||||||
| Issuance of shares to Keystone through equity line of credit, net | ||||||||
| LSQ Facility repayments, net | ( | ) | ( | ) | ||||
| Utica Facility repayments | ( | ) | ( | ) | ||||
| Libertas Notes repayments | ( | ) | ||||||
| September 2023 Convertible Notes, net, related parties | ||||||||
| Repayments of long-term debt | ( | ) | ||||||
| Repayments of financed insurance | ( | ) | ( | ) | ||||
| Payments of finance leases | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net (Decrease) Increase in Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents, beginning of period | ||||||||
| Cash and Cash Equivalents, end of period | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Buckshot Notes issued in acquisition of Buckshot | $ | $ | ||||||
| Buckshot purchase consideration accrued within accounts payable and accrued liabilities | $ | $ | ||||||
| Preferred and common shares issued in Star share exchange | $ | $ | ||||||
| Financed insurance consummated with insurance renewals | $ | $ | ||||||
| Common shares issued in acquisition of Buckshot | $ | $ | ||||||
| Conversion of November 2022 Convertible Note to common shares | $ | $ | ||||||
| Conversion of certain September and October 2023 Convertible Notes to common shares | $ | $ | ||||||
| Establishment of note receivable for sale of of assets of discontinued operations | $ | $ | ||||||
| Lease liability at inception of new facility operating lease | $ | $ | ||||||
| Board compensation issued in equity, in lieu of cash | $ | $ | ||||||
| Board compensation issued in equity | $ | $ | ||||||
| Common shares issued for interest owed on subordinated debt | $ | $ | ||||||
| Common shares issued in establishment of Keystone equity line of credit | $ | $ | ||||||
| Conversion of unamortized debt discount to equity | $ | $ | ||||||
| Transfer of North Dakota property to assets held for sale | $ | $ | ||||||
| Acquisition of assets of OilServ, LLC through issuance of common shares | $ | $ | ||||||
| Conversion of March 2022 Convertible Note to equity | $ | $ | ||||||
| Conversion of July 2022 Convertible Note to equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
ENSERVCO CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of Presentation
Enservco Corporation ("Enservco") through its wholly-owned subsidiaries (collectively referred to as the "Company", "we" or "us") provides various services to the domestic onshore oil and natural gas industry and the broader energy sector. These services include hot oiling and acidizing ("Production Services") and logistics and transportation services within the energy sector ("Logistics Services").
The accompanying unaudited condensed consolidated financial statements have been derived from the accounting records of Enservco and its wholly-owned subsidiaries, Heat Waves Hot Oil Service LLC ("Heat Waves") and Buckshot Trucking, LLC ("Buckshot"), (collectively, the "Company").
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all disclosures required by generally accepted accounting principles in the United States of America ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the expected operating results of a full year or of future years.
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with GAAP and follow the same accounting policies and methods of their application as the most recent annual financial statements. These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Annual Report on Form 10-K of Enservco for the year ended December 31, 2023. All intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Note 2 – Summary of Significant Accounting Policies
Going Concern
Our condensed consolidated financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realization of assets and settlement of liabilities in the normal course of business. For the three and nine months ended September 30, 2024, we generated a loss from operations of $
On October 23, 2024, Buckshot entered into a Credit and Security Agreement related to a revolving loan facility of up to $
We utilize a cash forecast model to evaluate the ability of future cash flows to fund continuing operations. We analyze projected cash flows to determine if they are sufficient to fund the operations and obligations of the Company for a period of time that extends twelve months or more from the date of the applicable filing. We will need to raise additional capital for our growth and ongoing operations. In the second quarter of 2024, we entered an equity line of credit with a financial partner to assist with equity raises. The Company discontinued utilizing the equity line of credit in the third quarter of 2024 given the resultant downward pressure on the price of the Company's common stock and, more recently, due to the Company moving from the NYSE American exchange to the Over-the-Counter Qualified Bulletin ("OTCQB") market after failing to meet the NYSE American's stockholders' equity requirement. Our ability to obtain additional financing through debt and equity capital markets, whether public or private, is subject to several factors including market and economic conditions, our performance, and investor sentiment with respect to us and our industry.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it maintains its deposits. Enservco maintains its excess cash in two separate financial institutions; however, deposits may exceed federally insured amounts at times, though no losses have been incurred related to these deposits.
Accounts Receivable
Accounts receivable are stated at the amounts billed to customers, net of an allowance for credit losses. We make estimates of expected credit and collectability trends for the allowance for credit losses based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance. As of September 30, 2024 and December 31, 2023, the Company had an allowance for credit losses of $
The Company follows the guidance of the Financial Accounting Standards Board's ("FASB") Accounting Standards Update ("ASU") 2016-13, Financial Statements - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to ascertain credit loss estimates.
Concentrations
For the three and nine months ended September 30, 2024,
Discontinued Operations
On August 6, 2024, the Company sold certain Colorado-based assets (the "Purchased Assets") of Heat Waves to HP Oilfield Services, LLC, a Nevada limited liability company ("HP Oilfield"), pursuant to an assignment and bill of sale (the "Assignment"). The Purchased Assets were primarily utilized in the Company’s frac water heating business. The aggregate purchase price for the Purchased Assets was $
Additionally, the Company granted a buyer a -month option to purchase certain heating assets of the Company for $
As a result of the above and our operational decision to exit entirely from the frac water heating business, the carrying amounts of the major classes of assets and liabilities of these discontinued operations have been presented separately on our condensed consolidated balance sheets for each of the periods presented. Further, operational results of these discontinued operations have been presented separately on our condensed consolidated statements of operations and the related cash flows of these discontinued operations have been presented separately on our condensed consolidated statements of cash flows for each of the periods presented. See Note 4 - Discontinued Operations to the condensed consolidated financial statements.
Inventories
Inventories consist primarily of propane and chemicals that are used in the servicing of oil wells and are carried at the lower of cost or net realizable value in accordance with the first in, first out method of accounting ("FIFO"). The Company periodically reviews the value of items in inventories and provides write-downs or write-offs of inventories based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. For the three and nine months ended September 30, 2024, the Company did recognize any write-downs or write-offs of inventories. For the three and nine months ended September 30, 2023, the Company wrote off approximately $
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. The Company charges repairs and maintenance against income when incurred and capitalizes renewals and betterments which extend the remaining useful life or expand the capacity or efficiency of the assets. Depreciation is recorded on a straight-line basis over estimated useful lives ranging from to years.
When property and equipment is either sold or disposed of, the cost and related accumulated depreciation of the property and equipment sold or disposed is removed from the accounting records. Any difference between the net book value of the property and equipment and the proceeds of the assets' sale, or settlement of an insurance claim, is recorded as a gain or loss in the Company’s condensed consolidated statements of operations.
Leases
The Company conducts a major part of its operations from leased facilities. Each of these leases is accounted for as an operating lease. The Company leases trucks and equipment in the normal course of business, which may be recorded as operating or finance leases, depending on the term of the lease.
Lease assets and liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at the lease start date. When our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future lease payments. The lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company recognizes depreciation expense and interest expense for finance leases.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. For the nine months ended September 30, 2024 and 2023, the Company concluded that there were
Assets Held for Sale
The Company classifies long-lived assets intended to be sold as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; (2) the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; (4) the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; (5) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group less any costs to sell each reporting period it remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. For the three and nine months ended September 30, 2024, the Company recorded impairment charges of $
Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, the Company ceases depreciation and reports long-lived assets and/or the assets and liabilities of the disposal group, if material, in the line item "Assets held for sale" in our condensed consolidated balance sheets.
Business Combinations
In accordance with the guidance provided by Accounting Standards Codification ("ASC") 805 Business Combinations (“ASC 805”), the Company evaluates whether acquired net assets should be accounted for as a business combination or an asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, the Company applies its judgement to determine whether the acquired net assets meets the definition of a business by considering if the set includes an acquired input, process, and the ability to create outputs.
The Company accounts for business combinations using the acquisition method when it has obtained control. The Company measures goodwill as the fair value of the consideration transferred including the fair value of any non-controlling interest recognized, less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at their fair value as of the acquisition date. Transaction costs, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
Contingent consideration is measured at fair value at the acquisition date. For contingent consideration that does not meet all the criteria for equity classification, such contingent consideration is required to be recorded at its initial fair value at the acquisition date, and subsequently on each balance sheet date thereafter. Changes in the estimated fair value of liability-classified contingent consideration are recognized as a charge on the condensed consolidated statements of operations in the period of change.
When the initial accounting for a business combination has not been finalized by the end of the reporting period in which the transaction occurs, the Company reports provisional amounts. Provisional amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date. These adjustments, or recognition of additional assets or liabilities, reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
For more information regarding the Company's acquisition of Buckshot and our application of ASC 805, see Note 3 - Acquisition and Pro Forma Financial Information to the condensed consolidated financial statements.
Revenue Recognition
The Company evaluates revenue when we can identify the contract with the customer, the performance obligations in the contract, the transaction price, and we are certain that the performance obligations have been met. Revenue is recognized when the service has been provided to the customer. Most of the Company's services and product offerings are short-term in nature. The time between invoicing and when payment is due under these arrangements is generally thirty to sixty days. Due to the nature of our business, the Company has no contractual arrangements that include multiple performance obligations.
The Company uses two forms of agreements with its customers; master service agreements and "price sheets" or "rate confirmations." Customers are free to choose which services, if any, to use and the Company only rarely has committed longer term agreements covering multiple events of service performance or covering a defined volume of throughput. Master service agreements are generally longer term in nature and provide the scope or framework under which the Company and its clients will operate. Elements of master service agreements include services to be performed, basic pricing, payment terms, the handling of insurance risks and other elements under which the parties operate. Supplementing these master service agreements, the Company and its clients often enter into spot quotes or specific performance agreements related to single events or services. Spot rate services provided by the Company are generally performed under separately issued "work orders", "field tickets" or "rate confirmations" as the services are requested.
Revenue is recognized for certain projects that take more than one day as projects over time, based on the number of days during the reporting period and the agreed upon price as work progresses on each project.
Earnings (Loss) Per Share
Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net income (loss) by the diluted weighted average number of common shares outstanding for the period. The diluted weighted average number of common shares outstanding for the period is computed using the treasury stock method for Company common stock that may be issued for outstanding common stock options and warrants and is computed using the if-converted method for convertible debt instruments and convertible preferred shares.
The Company has common stock options, warrants, convertible debt instruments and convertible preferred shares outstanding that are considered common stock equivalents which are considered in the computations of basic and diluted earnings per share. The Company uses the treasury stock method for common stock options and warrants and the if-converted method for convertible debt instruments and convertible preferred shares. For the three and nine months ended September 30, 2024 and 2023, due to the Company having a net loss for each period, common stock options, warrants, convertible debt and convertible preferred shares, when considered in the computation of basic and diluted earnings per share, are antidilutive and have been excluded.
Income Taxes
The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in income in the period that includes the enactment date. A deferred tax asset or liability that is not related to an asset or liability for financial reporting is classified according to the expected reversal date. The Company records a valuation allowance to reduce deferred tax assets to an amount that it believes is more likely than not expected to be realized.
The Company accounts for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if, in the Company’s opinion, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
Interest and penalties associated with tax positions are recorded in the period assessed as "Other expense" in the condensed consolidated statements of operations. The Company files income tax returns in the United States of America ("USA") and in the states in which it conducts its business operations. The Company’s USA federal income tax filings for tax years 2021 through 2023 remain open to examination. In general, the Company’s various state tax filings remain open for tax years 2020 to 2023.
Fair Value
The fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
| Level 1: | Quoted prices are available in active markets for identical assets or liabilities; |
| Level 2: | Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or |
| Level 3: | Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations. |
Financial and non-financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company did not have any transfers between hierarchy levels for the three and nine months ended September 30, 2024 and 2023.
As of September 30, 2024, the Company's "Marketable securities" shown on the condensed consolidated balance sheet as of September 30, 2024 were required to be measured at fair value on a recurring basis, and an assessment of the fair value of these assets were determined as of such balance sheet date. These "Marketable securities" are considered a level 1 fair value asset, with such inputs for re-measurement being available through the active market on which these assets are traded. As of September 30, 2023, the Company had no assets or liabilities that were required to be measured at fair value on a recurring basis.
When an assessment for impairment is required for its long-lived assets, the Company assesses the recoverability using the lowest level of cash flows taking into consideration timing and appropriate discount rates. When appropriate, market comparables may be used to determine if an asset may not be recoverable.
The Company values its warrants and stock options using the Black-Scholes model. The Company did not have any warrants or stock options that required valuation during the nine months ended September 30, 2024.
Stock-based Compensation Expense
Stock-based compensation expense is measured at the date of grant, based on the calculated fair value of the award as described below, and is recognized over the requisite service period, which is generally the vesting period of the equity grant.
The Company uses the Black-Scholes pricing model as a method for determining the estimated grant date fair value for all options awarded to employees, independent contractors, officers, and directors. The expected term of the options is based upon evaluation of historical and expected exercise behavior. The risk-free interest rate is based upon USA Treasury rates at the date of grant with maturity dates approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of our stock and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be zero as we have not historically paid dividends, nor do we anticipate paying any dividends in the foreseeable future.
Management Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the realization of accounts receivable, useful lives of long-lived and intangible assets, evaluation of impairment of long-lived assets, stock-based compensation expense, income tax provisions and the valuation of deferred taxes. Actual results could differ from those estimates.
Contingent Liabilities
From time-to-time, the Company will have contingent liabilities that arise in the normal course of business, usually as it pertains to certain lawsuits in which the Company is involved. When a future contingent liability becomes both probable and estimable, the Company will record a liability for the estimated amount, as well as any offsetting receivables in the event the claim is probable to be covered by an insurance policy. In the event there is a range of outcomes and no amount is determined to be most probable, the Company will record a liability and, if applicable due to likelihood of insurance coverage, a receivable for the low end of the range. In the event the Company makes a firm offer in order to settle a lawsuit, the Company will record a liability for the amount of the offer at that time.
Classification and Valuation of Warrants
The Company analyzes warrant instruments to determine the classification of the warrants as liabilities or equity. The Company's issued warrants are all classified as permanent equity.
The Company uses a Black-Scholes model to determine the fair value of its warrants. The expected term used was the remaining contractual term. Expected volatility was based upon historical volatility over a term consistent with the remaining term. The risk-free interest rate was derived from the yield on zero-coupon USA government securities with a remaining term equal to the contractual term of the warrants. The dividend yield was assumed to be zero.
Reclassifications
Certain prior period amounts may have been reclassified for comparative purposes to conform to the current presentation. These reclassifications have no effect on the Company’s condensed consolidated statements of operations.
Note 3 – Acquisition and Pro Forma Financial Information
On March 19, 2024, the Company entered into a membership interest purchase agreement (the "Buckshot Purchase Agreement") with Tony Sims, an individual resident of Colorado; Jim Fate, an individual resident of Colorado (together the “Sellers”), and Buckshot, a Wyoming limited liability company, pursuant to which Enservco agreed to acquire from the Sellers all of the issued and outstanding membership interests of Buckshot (the “Buckshot Acquisition”) for $
On August 8, 2024, the Company entered into an Amendment to Membership Interest Purchase Agreement (the