Energy Services of America CORP [ESOA] Filings

10-Q 1 esoa-20221231x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2022.

Energy Services of America Corporation

(Exact Name of Registrant as Specified in Its Charter)


Delaware		20-4606266
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)


75 West 3^rd Ave., Huntington, West Virginia		25701
(Address of Principal Executive Office)		(Zip Code)

(304) 522-3868

(Registrant’s Telephone Number Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbols		Name of Each Exchange On Which Registered
Common Stock, Par Value $0.0001		ESOA		The Nasdaq Stock Market LLC

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 requirements for the past 90 days. YES ☒ NO ☐.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

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

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

As of February 13, 2023, there were 16,667,185 outstanding shares of the Registrant’s Common Stock.

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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 Shareholders’ Equity		4

Notes to Unaudited Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		32

Item 4. Controls and Procedures		32

Part II: Other Information

Item 1. Legal Proceedings		33

Item 1A. Risk Factors		33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		33

Item 6. Exhibits		34

Signatures		35

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Part 1. Financial Information

Item 1. Financial Statements (Unaudited):

Energy Services of America Corporation

Consolidated Balance Sheets


	December 31,		September 30,
	2022		2022
Assets
Current assets
Cash and cash equivalents	$	7,530,907	$	7,427,474
Accounts receivable-trade		35,357,058		38,525,223
Allowance for doubtful accounts		(55,538)		(70,310)
Retainages receivable		4,989,451		4,443,679
Other receivables		13,699		10,866
Contract assets		14,397,681		16,109,593
Prepaid expenses and other		3,170,481		3,945,968
Total current assets		65,403,739		70,392,493

Property, plant and equipment, at cost		75,859,708		73,736,433
less accumulated depreciation		(42,647,308)		(41,074,646)
Total property and equipment, net		33,212,400		32,661,787

Right-of-use assets-operating lease		1,478,781		1,611,321
Intangible assets, net		3,740,910		3,873,690
Goodwill		4,087,554		4,087,554
Total assets	$	107,923,384	$	112,626,845

Liabilities and shareholders’ equity
Current liabilities
Current maturities of long-term debt	$	4,575,060	$	4,060,016
Lines of credit and short-term borrowings		12,500,000		13,080,320
Current maturities of operating lease liabilities		506,606		588,653
Accounts payable		14,984,022		20,314,408
Accrued expenses and other current liabilities		8,814,256		11,266,008
Contract liabilities		8,611,883		6,027,578
Total current liabilities		49,991,827		55,336,983

Long-term debt, less current maturities		14,444,751		13,494,084
Long-term operating lease liabilities, less current maturities		965,012		1,015,624
Deferred tax liability		4,033,201		4,455,079
Total liabilities		69,434,791		74,301,770

Shareholders’ equity


Common stock, $.0001 par value Authorized 50,000,000 shares, 17,885,615 issued and 16,667,185 outstanding at December 31, 2022 and September 30, 2022		1,789		1,789

Treasury stock, 1,218,430 shares at December 31, 2022 and September 30, 2022		(122)		(122)

Additional paid in capital		60,508,350		60,508,350
Retained deficit		(22,021,424)		(22,184,942)

Total shareholders’ equity		38,488,593		38,325,075

Total liabilities and shareholders’ equity	$	107,923,384	$	112,626,845

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
	December 31,		December 31,
	2022		2021
Revenue	$	60,042,585	$	42,659,125

Cost of revenues		54,056,323		37,350,752

Gross profit		5,986,262		5,308,373

Selling and administrative expenses		5,316,138		3,632,595
Income from operations		670,124		1,675,778

Other income (expense)
Interest income		72		576
Other nonoperating expense		(80,663)		(153,428)
Interest expense		(474,284)		(197,559)
(Loss) gain on sale of equipment		(31,343)		339,896
		(586,218)		(10,515)

Income before income taxes		83,906		1,665,263

Income tax (benefit) expense		(79,612)		494,283

Net income	$	163,518	$	1,170,980



Weighted average shares outstanding-basic		16,667,185		16,247,898

Weighted average shares-diluted		16,667,185		16,247,898

Earnings per share-basic	$	0.01	$	0.07

Earnings per share-diluted	$	0.01	$	0.07

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


	Three Months Ended		Three Months Ended
	December 31,		December 31,
	2022		2021
Cash flows from operating activities:

Net income	$	163,518	$	1,170,980
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		1,762,322		1,304,496
Loss (gain) on sale of equipment		31,343		(339,896)
Deferred income tax benefit		(421,878)		(367,010)
Amortization of intangible assets		132,780		119,456
Accreted interest on notes payable		10,599		—
Decrease (increase) in accounts receivable		3,153,393		(4,265,751)
Increase in retainage receivable		(545,772)		(551,585)
(Increase) decrease in other receivables		(2,833)		494,771
Decrease in contract assets		1,711,912		2,815,751
Decrease in prepaid expenses and other		775,487		750,846
(Decrease) increase in accounts payable		(5,330,386)		58,226
(Decrease) increase in accrued expenses and other current liabilities		(2,451,871)		837,579
Increase in contract liabilities		2,584,305		4,375,775
Net cash provided by operating activities		1,572,919		6,403,638

Cash flows from investing activities:
Investment in property and equipment		(2,348,901)		(942,703)
Proceeds from sales of property and equipment		92,815		463,862
Net cash used in investing activities		(2,256,086)		(478,841)

Cash flows from financing activities:
Preferred stock redemption		—		(1,262,750)
Borrowings on lines of credit and short-term debt, net of (repayments)		(580,320)		(540,250)
Proceeds from long-term debt		3,100,000		—
Principal payments on long-term debt		(1,733,080)		(1,215,390)
Net cash provided by (used in) financing activities		786,600		(3,018,390)
Increase in cash and cash equivalents		103,433		2,906,407
Cash and cash equivalents beginning of period		7,427,474		8,226,739
Cash and cash equivalents end of period	$	7,530,907	$	11,133,146

Supplemental schedule of noncash investing and financing activities:
Purchases of property & equipment under financing agreements	$	88,192	$	240,145
Par value of common stock issued from preferred stock conversion	$	—	$	263

Supplemental disclosures of cash flows information:
Cash paid during the year for:
Interest	$	472,960	$	186,580

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 Shareholders’ Equity

For the three months ended December 31, 2022 and 2021


										Total
	Common Stock			Additional Paid		Retained		Treasury		Shareholders’
	Shares	Amount		in Capital		Deficit		Stock		Equity

Balance at September 30, 2022	16,667,185	$	1,789	$	60,508,350	$	(22,184,942)	$	(122)	$	38,325,075

Net income	—		—		—		163,518		—		163,518

Balance at December 31, 2022	16,667,185	$	1,789	$	60,508,350	$	(22,021,424)	$	(122)	$	38,488,593


										Total
	Common Stock			Additional Paid		Retained		Treasury		Shareholders’
	Shares	Amount		in Capital		Deficit		Stock		Equity
Balance at September 30, 2021	13,621,406	$	1,484	$	60,670,699	$	(26,035,015)	$	(122)	$	34,637,046

Net income	—		—		—		1,170,980		—		1,170,980

Preferred share redemption, net of accrued dividends at September 30, 2021	—		—		(1,210,525)		—		—		(1,210,525)

Preferred share conversion	2,626,492		263		—		—		—		263

Balance at December 31, 2021	16,247,898	$	1,747	$	59,460,174	$	(24,864,035)	$	(122)	$	34,597,764

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 (“Energy Services” or the “Company”), formed in 2006, is a contractor and service company that operates primarily in the mid-Atlantic and central regions of the United States and provides services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries. 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 power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, 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 Company has also added the ability to install residential, commercial, and industrial solar systems and perform civil and general contracting services.

C.J. Hughes Construction Company, Inc. (“C.J. Hughes”), a wholly owned subsidiary of the Company, is a general contractor primarily engaged in pipeline construction for utility companies. Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J. Hughes, provides union building trade employees for projects managed by C.J. Hughes.

Nitro Construction Services, Inc. (“Nitro”), a wholly owned subsidiary of C.J. Hughes, provides electrical, mechanical, HVAC/R, solar installation, and fire protection services to customers primarily in the automotive, chemical, and power industries. Revolt Energy, LLC and Nitro Electric Company, LLC are newly formed, wholly owned subsidiaries of Nitro. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of Nitro, operates as a data storage facility within Nitro’s office building. Pinnacle is supported by Nitro and has no employees of its own. All C.J. Hughes, Nitro, and Contractors Rental construction personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.

West Virginia Pipeline, Inc. (“West Virginia Pipeline” or “WVP”), a wholly owned subsidiary of Energy Services, operates as a gas and water distribution contractor primarily in southern West Virginia. The employees of West Virginia Pipeline are non-union and are managed independently from the Company’s union subsidiaries.

SQP Construction Group, Inc. (“SQP”), a wholly owned subsidiary of Energy Services, operates as a general contractor primarily in West Virginia. SQP engages in the construction and renovation of buildings and other civil construction projects for state and local government agencies and commercial customers. As a general contractor, SQP manages the overall construction project and subcontracts most of the work. The employees of SQP are non-union and are managed independently from the Company’s union subsidiaries.

Tri-State Paving & Sealcoating, Inc. (“TSP” or “Tri-State Paving”), a wholly owned subsidiary of Energy Services, completed the acquisition of substantially all of the assets of Tri-State Paving & Sealcoating, LLC (“Tri-State Paving, LLC”) on April 29, 2022. Tri-State Paving provides utility paving services to water distribution customers in the Charleston, West Virginia, Lexington, Kentucky, and Chattanooga, Tennessee markets. The employees of TSP are non-union and are managed independently from the Company’s union subsidiaries.

Ryan Construction Services Inc. (“Ryan Construction” or “RCS”), a wholly owned subsidiary of Energy Services, formed in August 2022 in connection with the acquisition of substantially all of the assets of Ryan Environmental, LLC and Ryan Environmental Transport, LLC, provides directional drilling services for broadband service providers along with offering natural gas distribution services, cathodic protection and corrosion prevention services, and civil construction services. Ryan Construction operates primarily in West Virginia and Pennsylvania. The employees of RCS are non-union and are managed independently from the Company’s union subsidiaries.

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Interim Financial Statements

The accompanying unaudited consolidated 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 consolidated financial statements and footnotes thereto for the years ended September 30, 2022, and 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 22, 2022. 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 (“U.S. GAAP”) have been omitted pursuant to the interim financial reporting rules and regulations of the SEC. 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 three months ended December 31, 2022, and 2021 are not necessarily indicative of the results to be expected for the full year or any other interim period.

Principles of Consolidation

The consolidated financial statements of Energy Services include the accounts of Energy Services, its wholly owned subsidiaries West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving and C.J. Hughes and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation. Unless the context requires otherwise, references to Energy Services include Energy Services, West Virginia Pipeline, SQP, Ryan Construction, Tri-State Paving and C.J. Hughes and its subsidiaries.

Use of Estimates and Assumptions

The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and loss during the reporting period. Actual results could differ materially from those estimates.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Please refer to Note 2 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended September 30, 2022, for a more detailed discussion of our significant accounting policies. There were no material changes to these significant accounting policies during the three months ended December 31, 2022.

3. REVENUE RECOGNITION

Our revenue is primarily derived from construction contracts that can span several quarters. We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606” or “Topic 606”) which provides for a five-step model for recognizing revenue from contracts with customers as follows:

●

Identify the contract

●

Identify performance obligations

●

Determine the transaction price

●

Allocate the transaction price

●

Recognize revenue

The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project. We believe our experience allows us to create materially reliable estimates. There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include:

●

the completeness and accuracy of the original bid;

●

costs associated with scope changes;

●

changes in costs of labor and/or materials;

●

extended overhead and other costs due to owner, weather and other delays;

●

subcontractor performance issues;

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●

changes in productivity expectations;

●

site conditions that differ from those assumed in the original bid;

●

changes from original design on design-build projects;

●

the availability and skill level of workers in the geographic location of the project;

●

a change in the availability and proximity of equipment and materials;

●

our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs; and

●

the customer’s ability to properly administer the contract.

The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit from period to period. Significant changes in cost estimates, particularly in our larger, more complex projects, could have a significant effect on our profitability.

Our contract assets include cost and estimated earnings in excess of billings that represent amounts earned and reimbursable under contracts, including claim recovery estimates, but have a conditional right for billing and payment such as achievement of milestones or completion of the project. With the exception of customer affirmative claims, generally, such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next three months. Settlement with the customer of outstanding affirmative claims is dependent on the claims resolution process and could extend beyond one year. Based on our historical experience, we generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced.

Our contract liabilities consist of provisions for losses and billings in excess of costs and estimated earnings. Provisions for losses, if incurred, are recognized in the consolidated statements of income at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue. Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.

4. DISAGGREGATION OF REVENUE

The Company disaggregates revenue based on the following lines of service: (1) Gas & Water Distribution, (2) Gas & Petroleum Transmission, and (3) Electrical, Mechanical, & General services and construction. Our contract types are: Lump Sum, Unit Price, Cost Plus and Time and Materials (“T&M”). The following tables present our disaggregated revenue for the three months ended December 31, 2022 and 2021:


	Three Months Ended December 31, 2022
					Electrical,
	Gas & Water		Gas & Petroleum		Mechanical,		Total revenue
	Distribution		Transmission		and General		from contracts
Lump sum contracts	$	—	$	—	$	17,186,157	$	17,186,157
Unit price contracts		12,389,558		16,840,150		1,537,438		30,767,146
Cost plus and T&M contracts		—		—		12,089,282		12,089,282
Total revenue from contracts	$	12,389,558	$	16,840,150	$	30,812,877	$	60,042,585

Earned over time	$	4,878,647	$	16,840,150	$	29,890,148	$	51,608,945
Earned at point in time		7,510,911		—		922,729		8,433,640
Total revenue from contracts	$	12,389,558	$	16,840,150	$	30,812,877	$	60,042,585

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	Three Months Ended December 31, 2021
					Electrical,
	Gas &Water		Gas & Petroleum		Mechanical,		Total revenue
	Distribution		Transmission		and General		from contracts
Lump sum contracts	$	—	$	—	$	10,939,201	$	10,939,201
Unit price contracts		11,962,034		11,238,517		—		23,200,551
Cost plus and T&M contracts		—		—		8,519,373		8,519,373
Total revenue from contracts	$	11,962,034	$	11,238,517	$	19,458,574	$	42,659,125

Earned over time	$	7,919,922	$	11,238,517	$	18,819,986	$	37,978,425
Earned at point in time		4,042,112		—		638,588		4,680,700
Total revenue from contracts	$	11,962,034	$	11,238,517	$	19,458,574	$	42,659,125

5. CONTRACT BALANCES

The Company’s accounts receivable consists of amounts that have been billed to customers and collateral is generally not required. Most of the Company’s contracts have monthly billing terms; however, billing terms for some are based on project completion. Payment terms are generally within 30 to 45 days after invoices have been issued. The Company attempts to negotiate two-week billing terms and 15-day payment terms on larger projects. The timing of billings to customers may generate contract assets or contract liabilities.

During the three months ended December 31, 2022, we recognized revenue of $4.5 million that was included in the contract liability balance at September 30, 2022.

Accounts receivable-trade, net of allowance for doubtful accounts, contract assets and contract liabilities consisted of the following:


	December 31, 2022		September 30, 2022		Change

Accounts receivable-trade, net of allowance for doubtful accounts	$	35,301,520	$	38,454,913	$	(3,153,393)

Contract assets
Cost and estimated earnings in excess of billings	$	14,397,681	$	16,109,593	$	(1,711,912)

Contract liabilities
Billings in excess of cost and estimated earnings	$	8,611,883	$	6,027,578	$	2,584,305

6. PERFORMANCE OBLIGATIONS

For the three months ended December 31, 2022, there was no revenue recognized as a result of changes in contract transaction price related to performance obligations that were satisfied prior to September 30, 2022. Changes in contract transaction price can result from items such as executed or estimated change orders, and unresolved contract modifications and claims.

At December 31, 2022, the Company had $155.9 million in remaining unsatisfied performance obligations, in which revenue is expected to be recognized over the next twelve months.

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7. UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts as of December 31, 2022, and September 30, 2022, are summarized as follows:


	December 31, 2022		September 30, 2022
Costs incurred on contracts in progress	$	110,656,030	$	192,957,145
Estimated earnings, net of estimated losses		16,806,651		28,150,060
		127,462,681		221,107,205
Less billings to date		121,676,883		211,025,190
	$	5,785,798	$	10,082,015

Costs and estimated earnings in excess of billed on uncompleted contracts	$	14,397,681	$	16,109,593

Less billings in excess of costs and estimated earnings on uncompleted contracts		8,611,883		6,027,578
	$	5,785,798	$	10,082,015

Backlog at December 31, 2022, and September 30, 2022, was $206.9 million and $142.3 million, respectively.

8. FAIR VALUE MEASUREMENTS

The fair value measurement guidance of the Financial Accounting Standards Board (“FASB”) ASC defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and specifies disclosures about fair value measurements.

Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement guidance of the FASB ASC establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.

Level 3 — Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market data.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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 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. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $16.0 million at December 31, 2022 was $15.0 million. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $15.0 million at September 30, 2022 was $14.5 million.

All other current assets and liabilities are carried at net realizable value which approximates fair value because of their short duration to maturity.

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9. EARNINGS PER SHARE

The amounts used to compute the earnings per share for the three months ended December 31, 2022 and 2021 are summarized below.


	Three Months Ended		Three Months Ended
	December 31,		December 31,
	2022		2021
Net income	$	163,518	$	1,170,980

Weighted average shares outstanding-basic		16,667,185		16,247,898

Weighted average shares-diluted		16,667,185		16,247,898

Earnings per share-basic	$	0.01	$	0.07

Earnings per share-diluted	$	0.01	$	0.07

10. INCOME TAXES

The components of income taxes are as follows:


	Three Months Ended
	December 31, 2022		December 31, 2021
Federal
Current	$	266,966	$	671,808
Deferred		(329,064)		(286,268)
Total		(62,098)		385,540

State
Current		75,299		189,485
Deferred		(92,813)		(80,742)
Total		(17,514)		108,743

Total income tax (benefit) expense	$	(79,612)	$	494,283

The effective income tax rate for the three months ended December 31, 2022, was (94.9)%, as compared to 29.7% for the same period in 2021. Effective income tax rates are estimates and may vary from period to period due to changes in the amount of taxable income and non-deductible expenses.

Major items that can affect the effective tax rate include amortization of goodwill and non-deductible amounts for per diem expenses.

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The income tax effects of temporary differences giving rise to the deferred tax assets and liabilities are as follows:


	December 31,		September 30,
	2022		2022
Deferred tax liabilities
Property and equipment	$	7,155,494	$	7,686,064
Other		530,806		7,632
Total deferred tax liabilities	$	7,686,300	$	7,693,696

Deferred income tax assets
Other	$	913,479	$	404,093
Net operating loss carryforward		2,739,620		2,834,524
Total deferred tax assets	$	3,653,099	$	3,238,617

Total net deferred tax liabilities	$	4,033,201	$	4,455,079

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. At December 31, 2022, the Company expects all net operating loss carryforwards to be realized in the near future.

The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in general and administrative expenses.

The Company and all subsidiaries file a consolidated federal and various state income tax returns on a fiscal year basis. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for years ended prior to September 30, 2018.

11. SHORT-TERM AND LONG-TERM DEBT

Short-term debt consists of the following:

On July 13, 2022, the Company received a one-year extension on its $15.0 million operating line of credit effective June 28, 2022. The interest rate on the line of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. The interest rate at December 31, 2022, was 7.75%. The interest rate at September 30, 2022, was 5.5%.

The line of credit has a $12.5 million component and a $2.5 million component with additional borrowing requirements. Based on the borrowing base calculation, the Company borrowed all $12.5 million available on the line of credit as of December 31, 2022 and September 30, 2022. The Company did not meet the requirements to borrow any from the $2.5 million component.

On January 19, 2023, the Company received an amendment to the agreement which increased the line of credit to $30.0 million. The maturity date remains June 28, 2023, with a variable interest rate equal to the “Wall Street Journal” Prime Rate with a floor of 4.5%.

The modified financial covenants for the quarter ended December 31, 2022, and all subsequent quarters, are below:

●

Minimum tangible net worth of $28.0 million,

●

Minimum traditional debt service coverage of 1.50x on a rolling twelve- month basis,

●

Minimum current ratio of 1.20x,

●

Maximum debt to tangible net worth ratio (“TNW”) of 2.75x,

●

Each ratio and covenant shall be determined, tested, and measured as of each calendar quarter beginning December 31, 2022,

●

Borrower shall maintain a ratio of Maximum Senior Funded Debt ("SFD") to Earnings before Interest, Taxes, Depreciation and Amortization ("EBDITA") equal to or less than 3.5:1. SFD shall mean any funded debt or lease of Borrower, other

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than subordinated debt. The covenant shall be tested quarterly, as of the end of each fiscal quarter, with EBITDA based on the preceding four quarters.

The Company was in compliance with all covenants at December 31, 2022, and the Company projects to meet all covenant requirements for the next twelve months.

The Company also finances insurance policy premiums on a short-term basis through a financing company. These insurance policies include workers’ compensation, general liability, automobile, umbrella, and equipment policies. The Company makes a down payment in January and finances the remaining premium amount over eleven monthly payments. At December 31, 2022 and September 30, 2022, respectively, the remaining balance of the insurance premiums was $0 and $580,000.

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A summary of short-term and long-term debt as of December 31, 2022, and September 30, 2022, is as follows:


	December 31,		September 30,
	2022		2022
Line of credit payable to bank, monthly interest at 7.75%, final payment due by June 28, 2023, guaranteed by certain directors of the Company.	$	12,500,000	$	12,500,000

Term note payable to United Bank, WV Pipeline acquisition, due in monthly installments of $64,853 fixed interest at 4.25%, final payment due by March 25, 2026, secured by receivables and equipment, guaranteed by certain directors of the Company.		2,361,701		2,529,421

Notes payable to finance companies, due in monthly installments totaling $32,000 at December 31, 2022 and $60,000 at September 30, 2022, including interest ranging from 0.00% to 6.03%, final payments due January 2023 through August 2026, secured by equipment.		776,551		889,165

Note payable to finance company for insurance premiums financed, due in monthly installments totaling $282,000 in FY 2022 and $272,000 in FY 2021, including interest rate at 3.50%, final payment due November 2022.		—		580,320

Notes payable to bank, due in monthly installments totaling $7,848, including interest at 4.82%, final payment due November 2034 secured by building and property.		854,087		867,383

Notes payable to bank, due in monthly installments totaling $12,464, including interest at 8.75%, final payment due November 2025 secured by building and property, guaranteed by certain directors of the Company.		374,201		412,917

Notes payable to bank, due in monthly installments totaling $59,932, including fixed interest at 6.0%, final payment due October 2027 secured by receivables and equipment, guaranteed by certain directors of the Company.		3,011,436		—

Notes payable to David Bolton and Daniel Bolton, due in annual installments totaling $500,000, including fixed interest at 3.25%, final payment due December 31, 2026, unsecured.		1,637,500		2,380,000

Notes payable to bank, due in monthly installments totaling $68,073, including interest at 8.75%, beginning February 2022 with final payment due September 2026, secured by equipment, guaranteed by certain directors of the Company.		2,391,154		2,549,281

Term note payable to United Bank, Tri-State Paving acquisition, due in monthly installments of $140,000, fixed interest at 4.50%, final payment due by June 1, 2027, secured by receivables and equipment, guaranteed by certain directors of the Company.		6,666,246		6,982,097

Notes payable to Corns Enterprises, due in annual installments totaling $250,000, including fixed interest at 3.50%, final payment due April 29, 2026, unsecured.		946,935		943,836



Total debt	$	31,519,811	$	30,634,420

Less current maturities		17,075,060		17,140,336

Total long-term debt	$	14,444,751	$	13,494,084

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12. GOODWILL AND INTANGIBLE ASSETS

The Company follows the guidance of ASC Topic 350, Intangibles-Goodwill and Other, which requires a company to record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. Under the current guidance, companies can first choose to assess any impairment based on qualitative factors (Step 0). If a company fails this test or decides to bypass this step, it must proceed with a quantitative assessment of goodwill impairment. The Company did not have a goodwill impairment at December 31, 2022 or September 30, 2022.

A table of the Company’s goodwill is below:


	December 31,		September 30,
	2022		2022
Beginning balance	$	4,087,554	$	1,814,317
Acquired		—		2,273,237
Ending balance	$	4,087,554	$	4,087,554

A table of the Company’s intangible assets subject to amortization at December 31, 2022, and September 30, 2022 is below:


				Accumulated		Accumulated		Amortization and
	Remaining Life at			Amortization and		Amortization and		Impairment Three		Net Book
	December 31,			Impairment at		Impairment at		Months Ended		Value at
Intangible assets:	2022	Original Cost		December 31, 2022		September 30, 2022		December 31, 2022		December 31, 2022
West Virginia Pipeline:
Customer Relationships	96 months	$	2,209,724	$	441,935	$	386,693	$	55,242	$	1,767,789
Tradename	96 months		263,584		52,731		46,136		6,595		210,853
Non-competes	0 months		83,203		83,203		72,806		10,397		—
Revolt Energy:
Employment agreement/non-compete	16 months		100,000		81,946		77,779		4,167		18,054
Tri-State Paving: