ESOA 10-Q Quarterly Report June 30, 2013

ENERGY SERVICES OF AMERICA CORP

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10-Q 1 t77126_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


	x	Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

	o	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 Incorporation or Organization)		(I.R.S. Employer Identification Number)

100 Industrial Lane, Huntington, West Virginia			25702
(Address of Principal Executive Office)		(Zip Code)

	(304) 399-6300
(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 o .

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 x NO o .

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 o Accelerated Filer o Non-Accelerated Filer o

Smaller Reporting Company x

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

As of August 13, 2013 there were issued and outstanding 14,458,836 shares of the Registrant’s Common Stock.

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	10

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4.	Controls and Procedures	22

Part II:	Other Information	23

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 4.	Removed and Reserved	23

Item 6.	Exhibits	24

Signatures		25

ENERGY SERVICES OF AMERICA CORPORATION

CONSOLIDATED BALANCE SHEETS


	June 30,			September 30,
Assets	2013			2012
	(Unaudited)
Current Assets
Cash and cash equivalents	$	1,475,894		$	1,398,301
Accounts receivable-trade		16,450,972			15,632,300
Allowance for doubtful accounts		(239,568	)		(240,071	)
Retainages receivable		2,198,437			1,713,702
Other receivables		271,593			277,933
Costs and estimated earnings in excess of billings on uncompleted contracts		7,780,172			10,856,769
Deferred tax asset		501,709			1,250,154
Prepaid expenses and other		2,914,891			2,005,233
Assets of discontinued operations		2,386,031			7,808,451
Total Current Assets		33,740,131			40,702,772

Property, plant and equipment, at cost		28,642,757			29,060,709
less accumulated depreciation		(18,431,843	)		(16,485,112	)
Assets of discontinued operations, net		155,833			6,477,380
		10,366,747			19,052,977
Total Assets	$	44,106,878		$	59,755,749

Liabilities and Stockholders’ Equity
Current Liabilities
Current maturities of long-term debt	$	5,702,850		$	10,118,907
Lines of credit and short term borrowings		12,008,653			18,516,276
Accounts payable		3,533,478			8,171,650
Accrued expenses and other current liabilities		3,502,300			3,177,481
Billings in excess of costs and estimated earnings on uncompleted contracts		3,359,069			1,305,559
Liabilities of discontinued operations		1,443,646			2,149,435
Total Current Liabilities		29,549,996			43,439,308

Long-term debt, less current maturities		1,253,480			1,623,771
Long-term debt, payable to shareholder		1,223,325			1,223,325
Deferred income taxes payable		3,908,400			4,426,751
Liabilities of discontinued operations		728,981			2,601,229
Total Liabilities		36,664,182			53,314,384

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 14,458,836 shares		1,446			1,446

Additional paid in capital		56,136,133			56,107,650
Retained earnings (deficit)		(48,694,883	)		(49,667,731	)

Total Stockholders’ equity		7,442,696			6,441,365

Total liabilities and stockholders’ equity	$	44,106,878		$	59,755,749

The Accompanying Notes are an Integral Part of These Financial Statements

ENERGY SERVICES OF AMERICA CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	June 30,			June 30,			June 30,			June 30,
	2013			2012			2013			2012


Revenue	$	26,551,541		$	30,496,031		$	78,424,217		$	82,228,457

Cost of revenues		24,133,642			30,532,221			71,185,726			78,159,235

Gross profit (loss)		2,417,899			(36,190	)		7,238,491			4,069,222

Selling and administrative expenses		1,874,833			2,332,043			6,457,512			7,498,074
Income (loss) from operations		543,066			(2,368,233	)		780,979			(3,428,852	)

Other income (expense)
Interest income		(489	)		172			230			2,534
Other nonoperating income (expense)		1,109			2,134			(15,898	)		4,534
Interest expense		(429,004	)		(467,162	)		(1,384,146	)		(1,423,298	)
Gain on sale of equipment		262,396			2,500			556,647			24,021
		(165,988	)		(462,356	)		(843,167	)		(1,392,209	)
Income (loss) from continuing operations before income taxes		377,078			(2,830,589	)		(62,188	)		(4,821,061	)

Income tax expense (benefit)		253,209			(1,088,247	)		230,094			(1,876,524	)
Income (loss) from continuing operations		123,869			(1,742,342	)		(292,282	)		(2,944,537	)

Income (loss) from discontinued operations net of tax expense		2,808,198			(265,263	)		1,265,130			(1,845,159	)

Net income (loss)	$	2,932,067		$	(2,007,605	)	$	972,848		$	(4,789,696	)

Weighted average shares outstanding-basic		14,458,836			14,446,836			14,458,836			14,446,836

Earnings (loss) per share from continuing operations	$	0.009		$	(0.121	)	$	(0.020	)	$	(0.204	)

Earnings (loss) per share	$	0.203		$	(0.139	)	$	0.067		$	(0.332	)

The Accompanying Notes are an Integral Part of These Financial Statements

ENERGY SERVICES OF AMERICA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Nine Months Ended			Nine Months Ended
	June 30,			June 30,
	2013			2012
Cash flows from operating activities:

Net income (loss)	$	972,848		$	(4,789,696	)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense		3,318,695			4,386,571
Provision for bad debts		300,000			-
Gain on sale/disposal of equipment		(2,701,901	)		(44,479	)
Provision for deferred taxes		(872,844	)		(2,650,856	)
Share-based compensation expense		28,483			53,802
Decrease in contracts receivable		1,495,968			2,451,257
(Increase) decrease in retainage receivable		(11,222	)		3,624,127
(Increase) decrease in other receivables		46,476			(478,480	)
Decrease in cost and estimated earnings in excess of billings on uncompleted contracts		3,480,082			1,215,694
(Increase) decrease in prepaid expenses		(888,377	)		38,444
Increase (decrease) in accounts payable		(5,023,111	)		1,831,017
Increase (decrease) in accrued expenses		66,969			(712,527	)
Increase (decrease) in billings in excess of cost and estimated earnings on uncompleted contracts		1,990,510			(856,795	)
Net cash provided by operating activities		2,202,576			4,068,079

Cash flows from investing activities:
Investment in property & equipment		(563,088	)		(730,055	)
Proceeds from sales of property and equipment		8,805,630			186,094
Net cash provided by (used in) investing activities		8,242,542			(543,961	)

Cash flows from financing activities:
Repayment of loans from shareholders		-			(1,100,000	)
Borrowings on lines of credit and short term debt, net of (repayments)		(6,507,623	)		2,106,249
Principal payments on long term debt		(4,959,454	)		(3,927,358	)
Net cash used in financing activities		(11,467,077	)		(2,921,109	)

Increase (decrease) in cash and cash equivalents		(1,021,959	)		603,009
Cash beginning of period		2,661,721			2,965,296
Cash end of period	$	1,639,762		$	3,568,305

Supplemental schedule of noncash investing and financing activities:
Purchases of property & equipment under financing agreements	$	173,106		$	384,492
Insurance premiums financed	$	2,784,193		$	2,867,738

Supplemental disclosures of cash flows information:

Cash paid during the year for:
Interest	$	1,346,206		$	1,349,464
Insurance premiums	$	2,427,308		$	1,569,959

The Accompanying Notes are an Integral Part of These Financial Statements

ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the nine months ended June 30, 2013 and 2012
Unaudited

										Total
	Common Stock				Additional Paid		Retained			Stockholders’
	Shares		Amount		in Capital		Earnings (Deficit)			Equity

Balance at September 30, 2011		14,446,836	$	1,445	$	56,059,825	$	(1,145,554	)	$	54,915,716

Share-based compensation expense		-		-		53,802		-			53,802

Net loss		-		-		-		(4,789,696	)		(4,789,696	)

Balance at June 30, 2012		14,446,836	$	1,445	$	56,113,627	$	(5,935,250	)	$	50,179,822

Balance at September 30, 2012		14,458,836	$	1,446	$	56,107,650	$	(49,667,731	)	$	6,441,365

Share-based compensation expense		-		-		28,483		-			28,483

Net income		-		-		-		972,848			972,848

Balance at June 30, 2013		14,458,836	$	1,446	$	56,136,133	$	(48,694,883	)	$	7,442,696

The Accompanying Notes are an Integral Part of These Financial Statements

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 a 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 have operated as wholly owned subsidiaries of the Company.

S.T. Pipeline, Inc. (S.T . ) was incorporated in May 1990 under the laws of the State of West Virginia. S.T. engages in the construction of natural gas pipelines for utility companies in various states, mostly in the mid-Atlantic area of the country. S.T.’s contracts are primarily fixed price contracts with some cost-plus service work performed as requested. All of the Company’s production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals. On December 18, 2012, the Company committed to the closing and subsequent disposition of the assets of S . T . Pipeline under the terms of a Forbearance Agreement and the Company’s restructuring plan. A liquidation sale of the assets of S.T. Pipeline occurred on May 14, 2013 . Results relating to S.T. Pipeline up to the date of the liquidation sale of assets are as follows:


Gross proceeds	$	8,105,230
Commission		(709,208	)
Other auction expenses		(162,109	)
Net proceeds	$	7,233,913
Book value of equipment		5,325,916
Gain on sale	$	1,907,997

The Forbearance Agreement, which was originally set to expire on May 31, 2013, was extended to May 31, 2014. Please see the Company’s May 6, 2013 Form 8-K filing for further information. The agreement requires the Company to consummate the issuance of Preferred Stock in an amount not less than six million dollars ($6,000,000). All monies must remain in escrow until a minimum of three million dollars ($3,000,000) in paid subscriptions have been received. On July 31, 2013, the Third Amendment To Forbearance Agreement was issued. This amendment extends the deadline for receipt of the required capital ($6 million) until September 30, 2013. Please see the Company’s Form 8-K dated August 7, 2013 for further details. As of August 7, 2013, $3.025 million had been received and a payment of $1.0 million on the principal balance of outstanding debt had been made. The remainder of the monies received will be used by the Company as operating capital.

In addition, on August 6, 2013, the Company issued 56 shares of Series A Preferred Stock to Marshall T. Reynolds, the Chairman of the Board of Directors of the Company, in exchange for Mr. Reynolds’ agreement to cancel and forgive the Company’s obligation under a promissory note held by Mr. Reynolds in the aggregate amount of $1,409,383 (including principal and accrued but unpaid interest). Mr. Reynolds did not receive any shares of common stock in connection with the exchange of the promissory note. Please see the Company’s Form 8-K filing on August 8, 2013 for further details.

The financial position and results of operations of S.T. Pipeline, Inc. have been presented as discontinued operations in the accompanying financial statements for all presented periods.

C.J. Hughes Construction Company, Inc. (C.J. Hughes) is a general contractor primarily engaged in pipeline construction for utility companies. C.J. Hughes operates primarily in the mid-Atlantic region of the United States. Nitro Electric Company, Inc., a wholly owned subsidiary of C. J. Hughes, is involved in electrical contracting providing its services to the power and refining industries. Nitro Electric operates primarily in the mid-Atlantic region of the United States. Contractors Rental Corporation, Inc. a wholly owned subsidiary of C.J. Hughes is involved in main line pipeline installation and repairs in the mid-Atlantic region of the country as well. All of the C.J. Hughes, Nitro Electric, and Contractors Rental production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals.

The Company’s stock trades under the symbol “ESOA” and transactions in the stock are reported on the Over-the-Counter market.

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, 2012 and 2011 included in the Company’s Form 10-K filed December 28, 2012 . 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. 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 and nine month periods ended June 30, 2013 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. The reclassifications primarily relate to the presentation of discontinued operations related to S.T. Pipeline, Inc.

2. UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts as of June 30 , 2013 and September 30, 2012 are summarized as follows:


	June 30, 2013		September 30, 2012

Costs incurred on contracts in progress	$	174,407,380	$	177,189,987
Estimated earnings, net of estimated losses		9,287,680		10,229,134
		183,695,060		187,419,121

Less: Billings to date		179,273,957		177,867,911
	$	4,421,103	$	9,551,210

Costs and estimated earnings in excess of billings on uncompleted contracts	$	7,780,172	$	10,856,769
Less: Billings in excess of costs and estimated earnings on uncompleted Contracts		3,359,069		1,305,559
	$	4,421,103	$	9,551,210

Backlog at June 30, 2013 and September 30, 2012 was $49.6 million and $57.4 million respectively .

3. CLAIMS

The Company reported $2 . 5 million of claim revenue for the period ended September 30, 2012. This claim was a result of a combination of customer-caused delays, errors in specification and designs, and disputed or unapproved contract change orders. Revenue from these claims was recorded only to the extent contract costs relating to the claim have been incurred and adjusted to reflect the probable amounts the Company anticipates collecting .

At June 30 , 2013 the Company is seeking an arbitration proceeding to resolve the collection of the remaining amount. Claims receivable is a component of cost and estimated earnings in excess of billing. The Company considers collection of these claims highly probable.

4. FAIR VALUE MEASUREMENTS

The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands 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 Measurements Topic of the FASB Accounting Standards Codification 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.

As noted above, there is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is 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 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 to unrelated parties was estimated using a discounted cash flow analysis and a yield rate that was estimated based on the borrowing rates for bank loans with similar terms and maturities. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $6.96 million at June 30, 2013 was $7.02 million.

The Company uses fair value measurements on a non-recurring basis in its assessment of goodwill and long-lived assets held and used. In accordance with its annual impairment test during the quarter ended September 30, 2012, the Company recorded a goodwill impairment charge of $36.9 million, which represented the entire amount of goodwill carried on the Company’s balance sheet. Refer to Note 4, Goodwill and Intangible Assets of the Company’s September 30, 2012 Form 10-K filing for further information.

5. DISCONTINUED OPERATIONS

Due to organizational changes and operating losses incurred in fiscal year 2012, the Company decided to discontinue the operations of the wholly owned subsidiary S.T. Pipeline, Inc. The Company liquidated the assets of S.T. Pipeline on May 14, 2013. The net proceeds of $7,233,913 went to a designated bank group to reduce the balance on the Company’s Line of Credit (LOC) and term note balances.

The operating results for S.T. Pipeline, Inc. for the three and nine months ended June 30, 2013 and 2012 are as follows:


	Three Months Ended						Nine Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
	(In Millions)			(In Millions)			(In Millions)			(In Millions)

Sales	$	0.30		$	10.36		$	2.10		$	45.29
Cost of Revenues		0.48			10.31			3.16			46.40
Gross profit (loss)		(0.18	)		0.05			(1.06	)		(1.11	)
Selling & Adm.		0.11			0.49			0.92			1.66
Loss from operations		(0.29	)		(0.44	)		(1.98	)		(2.77	)
Other income		1.93			0.13			2.14			0.15
Income (loss) before tax		1.64			(0.31	)		0.16			(2.62	)
Income tax expense (benefit)		(1.17	)		(0.05	)		(1.10	)		(0.77	)
Net income (loss)	$	2.81		$	(0.26	)	$	1.26		$	(1.85	)

The following table shows the components of asset and liabilities that are classified as discontinued operations in the Company’s consolidated balances sheets for quarter ended June 30, 2013 and year ended September 30, 2012 (in Thousands).

	June 30,		September 30,
	2013		2012
Accounts receivable, net	$	238	$	2,853
Costs in excess of billings	‐			403
Retainages receivable		291		764
Deferred tax asset		1,671		2,440
Prepaid and other current assets		186		1,348
Assets of discontinued operations‐current		2,386		7,808
Property, plant, and equipment, net		156		6,477
Total assets of discontinued operations		2,542		14,285

Accounts payable		1,361		1,745
Billings in excess of cost	‐			63
Accrued expenses and other current liabilities		83		341
Liabilities of discontinued operations‐current		1,444		2,149
Liabilities of discontinued operations‐long term		729		2,601
Total liabilities of discontinued operations		2,173		4,750

Net assets	$	369	$	9,535

6. EARNINGS PER SHARE

The amounts used to compute the earnings per share for the three and nine months ended June 30, 2013 and 2012 are summarized below.

	Three Months Ended					Nine Months Ended
	June 30,					June 30,

	2013		2012			2013			2012

Income (loss) from continuing operations	$	123,869	$	(1,742,342	)	$	(292,282	)	$	(2,944,537	)

Weighted average shares outstanding		14,458,836		14,446,836			14,458,836			14,446,836

Earnings (loss) per share from continuing operations	$	0.009	$	(0.121	)	$	(0.020	)	$	(0.204	)

Income (loss) from discontinued operations	$	2,808,198	$	(265,263	)	$	1,265,130		$	(1,845,159	)

Weighted average shares outstanding basic		14,458,836		14,446,836			14,458,836			14,446,836

Earnings (loss) per share from discontinued operations	$	0.194	$	(0.018	)	$	0.087		$	(0.128	)

Net income (loss)	$	2,932,067	$	(2,007,605	)	$	972,848		$	(4,789,696	)

Earnings (loss) per share	$	0.203	$	(0.139	)	$	0.067		$	(0.332	)

As of the nine month period ended June 30, 2013 and 2012, there are no options or warrants having a dilutive effect on the Company’s earnings per share calculation.

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. The term “Energy Services” refers to the Company and its wholly-owned subsidiaries on a consolidated basis.

Forward Looking Statements

Within Energy Services’ financial statements and this discussion and analysis of the financial condition and results of operations, there are 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.

During the fourth quarter of 2012, the Company delisted from the New York Stock Exchange. The Company’s common stock now trades in the Over-the-Counter market under the symbol “ESOA”.

On November 28, 2012, the Company entered into a Forbearance Agreement with its lenders related to our revolving line of credit and term debt. The Forbearance Agreement, among other things, required that the Company close the S. T. Pipeline subsidiary and dispose of its assets. The Company is also required to prepare recommendations relating to the on-going operations of Nitro Electric Company, Inc, C.J. Hughes Construction Company, and Contractors Rental Corporation, including refinancing, sale or liquidation of the companies. Under the terms of the Forbearance Agreement the Company cannot make additional draws on the revolving line of credit. Although the Company can request the establishment of a forbearance line of credit, the lenders are under no obligation to approve it. The limitations on our working capital could have a severe impact on our ability to obtain and perform additional work. The Forbearance Agreement, which may be terminated upon certain events, was originally set to expire on May 31, 2013, but was extended to May 31, 2014. Please see the Company’s May 6, 2013 Form 8-K filing for further information.

In connection with their audit of our 2012 financial statements, Arnett Foster Toothman PLLC, our independent public auditing firm, expressed substantial doubt about the ability of the Company to continue as a “going concern”. The financial difficulties giving rise to Arnett Foster Toothman’s conclusion include the significant and sustained losses that the Company has incurred over recent years as well as our inability to secure loans and lines of credit to fund our business in a manner deemed adequate to conduct our business. Although pursuant to the terms of the Forbearance Agreement, the Company is exploring all avenues to return to profitability, there can be no assurance that the Company will be able to successfully resolve the factors that gave rise to Arnett Foster Toothman’s decision to render its “going concern” opinion.

The Company has engaged a restructuring agent to aid in the development of a restructuring plan, and intends to explore alternative financing options as well as the ability to raise equity capital.

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. 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. The Company is exploring options to remain active in the oil and gas industries with the discontinuance of S.T. Pipeline. The Company believes there is opportunity within this industry given the current projections of pipelines being constructed.

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 Pennsylvania. 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.

The Company enters into various types of contracts, including competitive unit price, time and material 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 time and material 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 at completion of 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 .

Third Quarter Overview

The following is an overview for the three and nine months ended June 30, 2013.

	Three Months ended			Nine Months ended
	June 30, 2013			June 30, 2013
	(In Millions)			(In Millions)

Continuing Operations
Sales	$	26.55		$	78.42
Cost of revenues		24.13			71.18
Gross profit		2.42			7.24
Selling & Adm.		1.87			6.46
Income from operations		0.55			0.78
Other expense		(0.17	)		(0.84	)
Income (loss) before income tax		0.38			(0.06	)
Income tax expense		0.25			0.23
Net income (loss) from continuing operations	$	0.13		$	(0.29	)

Discontinued Operations
Sales	$	0.30		$	2.10
Cost of revenues		0.48			3.16
Gross loss		(0.18	)		(1.06	)
Selling & Adm.		0.11			0.92
Loss from operations		(0.29	)		(1.98	)
Other income		1.92			2.14
Income before income tax		1.63			0.16
Income tax benefit		(1.17	)		(1.10	)
Income from discontinued operations	$	2.80		$	1.26

The third quarter for the Company is typically a period of greater activity for our business lines given the weather and climate. The weather normally allows for more workable days in the third and fourth quarters as compared to the first and second quarters.

Quarter Ending June 30, 2013 and 2012 Comparison

Revenues. Total revenues of continuing operations decreased by $3.9 million or 12.9% to $26.6 million for the three months ended June 30, 2013 and decreased $3.8 million or 4.6% to $78.4 million for the nine months ended June 30, 2013 compared to the same period in 2012. The revenue from discontinued operations decreased by $10.1 million to $304,000 for the three months ended June 30, 2013 and decreased $43.2 million to $2.1 million for the nine months ended June 30, 2013 compared to the same period in 2012.

Cost of Revenues . Total costs of revenues from continuing operations decreased by $6.4 million or 21.0% to $24.1 million for the three months ended June 30, 2013 and decreased $7.0 million or 8.9% to $71.2 million for the nine months ended June 30, 2013 compared to the same period in 2012. The costs of revenues for discontinued operations decreased by $9.8 million to $480,000 for the three months ended June 30, 2013 and decreased $43.2 million to $3.2 million for the nine months ended June 30, 2013 compared to the same period in 2012.

Gross Profit. Total gross profit of continuing operations increased by $2.5 million or 6781.1% to $2.4 million for the three months ended June 30, 2013 and increased $3.2 million or 77.9% to $7.2 million for the nine months ended June 30, 2013 compared to the same period in 2012. The increase in gross profit reflects the loss of $2.6 million from a major project during the quarter ended June 30, 2012 which was not repeated in 2013. Please see the schedule of projects with major losses during fiscal year 2012 below. The gross profit for discontinued operations decreased by $229,000 to a gross loss of $176,000 for the three months ended June 30, 2013 and remained constant with a gross loss of $1.1 million for the nine months ended June 30, 2013 compared to the same period in 2012.

Selling and administrative expenses . Total selling and administrative expenses of continuing operations decreased by $457,000 or 19.6% to $1.9 million for the three months ended June 30, 2013 and decreased $1.0 million or 13.9% to $6.5 million for the nine months ended June 30, 2013 compared to the same period ending in 2012. The selling and administrative expenses of discontinued operations decreased by $383,000 to $110,000 for the three months ended June 30, 2013 and decreased $741,000 to $921,000 for the nine months ended June 30, 2013 compared to the same period ending in 2012.

With respect to continuing operations, there are two significant factors in the $1.0 million decrease in selling and administrative expenses. There was a $1.6 million reduction for the nine months ended June 30, 2013 that resulted from combining the management of C.J. Hughes, Inc. and Contractors Rental, Inc. Also, the Company incurred $671,000 in restructuring costs related to the consultant put in place under terms of the Forbearance Agreement for the nine months ended June 30, 2013 that was not incurred during the nine months ended June 30, 2012. The restructuring costs are expected to continue through at least May 31, 2014.

Interest Expense. Interest expense from continuing operations decreased by $38,000 or 8.2% to $429,000 for the three months ended June 30, 2013 and decreased $39,000 or 2.8% to $1.4 million for the nine months ended June 30, 2013 compared to the same period ending for 2012.

Net Income (Loss). The Company had a net income of $124,000 from continuing operations for the three months ended June 30, 2013 compared to a net loss of $1.7 million for the same period ending in 2012. The Company had a net income of $2.8 million from discontinued operations for the three months ended June 30, 2013 compared to a net loss of $265,000 for the same period ending in 2012. This is primarily related to a $1.9 million gain on sale of S.T. Pipeline’s equipment.

As previously disclosed, the Company incurred substantial losses in 2012 related to two major projects. Below is the detail related to those losses:


	12,000 ft 6” replacement and 14,000 ft 12” replacement
	At Quarter Ended
	9/30/2011			12/31/2011			3/31/2012			6/30/2012			9/30/2012			12/31/2012
																Completed
Contract amount	$	8,612,000		$	8,612,000		$	9,100,000		$	9,377,720		$	9,647,650		$	9,653,550
Cost to date		3,212,060			7,566,120			11,699,590			14,047,950			14,606,290			14,650,160
Est. costs to complete		4,060,500			1,200,000			2,250,000			250,000			63,000			-
Est. costs at completion		7,272,560			8,766,120			13,949,590			14,297,950			14,669,290			14,650,160
Est. profit (loss)	$	1,339,440		$	(154,120	)	$	(4,849,590	)	$	(4,920,230	)	$	(5,021,640	)	$	(4,996,610	)
Percent complete		44.2	%		86.3	%		83.9	%		98.3	%		99.6	%		100	%

						For Quarter Ended
	9/30/2011		12/31/2011			3/31/2012			6/30/2012			9/30/2012			12/31/2012
															Completed
Earned revenue	$	3,803,648	$	3,608,351		$	(562,000	)	$	2,277,720		$	456,930		$	68,900

Costs of revenue		3,212,060		4,354,060			4,133,470			2,348,360			558,340			43,870

Gross profit (loss)	$	591,588	$	(745,709	)	$	(4,695,470	)	$	(70,640	)	$	(101,410	)	$	25,030

This was a unit price project for the replacement of approximately 12,000 feet of six inch pipe and 14,000 feet of twelve inch pipe in McDowell County, West Virginia. The project began during the fourth quarter of fiscal year 2011 and was completed during the first quarter of fiscal year 2013. The contract began with an estimated value of $ 8,612,000 and through contract additions and extra work increased by $ 1,041,550 to a final contract price of $ 9,653,550. The project was billed every two weeks after actual quantities installed were agreed upon by a Company field supervisor and a customer inspector.

Earned revenue for each quarter was calculated using the percent complete method of revenue recognition. Total costs to date were compared to total forecasted costs at completion as provided by the project’s management team. The resulting percentage of costs completed was used to determine how much of the contract value to recognize as revenue. When the estimated costs at completion moved the project to a loss position, the full amount of the expected loss was recorded in that quarter.

The Company recognized $ 592,000 of profit on the project for the quarter ended September 30, 2011. However, the project began to experience difficulties in the quarter ended December 31, 2011 due to weather based project delays. At this time, the Company recognized a $ 746,000 loss for the quarter, and a loss of $ 154,000 for the project to date.

The project experienced more than anticipated weather delays and a greater than anticipated amount of underground rock during the quarter ended March 31, 2012, at which time the Company recorded an additional $ 4.7 million loss. The major components of costs overruns during this period were labor, benefits, and equipment rental, all of which were greatly impacted due to lost time and inefficient production caused by the factors mentioned above. Union contracts negotiated with the various unions involved with the projects call for rain out and/or show up time to be paid even if work is stopped due to weather conditions. Total labor and benefit costs for the quarter was $ 3.0 million. In addition to the impact on labor costs, weather conditions also extend the amount of time outside equipment rentals are required to complete the project. Total outside equipment rental for the quarter was $ 560,000.

The project was completed during the first quarter of fiscal 2013 and finished with total revenue of $ 9,653,550, costs of $ 14,650,160 and a total project loss of $ 4,996,610. The Company does not anticipate any additional losses on this project.


	49,400 ft of 24” pipe

	At Quarter Ended
	12/31/2011			3/31/2012			6/30/2012			9/30/2012			12/31/2012
													Completed

Contract amount	$	13,388,670		$	18,946,437		$	20,162,561		$	21,174,380		$	21,197,818

Cost to date		876,092			11,066,099			21,715,318			24,730,308			24,805,555

Est. costs to complete		11,977,031			7,673,385			926,944			25,000			-

Est. costs at completion		12,853,123			18,739,484			22,642,262			24,755,308			24,805,555

Est. profit (loss)	$	535,547		$	206,953		$	(2,479,701	)	$	(3,580,928	)	$	(3,607,737	)

Percent complete		6.8	%		59.1	%		95.9	%		99.9	%		100	%

							For Quarter Ended
	12/31/2011			3/31/2012			6/30/2012			9/30/2012			12/31/2012
													Completed
Earned revenue	$	912,596		$	10,275,714		$	8,047,307		$	1,913,764		$	48,438

Costs of revenue		876,092			10,190,007			10,649,219			3,014,990			75,247

Gross profit (loss)	$	36,504		$	85,707		$	(2,601,912	)	$	(1,101,226	)	$	(26,809	)

This was a unit price project for the replacement of approximately 49,400 feet of twenty four inch pipe in Wetzel County, West Virginia. The project began during the first quarter of fiscal year 2012 and was completed during the first quarter of fiscal year 2013. The contract began with an estimated value of $13,388,670 and through contract additions and extra work increased by $7,809,148 to a final contract price of $21,197,818. The project was billed every two weeks after actual quantities installed were agreed upon by a Company field supervisor and a customer inspector.

The Company recognized $ 743,000 of profit on the project through the second quarter ended March 31, 2012. However, the project began to experience difficulties in the quarter ended June 30, 2012 due to weather based project delays and inefficient production. At this time, the Company recognized a $2.5 million loss for the quarter, and a loss of $1.7 million for the project to date. It was during this quarter that the Company fell behind schedule on the project and made an attempt to make up for the lost and inefficient production by maintaining a higher labor force and outside equipment rentals than was originally estimated. Major components of costs of revenues for the quarter were labor and burden of $7.1 million and outside equipment rental of $935,000.

The Company recognized another $1.1 million loss on the project during the quarter ended September 30, 2012. Costs for the quarter exceeded the estimated costs to complete as of June 30, 2012 by $2.1 million; however, the estimated contract amount increased by $1.0 million. Major components of costs for the quarter were labor and burden of $1.4 million and outside equipment rentals of $500,000.

The project was completed during the quarter ended December 31, 2012 and finished with a total loss of $3.6 million. The Company does not anticipate any additional losses on this project.

The Company is not engaged in any major projects at this time that losses are expected.

Comparison of Financial Condition

The Company had total assets at June 30, 2013 of $44.1 million, a decrease of $15.6 million from September 30, 2012. Primarily related to an $11.7 million decrease in the assets of discontinued operations. Some of the primary components of the balance sheet were accounts receivable which totaled $16.5 million, an increase of $819,000 from September 30, 2012. Other major categories of assets at June 30, 2013 included cash of $1.5 million and fixed assets less accumulated depreciation of $10.4 million. Liabilities totaled $36.7 million, a decrease of $16.7 million from September 30, 2012. This decrease was primarily due to a decrease in accounts payable, current maturities of long term debt, and lines of credit and short term borrowings.

Stockholders’ Equity. Stockholders’ equity increased from $6.4 million at September 30, 2012 to $7.4 million at June 30, 2013. This increase was primarily due to the net income of $973,000. We have not paid any cash or stock dividends on our common stock, nor have we repurchased shares of our common stock.

Liquidity and Capital Resources

Cash Requirements

The Forbearance Agreement, among other things, does not allow for additional draws on our revolving line of credit. We can apply for a separate forbearance line of credit, but approval by our lenders is at their discretion. We prepare weekly cash forecasts for our own benefit and for submission to our lenders. The Company is engaged in efforts to obtain a capital infusion through a private placement of securities. One million dollars from the net proceeds received will be paid toward the principal reduction of outstanding debt and the remainder will be used by the Company as operating capital. Please see the Company’s August 7, 2013 Form 8-K filing for further details.

The Company is currently working with a restructuring agent to determine the best course of action for the Company and its shareholders, including refinancing opportunities. The Company is also exploring opportunities to raise equity capital.

Sources and Uses of Cash

The net income for the nine months ended June 30, 2013 was $973,000, which includes depreciation expense of $3.3 million. Contracts, other receivables, and prepaids provided $6.1 million while decreases in accounts payable and accrued expenses used $5.0 million. Net cash provided by operating activities was $2.2 million for the nine month period ended June 30, 2013. Investing activities provided $8.2 million; primarily from the sale of S.T. Pipeline’s equipment. Financing activities consumed $11.5 million; primarily as the result of the proceeds from the equipment sale being paid against the Company’s line of credit and bank note.

As of June 30, 2013, the Company had $1.6 million in cash, working capital of $4.2 million and long term debt, net of current maturities of $2.5 million.

Loan Covenants

The Company has established an eighteen million ($18,000,000) Line of Credit agreement with a regional bank. The line of credit is subject to the terms of the Forbearance Agreement discussed above. Interest during the forbearance period is 6.5%, which expires May 31, 2014. Cash available under the line is calculated based on a percentage of the Company’s accounts receivable with certain exclusions. Major items excluded from calculation are certain percentages of receivables from bonded jobs and retainage as well as items greater than one hundred twenty (120) days old. At June 30, 2013 the Company had outstanding borrowings $11.5 million on the line of credit.

The debt covenants with respect to the Company’s current ratio and debt to tangible net worth have been waived under the Forbearance Agreement. The Company is in compliance with the remaining debt covenants at June 30, 2013.

In accordance with the terms of the Forbearance Agreement, the lenders have agreed to forbear from exercising and enforcing its default-related rights under the notes.

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:

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 at times we may enter into longer term leases when warranted. 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 one piece of real estate from stockholders-directors of the Company under a long-term lease agreement. This 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 agreement calls for monthly rental payments of $7,500 and extends through October 2013. This lease will not be renewed and the Company’s headquarter office will be moved and combined with the C.J. Hughes office. A second agreement was for the lease of office and yard space for S.T. Pipeline at $5,000 per month. The Company vacated the property and turned possession over to the lessor subsequent to June 30, 2013. The Company also rents office and shop space from other independent lessors. The office space rental is $6,000 per month and extends to March 2014. The shop rental is $5,800 monthly and extends to May 2014.

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 June 30, 2013, the Company had one letter of credit outstanding in the amount of $953,340.

Performance Bonds

Some customers, particularly new ones or governmental agencies, require the Company 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. Effective October 19, 2012, the Company’s bonding company discontinued issuing the Company any new bonds until further notice. The Company is actively searching for a new bonding company. The ability to obtain bonding for future contracts is an important factor in the contracting industry with respect to the type and amount of contracts that can be bid.

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 will 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 June 30, 2013, the Company had $23.7 million in performance bonds issued by the insurer 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 two customers that exceeded 10% of revenues for the nine months ended June 30, 2013. Those two customers accounted for 46.4% of revenues for the period.

Related Party Transactions

Total long-term debt at June 30, 2013 was $2.5 million, of which $1.2 million was related party debt payable to a certain director by August 2014.

Inflation

Due to relatively low levels of inflation during the nine months ended June 30, 2013 and 2012, inflation did not have a significant effect on our 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.

Claims. Claims are amounts in excess of the agreed contract price that a contractor seeks to collect from customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs. The Company records revenue on claims that have a high probability of success. Revenue from a claim is recorded only to the extent that contract costs relating to the claim have been incurred.

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 at completion. 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.

Self Insurance. The Company has its workers’ compensation, general liability and auto insurance through a captive insurance company. While the Company believes that this arrangement has been very beneficial in reducing and stabilizing insurance costs the Company does have to maintain a restricted cash account to guarantee payments of premiums. That restricted account had a balance of $1.4 million as of June 30, 2013. Should the captive experience severe losses over an extended period, it could have a detrimental effect on the Company.

Accounts Receivable and Provision for Doubtful Accounts . The Company provides an allowance for doubtful accounts when collection of an account is considered doubtful. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates relating to, among others, our customer’s access to capital, our customer’s willingness or ability to pay, general economic conditions and the ongoing relationship with the customer. While most of our customers are large well capitalized companies, should they experience material changes in their revenues and cash flows or incur other difficulties and not be able to pay the amounts owed, this could cause reduced cash flows and losses in excess of our current reserves. At June 30, 2013, the management review deemed that the allowance for doubtful accounts was adequate.

Outlook

The following statements are based on current expectations. These statements are forward looking, and actual results may differ materially.

The Forbearance Agreement also required the Company to sell the assets of S.T. Pipeline, which occurred on May 14, 2013. Please see the Company’s May 20, 2013 Form 8-K filing for further details. The S.T. Pipeline sale generated $7,233,913 of net proceeds, and C.J. Hughes sold excess equipment generating $377,775 in net proceeds. All net proceeds went to the bank group to reduce the balance of the Company’s Line of Credit (LOC) and Term Note based on a prorated amount of the outstanding principal balance for each. The balances of the LOC and Term note were $11.5 million and $5.0 million, respectively, after all auction proceeds were received. All jobs being performed by S.T. Pipeline have been completed and the operations have been closed. The Company does not anticipate any residual effects from the contracts completed by S.T. Pipeline.

The Company is also having discussions with investment banking groups relative to a capital raise or the marketing of Nitro Electric and C.J. Hughes, but no definitive plan has been established.

Prior to the general economic crisis that severely impacted demand in 2009, our customers were experiencing high demands for their products, particularly natural gas. Currently, the Company is seeing the increased demand for our services and accordingly, the Company would expect to see projected spending for our customers on their transmission and distribution systems increasing dramatically over the next few years. However, with the current uncertainty in the economy the demand for the customer’s project could wane and also their ability to fund planned projects could be reduced. The Company’s backlog at June 30, 2013 was $49.6 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. Moreover, even if the Company obtains contracts, there can be no guarantee that the projects will go forward if the current economic instability continues.

The Company’s ability to complete the existing backlog and to obtain and perform additional work will be dependent on the Company complying with the terms of the Forbearance Agreement with our lenders and finding alternative funding, possibly including an infusion of equity capital. See the “Liquidity and Capital Resources” section for further discussion.

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 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that Energy Services 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 third quarter of fiscal year 2013 that has materially affected, or is reasonably likely to materially affect, Energy Services of America Corporation’s internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. Legal Proceedings

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 personal 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.

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 28, 2012, and which is incorporated herein by reference. There have been no changes to the risk factors since the filing of the Annual Report on Form 10-K.

ITEM 2 . Unregistered Sales of Equity Securities and Use of Proceeds .

(a) There have been no unregistered sales of securities during the periods covered by the report.

(b) None

Energy Services of America Corporation did not repurchase any shares of its common stock during the relevant period.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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: August 13, 2013	By:	/s/ Douglas V. Reynolds
			Douglas V. Reynolds
			Chief Executive Officer

Date: August 13, 2013	By :	/ s/ Larry A. Blount
				Larry A. Blount
				Chief Financial Officer

TABLE OF CONTENTS

Part 1: Financial Information Item 1. Financial Statements (unaudited):Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 Item 4. Controls and Procedures 22 Part Ii: Other Information 23 Part Ii:Item 1. Legal Proceedings 23 Item 1A. Risk Factors 23 Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds 23 Item 4. Removed and Reserved 23 Item 6. Exhibits 24 Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2 . Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 6. Exhibits

ESOA 10-Q Quarter ended June 30, 2013