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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C.  20549

MARK ONE
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

OR

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 0-9494

ENSERVCO CORPORATION
(Exact Name of registrant as Specified in its Charter)

Delaware
84-0811316
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
   
830 Tenderfoot Hill Road, Suite 310
Colorado Springs, CO
 
80906
(Address of principal executive offices)
(Zip Code)

Issuer’s telephone number:  (719) 867-9911
 
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 Enservco was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  x No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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 ¨    No x

Indicate the number of shares outstanding of each of the Issuer's classes of common stock as of the latest practicable date.

Class
Outstanding at August 1, 2011
Common stock, $.005 par value
21,778,866

 
 

 

TABLE OF CONTENTS

 
Page
Part I – Financial Information
 
   
Item 1. Financial Statements
 
   
Condensed Consolidated Balance Sheets
3
   
Condensed Consolidated Statements of Operations
4
   
Condensed Consolidated Statements of Cash Flows
5
   
Notes to Condensed Consolidated Financial Statements
6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk
36
   
Item 4. Controls and Procedures
36
   
Part II
 
   
Item 1. Legal Proceedings
37
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
37
   
Item 3. Defaults Upon Senior Securities
37
   
Item 4. Reserved
37
   
Item 5. Other Information
37
   
Item 6. Exhibits
38

 
2

 

Part I.  FINANCIAL INFORMATION   

Item 1.  FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

   
June 30,
   
December 31,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 1,695,279     $ 1,637,807  
Accounts receivable, net
    2,855,600       4,101,331  
Prepaid expenses and other current assets
    794,960       681,307  
Inventories
    299,204       300,527  
Income taxes receivable
    -       634,941  
Deferred tax asset
    93,694       20,041  
Total current assets
    5,738,737       7,375,954  
                 
Property and Equipment, net
    14,216,914       14,452,298  
Non-Competition Agreements, net
    300,000       420,000  
Goodwill
    301,087       301,087  
Other Assets
    61,149       71,537  
                 
TOTAL ASSETS
  $ 20,617,887     $ 22,620,876  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities
               
Accounts payable and accrued liabilities
  $ 1,537,370     $ 2,066,353  
Line of credit borrowings
    -       1,050,000  
Current portion of long-term debt
    4,054,876       3,107,122  
Total current liabilities
    5,592,246       6,223,475  
                 
Long-Term Liabilities
               
Subordinated debt – related party
    1,700,000       1,700,000  
Long-term debt, less current portion
    7,141,258       8,657,675  
Deferred income taxes, net
    1,472,786       1,434,282  
Total long-term liabilities
    10,314,044       11,791,957  
Total liabilities
    15,906,290       18,015,432  
                 
Stockholders’ Equity
               
Common and preferred stock. $.005 par value Authorized: 100,000,000 common shares and 10,000,000 preferred shares Issued: 21,882,466 common shares and -0- preferred shares Treasury Stock: 103,600 common shares Issued and outstanding: 21,778,866 common shares and -0- preferred shares at June 30, 2011 and December 31, 2010
    108,894       108,894  
Additional paid-in-capital
    5,645,041       5,489,823  
Retained deficit
    (1,115,228 )     (1,150,011 )
Accumulated other comprehensive income – investment securities
    72,890       156,738  
Total stockholders’ equity
    4,711,597       4,605,444  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 20,617,887     $ 22,620,876  

See notes to condensed consolidated financial statements.

 
3

 

Condensed Consolidated Statements of Operations
 
 
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
Revenues
  $ 4,470,679     $ 3,345,640     $ 13,732,200     $ 9,220,210  
                                 
Cost of Revenue
    3,788,550       2,946,094       9,666,788       7,141,107  
                                 
Gross Profit
    682,129       399,546       4,065,412       2,079,103  
                                 
Operating Expenses
                               
General and administrative expenses
    707,377       380,589       1,390,410       865,794  
Depreciation and amortization
    1,128,865       971,935       2,194,539       1,919,716  
Total operating expenses
    1,836,242       1,352,524       3,584,949       2,785,510  
                                 
Income (Loss) from Operations
    (1,154,113 )     (952,978 )     480,463       (706,407 )
                                 
Other (Expense) Income
                               
Interest expense
    (171,965 )     (169,371 )     (352,276 )     (359,552 )
(Loss) gain on disposals of equipment
    -       -       (44,286 )     7,125  
Unrealized derivative gain
    -       (13,078 )     -       -  
Interest and other (expense) income
    (42,454 )     (152,057 )     (37,710 )     83,364  
Total other (expense) income
    (214,419 )     (334,506 )     (434,272 )     (269,063 )
                                 
Income (Loss) Before Income Tax Expense
    (1,368,532 )     (1,287,484 )     46,191       (975,470 )
                                 
Income Tax Benefit (Expense)
    518,229       503,581       (11,406 )     300,461  
                                 
Net Income (Loss)
  $ (850,303 )   $ (783,903 )   $ 34,785     $ (675,009 )
                                 
Other Comprehensive Income
   Unrealized losses on investment securities, net of tax
    (2,504 )     -       (83,848 )     -  
                                 
Comprehensive Income (Loss)
  $ (852,807 )   $ (783,903 )   $ (49,063 )   $ (675,009 )
Earnings per Common Share
                               
                                 
Income (Loss) Per Common Share – Basic
  $ (0.04 )   $ (0.05 )   $ 0.00     $ (0.05 )
Income (Loss) Per Common Share –Diluted
  $ (0.04 )   $ (0.05 )   $ 0.00     $ (0.05 )
                                 
Basic weighted average number of common shares outstanding  (on an equivalent basis)
    21,778,866       14,519,244       21,778,866       14,519,244  
Add: Dilutive shares assuming exercise of options and warrants
    -       -       651,502       -  
Diluted weighted average number of common shares outstanding  (on an equivalent basis)
    21,778,866       14,519,244       22,430,368       14,519,244  

See notes to condensed consolidated financial statements.

 
4

 

Condensed Consolidated Statements of Cash Flows
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
OPERATING ACTIVITIES
                       
Net income
  $ (850,303 )   $ (783,903 )   $ 34,785     $ (675,009 )
Adjustments to reconcile net income to net cash provided by operating activities:                                
Depreciation and amortization
    1,128,865       971,935       2,194,539       1,919,716  
Loss (gain) on disposal of equipment
    -       -       44,286       (7,125 )
Deferred income taxes
    (135,380 )     (281,068 )     (35,149 )     (300,460 )
Unrealized gain on derivatives
    -       (127,655 )     -       (140,733 )
Stock-based compensation
    59,184       -       108,865       -  
Warrants issued in consideration to vendor
    46,353       -       46,353       -  
    Unrealized loss on available-for-sale securities
    925       -       52,260       -  
    Bad debt expense
    -       121,047       345       121,047  
Changes in operating assets and liabilities
                               
Accounts receivable
    1,859,097       1,338,478       1,245,386       377,575  
Income taxes receivable
    -       (222,513 )     634,941       -  
Inventories
    (58,786 )     (59,008 )     1,323       44,621  
Other current assets
    10,016       35,606       (249,761 )     (378,409 )
Other non-current assets
    (4,544 )     (53,355 )     10,389       43,679  
Related party payable
    -       64,995       -       -  
Income taxes payable
    (401,393 )     -       -       -  
Accounts payable and accrued expenses
    (339,023 )     111,514       (528,986 )     85,304  
Net cash provided in operating activities
    1,315,011       1,116,073       3,559,576       1,090,206  
                                 
INVESTING ACTIVITIES
                               
Purchases of property and equipment
    (1,134,034 )     (381,222 )     (1,870,701 )     (575,357 )
Proceeds from sales of equipment
    -       -       38,787       555,125  
Net cash used in investing activities
    (1,134,034 )     (381,222 )     (1,831,914 )     (20,232 )
                                 
FINANCING ACTIVITIES
                               
Net line of credit borrowings
    -       (271,529 )     (1,050,000 )     385,085  
Proceeds from issuance of long-term debt
    -       9,100,000       -       10,300,000  
Distributions to members
    -       265       -       (568,979 )
Contributions from members
    -       -       -       13,420  
Repayment of long-term debt
    (442,195 )     (9,003,166 )     (620,190 )     (10,421,609 )
Net cash used in financing activities
    (442,195 )     (174,430 )     (1,670,190 )     (292,083 )
                                 
Net (Decrease) Increase in Cash and Cash Equivalents
    (261,218 )     560,421       57,472       777,891  
                                 
Cash and Cash Equivalents, Beginning of Period
    1,956,497       365,956       1,637,807       148,486  
                                 
Cash and Cash Equivalents, End of Period
  $ 1,695,279     $ 926,377     $ 1,695,279     $ 926,377  
                                 
Supplemental cash flow information consists of the following:
                               
Cash paid for interest
  $ 157,605     $ 216,926     $ 323,556     $ 378,122  
Cash paid for taxes
  $ -     $ -     $ -     $ -  
                                 
Supplemental Disclosure of Investing and Financing Activities:
                               
Non-cash commitments entered into for leases
  $ -     $ -     $ 51,526     $ -  

See notes to condensed consolidated financial statements.

 
5

 

Notes to the Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

On July 27, 2010 Dillco Fluid Service, Inc. became a wholly owned subsidiary of Aspen Exploration Corporation (“Aspen”) (the “Merger Transaction”). At the time of the Merger Transaction Aspen was not engaged in active business operations whereas Dillco conducted operations both directly and through subsidiary entities.

The accompanying condensed consolidated financial statements have been derived from the accounting records of Enservco Corporation (formerly Aspen Exploration Corporation), Enservco LLC, Heat Waves Hot Oil Services LLC (“Heat Waves”), Dillco Fluid Service, Inc. (“Dillco”), Trinidad Housing LLC, HES Services LLC, and Real GC LLC (collectively, the “Company”) as of December 31, 2010 and June 30, 2011 and the results of operations for both the three and six months ending June 30, 2011 and 2010.  As noted elsewhere in this report, any references to “Aspen” in this report are intended to provide reference for certain actions and events that took place prior to the Merger Transaction.  References to Enservco and the “Company” are intended to apply to the Company as a whole and on a post Merger Transaction basis.
 
It should be noted that certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission (SEC) Article 10 of Regulation S-X, although the Company believes that the disclosures are adequate to make the information presented not misleading.  The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2010 as included in the Company’s annual report in Form 10K for its fiscal year ended December 31, 2010.
 
    The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  All significant inter-company balances and transactions have been eliminated in the accompanying consolidated financial statements.

Note 2 - Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.  The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests.

Accounts Receivable
 
Accounts receivable are stated at the amount billed to customers.  The Company provides a reserve for doubtful accounts based on a review of outstanding receivables, historical collection information and existing economic conditions.  The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses.  The allowance is management's best estimate of uncollectible amounts and is determined based on historical performance that is tracked by the Company on an ongoing basis.  The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance.  As of June 30, 2011 the Company has recorded an allowance for doubtful accounts of $109,792.  For the three and six months ended June 30, 2011 the Company recorded bad debt expense of $-0- and $345, respectively.  For the three and six months ended June 30, 2010 the Company recorded bad debt expense of $121,047 and $121,047, respectively.
 
Inventory

Inventory consists primarily of diesel fuel and chemicals that are used in the servicing of oil wells and is carried at the lower of cost or market in accordance with the first in, first out method.

 
6

 

Property and Equipment

Property and equipment consists of (1) trucks, trailers and pickups; (2) trucks that are in various stages of fabrication; (3) real property which includes land and buildings used for office and shop facilities and wells used for the disposal of water; and (4) other equipment such as tools used for maintaining and repairing vehicles, office furniture and fixtures, and computer equipment.  Property and equipment is stated at cost less accumulated depreciation.  The Company charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the remaining useful life or expand the capacity of the assets.  Depreciation is recorded on a straight-line basis over estimated useful lives of 5 to 30 years.

Leases

The Company conducts a major part of its operations from leased facilities. Each of these leases is accounted for as operating leases. Normally, the Company records rental expense on its operating leases over the lease term as it becomes payable. If rental payments are not made on a straight-line basis, per terms of the agreement, the Company records a deferred rent expense and recognizes the rental expense on a straight-line basis throughout the lease term. The majority of the Company’s facility leases contain renewal clauses and expire through June 2016. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases.

The Company has entered into several capital leases in order to acquire trucks and equipment. Each of these leases allow the Company to retain title of the equipment leased through the lease agreements upon final payment of all principal and interest due. The Company records the assets and liabilities associated with these leases at the present value of the minimum lease payments per the lease agreement. The assets and associated liabilities are separately identified in the balance sheet. The assets are classified as Property and Equipment and the liabilities are classified as current and long-term liabilities based on the contractual terms of the agreements and their associated maturities.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered.  The Company looks primarily to the discounted future cash flows in its assessment of whether or not long-lived assets have been impaired.  No impairments were recorded during both the three and six month periods ended June 30, 2011 and 2010.

Revenue Recognition
 
The Company recognizes revenue when services are provided and collection is reasonably assured.  It should be noted that due to the seasonality of the Company’s operations, a significant portion of revenues are recognized during the colder, winter months of the year.  Therefore, the Company believes that, the revenues recognized for the three and six month periods ended June 30, 2011 and 2010 are not indicative of the annual or quarterly revenues through the remainder of the fiscal year.
 
Earnings Per Share

Earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income by the diluted weighted average number of common shares. The diluted weighted average number of common shares is computed using the treasury stock method for common stock that may be issued for outstanding stock options.

As of June 30, 2011 and December 31, 2010, the Company had outstanding Stock-based Option Awards and Warrants of 2,650,000 and 2,550,000 shares, respectively, to acquire an aggregate of Company common stock, which have a potentially dilutive impact on earnings per share.  Dilution is not permitted if there are net losses during the period. As such, the Company does not show dilutive earnings per share for the three months ended June 30, 2011 nor for the year ended December 31, 2010.  For the six months ended June 30, 2011, the incremental shares of the options and warrants to be included in the calculation of diluted earnings per share, which had a dilutive impact on the Company’s earnings per share, was 651,502 shares.

 
7

 

Intangible Assets

Non-Competition Agreements

The non-competition agreements with the sellers of Heat Waves, Hot Oil Express, and Dillco have finite lives and are being amortized over a five-year period (Note 3).  Amortization expense is expected to be recognized through June 2013.

Goodwill

Goodwill represents the excess of the cost over the fair value of net assets acquired, including identified intangible assets, recorded in connection with the acquisitions of Heat Waves.  Goodwill is not amortized but is assessed for impairment at least annually.  No impairment charge was recorded during both the three and six month periods ended June 30, 2011 and 2010.

Marketable Securities

The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available for sale. Held-to-maturity securities are recorded as either short term or long term on the Balance Sheet, based on contractual maturity date and are stated at amortized cost. Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings. Debt and marketable equity securities not classified as held to maturity or as trading, are classified as available for sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in stockholders’ equity.

The fair value of substantially all marketable securities is determined in reference to quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market. See Note 7.

Loan Fees and Other Deferred Costs

In the normal course of business, the Company often enters into loan agreements with its primary lending institutions. The majority of these lending agreements require origination fees and other fees in the course of executing the agreements. For all costs associated with the execution of the lending agreements, the Company recognizes these as capitalized costs and defers the expensing of these costs over the term of the loan agreement. These deferred costs are classified on the balance sheet as current or long-term assets based on the contractual terms of the loan agreements. All other costs not associated with the execution of the loan agreements are expensed as incurred.

Income Taxes

Enservco LLC (which served as the holding company for the Company’s various operating entities until the time of the Merger Transaction in July 2010) and its subsidiaries, with the exception of Dillco (which is a C Corporation subject to federal and state income taxes), are limited liability companies and prior to January 1, 2010 were not subject to federal or state income taxes.  On January 1, 2010 Enservco LLC elected to be taxed as a corporation.  Therefore, prior to January 1, 2010 no provision or liability for income taxes has been included in the accompanying financial statements, except for income taxes relating to the financial statements of Dillco and Aspen (the current parent (or holding) company for the Company’s operations and assets).

 
8

 

           The Company recognizes deferred tax liabilities and assets (Note 8) based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in income in the period that includes the enactment date.

The Company accounts for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.  The application of income tax law is inherently complex.  Laws and regulations in this area are voluminous and are often ambiguous.  As such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures.  Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to the Company’s subjective assumptions and judgments which can materially affect amounts recognized in the consolidated balance sheets and consolidated statements of income.  The result of the reassessment of the Company’s tax positions did not have an impact on the consolidated financial statements.

When accounting for uncertainty in income taxes for those entities electing to be treated as limited liability companies for income tax purposes, if taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the member rather than the Company.  Accordingly, there would be no effect on the Company’s financial statements.
 
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses.  No interest or penalties have been assessed as of December 31, 2010.  The Company files income tax returns in the United States and in the states in which it conducts its business operations. The tax years 2007 through 2010 remain open to examination in the taxing jurisdictions to which the Company is subject.
 
Fair Value

The Company has adopted the authoritative guidance that applies to all financial assets and liabilities required to be measured and reported on a fair value basis.  The Company also applies the guidance to non-financial assets and liabilities measured at fair value on a nonrecurring basis, including non-competition agreements and goodwill.  The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances.  The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 
Level 1:
Quoted prices are available in active markets for identical assets or liabilities;
 
Level 2:
Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or
 
Level 3:
Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

 
9

 

Stock-based Compensation
 
    The Company accounts for stock-based compensation in accordance with current accounting standards which requires companies to recognize compensation expense for the share-based payments based on the estimated fair value of the awards. The effect of this guidance is described in Note 10.
 
Management Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Note 3 - Non-Competition Agreements

Non-competition agreements consist of the following as of June 30, 2011:

Non-competition agreements - net, at January 1, 2010
  $ 660,000  
Amortization for the year ended December 31, 2010
    (240,000 )
Non-competition agreements - net, at December 31, 2010
    420,000  
Amortization for the six months ended June 30, 2011
    (120,000 )
Non-competition agreements - net, at June 30, 2011
  $ 300,000  

Amortization expense for the three and six months ended June 30, 2011 and 2010 totaled $60,000 and $120,000, respectively.

Amortization expense on these non-competition agreements for each of the next three years will be as follows:
 
Twelve Months Ending June 30,
         
           
2012
    $ 240,000  
2013
      60,000  
2014
      -  
Total
    $ 300,000  
 
 
10

 

Note 4 - Property and Equipment

Property and equipment consists of the following:

   
For the period ended,
 
   
June 30, 2011
   
December 31, 2010
 
             
Trucks and vehicles
  $ 19,835,410     $ 17,957,278  
Other equipment
    2,934,135       2,807,165  
Buildings and improvements
    1,964,050       1,717,618  
Trucks in process
    788,855       1,287,536  
Capitalized truck leases
    455,093       455,093  
Land
    578,420       521,420  
Disposal wells
    620,104       590,802  
Total property and equipment
    27,176,067       25,336,912  
Accumulated depreciation
    (12,959,153 )     (10,884,614 )
                 
Property and equipment - net
  $ 14,216,914     $ 14,452,298  

Depreciation expense for the three months ended June, 2011 and 2010 totaled $1,068,865 and $911,935, respectively.  Depreciation expense for the six months ended June 30, 2011 and 2010 totaled $2,074,539 and $1,799,716, respectively.

Note 5 – Long-Term Debt

Long-term debt consists of the following:

   
For the period ended,
 
    June 30,
2011
   
December 31,
2010
 
Term Loan entered into as part of the debt refinancing in June 2010.
  $ 8,902,151     $ 9,049,383  
                 
Notes payable to stockholder, subordinated to all bank debt, fixed interest at 3% compounding annually, interest paid in arrears December 31st of each year, due in December 2018.
    1,700,000       1,700,000  
                 
Notes payable to equipment finance companies, interest at 2.97% to 4.74%, due in monthly principal and interest installments through January 2012, secured by equipment.
    109,976       227,273  
                 
Note payable to the seller of Heat Waves, interest at 8%, due in installments in January and May 2009, secured by land.  The note was garnished by the Internal Revenue Service (“IRS”) in 2009 and is due on demand.
    368,000       386,000  
                 
Mortgage payable to a bank, interest at 8%, due in monthly payments through May 2012 with a balloon payment of $229,198 on June 15, 2012, secured by land, guaranteed by one of the Company’s stockholders.
    259,742       276,326  
                 
Note payable to the seller of Hot Oil Express, non-interest bearing, due in annual installments of $100,000 through March 2011, unsecured. Imputed interest is not significant. (The Company purchased fixed assets from Hot Oil Express during 2008.)
    -       100,000  

 
11

 

   
June 30,
2011
   
December 31,
2010
 
Mortgage payable to a bank, interest at 8%, payable in monthly payments through August 2012 with a balloon payment of $141,707 on September 1, 2012, secured by land.
    151,872       155,980  
                 
Notes payable to a vehicle finance company, interest at fixed rates from 6.19% to 10.25%, due in monthly installments through August 2015, secured by vehicles, guaranteed by one of the stockholders.
    174,512       154,763  
                 
Capital leases entered into with a leasing company in order to purchase trucks and trailers, interest at a fixed rate of 5%.  Truck lease term of 24 months, due in monthly installments through September 2012.  Trailer lease term of 36 months, payments due in monthly installments through September 2013.
    320,137       411,072  
                 
Equipment Loan entered into with an original principal balance of $1,000,000, payable in two consecutive interest only payments, beginning 12/23/2010, forty-seven monthly consecutive principal and interest payments of $23,291, beginning 2/23/2011, and one final principal and interest payment of $23,315 due on 1/23/2015.  Interest at Prime plus 1% with a 5.5% floor, collateralized by equipment purchased with the equipment loan, guaranteed by the subsidiaries and one of the stockholders of the Company, subject to financial covenants.
    905,744       1,000,000  
                 
Other notes payable.
    4,000       4,000  
                 
Total
    12,896,134       13,464,797  
Less current portion
    (4,054,876 )     (3,107,122 )
                 
Long-term debt, net of current portion
  $ 8,841,258     $ 10,357,675  

Aggregate maturities of debt are as follows:
 
Twelve Months Ending June 30,
         
           
2012
    $ 4,054,876  
2013
      2,530,010  
2014
      2,392,205  
2015
      2,209,968  
2016
      9,075  
Thereafter
      1,700,000  
           
Total
    $ 12,896,134  

 
12

 

Note 6 – Marketable Securities

Available-for-sale securities

Available-for-sale securities, classified as current assets within prepaid expenses and other current assets, is as follows:

   
Year ended December 31, 2010
 
   
Amortized
Cost
   
Unrealized
Gains in
Accumulated
Other
Comprehensive
Income
   
Unrealized
Losses in
Accumulated
Other
Comprehensive
Income
   
Sales of
Securities
   
Fair Value
 
                               
Common Stock - Mutual Funds
  $ 306,364 -     $ 454,090     $ (58,163 )   $ (336,505 )    $ 365,786  

   
Six months ended June 30, 2011
 
   
Amortized
Cost
   
Unrealized
Gains in
Accumulated
Other
Comprehensive
Income
   
Unrealized
Losses in
Accumulated
Other
Comprehensive
Income
   
Sales of
Securities
   
Fair Value
 
                               
Common Stock - Mutual Funds
  $ 365,786 -     $ 33,698     $ (169,806 )   $ -     $ 229,678  

Net unrealized holding losses on available-for-sale securities in the amount of ($136,108) for the six months ended June 30, 2011, have been included in accumulated other comprehensive income.

Note 7 - Fair Value Measurements

The following tables present the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy:

   
December 31, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Marketable Securities
  $ 365,786     $ -     $ -     $ 365,786  

   
June 30, 2011
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Marketable Securities
  $ 229,678     $ -     $ -     $ 229,678  


 
13

 

Note 8 – Income Taxes

During and before the 2009 calendar (and fiscal) year, Enservco LLC and some of its subsidiaries had elected to be treated as limited liability companies for income tax purposes.  Accordingly, all taxable income and losses for these entities are reported in the respective income tax returns of the member and no provision for income taxes has been recorded in the accompanying financial statements.  Subsidiaries taxed as corporations, however, do record a provision for income taxes.

Pursuant to a reorganization of the Company effective as of December 31, 2009, the ownership of Heat Waves, Trinidad Housing, Real GC and certain assets of HNR were contributed to Dillco.  Since Dillco is a C Corporation, this reorganization effectively resulted in a conversion from a limited liability corporation to a C Corporation for the entities and the assets of HNR.  Accordingly, the corresponding net deferred tax liabilities of Dillco were recorded as liabilities of the Company with a corresponding increase in deferred income tax expense.

Also, pursuant to the Merger Transaction with Aspen (a C Corporation) at July 27, 2010, the Company has recorded all net deferred tax assets contributed by Aspen as part of the merger transaction as an increase in the deferred income tax benefit.

Total income tax expense from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 34% to income before taxes.  The reasons for this effective tax rate difference for the six months ended June 30, 2011 are as follows:

   
Six Months Ended
 
   
June 30,2011
 
       
Computed expected tax expense
  $
15,705
 
         
Increase (reduction) in income taxes resulting from:
       
State and local income taxes, net of federal impact
   
3,233
 
Other
   
(7,532
         
Provision for income taxes
  $
11,406
 

Note 9 – Commitments and Contingencies

The Company leases six facilities under lease commitments that expire through June 2016.  Future minimum lease commitments are as follows:

Twelve Months Ending June 30,
     
2012
  $ 192,200  
2013
    108,000  
2014
    90,500  
Thereafter
    162,500  
Total
  $ 553,200  


 
14

 

The Company has entered into capital leases for five water transport units (each unit includes one truck and one trailer), which have been included in Property and Equipment (Note 4) and are summarized in the table below:

Capitalized Trucks
  $ 218,807  
Capitalized Trailers
    236,286  
Less: Accumulated Depreciation
    (50,876 )
Net Assets Under Capital Leases
  $ 404,217  

The following is a summary of future minimum lease payments under capital leases as of June 30, 2011:

Twelve Months Ending June 30,
 
Minimum Lease
Payment
 
2012
  $ 200,173  
2013
    113,736  
2014
    20,994  
Total minimum lease payments
    334,903  
Less: Interest
    (14,766 )
Net minimum lease payments
    320,137  
Less: Current portion
    (188,834 )
Long-term portion of minimum lease payments
  $ 131,303  

Note 10 – Stockholder’s Equity

2010 Option Plan

On July 27, 2010 the Company’s Board of Directors adopted the Company’s 2010 Stock Incentive Plan (the “2010 Plan”). The aggregate number of shares of our common stock that may be issued through December 31, 2011 under all equity-based awards made under the 2010 Plan is 3,500,000 shares.  The number of shares subject to the 2010 Plan may be reset each year, commencing January 1, 2012, based on the number of shares of stock then outstanding.

Through June 30, 2011 the Company had granted options to acquire a total of 2,250,000 shares of common stock pursuant to the 2010 Plan. A portion of these options are subject to vesting schedules.
 
The exercise price of the options granted under the 2010 Plan was determined based on the terms and conditions within the 2010 Plan.  Pursuant to the 2010 Plan, options to acquire an aggregate of 975,000 shares of common stock were granted on the date of the Merger Transaction.  The exercise price of these options was based on the closing price of the Company’s common stock on the second business day following the Company reporting the closing of the Merger Transaction.  Of these shares, 225,000 shares vested immediately upon grant and the remaining 750,000 shares were vested one-third on the date of grant and the remaining two-thirds over a two year period.  Subsequently, options to acquire 1,275,000 shares of common stock were granted and the exercise price of these options was based either on the closing sale price of the Company’s common stock on the date of grant or ten day average closing price of the Company’s common stock prior to the grant date.  These 1,275,000 shares vest over two to three year periods with 333,333 shares vesting on the date of grant.
 
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The options issued under the 2010 Plan were valued using the following weighted average assumptions: no dividend yield, expected volatility of 107.0%, risk free interest rate of 0.82% and expected term of 3.2 years. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods through the date of issuance, equal to the expected option term. Expected pre-vesting forfeitures were assumed to be zero. The expected option term was calculated using the “simplified” method.

 
15

 

For the six months ended June 30, 2011 the Company recognized expense (through operating expense as general and administrative expense) of $108,865.  As of June 30, 2011 the Company has recognized accumulated, total expenses of $451,142 and unrecognized expense of $386,706 associated with these options which will be recognized over a remaining average period of 2.8 years.

2008 Option Plan

Through July 27, 2010 Aspen had one equity compensation plan, the “2008 Equity Plan.” An aggregate of 1,000,000 common shares were reserved for issuance under the 2008 Equity Plan and in February 2008 the Board of Directors granted directors and employees options to acquire 775,000 shares which vested based on meeting certain performance goals, exercisable at $2.14 per share through February 27, 2013.  Of these, all but 140,431 have expired as of December 31, 2010 for failure to meet established performance goals or as a result of termination of employment.  As of December 31, 2010, the Company did not have any unrecognized expense associated with these options.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The options issued under the 2008 Equity Plan were valued using the following weighted average assumptions: no dividend yield, expected volatility of 58%, risk free interest rate of 2.25% and expected term of 3.3 years. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods through the date of issuance, equal to the expected option term. Expected pre-vesting forfeitures were assumed to be zero. The expected option term was calculated using the “simplified” method.

Pursuant to the 2008 Equity Plan, on February 15, 2010, Aspen’s Board of Directors granted options to certain Aspen employees and consultants. The options were granted to persons who remained with Aspen and had provided (and were then expected to continue to provide) valuable services to Aspen, and to help align interests of the recipients with those of Aspen and its stockholders.  In total, Aspen granted options to acquire 350,000 shares of its common stock which were exercisable at $0.4125 per share (equal to 125% of the closing price on the business day after the day the Company filed its Form 10-Q for the quarter ended December 31, 2009).

Each of the options expires on February 15, 2015. All of the options granted vested only upon a “change of control” (which term is defined in each recipient’s option agreement), and then only if Aspen had working capital of at least $3,000,000 on the date of the change of control event. This vesting event was achieved for all of the 350,000 options as a result of the Merger Transaction on July 27, 2010.  On July 27, 2010, the Company terminated the 2008 Equity Plan, although such termination did not terminate or otherwise affect the contractual rights of persons who hold options to acquire common stock under the 2008 Equity Plan.

As the Merger Transaction occurred on July 27, 2010, the stock compensation expense associated with these 350,000 options was not recognized by the Company on its consolidated financial statements; the expense was recognized by Aspen Exploration prior to the merger.

 
16

 

The following information summarizes information with respect to options granted under all equity plans:

   
Number of
Shares
   
Weighted-Average
Exercise Price
   
Weighted-Average
Remaining
Contractual Term
 
                   
Outstanding at June 30, 2010*
    490,431     $ 0.96       4.01  
Granted
    1,975,000       0.49          
Exercised
    -       -          
Forfeited or Expired
    -       -          
                         
Outstanding at December 31, 2010
    2,465,431     $ 0.58       3.33  
Granted
    275,000       0.84          
Exercised
    -       -          
Forfeited or Expired
    -       -          
                         
Outstanding at June 30, 2011
    2,740,431     $ 0.61       2.83  
                         
Exercisable at June 30, 2010
    140,431     $ 2.24       2.57  
Exercisable at December 31, 2010
    1,298,764     $ 0.49       3.33  
Exercisable at June 30, 2011
    1,298,764     $ 0.49       2.75  

The weighted average grant date fair value of options granted for the six months ended June 30, 2011 and 2010 was $171,042 and $39,818, respectively.
 
A summary of the status of nonvested shares underlying the options are presented below:

   
Number of
Shares
   
Weighted-Average
Grant-Date Fair
Value
 
             
Nonvested at June 30, 2010*
    350,000     $ 0.41  
Granted
    1,975,000       0.34  
Vested
    (1,158,333 )     0.47  
Forfeited
    -       -  
                 
Nonvested at December 31, 2010
    1,166,667     $ 0.34  
Granted
    275,000       0.62  
Vested
    -       -  
Forfeited
    -       -  
                 
Nonvested at June 30, 2011
    1,441,667     $ 0.39  

*Note: Options prior to the merger acquisition on July 27, 2010 were reported on a fiscal year period from July 1 through June 30.

 
17

 

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information regarding the results of operations for the three and six month periods ended June 30, 2011 and 2010, and our financial condition, liquidity and capital resources as of June 30, 2011, and December 31, 2010. The financial statements and the notes thereto contain detailed information that should be referred to in conjunction with this discussion.

Forward-Looking Statements
 
The information discussed in this Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). All statements, other than statements of historical facts, included herein concerning, among other things, planned capital expenditures, increases in oil and gas production, the number of anticipated wells to be drilled after the date hereof, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could,” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, among others:
 
 
future capital requirements and uncertainty of obtaining additional funding on terms acceptable to us;
 
 
a decline in oil or natural gas production or oil or natural gas prices, the impact of price volatility in the oil and natural gas industries and the impact of general economic conditions on the demand for the services we offer to the oil and natural gas industries;
 
 
activities of our competitors, many of whom have greater financial resources than we have;
 
 
geographical diversity of our operations and the difficulties inherent in managing such geographically diverse operations;
 
 
ongoing U.S. and global economic uncertainty;
 
 
our ability to generate sufficient cash flows to repay our debt obligations;
 
 
availability of borrowings under our credit facility;
 
 
unanticipated increases in the cost of our operations;
 
 
historical incurrence of losses;
 
 
reliance on limited number of customers and creditworthiness of our customers;
 
 
increases in interest rates and our failure to hedge against possible interest rate increases;
 
 
our ability to retain key members of our senior management and key technical employees, and conflicts of interests with respect to our directors;
 
 
our level of indebtedness;

 
18

 

 
impact of environmental, health and safety, and other governmental regulations, and of current or pending legislation;
 
 
effect of seasonal factors;
 
 
further sales or issuances of common stock; and
 
 
our common stock’s limited trading history.
 
Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our filings with the SEC and in Part II, Item 1A of this Quarterly Report. For additional information regarding risks and uncertainties, please read our reports filed with the SEC under the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.  All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report. Other than as required under securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

Company Overview and Overview of the Information Presented

The Company was incorporated as Aspen Exploration Corporation under the laws of the State of Delaware on February 28, 1980 for the primary purpose of acquiring, exploring and developing oil and natural gas and other mineral properties.  Historically, and through its fiscal year ended June 30, 2009, Aspen was engaged in a broad range of activities associated with the development of oil and natural gas reserves primarily in the Sacramento Valley in California, and in the East Poplar Field in Montana.

On June 30, 2009, Aspen disposed of all of its remaining oil and natural gas producing assets and as a result was no longer engaged in active business operations.  On June 24, 2010, Aspen entered into an Agreement and Plan of Merger and Reorganization with Dillco Fluid Service, Inc. (“Dillco”) which set forth the terms by which Dillco became a wholly owned subsidiary of Aspen on July 27, 2010 (the “Merger Transaction”).

On December 30, 2010, Aspen changed its name to “Enservco Corporation.” As such, throughout this report the terms the “Company” and/or “Enservco” are intended to refer to the Company on a post Merger Transaction basis and as a whole, with respect to both historical and forward looking contexts.  As a result of the Merger Transaction, the Company’s fiscal year was modified to be the calendar year as described below.

Enservco primarily conducts its business operations through two subsidiaries: Dillco and Heat Waves Hot Oil Service LLC (“Heat Waves”).  However, certain assets utilized by Enservco in its business operations are owned by other subsidiary entities.  Dillco and Heat Waves provide oil field services to the domestic onshore oil and natural gas industry.  These services include pressure testing, hot oiling, acidizing, frac heating, freshwater and saltwater hauling, fluid disposal, frac tank rental, well site construction and other general oil field services.  The Company currently operates in:

 
·
southwestern Kansas and northwestern Oklahoma,
 
·
northeastern Utah,
 
·
northern New Mexico,
 
·
southern Wyoming and Colorado (D-J Basin and Niobrara formation), and
 
·
northwestern West Virginia and southwest Pennsylvania in the Marcellus Shale region.

In addition to the above locations the Company is currently expanding services to companies who are operating in the Bakken and other formations in western North Dakota.  Going forward the Company expects to continue to pursue its growth strategies of exploring additional acquisitions, potentially expanding the geographic areas in which it operates, and diversifying the products and services it provides to customers, as well as making further investments in its assets and equipment.

 
19

 

Accounting Treatment of the Merger

The Merger Transaction, by which Dillco became a wholly-owned subsidiary of Enservco, was treated as a "reverse acquisition" for accounting purposes. In a reverse acquisition, although Aspen was considered to be the "legal acquirer" (that is, Aspen (now Enservco Corporation) survived as the parent corporation), Dillco was the "accounting acquirer" (that is because Dillco's and its subsidiaries' business was undeniably the more significant business). As a result, Dillco's financial statements became the financial statements of the surviving company. Aspen's financial condition is additive to Dillco's financial statements for the period following the Merger Transaction.

As part of the Merger Transaction, Aspen issued 14,519,244 shares of its common stock to the shareholders of Dillco, in exchange for all of the issued and outstanding shares of Dillco (7,259,622 shares).

Effective with the Agreement, the Company’s stockholders’ equity was recapitalized as that of Aspen, or $72,596 from Dillco and $36,298 from Aspen for a total of $108,894, while 100% of the assets and liabilities of Aspen were recorded as being acquired in the reverse acquisition.

Dillco’s fiscal year end is December 31, 2010 whereas prior to the Merger Transaction Aspen’s fiscal year end was June 30.  Because Dillco was the accounting acquirer, the Merger Transaction resulted in the Company’s fiscal year end being deemed to change to December 31.  Thus, starting with its Form 10-Q filed for the quarter ended September 30, 2010, the Company is now filing annual and quarterly reports based on the December 31 fiscal year end of Dillco rather than the former (pre-acquisition) June 30 fiscal year end of Aspen.  Although not required to complete the change of the fiscal year, more than a majority of the Company’s stockholders approved that change (as well as a change to the Company’s tax year) by consent.

The financial statements included in this report are for Enservco’s three and six month periods ended June 30, 2011 and 2010 and include Aspen’s financial statements only as a result of, and subsequent to, the Merger Transaction. As such, the following management’s discussion and analysis is with respect to Enservco’s three and six months ended June 30, 2011, and the corresponding period(s) in the previous fiscal year.  Because of the business combination by which Dillco became a wholly owned subsidiary of Enservco, no separate discussion regarding Aspen’s financial condition or results of operations are included in this report.

 
20

 

Discussion of Operations for the Three and Six Months ended June 30, 2011 and 2010

The following tables show the increases (decreases) for the periods noted.  Please see information following the tables for management’s discussion of significant increases (decreases).
 
   
For the Three Months Ended
 
   
June 30,
 
   
2011
   
% of
Revenue
   
2010
   
% of
Revenue
 
   
(Unaudited)
         
(Unaudited)
       
                         
Revenues
  $ 4,470,679       100 %   $ 3,345,640       100 %
Cost of Revenue
    3,788,550       85 %     2,946,094       88 %
Gross Profit
    682,129       15 %     399,546       12 %
                                 
Operating Expenses
                               
General and administrative expenses
    707,377       16 %     380,589       11 %
Depreciation and amortization
    1,128,865       25 %     971,935       29 %
Total operating expenses
    1,836,242       41 %     1,352,524       40 %
                                 
Loss from Operations
    (1,154,113 )     (26 )%     (952,978 )     (28 )%
Other Expense
    (214,419 )     (5 )%     (334,506 )     (10 )%
Loss Before Income Tax Expense
    (1,368,532 )     (31 )%     (1,287,484 )     (38 )%
                                 
Income Tax Benefit
    518,229       12 %     503,581       15 %
Net Loss
  $ (850,303 )     (19 )%   $ (783,903 )     (23 )%
                                 
EBITDA*:
                               
Net Loss
  $ (850,303 )           $ (783,903 )        
Add (Deduct):
                               
Interest expense
    171,965               169,371          
Income tax benefit
    (518,229 )             (503,581 )        
Depreciation and amortization
    1,128,865               971,935          
EBITDA*
    (67,702 )             (146,178 )        
Add Back (Deduct):
                               
Stock-based compensation
    59,184               -          
Warrants issued
    46,353               -          
(Gain) loss on disposal of equipment
    -               -          
Unrealized derivative gain
    -               13,078          
Interest and other income
    42,454               152,057          
                                 
Adjusted EBITDA*
  $ 80,289             $ 18,957          
                                 
Income Per Common Share:
  $ (0.04 )           $ (0.05 )        
Basic
  $ (0.04 )           $ (0.05 )        
Fully Diluted
                               
                                 
Weighted average number of common shares outstanding    (used to calculate basic and diluted income per share)
                               
Basic
    21,778,866               14,519,244          
Fully Diluted
    21,778,866               14,519,244          

 
*Note:  See below for discussion of the use of non-GAAP financial measurements.

 
21

 
 
   
For the Six Months Ended
 
   
June 30,
 
   
2011
   
% of
Revenue
   
2010
   
% of
Revenue
 
   
(Unaudited)
         
(Unaudited)
       
                         
Revenues
  $ 13,732,200       100 %   $ 9,220,210       100 %
Cost of Revenue
    9,666,788       70 %     7,141,107       77 %
Gross Profit
    4,065,412       30 %     2,079,103       23 %
                                 
Operating Expenses
                               
General and administrative expenses
    1,390,410       10 %     865,794       9 %
Depreciation and amortization
    2,194,539       16 %     1,919,716       21 %
Total operating expenses
    3,584,949       26 %     2,785,510       30 %
                                 
Income (Loss) from Operations
    480,463       3 %     (706,407 )     (8 )%
Other Expense
    (434,272 )     (3 )%     (269,063 )     (3 )%
Income (Loss) Before Income Tax Expense
    46,191       1 %     (975,470 )     (11 )%
                                 
Income Tax (Expense) Benefit
    (11,406 )     (1 )%     300,461       4 %
Net Income (Loss)
  $ 34,785       1 %   $ (675,009 )     (7 )%
                                 
EBITDA*:
                               
Net Income (Loss)
  $ 34,785             $ (675,009 )        
Add (Deduct):
                               
Interest Expense
    352,276               359,552          
Income Tax Expense (Benefit)
    11,406               (300,461 )        
Depreciation and amortization
    2,194,539               1,919,716          
EBITDA*
    2,593,006               1,303,798          
Add Back (Deduct):
                               
Stock-based compensation
    108,865               -          
Warrants issued
    46,353               -          
(Gain) loss on disposal of equipment
    44,286               (7,125 )        
Unrealized derivative gain
    -               -          
Interest and other income
    37,710               (83,364 )        
                                 
Adjusted EBITDA*
  $ 2,830,220             $ 1,213,309          
                                 
Income Per Common Share:
  $ 0.00             $ (0.05 )        
Basic
  $ 0.00             $ (0.05 )        
Fully Diluted
                               
                                 
Weighted average number of common shares outstanding (used to calculate basic and diluted income per share)
                               
Basic
    21,778,866               14,519,244          
Fully Diluted
    22,430,368               14,519,244          
 
*Note:  See below for discussion of the use of non-GAAP financial measurements.

 
22

 

Although Enservco does not have segmented business operations, which would require segment reporting within the notes of its financial statements per accounting standards, we believe that revenue by service offering may be useful to readers of our financials. The following tables set forth revenue information for the Company’s three service offerings during the three and six month periods ending June 30, 2011 and 2010:

   
For the Three Months Ended
 
   
June 30,
 
   
2011
   
2010
 
BY SERVICE OFFERING:
           
Fluid Management (1)
           
Closed Locations (6)
  $ -     $ 42,869  
Continuing Locations (6)
    2,297,385       1,705,506  
      2,297,385       1,748,375  
Well Enhancement Services (2)
               
Closed Locations (6)
    -       138,348  
Continuing Locations (6)
    1,823,898       1,171,243  
      1,823,898       1,309,591  
                 
Well Site Construction and Roustabout Services
    349,396       287,674  
Total Revenues
  $ 4,470,679     $ 3,345,640  

   
For the Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
BY SERVICE OFFERING:
           
Fluid Management (1)
           
Closed Locations (6)
  $ -     $ 87,245  
Continuing Locations (6)
    4,666,422       3,054,387  
      4,666,422       3,141,632  
Well Enhancement Services (2)
               
Closed Locations (6)
    -       589,510  
Continuing Locations (6)
    8,481,263       4,920,289  
      8,481,263       5,509,799  
                 
Well Site Construction and Roustabout Services
    584,515       568,779  
Total Revenues
  $ 13,732,200     $ 9,220,210  

 
23

 

Enservco has also determined that an understanding of the diversity of its operations by geography is important to an understanding of its business operations.  Enservco only does business in the United States, in what it believes are three geographically diverse regions.  The following table sets forth revenue information for the Company’s three geographic regions during the three and six month periods ending June 30, 2011 and 2010:

   
For the Three Months Ended
 
   
June 30,
 
   
2011
   
2010
 
BY GEOGRAPHY:
           
Eastern USA Region (3)
  $ 632,340     $ 81,181  
Rocky Mountain Region (4)
               
Closed Locations (6)
    -       181,217  
Continuing Locations (6)
    1,029,362       630,047  
      1,029,362       811,264  
Central USA Region (5)
               
Closed Locations (6)
    -       -  
Continuing Locations (6)
    2,808,977       2,453,195  
      2,808,977       2,453,195  
                 
Total Revenues
  $ 4,470,679     $ 3,345,640  

   
For the Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
BY GEOGRAPHY:
           
Eastern USA Region (3)
  $ 5,327,082     $ 1,975,920  
Rocky Mountain Region (4)
               
Closed Locations (6)
    -       623,086  
Continuing Locations (6)
    2,797,880       1,800,878  
      2,797,880       2,423,964  
Central USA Region (5)
               
Closed Locations (6)
    -       53,670  
Continuing Locations (6)
    5,607,238       4,766,656  
      5,607,238       4,820,326  
                 
Total Revenues
  $ 13,732,200     $ 9,220,210