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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended September 30, 2011
OR
o 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: 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)

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

Title of Class
Name of Each Exchange
On Which Registered
   
Common Stock, par value $0.0001 per share
NYSE Amex Equities
   

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

None
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES  o NO  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES  o NO  x
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.  YES  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 (§ 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  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x [Confirm no delinquent Form 4 filings]
 
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 definition of “large accelerated filer, accelerated filer and smaller reporting company” 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
 
(Do not check if a Smaller reporting Company)
 
 
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  
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on March 31, 2011, as reported by the NYSE Amex Equities, was $14,508,900.
 
As of December 22, 2011, there were issued and outstanding 14,446,836 shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE
 
 
 

 
 
Energy Services of America Corporation
Annual Report On Form 10-K
For The Fiscal Year Ended
September 30, 2011
 
 
Table of Contents

PART I
 
ITEM 1.
Business
1
     
ITEM 1A.
Risk Factors
5
     
ITEM 1B.
Unresolved Staff Comments
8
     
ITEM 2.
Properties
8
     
ITEM 3.
Legal Proceedings
  8
     
ITEM 4.
Removed and Reserved
  9
 
PART II

ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  9
     
ITEM 6.
Selected Financial Data
  10
     
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  10
     
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
  19
     
ITEM 8.
Financial Statements and Supplementary Data
  19
     
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
  19
     
ITEM 9A.
Controls and Procedures
  19
     
ITEM 9B.
Other Information
  21
 
PART III
 
ITEM 10.
Directors, Executive Officers and Corporate Governance
  21
     
ITEM 11.
Executive Compensation
  27
     
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  32
     
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
  34
     
ITEM 14.
Principal Accountant Fees and Services
  35
 
PART IV

ITEM 15.
Exhibits and Financial Statement Schedules
  36
     
Signatures
 
  38
 
 
 

 
 
PART I

ITEM 1.
Business
 
 
Forward Looking Statements
 
    This Annual Report contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.”  Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates and most other statements that are not historical in nature.  These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage, and other loans, real estate values, competition, changes in accounting principles, policies, or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing products and services.
 
Overview
 
    On September 6, 2006, we completed our initial public offering of 8,600,000 units. Each unit consisted of one share of our common stock and two warrants, each to purchase one share of our common stock at an exercise price of $5.00 per share. On September 28, 2011, we completed an exchange offer pursuant to which we exchanged 8 ½ warrants for one share of common stock.  Following the completion of the exchange offer any warrants which were not exchanged expired on October 12, 2011.  On November 14, 2011, we delisted from the NYSE AMEX the warrants and units.  Following the completion of the exchange offer and expiration of the warrants that were not tendered, we had 14,446,836 shares of common stock issued and outstanding and no warrants or units outstanding.
 
    Until August 15, 2008, we operated as a blank check company.  On August 15, 2008, we completed our acquisitions of ST Pipeline, Inc. and C.J. Hughes Construction Company, Inc.  Each of ST Pipeline and C.J. Hughes are held as separate subsidiaries of Energy Services.
 
    Energy Services of America (ESA) is a provider of contracting services to America’s energy providers, primarily the gas and electricity providers.  The Company’s services include:
 
The installation, replacement and repairs of pipelines for the oil and natural gas industries.
   
General electrical services   for both power companies and various other industrial applications.
   
The installation of water and sewer lines for various governmental agencies.
   
Various other ancillary services related to the other services.
 
    Our Consolidated Revenues for the year ended September 30, 2011 were approximately $143 million, of which 74% was attributable to gas work, 18% to electrical services, and 8% to water and sewer installations and other ancillary services.  Our consolidated revenues for the year ended September 30, 2010 were $218 million, of which 74% was attributable to gas work, 20% to electrical services, and 6% to water and sewer installations and other ancillary services

    ESA operates primarily in the Mid-Atlantic region of the country though our projects can be nationwide.  The work includes a combination of both interstate and intrastate pipelines that move natural gas from the producing regions to consumption regions.  The Company also offers other services indicated above. The Company does not own or is not directly involved in the exploration, transportation or refinement of oil and natural gas nor any of the facilities used for transporting electricity.  The Company has established relationships with numerous customers which include many of the leading companies in the industries we serve.
 
 
1

 
 
 
Representative Customer list:
   
 
Spectra Energy
 
Dominion Resources
 
Columbia Gas Transmission
 
Columbia Gas of Ohio and Pennsylvania
 
Nisource
 
Marathon Ashland Petroleum LLC
 
American Electric Power
 
Toyota
 
Hitachi
 
Kentucky American Water
 
Equitable Resources
 
Markwest Energy
 
Range Resources
 
Various State, County and municipal public service districts.

   Energy Services’ sales force consists of industry professionals with significant relevant sales experience who utilize industry contacts and available public data to determine how to most appropriately market ESA’s line of products.  We rely on direct contact between our sales force and our customers’ engineering and contracting departments in order to obtain new business.  Due to the occurrence of inclement weather during the winter months,   certain parts of the Company business, i.e., the construction of pipelines, is somewhat seasonal in that most of the work is performed during the non-winter months.
 
Backlog/New Business
 
    Our Company’s backlog represents contracts for services that have been entered into but which have not yet been processed.  At September 30, 2011, Energy Services had a backlog of $128.5 million on work to be completed on existing contracts.  At September 30, 2010, the Company had a backlog of $47.8 million.  Due to the timing of ESA’s construction contracts and the long-term nature of some of our projects, portions of our backlog may not be completed in the current fiscal year.   Most of the Company’s projects can be completed in a short period of time, typically two to five months.  Larger projects usually take seven to eighteen months to be completed.  As a general rule, work starts shortly after the signing of the contract.  During the past fiscal year adverse weather conditions have resulted in significant delays in the start and completion of contracts.  These delays resulted in higher costs to the Company adversely affecting our net results from operations.
 
Types of Contracts
 
    Energy Services’ contracts are usually awarded on a competitive and negotiated basis.  While contracts may be of a lump sum for a project or one that is based upon time and materials, most of the work is bid based upon unit prices for various portions of the work with a total agreed-upon price based on estimated units.  The actual revenues produced from the project will be dependent upon how accurate the customer estimates are as to the units of the various items.
 
Raw Materials and Suppliers
 
    The principal raw materials that the Company uses are metal plate, structural steel, pipe, wire, fittings and selected engineering equipment such as pumps, valves and compressors.  For the most part, the largest portion of these materials are supplied by the customer. The materials that ESA purchases would predominately be those of a consumable nature on the job, such as small tools and environmental supplies.  We anticipate being able to obtain these materials for the foreseeable future.
 
 
2

 
 
Industry Factors
 
    Energy Services’  revenues, cash flows and earnings are substantially dependent upon, and affected by, the level of natural gas exploration development activity and the levels of work on existing pipelines as well as the level of demand for our electrical services.  Such activity and the resulting level of demand for pipeline construction and related services and electrical services are directly influenced by many factors over which the Company has no control.  Such factors include the market prices of natural gas and electricity, market expectations about future prices, the volatility of such prices, the cost of producing and delivering natural gas and electricity, government regulations and trade restrictions, local and international political and economic conditions, the development of alternate energy sources, changes in the tax code that affect the energy industry, and the long-term effects of worldwide energy conservation measures.  Substantial uncertainty exists as to the future level of natural gas exploration and development activity as well as the demand for our electrical services.
 
    Energy Services cannot predict the future level of demand for its construction services, future conditions in the pipeline or electrical construction industry or future pipeline and electrical construction rates.
 
    Energy Services maintains banking relationships with four financial institutions and has lines of credit and borrowing facilities with these institutions.   While there is no reason to believe that such lines will not be available, any delays getting the lines funded could create difficulties for the Company.  The Company’s facilities have been sufficient to provide the working capital necessary to complete their ongoing projects. One of the keys to maintaining the Company’s growth will be the establishment and maintenance of sufficient lines of credit to provide cash flow to fund the Company’s projects.
 
Competition
 
    The pipeline construction industry is a highly competitive business characterized by high capital and maintenance costs.  Pipeline contracts are usually awarded through a competitive bid process and, while the Company believes that operators consider factors such as quality of service, type and location of equipment, or the ability to provide ancillary services, price and the ability to complete the project in a timely manner are the primary factors in determining which contractor is awarded a job.  There are a number of regional and national competitors that offer services similar to Energy Services.  Certain of the Company’s competitors have greater financial and human resources than Energy Services, which may enable them to compete more efficiently on the basis of price and technology.  The Company’s largest competitors are Otis Eastern, Miller Pipeline, Brown Electric, Summit Electric and Apex Pipeline.
 
Operating Hazards and Insurance
 
    Energy Services’ operations are subject to many hazards inherent in the pipeline construction business, including, for example, operating equipment in mountainous terrain, people working in deep trenches and people working in close proximity to large equipment.  These hazards could cause personal injury or death, serious damage to or destruction of property and equipment, suspension of drilling operations, or substantial damage to the environment, including damage to producing formations and surrounding areas.  Energy Services seeks protection against certain of these risks through insurance, including property casualty insurance on its equipment, commercial general liability and commercial contract indemnity, commercial umbrella and workers’ compensation insurance.
 
    The Company’s insurance coverage for property damage to its equipment is based on estimates of the cost of comparable used equipment to replace the insured property.  There is a deductible per occurrence on rigs and equipment of $2,500 and $2,500 for damage to miscellaneous tools.  The Company also maintains third party liability insurance and a commercial umbrella policy.  Energy Services believes that it is adequately insured for public liability and property damage to others with respect to its operations.  However, such insurance may not be sufficient to protect Energy Services against liability for all consequences of well disasters, extensive fire damage or damage to the environment.
 
 
3

 
 
Government Regulation and Environmental Matters
 
    General.  Energy Services’ operations are affected from time to time in varying degrees by political developments and federal, state and local laws and regulations. In particular, natural gas production, operations and the profitability of the gas industry are or have been affected by price controls, taxes and other laws relating to the natural gas industry, by changes in such laws and by changes in administrative regulations. Although significant capital expenditures may be required to comply with such laws and regulations, to date, such compliance costs have not had a material adverse effect on the earnings or competitive position of Energy Services. In addition, Energy Services’ operations are vulnerable to risks arising from the numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection.
 
    Environmental Regulation.  Energy Services’ activities are subject to existing federal, state and local laws and regulations governing environmental quality, pollution control and the preservation of natural resources. Such laws and regulations concern, among other things, the containment, disposal and recycling of waste materials, and reporting of the storage, use or release of certain chemicals or hazardous substances. Numerous federal and state environmental laws regulate drilling activities and impose liability for discharges of waste or spills, including those in coastal areas. The Company has conducted pipeline construction in or near ecologically sensitive areas, such as wetlands and coastal environments, which are subject to additional regulatory requirements. State and federal legislation also provide special protections to animal and marine life that could be affected by the Company’s activities. In general, under various applicable environmental programs, The Company may potentially be subject to regulatory enforcement action in the form of injunctions, cease and desist orders and administrative, civil and criminal penalties for violations of environmental laws. Energy Services may also be subject to liability for natural resource damages and other civil claims arising out of a pollution event.  The Company would be responsible for any pollution event that was determined to be caused by its actions.  It has insurance that it believes is adequate to cover any such occurrences.
 
    Environmental regulations that affect Energy Services’ customers also have an indirect impact on Energy Services. Increasingly stringent environmental regulation of the natural gas industry has led to higher drilling costs and a more difficult and lengthy well permitting process.
 
    The primary environmental statutory and regulatory programs that affect Energy Services’ operations include the following:  Department of Transportation regulations, regulations set forth by agencies such as the Federal Energy Regulatory Commission and various environmental agencies including state, federal and local government.
 
    Health and Safety Matters. Energy Services’ facilities and operations are also governed by various other laws and regulations, including the federal Occupational Safety and Health Act, relating to worker health and workplace safety. As an example, the Occupational Safety and Health Administration has issued the Hazard Communication Standard. This standard applies to all private-sector employers, including the natural gas exploration and producing industry.  The Hazard Communication Standard requires that employers assess their chemical hazards, obtain and maintain certain written descriptions of these hazards, develop a hazard communication program and train employees to work safely with the chemicals on site. Failure to comply with the requirements of the standard may result in administrative, civil and criminal penalties. Energy Services believes that appropriate precautions are taken to protect employees and others from harmful exposure to materials handled and managed at its facilities and that it operates in substantial compliance with all Occupational Safety and Health Act regulations. While it is not anticipated that Energy Services will be required to make material expenditures by reason of such health and safety laws and regulations, Energy Services is unable to predict the ultimate cost of compliance with these changing regulations.
 
Research and Development/Intellectual Property
 
    Energy Services has not made any material expenditure for research and development.   Energy Services does not own any patents, trademarks or licenses.
 
 
4

 
 
Legal Proceedings
 
    Energy Services is not a party to any legal proceedings, other than in the ordinary course of business, that if decided in a manner adverse to the Company would be materially adverse to Energy Services’ financial condition or results of operations. At September 30, 2011, the Company was not involved in any material legal proceedings, the outcome of which would have a material adverse effect on its financial condition or results of operations.
 
Facilities and Other Property
   
    The Company and its subsidiaries own the property where its subsidiary C J Hughes is located.  All other facilities are leased including the corporate headquarters.   The total amount of the lease payments for the various locations is $25,700 per month.  The Company’s management believes that its properties are adequate for the business it conducts.
 
Employees
   
    As of September 30, 2011, the Company had approximately 771 employees including management. A number of the Company’s employees are represented by trade unions represented by various collective bargaining units.   Energy Services’ management believes that the Company’s relationship with its employees is good.
 
ITEM 1A.
Risk Factors
 
 
    Our business is subject to a variety of risks and uncertainties, including, but not limited to, the risk and uncertainties described below.  The risks and uncertainties described below are not the only ones we may face.  Additional risks and uncertainties not known to us or not described below also may impair our business operations.  If any of the following risks actually occur, our business financial condition and results of operations could be harmed and we may not be able to achieve our expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the section entitled “Forward looking statements”.
 
Our operating results may vary significantly from quarter to quarter.
 
    We typically experience lower volumes and lower margins during the winter months due to lower demand for our pipeline services and more difficult operating conditions.  Also, other items that can materially affect our quarterly results include:
 
 
Adverse weather
 
Variations in the mix of our work in any particular quarter
 
Unfavorable regional, national or global economic and market conditions
 
A reduction in the demand for our services
 
Changes in customer spending patterns
 
Unanticipated increases in construction and design costs
 
Timing and volume of work we perform
 
Termination of existing agreements
 
Losses experienced not covered by insurance
 
Payment risks associated with customer financial condition
 
Changes in bonding requirements of agreements
 
Interest rate variations
 
Changes in accounting pronouncements
 
Acquisitions and the integration of them and the costs associated with such integration.
 
 
5

 
 
Credit facilities to fund our operations and growth might not be available.
 
    Our business relies heavily on having lines of credit in place to fund the various projects we are working on.  Should acceptable funding not be available, it could severely curtail our operations and the ability to generate profits.
 
Economic downturns and financial crisis can impact the level of volumes of our customers spending.
 
    The lack of a significant recovery from the severe recession that occurred in the U.S. during the 2008 and 2009 calendar years resulted in many of our customers, delaying, cancelling or modifying many projects in 2010 and 2011.   It is uncertain that the recovery will be sustained.
 
An economic downturn in the industries we serve could lead to less demand for our services.
 
    In addition to the effects of the economic recession there could be industry specific reductions in the industries that we serve.  If the demand for natural gas should drop dramatically, or the demand for electrical services drop dramatically, these would in turn result in less demand for our services.
 
Project delays or cancellations may result in additional costs to us, reductions in revenues or the payment of liquidated damages.
 
    In certain circumstances, we guarantee project completion by a scheduled acceptance date or have achievement of certain acceptance and performance testing levels.  Failure to meet any of these requirements could result in additional costs or penalties which could exceed the expected project profits.
 
We may be unsuccessful at generating internal growth.
   
 
Our ability to generate internal growth will be affected by our ability to:
 
Attract new customers
 
Expand our relationships with existing customers
 
Hire and maintain qualified employees
 
Expand geographically
 
Adjust quickly to changes in our industry
 
    The weak recovery could significantly limit the number and size of projects that we have the opportunity to bid on.  Many of the factors that could limit our internal growth may be beyond our control and therefore limit our ability to grow.
 
Our industry is highly competitive.
 
    Our industry has been and remains competitive with competitors ranging from small owner operated companies to large public companies.  Within that group there may be companies with lower overhead who may be able to price their services at lower levels than we can.   Accordingly, if that occurs, our business opportunities could be severely limited.
 
The type of contracts we obtain could adversely affect our profitability.
 
    We enter into various types of contracts, some fixed price, some variable pricing.  On fixed price contracts our profits could be curtailed or eliminated by unanticipated pricing increases associated with the contract.
 
Changes by the government in laws regulating the industries we serve could reduce our volumes.
 
    If the government enacts legislation that has serious impact on the industries we serve, it could lead to the curtailment of capital projects in those industries and therefore lead to lower volumes for our Company.
 
 
6

 
 
Many of our contracts can be cancelled or delayed or may not be renewed upon completion.
 
    If our customers should cancel or delay many projects, our revenues could be reduced if we are unable to replace these contracts with others.  Also, we have contracts that expire and are rebid periodically.   If we are unsuccessful in rebidding those contracts, that could curtail our revenue as well.
 
Our business requires a skilled labor force and if we are unable to attract and retain qualified employees our ability to maintain our productivity could be impaired.
 
    Our productivity depends upon our ability to employ and maintain skilled personnel to meet our requirements.   Should some of our key managers leave us, it could limit our productivity.  Also, many of our labor personnel are trade union members.  Should we encounter problems associated with our union employees or if we are unable to employ sufficient available operators, welders, or other skilled labor, our production could be significantly curtailed.
 
Our backlog may not be realized.
 
    Our backlog could be reduced due to cancellation of projects by customers and/or reductions in scope of the projects.  Should this occur, our anticipated revenues would be reduced unless we were able to replace those contracts.
 
We extend credit to customers for purchases of our services and therefore have risk that they may not be able to pay us.
 
    While we have not had any significant problems with collections of accounts receivables historically, should there be an economic downturn our customers’ inability to pay us would be compromised, and this may curtail our operations and ability to operate profitably.
 
Our financial condition could be impacted by goodwill impairment.
 
    We are required under Generally Accepted Accounting Principles to annually test our goodwill for impairment.  Goodwill is an intangible asset that represents the excess amount we pay for a business including liabilities assumed over the fair value of the tangible and intangible assets of the business we acquire.  We have recorded on our books at September 30, 2011 a total of $36,914,021 of goodwill.  We had the required annual testing done as of July 1, 2011 by an outside party and the findings were that the goodwill we have recorded was not impaired.   However, should the acquired companies experience downturns which would indicate a lesser value, future tests could indicate goodwill impairment which would result in a write down of the goodwill asset and a reduction in equity and therefore the book value of the Company.
 
We may incur liabilities or suffer negative financial or reputational impacts relating to occupational health and safety matters.
 
    Our operations are subject to extensive laws and regulations relating to the maintenance of safe conditions in the workplace.  While we are constantly monitoring our health and safety programs, our industry involves a high degree of operating risk and there can be no assurance given that we will avoid significant liability exposure and/or be precluded from working for various customers due to high incident rates.
 
Our dependence on suppliers subcontractors and equipment manufacturers could expose us to risk of loss in our operations.
 
    On certain projects, we rely on suppliers to obtain the necessary materials and subcontractors to perform portions of our services.  We also rely on equipment manufacturers to provide us with the equipment needed to conduct our operations.  Any limitation on the availability of materials or equipment or failure to complete work on a timely basis by subcontractors in a quality fashion, could lead to added costs and therefore lower profitability for the Company.
 
 
7

 
 
During the ordinary course of business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations.
 
    From time to time, we may in the ordinary course of business be named as a defendant in lawsuits, claims and other legal proceedings. These actions may seek, among other things, compensation for alleged personal injury, worker’s compensation, employment discrimination, breach of contract, property damages, civil penalties and other losses of injunctive or declaratory relief.   Also, we often indemnify our customers for claims related to the services we provide and actions we take under our contracts with them.  Because our services in certain instances may be integral to the operation and performance of our customers’ infrastructure, we may become subject to lawsuits or claims for any failure of the systems we work on.   While we insure against such claims, the outcomes of any of the lawsuits, claims or legal proceedings could result in significant costs and diversion of management’s attention to the business.  Payments of significant amounts, even if reserved, could adversely affect our reputation, liquidity and results of operations.
 
A portion of our business depends on our ability to provide surety bonds.  We may be unable to compete on certain projects if we are not able to obtain the necessary surety bonds.
 
    Current or future market conditions, including losses in the construction industry or as a result of large corporate bankruptcies, as well as changes in our sureties’ assessment of our operating and financial risk, could cause our surety providers to decline to issue or renew, or substantially reduce the amount of bonds for our work or could increase our bonding costs.  These actions could be taken on short notice.  Since a growing number of our customers require such bonding, should our surety providers limit or eliminate our access to bonding, our performance could be negatively impacted if we are unable to replace the bonded business with work that does not require bonding or if we are unable to provide other means of securing the jobs performance such as with letters of credit or cash.
 
We may not be successful in continuing to meet the requirements of the Sarbanes-Oxley Act of 2002.
 
    The Sarbanes –Oxley Act of 2002 has many requirements applicable to us regarding corporate governance and financial reporting.  If we are unable to establish and maintain appropriate controls as required, the failure to do so could result in a decrease in the market value of our stock and result in reduced ability to obtain financing, the potential loss of customers and the additional expenditures to meet the requirements.
 
Our failure to comply with environmental laws could result in significant liabilities.
 
    Our operations are subject to various environmental laws and regulations, including those dealing with the handling and disposal of waste products, PCB’s, fuel storage, etc.   We also work around and under bodies of water.   We spend a great deal of time and money to make sure that we are compliant with the appropriate laws and regulations.  However, if we should inadvertently cause contamination of waters or soils, liabilities for our Company relating to cleanup and remediation could be substantial and could exceed any insurance coverage we might have and result in a negative impact to the company’s ability to operate.
 
ITEM 1B.
Unresolved Staff Comments
 
 
    None.
 
ITEM 2.
Properties
 
 
    We maintain our executive offices at 100 Industrial Lane, Huntington, West Virginia 25702.  We consider our current office space adequate for our current operations.
 
ITEM 3.
Legal Proceedings
 
 
    At September 30, 2011, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.
 
 
8

 
 
ITEM 4.
Removed and Reserved
 
PART II
 
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 
    (a)           Our common stock is listed on the NYSE Amex Equities under the symbol ESA.  On September 28, 2011 we completed an exchange offer whereby we exchanged 8.5 warrants for one share of common stock.  As a result of the exchange offer our outstanding common stock totalled 14,446,836 shares.  On October 12, 2011 the term of the remaining warrants expired.  Prior to their expiration our warrants and our units were listed on the NYSE AMEX Equities under the symbols ESA.U and ESA.W, respectively.  The following table sets forth the range of high and low sales prices for the units, common stock and warrants during each of the last two fiscal years.
 
Units
 
Fiscal 2010
  High   Low   Dividends
Quarter ended December 31, 2009
  $
4.40
  $
3.01
  $
Quarter ended March 31, 2010
   
4.60
   
2.65
   
Quarter ended June 30, 2010
   
4.75
   
3.08
   
Quarter ended September 30, 2010
   
5.70
   
3.25
   

Fiscal 2011
  High   Low   Dividends
Quarter ended December 31, 2010
  $
6.24
  $
3.00
  $
Quarter ended March 31, 2011
   
6.05
   
4.20
   
Quarter ended June 30, 2011
   
4.50
   
3.01
   
Quarter ended September 30, 2011
   
3.45
   
2.43
   

Common Stock

Fiscal 2010
  High   Low   Dividends
Quarter ended December 31, 2009
  $
3.60
  $
2.75
  $
Quarter ended March 31, 2010
   
3.60
   
2.12
   
Quarter ended June 30, 2010
   
3.85
   
3.03
   
Quarter ended September 30, 2010
   
4.59
   
2.90
   

Fiscal 2011
  High   Low   Dividends
Quarter ended December 31, 2010
  $
5.20
  $
3.21
  $
Quarter ended March 31, 2011
   
5.32
   
3.16
   
Quarter ended June 30, 2011
   
3.77
   
2.66
   
Quarter ended September 30, 2011
   
2.99
   
1.70
   

Warrants

Fiscal 2010
  High   Low   Dividends
Quarter ended December 31, 2009
  $
0.70
  $
0.46
  $
Quarter ended March 31, 2010
   
0.59
   
0.24
   
Quarter ended June 30, 2010
   
0.56
   
0.38
   
Quarter ended September 30, 2010
   
1.00
   
0.30
   

Fiscal 2011
  High   Low   Dividends
Quarter ended December 31, 2010
  $
0.79
  $
0.41
  $
Quarter ended March 31, 2011
   
0.73
   
0.36
   
Quarter ended June 30, 2011
   
0.52
   
0.27
   
Quarter ended September 30, 2011
   
0.37
   
0.07
   
 
 
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    As of September 30, 2011, there were two holders of record of our units, fifteen holders of record of our common stock and eight holders of record of our warrants.
 
    We have not paid any cash dividends on our common stock to date. The payment of cash dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition.  The payment of any dividends will be within the discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
GRAPHIC
     (c)           Energy Services of America Corp. did not repurchase any shares of its common stock during the relevant period.
 
ITEM 6.
Selected Financial Data
 
 
    Not required for smaller reporting company filer.
 
ITEM 7.
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 historical financial statements and related notes contained elsewhere herein.  Among other things, those historical consolidated financial statements include more detailed information regarding the basis of presentation for the following information.
 
Forward Looking Statements
 
    Within Energy Services’ consolidated 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 that 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.
 
 
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    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.
 
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 ST Pipeline, Inc. and C J Hughes Construction Company, Inc.  S.T. Pipeline and CJ Hughes are considered predecessor companies to Energy Services.  The Company acquired S.T. Pipeline for $16.2 million in cash and $3.0 million in a promissory note.  The C J Hughes purchase price totaled $34 million, one half of which was in cash and one half in Energy Services common stock.  The acquisitions were accounted for under the purchase method.
 
    Energy Services is engaged in providing contracting services for energy related companies.  Currently Energy Services primarily services the Gas, Oil and Electrical industries though it does some other incidental work.  For the Gas industry, the Company is primarily engaged in the construction, replacement and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies.  Energy Services is involved in the construction of both interstate and intrastate pipelines, with an emphasis on the latter.  For the Oil industry the Company provides a variety of services relating to pipeline, storage facilities and plant work.  For the Electrical industry, the Company provides a full range of electrical installations and repairs including substation and switchyard services, site preparation, packaged buildings, transformers and other ancillary work with regards thereto.  Energy Services’ other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.  The majority of the Company’s customers are located in West Virginia, Virginia, Ohio, Pennsylvania, Kentucky and North Carolina.  The Company builds, but does not own, natural gas pipelines for its customers that are part of both interstate and intrastate pipeline systems that move natural gas from producing regions to consumption regions as well as building and replacing gas line services to individual customers of the various utility companies.  Our consolidated operating revenues for the year ended September 30, 2011 were $143.4 million which 74% was attributable to gas work, 18% to electrical services and 8% to water and sewer installations and other ancillary services.  The Company had consolidated operating revenues of $218 million for the year ended September 30, 2010 of which 74% was attributable to gas work, 20% to electrical services customers, and 6% for water and sewer installation and other ancillary services.
 
    Energy Services’ customers include many of the leading companies in the industries it serves, including Marathon Ashland Petroleum LLC, Spectra Energy, Equitable Resources, Hitachi and Nisource.  The Company enters into various types of contracts, including competitive unit price, cost-plus (or time and materials basis) and fixed price (lump sum) contracts.  The terms of the contracts will vary from job to job and customer to customer though most contracts are on the basis of either unit pricing in which the Company agrees to do the work for a price per unit of work performed or for a fixed amount for the entire project.  Most of the Company’s projects are completed within one year of the start of the work.  On occasion, the Company’s customers will require the posting of performance and/or payment bonds upon execution of the contract, depending upon the nature of the work performed.
 
    The Company generally recognizes revenue on unit price and cost-plus contracts when units are completed or services are performed.  Fixed price contracts usually results in recording revenues as work on the contract progresses on a percentage of completion basis.  Under this accounting method, revenue is recognized based on the percentage of total costs incurred to date in proportion to total estimated costs to complete the contract.  Many contracts also include retainage provisions under which a percentage of the contract price is withheld until the project is complete and has been accepted by the customer.
 
 
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Seasonality: Fluctuation of Results
 
    Our revenues and results of operations can and usually are subject to seasonal variations.  These variations are the result of weather, customer spending patterns, bidding seasons and holidays.  The first quarter of the calendar year is typically the slowest in terms of revenues because inclement weather conditions causes delays in production and customers usually do not plan large projects during that time.  While usually better than the first quarter, the second quarter often has some inclement weather which can cause delays in production, reducing the revenues the Company receives and/or increasing the production costs.  The third quarter usually is least impacted by weather and usually has the largest number of projects underway.  The fourth quarter is usually lower than the third due to the various holidays.  Many projects are completed in the fourth quarter and revenues are often impacted by customers seeking to either spend their capital budget for the year or scale back projects due to capital budget overruns.
 
    In addition to the fluctuations discussed above, the pipeline industry can be highly cyclical, reflecting variances in capital expenditures in proportion to energy price fluctuations.  As a result, our volume of business may be adversely affected by where our customers are in the cycle and thereby their financial condition as to their capital needs and access to capital to finance those needs.
 
    Accordingly, our operating results in any particular quarter or year may not be indicative of the results that can be expected for any other quarter or any other year.  You should read “Understanding Gross Margins” and “Outlook” below for discussions of trends and challenges that may affect our financial condition and results of operations.
 
Understanding Gross Margins
 
    Our gross margin is gross profit expressed as a percentage of revenues.  Cost of revenues consists primarily of salaries, wages and some benefits to employees, depreciation, fuel and other equipment costs, equipment rentals, subcontracted services, portions of insurance, facilities expense, materials and parts and supplies.  Various factors, some controllable, some not impact our gross margin on a quarterly or annual basis.
 
    Seasonal.  As discussed above, seasonal patterns can have a significant impact on gross margins.  Usually, business is slower in the winter months versus the warmer months.
 
    Weather.  Adverse or favorable weather conditions can impact gross margin in a given period.  Periods of wet weather, snow or rainfall, as well as severe temperature extremes can severely impact production and therefore negatively impact revenues and margins.  Conversely, periods of dry weather with moderate temperatures can positively impact revenues and margins due to the opportunity for increased production and efficiencies.
 
    Revenue Mix. The mix of revenues between customer types and types of work for various customers will impact gross margins.  Some projects will have greater margins while others that are extremely competitive in bidding may have narrower margins.
 
    Service and Maintenance versus installation.  In general, installation work has a higher gross margin than maintenance work.  This is due to the fact that installation work usually is more of a fixed price nature and therefore has higher risks involved.  Accordingly, a higher portion of the revenue mix from installation work typically will result in higher margins.
 
    Subcontract work.  Work that is subcontracted to other service providers generally has lower gross margins.  Increases in subcontract work as a percentage of total revenues in a given period may contribute to a decrease in gross margin.
 
    Materials versus Labor.  Typically materials supplied on projects have lower margins than labor.  Accordingly, projects with a higher material cost in relation to the entire job will have a lower overall margin.
 
 
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    Depreciation. Depreciation is included in our cost of revenue.  This is a common practice in our industry, but can make comparability to other companies difficult.
 
    Margin risk.  Failure to properly execute a job including failure to properly manage and supervise a job could decrease the profit margin.
 
Selling, General and Administrative Expenses
 
    Selling, general and administrative expenses consist primarily of compensation and related benefits to management, administrative salaries and benefits, marketing, communications, office and utility costs, professional fees, bad debt expense, letter of credit fees, general liability insurance and miscellaneous other expenses.
 
Results of Operations
 
    The following table sets forth the Consolidated Statement of Operations for the years ended September 30, 2011 and 2010.
 
   
Year Ended September 30,
 
   
2011
   
2010
 
   
(Dollars in thousands)
 
   
Amount
   
Percent
   
Amount
   
Percent
 
Contract Revenues
  $ 143,426       100.0 %   $ 218,288       100.0 %
Cost of Revenues
    136,585       95.2       193,916       88.8  
Gross Profit
    6,841       4.8       24,372       11.2  
Selling, general and administrative expenses
    13,269       9.3       12,733       5.8  
Income (loss) from operations before taxes
    (6,428 )     (4.5 )     11,639       5.3  
Interest Income
    3       0.0       56       0.0  
Interest Expense
    (1,821 )     (1.3 )     (1,842 )     (0.8 )
Other Income
    24       0.0       292       0.1  
Income (loss) before Income Taxes
    (8,222 )     (5.7 )     10,145       4.6  
Income taxes
    (2,946 )     (2.1 )     4,373       2.0  
Net Income (Loss)
  $ (5,276 )     (3.7 )%   $ 5,772       2.6 %
                                 
Earnings (loss) Per Share-Basic
    (0.44 )             0.48          
Earnings (loss) Per Share-Diluted
    (0.44 )             0.48          
 
2011 compared to 2010
 
    Revenues.  Revenue decreased  $74.9 million or 34.3% to $143.4 million for the year ended September 30, 2011.  The decrease was primarily driven by two major factors.  The weather during this period was extreme.  We experienced more rain in areas where projects were on-going this year than we have in the prior fifteen years.  As a result many projects were delayed or canceled.   One major project was delayed until 2012.   The second major factor was that in 2010 we completed two major projects that were not replaced by similar projects in 2011.
 
    Costs of Revenues.   Cost of revenues decreased by $57.3 million or 29.6% to $136.6 million for the year ended September 30, 2011.  Cost of revenues decrease was driven by the factors mentioned above.  Costs of revenues were greater than expected due to lower productivity reflecting weather delays, causing losses on some projects.
 
    Gross Profit.  Gross profits decreased by $17.5 million or 71.9% to $6.8 million for the year ended September 30, 2011.  The decrease was due to the items mentioned above.
 
    Selling, general and administrative expenses.  Selling, general and administrative expenses increased by $536,000 or 4.2% to $13.3 million for the year ended September 30, 2011.  The increase was primarily driven by the increase in professional fees related to the warrant conversion.
 
    Income from operations.  Income from operations decreased by $18.1 million or 155.2% to a loss of $6.4 million for the year ended September 30, 2011.  The decrease in net income reflects the effects of the items mentioned above.
 
 
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    Interest Expense.  Interest expense decreased by $20,000 or 1.1% to $1.82 million for the year ended September 30, 2011.  The decrease was due to a minor decrease in borrowings to fund operating costs.
 
    Income Taxes.  Income tax benefit for the period ending September 30, 2011 was $2.9 million as compared to an expense of $4.4 million for the period ending September 30, 2010.  The Company’s effective tax rate was 35.8% for the period ending September 30, 2011 and 43.1% for the period ending September 30, 2010.
 
    Net Income(Loss).  We incurred a net loss of $5.3 million for the year ended September 30, 2011 compared with net income of $5.8 million in fiscal 2010.
 
Comparison of Financial Condition
 
    The Company had total assets of $111.0 million at September 30, 2011 a decrease of $17.9 million from the prior fiscal year end balance.   Some primary components of the balance sheet were accounts receivable which totaled $19.1 million, a decrease of $6.7 million from the prior year end balances and estimated earnings in excess of billings of $12.6 million, a decrease of $7.7 million from the prior year end.  Other major categories of assets at September 30, 2011 included cash of $3 million, an increase of $389,000 from the prior year balance as well as net fixed assets of $23.8 million, a decrease of $3.3 million from prior year balance.
 
    Liabilities totaled $56.1 million a decrease of $12.7 million from the prior year balance. Current maturities of long-term debt was reduced by $2.0 million.  Accounts payable and accrued expenses decreased by $13.4 million as a result of the decreases in expenses discussed above. Stockholders’ equity was $54.9 million a decrease of $5.2 million from the prior year due to the net loss generated by the Company in 2011.
 
Liquidity and Capital Resources
 
Cash Requirements

    We anticipate that our cash and cash equivalents on hand at September 30, 2011 which totaled $3.0 million along with our credit facilities available to us and our anticipated future cash flows from operations will provide sufficient cash to meet our operating needs.  However, with the increased demand for our services, we could be faced with needing significant additional working capital. We are currently working to secure additional working capital.  Limited access to additional working capital could limit the Company’s ability to grow and affect the Company’s overall liquidity.
 
Sources and Uses of Cash
 
    As of September 30, 2011, we had $3.0 million in cash, working capital of $14.9 million and long term debt net of current maturities of $13.6 million.  The maturities of the total long term debt are as follows.
 
 
2012
 
  $4,823,076
 
 
2013
 
    5,553,976
 
 
2014
 
    2,980,812
 
 
2015
 
    2,846,166
 
 
2016
 
    2,232,779
 
 
Thereafter
 
           7,453
 
 
Total
 
$18,444,262
 
         
 
Line of Credit
 
    The Company has established a eighteen million ($18,000,000) Line of Credit agreement with a regional bank.  Interest will accrue on the line of credit at an annual rate based on the “Wall Street Journal” Prime Rate (the Index) with a floor of six percent (6.0%).  Cash available under the line is calculated based on a percentage of the Company’s accounts receivable with certain exclusions.  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 September 30, 2011 the Company had $4.1 million available on the line.  A portion of the line of credit was used to repay other outstanding loan balances.
 
 
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  The following are the major covenants of the line:
     
  1.
Current Ratio must be not less than 1.5.  As of September 30, 2011 our current ratio was 1.42 to 1.   This covenant was waived for ninety days.
     
  2.
Debt to tangible net worth must not exceed 3.5.  As of September 30, 2011 this ratio was 3.12 to 1.
     
  3.
Capital Expenditures (CAPEX) must not exceed $7.5 million per year.  CAPEX from the loan date was approximately $320,000.
     
  4.
Dividends shall not exceed 50% of taxable income without prior bank approval.  No dividends have been declared.
 
We were in compliance with, or have obtained waivers for all loan covenants as of the period ending September 30, 2011.
 
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 two pieces of real estate from stockholders-directors of the company under long-term lease agreements.  The one agreement calls for monthly rental payments of $5,000 and extends through August 15, 2014.  The second agreement is for the Company’s headquarter offices and is rented from a corporation in which two of the Company’s directors are shareholders.  The agreement began November 1, 2008 and runs through 2011 with options to renew.  This agreement calls for a monthly rental of $7,500 per month.  The Company also rents office and shop space from other independent lessors.  The office space rental is $11,000 per month and extends to December 2012.  The shop rental is $2,200 monthly and extends to October 2012.
 
Letters of Credit
 
Certain of our 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 September 30, 2011, the Company had no outstanding Letters of Credit.
 
 
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Performance Bonds
 
Some customers, particularly new ones or governmental agencies, require us to post bid bonds, performance bonds and payment bonds.  These bonds are obtained through insurance carriers and guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors.  If we fail to perform under a contract or to pay subcontractors and vendors, the customer may demand that the insurer make payments or provide services under the bond.  We must reimburse the insurer for any expenses or outlays it is required to make.  Depending upon the size and conditions of a particular contract, we may be required to post letters of credit or other collateral in favor of the insurer.  Posting of these letters or other collateral 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 September 30, 2011, we had $111 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 only four customers that exceeded ten percent of revenues or receivables for the year ended September 30, 2011.  The Company had two customers that represented 11.5% and 12.8% of revenues and two other customers that represented 13.4% and 18.2% of accounts receivable for the year ended September 30, 2011.
 
Litigation
 
The Company is a party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.  These actions typically seek, among other things, compensation for alleged 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.
 
Related Party Transactions
 
In the normal course of business, we enter into transactions from time to time with related parties.  These transactions typically would not be material in nature and would usually relate to real estate, vehicle or equipment rentals.
 
Inflation
 
Due to relatively low levels of inflation during the years ended September 30, 2011 and 2010, inflation did not have a significant effect on our results.
 
New Accounting Pronouncements
 
In September 2011, the FASB issued ASU No. 2011-08, "Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment", which amends the procedures for impairment testing of goodwill. This standard allows the use of qualitative factors in determining if goodwill impairment is more likely than not to exist. If qualitative information indicates that it is not more likely than not that impairment of goodwill exists, then the quantitative two step impairment test will not be required. The Company will adopt this standard in the fourth calendar quarter of 2011. Adoption of the new guidance, in itself, will not have an impact on the Company's statements of income and financial condition.
 
 
16

 
 
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.
 
Income Taxes
              
        The Company and all subsidiaries file a consolidated federal and various state income tax returns on a fiscal year basis.  With few exceptions, the company is no longer subject to U.S. federal, state, or local income tax examinations for years ending prior to September 30, 2008.

 
The Company follows the liability method of accounting for income taxes in accordance with the Income Taxes topic of the FASB ASC.   Under this method, deferred tax assets and liabilities are recorded for future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the underlying assets or liabilities are recovered or settled.  GAAP prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or to be taken on a tax return.
 
Goodwill
 
The Company has selected July 1 as the date of the annual goodwill impairment evaluation, which is the first day of our fourth fiscal quarter.  Goodwill was assigned to the operating units at the time of acquisition.  The  reporting units to which goodwill was assigned  are CJ Hughes (“CJ”), Contractors Rental Corp (a subsidiary of CJ Hughes)“CRC”), Nitro Electric (a subsidiary of CJ Hughes-“Nitro”) and to ST Pipeline.  The assignment to CJ consolidated and ST Pipeline was based on the purchase price of each company.  Both purchases were supported by fairness opinions.  The allocation of the goodwill arising from the purchase of CJ was allocated between CJ/CRC and Nitro based on an internally prepared analysis of the relative fair values of each unit.
 
There have been no material operational changes to any reporting units since the date of acquisition.    Although the Company uses a centralized management approach, the reporting units have continued to perform similar services to those performed prior to the acquisition.  There have been no sales of equipment, other than in the ordinary course of business, or dispositions of lines of business by any of the operating units.
 
A discounted cash flow model requires estimates and judgments about such factors as the projected free cash flows, weighted average cost of capital (WACC) and terminal value assumptions.  Projected free cash flows require assumptions about projected revenues, profitability and capital expenditures.  Significant assumptions relating to the pricing multiple or market approach to value include multiples of price and enterprise value to various metrics including earnings and cash flows.  These estimates and judgments about the future can be difficult to predict with certainty, and changes in these assumptions may result in a different conclusion of fair value.
 
The Company has determined that its operating units meet the criteria for aggregation and can be deemed a single reporting unit because of their similar economic characteristics.  The July 1, 2011 annual impairment testing indicates that the fair value of the aggregated operating units is at least 10% higher than the carrying value at that date.   Management is not aware of any changes in circumstances since the impairment test date that would indicate that goodwill might be impaired.
 
 
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Revenue Recognition
 
Revenues from fixed price contracts are recognized using the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract.  These contracts provide for a fixed amount of revenues for the entire project.  Such contracts provide that the customer accept completion of progress to date and compensate us the services rendered, measured in terms of units installed, hours expended or some other measure of progress.  Contract costs include all direct material, labor and subcontract costs and those indirect costs related to contract performance, such as indirect labor, tools and expendables.  The cost estimates are based on the professional knowledge and experience of the Company’s engineers, project managers and financial professionals.  Changes in job performance, job conditions, and others all affect the total estimated costs at completion.  The effects of these changes are recognized in the period in which they occur.  Provisions for the total estimated losses on uncompleted contracts are made in the period in which such losses are determined.   The current asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed for fixed price contracts.  The current liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized for fixed price contracts.
 
Revenue on all costs plus and time and material contracts are recognized when services are performed or when units are completed.
 
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.
 
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 September 30, 2011.  An additional amount of approximately $554,000 will be required by December 31, 2011. Should the captive experience severe losses over an extended period, it could have a detrimental effect on the Company.
 
Current and Non-Current 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 September 30, 2011, the management review deemed that the allowance for doubtful accounts was adequate to cover any anticipated losses.
 
Outlook
 
The following statements are based on current expectations.  These statements are forward looking, and actual results may differ materially.
 
 
18

 
 
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, we are seeing the increased demand for our services and accordingly, we 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 September 30, 2011 was $128.5 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.
 
If the increased demand anticipated in fiscal 2012 continues, we believe that the Company will have opportunities to continue to improve both revenue volumes and the margins thereon.  However, as noted above, if the current economic conditions persist, growth could be limited.
 
If growth continues, we will be required to make additional capital expenditures for equipment to keep up with that need.  Currently, it is anticipated that in fiscal 2012, the Company’s needed capital expenditures will be between $2 million and $4 million dollars.  However, if the customer demands continue to grow, this number could change dramatically.  Significantly higher capital expenditure requirements could of course put a strain on the Company’s cash flows and require additional borrowings.
 
ITEM 7A.
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.
 
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 8.
Financial Statements and Supplementary Data
 
 
Financial Statements are included as Exhibit 13 to this Annual Report on Form 10-K.
 
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
     
None.
   
 
 
 
ITEM 9A.
Controls and Procedures
 
 
(a)  Evaluation of Disclosure 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 recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
 
(b)  Management’s Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
 
 
19

 
 
(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management has used the framework set forth in the report entitled “Internal Control – Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting.  Management has not indentified any material weakness in the Company’s internal control over financial reporting.  Management has concluded that the Company’s internal control over financial reporting was effective as of the end of the most recent fiscal year.
 
 
20

 
 
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only Management’s report in this Annual Report.
 
 
 
 
/s/ Edsel R. Burns  
    Edsel R. Burns  
    Chief Executive Officer  
 
         
 
   
/s/ Larry A. Blount
 
 
   
Larry A. Blount
 
 
   
Chief Financial Officer
 
 
The report set forth under this Item 9AT (b) shall not have been deemed filed for the purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18.
 
(c)  Changes in Internal Controls over Financial Reporting
 
There has been no change in Energy Services of America Corp.’s internal control over financial reporting during Energy Services of America Corporation’s fourth quarter of fiscal year 2011 that has materially affected, or is reasonably likely to materially affect, Energy Services of America Corporation’s internal control over financial reporting.
 
ITEM 9B.
Other Information
 
     
None.
   
 
PART III
 
ITEM 10.
Directors, Executive Officers and Corporate Governance
 
 
The principal occupation during the past five years of each director and executive officer is set forth below.  All directors and executive officers have held their present positions since our inception unless otherwise stated.
 
Marshall T. Reynolds has served as Chairman of the Board of Directors since our inception. Mr. Reynolds has served as Chief Executive Officer and Chairman of the Board Directors of Champion Industries, Inc., a commercial printer, business form manufacturer and supplier of office products and furniture, from 1992 to the present, and sole stockholder from 1972 to 1993; President and General Manager of The Harrah & Reynolds Corporation, from 1964 (and sole stockholder since 1972) to present; Chairman of the Board of Directors of the Pullman Plaza Hotel in Huntington, West Virginia; and Chairman of the Board of Directors of McCorkle Machine and Engineering Company in Huntington, West Virginia. Mr. Reynolds is also Chairman of the Board of Directors of First Guaranty Bank in Hammond, Louisiana; and Chairman of the Board of Directors of Premier Financial Bancorp, Inc. in Huntington, West Virginia. Mr. Reynolds is the father of Jack Reynolds and Douglas Reynolds.  Mr. Reynolds varied career as a business leader and experience in a number of industries qualifies him to be on the Board of Directors.
 
Jack M. Reynolds served as President and Chief Financial Officer from our inception until September 2008 and a has been a member of our Board of Directors since our inception.  Mr. Reynolds has been a Vice President of Pritchard Electric Company since 1998.  Pritchard is an electrical contractor providing electrical services to both utility companies as well as private industries.  Mr. Reynolds also serves as a Director of Citizens Deposit Bank of Vanceburg, Kentucky.  Mr. Reynolds is the son of Marshall Reynolds and the brother of Douglas Reynolds.  Mr. Reynolds lengthy service at Pritchard Electric and knowledge of the contracting industry provides hands on expertise to the Board of Directors.
 
 
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Edsel R. Burns has been a Director since our inception and has served as President of the Company since September 2008.  Mr. Burns was President and Chief Executive Officer of C. J. Hughes Construction Company, Inc., a wholly owned subsidiary of the Company, from September of 2002 to November 2008.  C. J. Hughes is an underground utility construction company specializing in gas and water line replacement as well as utility environmental issues.  From January 2002 to September of 2002, Mr. Burns was self-employed as an independent financial consultant to banks. From June of 2001 to December 2001, Mr. Burns was the Chief Financial Officer for Genesis Health Systems, a holding company for a collaborative group of three hospitals, two in Huntington, West Virginia and one in Point Pleasant, West Virginia.  Mr. Burns is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants as well as the West Virginia and Ohio societies of CPAs.  He also is on the Board of Directors of Premier Financial Bancorp, Inc.  Mr. Burns varied experience with public companies and his financial expertise enables him to be a valued member of the Board.
 
Neal W. Scaggs has been a Director since our inception.  Mr. Scaggs has been president of Basiden Brothers, Inc. (retail and wholesale hardware) from 1963 to the present.  Mr. Scaggs is on the Boards of Directors of Premier Financial Bancorp, Inc. and Champion Industries, Inc.  Mr. Scaggs also serves as Chairman of the Board of Directors of Bucane, Inc.  Mr. Scaggs business experience in sales, marketing and capital markets provides a broad business perspective to the Board of Directors.
 
Joseph L. Williams has been a Director since our inception.  Mr. Williams is the Chairman and Chief Executive Officer of Basic Supply Company, Inc., which he founded in 1977.  Mr. Williams was one of the organizers and is a Director of First Sentry Bank, Huntington, West Virginia.  Mr. Williams was Chairman, President and Chief Executive Officer of Consolidated Bank & Trust Co., in Richmond, Virginia from 2007 until it merged with Premier Financial Bancorp, Inc. in 2009.  Mr. Williams is a former member of the West Virginia Governor’s Workforce Investment Council. He is a former Director of Unlimited Future, Inc. (a small business incubator) and a former Member of the National Advisory Council of the U.S. Small Business Administration.  Mr. Williams is a former Mayor and City Councilman of the City of Huntington, West Virginia.  He is a graduate of Marshall University with a degree in finance and is a former member of its Institutional Board of Governors.  Mr. Williams' investment and management experience provides the board of directors and important perspective in business development.
 
Richard M. Adams, Jr. was appointed to the Board of Directors on August 15, 2008. Mr. Adams has been the President of United Bank, Inc., a subsidiary of United Bankshares, Inc. since 2007.  Prior to his appointment as President, Mr. Adams was the Executive Vice President of United Bank, Inc.  He is also Executive Vice President of United Bankshares, Inc., a multi-state bank holding company doing business in Ohio, West Virginia, Virginia, Maryland, and Washington, D.C.  Mr. Adams experience in banking provides insight in finance which makes him a valued member of the board.
 
Keith Molihan was appointed to the Board of Directors on August 15, 2008. Mr. Molihan is a retired executive director of the Lawrence County Community Action Organization.  Mr. Molihan has served as Chairman of the Board of Directors of Ohio River Bank, Chairman of the Board of Directors of Farmers Bank of Eminence Kentucky and Chairman of the Board of EMEGA Turbine Technology, as well as President of the Lawrence County Ohio Port Authority and President of the Southeast Ohio Emergency Medical organization.  Mr. Molihan’s experience provides insights in the industrial aspects of the Company’s business.
 
Eric Dosch is the Chief Financial Officer of First Guaranty Bank located in Hammond, Louisiana.  Mr. Dosch has worked for First Guaranty Bank since 2003.  Prior to his association with First Guaranty, Mr. Dosch was a financial analyst with Livingston & Jefferson, a private asset management firm located in Cincinnati, Ohio.  Mr. Dosch is a CFA Charterholder and a graduate from The Graduate School of Banking at Louisiana State University.  Mr. Dosch obtained his undergraduate degree from Duke University.  Mr. Dosch’s experience in financial matters provides the Board of Directors with valuable insights in the areas of finance and risk assessment.
 
Douglas V. Reynolds is an attorney for Reynolds & Brown, PLLC.  Mr. Reynolds is the President of the Transylvania Corporation and a director of The Harrah and Reynolds Corporation.  Mr. Reynolds is a graduate of Duke University and holds a law degree from West Virginia University.  Mr. Reynolds is the son of Director Marshall T. Reynolds and brother of Jack M. Reynolds.  Mr. Reynolds’ varied experience and senior management roles with other companies make Mr. Reynolds a valuable member of the Board.
 
 
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Nester S. Logan is the owner of S.S. Logan Packing Co. located in Huntington, Virginia.  Mr. Logan is a Director of First Sentry Bank.  Mr. Logan’s experience in the Company’s market area provides the Board with knowledge of business conditions in West Virginia and Ohio.
 
Samuel G. Kapourales is a Board Member of the West Virginia Health Care Authority and Kapourales Properties, LLC.  Mr. Kapourales serves as a Director of First National Bank of Williamson and First Bank of Charleston.  Mr. Kapourales’ varied business experience makes him a valuable member of the Board.
 
James Shafer is the president, and until its sale to Energy Services was the owner, of ST Pipeline.  Mr. Shafer’s knowledge of ST Pipeline’s business is invaluable to the Board’s consideration of strategic matters.
 
Larry A. Blount was appointed as Chief Financial Officer and Secretary of the Company.  Mr. Blount graduated from West Virginia State University with a Bachelor of Science degree in Business Administration and Accounting.  He is also a Certified Public Accountant.  Mr. Blount was employed by Union Boiler Company, in various capacities, including Staff Accountant, Internal Auditor, Chief Accountant and Controller, from 1980-1996.  From 1996-2003 he was Controller and Vice-President of Accounting and Finance for Williams Group International.  He served as Divisional Accounting Manager for Alberici Constructors from 2003-2005. From 2005-2007, Mr. Blount served as Vice President, Chief Financial Officer, Secretary and Treasurer for Nitro Electric Company.
 
Board Independence
 
The Board of Directors consists of a majority of “independent directors” within the meaning of the NYSE Amex corporate governance listing standards.  The Board of Directors has determined that Messrs. Scaggs, Williams, Adams, Molihan, Dosch, Logan and Kapourales are “independent directors” within the meaning of such standards. There were no transactions not required to be reported under “—Certain Relationships and Related Transactions” that were considered in determining the independence of our directors.
 
        The Board of Directors has adopted a policy that the independent directors of the Board of Directors shall meet in executive sessions periodically, which meetings may be held in conjunction with regularly scheduled board meetings.  No executive session was held during the fiscal year ended September 30, 2011.
.
Board Leadership Structure and Risk Oversight
 
Our board of directors is chaired by Mr. Marshall T. Reynolds, who is a non-executive director.  We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles.  The Chief Executive Officer is responsible for overseeing the day to day operations of the Company.  The Chairman provides guidance to the Chief Executive Officer and, together with the entire board of directors helps develop the strategic plan for the Company.
 
The role of the board of directors in the Company’s risk oversight process includes receiving reports from senior management on areas of material risk to the Company, including operational, financial, legal, regulatory, strategic and reputational risk.  The full board reviews such reports and follows up with senior management to best determine how to address such risks.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Our common stock is registered with the Securities and Exchange Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934.  The officers and directors and beneficial owners of greater than 10% of our common stock are required to file reports on Forms 3, 4 and 5 with the Securities and Exchange Commission disclosing beneficial ownership and changes in beneficial ownership of the common stock.  Securities and Exchange Commission rules require disclosure in our Proxy Statement or Annual Report on Form 10-K of the failure of an officer, director or 10% beneficial owner of our common stock to file a Form 3, 4 or 5 on a timely basis.  Based on our review of ownership reports required to be filed for the fiscal year ended September 30, 2011, all of our directors, officers and owners of more than 10% of our common stock filed these reports on a timely basis.
 
 
23

 
 
Meetings of the Board of Directors
 
During fiscal 2011, the Board of Directors held twelve regular meetings and no special meetings.  No director attended fewer than 75% in the aggregate of the total number of board meetings held.  All directors serving on our committees attended more than 75% of the total number of committee meetings on which they served during fiscal 2011.  Although not required, attendance of Board members at the Annual Meeting of Stockholders is encouraged.  All members of our Board of Directors attended the 2011 Annual Meeting of Stockholders.
 
Board Committees
 
The Board of Directors has an audit committee. Our audit committee charter is available for inspection at www.energyservicesofamerica.com.
 
Audit Committee.  The audit committee consisted of Messrs. Scaggs, Williams, Adams and Molihan with Mr. Scaggs acting as chairman of the committee in fiscal 2011.  The audit committee met four times during the fiscal year ended September 30, 2011.  All of the directors appointed to the audit committee are independent members of the board of directors, as defined by Securities and Exchange Commission rules and the NYSE Amex corporate governance listing standards. Each member of the audit committee is financially literate, and the Board of Directors has determined that Messrs. Adams and Molihan qualify as audit committee financial experts, as such term is defined by Securities and Exchange Commission rules.
 
The audit committee reviews the professional services and independence of our independent registered public accounting firm and our accounts, procedures and internal controls. The audit committee also recommends the firm selected to be our independent registered public accounting firm, reviews and approves the scope of the annual audit, reviews and evaluates with the independent public accounting firm our annual audit and annual consolidated financial statements, reviews with management the status of internal accounting controls, evaluates problem areas having a potential financial impact on us that are brought to the committee’s attention by management, the independent registered public accounting firm or the board of directors, and evaluates all of our public financial reporting documents.
 
The audit committee approved the appointment of Arnett & Foster P.L.L.C. to be our independent registered public accounting firm for the 2011 fiscal year.  A representative of Arnett & Foster P.L.L.C. is expected to attend the Annual Meeting.
 
Nominating Committees.  The Board has determined that the independent members of the Board of Directors will perform the duties of the nominating committee of the Board of Directors. The nominating committee does not have a written charter.  The nominating committee will (i) identify individuals qualified to become members of the Board of Directors and recommend to the Board of Directors the nominees for election to the Board of Directors; (ii) recommend director nominees for each committee to the Board of Directors; and (iii) identify individuals to fill any vacancies on the Board of Directors.  The nominating committee met one time during the fiscal year ended September 30, 2011.
 
The nominating committee of the Board identifies nominees by first evaluating the current members of the Board of Directors willing to continue in service.  Current members of the Board of Directors with skills and experience that are relevant to our business and who are willing to continue in service are first considered for re-nomination, balancing the value of continuity of service by existing members of the Board of Directors with that of obtaining a new perspective.  If any member of the Board of Directors does not wish to continue in service, or if the Board decides not to re-nominate a member for re-election, or if the size of the Board of Directors is increased, the independent directors would solicit suggestions for director candidates from all board members. The independent directors would seek to identify a candidate who at a minimum satisfies the following criteria:
 
 
24

 
 
has the highest personal and professional ethics and integrity and whose values are compatible with ours;
   
has experiences and achievements that have given him or her the ability to exercise and develop good business judgment;
   
is willing to devote the necessary time to the work of the Board of Directors and its committees, which includes being available for board and committee meetings;
   
is familiar with the communities in which we operate and/or is actively engaged in community activities;
   
is involved in other activities or interests that do not create a conflict with his or her responsibilities to us and our stockholders; and
   
has the capacity and desire to represent the balanced, best interests of our stockholders as a group, and not primarily a special interest group or constituency.
 
The nominating committee will also take into account whether a candidate satisfies the criteria for “independence” under Securities and Exchange Commission rules and the NYSE Amex Listing Standard and, if a nominee is sought for service on the audit committee, the financial and accounting expertise of a candidate, including whether an individual qualifies as an “audit committee financial expert.”  The nominating committee will consider diversity in identifying nominees for director, but has no specific policy or established criteria in this regard.  The nominating committee seeks candidates who have a broad range of business experience when considering nominees to the Board of Directors.
 
Procedures for the Nomination of Directors by Stockholders
 
The Board of Directors has adopted procedures for the submission of director nominees by stockholders.  If a determination is made that an additional candidate is needed for the Board of Directors, the independent members of the Board of Directors will consider candidates submitted by our stockholders.  Stockholders can submit the names of qualified candidates for director by writing to our Corporate Secretary at 100 Industrial Lane, Huntington, West Virginia 25702.  The Corporate Secretary must receive a submission not less than forty-five (45) days prior to the date of our proxy materials for the preceding year’s annual meeting.  The submission must include the following information:
 
a statement that the writer is a stockholder and is proposing a candidate for consideration by our independent directors;
   
he name and address of the stockholder as they appear on the our books and number of shares of our common stock that are owned beneficially by such stockholder (if the stockholder is not a holder of record, appropriate evidence of the stockholder’s ownership will be required);
   
the name, address and contact information for the candidate, and the number of shares of our common stock that are owned by the candidate (if the candidate is not a holder of record, appropriate evidence of the stockholder’s ownership should be provided);
   
a statement of the candidate’s business and educational experience;
   
such other information regarding the candidate as would be required to be included in the proxy statement pursuant to Securities and Exchange Commission Regulation 14A;
   
a statement detailing any relationship between the candidate and Energy Services of America Corporation;
   
a statement detailing any relationship between the candidate and any customer, supplier or competitor of Energy Services of America Corporation;
   
detailed information about any relationship or understanding between the proposing stockholder and the candidate; and
   
a statement that the candidate is willing to be considered and willing to serve as a director if nominated and elected.
 
 
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A nomination submitted by a stockholder for presentation by the stockholder at an annual meeting of stockholders will also need to comply with any additional procedural and informational requirements adopted in the future.
 
Stockholder Communications with the Board
 
A stockholder who wants to communicate with the Board of Directors or with any individual director can write to the Corporate Secretary at 100 Industrial Lane, Huntington, West Virginia 25702, Attention:  Corporate Secretary.  The letter should indicate that the author is a stockholder and if shares are not held of record, should include appropriate evidence of stock ownership.  Depending on the subject matter, management will:
 
forward the communication to the director or directors to whom it is addressed;
   
attempt to handle the inquiry directly, i.e. where it is a request for information about us or it is a stock-related matter; or
   
not forward the communication if it is primarily commercial in nature, relates to an improper or irrelevant topic, or is unduly hostile, threatening, illegal or otherwise inappropriate.
 
At each board meeting, management shall present a summary of all communications received since the last meeting that were not forwarded and make those communications available to the directors.
 
The Compensation Committee
 
The compensation committee consists of directors Joseph L. Williams, Keith Molihan and Nester S. Logan. Each member of the compensation committee is considered “independent” as defined in the NYSE Amex corporate governance listing standards.  The Board of Directors has adopted a written charter for the Committee.
 
The compensation committee is appointed by the Board of Directors to assist the Board in developing compensation philosophy, criteria, goals and policies for our executive officers that reflect our values and strategic objectives. The committee reviews the performance of our executive officers and annually recommends to the full Board the compensation and benefits for our executive officers (including the Chief Executive Officer).  The committee administers our compensation plans.  The committee establishes the terms of employment and severance agreements/arrangements for executive officers. The committee recommends to the full Board the compensation to be paid to our directors and any affiliates for their service on the Board. Finally, the committee establishes annual compensation percentage increases for all employees.
 
For 2011, in making compensation decisions, the compensation committee did not use numerical formulas to determine changes in compensation for the named executive officers. The committee considered a variety of factors in its deliberations over executive compensation, emphasizing the profitability and scope of our operations, the experience, expertise and management skills of the named executive officers and their role in our future success, as well as compensation surveys prepared by professional firms to determine compensation paid to executives performing similar duties for similarly sized institutions.  While the quantitative and non-quantitative factors described above were considered by the committee, such factors were not assigned a specific weight in evaluating the performance of the named executive officers. In determining the Chief Executive Officer’s bonus, the Chairman of the Board also considers the above factors and makes a recommendation to the committee which authorizes such bonus. For the other named executive officers, the Chief Executive Officer considers the above factors and makes a recommendation to the committee which authorized their bonuses.
 
 
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Code of Ethics
 
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.  The Code of Ethics was previously filed as an exhibit to our Registration Statement on Form S-1.  A copy of the Code will be furnished without charge upon written request to the Corporate Secretary, Energy Services of America Corporation, 100 Industrial Lane, Huntington, West Virginia.
 
ITEM 11.
Executive Compensation
 
   
Executive and Director Compensation
 
We have adopted a compensation committee policy that reflects the compensation philosophy and objectives of the compensation committee.
 
Compensation Philosophy and Objectives
 
The compensation committee believes that an effective executive compensation program rewards the achievement of pre-established short term, long-term and strategic goals, and aligns executives’ interests with those of our stockholders.  The committee regularly evaluates both performance and compensation relative to other comparable publicly traded companies.  We also manage our named executive officers’ compensation to align with the time horizon of our growth and development.  As we grow, we strive to ensure that our compensation programs and practices remain consistent with our philosophy to provide competitive, performance-based, and risk appropriate compensation that enables us to attract, motivate and retain top performers who are essential to our successful growth and performance.
 
The primary objectives of our executive compensation program are to:
   
provide pay for performance utilizing short and long-term incentives;
   
align executive interests with those of stockholders through appropriate focus on stock based compensation;
   
be competitive with the marketplace within which we compete for talent;
   
ensure compensation programs reward performance while appropriately managing risk; and
   
enable us to attract, motivate, and retain top talent.
 
We accomplish all these objectives through a total compensation program that balances fixed and variable (i.e. incentive) compensation with a focus on providing rewards to named executive officers for their contributions to achieving core business objectives and furthering our short and long-term performance.  We balance our desire for superior performance with safeguards so that our programs do not result in excessive risk taking that can threaten our long-term value and stability.
 
We also recognize that our ability to attract and retain top talent has become even more critical as we grow.  In fact, we believe our rapid growth is partially a result of our ability to attract superior talent.
 
Our executive compensation philosophy provides competitive ranges for each component and in the aggregate.  The starting point targets market median but by using performance-based instruments, actual compensation varies widely depending on our performance against our stated objectives and our industry peers.  We meet this objective for our named executive officers through the following components of their total compensation:
 
 
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Base salaries are targeted at market median, but allow for recognition of each individual’s role, contribution, performance, and experience.
   
Short-term incentive targets reflect market median although actual payouts will vary based on our performance relative to company-wide, team and individual contributions toward our strategic plan.
   
Long-term incentive awards are intended to provide significant focus on long-term performance through stock-based compensation.  Long-term compensation is designed to balance multiple objectives:  (1) reward for long-term, sustained performance and stock price growth; (2) align executive interests with stockholders through stock ownership; and (3) provide powerful retention of our highest performers through vesting periods.  During 2010, the committee made grants in the form of stock options, restricted stock and performance shares to support these objectives.
   
Retirement, health, life insurance, disability, severance and other perquisites and benefits are provided, but their focus and value are intentionally set to be conservatively competitive in order to attract and retain talented individuals.
 
Executive total compensation is expected to vary each year, and evolve over the long-term to reflect our performance relative to our peers and the industry, and to correspond with stockholder returns.
 
We review our executive compensation philosophy and programs annually to ensure that they are achieving desired objectives and supporting our needs as we grow to be a more complex organization.
 
Summary Compensation Table for Executives.  The following table shows the compensation of  Edsel R. Burns, our principal executive officer, and Larry Blount, the only other executive officer who received total compensation of $100,000 during the past fiscal year for services to the company or any of its subsidiaries during the years ended September 30, 2011 and 2010.
 
Summary Compensation Table
 
Name and Principal Position
 
Year
   
Salary
   
Bonus
   
Stock Awards
(1)
   
All other
compensation
(2)
   
Total
 
Edsel R. Burns
  2011     $ 151,000     $   $
    $ 22,558     $ 173,558  
President and Chief Executive
Officer
  2010     $ 125,000     $ 75,000   $     $ 21,411     $ 221,411  
                                               
Larry Blount   2011     $ 125,000     $ —    $     $ 8,526     $ 133,526  
Secretary/Treasurer and
Chief Financial Officer
  2010     $ 110,000     $ 50,000   $ 37,980     $ 9,636     $ 207,616  
 
 
(1)
This is the aggregate grant date for fair value computed in accordance with FASB ASC Topic 718.
(2)
Other compensation includes Director fees of $12,000 for Mr. Burns, 401(k) match of $3,650 for Mr. Burns and $1,618 for Mr. Blount and vehicle rental of $6,908 for Mr. Burns and $6,908 for Mr. Blount.

Benefit Plans

Stock Benefit Plans
 
Long Term Incentive Plan.  In 2010, the Board of Directors adopted, and our shareholders approved, the Energy Services of America Corporation Long Term Incentive Plan (the “LTIP”), to provide our employees and directors with additional incentives to promote our growth and performance.  The LTIP gives us the flexibility we need to continue to attract and retain highly qualified employees and directors by offering a competitive compensation program that is linked to the performance of our common stock.
 
The LTIP is administered by our compensation committee. The committee may determine the type of award and the terms and conditions of each award under the LTIP, which shall be set forth in an award agreement delivered to each participant.  The LTIP authorizes the issuance of up to 1,200,000 shares of Company common stock pursuant to grants of restricted stock awards, performance share awards, restricted stock units, performance share units, incentive stock options, non-qualified stock options and stock appreciation rights, provided, however, that in any five year period, no individual may receive a grant of any type for more than 180,000 shares.
 
 
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The committee is authorized to grant awards, the vesting of which may be subject to the satisfaction of performance-based conditions. The vesting date of performance-based awards is the date on which all the performance measures are attained and the performance period is concluded.  Any unvested performance-based awards for which the performance measures are not satisfied will be forfeited without consideration. If the right to become vested in an award under the LTIP is conditioned on the completion of a specified period of service with the Company or its subsidiaries, without the achievement of performance measures or objectives, then the required period of service for full vesting shall be determined by the committee and evidenced in the award agreement.  In general, no awards may vest at a rate exceeding one-third per year commencing one year after the date of grant.
 
Unless otherwise provided in an award agreement, in the event of a participant’s termination of service for any reason other than disability, retirement, death or termination for cause, then (i) any stock options and stock appreciation rights shall be exercisable only as to those awards that were vested on the date of termination of service and only for a period of three months following termination, and (ii) any restricted stock awards or restricted stock units that have not vested as of the date of termination of service shall expire and be forfeited.  In the event of termination for cause, any awards that have not vested, or have vested but have not been exercised (in the case of stock options and stock appreciation rights) shall expire and shall be forfeited.
 
Upon termination of service due to death or disability, all stock options and stock appreciation rights shall be exercisable as to all shares subject to an outstanding award, whether or not then exercisable, and all restricted stock and restricted stock unit awards shall become fully vested at the date of termination of service.  Stock options and stock appreciation rights may be exercised for a period of one year following such termination of service.
 
Unless otherwise provided in an award agreement, upon termination of service due to retirement, all stock options and stock appreciation rights shall be exercisable as to all shares subject to an outstanding award, whether or not then exercisable.  Unless otherwise provided in an award agreement, all other awards, except performance-based awards subject to Section 162(m) of the Internal Revenue Code, shall become fully vested on retirement.
 
Unless otherwise provided in an award agreement, upon the occurrence of an involuntary termination of employment (or, as to a director, termination of service as a director) following a “change in control” of the Company (as defined in the LTIP), all outstanding options and stock appreciation rights then held by a participant will become fully exercisable and all restricted stock and restricted stock unit awards shall be fully earned and vested.  In the event of a change in control, any performance measure attached to an award shall be deemed satisfied as of the date of the change in control.
 
If the committee determines that a present or former participant has (i) used for profit or disclosed to unauthorized persons, our confidential information or trade secrets; (ii) breached any contract with or violated any fiduciary obligation to us; or (iii) engaged in any conduct which the committee determines is injurious to the Company, the committee may cause that participant to forfeit his or her outstanding awards under the Plan.
 
If we are required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, any participant who is an executive officer shall (i) reimburse the Company the amount of any bonus or incentive compensation paid to such participant that were subsequently reduced due to the restatement; (ii) have outstanding awards granted under the LTIP cancelled; and/or (iii) reimburse the Company for any gains realized in the exercise of options, vesting of or open market sales of vested, restricted stock awards or performance share awards, payment of any restricted stock units, performance share units or stock appreciation rights granted to such participant, regardless of when issued, but only if, and to the extent that (A) the amount of the bonus or incentive compensation was calculated based on achievement of the original financial results; (B) the executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement; and (C) the amount of the bonus or incentive compensation, as calculated under the restated financial results, is less than the amount actually paid or awarded under the original financial results.
 
The Board of Directors may, at any time, amend or terminate the LTIP or any award granted under the LTIP, provided that, except as provided in the LTIP, no amendment or termination may adversely impair the rights of an outstanding award without the participant’s (or affected beneficiary’s) written consent.
 
 
29

 
 
Outstanding Equity Awards at Year End.  The following table sets forth information with respect to outstanding equity awards as of September 30, 2011 for the named executive officers.
 
OUTSTANDING EQUITY AWARDS AT SEPTEMBER 30, 2011
Name
 
Option awards
 
Stock awards
 
Number of
securities
underlying
unexercised
options  
exercisable
 
Number of
securities
underlying
unexercised
options  
unexercisable
 
Equity
incentive
 plan awards:  
number of
securities
underlying
unexercised
unearned
options
 
Option
exercise
price
 
Option expiration
date
 
Number of
shares or units
of stock that
have not
vested
 
Market value of
shares or units of
stock that have not
vested ($)
 
Equity incentive
plan awards:
number of
unearned shares,
units or other
rights that have
 not vested (1)
 
Equity
incentive plan
awards:
market or
payout value
of unearned
shares, units
or other rights
that have not
vested (2)
Edsel R. Burns
 
 
 
 
 
 
 
 
 
Larry Blount
 
 
 
 
 
 
 
 
6,000
 
$12,300
 

(1)
Remaining unvested shares will vest 3,000 shares per year on August 11, 2012 and 2013.
(2)
The fair market value of the Company’s common stock at the end of the fiscal year was $2.05 per share.
 
 
30

 
 
Energy Services 401(k) Plan
 
401(k) Retirement Plans
 
We maintain the Energy Services of America Staff 401(k) Retirement Plan.  Our four wholly owned subsidiaries, C. J. Hughes Construction Company, Inc., Nitro Electric Company, Inc., Contractors Rental Corporation, and ST Pipeline adopted the Plan on behalf of their non-union employees.  Employees are immediately eligible for the Plan upon date of hire but must wait until a quarterly entry date to join the Plan.  Employees may contribute eligible wages up to the maximum indexed dollar amount set by the Internal Revenue Service, which was $16,500 for 2011.  In addition, participants who are age 50 or older by the end of the plan year may elect to defer up to an additional $5,500 into the 401(k) plan for 2011.  We will match $0.25 on each dollar contributed up to 6% of eligible wages.  Additionally, each plan year, we may make discretionary profit-sharing contributions for participants who are actively employed on the last day of the plan year.  The discretionary contributions will be allocated to a qualifying participant’s individual account based on the ratio of his or her compensation to the total compensation of all qualifying participants for the Plan Year. No discretionary profit sharing contributions were made in 2011.  Participants direct the investment of their account in the Plan, selecting from investment funds provided under the Plan. Participants receive quarterly benefit statements that provide information on their account balances and have immediate access to their account through an Interactive Voice Response System and the Internet.  Plan benefits are paid as soon as administratively possible following the participant’s termination of employment.  Lump sums, partial payments and installment payments are available if the participant’s account balance exceeds $1,000.
 
Energy Services of America Corporation 2009 Employee Stock Purchase Plan
 
The plan enables eligible employees to purchase common stock through payroll deductions. The plan is intended to qualify under Section 423 of the Internal Revenue Code and its regulations.  During 2011 we did not utilize the plan.
 
Directors’ Compensation
 
Director Compensation.  The table set forth below shows the compensation of our non-executive directors for the fiscal year ended September 30, 2011.  We did not make any non-equity incentive plan awards to directors and there were no preferential earnings on nonqualified deferred compensation.
 
 
Director Compensation
 
Name
 
Fees earned or
 paid in cash
($)
Stock Awards
($)
All other
compensation ($)
Total
($)
Jack M. Reynolds
12,000
12,000
Neal W. Scaggs
12,000
12,000
Joseph L. Williams
12,000
12,000
Richard M. Adams, Jr.
12,000
12,000
Keith Molihan
12,000
12,000
Douglas Reynolds
12.000
12.000
Eric Dosch
12,000
12,000
James Shafer
12,000
12,000
Nester S. Logan
10,000
10,000
Samuel G. Kapourales
10,000
10,000
Marshall T. Reynolds
12,000
12,000
 
31

 
 
Compensation Committee Interlocks and Insider Participation
 
The compensation committee is comprised of our independent directors.  Under the board’s policies, Mr. Marshall Reynolds, Mr. Edsel Burns, and any other director who is also an executive officer, will not participate in the Board of Directors’ determination of compensation for their respective offices in the future if compensation is given to executive officers.
 
Compensation Committee Report
 
The compensation committee consists of directors Joseph L. Williams, Keith Molihan and Nester S. Logan. Each member of the compensation committee is considered “independent” as defined in the NYSE Amex corporate governance listing standards.  The Board of Directors has adopted a written charter for the Committee.
 
The compensation committee is appointed by the Board of Directors to assist the Board in developing compensation philosophy, criteria, goals and policies for our executive officers that reflect our values and strategic objectives. The committee reviews the performance of our executive officers and annually recommends to the full Board the compensation and benefits for our executive officers (including the Chief Executive Officer).  The committee administers our compensation plans.  The committee establishes the terms of employment and severance agreements/arrangements for executive officers. The committee recommends to the full Board the compensation to be paid to our directors and any affiliates for their service on the Board. Finally, the committee establishes annual compensation percentage increases for all employees.
 
For 2011, in making compensation decisions, the compensation committee did not use numerical formulas to determine changes in compensation for the named executive officers. The committee considered a variety of factors in its deliberations over executive compensation, emphasizing the profitability and scope of our operations, the experience, expertise and management skills of the named executive officers and their role in our future success, as well as compensation surveys prepared by professional firms to determine compensation paid to executives performing similar duties for similarly sized institutions.  While the quantitative and non-quantitative factors described above were considered by the committee, such factors were not assigned a specific weight in evaluating the performance of the named executive officers. In determining the Chief Executive Officer’s bonus, the Chairman of the Board also considers the above factors and makes a recommendation to the committee which authorizes such bonus. For the other named executive officers, the Chief Executive Officer considers the above factors and makes a recommendation to the committee which authorized their bonuses.
 
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
 
Persons and groups who beneficially own in excess of five percent of our common stock are required to file certain reports with the Securities and Exchange Commission regarding such ownership.  The following table sets forth, as of the record date, the shares of common stock beneficially owned by each person who was the beneficial owner of more than five percent of our outstanding shares of common stock, as well as the shares owned by our directors, nominees and executive officers as a group.
 
 
32

 
 
 
 
Name and Address of
Beneficial Owners
 
Amount of Shares
Owned and Nature
of Beneficial
Ownership(1)
 
Percent of Shares
of Common Stock
Outstanding
         
All Directors, Nominees and Executive Officers
as a Group (13 persons)
 
5,287,886
 
36.60%
Principal Stockholders:
       
Marshall T. Reynolds
100 Industrial Lane,
Huntington, West Virginia 25702
 
1,712,773
 
11.86%
         
Edsel R. Burns
100 Industrial Lane,
Huntington, West Virginia 25702
 
793,540
 
5.49%
         
Douglas V. Reynolds
100 Industrial Lane,
Huntington, West Virginia 25702
 
1,216,940
 
8.42%


(1)
In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a person is deemed to be the beneficial owner for purposes of this table of any shares of common stock if he has sole or shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the date as of which beneficial ownership is being determined. As used herein, "voting power" is the power to vote or direct the voting of shares and "investment power" is the power to dispose or direct the disposition of shares. Includes all shares held directly as well as by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power.

 
33

 
 
The table below sets forth certain information regarding the composition of our Board of Directors, including the terms of office of board members.

Names and Address (1)
 
Age(2)
 
Positions Held
 
Director
Since
 
Current
Term to
Expire
 
Shares of Common
Stock Beneficially
Owned on Record Date
(3)
 
Percent
of Class
Directors/Nominees:
                         
Marshall T. Reynolds
 
75
 
Chairman and Director
 
2006
 
2012
 
1,712,773
 
11.86%
                         
Edsel R. Burns
 
60
 
President, Chief Executive officer and Director
 
2006
 
2012
 
793,540
 
5.49
                         
Larry A. Blount
 
62
 
Secretary/Treasurer, Chief Financial Officer
 
n/a
 
2012
 
3,000
 
0.02
                         
Jack M. Reynolds
 
46
 
Director
 
2006
 
2012
 
439,049
 
3.04
                         
Neal W. Scaggs
 
75
 
Director
 
2006
 
2012
 
363,540
 
2.52
                         
Joseph L. Williams
 
66
 
Director
 
2006
 
2012
 
116,549
 
0.81
                         
Richard M. Adams, Jr.
 
43
 
Director
 
2008
 
2012
 
5,000
 
0.03
                         
Keith Molihan
 
69
 
Director
 
2008
 
2012
       
                         
Douglas V. Reynolds
 
35
 
Director
 
2008
 
2012
 
1,216,940
 
8.42
                         
Eric Dosch
 
33
 
Director
 
2008
 
2012
 
1,150
 
0.01
                         
James Shafer
 
68
 
Director
 
2008
 
2012
 
12,800
 
0.09
                         
Nester S. Logan
 
72
 
Director
 
2010
 
2012
 
298,111
 
2.06
                         
Samuel G. Kapourales
 
76
 
Director
 
2010
 
2012
 
325,434
 
2.25
                         
All Directors and Executive Officers as a Group (13 persons)
                 
5,287,886
 
36.60%
                         
                         
*
Less than 1%.
(1)
The mailing address for each person listed is 100 Industrial Lane, Huntington, West Virginia 25702.
(2)
As of June 4, 2011.
(3)
In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a person is deemed to be the beneficial owner for purposes of this table of any shares of common stock if he has sole or shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the date as of which beneficial ownership is being determined. As used herein, "voting power" is the power to vote or direct the voting of shares and "investment power" is the power to dispose or direct the disposition of shares. Includes all shares held directly as well as by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power.
(4)
Does not include 6,000 shares of unvested restricted shares each issued to Mr. Blount and Mr. Shafer.

ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
 
 
The Board of Directors consists of a majority of “independent directors” within the meaning of the NYSE Amex Equities corporate governance listing standards.  The Board of Directors has determined that Messrs. Scaggs, Williams, Adams, Molihan and Dosch are “independent directors” within the meaning of such standards. There were no transactions that were required to be reported under “Certain Relationships and Related Transactions” that were considered in determining the independence of our directors.
 
The Board of Directors has adopted a policy that the independent directors of the Board of Directors shall meet in executive sessions periodically, which meetings may be held in conjunction with regularly scheduled board meetings.  No executive session was held during the fiscal year ended September 30, 2011.
 
 
34

 
 
We intend that all transactions between us and our executive officers, directors, holders of 10% or more of the shares of any class of our common stock and affiliates thereof, will be on terms no less favorable than those terms given to unaffiliated third parties and will be approved by a majority of our independent outside directors not having any interest in the transaction.
 
There were no transactions or series of transactions since the beginning of our last fiscal year or any currently proposed transaction where we were or are a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.
 
ITEM 14.
Principal Accountant Fees and Services
 
     
Audit Fees
   
 
We paid our principal accountant $173,450 and $210,086 for the services they have performed in connection with the audit of our financial statements included in our Annual Report for fiscal 2011 and 2010, respectively.
 
Audit-Related Fees
 
During fiscal 2011 and 2010 we incurred $11,920 and $0, respectively, for services, our independent registered public accounting firm rendered related to review of comments from, and responses to, Securities and Exchange Commission comments.
 
Tax Fees
 
During the fiscal year ended September 30, 2011, we paid our principal accountant $48,343 for tax compliance services.  During the fiscal year ended September 30, 2010, we paid our principal accountant $55,000 for tax compliance services.
 
All Other Fees
 
During fiscal 2011 and 2010, there were no fees billed for products and services provided by our independent registered public accounting firm other than those set forth above.
 
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Registered Public Accounting Firm
 
The audit committee’s policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services.  Pre-approval is generally provided for up to one year and any pre-approval is detailed as to particular service or category of services and is generally subject to a specific budget.  The audit committee has delegated pre-approval authority to its Chairman when expedition of services is necessary.  The independent registered public accounting firm and management are required to periodically report to the full audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.  All of the fees paid in the audit-related, tax and all other categories were approved per the pre-approval policies.
 
Changes in Independent Registered Public Accountants
 
None.
 
 
35

 
 
PART IV
 
ITEM 15.
Exhibits and Financial Statement Schedules
 
 
 
The exhibits and financial statement schedules filed as a part of this Form 10-K are as follows:
 
       
  (a)(1)  Consolidated Financial Statements  
       
    Energy Services of America Corporation  
       
    Report of Independent Registered Public Accounting Firm  
       
    Balance Sheets, September 30, 2010 and September 30, 2011   
       
    Statements of Income, Years Ended September 30, 2010 and September 30, 2011  
       
    Statements of Changes in Shareholders’ Equity, Years Ended September 30, 2010 and September 30, 2011  
       
    Statements of Cash Flows, Years Ended September 30, 2010 and September 30, 2011  
       
    Notes to Financial Statements.   
       
  (a)(2) Financial Statement Schedules  
       
    No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.  
       
  (a)(3)  Exhibits  
 
 
36

 
 
Exhibit No.
Description  [to be updated]
 
     
3.1
Amended and Restated Certificate of Incorporation.(1)
 
3.2
Bylaws.(1)
 
3.3
Certificate of Amendment to the Registrant’s Certificate of Incorporation.(1)
 
10.2
Form of Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and the Registrant.(1)
 
10.3
Form of Stock Escrow Agreement between the Registrant, Continental Stock Transfer & Trust Company and the Initial Stockholders.(1)
 
10.4
Form of Letter Agreement between Chapman Printing Co. and the Registrant regarding administrative support.(1)
 
10.5
Advance Agreement between the Registrant and Marshall T. Reynolds, dated March 31, 2006.(1)
 
10.6
Form of Amended Registration Rights Agreement among the Registrant and the Initial Stockholders.(1)
 
10.8
Employment Agreement between James E. Shafer and the Registrant (2)
 
10.9.1
Energy Services of America Corporation Employee Stock Purchase Plan (3)
 
10.9.2
Energy Services of America Corporation Long Term Incentive Plan (4)
 
10.10
Change in Control Agreement between Registrant and Larry Blount (5)
 
10.11
Management Incentive Plan (5)
 
14
Code of Ethics (1)
 
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
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document

(1)
Incorporated by reference to the Registration Statement on Form S-1 of Energy Services of America Corp. (file no. 333-133111), originally filed with the Securities and Exchange Commission on April 7, 2006, as amended.
(2)
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 24, 2008.
(3)
Filed as Appendix A to the Schedule 14-A filed with the Securities and Exchange Commission on October 16, 2008.
(4)
Filed as Appendix A to the Schedule 14-A filed with the Securities and Exchange Commission on July 2, 2010.
(5)
Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 21, 2010.
(b)
The exhibits listed under (a)(3) above are filed herewith.
(c)
Not applicable.
 
 
37

 
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: December 22, 2011
By:
/s/ Edsel R. Burns  
    Edsel R. Burns  
    Chief Executive Officer  
    (Duly Authorized Representative)  
 
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
 
Name
 
Position
 
Date
           
By
/s/ Marshall T. Reynolds
 
Chairman of the Board
 
December 22, 2011
 
Marshall T. Reynolds
   
           
By
/s/ Jack Reynolds
 
Director
 
December 22, 2011
 
Jack R. Reynolds
       
           
By
/s/ Edsel R. Burns
 
Chief Executive Officer
(Principal Executive Officer)
 
December 22, 2011
 
Edsel R. Burns
       
           
By
/s/ Larry A. Blount
 
Secretary/Treasurer, Chief
Financial Officer
 
December 22, 2011
 
Larry A. Blount
       
           
By
/s/ Neal W. Scaggs
 
Director
 
December 22, 2011
 
Neal W. Scaggs
       
           
By
/s/ Joseph L. Williams
 
Director
 
December 22, 2011
 
Joseph L. Williams
       
           
By
Richard M. Adams, Jr.
 
Director
 
December 22, 2011
 
Richard M. Adams, Jr.
       
           
By
/s/ Keith Molihan
 
Director
 
December 22, 2011
 
Keith Molihan
       
           
By
/s/ Douglas Reynolds
 
Director
 
December 22, 2011
 
Douglas Reynolds
       
           
By
Eric Dosch
 
Director
 
December 22, 2011
 
Eric Dosch
       
           
By
/s/ James Shafer
 
Director
 
December 22, 2011
 
James Shafer
       
           
By
/s/ Nester S. Logan
 
Director
 
December 22, 2011
 
Nester S.Logan
       
           
By
/s/ Samuel G. Kapourales
 
Director
 
December 22, 2011
 
Samuel G. Kapourales
       
 
38
 
 
 
 

 
 
GRAPHIC
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Energy Services of America Corporation
Huntington, West Virginia

We have audited the accompanying consolidated balance sheets of Energy Services of America Corporation and subsidiaries as of September 30, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Energy Services of America Corporation and subsidiaries as of September 30, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
 
  ARNETT & FOSTER, P.L.L.C.
  /s/ Arnett & Foster, P.L.L.C.  
 
Charleston, West Virginia
December 22, 2011

 
F-1

 
 
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2011 and 2010
 
 
 
2011
   
2010
 
Assets
           
             
Current Assets
           
Cash and cash equivalents
  $ 2,965,296     $ 2,576,551  
Accounts receivable-trade
    19,144,821       25,872,375  
Allowance for doubtful accounts
    (278,339 )     (283,191 )
Retainages receivable
    10,483,663       13,932,520  
Other receivables
    315,335       399,874  
Costs and estimated earnings in excess of billings on uncompleted contracts
    12,624,588       20,301,075  
Deferred tax asset
    3,193,586       256,961  
Prepaid expenses and other
    1,911,445       1,945,671  
Total Current Assets
    50,360,395       65,001,836  
                 
Property, plant and equipment, at cost
    41,941,933       39,370,608  
less accumulated depreciation
    (18,186,798 )     (12,310,200 )
      23,755,135       27,060,408  
Goodwill
    36,914,021       36,914,021  
Total Assets
  $ 111,029,551     $ 128,976,265  
                 
Liabilities and Stockholders Equity
               
Current Liabilities
               
Current maturities of long-term debt
  $ 4,823,076     $ 6,804,734  
Lines of credit and short term borrowings
    13,875,723       13,493,860  
Accounts payable
    8,600,211       15,073,323  
Accrued expenses and other current liabilities
    5,202,694       12,171,528  
Billings in excess of costs and estimated earnings on uncompleted contracts
    2,923,542       1,984,098  
Total Current Liabilities
    35,425,246       49,527,543  
                 
Long-term debt, less current maturities
    11,221,186       7,474,861  
Long-term debt, payable to shareholder
    2,400,000       4,700,000  
Deferred income taxes payable, net of current portion
    7,067,403       7,154,112  
Total Liabilities
    56,113,835       68,856,516  
                 
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 14,446,836 and 12,092,307 shares, respectively
    1,445       1,209  
                 
Additional paid in capital
    56,059,825       55,988,324  
Retained earnings (deficit)
    (1,145,554 )     4,130,216  
Total Stockholders equity
    54,915,716       60,119,749  
                 
Total liabilities and stockholders equity
  $ 111,029,551     $ 128,976,265  
 
The Accompanying Notes are an Integral Part of These Financial Statements

 
F-2

 
 
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the years ended September 30, 2011 and 2010
 
   
2011
   
2010
 
             
             
Revenue
  $ 143,426,097     $ 218,287,753  
                 
Cost of revenues
    136,584,903       193,916,388  
                 
Gross profit
    6,841,194       24,371,365  
                 
Selling and administrative expenses
    13,269,129       12,733,279  
Income (loss) from operations
    (6,427,935 )     11,638,086  
                 
Other income (expense)
               
Interest income
    2,569       56,436  
Other nonoperating income
    11,382       279,365  
Interest expense
    (1,821,319 )     (1,841,455 )
Gain on sale of equipment
    13,630       12,554  
      (1,793,738 )     (1,493,100 )
                 
Income (loss) before income taxes
    (8,221,673 )     10,144,986  
                 
Income tax expense (benefit)
    (2,945,903 )     4,372,636  
Net income (loss)
  $ (5,275,770 )   $ 5,772,350  
                 
Weighted average shares outstanding-basic
    12,113,488       12,092,307  
                 
Weighted average shares-diluted
    12,113,488       12,099,390  
                 
Net income (loss) per share basic
  $ (0.44 )   $ 0.48  
                 
Net income (loss) per share diluted
  $ (0.44 )   $ 0.48  
 
The Accompanying Notes are an Integral Part of These Financial Statements
 
 
F-3

 
 
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the years ended September 30, 2011 and 2010
 
                           
Total
 
   
Common Stock
   
Additional Paid
   
Retained
   
Stockholders
 
   
Shares
   
Amount
   
in Capital
   
Earnings
   
Equity
 
                               
Balance at September 30, 2009
    12,092,307     $ 1,209     $ 55,976,368     $ (1,642,134 )   $ 54,335,443  
                                         
Share-based compensation expense
    -       -       11,956       -     $ 11,956  
                                         
Net Income
    -       -       -       5,772,350       5,772,350  
                                         
Balance at September 30, 2010
    12,092,307     $ 1,209     $ 55,988,324     $ 4,130,216     $ 60,119,749  
                                         
Warrant Redemption
    2,337,529       234       (234 )     -       -  
                                         
Vested stock grants
    17,000       2       (2 )     -       -  
                                         
Share-based compensation expense
    -       -       71,737       -       71,737  
                                         
Net Income (Loss)
    -       -       -       (5,275,770 )     (5,275,770 )
                                         
Balance at September 30, 2011
    14,446,836     $ 1,445     $ 56,059,825     $ (1,145,554 )   $ 54,915,716  
 
The Accompanying Notes are an Integral Part of These Financial Statements
 
 
F-4

 
 
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2011 and 2010
 
 
 
2011
   
2010
 
             
Operating activities
           
             
Net income (loss)
  $ (5,275,770 )   $ 5,772,350  
                 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
         
                 
     Depreciation expense
    5,893,973       6,117,125  
    (Gain) on sale/disposal of equipment
    (13,630 )     (12,554 )
     Provision for deferred taxes
    (3,023,334 )     4,372,636  
     Share-based compensation expense
    71,737       11,956  
    (Increase) decrease in contracts receivable
    6,722,702       (9,236,296 )
    (Increase) decrease in retainage receivable
    3,448,857       (10,797,059 )
    (Increase) decrease in other receivables
    84,539       (258,344 )
    (Increase) decrease in cost and estimated earnings in excess of billings on uncompleted contracts
    7,676,487       (12,430,955 )
    Decrease in prepaid expenses
    796,283       2,347,976  
    Increase (decrease) in accounts payable
    (6,473,112 )     9,697,361  
    Increase (decrease) in accrued expenses
    (6,879,450 )     6,678,593  
    Increase (decrease) in billings in excess of cost and estimated earnings on uncompleted contracts
    939,444       1,979,597  
Net cash provided by operating activities
    3,968,726       4,242,386  
                 
Cash flows from investing activities:
               
Investment in property & equipment
    (1,132,560 )     (2,151,468 )
Proceeds from sales of property and equipment
    27,856       451,673  
Net cash (used in) investing activities
    (1,104,704 )     (1,699,795 )