Attached files
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| 8-K - FORM 8-K - Energy Services of America CORP | t1700009_8k.htm |
Exhibit 99.1
December 29, 2016
Dear Fellow Shareholder:
For the fiscal year ended September 30, 2016, our company improved on what was previously a record year for each of our subsidiary companies, C.J. Hughes Construction and Nitro Electric Company. To begin, we grew our revenue by $38.7 million to $155.5 million in fiscal year 2016 from $116.8 million in fiscal year 2015. The company performed well on our normal operations along with adding several major projects in fiscal year 2016. This enabled us to earn $6.1 million income before tax in fiscal year 2016 compared to $3.7 million in fiscal year 2015. While recording $2.9 million in tax expense, we exhausted the remaining portion of our federal net operating loss carry forwards during fiscal year 2016. The result was a $2.9 million net income available to common shareholders in fiscal year 2016 compared to $1.8 million in fiscal year 2015. We also earned an adjusted EBITDA of $9.4 million in fiscal year 2016 compared to $7.6 million in fiscal year 2015. Equally important, we paid our company’s first dividend, $0.05 per common share, in June 2016.
Since I became President of Energy Services of America in early December 2012, we have made incredible strides. I have enclosed a balance sheet and income statement from that year for comparison to fiscal year 2016. To start with, we generated almost the same revenue with two companies in fiscal year 2016 compared to three companies in fiscal year 2012. We obviously achieved much better gross profit, but we also only had SG&A expenses of $7.3 million in fiscal year 2016 compared to $12.1 million in fiscal year 2012.
While I have written about purchasing office and fabrication facilities for Nitro Electric and increasing our lines of credit for operating capital and equipment purchases, we nevertheless have reduced our liabilities from $53.3 million at September 30, 2012 to $33.9 million at September 30, 2016. That has resulted in interest savings of over $1.0 million, while at the same time, reducing our vendor financed payables by $4.9 million. Finally, our total stockholders’ equity has increased from $6.4 million at September 30, 2012 to $22.5 million at September 30, 2016.
I am extremely pleased with the improvements that have been made over the last four years with one exception: the under-valued price of our stock. In December of 2012, our stock value fluctuated wildly between $0.50 and $1.00 per share, and rightfully so, as we were under a forbearance agreement and were restructuring our balance sheet. On December 28, 2016, our last trade was at $1.38. This value represents less than the tangible book value per share of $1.58 at September 30, 2016. Our price to earnings ratio is 6.57 at December 28, 2016, and our backlog was $78.5 million at September 30, 2016 compared to $71.3 million at September 30, 2015. Members of the Board and management have been consistent insider buyers of the stock and hope that you will continue supporting us in what is poised to be a great fiscal year 2017.
Sincerely,
Douglas V. Reynolds, President
Energy Services of America
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2016 and 2012
| 2016 | 2012 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 3,815,790 | $ | 2,661,721 | ||||
| Accounts receivable-trade | 24,059,432 | 18,485,166 | ||||||
| Allowance for doubtful accounts | (133,500 | ) | (240,071 | ) | ||||
| Retainages receivable | 5,810,474 | 2,477,903 | ||||||
| Other receivables | 106,837 | 340,876 | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | 5,953,818 | 11,260,254 | ||||||
| Deferred tax asset | 1,399,152 | 3,690,409 | ||||||
| Prepaid expenses and other | 2,485,101 | 2,026,514 | ||||||
| Assets of discontinued operations | 12,303 | - | ||||||
| Total current assets | 43,509,407 | 40,702,772 | ||||||
| Property, plant and equipment, at cost | 39,375,505 | 42,440,135 | ||||||
| less accumulated depreciation | (26,625,827 | ) | (23,387,158 | ) | ||||
| Total fixed assets | 12,749,678 | 19,052,977 | ||||||
| Long-term notes receivable | 137,281 | - | ||||||
| Total assets | $ | 56,396,366 | $ | 59,755,749 | ||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities | ||||||||
| Current maturities of long-term debt | $ | 2,867,898 | $ | 10,118,907 | ||||
| Lines of credit and short term borrowings | 6,232,943 | 18,516,276 | ||||||
| Accounts payable | 5,006,427 | 9,917,085 | ||||||
| Accrued expenses and other current liabilities | 5,933,571 | 3,518,481 | ||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | 3,410,548 | 1,368,559 | ||||||
| Income tax payable | 1,076,440 | - | ||||||
| Liabilities of discontinued operations | 28,671 | - | ||||||
| Total current liabilities | 24,556,498 | 43,439,308 | ||||||
| Long-term debt, less current maturities | 7,390,099 | 1,623,771 | ||||||
| Long-term debt, payable to shareholder | - | 1,223,325 | ||||||
| Deferred income taxes payable | 1,926,077 | 7,027,980 | ||||||
| Total liabilities | 33,872,674 | 53,314,384 | ||||||
| Shareholders' equity | ||||||||
| Preferred stock, $.0001 par value | ||||||||
| Authorized 1,000,000 shares, 206 issued at September 30, 2016 and 0 at September 30, 2012 | - | - | ||||||
| Common stock, $.0001 par value | ||||||||
| Authorized 50,000,000 shares 14,839,836 issued and 14,239,836 outstanding at September 30, 2016 and 14,458,836 issused and outstanding at September 30, 2012 | 1,484 | 1,446 | ||||||
| Treasury stock, 600,000 shares at September 30, 2016 and 0 shares at September 30, 2012 | (60 | ) | - | |||||
| Additional paid in capital | 61,289,260 | 56,107,650 | ||||||
| Retained earnings (deficit) | (38,766,992 | ) | (49,667,731 | ) | ||||
| Total shareholders' equity | 22,523,692 | 6,441,365 | ||||||
| Total liabilities and shareholders' equity | $ | 56,396,366 | $ | 59,755,749 | ||||
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the years ended September 30, 2016 and 2012
| 2016 | 2012 | |||||||
| Revenue | $ | 155,481,145 | $ | 157,738,736 | ||||
| Cost of revenues | 141,283,142 | 156,056,529 | ||||||
| Gross profit | 14,198,003 | 1,682,207 | ||||||
| Selling and administrative expenses | 7,293,323 | 12,083,793 | ||||||
| Asset impairment | - | 36,914,021 | ||||||
| Income (loss) from operations | 6,904,680 | (47,315,607 | ) | |||||
| Other income (expense) | ||||||||
| Interest income | - | 3,034 | ||||||
| Other nonoperating income (expense) | (158,246 | ) | 140,115 | |||||
| Interest expense | (875,254 | ) | (1,931,897 | ) | ||||
| Gain on sale of equipment | 268,448 | 45,930 | ||||||
| (765,052 | ) | (1,742,818 | ) | |||||
| Income (loss) from continuing operations before income taxes | 6,139,628 | (49,058,425 | ) | |||||
| Income tax expense (benefit) | 2,898,205 | (536,248 | ) | |||||
| Income (loss) from continuing operations | 3,241,423 | (48,522,177 | ) | |||||
| Dividends on preferred stock | 309,000 | - | ||||||
| Income (loss) from continuing operations available to common shareholders | 2,932,423 | (48,522,177 | ) | |||||
| Income from discontinued operations | - | - | ||||||
| Net income (loss) available to common shareholders | $ | 2,932,423 | $ | (48,522,177 | ) | |||
| Weighted average shares outstanding-basic | 14,239,836 | 14,448,336 | ||||||
| Weighted average shares-diluted | 17,673,169 | 14,448,336 | ||||||
| Earnings (loss) per share available to common shareholders | $ | 0.21 | $ | (3.36 | ) | |||
| Earnings (loss) per share-diluted available to common shareholders | $ | 0.17 | $ | (3.36 | ) | |||
Please see the table below for a reconciliation of adjusted EBITDA for years ending September 30, 2016 and 2015:
| 2016 | 2015 | |||||||
| (Audited) | (Audited) | |||||||
| Net income available to common shareholders | $ | 2,932,423 | $ | 1,831,530 | ||||
| Add: Income tax expense | 2,898,205 | 1,570,992 | ||||||
| Add: Dividends on preferred stock | 309,000 | 309,000 | ||||||
| Add: Interest expense | 875,254 | 761,079 | ||||||
| Less: Non-operating (income) expense | (110,202 | ) | (192,730 | ) | ||||
| Add: Depreciation expense | 2,503,471 | 3,291,386 | ||||||
| Adjusted EBITDA | $ | 9,408,151 | $ | 7,571,257 | ||||
| Common shares outstanding | 14,239,836 | 14,239,836 | ||||||
| Adjusted EBITDA per common share | $ | 0.66 | $ | 0.53 | ||||
Please see the table below for a reconciliation of tangible book value per share at September 30, 2016:
| September 30, 2016 | ||||
| Total assets | $ | 56,396,366 | ||
| Less: total liabilities | 33,872,674 | |||
| Less: intangible asset value | - | |||
| Less: goodwill | - | |||
| Tangilbe book value | 22,523,692 | |||
| Common shares outstanding | 14,239,836 | |||
| Tangilbe book value per share | $ | 1.58 | ||
Please see the table below for a reconciliation of the price to earnings ratio at December 28, 2016:
| Closing share price at December 28, 2016 | $ | 1.38 | ||
| Fiscal year 2016 earnings per share | 0.21 | |||
| Price to earnings ratio at December 28, 2016 | 6.57 |