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, 2008
 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)
528-2791
 (Registrant’s
Telephone Number including area code)
 
 Securities
Registered Pursuant to Section 12(b) of the Act:
  Name
      of Each ExchangeTitle of
      Class
              On Which
      RegisteredCommon
      Stock, par value $0.0001 per share
              American
      Stock ExchangeUnits
      (each Unit consisting of one share of
              American
      Stock ExchangeCommon
      Stock and two Warrants)Warrants
      (each Warrant is exercisable
              American
      Stock Exchangefor
      one share of Common Stock)
  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 twelve months (or
for such shorter period that the Registrant was required to file such reports)
and (2) has been subject to such requirements for the past 90
days.  YES x   NO
o.
 
 Indicate
by check mark 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.
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.  (Check one):
 
 Large
      Accelerated Filer o
              Accelerated
      Filer o
              Non-Accelerated
      Filer o
              Smaller
      Reporting Company x(Do
      not check if a Smaller reporting
Company
  As of December 20, 2008, there were
issued and outstanding 12,092,307 shares of the Registrant’s Common
Stock.
 
 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, 2008, as reported by
the American Stock Exchange, was $46,146,982.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
  Energy
Services of America Corporation
 Annual
Report On Form 10-K
 For
The Fiscal Year Ended
 September
30, 2008
 
 
 Table
Of Contents
 
 PART
I
 
 ITEM
      1.
              Business
              1ITEM
      1A.
              Risk
      Factors
              10ITEM
      2.
              Properties
              12ITEM
      3.
              Legal
      Proceedings
              12ITEM
      4.
              Submission
      of Matters to a Vote of Security Holders
              12ITEM
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              13ITEM
      6.
              Selected
      Financial Data
              16ITEM
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              16ITEM
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              28ITEM
      8.
              Financial
      Statements and Supplementary Data
              28ITEM
      9.
              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
              28ITEM
      9A.
              Controls
      and Procedures
              28ITEM
      9B.
              Other
      Information
              29ITEM
      10.
              Directors,
      Executive Officers and Corporate Governance
              30ITEM
      11.
              Executive
      Compensation
              32ITEM
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              33ITEM
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              34ITEM
      14.
              Principal
      Accountant Fees and Services
              34ITEM
      15.
              Exhibits
      and Financial Statement Schedules
              36Signatures
              
              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 consists 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.
The units were sold at an offering price of $6.00 per unit, generating gross
proceeds of $51,600,000. After deducting the underwriting discounts and
commissions and the offering expenses, the total net proceeds to us from the
public offering that were deposited into a trust fund were approximately
$48,972,000.
  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.
  In
connection with the acquisitions of ST Pipeline and C.J. Hughes, we issued a $3
million note, issued 2,964,763 shares of our common stock at a value of
approximately $16,999,951 and paid an aggregate of
$33,216,496  in cash.  Moreover, in connection with the
completion of the acquisitions, shareholders elected to redeem 1,622,456 shares
of our common stock at a cost of $9,730,936 in the
aggregate.  Consequently, at September 30, 2008, we had 12,092,307
shares issued and outstanding and _-0-  shares in treasury that are
not considered issued and outstanding.  Because the acquisitions were
completed late in our fiscal year, we are providing separate business
information for each of ST Pipeline and C.J. Hughes.  At September 30,
2008, we had consolidated assets of $133,699,816 and cash on hand of
$13,811,661.  Because we completed our acquisitions in the eleventh
month of our fiscal year and hold each of ST Pipeline and C.J. Hughes as
separate subsidiaries, we are describing our business separately for
each  of  ST Pipeline and C.J. Hughes.
  1
  INFORMATION
ABOUT ST PIPELINE
 
 Business
Overview
 
 ST
Pipeline, Inc. was organized in 1990 as a corporation under the laws of the
State of West Virginia and is engaged in the construction, replacement and
repair of natural gas transmission pipelines for utility companies and private
natural gas companies.  The majority of ST Pipeline’s customers are
located in West Virginia and the surrounding Mid-Atlantic states. ST Pipeline
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.  ST Pipeline is involved in
the construction of both interstate and intrastate pipelines, with an emphasis
on the latter.  ST Pipeline also constructs storage facilities for its
natural gas customers.  ST Pipeline’s other services include liquid
pipeline construction, pump station construction, production facility
construction and other services related to pipeline
construction.  Since 2002, ST Pipeline has completed over 225 miles of
pipeline, with its longest project consisting of 69 miles of
pipeline.  ST Pipeline is not directly involved in the exploration,
transportation or refinement of natural gas.
 
 Set forth below is information
regarding the sales, assets and operating income of ST Pipeline’s
business.
  Year (2)(1)
              
              
              (3)
              
              
              EndedSeptember
      30,
              
              
              August
      15,
              
              
              December
      31,2008
              
              
              2008
              
              
              2007Sales
              
              $
              8,869,656
              
              
              $
              37,410,877
              
              
              $
              100,385,098Operating
      Income
              
              $
              2,097,421
              
              
              $
              5,738,257
              
              
              $
              27,889,843Assets
              
              $
              41,602,375
              
              
              $
              29,343,368
              
              
              $
              33,413,342
 
 (1)
              Information
      is as of and for the period August 15 through September 30,
      2008(2)
              Information
      is as of and for the year ended December 31, 2007(3)
              Information
      is as of and for the period January 1 through August 15,
    2008
  During
2007, ST Pipeline’s largest current project consisted of a 69 mile pipeline
construction and installation project for Equitrans in Kentucky.  This
project comprised 92% of 2007 revenue and was substantially complete in January
2008. For 2008, the Company has focused on several smaller
jobs rather than the one large job in 2007.
 
 Our
services include the removal of and/or repair of existing pipelines,
installation of new pipelines, construction of pump stations, site work for
pipelines and various other services relating to pipelines.
 
 ST Pipeline is subject to extensive
state and federal regulation, particularly in the areas of the siting and
construction of new pipelines.  The work performed by ST Pipeline on
many projects relates to lines that are regulated by the US Department of
Transportation and therefore the work must be performed within the rules and
guidelines of the US Department of Transportation.  In addition, work
at the various sites must comply with all environmental laws, whether it be
federal, state or local.
 
 Customers
and Marketing
 
 ST Pipeline customers include Equitable
Resources and various of its subsidiaries, Nisource/Columbia Gas Transmission,
Nisource/Columbia Gas of Ohio and Dominion Resources.  During the nine
months ended September 30, 2008 and the year ended December 31, 2007, Equitable
Resources/ Equitrans was ST Pipeline’s largest customer, accounting for
approximately 99% and 92% of total revenues. respectively.  There can
be no assurance that Equitable Resources/ Equitrans or any of ST Pipeline’s
other principal customers will continue to employ ST Pipeline’s services or that
the loss of any of such customers or adverse developments affecting any of such
customers would not have a material adverse effect on ST Pipeline’s financial
condition and results of operations.  However, due to the nature of ST
Pipeline’s operations, the major customers and sources of revenues may change
from year to year.
  2
  ST Pipeline’s sales force consists of
industry professionals with significant relevant sales experience who utilize
industry contracts and available public data to determine how to most
appropriately market ST Pipeline’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, the business of ST
Pipeline, 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
 
 A company’s backlog represents orders
which have not yet been processed.  At September 30, 2008, ST Pipeline
had a backlog of work to be completed on contracts of $1.6
million.  At December 31, 2007, ST Pipeline had a backlog of work to
be completed on contracts of $5.4 million.    Due to the
timing of ST Pipeline’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.
 
 Types
of Contracts
 
 ST Pipeline’s contracts are usually
awarded on a competitive and negotiated basis.  Whilecontracts 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 ST
Pipeline uses are metal plate, structural steel, pipe, 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 ST Pipeline 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.
 
 Industry
Factors
 
 ST Pipeline’s revenues, cash flows and
earnings are substantially dependent upon, and affected by, the level of natural
gas exploration development activity and the levels of integrity work on
existing pipelines.  Such activity and the resulting level of demand
for pipeline construction and related services are directly influenced by many
factors over which ST Pipeline has no control.  Such factors include,
among others, the market prices of natural gas, market expectations about future
prices, the volatility of such prices, the cost of producing and delivering
natural gas, government regulations and trade restrictions, local and
international political and economic conditions, the development of alternate
energy sources 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.
 
 ST Pipeline cannot predict the future
level of demand for its pipeline construction services, future conditions in the
pipeline construction industry or future pipeline construction
rates.
 
 ST Pipeline maintains banking
relationships with three financial institutions and has lines of credit
borrowing facilities with these institutions.  After the close of the
transaction with Energy Services,  S.T. Pipeline has  paid
off  the existing lines of credit from operations and anticipates
establishing new lines as part of
 Energy
Services prior to the start  of the 2009 construction
season.  While there is no reason to believe that such lines won’t be
established,  any delays  getting them established could
create difficulties for   ST Pipeline.   ST
Pipeline’s facilities have been sufficient to provide ST Pipeline with the
working capital necessary to complete their ongoing projects.  At
September 30, 2008, ST Pipeline had an irrevocable standby letter of credit in
the amount of    $950,542.
  3
 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 ST Pipeline 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 ST Pipelines.  Certain of ST Pipeline’s
competitors have greater financial and human resources than ST Pipeline, which
may enable them to compete more efficiently on the basis of price and
technology.  ST Pipeline’s largest competitors are Otis Eastern, LA
Pipeline and Apex Pipeline.
 
 Operating
Hazards and Insurance
 
 ST Pipeline’s 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.  ST Pipeline 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.
 
 ST Pipeline’s insurance coverage for
property damage to its equipment is based on ST Pipeline’s estimate of the cost
of comparable used equipment to replace the insured property.  There
is a deductible per occurrence on rigs and equipment of $10,000, except for
underground occurrence which is $25,000 per occurrence and $2,500 for
miscellaneous tools.  ST Pipeline’s third party liability insurance
coverage under the general policy is $1.0 million per occurrence, $2.0 million
in the aggregate with a self insured retention of $500,000 per
occurrence.  ST Pipeline’s commercial umbrella policy coverage
consists of $5.0 million primary umbrella insurance and $5.0 million second
layer umbrella per occurrence.  ST Pipeline 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 ST Pipeline against liability for all consequences of well
disasters, extensive fire damage or damage to the environment.
 
 Government
Regulation and Environmental Matters
 
 General.
ST Pipeline’s 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 economics 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 ST Pipeline. In
addition, ST Pipeline’s 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.  ST Pipeline’s 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. ST Pipeline 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 ST Pipeline’s activities. In general,
under various applicable environmental programs, ST Pipeline 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. ST Pipeline may also be subject to liability for natural
resource damages and other civil claims arising out of a pollution
event.  ST Pipeline would be responsible for any pollution event that
was caused by its actions.  It has insurance that it believes is
adequate to cover any such occurrences.
  4
  Environmental regulations that affect
ST Pipeline’s customers also have an indirect impact on ST Pipeline.
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 ST Pipeline’s operations include the
following:  Department of Transportation regulations, regulations set
forth by agencies such as Federal Energy Regulatory Commission and various
environmental agencies including state, federal and local
government.
 
 Health And Safety
Matters. ST Pipeline’s 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. ST Pipeline 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 ST Pipeline will be required in
the near future to make material expenditures by reason of such health and
safety laws and regulations, ST Pipeline is unable to predict the ultimate cost
of compliance with these changing regulations.
 
 Research
and Development/Intellectual Property
 
 ST Pipeline has not made any material
expenditures for research and development.  ST Pipeline does not own
any patents, trademarks or licenses.
 
 Legal
Proceedings
 
 ST Pipeline is not a party to any legal
proceedings, other than in the ordinary course of business, that if decided in a
manner adverse to ST Pipeline would be materially adverse to ST Pipeline’s
financial condition or results of operations.
 
 Facilities
and Other Property
 
 ST Pipeline operates from its main
office at 5 Youngstown Drive, Clendenin, West Virginia.  This property
is leased at a cost of $5,000 per month.    ST Pipeline
believes that its properties are adequate to support its
operations.
 
 Employees
 
 As of September 30, 2008, ST Pipeline
had approximately 269 employees, of which approximately 7 were salaried and
approximately 262 were employed on an hourly basis.  A number of ST
Pipeline’s employees are represented by trade unions represented by any
collective bargaining unit. ST Pipeline’s management believes that ST Pipeline’s
relationship with its employees is good.
 
 ST Pipeline may from time to time be
involved in litigation arising in the ordinary course of business.  At
September 30, 2008, ST Pipeline 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.


5
  INFORMATION
ABOUT C.J. HUGHES
 
 Business
Overview
 
 C.J.
Hughes Construction, Inc. was organized in 1946 as a corporation under the laws
of West Virginia and is primarily engaged in the construction, replacement and
repair of natural gas pipelines for utility companies and private natural gas
companies.  In addition, C.J. Hughes also engages in the installation
of water and sewer lines and provides various maintenance and repair services
for customers.  The majority of C.J. Hughes’ customers are located in
West Virginia, Virginia, Ohio, Kentucky and North Carolina.  C.J.
Hughes 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.  C.J. Hughes is involved in the construction of both
interstate and intrastate pipelines, with an emphasis on the
latter.  C.J. Hughes also constructs storage facilities for its
natural gas customers.  C.J. Hughes’ other services include liquid
pipeline construction, pump station construction, production facility
construction, water and sewer pipeline installations, and other services related
to pipeline construction.  At September 30, 2008, C.J. Hughes had 626
employees.  Since 2002, C.J. Hughes has completed over 350 miles of
pipeline, with its longest project consisting of 10 miles of 20-inch
pipe.  C.J. Hughes is not directly involved in the exploration,
transportation or refinement of natural gas.
 
 Acquisition
of Nitro Electric
 
 In May
2007, C.J. Hughes acquired certain tangible and intangible assets of Nitro
Electric Company LLC; primarily the fixed assets, employees and business
franchise.  No cash or accounts receivable were acquired and no
liabilities were assumed.  Nitro Electric has been in business since
1960.  Nitro Electric’s owners had made a business decision for
various reasons to cease operations.  Nitro Electric had not bid on
new work for several months and was preparing for closure when approached by
C.J. Hughes.  Although the purchase of a business in this situation
posed substantial risks of recapturing contracts and business viability, the
management of C.J. Hughes, along with the retained management of Nitro Electric,
not only was able to accomplish this, but was able to leverage new business from
C.J. Hughes’ customer base and from performing joint contracts with C.J.
Hughes.  Nitro Electric provides a full range of electrical
contracting services to various industries.  These services include
substation and switchyard services, including site preparation, packaged
buildings, dry and oil-filled transformer installations and other ancillary work
with regards thereto.  Nitro Electric also provides general electrical
services such as underground, conduit/raceway, testing, cable installation,
switchgear lineups as well as a full range of data and communication
installation services such as fiber optics, attenuation and OTDR testing,
cell/hub systems and various other electrical services to the industrial
sector.  Though Nitro Electric has numerous customers, its primary
focus since becoming part of C.J. Hughes has been the completion of a large
project for Hitachi America.  That project in Council Bluffs, Iowa,
was the largest project for Nitro Electric for 2007.  For the year
ended December 31, 2007, Nitro Electric’s operations contributed $36.1 million
of revenue to C.J. Hughes’ total revenues.  Unless otherwise stated,
references to C.J. Hughes include Nitro Electric.
 
 Set forth
below is information regarding the sales, assets and operating income of C.J.
Hughes’ business.
 
 Year (2)(1)
              
              
              (3)
              
              
              EndedSeptember
      30,
              
              
              August
      15,
              
              
              December
      31,2008
              
              
              2008
              
              
              2007Sales
              
              $
              19,648,032
              
              
              $
              79,217,380
              
              
              $
              75,305,234Operating
      Income
              
              $
              1,695,175
              
              
              $
              949,650
              
              
              $
              3,990,841Assets
              
              $
              95,241,942
              
              
              $
              48,457,630
              
              
              $
              27,248,499
  (1)
              Information
      is as of and for the period August 15 through September 30,
      2008(2)
              Information
      is as of and for the year ended December 31, 2007(3)
              Information
      is as of and for the period January 1 through August 15,
    2008
  6
  At
September 30, 2008, C.J. Hughes’ largest project consists of a project for
Markwest Energy  to install several miles of various size
pipe.
 
 C.J. Hughes is subject to extensive
state and federal regulation, particularly in the areas of the siting and
construction of new pipelines.  The work performed by C.J. Hughes on
many projects relates to lines that are regulated by the U.S. Department of
Transportation and therefore the work must be performed within the rules and
guidelines of the U.S. Department of Transportation.  In addition,
work at the various sites must comply with all Federal, state or local
environmental laws.
 
 Customers
and Marketing
 
 C.J. Hughes customers include Equitable
Resources and various of its subsidiaries, Nisource/Columbia Gas Transmission,
Nisource/Columbia Gas of Ohio and Pennsylvania, Kentucky American Water,
Marathon Ashland Petroleum LLC and various state, county and municipal public
service districts.  During the nine months ended September 30, 2008
and the year ended December 31, 2007, Columbia Gas of Ohio was C.J. Hughes’
largest customer, accounting for approximately 20% of total revenues. Other
customers who represented over 10% of revenues in 2007 included Marathon Ashland
Petroleum LLC at 18% and Columbia Gas of Pennsylvania at 12%. There can be no
assurance that Columbia Gas of Ohio or any of C.J. Hughes’ other principal
customers will continue to employ C.J. Hughes’ services or that the loss of any
of such customers or adverse developments affecting any of such customers would
not have a material adverse effect on C.J. Hughes’ financial condition and
results of operations.
 
 C.J. Hughes’ sales force consists of
industry professionals with significant relevant sales and work experience who
utilize industry contacts and available public data to determine how to most
appropriately market C.J. Hughes’ services.  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, the business of C.J. Hughes (i.e.,
the construction of pipelines) is somewhat seasonal in that most of the work is
performed during the non-winter months.
 
 Nitro
Electric’s customers include Hitachi of America, American Electric Power, Toyota
and numerous other local companies.  Due to the large job that was
underway in 2007, Hitachi of America was the largest customer of Nitro Electric,
accounting for approximately 63% of total revenues for the period that Nitro
Electric was owned by C.J. Hughes (May through December).  Other
customers who represented over 10% of revenues of Nitro Electric included Toyota
(18%) and American Electric Power (11%).  While Nitro Electric had a
large portion of its resources devoted to the Hitachi of America project in
2007, it is believed that in 2008 and beyond, there are many opportunities to
widen the customer base.  However, there can be no assurance that
Hitachi of America’s business will continue and in fact the above described
project was completed in early 2008.  Further, while it appears likely
that most of Nitro Electric’s other customers will continue to do business with
Nitro Electric, no assurances can be given to that occurring.
 
 As with C.J. Hughes, the sales force
for Nitro Electric consists of industry professionals with significant sales and
work experience who utilize industry contacts and available public data to
determine how to most appropriately market Nitro Electric’s
services.  They rely on direct contact between their sales force and
the customer’s engineering and contracting departments in order to obtain new
business.  While inclement weather can have some effect on Nitro
Electric’s business, that effect is much less than the effect of inclement
weather on C.J. Hughes.
  7
 Backlog/New
Business
 
 A company’s backlog represents orders
or contracts which have not yet been completed.  At September 30,
2008, C.J. Hughes had a backlog of work to be completed of $25.4
Million.  At December 31, 2007, C.J. Hughes had a backlog of work to
be completed on contracts of $54.2 million.  At September 30, 2008,
Nitro Electric had a backlog of approximately of $13.7 Million.  At
December 31, 2007, Nitro Electric had a backlog of approximately $16.4
million.  Due to the timing of C.J. Hughes and Nitro Electric
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.
 
 Types
of Contracts
 
 The contracts for C.J. Hughes are
usually awarded on a competitive and negotiated basis.While contracts may be 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.  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 we use
are metal plate, structural steel, pipe, 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 C.J. Hughes purchases would
predominately be those of a consumable nature on the job, such as small tools
and environmental supplies.  These materials are available from a
variety of suppliers.  We anticipate being able to obtain these
materials for the foreseeable future.
 
 Industry
Factors
 
 C.J. Hughes’ revenues, cash flows and
earnings are substantially dependent upon, and affected by, the level of natural
gas exploration, development activity and the levels of integrity work on
existing pipelines.  Such activity and the resulting level of demand
for pipeline construction and related services are directly influenced by many
factors over which C.J. Hughes has no control.  Such factors include,
among others, the market prices of natural gas, market expectations about future
prices, the volatility of such prices, the cost of producing and delivering
natural gas, government regulations and trade restrictions, local and
international political and economic conditions, the development of alternate
energy sources 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.
 
 C.J. Hughes cannot predict the future
level of demand for its pipeline construction services, future conditions in the
pipeline construction industry or future pipeline construction
rates.
 
 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 C.J. Hughes 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 ours.  Certain of C.J. Hughes’ competitors
have greater financial and human resources than C.J. Hughes, which may enable
them to compete more effectively on the basis of price and
technology.  Our largest competitors are Otis Eastern, LA Pipeline and
Apex Pipeline.
 
 The
electrical contracting industry is also a highly competitive business, though
the capital costs are less in that business and the primary costs are labor and
supervision.  Electrical contracts are usually awarded through a
competitive bid process.  While Nitro Electric 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 ours.  Certain of
Nitro Electric’s competitors have greater financial and human resources than
Nitro Electric, which may enable them to compete more effectively on the basis
of price and technology.  The largest competitors for Nitro Electric
are Green Electric and Summit Electric, Inc.
  8
 Operating
Hazards and Insurance
 
 C.J. Hughes’ 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.  C.J. Hughes 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.
 
 C.J. Hughes’ and Nitro Electric’s
insurance coverage for property damage to its equipment is based on both
companies’ estimates of the cost of comparable used equipment to replace the
insured property.  There is a deductible per occurrence on equipment
of $2,500.  Third-party liability insurance coverage for both C.J.
Hughes and Nitro Electric under the general policy is $1,000,000 per occurrence,
with a self-insured retention of $0 per occurrence.  The commercial
umbrella policy has a self-insured retention of $10,000 per occurrence, with
coverage of $10,000,000 per occurrence.
 
 Government
Regulation and Environmental Matters
 
 General.  C.J.
Hughes 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 economics 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 C.J. Hughes.  In addition, C.J. Hughes’ 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.  C.J. Hughes’ and Nitro Electric’s 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
pipeline activities and impose liability for discharges of waste or spills,
including those in coastal areas.  C.J. Hughes 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 C.J. Hughes’
activities.  In general, under various applicable environmental
programs, C.J. Hughes 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.  C.J. Hughes may also be subject to liability for natural
resource damages and other civil claims arising out of a pollution
event.  C.J. Hughes would be responsible for any pollution event that
was caused by its actions.  It has insurance that it believes is
adequate to cover any such occurrences.  While Nitro Electric’s
business is usually performed in plant type situations, there are still risks
associated with environmental issues that may occur in those
locations.
 
 Environmental regulations that affect
C.J. Hughes’ and Nitro Electric’s customers also have an indirect impact on both
companies.  Increasingly stringent environmental regulation of the
natural gas industry and the electrical utility companies has led to higher
costs and a more lengthy permitting process.
 
 The primary environmental statutory and
regulatory programs that affect C.J. Hughes’ and Nitro Electric’s operations
include the following:  Department of Transportation regulations,
regulations set forth by agencies such and FERC and various environmental
agencies including state, Federal, and local government.
  9
  Health and Safety
Matters.  C.J. Hughes’ and Nitro Electric’s 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.  C.J. Hughes
and Nitro Electric believe 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 C.J. Hughes or Nitro Electric will be required in the near
future to make material expenditures by reason of such health and safety laws
and regulations, C.J. Hughes and Nitro Electric are unable to predict the
ultimate cost of compliance with these changing regulations.
 
 Research
and Development/Intellectual Property
 
 C.J. Hughes has not made any material
expenditures for research and development.  C.J. Hughes does not own
any patents, trademarks or licenses.
 
 Properties
 
 C.J. Hughes owns and operates its main
office at 75 West Third Avenue, Huntington, West Virginia 25703.  C.J.
Hughes will lease temporary locations on an as-needed basis to accommodate its
operations based on the projects it is working on.
 
 Legal
Proceedings
 
 C.J. Hughes is not a party to any legal
proceedings, other than in the ordinary course of business, that if decided in a
manner adverse to C.J. Hughes would be materially adverse to C.J. Hughes’
financial condition or results of operations.
 
 ITEM 1A. Risk
Factors
 
 An
effective registration statement may not be in place when an investor desires to
exercise warrants, thus precluding such investor from being able to exercise
his, her or its warrants.
  No
warrants will be exercisable and we will not be obligated to issue shares of
common stock unless at the time a holder seeks to exercise, a prospectus
relating to common stock issuable upon exercise of the warrants is current and
the common stock has been registered or qualified or deemed to be exempt under
the securities laws of the state of residence of the holder of the
warrants.  Under the terms of the warrant agreement, we have agreed to
use our best efforts to meet these conditions and to maintain a current
prospectus relating to common stock issuable upon exercise of the warrants until
the expiration of the warrants.  However, we cannot assure you that we
will be able to do so.  Additionally, we have no obligation to settle
the warrants for cash in the absence of an effective registration statement or
under any other circumstances.  The warrants may be deprived of any
value, the market for the warrants may be limited and the holders of warrants
may not be able to exercise their warrants if the prospectus relating to the
common stock issuable upon the exercise of the warrants is not current or if the
common stock is not qualified or exempt from qualification in the jurisdictions
in which the holders of the warrants reside.  Consequently, the
warrants may expire unexercised or unredeemed.
  We
may redeem your unexpired warrants prior to their exercise while a prospectus is
not current, thereby making your warrants worthless.
  We have
the ability to redeem outstanding warrants, in whole or in part, at any time
after they become exercisable and prior to their expiration, at the price of
$0.01 per warrant, provided that the last reported sales price of the common
stock equals or exceeds $8.50 per share for any 20 trading days within a 30
trading-day period following proper notice of such redemption.  Such
redemption can and may occur while a prospectus is not current and therefore the
warrants are not exercisable.  If this occurs, your warrants would be
worthless.
  10
  Private
placement warrants have a superior exercise right to warrants received in our
initial public offering.
  Warrants
issued in the private placement may be exercised pursuant to an exemption to the
requirement that the securities underlying such warrant be registered pursuant
to an effective registration statement.  Therefore, such warrants may
be exercised whether or not a current registration statement is in
place.  The warrants received in our initial public offering are not
issued under this exemption, therefore they may only be exercised if a current
registration statement is in place.  We are required only to use our
best efforts to maintain a current registration statement; therefore, the
warrants issued in our initial public offering may expire
worthless.
  The
loss of key executives could adversely affect our ability to
operate.
  Our
operations are dependent upon a relatively small group of key executives
consisting of Marshall T. Reynolds, our Chairman and Chief Executive Officer,
and Jack M. Reynolds, a director and our President.  We believe that
our success depends on the continued service of our executive management
team.  Although we currently intend to retain our existing management
, we cannot assure you that such individuals will remain with us for the
immediate or foreseeable future.  We do not have employment contracts
with any of our current executives.  The unexpected loss of the
services of one or more of these executives could have a detrimental effect on
us.
  Our
initial stockholders, including our officers and directors, control a
substantial interest in us and this may influence certain actions requiring a
stockholder vote.
  Our
initial stockholders (including all of our officers and directors) collectively
own approximately 50.4% of our issued and outstanding shares of common
stock  (including shares underlying warrants that are currently
exerciseable).  Since the Officers and Directors own a
significant  portion of the shares outstanding, they have a
significant influence over any items that might require a shareholder
vote.
  Failure
to maintain a current prospectus relating to the common stock underlying our
warrants may allow our warrants to expire worthless.
  No
warrants will be exercisable unless at the time of exercise a prospectus
relating to common stock issuable upon exercise of the warrants is current and
the common stock has been registered or qualified or deemed to be exempt under
the securities laws of the state of residence of the holder of our
warrants.  Under the terms of a warrant agreement between Continental
Stock Transfer & Trust Company, New York, New York, as warrant agent, and
us, we have agreed only to use our best efforts to maintain a current prospectus
relating to common stock issuable upon exercise of the warrants until the
expiration of the warrants.  However, we cannot assure you that we
will be able to maintain a current prospectus.  In the absence of an
effective registration statement, we have no obligation to settle the warrants
in cash, and the warrants may expire unexecuted or unredeemed.  The
warrants may be deprived of any value and the market for the warrants may be
limited if the prospectus relating to the common stock issuable upon the
exercise of the warrants is not current or if the common stock is not qualified
or exempt from qualification in the jurisdictions in which the holders of the
warrants reside.
  Our
outstanding warrants may have an adverse effect on the market price of our
common stock and make it more difficult to effect a business combination using
our common stock as consideration.
  In
connection with our initial public offering and the private placement, as part
of the units, we issued warrants to purchase 20,276,923 shares of common stock.
We also issued an option to purchase up to 450,000 units to Ferris, Baker Watts,
Incorporated, which, if exercised, will result in the issuance of an additional
900,000 warrants. To the extent we issue shares of common stock to effect a
business combination, the potential for the issuance of substantial numbers of
additional shares upon exercise of these warrants and the option could make us a
less attractive acquisition vehicle in the eyes of a target business as such
securities, when exercised, will increase the number of issued and outstanding
shares of our common stock and reduce the value of any shares issued to complete
the business combination. Accordingly, our warrants and the option may make it
more difficult to effectuate a business combination or increase the cost of the
target business. Additionally, the sale, or even the possibility of sale, of the
shares underlying the warrants and the option could have an adverse effect on
the market price for our securities or on our ability to obtain future public
financing. If and to the extent these warrants and the option are exercised, you
may experience dilution to your holdings.
  11
  If
our initial stockholders exercise their registration rights, it may have an
adverse effect on the market price of our common stock and the existence of
these rights may make it more difficult to effect a business
combination.
  Our
initial stockholders may request that we register the resale of the 2,150,000
shares of common stock they acquired prior to our initial public offering and
our five directors (as well as a sixth individual) may request us to register
for resale of the shares of common stock  underlying the 3,076,923
warrants they purchased in the private placement at any time. If our initial
stockholders exercise their registration rights with respect to all of their
initial shares of common stock as well as have the securities underlying their
warrants registered, then there will be an additional 5,226,923 shares of common
stock eligible for trading in the public market. The presence of this additional
number of shares of common stock eligible for trading in the public market may
have an adverse effect on the market price of our common stock. In addition, the
existence of these rights may make it more difficult to effectuate a business
combination or increase the cost of the target business, as the stockholders of
the target business may be discouraged from entering into a business combination
with us or will request a higher price for their securities as a result of these
registration rights and the potential future effect their exercise may have on
the trading market for our common stock.
  Our
operating companies are subject to the business cycles of their customers and
accordingly downturns in the cycles for any of the customers could result in
lower performance
  Our operating companies  rely
on the various projects put out for bid by their
customers.  Accordingly, should there be a downturn in their business
or their abilities to finance projects, it could have a negative affect on the
performance of the operating companies and therefore
Energy  Services.
  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, 2008, we were not involved in any legal proceedings, the outcome
of which would be material to our financial condition or results of
operations.
  ITEM 4. Submission of Matters to a
Vote of Security Holders
  On August
15, 2008, we held a special meeting of stockholders at which the following
matters were considered and voted upon:
  ●
              Proposal
      1:  the adoption and approval of the transactions
      contemplated by the Merger Agreement, dated as of January 22, 2008, by and
      between the Company and ST Pipeline, Inc.;●
              Proposal
      2:  the adoption and approval of the transactions
      contemplated by the Merger Agreement, dated as of February 21, 2008, by
      and between the Company and C.J. Hughes Construction Company,
      Inc.;●
              Proposal
      3:  the approval of an amendment to Energy Services’
      certificate of incorporation to change the Company’s name to “Energy
      Services of America Corporation.”;●
              Proposal
      4:  the approval of an amendment to the Company’s
      certificate of incorporation to remove Article V from the certificate of
      incorporation after the closing of the acquisitions, as Article V will no
      longer be applicable to the Company.; and●
              Proposal
      5:  the approval of a proposal to adjourn or postpone the
      special meeting, if necessary for the purpose of soliciting additional
      proxies.
 
 12
 
 The votes
for the proposals above were as follows:
 
 For
              
              
              Against
              
              
              AbstainProposal
      1
              
              
              7,453,900
              
              
              
              1,622,600
              
              
              
              25,503Proposal
      2
              
              
              7,453,900
              
              
              
              1,622,600
              
              
              
              25,503Proposal
      3
              
              
              7,446,220
              
              
              
              1,574,038
              
              
              
              81,745Proposal
      4
              
              
              7,452,790
              
              
              
              1,545,668
              
              
              
              103,545Proposal
      5
              
              
              7,878,484
              
              
              
              1,172,674
              
              
              
              50,845
 
 
 PART
II
  ITEM 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
  (a)      Our
units, common stock and warrants are listed on the American Stock Exchange under
the symbols ESA.U, ESA and ESA.WS, respectively.  Prior to October 3,
2006, only the units traded on the American Stock Exchange.  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
      2007
              
              High
              
              
              Low
              
              
              DividendsQuarter
      ended December 31, 2006
              
              $
              6.35
              
              
              $
              5.75
              
              
              $
              –Quarter
      ended March 31, 2007
              
              
              6.75
              
              
              
              6.17
              
              
              
              –Quarter
      ended June 30, 2007
              
              
              7.46
              
              
              
              6.45
              
              
              
              –Quarter
      ended September 30, 2007
              
              
              7.34
              
              
              
              6.00
              
              
              
              –
 
 Fiscal
      2008
              
              High
              
              
              Low
              
              
              DividendsQuarter
      ended December 31, 2007
              
              $
              6.92
              
              
              $
              6.57
              
              
              $
              –Quarter
      ended March 31, 2008
              
              
              7.46
              
              
              
              6.15
              
              
              
              –Quarter
      ended June 30, 2008
              
              
              7.45
              
              
              
              6.70
              
              
              
              –Quarter
      ended September 30, 2008
              
              
              9.09
              
              
              
              6.50
              
              
              
              –
 
 Common
Stock
 
 Fiscal
      2007
              
              High
              
              
              Low
              
              
              DividendsQuarter
      ended December 31, 2006
              
              $
              5.40
              
              
              $
              5.25
              
              
              $
              –Quarter
      ended March 31, 2007
              
              
              5.85
              
              
              
              5.35
              
              
              
              –Quarter
      ended June 30, 2007
              
              
              5.93
              
              
              
              5.50
              
              
              
              –Quarter
      ended September 30, 2007
              
              
              5.80
              
              
              
              5.54
              
              
              
              –
 
 Fiscal
      2008
              
              High
              
              
              Low
              
              
              DividendsQuarter
      ended December 31, 2007
              
              $
              5.80
              
              
              $
              5.61
              
              
              $
              –Quarter
      ended March 31, 2008
              
              
              5.87
              
              
              
              5.65
              
              
              
              –Quarter
      ended June 30, 2008
              
              
              5.92
              
              
              
              5.56
              
              
              
              –Quarter
      ended September 30, 2008
              
              
              5.90
              
              
              
              5.20
              
              
              
              –
  13
  Warrants
 
 Fiscal
      2007
              
              High
              
              
              Low
              
              
              DividendsQuarter
      ended December 31, 2006
              
              $
              0.55
              
              
              $
              0.27
              
              
              $
              –Quarter
      ended March 31, 2007
              
              
              0.71
              
              
              
              0.44
              
              
              
              –Quarter
      ended June 30, 2007
              
              
              0.93
              
              
              
              0.56
              
              
              
              –Quarter
      ended September 30, 2007
              
              
              0.91
              
              
              
              0.57
              
              
              
              –
 
 Fiscal
      2008
              
              High
              
              
              Low
              
              
              DividendsQuarter
      ended December 31, 2007
              
              $
              0.68
              
              
              $
              0.58
              
              
              $
              –Quarter
      ended March 31, 2008
              
              
              0.92
              
              
              
              0.20
              
              
              
              –Quarter
      ended June 30, 2008
              
              
              0.89
              
              
              
              0.35
              
              
              
              –Quarter
      ended September 30, 2008
              
              
              1.27
              
              
              
              0.54
              
              
              
              –
 
 As of
September 30, 2008, there was one holder of record of our units, twenty one
holders of record of our common stock and seven holders of record of our
warrants.
  14
  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 subsequent to
completion of a business combination. 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.
  
  (c)       Energy
Services of America Corp. did not repurchase any shares of its common stock
during the relevant period, other than the redemption
of  1,622,456  shares undertaken in connection with the
acquisitions.  The shares were repurchased between August 19 and
August 27 at a price of $5.9976  per share for an aggregate purchase
price of $9,730,936.
  15
  ITEM 6. Selected Financial
Data
  Not
required for smaller 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 “Unaudited Pro Forma
Consolidated Financial information “ appearing in this section of this annual
report as well as the historical financial statements and related notes
contained elsewhere herein.  Among other things, those historical
consolidated financial statements include more detailed information regarding
the basis of presentation for the following information.
  Forward
Looking Statements
  Within
Energy Services’ financial statements and this discussion and analysis of the
financial condition and results of operations, there are included statements
reflecting assumptions, expectations, projections, intentions or beliefs about
future events that are intended as “forward-looking statements” under the
Private Securities Litigation Reform Act of 1995.  You can identify
these statements by the fact that they do not relate strictly to historical or
current facts.  They use words such as “anticipate,” “estimate,”
“project,” “forecast,” “may,” “will,” “should,” “could,” “expect,” “believe,”
“intend” and other words of similar meaning.
 
 These forward-looking statements are
not guarantees of future performance and involve or rely on a number of risks,
uncertainties, and assumptions that are difficult to predict or
beyond  Energy Services' control.  Energy Services has based
its forward-looking statements on management’s beliefs and assumptions based on
information available to management at the time the statements are
made.  Actual outcomes and results may differ materially from what is
expressed, implied and forecasted by forward-looking statements and 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.
 
 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 disclaim
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 C.J. Hughes are considered predecessor
companies to Energy Services.  The discussion of financial condition
and  operating results include the results of the two predecessors
prior to the acquisition.  This discussion is based in part on
pro-forma income statement information.  The Company
acquired  ST Pipeline for $16.2 million in cash and $3.0 million in a
promissory note.  The C J Hughes purchase price totalled $34 million,
one half of  which  was in cash and one half in Energy
Services common stock.    The acquisitions are accounted for
under the purchase method and the financial results of both acquisitions are
included in the results of Energy Services from the date of
acquisition.
  16
  Since the
acquisitions,  Energy Services has been engaged in one segment
of  operations which is the providing of 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,
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.     The Company  had consolidated
operating revenues of $28.5 million for the year
ended  September  30, 2008 of
which   13%  was attributable to electrical
customers,  81% to natural gas customers, 2%  for the oil
industry, 3% for governmental entities and 1% for all other
customers.
 
 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 contacts 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.
   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
lowest 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.
  17
  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, 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
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 more 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 smaller
margins than labor.  Accordingly, projects with a higher material cost
in relation to the entire job will have a  lower overall
margin.
 
 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.
 
 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 Pro
Forma Statements of  operations data and such data as a percentage of
revenues for the years indicated (dollars in thousands)  This
information is based upon and should be read in conjunction with the more
detailed information included in the section titled “Unaudited Pro Forma
Consolidated Financial Information”.
  18
  Year
      ended
                      
                      
                      
                      
                      
                      Year
      endedSeptember
      30,
                      
                      
                      
                      
                      
                      September
      30,2008
                      
                      
                      Percent
                      
                      
                      2007
                      
                      
                      PercentContract
      Revenues
                      
                      $
                      208,240
                      
                      
                      
                      100.0
                      %
                      
                      $
                      133,091
                      
                      
                      
                      100.0
                      %Cost
      of Revenues
                      
                      
                      176,166
                      
                      
                      
                      84.6
                      %
                      
                      
                      115,393
                      
                      
                      
                      86.7
                      %Gross
      Profit
                      
                      
                      32,074
                      
                      
                      
                      15.4
                      %
                      
                      
                      17,698
                      
                      
                      
                      13.3
                      %General
      and administrative expenses
                      
                      
                      6,913
                      
                      
                      
                      3.3
                      %
                      
                      
                      4,660
                      
                      
                      
                      3.5
                      %Income
      from operations before taxes
                      
                      
                      25,160
                      
                      
                      
                      12.1
                      %
                      
                      
                      13,038
                      
                      
                      
                      9.8
                      %Interest
      Income
                      
                      
                      349
                      
                      
                      
                      0.2
                      %
                      
                      
                      448
                      
                      
                      
                      0.3
                      %Interest
      Expense
                      
                      
                      (1,662
                      )
                      
                      
                      -0.8
                      %
                      
                      
                      (1,454
                      )
                      
                      
                      -1.1
                      %Other
      Income (Expense)
                      
                      
                      1,233
                      
                      
                      
                      0.6
                      %
                      
                      
                      259
                      
                      
                      
                      0.2
                      %Income
      before Income
      taxes
                      
                      
                      25,080
                      
                      
                      
                      12.0
                      %
                      
                      
                      12,290
                      
                      
                      
                      9.2
                      %Income
      taxes
                      
                      
                      10,078
                      
                      
                      
                      4.8
                      %
                      
                      
                      5,171
                      
                      
                      
                      3.9
                      %Net
      Income
                      
                      $
                      15,002
                      
                      
                      
                      7.2
                      %
                      
                      $
                      7,120
                      
                      
                      
                      5.3
                      %Earnings
      Per Share - Basic
                      
                      $
                      1.24
                      
                      
                      
                      
                      
                      
                      $
                      0.59Earnings
      Per Share - Diluted
                      
                      $
                      1.03
                      
                      
                      
                      
                      
                      
                      $
                      0.51
 
 UNAUDITED  PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
 
 The following tables set forth summary
financial information for our pro forma consolidated results for the years ended
September 30, 2008 and September 30, 2007.  The information is
presented to show what the consolidated income statements would have looked like
had the transactions with ST Pipeline and CJ Hughes  been completed at
the beginning of each of those years.   The
information  includes such adjustments as deemed necessary to reflect
the transactions in  a proper manner.   This
information should be read in conjunction with the notes thereto as well as the
financial statements for the various entities included elsewhere in this
document.
 
 The unaudited pro forma information is
for informational purposes only and is not intended to represent or be
indicative of the consolidated results of operations that we would have reported
had the merger transactions been completed as of the date presented and should
not be taken as representative of our future consolidated results of
operations.
 
 19
  Energy
      Services  of America CorporationST
      Pipeline, Inc./C J HughesPro
      Forma Combined, Condensed, Consolidated  Statement of
      IncomeYear
      ended September 30, 2008(Unaudited)
  ST
      Pipeline
                
                
                ST
      Pipeline
                
                
                
                
                
                C
      J Hughes
                
                
                C
      J HughesEnergy
      Services of
                
                
                January
      1, 2008-
                
                
                October
      1-
                  December
                
                
                ST
      Pipeline
                
                
                January
      1, 2008-
                
                
                October
      1-
                  December
                
                
                C
      J HughesAmerica
      Corporation
                
                
                August
      15, 2008
                
                
                31
                  2007
                
                
                Pro
      Forma
                  Adjustments
                
                
                August
      15, 2008
                
                
                31
                  2007
                
                
                Pro
      Forma
                  Adjustments
                
                
                Redemption
                  Adjustments
                
                
                Pro
      Forma
                  CombinedAudited
                
                
                Audited
                
                
                Unaudited
                
                
                
                
                
                Audited
                
                
                Unaudited
                
                
                
                
                
                
                
                
                UnauditedContract
      Revenues
                
                $
                28,517,688
                
                
                $
                37,410,877
                
                
                $
                37,520,704
                
                
                
                
                
                $
                79,217,380
                
                
                $
                25,573,278
                
                
                
                
                
                
                
                
                $
                208,239,927Cost
      of Revenues
                
                
                23,830,404
                
                
                
                30,676,571
                
                
                
                22,409,225
                
                
                $
                1,210,813
                (1)
                
                
                74,794,447
                
                
                
                22,428,832
                
                
                $
                816,113
                (1)
                
                
                
                
                
                176,166,405Gross
      Profit
                
                
                4,687,284
                
                
                
                6,734,306
                
                
                
                15,111,479
                
                
                
                (1,210,813
                )
                
                
                4,422,933
                
                
                
                3,144,446
                
                
                
                (816,113
                )
                
                
                -
                
                
                
                32,073,522General
      and administrative expenses
                1,350,246
                
                
                
                996,049
                
                
                
                419,290
                
                
                
                
                
                
                
                3,473,283
                
                
                
                674,345
                
                
                
                
                
                
                
                
                
                
                
                6,913,213-Net
      income( loss) from operations
                
                
                3,337,038
                
                
                
                5,738,257
                
                
                
                14,692,189
                
                
                
                (1,210,813
                )
                
                
                949,650
                
                
                
                2,470,101
                
                
                
                (816,113
                )
                
                
                -
                
                
                
                25,160,309Interest
      Income
                
                
                1,585,074
                
                
                
                34,675
                
                
                
                -
                
                
                
                (513,160
                )(2)
                
                
                -
                
                
                
                91,897
                
                
                
                (543,081
                )(2)
                
                
                (306,545
                )(5)
                
                
                348,860Interest
      Expense
                
                
                (220,274
                )
                
                
                (142,940
                )
                
                
                -
                
                
                
                (225,000
                )(3)
                
                
                (707,622
                )
                
                
                (366,488
                )
                
                
                
                
                
                
                
                
                
                
                (1,662,324
                )Other
      Income (Expense)
                
                
                111,301
                
                
                
                932,101
                
                
                
                204,133
                
                
                
                
                
                
                
                164,709
                
                
                
                (178,747
                )
                
                
                
                
                
                
                
                
                
                
                1,233,497Income
      before income taxes
                
                
                4,813,139
                
                
                
                6,562,093
                
                
                
                14,896,322
                
                
                
                (1,948,973
                )
                
                
                406,737
                
                
                
                2,016,763
                
                
                
                (1,359,194
                )
                
                
                (306,545
                )
                
                
                25,080,342Income
      taxes
                
                
                2,001,981
                
                
                
                -
                
                
                
                
                
                
                
                7,803,777
                (4)
                
                
                -
                
                
                
                -
                
                
                
                395,109
                (4)
                
                
                (122,618
                )(6)
                
                
                10,078,249Net
      Income
                
                $
                2,811,158
                
                
                $
                6,562,093
                
                
                $
                14,896,322
                
                
                $
                (9,752,750
                )
                
                $
                406,737
                
                
                $
                2,016,763
                
                
                $
                (1,754,303
                )
                
                $
                (183,927
                )
                
                $
                15,002,093
 Weighted
      average shares
                outstanding
      - basic
              
              
              10,750,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,964,763
              
              
              
              (1,622,456
              )
              
              
              12,092,307Weighted
      average shares - diluted
              
              13,160,643
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,964,763
              
              
              
              (1,622,456
              )
              
              
              14,502,950Net
      income per share - basic
              
              $
              0.26
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1.24Net
      income per share - diluted
              
              $
              0.21
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1.03
 20
 Energy
      Services  of America CorporationST
      Pipeline, Inc./C J HughesPro
      Forma Combined, Condensed, Consolidated  Statement of
      IncomeYear
      ended September 30, 2007(Unaudited)
  Net
      change
                
                
                
                
                
                
                
                
                Net
      changeST
      Pipeline
                
                
                removing
                  Oct
      1-Dec
                
                
                
                
                
                
                
                
                removing
                  Oct
      1-DecEnergy
      Services of
                
                
                Year
      ended
                  December
                
                
                31
                  2007,
                
                
                ST
      Pipeline
                
                
                C
      J Hughes
                    December
                
                
                31
                  2007,
                
                
                C
      J HughesAmerica
      Corporation
                
                
                31.
                  2007
                
                
                adding
                  2006
                
                
                Pro
      Forma
                  Adjustments
                
                
                31.
                  2007
                
                
                adding
                  2006
                
                
                Pro
      Forma
                  Adjustments
                
                
                Redemption
                  Adjustments
                
                
                Pro
      Forma
                  CombinedAudited
                
                
                Audited
                
                
                Unaudited
                
                
                
                
                
                Audited
                
                
                UnauditedContract
      Revenues
                
                
                
                
                $
                100,385,098
                
                
                
                (27,441,017
                )
                
                
                
                
                $
                75,305,234
                
                
                $
                (15,158,476
                )
                
                
                
                
                
                
                
                $
                133,090,839Cost
      of Revenues
                
                
                
                
                
                70,948,130
                
                
                
                (13,291,520
                )
                
                $
                1,210,813
                (1)
                
                
                68,096,279
                
                
                
                (12,387,188
                )
                
                $
                816,113
                (1)
                
                
                
                
                
                115,392,627Gross
      Profit
                
                
                
                
                
                29,436,968
                
                
                
                (14,149,497
                )
                
                
                (1,210,813
                )
                
                
                7,208,955
                
                
                
                (2,771,288
                )
                
                
                (816,113
                )
                
                
                -
                
                
                
                17,698,212General
      and administrative expenses
                $
                385,773
                
                
                
                1,547,125
                
                
                
                (1,400
                )
                
                
                
                
                
                
                3,218,114
                
                
                
                (489,242
                )
                
                
                
                
                
                
                
                
                
                
                4,660,370-Net
      income( loss) from operations
                
                
                (385,773
                )
                
                
                27,889,843
                
                
                
                (14,148,097
                )
                
                
                (1,210,813
                )
                
                
                3,990,841
                
                
                
                (2,282,046
                )
                
                
                (816,113
                )
                
                
                -
                
                
                
                13,037,842Interest
      Income
                
                
                2,612,835
                
                
                
                45,939
                
                
                
                1,088
                
                
                
                (843,961
                )(2)
                
                
                -
                
                
                
                28,962
                
                
                
                (893,170
                )(2)
                
                
                (504,154
                )(5)
                
                
                447,539Interest
      Expense
                
                
                
                
                
                
                (298,799
                )
                
                
                (28,067
                )
                
                
                (225,000
                )(3)
                
                
                (1,063,198
                )
                
                
                160,666
                
                
                
                
                
                
                
                
                
                
                
                (1,454,398
                )Other
      Income (Expense)
                
                
                
                
                
                
                307,524
                
                
                
                (13,829
                )
                
                
                
                
                
                
                118,135
                
                
                
                (152,681
                )
                
                
                
                
                
                
                
                
                
                
                259,149Income
      before income taxes
                
                
                2,227,062
                
                
                
                27,944,507
                
                
                
                (14,188,905
                )
                
                
                (2,279,774
                )
                
                
                3,045,778
                
                
                
                (2,245,099
                )
                
                
                (1,709,283
                )
                
                
                (504,154
                )
                
                
                12,290,131Income
      taxes
                
                
                846,000
                
                
                
                -
                
                
                
                -
                
                
                
                4,590,331
                (4)
                
                
                275,000
                
                
                
                -
                
                
                
                (339,101
                )(4)
                
                
                (201,662
                )(6)
                
                
                5,170,568Net
      Income
                
                $
                1,381,062
                
                
                $
                27,944,507
                
                
                $
                (14,188,905
                )
                
                $
                (6,870,105
                )
                
                $
                2,770,778
                
                
                $
                (2,245,099
                )
                
                $
                (1,370,182
                )
                
                $
                (302,493
                )
                
                $
                7,119,563Weighted
      average shares outstanding
                
                
                10,750,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,964,763
                
                
                
                (1,622,456
                )
                
                
                12,092,307Weighted
      average shares - diluted
                
                12,688,930
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,964,763
                
                
                
                (1,622,456
                )
                
                
                14,031,307Net
      income per share - basic
                
                $
                0.13
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                0.59Net
      income per share - diluted
                
                $
                0.11
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                0.51
  21
 Notes
to pro forma income statements
  (1)
              These
      adjustments represent the added depreciation created from the mark to
      market of the fixed assets of ST Pipeline and CJ Hughes as required by
      purchase accounting(2)
              These
      adjustments reflect the interest income lost from the cash payments made
      to the shareholders of ST Pipeline and CJ Hughes, etc. had the transaction
      been completed at the beginning of each period and therefore not earning
      interest.(3)
              This
      adjustment is to reflect the added interest cost that would have occurred
      relating  to the notes issued to the Shareholders
      of  ST Pipeline had the transaction been in place for the
      respective periods(4)
              ST
      Pipeline and CJ Hughes were both Sub S corporations and therefore had no
      Federal income taxes.  These entries are to reflect the
      estimated taxes for these companies had they been a part of Energy
      Services during the respective periods.(5)
              In
      accordance with the bylaws of Energy Services, shareholders had the right
      to vote against the transactions and request their shares be
      redeemed.  These entries reflect the lost interest income from
      the purchase of those shares so redeemed.(6)
              These
      entries are to reflect the tax savings related to the interest income lost
      on the payments to redeem shares.
 
 2008
compared to 2007- Pro Forma basis
 
 Revenues.Revenues
increased by $75.1  million or 56.5% to $208.2 million for the year
ended September 30, 2008.  This increase was primarily due to an
increase in revenues as the result of the added revenues from Nitro Electric
which was acquired by CJ Hughes in May of 2007 and accordingly revenues were
only included from that time forward. .
 
 Cost of
Revenues.  Cost of revenues increased by $60.8 million or
52.7%  to $176.2 million for the year ended September 30,
2008.  The driver of this increase was primarily the Nitro Electric
acquisition by CJ Hughes in May of 2007 and the inclusion of that information
from that time forward in 2007
 
 Gross
Profit.Gross profits for 2008 were $32.1
Million.    This was an increase of $14.4 million or 81.2%
over the 2007 gross profit of $17.7 million.  As explained above this
was a result of Nitro Electric performance only being included from May of 2007
forward.
 
 Selling general and administrative
expenses.Selling, general and administrative increased by $2.2 million
(48.3%)to $6.9 million for the year ended September 30, 2008.  This
increase was primarily driven by the acquisition of Nitro Electric by CJ Hughes
and the inclusion of Nitro performance from that time forward.
 
 Income from
Operations.Income from operations increased $12.1 million or
93% to $25.2  million for the year ended  September 30, 2008
from $13.0 million for the year ended September  30,
2007.   This is  a function of the previous
categories.
 
 Interest
Income.Interest income was about  even with the
prior year at $349,000  for 2008 and $448,000 for 2007.
 
 Interest ExpenseInterest
Expense increased  by $208,000  to $1.7 million at September
30, 2008.  This increase was  driven primarily  by
added borrowings on lines of credit and for equipment purchases.
  22
  Other
Income.Other income increased by $974,000 to $1.2 million for
the year ended September 30, 2008 over the 2007 amount of
$259,000.  This increase was driven by the rental of equipment to
outside parties.
 
 Net Income.Net Income
increased by $7.8 million or 110.7% to $15.0 million  for the year
ended September  30, 2008 from a net income of $7.1 million for the
year ended  September 30, 2007.  The increase occurred due
to the various changes as previously discussed.
 
 2008  for
Energy Services
 
 Energy  Services for 2008 had
sales of $28.5 million, a net income of $2.8 million which resulted in earnings
per share of $0.26  basic and $0.21 fully diluted.  These
results included  results from the acquired companies from August 15,
2008 through September 30, 2008.  The results also included $1.6
million in interest income from the trust fund which was disbursed as discussed
in the financial conditions section.
 
 Comparison
of Financial Condition
  The
Company had total assets at September 30,  2008 of  $133.7
million.  Some of the primary components of the balance sheet
were  accounts receivable which totaled $38.6 million up $8.4 million
from  the prior year balances of the operating
companies.  Other major categories of assets at September 30, 2008
included cash of $13.8 million and fixed assets of $33.3
million.  Liabilities totaled $73.4 million up $15.2 million from
2007.  This increase was primarily due to borrowings to fund the
purchase of fixed assets.
 
 At the end of 2007,
the  Company had $50.7 million of funds in a trust account being held
for the completion of  acquisitions totaling at least 80% of the
funds.  That balance grew to $51.5 million by August 15,
2008.  Upon completion of the ST Pipeline and CJ Hughes acquisitions
on August 15, 2008, the Company disbursed those funds with $33.2 million in cash
going to the acquired companies’ shareholders, $9.7 million to redeem those
Energy Services shareholders electing redemption, $1.0 million to pay the
underwriting deferred fee and the remaining $7.5 million to the
Company  to be used for general corporate purposes.
 
 Stockholders’ Equity.
Stockholders’ Equity rose from $40.0 million at September 30, 2007 to $60.4
million at  September 30, 2008 due to  a combination of the
additional shares issued with regards to the C. J. Hughes Acquisition and the
Net Income for the year.
 
 Liquidity
and Capital Resources
  Cash
Requirements
 
 We anticipate that our cash and cash
equivalents on hand at September 30, 2008  which
totaled  $13.8 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 current energy shortage nationwide and the
increased demand for our services, we could be faced with needing significant
additional working capital.  Also,  current general credit
tightening  resulting from the general banking and other economic
contraction that has occurred in the second half of 2008, has impaired the
availability of credit facilities for  future operational
needs.  A prolonged restriction in borrowing capacity
may   limit the growth ability of the Company.
 
 23
  Sources
and uses of Cash
  As of September 30, 2008, we had $13.8
million in cash ,  working capital of $17.4 million and long term
debt  net of current maturities of $25.9 million.   The
maturities of the total long term debt is as follows
 
 2009
              
              
              2010
              
              
              2011$
              11,239,357
              
              
              
              6,985,979
              
              
              
              1,661,923
 
 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 are 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
January 1, 2012.  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 past
that.  It calls for a monthly rental of $7,500 per month.
 
 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, 2008, the
Company was contingently liable on an irrevocable  Letter
of  Credit  for $950,542 to guarantee payments of insurance
premiums to  the group captive insurance company through which the
Company obtains its general liability insurance.
 
 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 do not
anticipate any claims in the foreseeable future.    At
September 30, 2008, we had $26.1 million bonds issued by the insurer
outstanding.
  24
 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 two customers that exceeded ten
percent of  revenues for the year ended September 30,
2008.  This was  Equitable Resources and
Spectra  which accounted for 69% of revenues.
 
 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 personally 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 would
relate to real estate,  vehicle or equipment rentals.
 
 Inflation
 
 Due to relatively low levels of
inflation during the years ended September 30, 2007 and 2008, inflation did
not have a significant effect on our results.
 
 New
Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” SFAS No.
157 defines fair value, establishes methods used to measure fair value and
expands disclosure requirements about fair value measurements.  SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal periods, as it
relates  to financial assets and liabilities that are carried at fair
value.  SFAS No. 157 also requires certain tabular disclosures related
to results of applying SFAS No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets” and SFAS No. 142, “Goodwill and Other Intangible
Assets”.  On February  12, 2008, the FASB provided a one
year deferral for the implementation of SFAS No. 157 for non-financial assets
and liabilities  Based on the assets and liabilities on our balance
sheet as of September 30, 2008, we do not expect the adoption of SFAS No. 157 to
have a material impact on our consolidated financial position, results of
operations or cash flows.
 
 In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,
including an amendment of FASB Statement No. 115.  SFAS No. 159
permits entities to choose to measure at fair value many financial instruments
and certain other items at fair value that are not currently required to be
measured.  Unrealized gains and losses on items for which the fair
value option has been  elected are reported in
earnings.  SFAS No. 159 does not affect any existing accounting
literature that requires certain assets and liabilities to be carried at fair
value.  SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007.  Based on the assets and liabilities on our balance
sheet as of September 30, 2008, we do not expect the adoption of SFAS No. 159 to
have any  impact on our consolidated financial position, results of
operations or cash flows.
  25
  During December 2007, the FASB issued
SFAS No. 141 (R), “Business Combinations”.  SFAS No. 141 (R ) is
effective for fiscal years beginning after December 15, 2008.  Earlier
application is prohibited.  Assets and liabilities that arose from
business combinations which occurred prior to the adoption of FASB No. 141 ( R)
should not be adjusted upon the adoption of SFAS No. 141 (R).  SFAS
No. 141 ( R) requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
business combination; establishes the acquisition date as the measurement date
to determine the fair value of all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination.  As it relates to recognizing
all  (and only) the assets acquired and liabilities assumed in a
business combination, costs an acquirer expects but is not obligated to incur in
the future to exit an activity of an acquiree or to terminate or relocate an
acquiree’s employees are not liabilities at the acquisition date but must be
expensed in accordance with other applicable generally accepted accounting
principles.  Additionally, during the measurement period, which should
not exceed one year from the acquisiton date, any adjustments that are needed to
assets acquired and liabilities assumed to reflect new information obtained
about facts and circumstances that existed as of that date will be adjusted
retrospectively.  The acquirer will be required to expense all
acquisition- related costs in the periods such costs are incurred other than
costs to issue debt or equity securities.  SFAS No. 141 ( R) will have
no impact on our consolidated financial position, results of operations or cash
flows at the date of adoption, but it could have a material impact on our
consolidated financial position, results of operations or cash flows in the
future when it is applied to acquisitions which occur in the fiscal year
beginning October 1 , 2009.
  In April 2008, the FASB issued staff
position FSP 142-3, “Determination of the Useful Life of Intangible
Assets”.  FSP142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the
useful  life of a recognized intangible asset under SFAS NO.
142.  The intent of FSP 142-3 is to improve the
consistency  between the useful life of an intangible asset and the
period of expected cash flows used to measure its fair value and to enhance
existing disclosure requirements relating to intangible assets.  FSP
142-3 is effective for fiscal years beginning after December 15, 2008 and should
be applied prospectively to intangible assets acquired after the effective
date.  Early adoption is prohibited.  Accordingly, we will
adopt FSP 142-3 on October 1, 2009.   We do not expect FSP 142-3
to have an impact on our consolidated financial position, results of operations
or cash flows at the date of adoption, but it could have a material impact on
our consolidated financial position, results of operations or cash flows in
future periods.
 
 Critical
Accounting Policies
 
 The discussion and analysis of the
Company’s financial condition and results of operations are based  on
our pro forma 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.
  26
  Revenue RecognitionWe
recognize revenue when services are performed except when work is being
performed under a fixed price contract.  Revenue from fixed price
contracts are recognized under the percentage of completion  method,
measured by the percentage of costs incurred to date to total estimated costs
for each contract.  Such contracts generally provide that the customer
accept completion of progress to date and compensate us for services rendered,
measured typically in terms of units installed, hours expended or some other
measure of progress.   Contract costs typically include all
direct material, labor and subcontract costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs and
depreciation. Costs.  Provisions for the total estimated
losses  on uncompleted contracts are made in the period in which such
losses are determined.   Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and their effects are recognized in the period in
which the revisions are determined.
 
 Self Insurance The Company is
insured  at one subsidiary for general liability 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 letter of credit to guarantee
payments of premiums.  Should the Captive experience severe losses
over an extended period, it could have a detrimental affect 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, 2008, 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.
 
 Recently  our customers have
been experiencing high demand for their products, particularly Natural
Gas.  Accordingly, we normally 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, 2008 was $41 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 experienced in
fiscal  2008 continues, we believe that  the Company will
continue to 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 2009, the
Company’s   needed capital expenditures will be between $2.0 and
$4.0 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.
 
 27
  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, as discussed below.
  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
  We
have engaged Arnett & Foster, Certified Public Accountants, P.L.L.C.
(“Arnett & Foster”) as our new independent registered public accounting
firm, effective October 1, 2008.  We continued our relationship with
Castaing, Hussey & Lolan LLC, CPAs (“CHL”) as its independent registered
public accounting firm through the preparation and filing on August 13, 2008 of
the Company’s Form 10-Q for the quarter period ended June 30,
2008.  On October 1, 2008, the Company notified CHL that it was
dismissing CHL as principal accountants.
 
 CHL’s
reports on our consolidated financial statements as of and for the years ended
September 30, 2007 and 2006 did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.  Arnett & Foster has been engaged to audit
our consolidated financial statements as of and for the year ending September
30, 2008.  The engagement of Arnett & Foster was approved by our
Audit Committee.
 
 In
connection with the audits of the two fiscal years ended September 30, 2007 and
the subsequent interim period, there were (1) no disagreements with CHL on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which disagreements, if not resolved to the
satisfaction of CHL, would have caused them to make reference to the subject
matter of the disagreements in connection with their opinion and (2) no
reportable events.
 
 Arnett
& Foster was engaged by the Company on October 1, 2008 to audit the
consolidated financial statements of the Company as of and for the year ending
September 30, 2008.  During the period beginning October 1, 2006
through the date of this Report, the Company did not consult with Arnett &
Foster regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of
Regulation S-K.
  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.
  28
 (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:
 
 (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 concluded that the Company’s
internal control over financial reporting was effective as of the end of the
most recent fiscal year.
 
 /s/ Marshall  T.
      ReynoldsMarshall
      T. ReynoldsChairman
      and Chief Executive Officer/s/ Larry A. BlountLarry
      A. BlountChief
      Financial Officer
 
 (c)  Changes
in Internal Controls over Financial Reporting
 
 With the
acquisition of the two operating companies in the fourth quarter of the
Company’s fiscal year, the Company has had to evaluate the controls at those
companies and also the process of bringing those companies into Energy
Services.  Management believes that there are no material weaknesses
in the internal controls of the two operating companies  that will
materialy affect Energy Services of America Corporation’s internal control over
financial reporting.
 
 ITEM 9B. Other
Information
  None.
  29
  PART
III
  ITEM 10. Directors, Executive
Officers and Corporate Governance
  Directors
and Officers
  Our
directors and executive officers at September 30, 2008 are as
follows:
  Name
              
              Age
              
              PositionMarshall
      T. Reynolds
              
              71
              
              Chairman
      of the Board, Chief Executive OfficerJack
      M. Reynolds
              
              43
              
              DirectorEdsel
      R. Burns
              
              57
              
              Director
      and PresidentNeal
      W. Scaggs
              
              71
              
              DirectorJoseph
      L. Williams
              
              63
              
              DirectorRichard
      A. Adams
              
              40
              
              DirectorKeith
      Molihan
              
              66
              
              DirectorJames
      Shafer
              
              65
              
              DirectorDouglas
      Reynolds
              
              32
              
              DirectorEric
      Dosch
              
              30
              
              DirectorLarry
      A. Blount
              
              59
              
              Chief
      Financial Officer and Secretary
  Marshall T.
Reynoldshas served as our Chairman of the Board of Directors and Chief
Executive Officer 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 shareholder from 1972
to 1993; President and General Manager of The Harrah & Reynolds
Corporation, from 1964 (and sole shareholder since 1972) to present; Chairman of
the Board of Directors of Portec Rail Products, Inc.; Chairman of the Board of
Directors of the Radisson Hotel in Huntington, West Virginia; and Chairman of
the Board of Directors of McCorkle Machine and Engineering Company in
Huntington, West Virginia. Mr. Reynolds also serves as a Director of the
Abigail Adams National Bancorp, Inc. in Washington, D.C.; 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.
  Jack
Reynolds
served as President, Chief Financial Officer and a member of our Board of
Directors of from  our inception through October 1,
2008.  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.
  Edsel R.
Burnshas
been a Director since our inception and was appointed  President of
the Company on October 1, 2008.  Mr. Burns was President and Chief
Executive Officer of C. J. Hughes Construction Company, Inc. from September of
2002 to October 1, 2008.  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.
  Neal W. Scaggshas 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., Champion Industries, Inc. and Portec Rail Products,
Inc.
  Joseph L.
Williams has been a Director since our inception.  Mr. Williams
is the Chairman, President 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 also serves as a Director of Abigail Adams
National Bancorp, Inc., in Washington, D.C.  Mr. Williams is also
Chairman, President and Chief Executive Officer of Consolidated Bank & Trust
Co., in Richmond, Virginia. Mr. Williams is a Director of the West Virginia
Capital Corporation and 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
member  of  its Institutional Board of
Governors.
  30
  Richard A. 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.
  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 EMEGA
Turbine Technology, as well as President of the Lawrence County Ohio Port
Authority and President of the Southeast Ohio Emergency Medical
organization.
  James Shafer was elected to the Board on November 19,
2008.  Mr. Shaferis
president and until its sale to Energy Services was the owner of
S.T.Pipeline.
  Douglas Reynolds was elected to the Board on November 19,
2008.  Mr. Reynoldsis
an attorney for Reynolds & Brown, PLLC.  Mr. Reynolds is the
President of the Transylvania Corporation and is Chairman of C.J. Hughes
Construction Company, and a director of The Harrah and Reynolds Corporation, and
Portec Rail Products, Inc.  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.
  Eric
Dosch was elected to the Board on
November 19, 2008.  Mr. Doschhas served as credit department manager with
First Guaranty Bank located in Hammond, Louisiana since December
2005.  Prior to that time Mr. Dosch served as credit officer with
First Guaranty Bank since October 2003.  Prior to his association with
First Guaranty Bank, Mr. Dosch was an analyst with Livington & Jefferson, a
private asset management firm located in Cincinnati, Ohio.
  Larry A.
Blount was appointed as Chief Financial Officer and Secretary of the
Company on October 1, 2008..  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.
  Section
16(a) Beneficial Ownership Reporting Compliance
  Our
executive officers and directors and beneficial owners of greater than 10% of
the outstanding shares of common stock are required to file reports with the
Securities and Exchange Commission disclosing beneficial ownership and changes
in beneficial ownership of our common stock.  Securities and Exchange
Commission rules require disclosure if an executive officer, director or 10%
beneficial owner fails to file these reports on a timely basis.  Based
on our review of ownership reports required to be filed for the year ended
September 30, 2008, no executive officer, director or 10% beneficial owner of
our shares of common stock failed to file ownership reports on a timely
basis.
  31
  Code
of Ethics
  Energy
Services of America Corp. has adopted a Code of Ethics that applies to Energy
Services of America Corp.’s principal executive officer, principal financial
officer, principal accounting officer or controller or persons performing
similar functions.  The Code of Ethics is filed as Exhibit 14 to this
Form 10-K.  A copy of the Code will be furnished without charge upon
written request to the Secretary, Energy Services of America
Corp.,  100 Industrial Lane, Huntington, West Virginia.
  Board
Committees
  Our board
of directors has an audit committee. Our board of directors has adopted a
charter for this committee as well as a code of ethics that governs the conduct
of our officers and employees.
  Audit
Committee
  Our audit
committee consisted of Messrs. Burns, Scaggs, and Williams until the completion
of the acquisition  of ST Pipeline and CJ Hughes.  Following
the completion of the acquisitions , the audit committee consisted of Messers
Scaggs, Williams, Adams and Molihan with Mr. Scaggs acting as the chairman of
the committee. The independent directors we appoint to our audit committee are
independent members of our board of directors, as defined by the rules of the
SEC. Each member of our audit committee is financially literate, and our board
of directors has determined that Mr. Adams qualifies as an audit committee
financial expert; as such term is defined by SEC 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.
  Other
Committees
  Our board
has determined that the independent members of our board of directors will
perform the duties of the nominating committee and the compensation committee of
the board of directors. As a result, the independent directors 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,
(iii) identify individuals to fill any vacancies on the board of directors, (iv)
discharge the board of directors’ responsibilities relating to compensation of
our directors and officers and (v) review and recommend to the board of
directors, compensation plans, policies and benefit programs, as well as approve
chief executive officer compensation.
  Nomination
of Directors
  The
Company has not undertaken any material changes with respect to the procedures
for election of directors since its last disclosure of these
procedures.
  ITEM 11. Executive
Compensation
  No
executive officer or director has received any cash compensation for services
rendered during the year ended September 30, 2008.
  32
  Compensation
Committee Interlocks and Insider Participation
  The
compensation committee is comprised of our independent
directors.  Under the board’s policies, Mr. Marshall Reynolds, Mr.
Jack Reynolds, 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.
  Report
of the Compensation Committee on Executive Compensation
  As of the
end of fiscal 2008, no compensation has been paid to any executive
officer.  Consequently, the independent members of the Board of
Directors have not met in their capacity as the Compensation Committee and have
not formulated any policies on executive compensation.  If we offer
compensation in the future to our executive officers, including our Chief
Executive Officer, we will adopt standards and policies to govern
compensation.
  ITEM 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
  The
following table sets forth information regarding the beneficial ownership of our
common stock as of September 30, 2008 by:
  ●
              each
      person known by us to be the beneficial owner of more than 5% of our
      outstanding shares of common stock;●
              each
      of our officers and directors; and●
              all
      our officers and directors as a
group.
  Unless
otherwise indicated, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
  Name
      and Address of Beneficial Owner(1)
              
              Amount
      and
                  Nature
      of
                  Beneficial
                  Ownership(2)
              
              
              Percent
      of ClassMarshall
      T. Reynolds
              
              
              4,661,864
              (3)
              
              
              30.20
              %Jack
      M. Reynolds
              
              
              506,924
              (4)
              
              
              4.17
              %Edsel
      R. Burns
              
              
              861,415
              (5)
              
              
              7.08
              %Larry
      A. Blount
              
              
              —
              
              
              
              —Neal
      W. Scaggs
              
              
              431,415
              (6)
              
              
              3.55
              %Joseph
      L. Williams
              
              
              184,424
              (7)
              
              
              1.52
              %Richard
      M. Adams
              
              
              —
              
              
              
              —Keith
      Molihan
              
              
              —
              
              
              
              —Douglas
      Reynolds
              
              
              1,284,815
              
              
              
              10.56
              %Eric
      Dosch
              
              
              ---
              
              
              
              ---
              %James
      Shafer
              
              
              9,800
              
              
              
              .08
              %All
      directors and officers as a group (11 individuals7,930,857
              (8)
              
              
              50.44
              %
  
 (1)
              The
      business address of each person is 100  Industrial Lane,
      Huntington, West Virginia 25702.(2)
              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
  (3)
              Includes
      3,342,303 shares underlying warrants .(4)
              Includes
      76,924 shares underlying warrants .(5)
              Includes
      76,924 shares underlying warrants .(6)
              Includes
      76,924 shares underlying warrants .(7)
              Includes
      76,924 shares underlying warrants .(8)
              Includes
      shares underlying warrants .
 
 ITEM 13. Certain Relationships and
Related Transactions, and Director Independence
  Transactions
with Certain Related Persons
  The
Company Leases it’s headquarter Offices from a corporation in which two
directors, Douglas Reynolds and Jack Reynolds are significant
shareholders.  One of the Company’s  subsidiaries, ST
Pipeline, leases it’s offices from Director James Shafer.  Management
feels that the rentals are comparable to similar rates for similar space in
independent transactions.   From time to time, the Company may
purchase office supplies or furniture from Chapman Printing, Co. which is owned
in part by Marshall Reynolds.
  We will
reimburse our officers and directors for any reasonable out-of-pocket business
expenses incurred by them in connection with certain activities on our behalf
such as identifying and investigating possible target businesses and business
combinations. There is no limit on the amount of accountable out-of-pocket
expenses reimbursable by us, which will be reviewed only by our board or a court
of competent jurisdiction if such reimbursement is challenged.
  Board
Independence
  The Board
of Directors consists of a majority of “independent directors” within the
meaning of the American Stock Exchange corporate governance listing
standards.  The Board of Directors has determined that Messrs. Adams,
Dosch,  Molihan,  Scaggs and Williams are “independent
directors” within the meaning of such standards.
  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.  Three
executive sessions were held during the fiscal year ended September 30, 2007 and
three were held during the fiscal year ended September 30, 2008..
  ITEM 14. Principal Accountant Fees
and Services
  Castaing
Hussey & Lolan, LLC
  Audit
Fees
 
 During
the fiscal year ended September 30, 2007, we paid Castaing, Hussey & Lolan,
LLC. (Castaing) $13,965 for the services they have performed in connection with
the audit of our financial statements included in this Annual Report on Form
10-K and the review of the quarterly financial statements contained
in  Form 10Q for the year ended September 30, 2007.  During
the year ended September 30, 2008, we paid Castaing $17,025 for services
provided in conjunction with filing of the Company’s Forms 10-Q and the
definitive proxy statement for the approval of the acquisition
proposals.
  34
  Audit-Related
Fees
 
 During
fiscal 2007  Castaing  did not render any audit assurance
and related services reasonably related to the performance of the audit or
review of financial statements.  During Fiscal 2008 Castaing was paid
$4,860 for acquisition related accounting services.
  Tax
Fees
 
 During the fiscal years ended September
30, 2007 and 2008, we paid Castaing $2,170 and $1,555,
respectively  for tax compliance services.
 
 All
Other Fees
 
 During
fiscal 2008 and 2007, there were no fees billed for products and services
provided by Castaing  other than those set forth above.
  Arnett and Foster,
P.L.L.C.
  Audit
Fees
 During the fiscal year ended September
30, 2008, we  paid no fees to Arnett & Foster relating to the
Audits of the Company for the year ended September 30, 2008.   We
have paid $5,000 in fees since September 30, 2008 relating to the 2008
Audit.
 
 Audit-
Related Fees
 
 During fiscal 2008, Arnett and Foster
did not render any audit assurance and related services reasonably related to
the performance of the audit or review of financial statements
 
 Tax
Fees
 
 During  fiscal 2008 Arnett and Foster
provided no tax services to the Company.
 
 All
Other Fees
 
 During fiscal 2008 there were no other
fees billed by Arnett and Foster 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.  Allof 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
 
 We have
engaged Arnett & Foster, Certified Public Accountants, P.L.L.C. (“Arnett
& Foster”) as our new independent registered public accounting firm,
effective October 1, 2008.  We continued our relationship with
Castaing, Hussey & Lolan LLC, CPAs (“CHL”) as its independent registered
public accounting firm through the preparation and filing on August 13, 2008 of
the Company’s Form 10-Q for the quarter period ended June 30,
2008.  On October 1, 2008, the Company notified CHL that it was
dismissing CHL as principal accountants.
  35
  CHL’s
reports on our consolidated financial statements as of and for the years ended
September 30, 2007 and 2006 did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.  Arnett & Foster has been engaged to audit
our consolidated financial statements as of and for the year ending September
30, 2008.  The engagement of Arnett & Foster was approved by our
Audit Committee.
 
 In
connection with the audits of the two fiscal years ended September 30, 2007 and
the subsequent interim period, there were (1) no disagreements with CHL on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which disagreements, if not resolved to the
satisfaction of CHL, would have caused them to make reference to the subject
matter of the disagreements in connection with their opinion and (2) no
reportable events.
 
 Arnett
& Foster was engaged by the Company on October 1, 2008 to audit the
consolidated financial statements of the Company as of and for the year ending
September 30, 2008.  During the period beginning October 1, 2006
through the date of this Report, the Company did not consult with Arnett &
Foster regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of
Regulation S-K.
  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)
              Financial
      StatementsEnergy
      Services of America Corporation●
              Report
      of Independent Registered Public Accounting Firm
              F-1●
              Report
      of Castaing, Hussey & Lolan, LLC Independent Registered Public
      Accounting Firm
              F-2●
              Balance
      Sheets, September 30, 2007 and September 30, 2008
              F-3●
              Statements
      of Income, Period Ended September 30, 2007 and September 30,
      2008
              F-4●
              Statements
      of Shareholders’ Equity, Period Ended September 30, 2007 and September 30,
      2008
              F-5●
              Statements
      of Cash  flows, Period Ended September 30, 2007 and September
      30, 2008
              F-6●
              Notes
      to Financial Statements.
              F-7C.J.
      Construction Company, Inc.●
              Report
      of Independent  Public Accounting Firm
              G-1●
              Balance
      Sheet, August 15, 2008 and December 31, 2007
              G-2●
              Statement
      of Income, Period Ended August 15, 2008 and December 31 ,
    2007
              G-3●
              Statement
      of Shareholders’ Equity, Period Ended August 15, 2008 and December 31,
      2007
              G-4●
              Statement
      of Cash Flows, Period Ended August 15, 2008 and December 31,
      2007
              G-5●
              Notes
      to Financial Statements.
              G-6S.T.
      Pipeline, Inc.●
              Report
      of Independent  Public Accounting Firm
              H-1●
              Balance
      Sheets, August 15, 2008 and December 31, 2007
              H-2●
              Statementsof
      Income and  Retained Earnings , Period Ended August 15, 2008 and
      December 31, 2007
              H-3●
              Statements
      of Cash Flows, Period Ended August 15, 2008 and December 31,
      2007
              H-4●
              Notes
      to Financial Statements.
              H-5
  36
  (a)(2)
              Financial Statement
      SchedulesNo
      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
 
  Exhibit
      No.
              Description3.1
              Amended
      and Restated Certificate of Incorporation.*3.2
              Bylaws.*3.3
              Certificate
      of Amendment to the Registrant’s Certificate of
      Incorporation.*4.1
              Specimen
      Unit Certificate.*4.2
              Specimen
      Common Stock Certificate.*4.3
              Specimen
      Warrant Certificate.*4.4
              Form
      of Unit Purchase Option.*4.5
              Form
      of Warrant Agreement between Continental Stock Transfer & Trust
      Company and the Registrant.*10.1
              Letter
      Agreements among the Registrant, Ferris, Baker Watts, Incorporated, and
      Officers and Directors.*10.2
              Form
      of Investment Management Trust Agreement between Continental Stock
      Transfer & Trust Company and the Registrant.*10.3
              Form
      of Stock Escrow Agreement between the Registrant, Continental Stock
      Transfer & Trust Company and the Initial
  Stockholders.*10.4
              Form
      of Letter Agreement between Chapman Printing Co. and the Registrant
      regarding administrative support.*10.5
              Advance
      Agreement between the Registrant and Marshall T. Reynolds, dated March 31,
      2006.*10.6
              Form
      of Amended Registration Rights Agreement among the Registrant and the
      Initial Stockholders.*10.7
              Warrant
      Placement Agreement between Marshall T. Reynolds, Edsel Burns, Douglas
      Reynolds, Jack Reynolds, Neal Scaggs, Joseph Williams and Ferris, Baker
      Watts, Incorporated.*14
              Code
      of Ethics*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.
 ______________________________
 *
              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.(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 CORPORATIONDate:
      December 26, 2008
              By:
              /s/
      Marshall T. ReynoldsMarshall
      T. ReynoldsChairman
      and 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
              
              DateBy:
              /s/
      Marshall T. Reynolds
              
              Chairman
      of the Board,
              
              December
      26, 2008Marshall
      T. Reynolds
              
              Chief
      Executive OfficerBy:
              /s/
      Jack M. Reynolds
              
              Director
              
              December
      26, 2008Jack
      M. ReynoldsBy:
              /s/
      Edsel R. Burns
              
              President
      and Director
              
              December
      26, 2008Edsel
      R. Burns
              
              (Principal
      Executive Officer)By:
              /s/ Larry A.
      Blount
              
              Secretary/Treasurer,
      Chief
              
              December
      26, 2008Larry
      A. Blount
              
              Financial
      OfficerBy:
              /s/
      Neal W. Scaggs
              
              Director
              
              December
      26, 2008Neal
      W. ScaggsBy:
              /s/
      Joseph L. Williams
              
              Director
              
              December
      26, 2008Joseph
      L. WilliamsBy:
              
              
              Director
              
              December
      26, 2008Richard
      M. Adams, Jr.By:
              /s/
      Keith Molihan
              
              Director
              
              December
      26, 2008Keith
      MolihanBy:
              /s/
      Douglas Reynolds
              
              Director
              
              December
      26, 2008Douglas
      ReynoldsBy:
              /s/
      Eric Dosch
              
              Director
              
              December
      26, 2008Eric
      DoschBy:
              /s/
      James Shafer
              
              Director
              
              December
      26, 2008James
      Shafer




38




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 sheet of Energy Services of
America Corporation and subsidiaries as of September 30, 2008, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year ended September 30, 2008.  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
audit.




We
conducted our audit 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.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides 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, 2008, and the results of their
operations and their cash flows for the year ended September 30, 2008, in
conformity with U.S. generally accepted accounting principles.




We were
not engaged to examine management's assessment of the effectiveness of Energy
Services of America Corporation's internal control over financial reporting as
of September 30, 2008, included in the accompanying Management’s Report on
Internal Control over Financial Reporting, and, accordingly, we do not express
an opinion thereon.






/s/
Arnett & Foster, P.L.L.C.


Charleston,
West Virginia




December
29, 2008




F-1




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 balance sheet of Energy Services of America Corporation
(formerly Energy Services Acquisition Corp.) (the “Company”) as of September 30,
2007 and the related statements of income, stockholders’ equity and cash flows
for the year 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 audit.




We
conducted our audit 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 audit provides a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Energy Services of America
Corporation as of September 30, 2007 and the results of its operations and its
cash flows for the year then ended in conformity with United States generally
accepted accounting principles.






/s/
Castaing, Hussey & Lolan, LLC


December
19, 2007




F-2




Energy
      Services of America Corp.Consolidated
      Balance SheetsSeptember
      30,
                  
                  
                  September
      30,Assets
                  
                  2008
                  
                  
                  2007Current
      AssetsCashCash
      and cash equivalents
                  
                  $
                  13,811,661
                  
                  
                  $
                  756,782Cash
      and cash equivalents in trust
                  
                  
                  -
                  
                  
                  
                  49,711,430Cash
      held in trust from Underwriter
                  
                  
                  -
                  
                  
                  
                  1,032,000Accounts
      Receivable-Trade
                  
                  
                  38,578,810
                  
                  
                  
                  -Allowance
      for Doubtful Accounts
                  
                  
                  (363,819
                  )
                  
                  
                  -Retainages
      Receivable
                  
                  
                  6,303,690
                  
                  
                  
                  -Other
      Receivables
                  
                  
                  182,598
                  
                  
                  
                  -Costs
      and estimated earnings in excess of billingson
      uncompleted contracts
                  
                  
                  5,272,669
                  
                  
                  
                  -Prepaid
      expenses and other
                  
                  
                  1,121,101
                  
                  
                  
                  26,447Total
      Current Assets
                  
                  
                  64,906,710
                  
                  
                  
                  51,526,659Property
      and Equipment, at Cost
                  
                  
                  33,851,552
                  
                  
                  
                  -less
      Accumulated Depreciation
                  
                  
                  (548,089
                  )
                  
                  
                  -33,303,463
                  
                  
                  
                  -Goodwill
                  
                  
                  35,489,643
                  
                  
                  
                  -Total
      Assets
                  
                  $
                  133,699,816
                  
                  
                  $
                  51,526,659Liabilities
      and Stockholders' EquityCurrent
      LiabilitiesCurrent
      maturities of long-term debt
                  
                  $
                  15,040,033
                  
                  
                  $
                  -Lines
      of credit and short term Financing
                  
                  
                  9,796,208
                  
                  
                  
                  -Accounts
      Payable
                  
                  
                  11,336,680
                  
                  
                  
                  -Accrued
      Expenses and other Current Liabilities
                  
                  
                  9,364,341
                  
                  
                  
                  167,564Loans
      from Stockholders
                  
                  
                  
                  
                  
                  
                  150,000Due
      to Underwriter
                  
                  
                  
                  
                  
                  
                  1,032,000Billings
      in excess of costs and estimated earnings onuncompleted
      contracts
                  
                  
                  509,227
                  
                  
                  
                  -Federal
      Income Tax Payable
                  
                  
                  1,238,414
                  
                  
                  
                  -State
      Income Tax Payable
                  
                  
                  223,047
                  
                  
                  
                  -Total
      Current Liabilities
                  
                  
                  47,507,950
                  
                  
                  
                  1,349,564Long-term
      debt, less current maturities
                  
                  
                  18,272,186
                  
                  
                  
                  -Long-term
      debt, payable to shareholder
                  
                  
                  6,000,000Deferred
      Income Taxes Payable
                  
                  
                  1,662,463
                  
                  
                  
                  -Total
      Liabilities
                  
                  
                  73,442,599
                  
                  
                  
                  1,349,564Common
      Stock subject to possible redemption1,719,140
      shares at redemption value
                  
                  
                  -
                  
                  
                  
                  10,143,000Stockholders'
      equityPreferred
      stock, $.0001 par value
                  
                  
                  -
                  
                  
                  
                  -Authorized
      1,000,000 sharers, none issuedCommon
      Stock, $.0001 par valueAuthorized
      50,000,000 sharesIssued
      and outstanding 10,750,000 shares, inclusive of1,719,140
      shares subject to possible redemption for 2007and
      12,092,307 issued and outstanding for 2008
                  
                  
                  1,209
                  
                  
                  
                  903Additional
      Paid in Capital
                  
                  
                  55,976,368
                  
                  
                  
                  38,564,710Retained
      Earnings
                  
                  
                  4,279,640
                  
                  
                  
                  1,468,482Total
      Stockholders' Equity
                  
                  
                  60,257,217
                  
                  
                  
                  40,034,095Total
      liabilities and stockholders' equity
                  
                  $
                  133,699,816
                  
                  
                  $
                  51,526,659




The
accompanying notes are an integral part of these financial
statements.


F-3




Energy
      Services of America Corp.Consolidated
      Income StatementsYear
      Ended
              
              
              Year
      EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007Revenue
              
              $
              28,517,688
              
              
              $
              -Cost
      of Revenues
              
              
              23,830,404
              
              
              
              -Gross
      Profit
              
              
              4,687,284
              
              
              
              -Selling,
      general and administrative expenses
              
              
              1,350,246
              
              
              
              385,773Income
      from operations
              
              
              3,337,038
              
              
              
              (385,773
              )Other
      income (expense)Interest
      income
              
              
              1,585,074
              
              
              
              2,612,835Other
      nonoperating income (expense)
              
              
              111,352
              
              
              
              -Interest
      expense
              
              
              (220,274
              )
              
              
              -Gain
      (Loss)  on sale of equipment
              
              
              (51
              )
              
              
              -1,476,101
              
              
              
              2,612,835Income
      before income taxes
              
              
              4,813,139
              
              
              
              2,227,062Income
      tax expense
              
              
              2,001,981
              
              
              
              846,000Net
      Income
              
              $
              2,811,158
              
              
              $
              1,381,062Earnings
      per share basic
              
              $
              0.26
              
              
              $
              0.13Earnings
      per share diluted
              
              $
              0.21
              
              
              $
              0.11




The
accompanying notes are an integral part of these financial
statements.


F-4




Energy
      Services of America Corp.Consolidated
      Statements of Changes in Stockholders' EquityFor
      the years Ended September 30, 2008 and 2007TotalCommon
      Stock
                
                
                Additional
      Paid
                
                
                Retained
                
                
                Stockholders'Shares
                
                
                Amount
                
                
                in
      Capital
                
                
                Earnings
                
                
                EquityBalance
      at September 30, 2006
                
                
                9,030,860
                
                
                $
                903
                
                
                $
                38,734,491
                
                
                $
                87,420
                
                
                $
                38,822,814Additional
      offering costs
                
                
                -
                
                
                
                -
                
                
                
                (14,981
                )
                
                
                -
                
                
                
                (14,981
                )Accretion
      relating to common stock subject topossible
      redemption
                
                
                -
                
                
                
                -
                
                
                
                (154,800
                )
                
                
                -
                
                
                
                (154,800
                )Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,381,062
                
                
                
                1,381,062Balance
      at September 30, 2007
                
                
                9,030,860
                
                
                
                903
                
                
                
                38,564,710
                
                
                
                1,468,482
                
                
                
                40,034,095Issuance
      of Common Stock in CJ Hughes acquisition
                
                
                2,964,763
                
                
                
                296
                
                
                
                16,999,655
                
                
                
                -
                
                
                
                16,999,951Accretion
      related to common stock subject topossible
      redemption
                
                
                -
                
                
                
                -
                
                
                
                (138,642
                )
                
                
                -
                
                
                
                (138,642
                )96,684  shares
      reclassed from "Subject to Redemption"1,622,456
      of a possible 1,719,140 redeemed
                
                
                96,684
                
                
                
                10
                
                
                
                550,645
                
                
                
                
                
                
                
                550,655Net
      Income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,811,158
                
                
                
                2,811,158Balance
      at September 30, 2008
                
                
                12,092,307
                
                
                $
                1,209
                
                
                $
                55,976,368
                
                
                $
                4,279,640
                
                
                $
                60,257,217






The accompanying notes are
an integral part of these financial statements.


F-5




Energy
      Services of America Corp.Consolidated
      Statements of Cash FlowsYear
      Ended
                    
                    
                    Year
      EndedSeptember
      30, 2008
                    
                    
                    September
      30, 2007Operating
      activitiesNet
      income
                    
                    $
                    2,811,158
                    
                    
                    $
                    1,381,062Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      expense
                    
                    
                    548,089
                    
                    
                    
                    -(Gain)Loss
      on sale/disposal of equipment
                    
                    
                    51
                    
                    
                    
                    -Provision
      for deferred taxes
                    
                    
                    25,520Accrued
      Income and Accretion on Investments in Trust
                    
                    
                    
                    
                    
                    
                    (562,257
                    )Decrease
      in contracts receivable
                    
                    
                    252,748
                    
                    
                    
                    -Increase
      in retainage receivable
                    
                    
                    (3,099,778
                    )
                    
                    
                    -Increase
      in Other Receivables
                    
                    
                    (79,105
                    )
                    
                    
                    -Increase
      in cost and estimated earnings
                    
                    
                    (1,029,139
                    )
                    
                    
                    -Increase
      in prepaid expenses
                    
                    
                    (516,397
                    )
                    
                    
                    (26,447
                    )Increase
      in accounts payable
                    
                    
                    1,716,035
                    
                    
                    
                    -Increase
      in accrued expenses
                    
                    
                    489,363
                    
                    
                    
                    80,039Decrease
      in billings in excess of cost
                    
                    
                    (613,161
                    )
                    
                    
                    -Increase
      in Income Taxes Payable
                    
                    
                    1,338,836
                    
                    
                    
                    -Net
      cash used in operating activities
                    
                    
                    1,844,220
                    
                    
                    
                    872,397Investing
      activitiesPurchase
      of Investments held in Trust Fund
                    
                    
                    (21,000,000
                    )
                    
                    
                    (41,071,000
                    )Proceeds
      from maturites of Investments held in Trust
                    
                    
                    71,743,430
                    
                    
                    
                    41,071,000Investment
      in property & equipment
                    
                    
                    (182,440
                    )
                    
                    
                    -Cash
      paid in excess of cash received in acquisition
                    
                    
                    (28,901,591
                    )
                    
                    
                    -Net
      cash used by investing activities
                    
                    
                    21,659,399
                    
                    
                    
                    -Financing
      ActivitiesPayment
      of deferred fee to underwriter
                    
                    
                    (1,032,000
                    )
                    
                    
                    -Payment
      of Loan from Stockholder
                    
                    
                    (150,000
                    )
                    
                    
                    -Payment
      of Offering Costs
                    
                    
                    -
                    
                    
                    
                    (192,996
                    )Net
      borrowings (proceeds) on LOC and Short term Debt
                    
                    
                    1,343,512
                    
                    
                    
                    -Principal
      payments on Debt
                    
                    
                    (879,265
                    )
                    
                    
                    -Cash
      paid for redemption of shares
                    
                    
                    (9,730,987
                    )
                    
                    
                    -Net
      cash provided by financing activities
                    
                    
                    (10,448,740
                    )
                    
                    
                    (192,996
                    )Increase
      in cash and cash equivalents
                    
                    
                    13,054,879
                    
                    
                    
                    679,401Cash
      beginning of year
                    
                    
                    756,782
                    
                    
                    
                    77,381Cash
      End of Year
                    
                    $
                    13,811,661
                    
                    
                    $
                    756,782Interest
      paid
                    
                    $
                    220,274
                    
                    
                    $
                    -Income
      Taxes Paid
                    
                    $
                    671,500
                    
                    
                    $
                    764,375Supplemental
      disclosure of non-cash financing activity:Purchases
      of property & equipment under financing agreements
                    
                    $
                    438,938
                    
                    
                    $
                    -Common
      Stock issue for Acquisitions
                    
                    $
                    16,999,951
                    
                    
                    $
                    -Note
      Payable issue for Acquisitions
                    
                    $
                    3,000,000
                    
                    
                    $
                    -




The
accompanying notes are an integral part of these financial
statements.


F-6




ENERGY
SERVICES OF AMERICA CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.   BUSINESS
AND ORGANIZATION:





Energy
Services of America Corporation, formerly known as Energy Services Acquisition
Corp., (the Company) was incorporated in Delaware on March 31, 2006 as a blank
check company whose objective was to acquire an operating business or
businesses.  On September 6, 2006 the Company sold 8,600,000 units in
the public offering at a price of $6.00 per unit.  Each unit consisted
of one share of the Company’s common stock and two common stock purchase
warrants for the purchase of a share of common stock at $5.00.  The
warrants could not be exercised until the later of the completion of the
business acquisition or one year from issue date.   The Company
operated as a blank check company until August 15, 2008.  On that date
the Company acquired S.T. Pipeline, Inc. and C.J. Hughes Construction Company,
Inc. with proceeds from the Company’s Initial Public Offering.  S. T.
Pipeline and C. J Hughes will be operated as wholly owned subsidiaries of the
Company.





S.T.
Pipeline, Inc. (S.T) was incorporated in May 1990 under the laws of the State of
West Virginia.  S.T. engages in the construction of natural gas
pipelines for utility companies in various states, mostly in the mid-Atlantic
area of the country.  S.T.’s contracts are primarily fixed price
contract with some cost-plus service work performed as requested.  All
of the Company’s production personnel are union members of the various related
construction trade unions and are subject to collective bargaining agreements
that expire at varying time intervals.





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





2.     SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:





Principles
of Consolidation





The
consolidated financial statements of Energy Services include the accounts of
Energy Services and its wholly owned subsidiaries.  All significant
intercompany accounts and transactions have been eliminated in
consolidation.  Unless the context requires otherwise, references to
Energy Services include Energy Services and its consolidated
subsidiaries.





Reclassifications





Certain
reclassifications have been made in prior years’ financial statements to conform
to classifications used in the current year.




F-7
 
  Use of Estimates and
Assumptions





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




Cash and Cash
Equivalents





Energy
Services considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.




Financial
Instruments





Financial
instruments include cash and cash equivalents, contracts receivable, retainage
receivable, accounts payable and long-term debt.  At September 30,
2007 the financial assets of the Company consisted of the investments held in
Trust.  The carrying value of such amounts reported at the applicable
balance sheet dates approximates fair value.




Investments Held in
Trust





The
Company had no restricted investments at September 30, 2008.  The
Company’s restricted investments held in the Trust Fund at September 30, 2007
were comprised of an institutional money fund and a United States Treasury Bill
with a maturity of November 01, 2007 in the amounts of $40,242,191 and
$10,501,239, respectively.




Accounts Receivable and Allowance for
Doubtful Accounts





The
Company provides an allowance for doubtful accounts when collection of an
account or note receivable is considered doubtful, and receivables are written
off against the allowance when deemeduncollectible.  Inherent
in the assessment of the allowance for doubtful accounts are certain judgments
and estimates including, among others, the customer’s access to capital, the
customer’s willingness or ability to pay, general economic conditions and the
ongoing relationship with the customer.   Retainage billed but
not paid pursuant to contract provisions will be due upon completion of the
contracts.  Based on the Company’s’ past experience management
considers all amounts classified as retainage receivable to be
collectible.  All retainage receivable amounts are expected to be
collected within the next fiscal year.




Property and
Equipment




Property and equipment are
recorded at cost.  Costs which extend the useful lives or increase the
productivity of the assets are capitalized, while normal repairs and maintenance
that does not extend the
useful life or increase productivity of the asset are expensed as
incurred.   Plant and equipment are depreciated principally on
the straight- linemethod
over the estimated useful lives of the assets:




F-8




buildings
39 years; operating equipment and vehicles 5-7 years; and office equipment,
furniture and fixtures 5-7 years.




Goodwill
and other intangibles





Goodwill
will be assessed annually for impairment.  In the event that the
estimated undiscounted future cash flows associated with goodwill are less than
the carrying value, an impairment loss would be recognized.  For the
year ended September 30, 2008, no impairment loss has been
recognized.




Impairment
of Long-Lived Assets





A
long-lived asset shall be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be
recoverable.  If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset’s carrying amount to determine if a write-down to market value is
required.




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 as
billed.




Advertising





All
advertising costs are expensed as incurred.  Total advertising expense
was $2,200 and $-0- for the years ended September 30, 2008 and 2007,
respectively.




F-9





Income Taxes





The
Company and all subsidiaries file a consolidated income tax return on a fiscal
year basis.  The Company began filing tax returns for the year ended
September 30, 2006 and therefore all prior Company tax retuns are still subject
to audit.  Both C J Hughes and S T Pipeline filed as S Corporations
prior to their acquisition by the Company, therefore any audits of those
companies tax returns would result in an adjustment to the pass-through income
to the shareholders at the time, and would not create any liability to the
Company.





The
Company follows the liability method of accounting for income taxes in
accordance with SFAS   No. 109,  “Accounting for Income
Taxes.”  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.  FIN No. 48 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.




Earnings
Per Common Share





Basic
earnings per share is computed using the weighted average number of common
shares outstanding during the year, and diluted earnings per share is computed
using the weighted average number of common shares outstanding during the year
adjusted for all potentially dilutive common stock equivalents, except in cases
where the effect of the common stock equivalent would be
antidilutive.  Potential common shares that may be issued by the
Company relate to the warrants issued to the initial shareholders and as part of
the units in the Company’s initial public offering.




Collective Bargaining
Agreements




Certain
Energy Services subsidiaries are party to collective bargaining agreements with
unions representing certain of their employees.  The agreements
require such subsidiaries to pay specified wages and provide certain benefits to
the union employees.  These agreements expire at various times and
have typically been renegotiated and renewed on terms that are similar to the
ones contained in the expiring agreements.





Under
certain collective bargaining agreements, the applicable Energy Services
subsidiary is required to make contributions to multi-employer pension
plans.  If the subsidiary were to cease participation in one or more
of these plans, a liability could potentially be assessed related to any
underfunding of these plans.  The amount of such assessment, were one
to be made, cannot be reasonably estimated.




Litigation Costs





The
Company reserves when it is probable that a liability has been incurred and the
amount of loss can be reasonably estimated.  Litigation costs are
expensed as incurred.




F-10




Segments




The
Company has determined that its operations are conducted in only one business
segment, which is the providing of contracting services to energy related
companies.





New
Accounting Pronouncements




In September 2006, the
FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair
value, establishes methods used to measure fair value and expands disclosure
requirements about fair value measurements.  SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal periods, as it relates to
financial assets and liabilities that are carried at fair value.  SFAS
No. 157 also requires certain tabular disclosures related to results of applying
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
and SFAS No. 142, “Goodwill and Other Intangible Assets”.  On November
14, 2007, the FASB provided a one year deferral for the implementation of SFAS
No. 157 for non-financial assets and liabilities.  Based on the assets
and liabilities on our balance sheet as of September 30, 2008, we do not expect
the adoption of SFAS No. 157 to have a material impact on our consolidated
financial position, results of operations or cash flows.




In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,
including an amendment of FASB Statement No. 115.  SFAS No. 159
permits entities to choose to measure at fair value many financial instruments
and certain other items at fair value that are not currently required to be
measured.  Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings.  SFAS No. 159
does not affect any existing accounting literature that requires certain assets
and liabilities to be carried at fair value.  SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007.  Based
on the assets and liabilities on our balance sheet as of September 30, 2008, we
do not expect the adoption of SFAS No. 159 to have any impact on our
consolidated financial position, results of operations or cash
flows.




During December 2007, the FASB issued
SFAS No. 141 (R), “Business Combinations”.  SFAS No. 141 (R ) is
effective for fiscal years beginning after December 15, 2008.  Earlier
application is prohibited.  Assets and liabilities that arose from
business combinations which occurred prior to the adoption of FASB No. 141 ( R)
should not be adjusted upon the adoption of SFAS No. 141 (R).  SFAS
No. 141 ( R) requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
business combination; establishes the acquisition date as the measurement date
to determine the fair value of all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to




F-11




evaluate
and understand the nature and financial effect of the business
combination.




As
it relates to recognizing all (and only) the assets acquired and liabilities
assumed in a business combination, costs an acquirer expects but is not
obligated to incur in the future to exit an activity of an acquiree or to
terminate or relocate an acquiree’s employees are not liabilities at the
acquisition date but must be expensed in accordance with other applicable
generally accepted accounting principles.  Additionally, during the
measurement period, which should not exceed one year from the acquisition date,
any adjustments that are needed to assets acquired and liabilities assumed to
reflect new information obtained about facts and circumstances that existed as
of that date will be adjusted retrospectively.  The acquirer will be
required to expense all acquisition- related costs in the periods such costs are
incurred other than costs to issue debt or equity securities.  SFAS
No. 141 ( R) will have no impact on our consolidated financial position, results
of operations or cash flows at the date of adoption, but it could have a
material impact on our consolidated financial position, results of operations or
cash flows in the future when it is applied to acquisitions which occur in the
fiscal year beginning October 1, 2009.




In April 2008, the FASB issued staff
position FSP 142-3, “Determination of the Useful Life of Intangible
Assets”.  FSP142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS NO. 142.  The intent of FSP
142-3 is to improve the consistency between the useful life of an intangible
asset and the period of expected cash flows used to measure its fair value and
to enhance existing disclosure requirements relating to intangible
assets.  FSP 142-3 is effective for fiscal years beginning after
December 15, 2008 and should be applied prospectively to intangible assets
acquired after the effective date.  Early adoption is
prohibited.  Accordingly, we will adopt FSP 142-3 on October 1,
2009.   We do not expect FSP 142-3 to have an impact on our
consolidated financial position, results of operations or cash flows at the date
of adoption, but it could have a material impact on our consolidated financial
position, results of operations or cash flows in future periods.





3.  ACQUISITIONS




S.T.
PIPELINE Inc.





On
January 22, 2008 S.T. Pipeline entered into a merger agreement with the
Company.  The agreement called for the stockholders of S.T. Pipeline to
receive total consideration of $19 million, reduced by the book value of certain
assets to be distributed to the stockholders of the Company.  All except $3
million was paid to the stockholders at closing.  The remaining $3 million
consists of deferred payments to the stockholders over three years with an
interest at a simple rate of 7.5% per annum.




F-12




The
transactions closing was conditioned upon the receipt of Energy Services
shareholders approval and holders of less than 20% of the shares of Energy
Services common stock voting against the transaction and electing to convert
their Energy Services common stock into cash from the trust fund established in
connection with Energy Services initial public offering, among other
conditions.   At the August 15, 2008 shareholders meeting the
shareholders of Energy Services approved the purchase and the agreement was
closed





The
purchase price paid by Energy Services for S.T. Pipeline consisted of cash of
$16,216,000 and a note payable of $3,000,000.





The
acquisition was accounted for as a purchase with the purchase price, including
acquisition costs of $322,738, allocated as follows:





Current
      Assets
            
            $
            23,713,942Non-Current
      Assets
            
            
            103,493Property
      and Equipment
            
            
            11,580,000Goodwill
            
            
            4,177,363Total
      Assets acquired
            
            
            39,574,798Current
      Liabilities
            
            
            17,554,830Long-Term
      liabilities
            
            
            2,481,230Total
      liabilities assumed
            
            
            20,036,060Total
      Purchase Price
            
            $
            19,538,738





Goodwill
represents the excess of the purchase price over the fair value of the acquired
net assets. Energy
Services anticipates to continue to realize meaningful operational and cost
synergies, such as
enhancing the combined service offerings, expanding the geographic reach and
resource base of the combined
company, improving the utilization of personnel and fixed
assets.   Energy Services believes these opportunities contribute
to the recognition of the substantial goodwill.




C.J. HUGHES CONSTRUCTION COMPANY,
INC.





On
February 13, 2008 the Company entered into a letter of intent to acquire C.J.
Hughes Construction Company, Inc.  C.J. Hughes is underground utility
service company located in Huntington, West Virginia. On
February 21, 2008 the company entered into a merger agreement with C.J. Hughes
Construction. The
agreement called for a total purchase price of approximately $34.0 million which
would be paid as follows: each share of C.J. Hughes Class A voting stock
and Class B non-voting stock would be converted into the right to receive
$36,896 in cash and 6,434.70 shares of Energy Services common stock.  The
stock and cash portions of the transaction each total approximately $17.0
million.




At the
August 15, 2008 shareholders meeting the shareholders of Energy Services
approved the merger and the agreement was closed on that date.




F-13


The
acquisition was accounted for as a purchase with the purchase price, including
acquisition costs of $322,577, allocated as follows:





Current
      Assets
            
            $
            27,738,924Property
      and Equipment
            
            
            21,566,588Goodwill
            
            
            31,312,280Total
      Assets acquired
            
            
            80,617,792Current
      Liabilities
            
            
            26,311.989Long-Term
      liabilities
            
            
            18,346,628Deferred
      Tax Liability
            
            
            1,636,943Total
      liabilities assumed
            
            
            46,295,560Total
      Purchase Price
            
            $
            34,322,232





Goodwill
represents the excess of the purchase price over the fair value of the acquired
net assets. Energy
Services anticipates to continue to realize meaningful operational and cost
synergies, such as
enhancing the combined service offerings, expanding the geographic reach and
resource base of the combined
company, improving the utilization of personnel and fixed
assets.   Energy Services believes these opportunities contribute
to the recognition of the substantial goodwill.





The
results of operations of the acquired companies subsequent to the acquisition
dates are included in the Company’s consolidated statements of
income.  The following unaudited pro forma information for the years
ended September 30, 2008 and 2007 reflects the Company’s estimated consolidated
results of operations as if the acquisitions occurred at the beginning of each
year.





Years Ended September 30,2008
            
            
            2007Contract
      Revenues
            
            $
            208,240,000
            
            
            $
            133,091,000Net
      Income
            
            $
            15,002,000
            
            
            $
            7,120,000Earnings
      per share basic
            
            $
            1.24
            
            
            $
            .59Earnings
      per share diluted
            
            $
            1.03
            
            
            $
            .51




4.   GOODWILL
AND INTANGIBLE ASSETS





A summary
of changes in the Company’s goodwill is as follows:





Years Ended September 30,2008
                  
                  
                  2007Balance
      at beginning of year
                  
                  $
                  -
                  
                  
                  $
                  -Impairment
                  
                  
                  -
                  
                  
                  
                  -Acquisition
      of ST Pipeline
                  
                  
                  4,177,363
                  
                  
                  
                  -Acquisition
      of CJ Hughes Construction
                  
                  
                  31,312,280
                  
                  
                  
                  -Balance
      at end of year
                  
                  $
                  35,489,643
                  
                  
                  $
                  -





F-14





5.   ACCOUNTS
RECEIVABLE:





Activity
in the Company’s allowance for doubtful accounts consists of the


following:





Year
      Ended September 302008
                  
                  
                  2007Balance
      at beginning of year
                  
                  $
                  -
                  
                  
                  $
                  -Charged
      to expense
                  
                  
                  -
                  
                  
                  
                  -Deductions
      for uncollectible receivables written off, net of
    recoveries
                  
                  
                  (286
                  )
                  
                  
                  -Current
      year additions   from acquisitions
                  
                  
                  364,105
                  
                  
                  
                  -Balance
      at end of year
                  
                  $
                  363,819
                  
                  
                  $
                  -





6.  UNCOMPLETED
CONTRACTS





Costs,
estimated earnings, and billings on uncompleted contracts as of September 15,
2008 and 2007 are summarized as follows:




Year Ended September 302008
                        
                        
                        2007Costs
      incurred on contracts in progress
                        
                        $
                        57,723,456
                        
                        
                        $
                        -Estimated
      earnings, net of estimated losses
                        
                        
                        6,562,540
                        
                        
                        
                        -64,285,996
                        
                        
                        
                        -Less   Billings
      to date
                        
                        
                        59,522,554
                        
                        
                        
                        -$
                        4,763,442
                        
                        
                        $
                        -Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                        
                        $
                        5,272,669
                        
                        
                        $
                        -Less
      Billings in excess of costs and estimated earnings on
      uncompleted
                        
                        
                        509,227
                        
                        
                        
                        -Contracts
                        
                        $
                        4,763,442
                        
                        
                        $
                        -





7.  PROPERTY
AND EQUIPMENT




Year Ended September 302008
                    
                    
                    2007Property
      and Equipment consists of the following:Land
                    
                    $
                    702,000
                    
                    
                    $
                    -Buildings
      and leasehold improvements
                    
                    
                    253,944
                    
                    
                    
                    -Operating
      equipment and vehicles
                    
                    
                    32,859,797
                    
                    
                    
                    -Office
      equipment, furniture and fixtures
                    
                    
                    35,811
                    
                    
                    
                    -33,851,552
                    
                    
                    
                    -Less
      Accumulated Depreciation and Amortization
                    
                    
                    548,089
                    
                    
                    
                    -Property
      and equipment net
                    
                    $
                    33,303,463
                    
                    
                    $
                    -




F-15




8.  SHORT-TERM
DEBT




Short-term
debt consists of the following:
  Lines of
credit of $10.8 million have been established with local
banks.  Interest rates range from prime plus 1⁄2% to prime plus l%
percent.  $3.5 Million of  the Line of Credit is guaranteed
by a major shareholder of Energy Services of America.   The
Company has $1.1 million available on the line at September 30,
2008.


9.  LONG-TERM
DEBT




A summary
of long-term debt as of September 30, 2008




September
    30,
                                                                                      
                                                                                      
                                                                                      September
    30,2008
                                                                                      
                                                                                      
                                                                                      2007Note payable to a Bank, payable in
      monthly installments of$9,217, including interest at 8%,
      maturity date of June 10, 2010,secured by equipment acquired with
      the proceeds of this note.
                                                                                      
                                                                                      $
                                                                                      179,769
                                                                                      
                                                                                      $
                                                                                      -Note payable to a finance company,
      payable in monthlyinstallments of $2,180, including
      interest at 8.375%,maturity date of September 14,
      2009, secured by equipmentacquired with this
      note.
                                                                                      
                                                                                      
                                                                                      25,052
                                                                                      
                                                                                      
                                                                                      -Notes payable to various finance
      companies, payable in monthlyinstallments totaling $9,672,
      including interest at rates rangingbetween 0% and 8%, with varying
      maturity dates from March,2008, through December, 2008,
      secured by vehicles andequipment acquired with the
      notes.
                                                                                      
                                                                                      
                                                                                      1,343,586
                                                                                      
                                                                                      
                                                                                      -Notes payable to banks and credit
      unions, payable in monthlyinstallments totaling $11,925,
      including interest at rates rangingbetween 4.5% and 8.0%, maturity
      dates varying between June, 2008,through March, 2009, secured by
      vehicles acquired with the notes.
                                                                                      
                                                                                      
                                                                                      2,171,384
                                                                                      
                                                                                      
                                                                                      -Notes payable to former
      shareholders and current officer of acquiredcompany, payable at 0%
      interest as accounts receivablesoutstanding at the date of purchase are
collected
                                                                                      
                                                                                      
                                                                                      10,934,813
                                                                                      
                                                                                      
                                                                                      -Note payable to bank, due in
      monthly installments of $5,000,including interest at 6.75%, final
      payment due September 2012,secured by real estate, vehicles,
      and equipment
                                                                                      
                                                                                      
                                                                                      398,016
                                                                                      
                                                                                      
                                                                                      -Notes payable to finance
      companies, due in monthly installmentstotaling $132,444, including
      interest ranging from 1.0% to 7.92%,through December 2012, secured by
      equipment
                                                                                      
                                                                                      
                                                                                      10,799,191
                                                                                      
                                                                                      
                                                                                      -Notes payable to banks, due in
      monthly installments totaling$108,497, including interest at
      prime plus 0.5% to 8.75%, finalpayments due April 2010 through
      July 2011, secured byequipment, receivables, and
      intangibles
                                                                                      
                                                                                      
                                                                                      4,432,008
                                                                                      
                                                                                      
                                                                                      -Notes payable to individuals, due
      in annual installments of$1 million with interest at
      7.5%
                                                                                      
                                                                                      
                                                                                      3,028,400
                                                                                      
                                                                                      
                                                                                      -Note
      payable to shareholder, interest rate at  prime,
      notematures
      in August of 2010
                                                                                      
                                                                                      
                                                                                      6,000,000
                                                                                      
                                                                                      
                                                                                      -39,312,219
                                                                                      
                                                                                      
                                                                                      -Less Current
      Maturities
                                                                                      
                                                                                      
                                                                                      15,040,033
                                                                                      
                                                                                      
                                                                                      -Total Long term
      Debt
                                                                                      
                                                                                      $
                                                                                      24,272,186
                                                                                      
                                                                                      $
                                                                                      -




Maturities of long‐term debt for the
next five years are as follows:
  2009
                              
                              $
                              15,040,0332010
                              
                              
                              17,239,3572011
                              
                              
                              3,985,9792012
                              
                              
                              1,661,9232013
                              
                              
                              648,991Thereafter
                              
                              
                              
                              735,936$
                              39,312,219


10.  INCOME
TAXES





The
components of income taxes are as follows:




Years Ended September 30,2008
            
            
            2007Federal
            Current
            
            $
            1,654,414
            
            
            $
            695,000Deferred
            
            
            25,520
            
            
            
            0Total
            
            
            1,679,934
            
            
            
            695,000State
            Current
            
            
            322,047
            
            
            
            151,000Total
      income tax expense
            
            $
            2,001,981
            
            
            $
            846,000




F-16





The
provision for income taxes differs from the amount computed by applying the
federal statutory rate of 34 percent on income from operations as indicated in
the following analysis:
 
 Year
      Ended September 30,2008
              
              
              2007Statutory
      rate
              
              
              34.0
              %
              
              
              34.0
              %Effect
      of state income taxes
              
              
              7.6
              
              
              
              4.0Effective
      tax rate
              
              
              41.6
              %
              
              
              38.0
              %





Deferred
income taxes are provided for significant difference between the basis of assets
and liabilities for financial reporting and income tax reporting.  A
valuation allowance is established when necessary to reduce
deferred tax assets to the amount expected to be realized.





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





September 30,2008
            
            
            2007Deferred
      Tax LiabilitiesProperty,
      Plant and Equipment
            
            $
            1,662,463
            
            
            $
            -0-Total
      deferred tax liability
            
            $
            1,662,463
            
            
            $
            -0-





On
October 1, 2007 The Company adopted the provisions of FASB Interpretation No.
48, Accounting for Uncertainty
in Income Taxes (“FIN 48”).  FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in financial statements in accordance
with SFAS No. 109, Accounting
for Income Taxes.  The Company does not believe that it has any
unrecognized tax benefits included in its consolidated financial
statements.  The Company has not had any settlements in the current
period with taxing authorities, nor has it recognized tax benefits as a result
of a lapse of the applicable statute of limitations.





The
Company recognizes interest and penalties accrued related to unrecognized tax
benefits, if applicable, in general and administrative
expenses.  During the years ended September 30, 2008 and 2007 the
Company did not did not recognize any interest or penalties in its consolidated
financial statements, nor has it recorded an accrued liability for interest or
penalty payments.





11.  EARNINGS
PER SHARE




The
amounts used to compute the basic and diluted earnings per share for the years
ended 2007, and 2008 is illustrated below:





Year
      Ended September 30,2008
            
            
            2007Net
      Income from continuing operations availableto
      common shareholders
            
            $
            2,811,158
            
            
            $
            1,381,062Weighted
      average shares outstanding  basic
            
            
            10,917,788
            
            
            
            10,750,000Effect
      of dilutive warrants
            
            
            2,451,172
            
            
            
            1,938,930Weighted
      average shares outstanding  diluted
            
            
            13,368,960
            
            
            
            12,688,930Net
      Income per share- basic
            
            $
            .26
            
            
            $
            .13Net
      Income  per share- diluted
            
            $
            .21
            
            
            $
            .11





F-17





12.
WARRANTS AND UNIT PURCHASE OPTION





On
September 6, 2006, the Company sold 8,600,000 units ("Units") in the Public
Offering at a price of $6.00 per Unit. Each Unit consists of one share of the
Company's common stock,  $.0001 par value, and two Redeemable Common
Stock Purchase Warrants  ("Warrants").  Each
Warrant  entitles the holder to purchase from the  Company
one share of common  stock at an  exercise  price
of $5.00 per share  commencing on the later of
the  consummation by the Company of a Business
Acquisition,  or
one  year  after  the  Effective  Date
and terminating  on the fifth  anniversary of the date of
the Public  Offering.  The Company may redeem the Warrants
for a redemption price of $0.01 per Warrant at any time if notice of not less
than 30 days is given and the last sale price of the Common Stock has been at
least $8.50 on 20 of the 30 trading days ending on the third day prior to the
day on which notice is given.  A total of 17,200,000 warrants were
issued in the IPO and all are still outstanding and unexercised.





Preceding
the public offering the initial shareholders of the Company purchased an
aggregate of 3,076,923 warrants at $.65 per warrant from the Company in a
private placement offering.  The warrants sold in the Private
Placement were identical to the warrants sold in the public offering, except
that the private placement warrants are not registered at this
time.  The 3,076,923 warrants are all still outstanding and
unexercised.




The
Company  issued to the  underwriter  at the time
of closing of the Offering a unit purchase option, for $100, to purchase up to
450,000 units at an exercise price of $7.50. The unit purchase option shall be
exercisable any time, in  whole  or
in  part,  between  the  first  anniversary  date  and  the  fifth anniversary
date of the Public Offering.




For the
public warrants and the unit purchase option, the Company is only required to
use its best efforts to cause a registration statement covering the resale of
the public warrants, units and the securities comprising the units and, once
effective, only to use its best efforts to maintain the effectiveness of the
registration statement.  There are no contractual penalties for
failure to effect the registration of the public warrants, units and the
securities comprising the units.  Additionally,  in no
event, is the Company obligated to settle the public warrants, the option, the
units or the warrants included in the units, in  whole  or
in  part,  for  cash in
the  event  it
is  unable  to  effect  the registration
of the public warrants, units and the securities comprising the units. The
holder or holders of the public warrants or options do not have the rights or
privileges of holders of common stock, including any voting rights, until such
holder or holders exercise the options and receive shares of the Company's
common stock.





13.
RELATED PARTY TRANSACTIONS





The
Companies have advances from a stockholder of $6,000,000.  The
unsecured advance bears interest at prime, resulting in interest of $38,763 for
the period of August 16, 2008 through September 30, 2008. Certain Energy
Services subsidiaries routinely engage in transactions in the normal course of
business with each other, including sharing employee benefit plan coverage,
payment for insurance and other  expenses on behalf of other
affiliates, and other services incidental to business of each of the
affiliates.




F-18




All
revenue and related expense transactions, as well as the related accounts
payable and accounts receivable, have been eliminated.   Revenue
and costs of $5,490,688 and -0- were eliminated for the years ended September
30, 2008 and 2007 respectfully.





14.  LEASE
OBLIGATIONS




The
Company leases various equipment and office space under operating lease
agreements with terms up through 60 months with renewal options of up to an
additional 60 months.  The Company also leases vehicles from certain
stockholders and spouses under cancelable operating leases.





The
future minimum lease payments under operating leases as of September 30, 2008,
are as follows:





2009
            
            
            287,1902010
            
            
            305,0392011
            
            
            261,3812012
            
            
            160,7472013
            
            
            25,316





15.  MAJOR
CUSTOMERS




Revenues
for the period of August 16, 2008 through September 30, 2008 were
$28,517,688. Two major customers made up 41% and 28% respectively of the total.
Receivables from major customers at September 30, 2008 was $25,922,000, which
represented 67% of the total receivables at September 30, 2008. Virtually all
work performed for major customers was awarded under competitive bid fixed price
or unit price arrangements. During the period of August 16, 2008 to September
30, 2008 the Company’s major customers operated within the natural gas
transmission and distribution industry within the Company’s market area. The
loss of a major customer could have a severe impact on the profitability of
operations of the Company. However, due to the nature of the Company’s
operations, the major customers and sources of revenues may change from year to
year.


F-19




16.  RETIREMENT
AND EMPLOYEE BENEFIT PLANS




C.J.
Hughes has a 401-K retirement plan for union employees under which the employees
can contribute up to 15% of eligible wages and C.J. Hughes will match $.25 for
each dollar contributed up to 6%
of eligible wages.  Since the acquisition of C.J. Hughes on August 15,
2008 through the year ended September 30, 2008, C.J. Hughes contributed $1,800
to the plan.





Additionally,
C.J. Hughes and Nitro Electric have a 401-K retirement plan for all
administrative employees under which the employees can contribute up to 15% of
eligible wages and C.J. Hughes and Nitro Electric will match $.25 for each
dollar contributed up to 6% of eligible wages.  Since the acquisition
of C.J. Hughes and its subsidiary Nitro Electric on 8-15-08 through the year
ended September 30, 2008 contributions to this plan have been
$6,500.





17.  CREDIT
RISK




Financial
instruments which potentially subject the Companies to credit risk consist
primarily of cash,
cash equivalents and contract receivables.  The Companies place their
cash with high quality financial
institutions.  At times, the balances in such institutions may exceed
the FDIC insurance limit of
$250,000.  As of September 30, 2008, the Companies uninsured bank
balances totaled approximately   $5.955 Million.  The
Companies perform periodic credit evaluations of its customer’s financial
condition and generally does not require collateral.  Credit losses
consistently have been within managements expectations.




F-20




18.  COMMITMENTS
AND CONTINGENCIES




During
the normal course of operations, the companies are subject to certain
subcontractor claims, mechanic’s liens, and other
litigation.  Management is of the opinion that no material obligations
will arise from any pending legal proceedings.  Accordingly, no
provision has been made in the financial statements
for such litigation.





19.   CONDENSED
PARENT COMPANY ONLY FINANCIAL STATEMENTS




Energy
      Services of America Corporation (Parent Only)Balance
      SheetsSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007ASSETSCash
                  
                  $
                  7,125,033
                  
                  
                  $
                  756,782Cash
      and Cash Equivalents in trust
                  
                  
                  -
                  
                  
                  
                  49,711,430Cash
      held in trust from Underwriter
                  
                  
                  -
                  
                  
                  
                  1,032,000Prepaid
      Expenses
                  
                  
                  210,907
                  
                  
                  
                  26,447Property
      Plant and Equipment , at costless
      accumulated depreciation
                  
                  
                  19,944
                  
                  
                  
                  0Investments
      in Subsidiaries
                  
                  
                  55,954,071
                  
                  
                  
                  0Total
      Assets
                  
                  $
                  63,309,955
                  
                  
                  $
                  51,526,659LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      maturities of long-term debt
                  
                  $
                  1,028,400
                  
                  
                  $
                  0Accrued
      Expenses
                  
                  
                  24,338
                  
                  
                  
                  167,564Loans
      from Stockholders
                  
                  
                  
                  
                  
                  
                  150,000Due
      to Underwriter
                  
                  
                  
                  
                  
                  
                  1,032,000Long-term
      debt, less current maturities
                  
                  
                  2,000,000
                  
                  
                  
                  0Total
      Liabilities
                  
                  
                  3,052,738
                  
                  
                  
                  1,349,564Common
      Stock subject to Possible redemption1,719,140
      shares at redemption value
                  
                  
                  -
                  
                  
                  
                  10,143,000Stockholders’
      Equity
                  
                  
                  60,257,217
                  
                  
                  
                  40,034,095Total
      Liabilities and Stockholders’ Equity
                  
                  $
                  63,309,955
                  
                  
                  $
                  51,526,659




F-21




Energy
      Services of America Corporation (Parent Only)Income
      StatementsStatements
      of IncomeYear
      Ended
                    
                    
                    Year
      EndedSeptember
      30
                    
                    
                    September
      302008
                    
                    
                    2007General
      & Administrative Expenses
                    
                    $
                    341,140
                    
                    
                    $
                    48,552Net
      loss from operations before taxes
                    
                    
                    (341,140
                    )
                    
                    
                    (385,773
                    )Income
      from trust fund investments
                    
                    
                    1,574,211
                    
                    
                    
                    2,612,835Income
      before income taxes and increase in equity in undistributed earnings of
      subsidiaries
                    
                    
                    1,233,071
                    
                    
                    
                    2,227,062Income
      taxes
                    
                    
                    515,000
                    
                    
                    
                    846,000Income
      before increase in equity in undistributed earnings of
      subsidiaries
                    
                    
                    718,071
                    
                    
                    
                    1,381,602Increase
      in equity in undistributed
                    
                    
                    2,093,087
                    
                    
                    
                    -0-Earnings
      of subsidiariesNet
      Income
                    
                    $
                    2,811,158
                    
                    
                    $
                    1,381,062Net
      income per share- basic
                    
                    $
                    0.26
                    
                    
                    $
                    0.13Net
      income per share- diluted
                    
                    $
                    0.21
                    
                    
                    $
                    0.11




F-22




Energy
      Services of America CorporationStatements
      of Cash FlowsFor
      the year
                        
                        
                        For
      the yearYear
      Ended
                        
                        
                        Year
      EndedSeptember
      30,
                        
                        
                        September
      30,2008
                        
                        
                        2007Cash
      flows from operating activitiesNet
      Income
                        
                        $
                        2,811,158
                        
                        
                        $
                        1,381,062Adjustment
      to reconcile net income to net cash provided byoperating
      activities:Increase
      in equity in income of subsidiaries
                        
                        
                        (2,093,087
                        )
                        
                        
                        -Changes
      in:Accrued
      Income and accretion on investments held in trust fund
                        
                        
                        -
                        
                        
                        
                        (562,257
                        )Accrued
      Expenses and Prepaids
                        
                        
                        (327,686
                        )
                        
                        
                        53,592Net
      Cash  provided by operating activities
                        
                        
                        390,385
                        
                        
                        
                        872,397Cash
      flows from Investing ActivitiesInvestment
      in property & equipment
                        
                        
                        (19,944
                        )
                        
                        
                        -Cash
      paid in acquisitions
                        
                        
                        (33,832,633
                        )
                        
                        
                        -Purchase
      of investments held in Trust Fund
                        
                        
                        (21,000,000
                        )
                        
                        
                        (41,071,000
                        )Proceeds
      from maturities of Investments held in trust fund
                        
                        
                        71,743,430
                        
                        
                        
                        41,071,000Net
      Cash provided by Investing Activities
                        
                        
                        16,890,853
                        
                        
                        
                        -Cash
      Flows from Financing ActivitiesPayment
      of deferred fee to underwriter
                        
                        
                        (1,032,000
                        )
                        
                        
                        -Payment
      of Loan from Stockholder
                        
                        
                        (150,000
                        )
                        
                        
                        -Payment
      of Offering Costs
                        
                        
                        
                        
                        
                        
                        (192,996
                        )Cost
      paid for redemption of shares
                        
                        
                        (9,730,987
                        )
                        
                        
                        -Net
      Cash (used) provided by Financing Activities
                        
                        
                        (10,912,987
                        )
                        
                        
                        (192,996
                        )Net
      increase in cash and cash equivalents
                        
                        
                        6,368,251
                        
                        
                        
                        679,401Cash
      and Cash Equivalents at beginning of Period
                        
                        
                        756,782
                        
                        
                        
                        77,381Cash
      and Cash Equivalents at end of Period
                        
                        $
                        7,125,033
                        
                        
                        $
                        756,782Supplemental
      disclosure of non-cash financing activity:Accrued
      and unpaid offering costs
                        
                        
                        -
                        
                        
                        
                        -Income
      Taxes paid
                        
                        $
                        861,000
                        
                        
                        $
                        764,375Common
      Stock issued for acquisitions
                        
                        $
                        16,599,951
                        
                        
                        $
                        -Note
      Payable issued for acquisitions
                        
                        $
                        3,000,000
                        
                        
                        $
                        -The
      accompanying notes are an integral part of these financial
      statements.




F-23


INDEPENDENT
AUDITORS’ REPORT
  The Board
of Directors
 C.J.
Hughes Construction Company, Inc.
 Huntington,
West Virginia
 
 We have
audited the accompanying consolidated balance sheets of C.J. Hughes Construction
Company, Inc. and affiliates (the Companies) as of August 15, 2008 and December
31, 2007, and the related consolidated statements of income, retained earnings,
and cash flows for the period from January 1, 2008 through August 15, 2008 and
for the year ended December 31, 2007. These financial statements are the
responsibility of the Companies’ management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes 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 Companies 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, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Companies as of
August 15, 2008 and December 31, 2007, and the consolidated results of their
operations and their cash flows for the period from January 1, 2008 through
August 15, 2008, and the year ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
 
 GRAPHIC
 Charleston,
West Virginia
 December
19, 2008
 
 G-1
 
 C.
      J. HUGHES CONSTRUCTION CO., INC.CONSOLIDATED
      BALANCE SHEETSAUGUST
      15, 2008 AND DECEMBER 31, 2007August
      15,
              
              
              December
      31,2008
              
              
              2007AssetsCurrent
      assetsCash
      and cash equivalents
              
              $
              3,525,250
              
              
              $
              2,319,045Contracts
      receivable, less allowance for doubtfulaccounts
      of $364,105 for 2008 and $37,500 for 2007
              
              
              16,572,056
              
              
              
              7,864,873Retainage
      receivable
              
              
              3,203,912
              
              
              
              1,379,482Costs
      and estimated earnings in excess of billings onuncompleted
      contracts
              
              
              4,243,530
              
              
              
              3,751,245Inventories
              
              
              1,275,661
              
              
              
              1,483,736Prepaid
      expenses and other current assets
              
              
              194,176
              
              
              
              246,812Total
      current assets
              
              
              29,014,585
              
              
              
              17,045,193Land
              
              
              328,274
              
              
              
              328,274Machinery
      and equipment
              
              
              21,175,386
              
              
              
              12,002,368Automotive
      equipment
              
              
              8,026,941
              
              
              
              6,345,130Buildings
              
              
              631,550
              
              
              
              631,550Furniture
      and fixtures
              
              
              249,614
              
              
              
              289,505Property
      and equipment
              
              
              30,411,764
              
              
              
              19,596,827Less
      accumulated depreciation
              
              
              (12,937,534
              )
              
              
              (11,362,336
              )17,474,230
              
              
              
              8,234,491Investment
      in subsidiary
              
              
              -
              
              
              
              -Goodwill
              
              
              1,968,815
              
              
              
              1,968,815Total
      assets
              
              $
              48,457,630
              
              
              $
              27,248,499Liabilities
      and stockholders' equityCurrent
      liabilitiesCurrent
      maturities of long-term debt
              
              $
              2,217,331
              
              
              $
              1,844,192Line
      of credit
              
              
              5,750,000
              
              
              
              -Short-term
      notes payable
              
              
              800,000
              
              
              
              -Current
      portion of capital lease obligations
              
              
              1,479,063
              
              
              
              110,220Accounts
      payable
              
              
              8,892,605
              
              
              
              3,778,952Billings
      in excess of costs and estimated earnings
              
              
              475,723
              
              
              
              386,616Distributions
      payable to shareholders
              
              
              492,867Accrued
      expenses and other current liabilities
              
              
              6,204,398
              
              
              
              2,725,275Total
      current liabilities
              
              
              26,311,987
              
              
              
              8,845,255Long-term
      debt, net of current portionDebt
      to banks and finance companies
              
              
              6,519,647
              
              
              
              6,995,343Capital
      lease obligations
              
              
              5,826,981
              
              
              
              13,461Advance
      from shareholder
              
              
              6,000,000
              
              
              
              6,000,000Total
      liabilities
              
              
              44,658,615
              
              
              
              21,854,059Minority
      interest
              
              
              -
              
              
              
              -Stockholders'
      equityCommon
      stockClass
      A, voting, $10 par value; authorized 1,000 shares;issued
      and outstanding 10 shares
              
              
              100
              
              
              
              100Class
      B, non-voting, $10 par value; authorized 4,000 shares;issued
      and outstanding 490 shares
              
              
              4,900
              
              
              
              4,900Additional
      paid-in capital
              
              
              4,724,705
              
              
              
              4,727,551Retained
      earnings (deficit)
              
              
              (584,589
              )
              
              
              1,007,990Less
      treasury stock, 39 shares, at cost
              
              
              (346,101
              )
              
              
              (346,101
              )Total
      stockholders' equity
              
              
              3,799,015
              
              
              
              5,394,440Total
      liabilities and stockholders' equity
              
              $
              48,457,630
              
              
              $
              27,248,499




G-2
  C.
      J. HUGHES CONSTRUCTION CO., INC.CONSOLIDATED
      STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)PERIOD
      ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007August
      15,
                
                
                December
      31,2008
                
                
                2007Percent
      of
                
                
                
                
                
                Percent
      ofAmount
                
                
                Revenues
                
                
                Amount
                
                
                RevenuesRevenues
                
                $
                79,217,380
                
                
                
                100.0
                %
                
                $
                75,305,234
                
                
                
                100.0
                %Cost
      of revenues
                
                
                74,794,447
                
                
                
                94.4
                %
                
                
                68,096,279
                
                
                
                90.4
                %Gross
      profit
                
                
                4,422,933
                
                
                
                5.6
                %
                
                
                7,208,955
                
                
                
                9.6
                %Selling,
      general and administrativeexpenses
                
                
                3,473,283
                
                
                
                4.4
                %
                
                
                3,218,114
                
                
                
                4.3
                %Income
      from operations
                
                
                949,650
                
                
                
                1.2
                %
                
                
                3,990,841
                
                
                
                5.3
                %Other
      income (expense)Interest
      expense
                
                
                (707,622
                )
                
                
                -0.9
                %
                
                
                (1,063,198
                )
                
                
                -1.4
                %Finance
      and other
                
                
                164,709
                
                
                
                0.2
                %
                
                
                48,812
                
                
                
                0.1
                %(542,913
                )
                
                
                -0.7
                %
                
                
                (1,014,386
                )
                
                
                -1.3
                %Income
      before income tax expense
                
                
                406,737
                
                
                
                0.5
                %
                
                
                2,976,455
                
                
                
                4.0
                %Income
      tax expense
                
                
                -
                
                
                
                0.0
                %
                
                
                275,050
                
                
                
                0.4
                %Income
      (loss) before variableinterest
      entity
                
                
                406,737
                
                
                
                0.5
                %
                
                
                2,701,405
                
                
                
                3.6
                %(Income)
      loss attributable to variableinterest
      entity
                
                
                -
                
                
                
                0.0
                %
                
                
                69,323
                
                
                
                0.1
                %Consolidated
      net income (loss)
                
                
                406,737
                
                
                
                0.5
                %
                
                
                2,770,728
                
                
                
                3.7
                %Retained
      earnings (deficit), beginning of period
                
                
                1,007,990
                
                
                
                
                
                
                
                (1,762,738
                )Distributions
                
                
                (1,999,316
                )
                
                
                
                
                
                
                -Retained
      earnings (deficit), end of period
                
                $
                (584,589
                )
                
                
                
                
                
                $
                1,007,990
  G-3
  C.
      J. HUGHES CONSTRUCTION CO., INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSPERIOD
      ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007August
      15,
                
                
                December
      31,2008
                
                
                2007Cash
      flows from operating activitiesNet
      income (loss)
                
                $
                406,737
                
                
                $
                2,770,728Adjustments
      to reconcile net income (loss) to net cash (used in)provided
      by operating activities:Loss
      attributable to noncontrolling interest
                
                
                -
                
                
                
                (69,323
                )Depreciation
      and amortization
                
                
                1,585,838
                
                
                
                1,295,630Provision
      for bad debts
                
                
                313,053
                
                
                
                19,622Loss
      (gain) on sale of property and equipment
                
                
                1,102
                
                
                
                (7,871
                )Deferred
      tax benefit
                
                
                -
                
                
                
                -(Increase)
      decrease in operating assets, net of effects ofacquired
      companyContracts
      receivable
                
                
                (9,020,236
                )
                
                
                (3,177,232
                )Retainage
      receivable
                
                
                (1,824,430
                )
                
                
                (689,020
                )Cost
      in excess of billings on uncompleted contracts
                
                
                (492,285
                )
                
                
                (2,081,972
                )Inventories
                
                
                208,075
                
                
                
                (32,051
                )Prepaid
      and other
                
                
                52,636
                
                
                
                89,675Increase
      in operating liabilitiesAccounts
      payable
                
                
                5,113,653
                
                
                
                1,036,656Billings
      in excess of cost and estimated earnings
                
                
                89,107
                
                
                
                386,616Accrued
      expenses
                
                
                3,479,123
                
                
                
                835,637Net
      cash (used in) provided by operating activities
                
                
                (87,627
                )
                
                
                377,095Cash
      flows from investing activitiesNet
      assets acquired from asset acquisition
                
                
                -
                
                
                
                (2,722,484
                )Purchase
      of property and equipment
                
                
                (2,387,739
                )
                
                
                (1,047,651
                )Proceeds
      from sale of property and equipment
                
                
                33,963
                
                
                
                30,877Net
      cash used in investing activities
                
                
                (2,353,776
                )
                
                
                (3,739,258
                )Cash
      flows from financing activitiesCash
      distributed to stockholders
                
                
                (1,506,449
                )
                
                
                -Net
      borrowings (proceeds) on line of credit
                
                
                5,750,000
                
                
                
                (525,000
                )Proceeds
      from issuance of short-term notes payable
                
                
                800,000
                
                
                
                -Proceeds
      from issuance of long-term debt
                
                
                -
                
                
                
                506,650Principal
      payments on long-term debt
                
                
                (1,306,485
                )
                
                
                (1,064,246
                )Payments
      on capital lease obligations
                
                
                (86,613
                )
                
                
                (130,065
                )Proceeds
      from shareholder advances
                
                
                -
                
                
                
                6,000,000Purchases
      of treasury stock
                
                
                (2,845
                )
                
                
                -Net
      cash provided by investing activities
                
                
                3,647,608
                
                
                
                4,787,339Increase
      in cash and cash equivalents
                
                
                1,206,205
                
                
                
                1,425,176Cash
      and cash equivalents, beginning of period
                
                
                2,319,045
                
                
                
                893,869Cash
      and cash equivalents, end of period
                
                $
                3,525,250
                
                
                $
                2,319,045Noncash
      investing and financing activitiesPurchases
      of equipment under financing or borrowing agreement
                
                $
                8,472,904
                
                
                $
                2,796,801
  G-4
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 
 1. Description of Business and
Entity Structure
 
 C.J.
Hughes Construction Company, Inc. (C.J. Hughes) is a general contractor
primarily engaged in pipeline construction for utility companies. C.J. Hughes is
licensed in six eastern states with the majority of its contracts concentrated
in West Virginia, Virginia, Ohio, Kentucky and North Carolina. Nitro Electric
Company, Inc. (Nitro Electric), a wholly-owned subsidiary of C.J. Hughes, is
primarily involved in the electrical contracting industry, providing electrical
construction services to industrial and commercial markets. Nitro Electric
(formerly known as NEC Acquisition Company, Inc.) was formed on April 29, 2007
for the purpose of buying certain assets and assuming certain liabilities of an
unrelated entity.
 
 In
accordance with Financial Accounting Standards Board (FASB) Interpretation No.
46R (FIN 46R), Consolidation of Variable Interest
Entities, these financial statements include the accounts of Contractors
Rental Corporation (CRC), an entity considered a variable interest entity for
which C.J. Hughes is the primary beneficiary. All significant intercompany
transactions and balances have been eliminated. C.J. Hughes leases equipment
from CRC on a job-by-job basis and also provides management services, including
purchasing materials, supervising construction, and performing accounting
services. CRC also performs subcontract work for C.J. Hughes on certain
construction contracts.
 
 C.J.
Hughes, Nitro Electric and CRC are collectively referred to as the
Companies.
 
 On August
15, 2008, the Companies were involved in a merger with Energy Services
Acquisition Corp. Energy Services Acquisition Corp. was later renamed Energy
Services of America Corporation. See Note 11 for additional details of the
transaction.
 
 2.
Summary of Significant Accounting Policies
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the accounts of C.J. Hughes and Nitro
Electric, its wholly-owned subsidiary, as well as CRC for which management has
determined that C.J. Hughes is the primary beneficiary as defined by FIN 46R.
All significant intercompany transactions are eliminated.
 
 Cash
 
 The
Companies consider cash deposits and temporary investments having an original
maturity of less than three months to be cash. Cash is stated at cost which
approximates fair value.
 
 Financial
Instruments
 
 Financial
instruments include cash and cash equivalents, contracts receivable, retainage
receivable, accounts payable and long-term debt. The carrying value of such
amounts reported at the applicable balance sheet dates approximates fair
value.
 
 G-5
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 
  2.
Summary of Significant Accounting Policies (Continued)
 
 Contracts
Receivable
 
 Contracts
receivable are recorded at the invoiced amount, net of the allowance for
doubtful accounts, and do not bear interest. Contracts receivable are written
off when they are deemed to be uncollectible. The allowance for doubtful
accounts is estimated based on factors such as the financial condition of
customers, age of receivables and payment history.
 
 Retainage
Receivable
 
 Retainage
receivable represents amounts previously billed to customers that are withheld
for a certain period of time generally until project acceptance by the customer.
At August 15, 2008 and December 31, 2007, Management considers all amounts
classified as a retainage receivable to be collectible.
 
 Inventories
 
 Inventories
consist primarily of supplies and equipment parts and are valued at the lower of
cost or market. Cost is based upon the first-in, first-out method.
 
 Property
and Equipment
 
 Property
and equipment are recorded at cost. Costs which extend the useful lives or
increase the productivity of the assets are capitalized, while normal repairs
and maintenance that do not extend the useful life or increase the productivity
of the asset are expensed as incurred. Plant and equipment are depreciated
principally on the straight-line method over the estimated useful lives of the
assets; buildings 35 years; machinery and equipment 3 - 7 years; furniture and
equipment 5 years; and automotive equipment 3 - 7 years.
 
 G-6
 
 C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
   2.
Summary of Significant Accounting Policies (Continued)
 
 Goodwill
 
 On April
27, 2007, NEC Acquisition Company, Inc. (now known as Nitro Electric) completed
the purchase of certain assets and the assumption of certain liabilities from an
unrelated third-party. The transaction was accounted for using the purchase
method of accounting for business combinations. The following is the allocation
of the purchase price of $2,722,484, which exceeded the preliminary estimated
fair value of the net assets acquired by approximately $1,969,000 as
follows:
 
 Property
      and equipment
              
              $
              1,043,801Total
      assets acquired
              
              
              1,043,801Accrued
      liabilities
              
              
              36,387Capital
      lease obligations
              
              
              253,745Total
      liabilities assumed
              
              
              290,132Net
      assets acquired
              
              
              753,669Purchase
      price
              
              
              2,722,484Excess
      allocated to goodwill
              
              $
              1,968,815
 
 Goodwill
is accounted for in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, and accordingly is not amortized but is evaluated at least
annually for impairment. As of August 15, 2008 and December 31, 2007, Management
has determined that there has been no goodwill impairment, and as such, no loss
has been recognized for the period from January 1, 2008 through August 15, 2008
and year ended December 31, 2007, respectively. Management determined that the
factors which contributed to the goodwill were the management that would be
acquired, the seasoned workforce, ability to obtain entry in other markets, and
the future earnings potential of the entity.
 
 Other
Long-Lived Assets
 
 If facts
and circumstances suggest that a long-lived asset may be impaired, the carrying
value is reviewed for recoverability. If this review indicates that the carrying
value of the assets will not be recovered, as determined based on projected
undiscounted cash flows related to the asset over its remaining life, the
carrying value of the asset is reduced to its estimated fair value through an
impairment loss.
 
 Revenue
and Cost Recognition
 
 Revenues
from contracts are recognized using the percentage-of-completion method. Revenue
is calculated by dividing the actual direct costs incurred by the total
estimated costs multiplied by the contract price. This method is used because
management considers it to be the best available measure of the progress on
contracts. Contract costs include all direct material, direct labor, and
subcontractor costs. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.
  G-7
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 2.
Summary of Significant Accounting Policies (Continued)
 
 Advertising
 
 All
advertising costs are expensed as incurred. Total advertising expense was
$10,200 for the period from January 1, 2008 through August 15, 2008, and was
$10,253 for the year ended December 31, 2007, respectively.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and loss during the
reporting period. Actual results could differ from those estimates.
 
 Income
Taxes
 
 C.J.
Hughes and Nitro Electric with the consent of their stockholders have each
elected under the Internal Revenue Code to be an S-Corporation. As such, these
entities are not subject to income tax and all taxable income is passed through
to the individual stockholders. CRC is a C-Corporation as defined by the
Internal Revenue Code. Current income tax expense for the period from January 1,
2008 through August 15, 2008 was approximately $0, and for year ended December
31, 2007 was approximately $275,000, respectively. At August 15, 2008 and
December 31, 2007, CRC did not have any deferred tax assets or liabilities. In
the event of an examination of the tax return, the tax liability of the
stockholders could be changed if an adjustment in the Companies’ income is
ultimately sustained by the taxing authorities.
 
 3.
Property and Equipment
 
 Property
and equipment consist of the following:
 
 August
      15,
                2008
              
              
              December
      31,
                2007Land
              
              $
              328,274
              
              
              $
              328,274Buildings
              
              
              631,550
              
              
              
              631,550Machinery
      and Equipment
              
              
              21,175,386
              
              
              
              12,002,368Furniture
      and Fixtures
              
              
              249,614
              
              
              
              289,505Automotive
      Equipment
              
              
              8,026,940
              
              
              
              6,345,13030,411,764
              
              
              
              19,596,827Less
      Accumulated Depreciation
              
              
              12,937,534
              
              
              
              11,362,336$
              17,474,230
              
              
              $
              8,234,491
  G-8
 
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 4.
Uncompleted Contracts
 
 Costs and
estimated earnings in excess of billings on uncompleted contracts are as
follows:
  August
      15,
                2008
              
              
              December
      31,
                2007Revenues
      earned on uncompleted contracts
              
              $
              36,806,443
              
              
              $
              39,316,412Less
      billings to date
              
              
              32,562,913
              
              
              
              35,565,167$
              4,243,530
              
              
              $
              3,751,245
 
 5.
Related-Party Transactions
 
 The
Companies received advances from a stockholder of $6,000,000 during the year
ended December 31, 2007. The unsecured advance bears interest at prime,
resulting in interest expense of $235,458 and $324,417 recognized during the
period from January 1, 2008 through August 15, 2008 and for the year ended
December 31, 2007, respectively. In accordance with the agreement with the
shareholder, there are no amounts due in 2008. Therefore, the entire amount has
been classified as long-term on the balance sheet.
 
 In
addition, the affiliates of the Companies routinely engage in transactions in
the normal course of business with each other, including sharing employee
benefit plan coverage, payment for insurance and other expenses on behalf of
other affiliates, and other services incidental to business of each of the
affiliates. All revenue and related expense transactions, as well as the related
accounts payable and accounts receivable, have been eliminated.
  A summary
of transactions among the Companies is as follows:
 
 August
      31,
              
              
              December
      31,2008
              
              
              2007Subcontractor
      Revenue – CRC
              
              $
              16,941,365
              
              
              $
              9,799,187Subcontractor
      Expense - CJ Hughes
              
              
              16,941,365
              
              
              
              9,799,187Equipment
      Rental Income – CRC
              
              
              52,444
              
              
              
              79,911Equipment
      Rental Expense - CJ Hughes
              
              
              52,444
              
              
              
              79,911Subcontractor
      Revenue - Nitro Electric
              
              
              30,883
              
              
              
              224,441Subcontractor
      Expense - CJ Hughes
              
              
              30,883
              
              
              
              224,441Management
      fee income - CJ Hughes
              
              
              100,000
              
              
              
              300,000Management
      fee expense – CRC
              
              
              100,000
              
              
              
              300,000
 
 G-9
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 6.
Long-term Debt
 
 Long-term
debt consisted of the following:
 
 August
      15,
                2008
              
              
              December
      31,
                2007Note
      payable to bank, due in monthly installments of $5,000, including interest
      at 7.26%, final payment due September 2012, secured by real estate,
      vehicles, and equipment
              
              $
              405,236
              
              
              $
              420,432Notes
      payable to finance companies, due in monthly installments totaling
      $128,387, including interest ranging from 1.0% to 7.92%, final payments
      due January 2008 through December 2012, secured by
    equipment
              
              
              3,746,368
              
              
              
              3,259,163Notes
      payable to banks, due in monthly installments totaling $64,616, including
      interest at prime plus .5%, final payments due April 2010 through July
      2011, secured by equipment, inventory, receivables, and
      intangibles
              
              
              3,750,645
              
              
              
              4,046,224Notes
      payable to banks, due in monthly installments totaling $12,168, including
      interest ranging from prime to 7.5%, final payments due May 2008 through
      August 2010, secured by equipment
              
              
              168,415
              
              
              
              237,359Notes
      payable to banks, due in monthly installments of $31,713, including
      interest at 8.75%, final payment due August 2010,
unsecured
              
              
              666,314
              
              
              
              876,3578,736,978
              
              
              
              8,839,535Less
      current maturities
              
              
              2,217,331
              
              
              
              1,844,192$
              6,519,647
              
              
              $
              6,995,343
 
 G-10
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 6.
Long-term Debt (Continued)
 
 Maturities
of long-term debt for the next five years and thereafter are as follows as of
August 15, 2008:
 
 2009
              
              $
              2,217,3312010
              
              
              2,153,3062011
              
              
              1,536,4282012
              
              
              714,9782013
              
              
              147,245Thereafter
              
              
              1,967,690$
              8,736,978
 
 Interest
paid during the period from January 1, 2008 through August 15, 2008 and for the
year ended December 31, 2007, was $719,351 and $702,259,
respectively.
 
 The
Company has lines of credit with banks in amounts not to exceed $6,500,000.
Advances under these lines bear interest ranging from prime to prime plus .5%.
Advances are available up to the lesser of the line amounts or a borrowing base
calculated on the Company’s contracts receivable and equipment. The lines are
secured by contracts receivable and equipment, and are guaranteed by a
shareholder. The lines of credit, which expire June 2009, impose certain
financial covenants upon the Company, including a minimum tangible net worth and
a minimum current ratio. The balance outstanding on the lines on August 15, 2008
and December 31, 2007 was $5,250,000 and $0, respectively.
 
 The
Company has a line of credit with a bank in an amount not to exceed $500,000.
Advances under the line bear interest at prime. The line is secured by certain
equipment and expires in November 2008. The balance on the line was $500,000 and
$0 on August 15, 2008 and December 31, 2007, respectively.
 
 The
Company has an unsecured short-term note payable with a bank. The note bears
interest at 5% and is payable in full in January 2009. The balance due on this
note was $800,000 on August 15, 2008.
 
 7.
Lease Obligations
 
 The
Companies lease various equipment and office space under operating lease
agreements with terms up through 48 months. The Companies also lease vehicles
from certain stockholders and spouses under cancelable operating leases. Rent
expense paid for operating lease obligations for the period from January 1, 2008
through August 15, 2008 and for the year ended December 31, 2007 was $152,492
and $123,233, respectively. Rent expense paid to related parties was $113,765
for the period from January 1, 2008 through August 15, 2008, and $89,524 for the
year ended December 31, 2007, respectively.
 
 G-11
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 7.
Lease Obligations (Continued)
 
  The
future minimum lease payments under operating leases on August 15, 2008, are as
follows:
  2009
              
              $
              145,7302010
              
              
              155,0392011
              
              
              111,3812012
              
              
              70,7472013
              
              
              17,816$
              500,713
 
 The
Companies lease certain automotive and operating equipment under agreements that
are classified as capital leases. The cost of the equipment under capital leases
is included in the balance sheets as property and equipment and was $8,097,013
and $322,635 at August 15, 2008 and December 31, 2007, respectively. Accumulated
amortization of the leased equipment at August 15, 2008 and December 31, 2007
was approximately $454,467 and $91,081, respectively. Amortization of assets
under capital leases is included in depreciation expense.
 
 The
future minimum lease payments required under the capital leases and the present
value of the net minimum lease payments as of August 15, 2008, are as
follows:
 
 2009
              
              $
              1,678,8862010
              
              
              1,606,8762011
              
              
              1,602,2072012
              
              
              1,411,6092013
              
              
              1,411,609Thereafter
              
              
              340,611Future
      minimum lease payments
              
              
              8,051,798Less:
      Amount representing interest
              
              
              (745,754
              )7,306,044Less:
      Current maturities of capital lease obligations
              
              
              1,479,063Long-term
      capital lease obligations
              
              $
              5,826,981
 
 G-12
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 8.
Retirement and Employee Benefit Plans
 
 C.J.
Hughes has a 401(k) retirement plan for union employees under which the
employees can contribute up to 15% of eligible wages and C.J. Hughes will match
$.25 for each dollar contributed up to 6% of eligible wages. During the period
from January 1, 2008 through August 15, 2008 and the year ended December 31,
2007, C.J. Hughes contributed $8,695 and $14,834 to the plan,
respectively.
 
 Additionally,
C.J. Hughes has a 401(k) retirement plan for all non-union employees under which
the employees can contribute up to 15% of eligible wages and C.J. Hughes will
match $.25 for each dollar contributed up to 6% of eligible wages. During the
period from January 1, 2008 through August 15, 2008 and the year ended December
31, 2007, C.J. Hughes contributed $23,869 and $33,083 to the plan,
respectively.
 
 Nitro
Electric has a 401(k) retirement plan for all eligible employees under which the
employees can contribute up to 15% of eligible wages and Nitro Electric will
match $.50 for each dollar contributed up to 6% of eligible wages. During the
period from January 1, 2008 through August 15, 2008 and the year ended December
31, 2007, Nitro Electric contributed $25,893 and $23,374 to the plan,
respectively.
 
 The
Companies have an employee benefit trust (the Trust) which provides health and
death benefits covering substantially all employees of the Company. The Trust is
non-contributory for most non-union employees. Union employees and some
administrative employees make partial contributions to the Trust. The Companies
make periodic contributions to the Trust based on funding policies and methods
which are consistent with the objectives of the Trust. The contributions made by
the Companies for the period from January 1, 2008 through August 15, 2008 and
for the year ended December 31, 2007 were approximately $1,581,000 and
$1,143,000, respectively. At August 15, 2008 and December 31, 2007, the Company
accrued for an estimated liability for claims incurred but unpaid of $75,000 and
$75,000, respectively.
 
 9.
Credit Risk and Concentrations
 
 Financial
instruments which potentially subject the Companies to credit risk consist
primarily of cash and cash equivalents and contract receivables. The Companies
place their cash with high quality financial institutions. At times, the
balances in such institutions may exceed the FDIC insurance limit of $100,000.
As of August 15, 2008, the Companies’ uninsured bank balances totaled
approximately $2,935,000. The Companies perform periodic credit evaluations of
their customers’ financial condition and generally do not require collateral.
Credit losses consistently have been within management’s expectations. At August
15, 2008, five customers comprised 60.4% of the contracts receivable
balance.
 
 G-13
 
  C.J.
HUGHES CONSTRUCTION COMPANY, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 PERIOD
ENDED AUGUST 15, 2008 AND YEAR ENDED DECEMBER 31, 2007
 9.
Credit Risk and Concentrations (Continued)
 
 Nitro
Electric generated 4.2% from one customer and C J Hughes Construction Company
generated 22.5% from one customer of the total consolidated revenue for the
period from January 1, 2008 through August 15, 2008. As of August 15, 2008,
Nitro Electric had one customer which comprised 3.4% and C J Hughes Construction
Company had one customer which comprised 29.9% of the total consolidated
accounts receivable.
 
 C J
Hughes generated 37.3%, 7.5%, and 6.7% of their revenues from three customers
during the period from January 1, 2008 through August 15, 2008.
 
 10.
Commitments and Contingencies
 
 During
the normal course of operations, the Companies are subject to certain
subcontractor claims, mechanic’s liens, and other litigation. Management is of
the opinion that no material obligations will arise from any pending legal
proceedings. Accordingly, no provision has been made in the financial statements
for such litigation.
 
 11.
Subsequent Event Note
 
 On August
15, 2008, the Companies were involved in a merger with Energy Services
Acquisition Corp. (later renamed Energy Services of America Corporation). With a
total purchase price of $34.3 million the merger involved the purchase of each
share of C.J. Hughes outstanding Class A and Class B stock for $36,896 in cash
and 6,434.70 shares of Energy Services Common Stock. The allocation of the
purchase price included approximately $34,947,000 in current assets, $21,567,000
in fixed assets, $2,466,000 in other assets, and $31,312,000 in goodwill.
Liabilities assumed totaled approximately $55,970,000.
 
 Subsequent
to August 15, 2008, the Companies paid distributions to shareholders totaling
$492,867.
 
 G-14




REPORT
OF INDEPENDENT PUBLIC ACCOUNTING FIRM
 
 
 
 To the
Board of Directors
 ST
Pipeline, Inc.
 Clendenin,
West Virginia
 
 We have
audited the accompanying balance sheets of ST Pipeline, Inc. as of August 15,
2008 and December 31, 2007, and the related statements of income and retained
earnings and cash flows for the period from January 1, 2008, through August 15,
2008, and the year ended December 31, 2007.  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 auditing standards generally accepted in
the United States of America.  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes 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 financial statements referred to above present fairly, in all
material respects, the financial position of ST Pipeline, Inc. as of August 15,
2008 and December 31, 2007, and the results of its operations and its cash flows
for the period from January 1, 2008, through August 15, 2008 and for the year
ended December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.
 
 As
discussed in Note 14 to the financial statements, effective the close of
business on August 15, 2008, the Company was acquired by Energy Services
Acquisition Corporation pursuant to a merger agreement between the Company and
Energy Services Acquisition Corporation that was entered into on January 22,
2008.
 
 /s/
      ARNETT & FOSTER, P.L.L.C.
 
 Charleston,
West Virginia
 December
29, 2008
  H-1
  ST
PIPELINE, INC.
 BALANCE
SHEETS
 August
15, 2008 and December 31, 2007
  August
      15,
                
                
                December
      31,Assets
                
                2008
                
                
                2007Current
      AssetsCash
      and cash equivalents
                
                $
                1,434,178
                
                
                $
                3,960,685Accounts
      receivable
                
                
                21,895,683
                
                
                
                26,485,359Prepaid
      expenses and other
                
                
                384,081
                
                
                
                205,064Total
      current assets
                
                
                23,713,942
                
                
                
                30,651,108Property,
      Plant and Equipment, net of accumulateddepreciation
                
                
                5,525,933
                
                
                
                2,661,453Long-term
      notes receivable and other assets
                
                
                103,493
                
                
                
                100,781Total
      assets
                
                $
                29,343,368
                
                
                $
                33,413,342Liabilities and Stockholders’
      EquityCurrent
      LiabilitiesCurrent
      maturities of long-term debt
                
                $
                12,144,704
                
                
                $
                262,247Lines
      of credit
                
                
                1,902,696
                
                
                
                6,935,419Accounts
      payable
                
                
                728,040
                
                
                
                1,285,288Accrued
      and withheld liabilities
                
                
                2,132,725
                
                
                
                421,486Billings
      in excess of costs and estimated earnings onuncompleted
      contracts
                
                
                646,665
                
                
                
                604,589Total
      current liabilities
                
                
                17,554,830
                
                
                
                9,509,029Long-term
      debt, less current maturities
                
                
                2,481,230
                
                
                
                175,996Total
      liabilities
                
                
                20,036,060
                
                
                
                9,685,025Stockholders'
      equityCommon
      stock ($20 par value; 3,750 shares authorizedand
      issued; 3,700 shares outstanding)
                
                
                75,000
                
                
                
                75,000Retained
      earnings
                
                
                10,187,998
                
                
                
                24,609,007Less:
      cost of treasury stock, 50 shares
                
                
                (955,690
                )
                
                
                (955,690
                )9,307,308
                
                
                
                23,728,317Total
      liabilities and stockholders’ equity
                
                $
                29,343,368
                
                
                $
                33,413,342
   See
Notes to Financial Statements
 H-2
  ST PIPELINE, INC.
  STATEMENTS
OF INCOME AND RETAINED EARNINGS
 For
the period from January 1, 2008 through August 15, 2008 and the Year Ended
December 31, 2007
 
 For
      the yearFor
      the period
                
                
                endedJan.
      1 through Aug. 15
                
                
                December
      31,2008
                
                
                2007Contract
      revenues
                
                $
                37,410,877
                
                
                $
                100,385,098Cost
      of revenues
                
                
                30,676,571
                
                
                
                70,948,130Gross
      profit
                
                
                6,734,306
                
                
                
                29,436,968Selling
      and administrative expenses
                
                
                996,049
                
                
                
                1,547,125Income
      from operations
                
                
                5,738,257
                
                
                
                27,889,843Other
      income (expense)Interest
      income
                
                
                34,675
                
                
                
                45,939Other
      nonoperating income
                
                
                922,363
                
                
                
                306,147Interest
      expense
                
                
                (142,940
                )
                
                
                (298,799
                )Gain
      on sale of equipment
                
                
                9,738
                
                
                
                1,377823,836
                
                
                
                54,664Net
      income
                
                
                6,562,093
                
                
                
                27,944,507Retained
      earnings, beginning of year,as
      previously stated
                
                
                24,609,007
                
                
                
                5,735,899Dividend
      distributions
                
                
                (20,983,102
                )
                
                
                (9,071,399
                )Retained
      earnings, end of year
                
                $
                10,187,998
                
                
                $
                24,609,007Unaudited
      pro forma income data (see note 14)Net
      income as reported
                
                $
                6,562,093
                
                
                $
                27,944,507Pro
      forma provision for income taxes (unaudited)
                
                
                2,624,837
                
                
                
                11,177,803Pro
      forma net income (unaudited)
                
                $
                3,937,256
                
                
                $
                16,766,704
    H-3
  ST PIPELINE, INC.
  STATEMENTS
OF CASH FLOWS
 For
the period from January 1, 2008 through August 15, 2008 and the Year Ended
December 31, 2007
 
 For
      theFor
      the period
                
                
                year
      endedJan.
      1 through Aug. 15
                
                
                December
      31,2008
                
                
                2007Cash
      Flows from Operating ActivitiesNet
      income
                
                $
                6,562,093
                
                
                $
                27,944,507Adjustments
      to reconcile net income to netcash
      provided by operating activities:Depreciation
                
                
                884,723
                
                
                
                973,199Gain
      on sale of property, plant, andequipment
                
                
                (9,738
                )
                
                
                (1,377
                )Change
      in current assets and liabilities:Accounts
      receivable
                
                
                4,589,677
                
                
                
                (19,679,833
                )Prepaid
      expenses and other
                
                
                (179,017
                )
                
                
                56,558Costs
      and estimated earnings in excessof
      billings on uncompleted contracts
                
                
                293,258Accounts
      payable
                
                
                (557,248
                )
                
                
                684,524Accrued
      liabilities
                
                
                1,711,238
                
                
                
                (1,198,990
                )Billings
      in excess of costs andestimated
      earnings onuncompleted
      contracts
                
                
                42,076
                
                
                
                (113,645
                )Net
      cash provided by operating activities
                
                
                13,043,804
                
                
                
                8,958,201Cash
      Flows from Investing ActivitiesNet
      collections from long-term notes receivable
                
                
                (2,712
                )
                
                
                (28,219
                )Purchases
      of property, plant and equipment
                
                
                (68,369
                )
                
                
                (583,566
                )Proceeds
      from sales of property, plant,and
      equipment
                
                
                33,573
                
                
                
                37,248Net
      cash used in investing activities
                
                
                (37,508
                )
                
                
                (574,537
                )Cash
      Flows from Financing ActivitiesDividend
      distributions
                
                
                (10,048,289
                )
                
                
                (9,071,399
                )Proceeds
      from line of credit, net of (repayments)
                
                
                (5,032,723
                )
                
                
                4,280,857Payments
      on long-term debt
                
                
                (451,791
                )
                
                
                (313,909
                )Proceeds
      from long-term debt
                
                
                -
                
                
                
                63,600Net
      cash used in financing activities
                
                
                (15,532,803
                )
                
                
                (5,040,851
                )Net
      increase (decrease) in cashand
      cash equivalents
                
                
                (2,526,507
                )
                
                
                3,342,813Cash
      and cash equivalentsBeginning
      of year
                
                
                3,960,685
                
                
                
                617,872End
      of year
                
                $
                1,434,178
                
                
                $
                3,960,685Supplemental
      disclosure of cash flowinformation:Cash
      payments for interest
                
                $
                142,940
                
                
                $
                298,799Supplemental
      schedule of noncash investingand
      financing activities:Property,
      plant and equipment acquiredthrough
      long-term debt
                
                $
                3,704,669
                
                
                $
                -
 Dividend
      distribution note payable to shareholders
                  
                  $
                  10,934,813
                  
                  
                  $
                  -
  
 H-4
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 Note
1.                    Summary
of Significant Accounting Policies
 
 ST
Pipeline, Inc. (the Company) was incorporated in May 1990 under the laws of the
State of West Virginia to engage in the construction of natural gas pipelines
for utility companies.  The Company's contracts are primarily under
fixed-price and occasional cost-plus service contracts. The Company grants
credit to all its customers, most of whom are located in West Virginia and the
surrounding mid-Atlantic states.  Effective at the close of business
on August 15, 2008, the Company was acquired by Energy Services Acquisitions
Corp. pursuant to a merger agreement entered into on January 22,
2008.
 
 All of
the Company’s production personnel are union members of the various related
construction trade unions and are subject to collective bargaining agreements
that expire at varying time intervals.
 
 A summary
of the significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows:  Certain
reclassifications have been made to the 2007 financial statements to conform to
the current period presentation.  Such reclassifications did not
affect net income.
 
 Revenue and cost
recognition:  Revenues from construction contracts are
recognized on the percentage-of-completion method in the ratio that costs
incurred bear to total estimated costs.  The revenues from unit price
and cost-plus contracts are recognized when units (usually contractually
established pipeline footage) of pipeline are installed and completed or as
services are performed.  Contract costs include all direct material,
labor, subcontracted, and equipment costs and those indirect costs related to
contract performance.  General and administrative expenses are charged
to operations as incurred.  Revenues related to claims are recognized
when collected.
 
 The asset
“costs and estimated earnings in excess of billings on uncompleted contracts”
represents revenues recognized in excess of amounts billed.  Such
revenues are expected to be billed and collected within one year on uncompleted
contracts.  The liability “billings in excess of costs and estimated
earnings on uncompleted contracts” represents billings in excess of revenues
recognized.
 
 Revisions
in revenues, costs, profit estimates, and measurements of the extent of progress
toward completion are made in the year such revisions can be reasonably
estimated.  At the time a loss on a contract becomes known, the entire
amount of the estimated loss is accrued.
 
 Cash and cash
equivalents:  The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.  At times, such balances may be in excess of Federal
Deposit Insurance Corporation insurance limits.
 
 Accounts
receivable:  The Company grants credit to its customers on
terms contractually established by the construction contracts with each
customer.  Accounts receivables are carried at original invoice amount
less an estimate made for doubtful receivables based on a review of all
outstanding amounts on a monthly basis.  Management has determined
that no allowance for doubtful receivables is necessary as of August 15, 2008
and December 31, 2007.  Trade receivables are written off when deemed
uncollectible.  Recoveries of trade receivables previously written off
are recorded when received.  The Company generally does not have
collateral for its receivables, but rely upon its right to file liens on the
owner’s property.  Interest is not charged on trade accounts
receivable.
 
 Property, plant, and
equipment:  Depreciation is provided in amounts sufficient to
relate the cost of depreciable assets to operations on a straight – line basis
over their estimated service lives of 5 to 7 years for equipment and 15 to 40
years for buildings and related improvements.
 
 Income tax status and
distributions:The stockholders of ST Pipeline, Inc. elected S
Corporation status.  By electing S Corporation status, income taxes on
the earnings of the Company will be payable personally by the stockholders of
the Company.  Accordingly, no provision has been made in the
accompanying financial statements for federal and state income
taxes.
 
 H-5
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 
 Dividend
distributions may be declared periodically in amounts that will cover the
individual income tax liabilities arising from the taxable income of the
Company.
 
 In July
2006, the Financial Accounting Standards Board (FASB) issued Interpretation No.
48, Accounting for Uncertainty
in Income Taxes, effective for years beginning after December 15,
2007.  This interpretation is intended to clarify the accounting for
uncertainty in income taxes recognized in a company's financial statements, in
accordance with FASB 109, Accounting for Income Taxes,
by prescribing a more-likely-than-not threshold to recognize any benefit of a
tax position taken or expected to be taken in a tax return.  Tax
positions that meet the recognition threshold are reported at the largest amount
that is more-likely-than-not to be realized.  The adoption of this
standard will not have a material impact on the Company's financial condition,
results of operations or cash flows.
 
 Fair Value
Measurement:  In September 2006, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
157, Fair Value Measurement,effective for fiscal years beginning after November 15,
2007.  This statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements.  The adoption of this
standard will not have a material impact on the Company’s financial condition,
results of operations or cash flows.
 
 Fair Value
Option:  In February 2007, FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – including an amendment to FASB Statement No.
115, effective for fiscal years beginning after November 15,
2007.  This statement permits entities to choose to measure many
financial instruments and certain other items at fair value.  The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  The amendment to FASB Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities,applies to all entities with
available-for-sale and trading securities.  The adoption of this
standard will not have a material impact on the Company’s financial condition,
results of operations or cash flows.
 
 Use of estimates in preparation of
financial statements:  The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.  Actual results
could differ from those estimates.
 
 Reclassifications:Certain reclassifications
have been made in prior years’ financial statements to conform to
classifications used in the current year.
 
 Note
2.                    Cash
Concentrations
 
 As of
August 15, 2008 and year ended December 31, 2007, the Company had amounts on
deposit at financial institutions of which approximately $1,067,000 and
$2,141,000, respectively, were uninsured under current banking insurance
regulations.
 
 H-6
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
3.                    Accounts
Receivable
 
 Balances
as of August 15, 2008 and year ended December 31, 2007, are as
follows:
 
 August
      15,
              
              
              December
      31,2008
              
              
              2007Billed
      receivablesCompleted
      contracts
              
              $
              317,152
              
              
              $
              790,962Contracts
      in progress
              
              
              19,415,773
              
              
              
              15,391,212Unbilled
      receivablesRetainages
      on completed contracts
              
              
              
              
              
              
              1,921,035Retainages
      on contracts in progress
              
              
              2,162,758
              
              
              
              8,382,150Total
              
              $
              21,895,683
              
              
              $
              26,485,359
 
 The
primary industry served by the Company within its market area has traditionally
been the natural gas transmission and distribution industry.  As of
August 15, 2008 and year ended December 31, 2007, all of the Company’s
outstanding accounts receivable was unsecured and due directly from business
entities operating within this industry.  Payment of these receivables
depends primarily upon the available revenues generated by these business
entities.
 
 Note
4.                   
Uncompleted Contracts
 
 Costs,
estimated earnings, and billings on uncompleted contracts as of August 15, 2008
and year ended December 31, 2007, are summarized as follows:
 
 August
      15,
              
              
              December
      31,2008
              
              
              2007Costs
      incurred on uncompleted contracts
              
              $
              94,069,235
              
              
              $
              63,454,130Estimated
      earnings
              
              
              35,924,601
              
              
              
              29,145,461129,993,836
              
              
              
              92,599,591Billings
      through period
              
              
              (130,640,501
              )
              
              
              (93,204,180
              )$
              (646,665
              )
              
              $
              (604,589
              )
 
 Included
in the accompanying balance sheets under the following captions:
 
 August
      15,
              
              
              December
      31,2008
              
              
              2007Billings
      in excess of costs and estimated earningson
      uncompleted contracts
              
              
              (646,665
              )
              
              
              (604,589
              )$
              (646,665
              )
              
              $
              (604,589
              )
 
 H-7
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
5.                   Backlog
 
 The
following schedule summarizes changes in backlog on contracts during the period
of January 1, 2008 to August 15, 2008 and year ended December 31,
2007.  Backlog represents the amount of revenue the Company expects to
realize from work to be performed on uncompleted contracts in progress as of the
balance sheet date and from contractual agreements on which work has not yet
begun.
 
 August
      15,
              
              
              December
      31,2008
              
              
              2007Backlog
      balance, January 1
              
              $
              5,418,764
              
              
              $
              57,280,068New
      contracts entered into duringthe
      period January 1 to August 15, 2008and
      year ended December 31, 2007
              
              
              38,724,591
              
              
              
              48,523,79444,143,355
              
              
              
              105,803,862Less
      contract revenue earned duringthe
      period January 1 to August 15, 2008and
      year ended December 31, 2007
              
              
              (37,410,877
              )
              
              
              (100,385,098
              )Backlog
      balance, as of August 15, 2008
              
              $
              6,732,478
              
              
              $
              5,418,764and
      year ended December 31, 2007
  Note
6.                   Major
Customers
 
 Revenues
for the period of January 1, 2008 to August 15, 2008 and year ended December 31,
2007 include $37,378,794 and $100,379,587 ,respectively, in revenues which
represent approximately 98% and 99%, respectively, of total revenues, from two
major customers during the period of January 1, 2008 to August 15, 2008 and year
ended December 31, 2007.  Receivables from major customers for the
period of January 1, 2008 to August 15, 2008 and year ended December 31, 2007,
amount to $21,578,556 and $26,376,953, respectively, which represents
approximately 99% and 99%, respectively, of total accounts
receivable.  Virtually all work performed for major customers was
awarded under competitive bid fixed price arrangements.  During the
period of January 1, 2008 to August 15, 2008 and year ended December 31, 2007,
the Company's major customers operated within the natural gas transmission and
distribution industry within the Company's market area.  The loss of a
major customer could have a severe impact on the profitability of operations of
the Company. However, due to the nature of the Company's operations, the major
customers and sources of revenues may change from year to year.
 
 H-8
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
7.                   Property,
Plant and Equipment
 
 A summary
of property plant and equipment as of August 15, 2008 and year ended December
31, 2007, is as follows:
 
 August
      15,
                  
                  
                  December
      31,2008
                  
                  
                  2007Land
      and land improvements
                  
                  $
                  -
                  
                  
                  $
                  47,446Building
      and building improvements
                  
                  
                  -
                  
                  
                  
                  202,957Office
      furniture, fixtures, and equipment
                  
                  
                  52,704
                  
                  
                  
                  52,704Construction
      equipment
                  
                  
                  9,972,427
                  
                  
                  
                  6,420,601Vehicles
      and trailers
                  
                  
                  4,639,034
                  
                  
                  
                  4,550,68714,664,165
                  
                  
                  
                  11,274,395Less
      accumulated depreciation
                  
                  
                  (9,138,232
                  )
                  
                  
                  (8,612,942
                  )$
                  5,525,933
                  
                  
                  $
                  2,661,453
 
 Note
8.                   
Lines of Credit, Letter of Credit, and Subsequent Event
 
 The
Company has available a line of credit agreement with a local community bank
which provides that the Company may borrow up to
$3,000,000.  Borrowings under the line bear interest payable monthly
at the Wall Street Journal Prime Rate plus 1% and are secured by all of the
equipment of the Company and assignment of personal life insurance policies of
the stockholder-officers of the Company.  The balances payable under
this arrangement are due on demand.  As of August 15, 2008 and year
ended December 31, 2007, outstanding borrowings were $315,834 and $2,335,146,
respectively.  The amount available for additional borrowings under
this arrangement as of August 15, 2008, amounted to $2,684,166.  This
arrangement is due to expire October 2, 2008.
 
 The
Company also has available a line of credit agreement with a large regional bank
which provides that the Company may borrow up to
$3,500,000.  Borrowings under the line bear interest payable monthly
at the lending bank’s prime rate and are secured by all assets of the
Company.  The balances payable under this arrangement are due on
demand.  As of August 15, 2008 and year ended December 31, 2007,
outstanding borrowings were $1,586,863 and $2,600,273,
respectively.  The amount available for additional borrowings under
this arrangement as of August 15, 2008, amounted to $1,913,137.  This
arrangement is due to expire June 5, 2009.
 
 BB&T
Additional Line of Credit of $5,000,000 expired on 7/5/08.  There is
no balance as of August 15, 2008.
 
 The
Company was also contingently liable on an irrevocable standby letter of credit
in the amount of $950,542 as of August 15, 2008.  This arrangement was
entered into by the Company and the aforementioned large regional bank to
guarantee the payment of insurance premiums to the group captive insurance
company through which the Company obtains its general liability insurance
coverage (Note 11).  Any amounts advanced under this arrangement bear
interest payable monthly at the bank’s prime lending rate with the principal
amounts due upon demand.
 
 H-9
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 Note
9.                   
Long-term debt
 
 A summary
of long-term debt as of August 15, 2008 and year ended December 31, 2007
follows:
 
 August
      15,
                  
                  
                  December
      31,2008
                  
                  
                  2007Note
      payable to a Bank, payable in monthly installments of$9,217,
      including interest at 8%, maturity date of June 10, 2010,secured
      by equipment acquired with the proceeds of this note.
                  
                  $
                  187,643
                  
                  
                  $
                  249,334Note
      payable to a finance company, payable in monthlyinstallments
      of $2,180, including interest at 8.375%,maturity
      date of September 14, 2009, secured by equipmentacquired
      with this note.
                  
                  
                  27,043
                  
                  
                  
                  42,944Note
      payable to a finance company, payable in monthlyinstallments
      of $3,361, including interest at 5.5%,maturity
      date of August 6, 2008, secured by equipmentacquired
      with this note.
                  
                  
                  -
                  
                  
                  
                  19,828Notes
      payable to various finance companies, payable in monthlyinstallments
      totaling $9,672, including interest at rates rangingbetween
      0% and 8%, with varying maturity dates from March,2008,
      through December, 2008, secured by vehicles andequipment
      acquired with the notes.
                  
                  
                  1,381,785
                  
                  
                  
                  64,174Notes
      payable to banks and credit unions, payable in monthlyinstallments
      totaling $11,925, including interest at rates rangingbetween
      4.5% and 8.0%, maturity dates varying between June, 2008,through
      March, 2009, secured by vehicles acquired with the notes.
                  
                  
                  2,094,650
                  
                  
                  
                  61,963Notes
      payable to shareholders, payable on demand at 0% interestas
      accounts receivable outstanding as of August 15, 2008are
      collected.
                  
                  
                  10,934,813
                  
                  
                  
                  -14,625,934
                  
                  
                  
                  438,243Less
      current maturities
                  
                  
                  12,144,704
                  
                  
                  
                  262,247Total
      long-term debt
                  
                  $
                  2,481,230
                  
                  
                  $
                  175,996
 
 Maturities
of long term debt are as follows
 
 2009
              
              $
              12,144,7042010
              
              
              1,187,4482011
              
              
              997,6222012
              
              
              296,160$
              14,625,934
 
 Interest
paid on debt during the period January 1, 2008 to August 15, 2008, and year
ended December 31, 2007 was $142,940, and $298, respectively.
 
 An
additional $5,000,000 was paid to Jim and Sue Shafer in October
2008.
 
 H-10
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 Note
10.                  Leases
and Related Party Lease Commitments
 
 The
Company frequently leases equipment on a short-term basis for use on its
construction projects.  Rental expense for these instances during the
period January 1, 2008 to August 15, 2008, and year ended December 31, 2007 was
approximately $3,834,000 and $6,393,000 respectively.
 
 The
Company rents real estate and related facilities that are owned by
stockholder-officers of the Company under long-term lease
agreements.  The monthly rental for these facilities is $3,750 per
month, and the expense incurred and paid under these arrangements for the period
January 1, 2008 to August 15, 2008, and year ended December 31, 2007, amounted
to $30,000 and $45,000, respectively.
 
 This
lease was originally set to run through January 12, 2012, but was replaced by a
new lease effective September 1, 2008 due to the acquisition of ST Pipeline Inc.
by Energy Services of America.  The new lease is for a period of three
years at a monthly rate of $5,000 per month.  Future minimum lease
amounts are as follows:
 
 September
      – December 2008
              
              $
              20,0002009
              
              
              60,0002010
              
              
              60,000January
      – August 2011
              
              
              40,000$
              180,000
 
 Note
11.                 
Related Party
 
 The
Company obtains its business general liability insurance coverage through a
group captive insurance company domiciled in the Cayman Islands, within which
the Company has an 8% equity interest.  Premiums expense incurred with
this related entity for the period January 1, 2008 to August 15, 2008, and year
ended December 31, 2007 approximated $483,655 and $1,967,000,
respectively.  The balance due on premium as of August 15, 2008 was
$92,283.62 which is the final payment for 2008.  No amounts were due
to the captive insurance company for premium payments as of year ended December
31, 2007.
  Note
12.                  Employee
Benefit and Retirement Plans
 
 The
Company contributes to union-sponsored, multi-employer retirement
plans.  Contributions are made in accordance with negotiated labor
contracts.  The passage of the Multi-Employer Pension Plan Amendments
Act of 1980 (the Act) may, under certain circumstances, cause the Company to
become subject to liabilities in excess of contributions made under collective
bargaining agreements.  Generally, liabilities are contingent upon the
termination, withdrawal, or partial withdrawal from the plans.  As of
August 15, 2008, the Company has not undertaken to terminate, withdraw, or
partially withdraw from any of the plans within which union employees are
currently participating.  However, the Company has been assessed a
withdrawal liability of $161,719 by the Steelworkers’ Pension Fund resulting
from the Company’s discontinuance of contributions during the year ended
December 31, 2003, as the employees of the Company that were represented by the
Steelworkers’ local union no longer desired to be represented by that
union.  The withdrawal liability was assessed and still payable as of
August 15, 2008.  The company agreed to settle and pay this liability
by October 31, 2008 in return for the Pension Fund waiving all penalties and
interest that would have been assessed.
 
 Under the
Act, liabilities would be based upon the Company's proportionate share of each
plan’s unfunded vested benefits.  The company receives periodic
correspondence from several pension funds concerning the
funding levels but does not receive any information that would determine its
share of unfunded vested benefits, if any.
  H-11
  ST
PIPELINE, INC.
 
 NOTES
TO FINANCIAL STATEMENTS
 During
the period January 1, 2008 to August 15, 2008 and year ended December 31, 2007,
the Company contributed approximately $1,717,000 and $3,531,000, respectively,
to these multi-employer union retirement plans.
 
 The
Company also contributes to union-sponsored, multi-employer plans that provide
health and welfare and other benefits.  Contributions are made in
accordance with negotiated labor contracts.  During the period January
1, 2008 to August 15, 2008 and year ended December 31, 2007, the Company
contributed approximately $2,309,000 and $5,974,000, respectively, to these
multi-employer union plans.
 
 Note
13.                  Contingencies
 
 During
the normal course of operations, the Company is subject to certain claims from
subcontractors, mechanic liens and other litigation.  Management is of
the opinion that no material obligation will arise from any pending litigation,
and that any such loss obligations are fully insured.  Accordingly, no
provision has been included in the financial statements for such
litigation.
 
 Note
14.                  Subsequent
Event
 
 On
January 22, 2008, the Company entered into a merger agreement with Energy
Services Acquisition Corp. The agreement calls for the stockholders of the
Company to receive total consideration of $19 million, reduced by the book value
of certain assets to be distributed to the stockholders of the
Company.  All except $3 million is to be paid to the stockholders at
closing.  The remaining $3 million consists of deferred payments to
the stockholders over three years with an interest at a simple rate of 7.5% per
annum.
 
 Effective
at the close of business on August 15, 2008, the Company was acquired by Energy
Services Acquisitions Corp. pursuant to a merger agreement entered into on
January 22, 2008.  The stockholders of Energy Services Acquisition
Corp. approved the merger agreement at a special meeting on August 15, 2008, to
be effective the close of business on that date.
  Additionally,
under the agreement, the stockholders of the Company are entitled to receive as
dividend distributions the earnings of the Company for the year ended December
31, 2007, less $4.2 million, as well as 95% of the Company’s net income earned
up to the 2008 month ending immediately prior to the date of
closing.  During the period January 1, 2008 to August 15, 2008, the
Company’s dividend distributions of 2007 earnings approximated $9 million
leaving approximately $7 million of 2008 earnings that could be distributed
prior to the closing date of the agreement.  The agreement also
provides that if sufficient cash is not available prior to or as of the date of
closing, then the difference would be distributed as a short-term non-interest
bearing note payable to the stockholders.  Cash was not available at
closing, leaving approximately 10.9 million due and payable.
 
 Upon the
completion of the acquisition by Energy Services Acquisition Corp., the
Company’s previously elected S Corporation status would immediately
terminate.  The net income or loss of the Company subsequent to the
merger would then be included on the consolidated income tax return of Energy
Services Acquisition Corp.  The unaudited pro forma income data
presented on the statement of income and retained earnings reflect the estimated
income taxes that would have been incurred and the resulting net income for the
period January 1, 2008 to August 15, 2008, and year ended December 31, 2007, as
if the Company had not elected S Corporation status.
   H-12