UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q




(Mark
One)




x Quarterly
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended December 31, 2008o Transition
      report under Section 13 or 15(d) of the Securities Exchange act of
      1934For
      the transition period from _______________ to
      _________________




Commission
File Number: 001-32998


Energy
      Services of America Corporation(Exact
      Name of Registrant as Specified in its
  Charter)




Delaware
            
            20-4606266(State
      or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
      Employer Identification Number)100
      Industrial Lane, Huntington, West Virginia
            
            25702(Address
      of Principal Executive Office)
            
            (Zip
      Code)




(304)
      399-6315(Registrant’s
      Telephone Number including area
code)




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such requirements for
the past 90 days. YES x NO o.




Indicate
by check mark whether the registrant 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




As of
February 10, 2009 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




Transitional Small
Business Disclosure Format (check one) Yes o No x












Part
      I:
                    Financial
      InformationItem
      1.
                    Financial
      Statements (Unaudited):Consolidated
      Balance Sheets
                    
                    1Consolidated
      Statements of Income
                    
                    2Consolidated
      Statements of Cash Flows
                    
                    3Consolidated
      Statements of Changes in Stockholders’ Equity
                    
                    4Notes
      to Unaudited Consolidated Financial Statements
                    
                    5Item
      2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    9Item
      3.
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    
                    20Item
      4.
                    Controls
      and Procedures
                    
                    20Part
      II:
                    Other
      InformationItem
      1A. Risk Factors
                    
                    21Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    
                    21Item
      4.
                    Submission
      of Matters to a vote of Security Holders
                    
                    23Item
      6.
                    Exhibits
                    
                    23Signatures
                    
                    24









ENERGY
SERVICES OF AMERICA CORPORATION


CONSOLIDATED
BALANCE SHEETS


December
      31,
                                        2008
                                      
                                      
                                      September
      30,
                                        2008(Unaudited)
                                      
                                      
                                      (Audited)AssetsCurrent
      AssetsCash
      and cash equivalents
                                      
                                      $
                                      13,436,297
                                      
                                      
                                      $
                                      13,811,661Accounts
      receivable-trade
                                      
                                      
                                      16,230,737
                                      
                                      
                                      
                                      38,578,810Allowance
      for doubtful accounts
                                      
                                      
                                      (366,605
                                      )
                                      
                                      
                                      (363,819
                                      )Retainages
      receivable
                                      
                                      
                                      6,779,360
                                      
                                      
                                      
                                      6,303,690Other
      receivables
                                      
                                      
                                      828,319
                                      
                                      
                                      
                                      182,598Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                                      
                                      
                                      3,903,140
                                      
                                      
                                      
                                      5,272,669Prepaid
      expenses and other
                                      
                                      
                                      801,316
                                      
                                      
                                      
                                      1,121,101Total
      Current Assets
                                      
                                      
                                      41,612,564
                                      
                                      
                                      
                                      64,906,710Property,
      Plant and Equipment, at Cost
                                      
                                      
                                      34,268,478
                                      
                                      
                                      
                                      33,851,552less
      Accumulated Depreciation
                                      
                                      
                                      (1,988,318
                                      )
                                      
                                      
                                      (548,089
                                      )32,280,160
                                      
                                      
                                      
                                      33,303,463Goodwill
                                      
                                      
                                      35,489,643
                                      
                                      
                                      
                                      35,489,643Total
      Assets
                                      
                                      $
                                      109,382,367
                                      
                                      
                                      $
                                      133,699,816Liabilities
      and Stockholders’ EquityCurrent
      LiabilitiesCurrent
      maturities of long-term debt
                                      
                                      $
                                      10,025,440
                                      
                                      
                                      $
                                      15,040,033Lines
      of credit
                                      
                                      
                                      6,550,000
                                      
                                      
                                      
                                      9,796,208Accounts
      payable
                                      
                                      
                                      4,237,086
                                      
                                      
                                      
                                      11,336,680Accrued
      expenses and other current liabilities
                                      
                                      
                                      6,068,500
                                      
                                      
                                      
                                      9,364,341Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                                      
                                      
                                      1,373,934
                                      
                                      
                                      
                                      509,227Income
      taxes payable
                                      
                                      
                                      104,288
                                      
                                      
                                      
                                      1,461,461Total
      Current Liabilities
                                      
                                      
                                      28,359,248
                                      
                                      
                                      
                                      47,507,950Long-term
      debt, less current maturities
                                      
                                      
                                      15,297,948
                                      
                                      
                                      
                                      18,272,186Long-term
      debt, payable to shareholder
                                      
                                      
                                      6,000,000
                                      
                                      
                                      
                                      6,000,000Deferred
      Income taxes payable
                                      
                                      
                                      1,662,463
                                      
                                      
                                      
                                      1,662,463Total
      Liabilities
                                      
                                      
                                      51,319,659
                                      
                                      
                                      
                                      73,442,599Stockholders’
      equityPreferred,
      $.0001 par valueAuthorized
      1,000,000 shares, none issuedCommon
      Stock, $.0001 par valueAuthorized
      50,000,000 sharesIssued
      and outstanding 12,092,307shares
                                      
                                      
                                      1,209
                                      
                                      
                                      
                                      1,209Additional
      paid in capital
                                      
                                      
                                      55,976,368
                                      
                                      
                                      
                                      55,976,368Retained
      earnings
                                      
                                      
                                      2,085,131
                                      
                                      
                                      
                                      4,279,640Stockholders’
      equity
                                      
                                      
                                      58,062,708
                                      
                                      
                                      
                                      60,257,217Total
      liabilities and stockholders’ equity
                                      
                                      $
                                      109,382,367
                                      
                                      
                                      $
                                      133,699,816




The
Accompanying Notes are an Integral Part of These Financial
Statements


1




ENERGY
SERVICES OF AMERICA CORPORATION


CONSOLIDATED
INCOME STATEMENTS


Unaudited


Three
      Months Ended
                        December
      31,
                        2008
                      
                      
                      Three
      Months Ended
                        December
      31,
                        2007Revenue
                      
                      $
                      33,679,046
                      
                      
                      $
                      —Cost
      of revenues
                      
                      
                      35,275,121Gross
      profit (loss)
                      
                      
                      (1,596,075
                      )
                      
                      
                      —Selling
      and administrative expenses
                      
                      
                      1,714,750
                      
                      
                      
                      58,374Income
      (loss) from operations
                      
                      
                      (3,310,825
                      )
                      
                      
                      (58,374
                      )Other
      income (expense)Interest
      income
                      
                      
                      36,273
                      
                      
                      
                      619,160Other
      nonoperating income (expense)
                      
                      
                      161,815
                      
                      
                      
                      —Interest
      expense
                      
                      
                      (416,772
                      )
                      
                      
                      —Gain
      (loss) on sale of equipment
                      
                      
                      (7,564
                      )
                      
                      
                      —(226,248
                      )
                      
                      
                      619,160Income
      (loss) before income taxes
                      
                      
                      (3,537,073
                      )
                      
                      
                      560,786Income
      tax expense (benefit)
                      
                      
                      (1,342,564
                      )
                      
                      
                      206,000Net
      income (loss)
                      
                      $
                      (2,194,509
                      )
                      
                      $
                      354,786Net
      income (loss) per share basic
                      
                      $
                      (0.18
                      )
                      
                      $
                      0.03Net
      income (loss) per share diluted
                      
                      $
                      (0.18
                      )
                      
                      $
                      0.03




The
Accompanying Notes are an Integral Part of These Financial
Statements


2




ENERGY
SERVICES OF AMERICA CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Unaudited


Three
      Months Ended
                                December
      31,
                                2008
                              
                              
                              Three
      Months Ended
                                December
      31,
                                2007Operating
      activitiesNet
      income (loss)
                              
                              $
                              (2,194,509
                              )
                              
                              $
                              354,786Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
      expense
                              
                              
                              1,441,888
                              
                              
                              
                              —(Gain)
      loss on sale/disposal of equipment
                              
                              
                              7,564
                              
                              
                              
                              —Accrued
      income and accretion of investments in trust
                              
                              
                              —
                              
                              
                              
                              (614,603
                              )(Increase)
      decrease in contracts receivable
                              
                              
                              22,350,859
                              
                              
                              
                              —(Increase)
      decrease in retainage receivable
                              
                              
                              (475,670
                              )
                              
                              
                              —(Increase)
      decrease in other receivables
                              
                              
                              (645,721
                              )
                              
                              
                              —(Increase)
      decrease in cost and estimated earnings in excessof billings on
      uncompleted contracts
                              
                              
                              1,369,529
                              
                              
                              
                              —(Increase)
      decrease in prepaid expenses
                              
                              
                              319,785
                              
                              
                              
                              (26,555
                              )Increase
      (decrease) in accounts payable
                              
                              
                              (7,099,594
                              )
                              
                              
                              —Increase
      (decrease) in accrued expenses
                              
                              
                              (3,295,841
                              )
                              
                              
                              —Increase (decrease)
      in billings in excess of cost and estimated earnings
      on uncompleted contracts
                              
                              
                              864,707
                              
                              
                              
                              —Increase
      (decrease) in income taxes payable
                              
                              
                              (1,357,173
                              )
                              
                              
                              —Net
      cash provided by (used in) operating activities
                              
                              
                              11,285,824
                              
                              
                              
                              (286,372
                              )Investing
      activitiesPurchase
      of investments held in trust fund
                              
                              
                              —
                              
                              
                              
                              (10,543,000
                              )Proceeds
      from maturites of investments held in trust
                              
                              
                              —
                              
                              
                              
                              10,543,000Investment
      in property & equipment
                              
                              
                              (431,181
                              )
                              
                              
                              —Proceeds
      from sales of property and equipment
                              
                              
                              5,032
                              
                              
                              
                              —Net
      cash used in investing activities
                              
                              
                              (426,149
                              )
                              
                              
                              —Financing
      activitiesBorrowings
      on lines of credit, net of (repayments)
                              
                              
                              (3,246,208
                              )
                              
                              
                              —Proceeds
      from issuance of long term debt
                              
                              
                              58,575
                              
                              
                              
                              —Principal
      payments on long term debt
                              
                              
                              (8,047,406
                              )
                              
                              
                              —Net
      cash provided by (used in) financing activities
                              
                              
                              (11,235,039
                              )
                              
                              
                              —Increase
      (decrease) in cash and cash equivalents
                              
                              
                              (375,364
                              )
                              
                              
                              756,782Cash
      beginning of year
                              
                              
                              13,811,661
                              
                              
                              
                              (286,372
                              )Cash
      end of year
                              
                              $
                              13,436,297
                              
                              
                              $
                              470,410Supplemental
      Disclosure of Cash Flow Information:Interest
      paid
                              
                              $
                              416,772
                              
                              
                              $
                              —Income
      taxes paid
                              
                              $
                              —
                              
                              
                              $
                              217,500




The
Accompanying Notes are an Integral Part of These Financial
Statements


3




ENERGY
SERVICES OF AMERICA CORPORATION


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


For
Three Months Ended December 31, 2008 and 2007


Unaudited


Total
                        Stockholders’
                        EquityCommon
      Stock
                      
                      
                      Additional
      Paid
                        in
      Capital
                      
                      
                      Retained
                        EarningsShares
                      
                      
                      AmountBalance
      at September 30, 2007
                      
                      
                      9,030,860
                      
                      
                      $
                      903
                      
                      
                      $
                      38,564,710
                      
                      
                      $
                      1,468,482
                      
                      
                      $
                      40,034,095Accretion
      related to common stock subject to possible redemption
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (120,000
                      )
                      
                      
                      —
                      
                      
                      
                      (120,000
                      )Net
      Income (Loss)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      354,786
                      
                      
                      
                      354,786Balance
      at December 31, 2007
                      
                      
                      9,030,860
                      
                      
                      $
                      903
                      
                      
                      $
                      38,444,710
                      
                      
                      $
                      1,823,268
                      
                      
                      $
                      40,268,881Balance
      at September 30, 2008
                      
                      
                      12,092,307
                      
                      
                      $
                      1,209
                      
                      
                      $
                      55,976,368
                      
                      
                      $
                      4,279,640
                      
                      
                      $
                      60,257,217Net
      Income (Loss)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (2,194,509
                      )
                      
                      
                      (2,194,509
                      )Balance
      at December 31, 2008
                      
                      
                      12,092,307
                      
                      
                      $
                      1,209
                      
                      
                      $
                      55,976,368
                      
                      
                      $
                      2,085,131
                      
                      
                      $
                      58,062,708




The
Accompanying Notes are an Integral Part of These Financial
Statements


4




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 are operated as wholly owned subsidiaries of the
Company.




Interim
Financial
Statements




The
accompanying unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange commission (“SEC”) and
should be read in conjunction with the Company’s audited financial statements
and footnotes thereto for the years ended September 30, 2008 and 2007 included
in the Company’s Form 10-K filed December 29, 2008. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been omitted pursuant to interim financial reporting rules and
regulations of the “SEC”. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. The financial
statements reflect all adjustments (consisting primarily of normal recurring
adjustments) that are, in the opinion of management necessary for a fair
presentation of the Company’s financial position and results of operations. The
operating results for the periods ended December 31, 2008 and 2007 are not
necessarily indicative of the results to be expected for the
full year, or for any other interim period.




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.


5




Critical
Accounting Policies




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
revenuesand
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.




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. 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.




Current and Non Current Accounts Receivable and Provision for Doubtful AccountsThe 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
December 31, 2008, the management review deemed that the allowance for doubtful
accounts was adequate to cover any anticipated
losses.




2.
UNCOMPLETED CONTRACTS




Costs,
estimated earnings, and billings on uncompleted contracts as of December 31,
2008 and September 30, 2008 are summarized as follows:


December
      31,
                                              2008
                                          
                                          
                                          September
      30,
                                                2008Costs
      incurred on contracts in progress
                                          
                                          $
                                          54,762,671
                                          
                                          
                                          $
                                          57,723,456Estimated
      earnings, net of estimated losses
                                          
                                          
                                          3,493,619
                                          
                                          
                                          
                                          6,562,54058,256,290
                                          
                                          
                                          
                                          64,285,996Less
      Billings to date
                                          
                                          
                                          55,727,084
                                          
                                          
                                          
                                          59,522,554$
                                          2,529,206
                                          
                                          
                                          $
                                          4,763,442Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                                          
                                          $
                                          3,903,140
                                          
                                          
                                          $
                                          5,272,669Less
      Billings in excess of costs and estimated earnings on uncompleted
      Contracts
                                          
                                          
                                          1,373,934
                                          
                                          
                                          
                                          509,227$
                                          2,529,206
                                          
                                          
                                          $
                                          4,763,442
  3.
SIGNIFICANT CHANGES IN LONG TERM CONTRACTS
  During the three months
ended December 31, 2008 the Company experienced changes in two significant
projects at one of the subsidiaries. These changes had a $3.2 million dollar
negative effect on the gross margin for the period. The changes resulted from
inclement weather and other adverse working conditions which hampered progress
on the work on these projects during the quarter. Management believes that this
was an unusual occurrence and not indicative of future
performance.


6




4.
PROPERTY AND EQUIPMENT


December
      31,
                              2008
                        
                        
                        September
      30,
                              2008Property
      and Equipment consists of the following:Land
                        
                        $
                        702,000
                        
                        
                        $
                        702,000Buildings
      and leasehold improvements
                        
                        
                        239,815
                        
                        
                        
                        253,944Operating
      equipment and vehicles
                        
                        
                        33,011,478
                        
                        
                        
                        32,859,797Office
      equipment, furniture and fixtures
                        
                        
                        315,185
                        
                        
                        
                        35,81134,268,478
                        
                        
                        
                        33,851,552Less
      Accumulated Depreciation and Amortization
                        
                        
                        1,988,318
                        
                        
                        
                        548,089Property
      and equipment net
                        
                        $
                        32,280,160
                        
                        
                        $
                        33,303,463




5.
RELATED PARTY DEBT




Total
long-term debt at December 31, 2008 was $31 million, of which, $13 million was
payable to certain directors, officers and former owners of an acquired company.
The related party debt consist of a $6 million note due in August 2010, a $3
million note payable on August 15 each year at $1 million per year over the next
three years and a $4 million is payable as collections of receivables that were
outstanding at August 15, 2008, which are associated with the receivables
of an acquired subsidiary, are received. The remaining $18 million consists
of debt incurred for capital acquisitions made by the subsidiaries prior to
their acquisition by the Company.




6.
EARNINGS PER SHARE




The
amounts used to compute the basic and diluted earnings per share for the three
months ended December 31, 2008 and 2007 respectfully is illustrated
below:


Three
      Months Ended December 312008
                
                
                2007Net
      Income (Loss) from continuing operations available to common
      shareholders
                
                $
                (2,194,509
                )
                
                $
                354,786Weighted
      average shares outstanding basic
                
                
                12,092,307
                
                
                
                10,750,000Effect
      of dilutive warrants
                
                
                -0-
                
                
                
                2,443,218Weighted
      average shares outstanding diluted
                
                
                12,092,307
                
                
                
                13,193,218Net
      Income (Loss) per share-basic
                
                $
                (0.18
                )
                
                $
                0.03Net
      Income (Loss) per share-diluted
                
                $
                (0.18
                )
                
                $
                0.03


7




7.
SUBSEQUENT EVENT




On
February 6, 2009, the company filed with the SEC a registration statement
relating to the registration of 2,150,000 shares of common stock held by initial
shareholders of the Company and 2,964,763 shares issued in connection with the
acquisition of C.J. Hughes Construction Company, Inc. as well as 3,076,923
warrants to purchase shares of common stock held by initial shareholders of the
Company and the 3,076,923 shares underlying those warrants.




On
January 15, 2009 the Company filed with the SEC a registration statement
relating to the registration of 1,200,000 shares of common stock to be offered
to employees in an employee benefit plan.


8




ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations




You
should read the following discussion of the financial condition and results of
operations of Energy Services in conjunction with the “Unaudited Pro Forma
Consolidated Financial information “ appearing in this section of this report as
well as the historical financial statements and related notes contained
elsewhere herein. Among other things, those historical consolidated financial
statements include more detailed information regarding the basis of presentation
for the following information.




Forward
Looking Statements




Within
Energy Services’ financial statements and this discussion and analysis of the
financial condition and results of operations, there are included statements
reflecting assumptions, expectations, projections, intentions or beliefs about
future events that are intended as “forward-looking statements” under the
Private Securities Litigation Reform Act of 1995. You can identify these
statements by the fact that they do not relate strictly to historical or current
facts. They use words such as “anticipate,” “estimate,” “project,” “forecast,”
“may,” “will,” “should,” “could,” “expect,” “believe,” “intend” and other words
of similar meaning.




These
forward-looking statements are not guarantees of future performance and involve
or rely on a number of risks, uncertainties, and assumptions that are difficult
to predict or beyond Energy Services’ control. Energy Services has based its
forward-looking statements on management’s beliefs and assumptions based on
information available to management at the time the statements are made. Actual
outcomes and results may differ materially from what is expressed, implied and
forecasted by forward-looking statements and any or all of Energy Services’
forward-looking statements may turn out to be wrong. They can be affected by
inaccurate assumptions and by known or unknown risks and
uncertainties.




All
of the forward-looking statements, whether written or oral, are expressly
qualified by these cautionary statements and any other cautionary statements
that may accompany such forward-looking statements or that are otherwise
included in this report. In addition, Energy Services does not undertake and
expressly disclaims any obligation to update or revise any forward-looking
statements to reflect events or circumstances after the date of this report or
otherwise.




Overview




Energy
Services was formed on March 31, 2006, to serve as a vehicle to effect a merger,
capital stock exchange, asset acquisition or other similar business combination
with an operating business. It operated as a “Blank Check Company” until August
15, 2008 at which time it completed the acquisitions of S.T. Pipeline, Inc. and
C.J. Hughes Construction Company, Inc. 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 S.T. 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.


9




Since
the acquisitions, Energy Services has been engaged in one segment of operations
which is providing contracting services for energy related companies. Currently
Energy Services primarily services the Gas, Oil and Electrical industries 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 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 second fiscal quarter of the year is
typically the slowest in terms of revenues because inclement weather conditions
cause delays in production and customers usually do not plan large projects
during that time. While usually better than the second fiscal quarter, the first
fiscal quarter often has some inclement weather which can cause delays in
production, reducing the revenues the Company receives and/or increasing the
production costs. Also in the first quarter there are holidays which can limit
production. The third fiscal quarter usually is least impacted by weather and
usually has the largest number of projects underway.




In
addition to the fluctuations discussed above, the pipeline industry can be
highly cyclical, reflecting variances in capital expenditures in relation to
energy price fluctuations. As a result, our volume of business may be adversely
affected by where our customers’ businesses are in relation to energy
infrastructure expenditures and thereby their financial condition as to their
capital needs and access to capital to finance those needs.


10




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 the energy services 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.


11




Results
of Operations




Because
the Company had no operations during the three months ended December 31, 2007
the information set forth below for the three months ended December 31, 2007 and
the corresponding analysis of the comparative three months ended December 31,
2008 and December 31, 2007 is based on actual results for the three months ended
December 31, 2008 and pro forma results as of December 31, 2007. 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”.




Energy
Services of America Corporation


ST
Pipeline, Inc./C J Hughes


(Unaudited)
                            Three
      Months
                            Ended
                            December
      31,
                          
                          
                          
                          
                          
                          Pro
      Forma
                            Three
      Months
                            Ended
                            December
      31,2008
                          
                          
                          Percent
                          
                          
                          2007
                          
                          
                          PercentContract
      Revenues
                          
                          $
                          33,679,046
                          
                          
                          
                          100.0
                          %
                          
                          $
                          62,747,854
                          
                          
                          
                          100.0
                          %Cost
      of Revenues
                          
                          
                          35,275,121
                          
                          
                          
                          104.7
                          %
                          
                          
                          45,164,879
                          
                          
                          
                          72.0
                          %Gross
      Profit (Loss)
                          
                          
                          (1,596,075
                          )
                          
                          
                          -4.7
                          %
                          
                          
                          17,582,975
                          
                          
                          
                          28.0
                          %General
      and administrative expenses
                          
                          
                          1,714,750
                          
                          
                          
                          5.1
                          %
                          
                          
                          1,428,602
                          
                          
                          
                          2.3
                          %Net
      income (loss) from operations before taxes
                          
                          
                          (3,310,825
                          )
                          
                          
                          -9.8
                          %
                          
                          
                          16,154,373
                          
                          
                          
                          25.7
                          %Interest
      Income
                          
                          
                          36,273
                          
                          
                          
                          0.1
                          %
                          
                          
                          428,700
                          
                          
                          
                          0.7
                          %Interest
      Expense
                          
                          
                          (416,772
                          )
                          
                          
                          -1.2
                          %
                          
                          
                          (460,507
                          )
                          
                          
                          -0.7
                          %Other
      Income (Expense)
                          
                          
                          154,251
                          
                          
                          
                          0.5
                          %
                          
                          
                          274,536
                          
                          
                          
                          0.4
                          %Net
      Income (loss) before tax
                          
                          
                          (3,537,073
                          )
                          
                          
                          -10.5
                          %
                          
                          
                          16,397,103
                          
                          
                          
                          26.1
                          %Income
      taxes (benefit)
                          
                          
                          (1,342,564
                          )
                          
                          
                          -4.0
                          %
                          
                          
                          6,564,867
                          
                          
                          
                          10.5
                          %Net
      Income (Loss)
                          
                          $
                          (2,194,509
                          )
                          
                          
                          -6.5
                          %
                          
                          $
                          9,832,235
                          
                          
                          
                          15.7
                          %Weighted
      average shares outstanding- basic
                          
                          
                          12,092,307
                          
                          
                          
                          
                          
                          
                          
                          12,092,307Weighted
      average shares- diluted
                          
                          
                          12,092,307
                          
                          
                          
                          
                          
                          
                          
                          14,535,525Net
      income (Loss) per share- basic
                          
                          $
                          (0.18
                          )
                          
                          
                          
                          
                          
                          $
                          0.81Net
      income (Loss) per share- diluted
                          
                          $
                          (0.18
                          )
                          
                          
                          
                          
                          
                          $
                          0.68


12




UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION




The
following tables set forth summary financial information for our pro forma
consolidated results for the three months ended December 31, 2007. The
information is presented to show what the consolidated income statements would
have looked like had the transactions with S.T. Pipeline and C.J. Hughes been
completed at the beginning of that period. 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.




Energy
Services of America Corporation


ST
Pipeline, Inc./C J Hughes


Pro
Forma Combined, Condensed, Consolidated Statement of Income


Energy
      Services of
                                                                            America
      Corporation
                                                                            Three
      months ended
                                                                            December
      31, 2007
                                                                          
                                                                          
                                                                          ST
      Pipeline
                                                                            Three
      months
                                                                            Ended
                                                                            December
      31,
                                                                            2007
                                                                          
                                                                          
                                                                          ST
      Pipeline
                                                                            Pro
      Forma
                                                                            Adjustments
                                                                          
                                                                          
                                                                          C
      J Hughes
                                                                            Three
      months
                                                                            Ended
                                                                            December
      31,
                                                                            2007
                                                                          
                                                                          
                                                                          C
      J Hughes
                                                                            Pro
      Forma
                                                                            Adjustments
                                                                          
                                                                          
                                                                          Redemption
                                                                            Adjustments
                                                                          
                                                                          
                                                                          Pro
      Forma
                                                                            Combined(Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)Contract
      Revenues
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          37,520,704
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          25,227,150
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          62,747,854Cost
      of Revenues
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          22,409,224
                                                                          
                                                                          
                                                                          $
                                                                          302,703
                                                                          (1)
                                                                          
                                                                          
                                                                          22,248,923
                                                                          
                                                                          
                                                                          $
                                                                          204,028
                                                                          (1)
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          45,164,879Gross
      Profit
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          15,111,480
                                                                          
                                                                          
                                                                          
                                                                          (302,703
                                                                          )
                                                                          
                                                                          
                                                                          2,978,227
                                                                          
                                                                          
                                                                          
                                                                          (204,028
                                                                          )
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          17,582,975General
      and administrative expenses
                                                                          
                                                                          $
                                                                          58,374
                                                                          
                                                                          
                                                                          
                                                                          419,290
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          950,938
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          1,428,602—Net
      income (loss) from operations
                                                                          
                                                                          
                                                                          (58,374
                                                                          )
                                                                          
                                                                          
                                                                          14,692,190
                                                                          
                                                                          
                                                                          
                                                                          (302,703
                                                                          )
                                                                          
                                                                          
                                                                          2,027,289
                                                                          
                                                                          
                                                                          
                                                                          (204,028
                                                                          )
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          16,154,373Interest
      Income
                                                                          
                                                                          
                                                                          619,160
                                                                          
                                                                          
                                                                          
                                                                          10,574
                                                                          
                                                                          
                                                                          
                                                                          (49,998
                                                                          )
      (2)
                                                                          
                                                                          
                                                                          21,346
                                                                          
                                                                          
                                                                          
                                                                          (52,913
                                                                          )
      (2)
                                                                          
                                                                          
                                                                          (119,469
                                                                          )
      (5)
                                                                          
                                                                          
                                                                          428,700Interest
      Expense
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (80,916
                                                                          )
                                                                          
                                                                          
                                                                          (56,250
                                                                          )
      (3)
                                                                          
                                                                          
                                                                          (323,341
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (460,507
                                                                          )Other
      Income (Expense)
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          274,475
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          61
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          274,536Income
      before income taxes
                                                                          
                                                                          
                                                                          560,786
                                                                          
                                                                          
                                                                          
                                                                          14,896,323
                                                                          
                                                                          
                                                                          
                                                                          (408,951
                                                                          )
                                                                          
                                                                          
                                                                          1,725,355
                                                                          
                                                                          
                                                                          
                                                                          (256,941
                                                                          )
                                                                          
                                                                          
                                                                          (119,469
                                                                          )
                                                                          
                                                                          
                                                                          16,397,103Income
      taxes
                                                                          
                                                                          
                                                                          206,000
                                                                          
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          5,794,949
                                                                          (4)
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          611,706
                                                                          (4)
                                                                          
                                                                          
                                                                          (47,788
                                                                          )
      (6)
                                                                          
                                                                          
                                                                          6,564,867Net
      Income
                                                                          
                                                                          $
                                                                          354,786
                                                                          
                                                                          
                                                                          $
                                                                          14,896,323
                                                                          
                                                                          
                                                                          $
                                                                          (6,203,900
                                                                          )
                                                                          
                                                                          $
                                                                          1,725,355
                                                                          
                                                                          
                                                                          $
                                                                          (868,647
                                                                          )
                                                                          
                                                                          $
                                                                          (71,681
                                                                          )
                                                                          
                                                                          $
                                                                          9,832,235Weighted
      average shares outstanding
                                                                          
                                                                          
                                                                          10,750,000
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          2,964,763
                                                                          
                                                                          
                                                                          
                                                                          (1,622,456
                                                                          )
                                                                          
                                                                          
                                                                          12,092,307Weighted
      average shares- diluted
                                                                          
                                                                          
                                                                          13,193,218
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          2,964,763
                                                                          
                                                                          
                                                                          
                                                                          (1,622,456
                                                                          )
                                                                          
                                                                          
                                                                          14,535,525Net
      income per share- basic
                                                                          
                                                                          $
                                                                          0.03
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          0.81Net
      income per share- diluted
                                                                          
                                                                          $
                                                                          0.03
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          0.68




13




Notes
to pro forma income statement




(1)
            These
      adjustments represent the added depreciation created from the mark to
      market of the fixed assets of S.T. Pipeline and C.J. Hughes as required by
      purchase accounting.(2)
            These
      adjustments reflect the interest income lost from the cash payments made
      to the shareholders of S.T. Pipeline and C.J. 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 S.T. Pipeline had the
      transaction been in place for the respective periods.(4)
            S.T.
      Pipeline and C.J. 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.




14




(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
Actual compared to 2007 Pro Forma




Revenues.Revenues decreased by $29 million or 46.3% to $34 million for the three
months ended December 31, 2008. This decrease was primarily due to major
projects at S.T. Pipeline and C.J. Hughes completed in 2007 that did not reoccur
in 2008 as well as seasonal decreases in revenues due to weather
conditions.




Cost
of Revenues. The three months ended December 21, 2007 was one of the most
profitable periods in the predecessor Companies’ histories with a
gross profit of $18 million or 28%. The three months ended December 31, 2008
resulted in a $1.6 million gross loss. As a result of this loss, the cost of
revenues was significantly higher as a percentage of revenue than expected for
the three months ended December 31, 2008. Cost of revenues decreased by
22%.




Gross
Profit. For the three months ended December 31, 2008 we had a gross loss
$1.6 million. This was compared to a $18 million profit in the three month
period ended December 31, 2007. The loss was the result of two particular
projects at one of the operating subsidiaries which lost $3.2 million for the
quarter and those losses more than offset the normal performance at the other
subsidiaries. The losses resulted from inclement weather and other adverse
working conditions which hampered progress on the work on these projects during
the quarter. We believe that this was an unusual occurrence and not indicative
of future
performance.




Selling
general and administrative expenses.Selling, general and administrative
increased by $300,000 (20.0%) to $1.7 million for the three months ended
December 31, 2008. This increase was partially due to establishing new offices
in Barboursville, WV. Increases in wages, supplies, etc. accounted for the
remaining
increase.




Income
from Operations.Income from operations decreased $19 million or 120.5%
to a $3.0 million loss for the three months ended December 31, 2008. This is a
function of the previous
categories.




Interest
Income.Interest income decrease $392,000 which was due to funds being
used for the acquisition of C.J. Hughes and S.T.
Pipeline.




Interest
Expense.Interest Expense decreased by $44,000 to $417,000 for the three
months ended December 31, 2008. This decrease was primarily driven by the
reduction in the prime interest rate on which most of our financing is
based.




Other
Income.Other income decreased by $120,000 to $154,000 for the three
months ended December 31, 2008. This decrease was driven by the reduction of
rental of equipment to outside
parties.


15




Net
Income(Loss).Net Income decreased by $12 million or 122.3% to a net loss
of $2.2 million for the three months ended December 31, 2008. The decrease
occurred due to the various changes as previously discussed, principally the
large decline in gross profit.




Comparison
of Financial Condition




The
Company had total assets at December 31, 2008 of $109.4 million. Some of the
primary components of the balance sheet were accounts receivable which totaled
$16.2 million down $22.3 million from the September 30, 2008 balances. This
large reduction was driven by the collections from two significant projects
which were completed during the current period. No significant projects have
been contracted, at this point in time, to replace that revenue stream. We are
currently bidding on at several significant projects and expect accounts
receivable to return to the $30 million range. Other major categories of assets
at December 31, 2008 included cash of $13.4 million and fixed assets of $32.3
million. Liabilities totaled $51.3 million down $22.1 million from the September
30, 2008 balances. This decrease was primarily due to reductions in accounts
payable and debt.




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 decreased from $60.3 million at September
30, 2008 to $58.1 million at December 31, 2008. This decrease was due to the net
loss of $2.2 million for the three months ended December 31, 2008.




Liquidity
and Capital Resources




Cash
Requirements




We
anticipate that our cash and cash equivalents on hand at September 30, 2008
which totaled $13.4 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 anticipated future 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.




Sources
and uses of Cash




As
of December 31, 2008, we had $13.4 million in cash, working capital of $13.2
million and long term debt net of current maturities of $21.3
million.


16




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 when
warranted we may enter into longer term leases. By leasing equipment, vehicles
and facilities, we are able to reduce our capital outlay requirements for
equipment vehicles and facilities that we may only need for short periods of
time. The Company currently rents two parcels 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 December 31,
2008, the Company was contingently liable on an irrevocable Letter of Credit for
$950,000 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 reduce our borrowing capabilities.
Historically, the Company has never had a payment made by an insurer under these
circumstances and does not anticipate any claims in the foreseeable future. At
December 31, 2008, we had $26.1 million in bonds issued by the insurer
outstanding.


17




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 three customers that exceeded ten percent of
revenues for the year ended December 31, 2008. Those companies were Equitable
Resources, Columbia Gas and Markwest which accounted for 40% 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




Total
long-term debt at December 31, 2008 was $31 million, of which, $13 million was
payable to certain directors, officers and former owners of an acquired company.
The related party debt consist of a $6 million note due in August 2010, a $3
million note payable on August 15 each year at $1 million per year over the next
three years and a $4 million note payable as collections of receivables that
were outstanding at August 15, 2008, which are associated with the receivables
of an acquired subsidiary, are received.




Inflation




Due
to relatively low levels of inflation during the three months ended December 31,
2007 and 2008, inflation did not have a significant effect on our
results.




Critical
Accounting Policies




The
discussion and analysis of the Company’s financial condition and results of
operations are based on our 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.


18




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. 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 AccountsThe 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
December 31, 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 December 31, 2008 was $54 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.


19




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
million 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.




ITEM
3. Quantitative and Qualitative Disclosures About Market Risk




We
are exposed to market risks, primarily related to increases in fuel prices and
adverse changes in interest rates, as discussed below.




Interest
Rate. Our exposure to market rate risk for changes in interest rates
relates to our borrowings from banks. Some of our loans have variable interest
rates. Accordingly, as rates rise, our interest cost would rise. We do not feel
that this risk is
significant,




ITEM
4. Controls and Procedures




Under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports that Energy Services of America Corporation files or
submits under the Securities Exchange Act of 1934, is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms.




There
has been no change in Energy Services of America Corporation’s internal control
over financial reporting during Energy Services of America Corporation’s first
quarter of fiscal year 2009 that has materially affected, or is reasonably
likely to materially affect, Energy Services of America Corporation’s internal
control over financial reporting.


20




PART
II




OTHER
INFORMATION




ITEM
1A. Risk Factors




Please
see the information disclosed in the “Risk Factors” section of our Form 10-K as
filed with the Securities and Exchange Commission on December 29, 2008, and
which is incorporated herein by reference.




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




(a)
Prior to completing our public offering on September 6, 2006, we sold the
following shares of common stock without registration under the Securities Act
of 1933, as amended:


Name
              
              Number
      of
                Shares
              
              Relationship
      to UsMarshall
      T. Reynolds
              
              537,500
              
              Chairman
      of the Board, Chief Executive Officer and DirectorJack
      M. Reynolds
              
              430,000
              
              DirectorEdsel
      R. Burns
              
              537,500
              
              President
      and DirectorNeal
      W. Scaggs
              
              107,500
              
              DirectorJoseph
      L. Williams
              
              107,500
              
              DirectorDouglas
      Reynolds
              
              430,000
              
              Director
      (1)







(1)
Douglas Reynolds is the son of Marshall T. Reynolds and the brother of Jack M.
Reynolds.




Such
shares were issued in connection with our organization pursuant to the exemption
from registration contained in Section 4(2) of the Securities Act as they were
sold to sophisticated, wealthy individuals or entities. The shares issued to the
individuals and entities above were sold at a purchase price of approximately
$0.01 per share.


21




On
April 5, 2006, we entered into a warrant placement agreement with our initial
stockholders for the sale of the following warrants without registration under
the Securities Act of 1933, as amended:


Name
              
              Number
      of
                Warrants
              
              Relationship
      to UsMarshall
      T. Reynolds
              
              2,692,303
              
              Chairman
      of the Board, Chief Executive Officer and DirectorJack
      M. Reynolds
              
              76,924
              
              DirectorEdsel
      R. Burns
              
              76,924
              
              President
      and DirectorNeal
      W. Scaggs
              
              76,924
              
              DirectorJoseph
      L. Williams
              
              76,924
              
              DirectorDouglas
      Reynolds
              
              76,924
              
              Director
      (1)







(1)
Douglas Reynolds is the son of Marshall T. Reynolds and the brother of Jack M.
Reynolds.




The
Company filed with the Securities and Exchange Commission (SEC) a registration
statement on February 6, 2009 with respect to the common stock and warrants. As
of the date of this report the registration statement had not been declared
effective by the SEC.




A
total of 3,076,923 warrants at a price of $0.65 per warrant, generating total
gross proceeds of $2,000,000 were sold pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act as they were sold
to sophisticated, wealthy individuals or entities. Each warrant entitles the
holder to purchase from us one share of our common stock at an exercise price of
$5.00.




(b)          On
September 6, 2006, we closed our initial public offering of 8,600,000 units.
Each unit consisted of one share of our common stock and two warrants, each to
purchase one share of our common stock at an exercise price of $5.00 per share.
The units were sold at an offering price of $6.00 per unit, generating gross
proceeds of $51,600,000. The managing underwriter in the offering was Ferris,
Baker Watts, Incorporated. The securities sold in the offering were registered
under the Securities Act of 1933 on a registration statement on Form S-1 (No.
333-133111). The Securities and Exchange Commission declared the registration
statement effective on August 30, 2006.




We
paid a total of $4,128,000 in underwriting discounts and commissions, including
$1,032,000 for the underwriters’ non-accountable expense allowance of 2.0 % of
the gross proceeds, and approximately $774,000 for other costs and expenses
related to the offering. After deducting the underwriting discounts and
commissions and the other offering expenses, the total net proceeds to us from
the offering that were deposited into a trust fund were $48,972,000. On August
15, 2008 the Company completed the acquisitions of S.T. Pipeline ($16 million
cash) and C.J. Hughes Construction ($17 million cash) with the remaining funds
in the trust being transferred to the general account of the
Company.




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




22




ITEM
4. Submission of Matters to a vote of Security Holders
  On
November 19, 2008, the Company held its annual meeting of stockholders. At the
annual meeting stockholders the following matters were considered by
stockholders. The number of votes cast for, against or withheld as well as the
number of abstention and broker non-votes is set forth below.




1.
Election of Directors


For
              
              WithheldMarshall
      T. Reynolds
              
              9,775,818
              
              22,434Edsel
      R. Burns
              
              9,780,318
              
              17,934Jack
      M. Reynolds
              
              9,777,318
              
              20,934Neal
      W. Scaggs
              
              9,779,318
              
              18,934Joseph
      L. Williams
              
              9,771,018
              
              27,234Richard
      M. Adams, Jr.
              
              9,779,318
              
              18,934Keith
      Molihan
              
              9,777,818
              
              20,434Douglas
      Reynolds
              
              9,777,318
              
              20,934Eric
      Dosch
              
              9,779,298
              
              18,954James
      Shafer
              
              9,779,298
              
              20,934




2.
Ratification of the appointment of the Independent Registered Accounting
Firm


For
                  
                  Against
                  
                  Abstain
                  
                  Broker
      Non-Vote9,774,368
                  
                  11,600
                  
                  12,184




3.
Approval of the Energy Services of America Corporation 2009 Employee Stock
Purchase Plan


For
                
                Against
                
                Abstain
                
                Broker
      Non-Vote9,331,518
                
                33,214
                
                21,650




ITEM
6. Exhibits


31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
      Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200231.2
            
            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 200232
            
            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


23




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:
      February 17,
      2009
              By:
              s/s
      Marshall T. ReynoldsMarshall
      T. ReynoldsChairman
      and Chief Executive Officer(Principal
      Executive Officer)Date:
      February 17,
      2009
              By:
              s/s
      Edsel R. BurnsEdsel
      R. BurnsPresidentDate:
      February 17,
      2009
              By:
              s/s
      Larry A. BlountLarry
      A. BlountChief
      Financial Officer






24