Enservco(ENSV) - 2020 Q2 - Quarterly Report

Part I – Financial Information This section presents the company's condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and controls Financial Statements The financial statements for the period ended June 30, 2020, reveal significant financial deterioration, including a working capital deficit, net loss, negative operating cash flow, and substantial doubt about going concern Condensed Consolidated Balance Sheets The balance sheets show a significant decline in assets and a substantial increase in the stockholders' deficit by June 30, 2020 | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $3,199 | $8,731 | | Total Assets | $32,969 | $42,976 | | Total Current Liabilities | $37,623 | $42,119 | | Total Liabilities | $42,473 | $45,652 | | Total Stockholders' Deficit | $(9,504) | $(2,676) | - The company reported a significant working capital deficit of $34.4 million as of June 30, 2020, with current liabilities far exceeding current assets, primarily due to the classification of its senior revolving credit facility as a current liability[9] Condensed Consolidated Statements of Operations The statements of operations reflect a sharp decline in revenues and a shift from net income to a significant net loss for the period | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,141 | $6,340 | $11,527 | $31,152 | | (Loss) income from operations | $(3,908) | $(2,999) | $(6,160) | $3,309 | | Net (loss) income | $(4,357) | $(3,209) | $(7,194) | $1,094 | | Net (loss) income per share - basic | $(0.08) | $(0.06) | $(0.13) | $0.02 | - Revenues for the first six months of 2020 plummeted by 63% year-over-year, shifting the company from a net income of $1.1 million in H1 2019 to a net loss of $7.2 million in H1 2020[15] Condensed Consolidated Statements of Stockholders' Equity (Deficit) The statements show a substantial increase in the stockholders' deficit, primarily driven by the net loss incurred during the period - The total stockholders' deficit increased significantly from $(2.7) million at the beginning of 2020 to $(9.5) million by June 30, 2020, driven by a net loss of $7.2 million for the six-month period[18] Condensed Consolidated Statements of Cash Flows The cash flow statements indicate a reversal from positive to negative operating cash flow, reflecting a severe downturn in business activity | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(882) | $5,854 | | Net cash provided by investing activities | $1,004 | $439 | | Net cash used in financing activities | $(356) | $(6,044) | | Net (Decrease) Increase in Cash | $(234) | $249 | - Cash flow from operations reversed from a $5.9 million inflow in H1 2019 to an $882,000 outflow in H1 2020, reflecting the severe downturn in business activity[21] Notes to the Condensed Consolidated Financial Statements The notes highlight critical issues including a going concern warning, debt covenant breaches, the impact of market conditions, and the discontinuation of a business segment - Going Concern: The financial statements were prepared on a going concern basis, but management notes that factors like a net loss of $7.2 million for the six months ended June 30, 2020, a $34.4 million working capital deficit, and breaches of debt covenants raise "substantial doubt" about the company's ability to continue as a going concern[30][31] - Recent Market Conditions: The company has experienced a material adverse impact on revenues and cash flows due to the COVID-19 pandemic and OPEC+ pricing activity, which caused a severe decline in domestic oil prices and drilling activity[32][33][34] - Debt Default: The company is in default under its 2017 Credit Agreement with East West Bank for breaching financial covenants and failing to repay a loan over-advance. The outstanding $32.0 million balance was classified as a current liability. The lender has reserved all rights, including acceleration of the debt[106][107][108] - Paycheck Protection Program (PPP) Loan: On April 10, 2020, the company received a PPP loan of approximately $1.94 million under the CARES Act[113] - Discontinued Operations: The Heat Waves Water Management business ceased operations in December 2019 due to a history of net losses and declining revenues. The company is in the process of selling the remaining assets[97] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the severe revenue decline, liquidity constraints, and reiterates substantial doubt about the company's ability to continue as a going concern - Management highlights that there is substantial doubt about the company's ability to continue as a going concern, citing net losses, a working capital deficit of $34.4 million, and breaches of covenants on its credit facility, which matures on September 24, 2020[172][173] | Metric (Six Months Ended June 30) | 2020 (in millions) | 2019 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenues | $11.5 | $31.2 | -63% | | Net (Loss) Income | $(7.2) | $1.1 | N/A | | Adjusted EBITDA | $(2.6) | $6.5 | N/A | - Both business segments experienced sharp declines. For the first six months of 2020, Production Services revenue fell 42% and Completion Services revenue fell 70% compared to the prior year[188][193] - As of June 30, 2020, the company had only $429,000 in available liquidity (cash balance) and no availability under its $32.0 million credit facility, which is currently in default[224][235] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Enservco is not required to provide quantitative and qualitative disclosures about market risk[249] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[250] - No material changes were made to the company's internal control over financial reporting during the second quarter of 2020[252] Part II – Other Information This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other miscellaneous disclosures Legal Proceedings A patent infringement lawsuit against the company and its subsidiary was dismissed in its entirety in March 2019 - The civil lawsuit alleging patent infringement by Heat-On-The-Fly, LLC was dismissed in its entirety on March 15, 2019, with no finding of wrongdoing by Enservco or its subsidiary Heat Waves[254] Risk Factors The company faces significant risks, including potential stock delisting from NYSE American and high dependence on key management personnel - The company faces the risk of being delisted from the NYSE American exchange due to non-compliance with minimum stock price and stockholders' equity standards[258][259] - A delisting could lead to the loss of institutional investors, reduced liquidity, lower stock prices, and could discourage broker-dealers from trading the company's stock[260] - The company's success is highly dependent on key members of its management, and the loss of their services could disrupt business operations[256][257] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[262] Defaults Upon Senior Securities No defaults upon senior securities were reported for this item, with credit facility defaults detailed in Part I - None[263] Mine Safety Disclosures This item is not applicable as the company had no mine safety disclosures - None[264] Other Information No other information was required to be reported for the period - None[265] Exhibits This section lists the exhibits filed with the Form 10-Q, including loan agreement amendments and officer certifications - The exhibits filed include the Fourth Amendment to the Loan and Security Agreement, CEO and CFO certifications (Sections 302 and 906), and XBRL interactive data files[266]