Enservco(ENSV) - 2021 Q3 - Quarterly Report

Part I – Financial Information Financial Statements The financial statements for the nine months ended September 30, 2021, show a net loss of $4.0 million, total assets of $28.1 million, and liabilities of $19.0 million Condensed Consolidated Balance Sheets As of September 30, 2021, total assets decreased to $28.1 million, total liabilities significantly reduced to $19.0 million, and stockholders' equity improved to $9.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $7,306 | $4,880 | | Total Assets | $28,109 | $30,183 | | Total Current Liabilities | $4,493 | $4,574 | | Total Liabilities | $19,035 | $27,628 | | Total Stockholders' Equity | $9,074 | $2,555 | - The significant decrease in total liabilities is primarily driven by a reduction in the non-current portion of the senior revolving credit facility, which fell from $17.5 million to $12.8 million[11] Condensed Consolidated Statements of Operations Q3 2021 revenues increased to $3.0 million with a net loss of $177,000, contrasting with Q3 2020's $8.4 million net income Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $3,027 | $1,764 | $11,257 | $13,291 | | Loss from Operations | $(2,860) | $(3,050) | $(8,174) | $(9,210) | | Net (Loss) Income | $(177) | $8,405 | $(3,956) | $1,211 | | Net (Loss) Income per Share | $(0.02) | $2.15 | $(0.37) | $0.32 | - The significant net income in Q3 2020 was primarily due to an $11.9 million gain on the restructuring of the senior revolving credit facility[15] - In Q3 2021, other income included a $2.0 million gain on the forgiveness of a PPP loan and $2.1 million in Employee Retention Credits for the nine-month period[15][53][86] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $2.6 million to $9.1 million by September 30, 2021, driven by an $8.8 million stock issuance and subordinated debt conversion - Key equity events in the first nine months of 2021 included issuing 4.2 million shares for net proceeds of $8.8 million and converting subordinated debt and accrued interest into 602,000 shares[17] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash used in operations was $3.9 million, offset by $4.4 million from financing activities, resulting in a net cash increase of $206,000 Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,883) | $(2,295) | | Net cash (used in) provided by investing activities | $(283) | $966 | | Net cash provided by financing activities | $4,372 | $666 | | Net Increase (Decrease) in Cash | $206 | $(663) | | Cash and Cash Equivalents, end of period | $1,673 | $- | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, a going concern warning due to the October 2022 credit facility maturity, PPP loan forgiveness of $2.0 million, and $2.1 million in Employee Retention Credits - The company's ability to continue as a going concern is in substantial doubt due to the October 15, 2022 maturity date of its Credit Facility with East West Bank[30] - On July 8, 2021, the Small Business Administration (SBA) approved the full forgiveness of the company's $1.9 million PPP loan, plus approximately $24,000 in accrued interest, resulting in a ~$2.0 million gain recorded in Other Income[86] - The company recorded $2.1 million in Employee Retention Credits as other income for the nine months ended September 30, 2021[53] Management's Discussion and Analysis (MD&A) Management attributes Q3 2021 revenue growth to economic recovery, despite a nine-month revenue decrease, while highlighting balance sheet improvements and going concern doubts Results of Operations Q3 2021 revenue rose 72% to $3.0 million, while nine-month revenue fell 15% to $11.3 million, leading to a Q3 net loss of $177,000 Revenue by Segment (in thousands) | Segment | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Production services | $2,483 | $1,363 | $6,556 | $5,948 | | Completion and other services | $544 | $401 | $4,701 | $7,343 | | Total revenues | $3,027 | $1,764 | $11,257 | $13,291 | - The company's business is highly seasonal, with approximately 75% of its 2020 revenues generated during the cooler first and fourth quarters (the "heating season")[186][187] Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(177) | $8,405 | $(3,956) | $1,211 | | Adjusted EBITDA | $(1,537) | $(1,713) | $(4,052) | $(4,252) | Liquidity and Capital Resources As of September 30, 2021, available liquidity was $2.7 million, with working capital improving to $2.8 million, though the October 2022 credit facility maturity raises going concern doubts - The company successfully completed two equity offerings in late 2020 and early 2021, providing aggregate net proceeds of $12.3 million[207][217] - The company's credit facility matures on October 15, 2022, creating substantial doubt about its ability to continue as a going concern without refinancing or obtaining new equity financing[208] - Available liquidity as of September 30, 2021, was $2.7 million, comprising $1.7 million in cash and $1.0 million in credit facility availability[210] 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 - The company is a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item[224] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[225] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, its internal controls[227] Part II – Other Information Legal Proceedings A negligence complaint exceeding $1.0 million was filed post-quarter, which the company has tendered to its insurer and does not expect to have a material adverse impact - A negligence complaint was filed against the company on November 8, 2021, concerning a traffic accident from November 19, 2019, with the claim exceeding $1.0 million[228] - The company has referred the matter to its insurer, which has preliminarily accepted coverage, and management does not believe the litigation will have a material adverse impact[228] Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020 - The report incorporates by reference the risk factors set forth in the company's Annual Report on Form 10-K for the year ended December 31, 2020[229] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None[231] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[232] Other Information No other information required for disclosure under this item was reported - None[234] Exhibits The report includes various exhibits filed with the SEC, such as the Eighth Amendment to the Loan and Security Agreement and Sarbanes-Oxley certifications - Key exhibits filed include the Eighth Amendment to the Loan and Security Agreement with East West Bank, and certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act[236]