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.

Company 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 $34.0 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.

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.

Third Quarter Overview

     The following is an overview for the three months ended June 30, 2009:

           Sales                               $24.8 million
           Cost of Revenues                     22.1 million
           Gross Profit (Loss)                   2.7 million
           Selling & Adm.                        1.6 million
           Net Income(Loss)                      0.6 million

The third and fourth fiscal quarters for the Company are typically very active periods for our business line. As the economy starts to improve the Company is seeing many projects coming out for bid. Revenue increased from $18.9 million for the quarter ending March 31, 2009 to $24.8 million for the quarter ending June 30, 2009. Selling and Administrative expenses were down $0.4 million from the previous quarter. Net income was $0.6 million for the quarter. Fourth quarter sales are expected to be strong.

The Company's cash and cash equivalents decreased by $6.4 million, with working capital increasing by $0.5 million during this quarter. Accounts receivable and retainage receivable decreased by $1.7 million during the quarter, and long-term debt was reduced by $3.5 million.

Seasonality: Fluctuation of Results

Our revenues and results of operations can be 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.

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 when construction is difficult to undertake 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 and Administrative Expenses

Selling and administrative expenses consist primarily of compensation and related benefits to management, administrative salaries and benefits, marketing, communications, office and utility costs, professional fees, bad debt expense, letter of credit fees, general liability insurance and miscellaneous other expenses.

Results of Operations

Because the Company had no operations during the nine months ended June 30, 2008 the information set forth below for the three and nine months ended June 30, 2008 and the corresponding analysis of the comparative three and nine months ended June 30, 2009 and June 30, 2008 is based on actual results for the three and nine months ended June 30, 2009 and pro forma results for the three and nine months ended June 30, 2008. 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."