UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended DecemberMarch 31, 20172018

For the transition period from _______________ to _________________

Commission File Number: 001-32998

Energy Services of America Corporation

(Exact Name of Registrant as Specified in Its Charter)

(304) 522-3868

(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 12 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.    YESx     NO¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).YES.   YES    x     NO¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the ExchangeAct.      ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES¨     NOx

As of FebruaryMay 1, 2018, there were 14,239,836 outstanding shares of the Registrant’s Common Stock.

Part 1. Financial Information

Item 1. Financial Statements (Unaudited):

Energy Services of America Corporation

Consolidated Balance Sheets

The Accompanying Notes are an Integral Part of These Financial Statements

Energy Services of America Corporation

Consolidated Statements of Income

Unaudited

The Accompanying Notes are an Integral Part of These Financial Statements

Energy Services of America Corporation

Consolidated Statements of Cash Flows

Unaudited

The Consolidated Statements of Cash Flows includes the discontinued operation, S.T. Pipeline.

The Accompanying Notes are an Integral Part of These Financial Statements

Energy Services of America Corporation

Consolidated Statements of Changes in Shareholders’ Equity

For the threesix months ended DecemberMarch 31, 20172018 and 20162017

The Accompanying Notes are an Integral Part of These Financial Statements

ENERGY SERVICES OF AMERICA CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Energy Services of America Corporation (“Energy Services” or the “Company”) was formed in 2006 as a special purpose acquisition corporation, or blank check company. On August 15, 2008, Energy Services completed the acquisitions of S.T. Pipeline, Inc. (“S.T. Pipeline”) and C.J. Hughes Construction Company, Inc. (“C.J. Hughes”).

Wholly owned subsidiary C.J. Hughes is a general contractor primarily engaged in pipeline construction for utility companies. C.J. Hughes operates primarily in the mid-Atlantic region of the United States. Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J. Hughes provides union building trade employees for projects managed by C.J. Hughes. Nitro Electric Company,Construction Services, Inc. (“Nitro Electric”Nitro”), a wholly owned subsidiary of C. J. Hughes, is an electrical and mechanical contractor that provides its services to the power, chemical and automotive industries. Nitro Electric operates primarily in the mid-Atlantic region of the United States. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of Nitro, Electric, operates as a data storage facility within Nitro Electric’sNitro’s office building. Pinnacle is supported by Nitro Electric and has no employees of its own. All of the C.J. Hughes, Nitro, Electric, and Contractors Rental production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals. S.T. Pipeline engaged in the construction of natural gas pipelines for utility companies in various states, mostly in the mid-Atlantic area of the country. On May 14, 2013, the Company liquidated the operations of S.T. Pipeline and realized $1.9 million from the sale of assets. The financial position and results of operations of S.T. Pipeline have been presented as discontinued operations in the accompanying financial statements for all presented periods.

The Company’s stock is quoted under the symbol “ESOA” on the OTC QB market place operated by the OTC Markets Group.

Interim Financial Statements

The accompanying unaudited consolidated 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 consolidated financial statements and footnotes thereto for the years ended September 30, 2017 and 2016 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 15, 2017. 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 the interim financial reporting rules and regulations of the SEC. 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 three and six months ended DecemberMarch 31, 20172018 are not necessarily indicative of the results to be expected for the full year or any other interim period.

Principles of Consolidation

The consolidated financial statements of Energy Services include the accounts of Energy Services and its wholly owned subsidiary, C.J. Hughes and its subsidiaries, Nitro, Electric, Pinnacle, and Contractors Rental. S.T. Pipeline has been shown as discontinued operations for the three and six months ended DecemberMarch 31, 20172018 and 2016.2017. All significant intercompany accounts and transactions have been eliminated in the consolidation. Unless the context requires otherwise, references to Energy Services include Energy Services and C.J. Hughes and C.J. Hughes’ subsidiaries.

Reclassifications

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

2.UNCOMPLETED CONTRACTS

Costs, estimated earnings, and billings on uncompleted contracts as of DecemberMarch 31, 2017,2018 and September 30, 2017 are summarized as follows:

Backlog at DecemberMarch 31, 20172018 and September 30, 2017 was $54.2$55.1 million and $62.5 million, respectively. In April 2018, the company was awarded a transmission pipeline project valued at $47.0 million. This project is not included in the March 31, 2018 backlog.

3. CLAIMS

The Company does not have any claims recorded as of DecemberMarch 31, 2017.2018. Claims receivable is a component of cost and estimated earnings in excess of billing.

4. FAIR VALUE MEASUREMENTS

TheFair Value Measurements and Disclosures Topicof the Financial Accounting Standards Board (FASB) Accounting Standards Codification defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.

Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurements Topic of the FASB Accounting Standards Codification establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

As noted above, there is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.

Level 3 — Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market data.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying amount for borrowings under the Company’s revolving credit facility approximates fair value because of the variable market interest rate charged to the Company for these borrowings. The fair value of the Company’s long term fixed-rate debt to unrelated parties was estimated using a discounted cash flow analysis and a yield rate that was estimated based on the borrowing rates for bank loans with similar terms and maturities. The fair value of the aggregate principal amount of the Company’s fixed-rate debt of $12.0$13.2 million at DecemberMarch 31, 20172018 was $12.0$13.1 million.

The Company uses fair value measurements on a non-recurring basis in its assessment of goodwill and long-lived assets held and used. In accordance with its annual impairment test during the quarter ended September 30, 2012, the Company recorded a goodwill impairment charge of $36.9 million, which represented the entire amount of goodwill carried on the Company’s balance sheet. Refer to Note 4, Goodwill and Intangible Assets, of the Company’s Annual Report on Form 10-K for the year ended September 30, 2017 for further information.

5. DISCONTINUED OPERATIONS

Due to organizational changes and operating losses incurred in fiscal year 2012, the Company decided to discontinue the operations of its wholly owned subsidiary S.T Pipeline. On May 14, 2013, the Company liquidated the operations of S.T. Pipeline and realized $1.9 million from the sale.

The Company did not have income from discontinued operations for the three and six months ended DecemberMarch 31, 20172018 and 2016.2017.

The following table shows the components of assets and liabilities that are classified as discontinued operations in the Company’s consolidated balance sheets at DecemberMarch 31, 20172018 and at September 30, 2016.2017.

The $29,000 in accrued expenses and other current liabilities at DecemberMarch 31, 20172018 represents a reserve for any unexpected expenses that may be incurred by the discontinued operation. As of DecemberMarch 31, 2017,2018, the Company had paid all debts known to exist to the unsecured creditors of the discontinued operation.

6. EARNINGS PER SHARE

The amounts used to compute the earnings per share for the three and six months ended DecemberMarch 31, 20172018 and 20162017 are summarized below.

7. INCOME TAXES

The components of income taxes are as follows:

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

The Company does not believe that it has any unrecognized tax benefits included in its consolidated financial statements that require recognition. The Company has not had any settlements in the current period with taxing authorities, nor has it recognized tax benefits as a result of a lapse of the applicable statute of limitations. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in general and administrative expenses.

8. SHORT-TERM AND LONG-TERM DEBT

A summary of short-term and long-term debt as of March 31, 2018 and September 30, 2017 is as follows:

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 “Financial Statements” appearing in 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. The term “Energy Services” refers to the Company, C.J. Hughes and C.J. Hughes’ wholly owned subsidiaries on a consolidated basis.

Forward Looking Statements

Within Energy Services’ consolidated 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. The accuracy of such statements 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 of America Corporation (“Energy Services” or the “Company”) was formed in 2006 as a special purpose acquisition corporation, or blank check company. On August 15, 2008, Energy Services completed the acquisitions of S.T. Pipeline, Inc. (“S.T. Pipeline”) and C.J. Hughes Construction Company, Inc. (“C.J. Hughes”).

Wholly owned subsidiary C.J. Hughes is a general contractor primarily engaged in pipeline construction for utility companies. C.J. Hughes operates primarily in the mid-Atlantic region of the United States. Contractors Rental Corporation (“Contractors Rental”), a wholly owned subsidiary of C.J. Hughes provides union building trade employees for projects managed by C.J. Hughes. Nitro Electric Company,Construction Services, Inc. (“Nitro Electric”Nitro”), a wholly owned subsidiary of C. J. Hughes, is an electrical and mechanical contractor that provides its services to the power, chemical and automotive industries.

Nitro Electric operates primarily in the mid-Atlantic region of the United States. Pinnacle Technical Solutions, Inc. (“Pinnacle”), a wholly owned subsidiary of Nitro, Electric, operates as a data storage facility within Nitro Electric’sNitro’s office building. Pinnacle is supported by Nitro Electric and has no employees of its own. All of the C.J. Hughes, Nitro, Electric, and Contractors Rental production personnel are union members of various related construction trade unions and are subject to collective bargaining agreements that expire at varying time intervals. S.T. Pipeline engaged in the construction of natural gas pipelines for utility companies in various states, mostly in the mid-Atlantic area of the country. On May 14, 2013, the Company liquidated the operations of S.T. Pipeline and realized $1.9 million from the sale of assets. The financial position and results of operations of S.T. Pipeline have been presented as discontinued operations in the accompanying financial statements for all presented periods.

Energy Services is engaged in providing contracting services for energy related companies. Currently Energy Services primarily services the gas, petroleum, power, chemical and automotive industries, though it does some other incidental work such as water and sewer projects. 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 power, chemical, and automotive industries, the Company provides a full range of electrical and mechanical installations and repairs including substation and switchyard services, site preparation, equipment setting, pipe fabrication and installation, 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, Pennsylvania, and Kentucky. 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 build and replace gas line services to individual customers of the various utility companies.

The Company’s consolidated operating revenues for the three months ended DecemberMarch 31, 20172018 were $32.5$23.1 million of which 52.7%65.3% was attributable to electrical and mechanical services, 39.3%27.1% to gas & petroleum contract work, and 8.0%7.6% to water and sewer contract installations and other ancillary services. The Company hadCompany’s consolidated operating revenues for the six months ended March 31, 2018 were $55.6 million of $37.5 millionwhich 57.9% was attributable to electrical and mechanical services, 34.2% to gas & petroleum work, and 7.9% to water and sewer installations and other ancillary services.

The Company’s consolidated operating revenues for the three months ended DecemberMarch 31, 2016,2017 were $25.4 million of which 57.5%48.1% was attributable to electrical and mechanical services, 44.1% to gas & petroleum work, and 7.8% to water and sewer installations and other ancillary services. The Company’s consolidated operating revenues for the six months ended March 31, 2017 were $62.9 million of which 52.1% was attributable to gas & petroleum contract work, 35.8%40.8% to electrical and mechanical contract services, and 6.7%7.1% to water and sewer contract installations and other ancillary services.

Energy Services’ customers include many of the leading companies in the industries it serves, including:

EQT Corporation

Rice EnergyMountaineer Gas

Columbia Gas Transmission

Columbia Gas Distribution

Marathon Petroleum

American Electric Power

Toyota Motor Manufacturing

Bayer Chemical

Dow Chemical

Kentucky American Water

Various state, county and municipal public service districts.

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 complete, or services are performed. Fixed price contracts usually result 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 at completion. Many contracts also include retention provisions under which a percentage of the contract price is withheld until the project is complete and has been accepted by the customer.

Energy Services’ sales force consists of industry professionals with significant relevant sales experience, who utilize industry contacts and available public data to determine how to most appropriately market the Company’s line of products. The Company relies on direct contact between its sales force and customers’ engineering and contracting departments in order to obtain new business.

Seasonality: Fluctuation of Results

Our revenues and results of operations can and usually are subject to seasonal variations. These variations are the result of weather, customer spending patterns, bidding seasons and holidays. The first quarter of the calendar year is typically the slowest in terms of revenues because inclement weather conditions causes delays in production and customers usually do not plan large projects during that time. While usually better than the first quarter, the second calendar year quarter often has some inclement weather which can cause delays in production, reducing the revenues the Company receives and/or increasing the production costs. The third and fourth calendar year quarters usually are less impacted by weather and usually have the largest number of projects underway. Many projects are completed in the fourth calendar year quarter and revenues are often impacted by customers seeking to either spend their capital budget for the year or scale back projects due to capital budget overruns.

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

Forbearance Agreement and Financing Arrangements

On November 28, 2012, the Company entered into a Forbearance Agreement with United Bank, Inc. (West Virginia), Summit Community Bank (West Virginia), and First Guaranty Bank (Louisiana) related to our revolving line of credit and term debt as reported in the Company’s November 29, 2012 Form 8-K filing. The Forbearance Agreement, among other things, required the Company to close S.T. Pipeline and dispose of its assets. The Company was also required to prepare recommendations relating to the on-going operations of Nitro, Electric, C.J. Hughes, and Contractors Rental, including refinancing, sale or liquidation of the companies by May 31, 2013.

On January 31, 2014, the Company entered into a financing arrangement (“Term Note”) with United Bank, Inc. and Summit Community Bank. The financing arrangement is a five-year term loan in the amount of $8.8 million. In addition, the Company entered into a separate five-year term loan agreement with First Guaranty Bank for $1.6 million. Taken together, the $10.4 million in new financings superseded the prior financing arrangements the Company had with United Bank, Inc. and other lenders. As a result of entering into the new financings, United Bank, Inc. and the other lenders of the Company agreed to terminate their Forbearance Agreement with the Company. This was reported in the Company’s February 4, 2014 Form 8-K filing. The loan is collateralized by the Company’s accounts receivable and equipment.

On September 16, 2015, the Company entered into a $2.5 million Non-Revolving Note agreement with United Bank, Inc. This six-year agreement gave the Company access to a $2.5 million line of credit (“Equipment Line of Credit”), specifically for the purchase of equipment, for the period of one year with an interest rate of 5.0%. After the first year, all borrowings against the Equipment Line of Credit will be converted to a five-year term note agreement withan interest rate of 5.0%.As of DecemberMarch 31, 2017,2018, the Company had borrowed $2.46 million against this line of credit and made principal payments of $558,000.

On March 21, 2017,$674,000. The loan is collateralized by the Company entered into a financing agreement (“Operating Line of Credit (2017)”) with United Bank, Inc. to provide the Company with a $15.0 million revolving line of credit. The interest rate on the line of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. The effective date ofequipment purchased under this agreement was February 27, 2017 and it replaced the $15.0 million revolving line of credit (“Operating Line of Credit (2016)”) entered into with United Bank, Inc. effective February 27, 2016. The Company had borrowed $1.5 million against Operating Line of Credit (2016) at December 31, 2016, which was repaid in January 2017. The Company had borrowed $9.6 million against the Operating Line of Credit (2017) as of December 31, 2017. Subsequent to December 31, 2017 and prior to this Form 10-Q filing, the Company repaid $4.0 million against Operating Line of Credit (2017).agreement.

On June 28, 2017, the Company entered into a $5.0 million Non-Revolving Note agreement with United Bank, Inc. This five-year agreement gave the Company access to a $5.0 million line of credit (“Equipment Line of Credit 2017”), specifically for the purchase of equipment, for a period of three months with an interest rate of 4.99%. After three months, all borrowings against the Equipment Line of Credit 2017 were converted to a five-year term note agreement withan interest rate of 4.99%.As of DecemberMarch 31, 2017,2018, the Company had borrowed $5.0 million against this line of credit and made principal payments of $235,000.$474,000. The loan is collateralized by the equipment purchased under this agreement.

On March 21, 2018, the Company entered into a financing agreement (“Operating Line of Credit (2018)”) with United Bank, Inc. to provide the Company with a $15.0 million revolving line of credit. The interest rate on the line of credit is the “Wall Street Journal” Prime Rate (the index) with a floor of 4.99%. The effective date of this agreement was February 27, 2018 and is a renewal of the $15.0 million revolving line of credit (“Operating Line of Credit (2017)”) entered into with United Bank, Inc. effective February 27, 2017. At March 31, 2018, the balance on this line of credit was $2.6 million. The line of credit is collateralized by the Company’s accounts receivable and equipment.

FirstSecond Quarter Overview

The following is an overview of results from operations for the three and six months ended DecemberMarch 31, 20172018 and 2016.2017.

Results of Operations for the Three and Six Months Ended DecemberMarch 31, 20172018 Compared to the Three and Six Months Ended DecemberMarch 31, 20162017

Revenues.Total revenues from continuing operations decreased by $5.0$2.3 million or 13.2%9.0% to $32.5$23.1 million for the three months ended DecemberMarch 31, 20172018 from $37.5$25.4 million for the same period in 2016.2017. The decrease was primarily attributable to an $8.8$4.9 million revenue decrease in petroleum and gas work partially offset by a $3.7 million revenue increase in electrical and mechanical services, and a $100,000 revenue increase$200,000 decrease in water and sewer projects and other ancillary services, partially offset by a $2.8 million revenue increase in electrical and mechanical services.

Total revenues from continuing operations decreased by $7.3 million or 11.5% to $55.6 million for the six months ended March 31, 2018 from $62.9 million for the same period in 2017. The decrease was primarily attributable to an $13.8 million revenue decrease in petroleum and gas work and a $100,000 decrease in water and sewer projects and other ancillary services, partially offset by a $6.6 million revenue increase in electrical and mechanical services.

Due to a shortage of qualified labor and the extended schedules on the projects noted in “Major Projects with Losses” below, the Company was not able to secure additional transmission pipeline work in the quarters ended September 30, 2017 and December 31, 2017. This also affected “Cost of Revenues” and “Gross Profit” below. The Company had no revenue from discontinued operations for the three and six months ended DecemberMarch 31, 20172018 and 2016.2017.

Cost of Revenues.Total cost of revenues from continuing operations decreased by $2.2$1.8 million or 6.8%7.6% to $30.6$22.0 million for the three months ended DecemberMarch 31, 20172018 from $32.8$23.9 million for the same period in 2016.2017. The decrease was primarily attributable to a $6.6$4.4 million cost decrease in petroleum and gas work, and a $400,000 cost decrease in equipment and tool shop operations not allocated to projects, partially offset by a $2.8 million cost increase in electrical and mechanical services, and a $200,000 cost increase in water and sewer projects and other ancillary services. There was no cost of revenues from discontinued operations for the three months ended March 31, 2018 and 2017.

Total cost of revenues from continuing operations decreased by $4.1 million or 7.2% to $52.6 million for the six months ended March 31, 2018 from $56.7 million for the same period in 2017. The decrease was primarily attributable to a $11.0 million cost decrease in petroleum and gas work, and a $100,000 cost decrease in water and sewer projects and other ancillary services, partially offset by a $3.7$6.4 million cost increase in electrical and mechanical services, and a $900,000$600,000 cost increase in equipment and tool shop operations not allocated to projects. There was no cost of revenues from discontinued operations for the threesix months ended DecemberMarch 31, 20172018 and 2016.2017.

Gross Profit.Total gross profit from continuing operations decreased by $2.7 million$400,000 or 57.8%30.2% to $2.0$1.1 million for the three months ended DecemberMarch 31, 2017,2018, from $4.7$1.5 million for the same period in 2016.2017. The decrease was primarily attributable to a $2.1 million$500,000 gross profit decrease in petroleum and gas work, and a $900,000$400,000 gross profit decrease in water and sewer projects and other ancillary services, partially offset by a $400,000 gross profit increase related to equipment and tool shop operations costs not allocated to projects, partially offset by a $300,000 gross profit increase in water and sewer projects and other ancillary services, and a $50,000$100,000 gross profit increase in electrical and mechanical services. There were no gross profits from discontinued operations for the three months ended DecemberMarch 31, 20172018 and 2016.2017.

Total gross profit from continuing operations decreased by $3.2 million or 51.1% to $3.0 million for the six months ended March 31, 2018, from $6.2 million for the same period in 2017. The decrease was primarily attributable to a $2.7 million gross profit decrease in petroleum and gas work, a $600,000 gross profit decrease related to equipment and tool shop operations costs not allocated to projects, and a $100,000 gross profit decrease in water and sewer projects and other ancillary services, partially offset by a $200,000 gross profit increase in electrical and mechanical services. There were no gross profits from discontinued operations for the six months ended March 31, 2018 and 2017.

Selling and administrative expenses.Total selling and administrative expenses from continuing operations decreasedincreased by $200,000$17,000 or 8.5%1.0% to $2.0 million for the three months ended DecemberMarch 31, 20172018 from $2.2$1.9 million for the same period in 2016.2017. There were no selling and administrative expenses for discontinued operations for the three months ended DecemberMarch 31, 20172018 and 2016.2017. The Company believes that any ongoing costs associated with closing discontinued operations will be immaterial.

Total selling and administrative expenses from continuing operations decreased by $170,000 or 4.1% to $4.0 million for the six months ended March 31, 2018 from $4.1 million for the same period in 2017. There were no selling and administrative expenses for discontinued operations for the six months ended March 31, 2018 and 2017. The Company believes that any ongoing costs associated with closing discontinued operations will be immaterial.

Interest Expense.Interest expense increased by $65,000$100,000 or 28.1%69.8% to $296,000$244,000 for the three months ended DecemberMarch 31, 20172018 from $231,000$144,000 for the same period in 2016.2017. This increase was primarily due to interest expense on the Equipment Line of Credit (2017) and Operating Line of Credit (2017).

Interest expense increased by $165,000 or 44.1% to $540,000 for the six months ended March 31, 2018 from $375,000 for the same period in 2017. This increase was primarily due to interest expense on the Equipment Line of Credit (2017) and Operating Line of Credit (2017).

Net Income.Income (loss).IncomeLoss from continuing operations before income taxes was $116,000$1.2 million for the three months ended DecemberMarch 31, 2017,2018, compared to $2.2$570,000 for the same period in 2017. Loss from continuing operations before taxes was $1.1 million for the six months ended March 31, 2018, compared to an income from continuing operations before income taxes of $1.6 million for the same period in 2016.2017. The decrease was due to the items mentioned above. There was no income from discontinued operations for the three and six months ended DecemberMarch 31, 20172018 and 2016.2017.

Income tax benefit for the three months ended DecemberMarch 31, 20172018 was $32,000$224,000 compared to $257,000 for the same period in 2017. Income tax benefit for the six months ended March 31, 2018 was $256,000 compared to income tax expense of $975,000$719,000 for the same period in 2016.2017. The decrease in income tax expense was primarily due to the decrease in income from continuing operations before income taxes. The income tax benefit for the threesix months ended DecemberMarch 31, 20172018 was also due to the decrease in the federal corporate income tax rate and a tax benefit generated from adjusting the Company’s deferred tax asset and liability amounts. The effective income tax rate for the threesix months ended DecemberMarch 31, 20172018 was (27.6%(24.2%), as compared to 44.0%43.7% for the same period in 2016.2017. Effective income tax rates are estimates and may vary from period to period due to changes in the amount of taxable income and non-deductible expenses.

The US Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted in December 2017. As a result, the top corporate income tax rate was reduced from 35% to 21% beginning with tax years after December 31, 2017. As a fiscal year filer, the Act will require the Company to use a “blended” tax rate for fiscal year 2018. Beginning with fiscal year 2019, the Company’s federal tax rate will be 21%. The Company’s deferred tax asset and liability were calculated at the 21%24.5% rate at DecemberMarch 31, 2017. This resulted in a $200,000 tax benefit due to the Company having a net deferred tax liability at December 31, 2017.2018.

Accrued dividends on preferred stock for the threesix months ended DecemberMarch 31, 2018 and 2017 and 2016 were $77,000.$154,500.

Net incomeloss available to common shareholders for the three months ended DecemberMarch 31, 20172018 was $71,000,$1.0 million, compared to $1.2 million$390,000 for the same period in 2016.2017. Net loss available to common shareholders for the six months ended March 31, 2018 was $954,000 compared to a net income available to common shareholders of $772,000 for the same period in 2017.

Major Projects with Losses

The Company had two pipeline projects (“Project A” and “Project B”), both started in April 2017, that recognized an estimated combined loss of $5.0 million at September 30, 2017 and an estimated loss of $272,000$290,000 for the threesix months ended DecemberMarch 31, 2017.2018. The projects were completed during the first quarter of fiscal year 2018 except for final clean up scheduled for Spring 2018. The Company believes the total projected loss has been reflected as of DecemberMarch 31, 2017.2018.

Project A had an estimated contract value of $9.5$10.3 million to install 19,000 feet of 24” pipe, 3,400 feet of 16” pipe, and 600 feet of 8” pipe. At DecemberMarch 31, 2017,2018, the Company had recognized a $3.3 million loss on this project. Project B had an estimated contract value of $4.5$5.1 million to install 14,600 feet of 16” steel pipe. At DecemberMarch 31, 2017,2018, the Company had recognized a $2.0 million loss on this project. Losses on both projects were primarily due to daily production significantly below historical results. The inefficient production was due to a shortage of qualified labor during an extremely busy time in the pipeline industry and more inclement weather than was estimated for the projects. This led to greater labor expense and longer project schedules than was estimated on the projects. A summary of the projects is below: