10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-36335

ENSERVCO CORPORATION

(Exact Name of registrant as Specified in its Charter)

Delaware	84-0811316
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
501 South Cherry St., Ste. 1000 Denver, CO	80246
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number: (303) 333-3678

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 Enservco was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes X No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐                                                                             Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)     Smaller reporting company X

Emerging growth company☐

If an emerging growth company, indicated 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 Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).               Yes ☐    No X

Indicate the number of shares outstanding of each of the Issuer's classes of common stock as of the latest practicable date.

Class	Outstanding at August 5, 2017
Common stock, $.005 par value	51,067,660

1

TABLE OF CONTENTS

	Page
Part I – Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures about Market Risk	34
Item 4. Controls and Procedures	34
Part II
Item 1. Legal Proceedings	35
Item 1A.  Risk Factors	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults Upon Senior Securities	36
Item 4. Mine Safety Disclosures	36
Item 5. Other Information	36
Item 6. Exhibits	37

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENSERVCO CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	June 30,			December 31,
ASSETS	2017			2016
	(Unaudited)
Current Assets
Cash and cash equivalents	$	620,635		$	620,764
Accounts receivable, net		3,950,781			4,814,276
Prepaid expenses and other current assets		783,979			970,802
Inventories		410,017			407,379
Income tax receivable		-			223,847
Total current assets		5,765,412			7,037,068
Property and Equipment, net		32,270,514			34,617,961
Deferred Tax Asset, net		547,248			-
Other Assets		506,091			714,967
TOTAL ASSETS	$	39,089,265		$	42,369,996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	3,300,089		$	3,682,599
Current portion of long-term debt		176,403			318,499
Total current liabilities		3,476,492			4,001,098
Long-Term Liabilities
Senior revolving credit facility		20,445,049			23,180,514
Subordinated debt		2,198,463			-
Long-term debt, less current portion		278,412			304,373
Deferred income taxes, net		-			468,565
Warrant liability		306,648			-
Total long-term liabilities		23,228,572			23,953,452
Total liabilities		26,705,064			27,954,550
Commitments and Contingencies (Note 9)
Stockholders' Equity
Preferred stock, $.005 par value, 10,000,000 shares authorized, no shares issued or outstanding		-			-
Common stock, $.005 par value, 100,000,000 shares authorized, 51,171,260 and 51,171,260 shares issued, respectively; 103,600 shares of treasury stock; and 51,067,660 and 51,067,660 shares outstanding, respectively		255,337			255,337
Additional paid-in capital		19,313,457			18,867,702
Accumulated deficit		(7,184,593	)		(4,707,593	)
Total stockholders' equity		12,384,201			14,415,446
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	39,089,265		$	42,369,996

See notes to condensed consolidated financial statements.

3

ENSERVCO CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Revenues
Well enhancement services	$	5,819,435		$	2,660,526		$	17,803,064		$	9,820,349
Water transfer services		305,994			-			1,058,006			31,688
Water hauling services		880,801			888,892			1,765,806			2,004,440
Construction services		99,811			588,934			254,066			588,934
Total revenues		7,106,041			4,138,352			20,880,942			12,445,411
Expenses
Well enhancement services		4,324,845			2,790,690			12,773,391			7,747,146
Water transfer services		616,468			420,316			1,292,256			879,252
Water hauling services		1,192,372			830,872			2,105,057			2,020,876
Construction services		67,483			712,326			211,644			712,326
Functional support		231,585			183,977			428,809			348,666
General and administrative expenses		1,289,616			901,321			2,284,299			1,927,896
Patent litigation and defense costs		24,542			39,446			67,230			75,612
Severance and Transition Costs (1)		767,755			-			767,755			-
Depreciation and amortization		1,674,875			1,617,620			3,251,304			3,365,592
Total operating expenses		10,189,541			7,496,568			23,181,745			17,075,366
Income (Loss) from Operations		(3,083,500	)		(3,358,216	)		(2,300,803	)		(4,631,955	)
Other Income (Expense)
Interest expense		(499,288	)		(500,783	)		(1,209,705	)		(873,451	)
Gain (Loss) on disposals of equipment		-			233,473			-			233,473
Other income		36,787			5,010			41,979			7,006
Total other expense		(462,501	)		(262,300	)		(1,167,726	)		(632,972	)
Income (Loss) Before Tax Expense		(3,546,001	)		(3,620,516	)		(3,468,529	)		(5,264,927	)
Income Tax Benefit (Expense)		1,018,644			1,239,865			991,529			1,808,707
Net Loss	$	(2,527,357	)	$	(2,380,651	)	$	(2,477,000	)	$	(3,456,220	)
Earnings (Loss) per Common Share - Basic	$	(0.05	)	$	(0.06	)	$	(0.05	)	$	(0.09	)
Earnings (Loss) per Common Share – Diluted	$	(0.05	)	$	(0.06	)	$	(0.05	)	$	(0.09	)
Basic weighted average number of common shares outstanding		51,067,660			38,130,160			51,067,660			38,129,910
Add: Dilutive shares assuming exercise of options and warrants		-			-			-			-
Diluted weighted average number of common shares outstanding		51,067,660			38,130,160			51,067,660			38,129,910

(1) Severance and transition costs comprise (i) payments and accruals for future payments to our former Chief Executive Officer and Chief Financial Officer and (ii) legal fees directly related to separation and transition activities.

See notes to condensed consolidated financial statements.

4

ENSERVCO CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended
	June 30,
	2017			2016
OPERATING ACTIVITIES
Net loss	$	(2,477,000	)	$	(3,456,220	)
Adjustments to reconcile net loss to net cash provided by operating activities		-
Depreciation and amortization		3,251,304			3,365,592
(Gain) loss on disposal of equipment		-			(233,473	)
Deferred income taxes		(878,657	)		(1,808,707	)
Stock-based compensation		445,755			317,504
Stock issued for services		-			1,714
Amortization of debt issuance costs and warrants		297,557			74,694
Bad debt expense		49,402			86,949
Changes in operating assets and liabilities		-
Accounts receivable		729,113			4,247,742
Inventories		(2,638	)		(49,834	)
Prepaid expense and other current assets		151,843			(35,030	)
Income taxes receivable		223,847			(1,400	)
Other assets		(32,335	)		-
Accounts payable and accrued liabilities		260,025			(336,229	)
Net cash provided by operating activities		2,018,216			2,173,302
INVESTING ACTIVITIES
Purchases of property and equipment		(970,825	)		(4,572,318	)
Proceeds from disposal of equipment		120,537			321,725
Net cash used in investing activities		(850,288	)		(4,250,593	)
FINANCING ACTIVITIES
Net line of credit (repayments) borrowings		(2,000,000	)		1,911,099
Proceeds from issuance of long-term debt		1,000,000			-
Repayment of long-term debt		(168,057	)		(71,359	)
Net cash (used in) provided by financing activities		(1,168,057	)		1,839,740
Net Decrease in Cash and Cash Equivalents		(129	)		(237,551	)
Cash and Cash Equivalents, beginning of period		620,764			804,737
Cash and Cash Equivalents, end of period	$	620,635		$	567,186
Supplemental cash flow information:
Cash paid for interest	$	35,967		$	38,430
Cash (received) paid for taxes	$	(222,110	)	$	1,400
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Non-cash proceeds from subordinated debt borrowings (1)	$	1,500,000		$	-
Non-cash proceeds from revolving credit facility (2)	$	814,535		$	584,029
Non-cash repayment of revolving credit facility (1)	$	(1,500,000	)	$	-

(1) As discussed in more detail in Note 5, during the six months ended June 30, 2017, we received proceeds from two subordinated promissory notes issued by our largest shareholder. Proceeds from one of the borrowings were remitted directly to our lender to reduce the outstanding balance under our senior revolving credit facility.

(2) Interest and other charges incurred pursuant to our senior revolving credit facility are calculated periodically and added to the principal balance of the loan. As such, we do not make cash payments for interest charges related to this facility.

See notes to condensed consolidated financial statements.

5

ENSERVCO CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of Presentation

Enservco Corporation (“Enservco”) through its wholly-owned subsidiaries (collectively referred to as the “Company”, “we” or “us”) provides various services to the domestic onshore oil and natural gas industry. These services include frac water heating, hot oiling and acidizing (well enhancement services); water transfer and water treatment services (water transfer services); water hauling, fluid disposal, frac tank rental (water hauling services); and dirt hauling and other general oilfield services (construction services).

The accompanying unaudited condensed consolidated financial statements have been derived from the accounting records of Enservco Corporation, Heat Waves Hot Oil Service LLC (“Heat Waves”), Dillco Fluid Service, Inc. (“Dillco”), Heat Waves Water Management LLC (“HWWM”), HE Services LLC (“HES”), and Real GC LLC (“Real GC”) (collectively, the “Company”) as of June 30, 2017 and December 31, 2016 and the results of operations for the three and six months ended June 30, 2017 and 2016.

The below table provides an overview of the Company’s current ownership hierarchy:

Name	State of Formation	Ownership	Business
Dillco Fluid Service, Inc. (“Dillco”)	Kansas	100% by Enservco	Oil and natural gas field fluid logistic services.
Heat Waves Hot Oil Service LLC (“Heat Waves”)	Colorado	100% by Enservco	Oil and natural gas well services, including logistics and stimulation.
Heat Waves Water Management LLC (“HWWM”)	Colorado	100% by Enservco	Water Transfer and Water Treatment Services.
HE Services LLC (“HES”)	Nevada	100% by Heat Waves	No active business operations. Owns construction equipment used by Heat Waves.
Real GC, LLC (“Real GC”)	Colorado	100% by Heat Waves	No active business operations. Owns real property in Garden City, Kansas that is utilized by Heat Waves.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all of the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or of future years.

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and follow the same accounting policies and methods of their application as the most recent annual financial statements. These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Annual Report on Form 10-K of Enservco Corporation for the year ended December 31, 2016. All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

6

The accompanying unaudited condensed consolidated balance sheet at December 31, 2016 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Note 2 – Liquidity and Managements’ Plans

As of June 30, 2017, the Company’s available liquidity was approximately $2.1 million, which was substantially comprised of $1.5 million of availability under our credit facility (the "Prior Credit Facility") provided pursuant to the Amended and Restated Revolving Credit and Security Agreement with PNC Bank, N.A. (the “2014 Credit Agreement”) and approximately $621,000 in cash. During the six months ended June 30, 2017, the Company repaid approximately $3.5 million under the Prior Credit Facility using proceeds from subordinated debt borrowings and net cash provided by our operations (partially offset by interest expense accrued to the borrowing balance). 

On March 31, 2017, the Company entered into the Tenth Amendment to the 2014 Credit Agreement that among other things (i) required the Company to raise $1.5 million in subordinated debt or post a letter of credit in favor of the bank by March 31, 2017; (ii) raise an additional $1 million of subordinated debt by May 15, 2017; (iii) reduced the maturity date of the loan from September 12, 2019 to April 30, 2018; (iv) changed the definition of Adjusted EBITDA to include proceeds from subordinated debt; and (v) changed the calculation of fixed charge and leverage ratio from a trailing four-quarter basis to a quarterly build from the quarter ended December 31, 2016. As described in more detail in Note 5, the Company complied with such requirements. However, upon entering the Tenth Amendment, the Company determined that the Prior Credit Facility did not provide sufficient liquidity on an ongoing basis, and that cash flow from operations and other sources would not generate sufficient cash to cover current obligations, most notably the maturity of the Prior Credit Facility provided under the 2014 Credit Agreement in April 2018. Due to the decreased term and restrictions imposed by the lender upon entering the 10th Amendment, during the six months ended June 30, 2017, the Company began exploring alternative financing to provide ongoing liquidity with more favorable terms with regards to availability of credit, borrowing costs, and covenants. 

As described in more detail in Note 13, Subsequent Events, subsequent to June 30, 2017, the Company entered into a Loan and Security Agreement (the "2017 Credit Agreement") with East West Bank, a California banking corporation ("East West Bank"), which provides for a three-year $30 million senior secured revolving credit facility (the “New Credit Facility”). On August 10, 2017 we repaid all amounts due under the Prior Credit Facility using proceeds from New Credit Facility, and therefore have classified the $20.4 million loan balance outstanding under the Prior Credit Facility as a long-term liability in the accompanying consolidated balance sheet. Upon entering the 2017 Credit Agreement and repaying all amounts due pursuant to the 2014 Credit Agreement, we had availability of approximately $4.7 million under the New Credit Facility. 

Note 3 - Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Enservco maintains its excess cash in various financial institutions, where deposits may exceed federally insured amounts at times.

7

Accounts Receivable

Accounts receivable are stated at the amounts billed to customers, net of an allowance for uncollectible accounts. The Company provides an allowance for uncollectable accounts based on a review of outstanding receivables, historical collection information and existing economic conditions. The allowance for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management's best estimate of uncollectible amounts and is determined based on historical collection experience related to accounts receivable coupled with a review of the current status of existing receivables. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance. As of June 30, 2017 and December 31, 2016, the Company had an allowance for doubtful accounts of approximately $83,000 and $34,000, respectively. For the three and six months ended June 30, 2017, the Company recorded bad debt expense (net of recoveries) of approximately $20,000 and $49,000, respectively. For the three and six months ended June 30, 2016, the Company recorded bad debt expense (net of recoveries) of approximately $48,000 and $87,000, respectively.

Inventories

Inventory consists primarily of propane, diesel fuel and chemicals that are used in the servicing of oil wells and is carried at the lower of cost or market in accordance with the first in, first out method (FIFO). The Company periodically reviews the value of items in inventory and provides write-downs or write-offs, of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. For the three and six months ended June 30, 2017 and 2016, no amounts were expensed for write-downs and write-offs.

Property and Equipment

Property and equipment consists of (1) trucks, trailers and pickups; (2) water transfer pumps, pipe, lay flat hose, trailers, and other support equipment; (3) real property which includes land and buildings used for office and shop facilities and wells used for the disposal of water; and (4) other equipment such as tools used for maintaining and repairing vehicles, office furniture and fixtures, and computer equipment. Property and equipment is stated at cost less accumulated depreciation. The Company capitalizes interest on certain qualifying assets that are undergoing activities to prepare them for their intended use. Interest costs incurred during the fabrication period are capitalized and amortized over the life of the assets. The Company charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the remaining useful life, expand the capacity or efficiency of the assets. Depreciation is recorded on a straight-line basis over estimated useful lives of 5 to 30 years.

Any difference between net book value of the property and equipment and the proceeds of an assets’ sale or settlement of an insurance claim is recorded as a gain or loss in the Company’s earnings.

Leases

The Company conducts a major part of its operations from leased facilities. Each of these leases is accounted for as an operating lease. Normally, the Company records rental expense on its operating leases over the lease term as it becomes payable. If rental payments are not made on a straight-line basis, per terms of the agreement, the Company records a deferred rent expense and recognizes the rental expense on a straight-line basis throughout the lease term. The majority of the Company’s facility leases contain renewal clauses and expire through June 2022. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company amortizes leasehold improvements over the shorter of the life of the lease or the life of the improvements.

The Company has leased equipment in the normal course of business, which are recorded as operating leases. The Company recorded rental expense on equipment under operating leases over the lease term as it becomes payable; there were no rent escalation terms associated with these equipment leases. The equipment leases contain purchase options that allow the Company to purchase the leased equipment at the end of the lease term, based on the market price of the equipment at the time of the lease termination. There are no significant equipment leases outstanding as of June 30, 2017.

8

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company reviews both qualitative and quantitative aspects of the business during the analysis of impairment. During the quantitative review, the Company reviews the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. No impairments were recorded during the three or six months ended June 30, 2017 and 2016.

Revenue Recognition

The Company recognizes revenue when evidence of an arrangement exists, the fee is fixed or determinable, services are provided, and collection is reasonably assured.

Earnings (Loss) Per Share

Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the diluted weighted average number of common shares. The diluted weighted average number of common shares is computed using the treasury stock method for common stock that may be issued for outstanding stock options and warrants.

As of June 30, 2017 and 2016, there were outstanding stock options and warrants to acquire an aggregate of 5,749,433 and 5,120,669 shares of Company common stock, respectively, which have a potentially dilutive impact on earnings per share. For the three and six months ended June 30, 2017, the diluted share instruments did not have an intrinsic value, as a result, were not included in the diluted share calculation. Dilution is not permitted if there are net losses during the period. As such, the Company does not show dilutive earnings per share for the three and six months ended June 30, 2017 and 2016.

Loan Fees and Other Deferred Costs

In the normal course of business, the Company enters into loan agreements and amendments thereto with its primary lending institutions. The majority of these lending agreements and amendments require origination fees and other fees in the course of executing the agreements. For all costs associated with the execution of the lending agreements, the Company recognizes these as capitalized costs and amortizes these costs over the term of the loan agreement. All other costs not associated with the execution of the loan agreements are expensed as incurred. As of June 30, 2017, we had approximately $197,000 in unamortized loan fees and other deferred costs associated with the 2014 Credit Agreement, which we expect to charge to expense upon the termination of that agreement. 

Income Taxes

The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in income in the period that includes the enactment date. A deferred tax asset or liability that is not related to an asset or liability for financial reporting is classified according to the expected reversal date.  The Company records a valuation allowance to reduce deferred tax assets to an amount that it believes is more likely than not to be realized.

The Company accounts for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if, in the Company’s opinion, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous.  As such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to the Company’s subjective assumptions and judgments which can materially affect amounts recognized in the consolidated balance sheets and consolidated statements of income. The result of the reassessment of the Company’s tax positions did not have an impact on the consolidated financial statements.

9

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company files tax returns in the United States and in the states in which it conducts its business operations. The tax years 2012 through 2016 remain open to examination in the taxing jurisdictions to which the Company is subject.

Fair Value

The Company follows authoritative guidance that applies to all financial assets and liabilities required to be measured and reported on a fair value basis. The Company also applies the guidance to non-financial assets and liabilities measured at fair value on a nonrecurring basis, including non-competition agreements and goodwill. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The Company did not change its valuation techniques nor were there any transfers between hierarchy levels during the six months ended June 30, 2017. The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or

Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

Stock-based Compensation

Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award as described below, and is recognized over the requisite service period, which is generally the vesting period of the equity grant.

The Company uses the Black-Scholes pricing model as a method for determining the estimated grant date fair value for all stock options awarded to employees, independent contractors, officers, and directors. The expected term of the options is based upon evaluation of historical and expected further exercise behavior. The risk-free interest rate is based upon U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of our stock and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be none as we have not paid dividends nor do we anticipate paying any dividends in the foreseeable future.

The Company also uses the Black-Scholes valuation model to determine the fair value of warrants. Expected volatility is based upon the weighted average of historical volatility over the contractual term of the warrant and implied volatility. The risk-free interest rate is based upon implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the contractual term of the warrants. The dividend yield is assumed to be none.

Management Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the realization of accounts receivable, stock based compensation expense, income tax provision, the valuation of derivative financial instruments (warrants and interest rate swaps), and the valuation of deferred taxes. Actual results could differ from those estimates.

10

Reclassifications

Certain prior-period amounts have been reclassified for comparative purposes to conform to the fiscal 2017 presentation. These reclassifications have no effect on the Company’s consolidated statement of operations.

Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015 the FASB agreed to defer the effective date by one year, the new standard becomes effective for us on January 1, 2018. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently determining the impact of the new standard on revenue from the services we provide. Our approach includes performing a detailed review of key contracts representative of our different subsidiary businesses and comparing historical accounting policies and practices to the new standard. Our services are primarily short-term in nature, and our assessment at this stage is that we do not expect the new revenue recognition standard will have a material impact on our financial statements upon adoption. We expect that the new standard will require more robust disclosure of details surrounding our revenue from contracts with customers. We currently intend to adopt the new standard as of January 1, 2018.

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, which requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We continue to evaluate the impact of this new standard on our consolidated financial statements Once adopted, the Company expects to recognize additional assets and liabilities on its consolidated balance sheet related to operating leases with terms longer than one year.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force) (ASU 2016-15)”, that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect of ASU 2016-15 on its consolidated financial statements.

Recently Adopted

In March 2016, the FASB issued ASU 2016-09 “Compensation – Stock Compensation (Topic 718)”, which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The adoption of this guidance did not impact the Company’s consolidated financial position, results of operations, or cash flows.

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Note 4 - Property and Equipment

Property and equipment consists of the following:

	June 30,			December 31,
	2017			2016
Trucks and vehicles	$	54,855,287		$	54,353,632
Water transfer equipment		4,906,505			4,520,155
Other equipment		2,913,112			2,898,457
Buildings and improvements		3,896,865			3,896,865
Land		784,636			784,636
Disposal wells		391,003			391,003
Total property and equipment		67,747,408			66,844,748
Accumulated depreciation		(35,476,894	)		(32,226,787	)
Property and equipment – net	$	32,270,514		$	34,617,961

Effective January 1, 2016, HWWM acquired various water transfer assets from WET Oil Services, LLC (“WET”) and HII Technologies, Inc. (“HIIT”) for approximately $4 million. These assets include high and low volume pumps, aluminum pipe, manifolds, lay flat hose, generators, other support equipment including vehicles and trailers. As part of the HIIT acquisition, HWWM also acquired a new water treatment technology utilized in devices sold under the name of HydroFLOW. In accordance with FASB Accounting Standards Codification 805, Business Combinations, the Company has accounted for the transactions with both HIIT and WET as asset acquisitions.

Note 5 – Revolving Credit Facilities

PNC Revolving Credit Facility

In September 2014, the Company entered into an Amended and Restated Revolving Credit and Security Agreement (the "2014 Credit Agreement") with PNC Bank, National Association ("PNC") which provided for a five-year $30 million senior secured revolving credit facility. The 2014 Credit Agreement allowed the Company to borrow up to 85% of eligible receivables and up to 75% of the appraised value of trucks and equipment. Under the 2014 Credit Agreement, there are no required principal payments until maturity and the Company has the option to pay variable interest rate based on (i) 1, 2 or 3 month LIBOR plus an applicable margin ranging from 4.50% to 5.50% for LIBOR Rate Loans or (ii) interest at PNC Base Rate plus an applicable margin of 3.00% to 4.00% for Domestic Rate Loans. Interest is calculated monthly and added to the principal balance of the loan. Additionally, the Company incurs an unused credit line fee of 0.375%. The revolving credit facility is collateralized by substantially all of the Company’s assets and subject to financial covenants. The outstanding principal loan balance matures on April 30, 2018.

The Company has entered into various amendments to the 2014 Credit Agreement that among other things, (i) modified certain financial covenants, (ii) increased the then applicable margin for Domestic Rate Loans and LIBOR Rate Loans; (iii) modified the advance rates on appraised equipment (iv) reinstated a full cash dominion requirement; and (iv) change various administrative terms under the agreement. As of June 30, 2017, the Company is subject to the following financial covenants:

(1) To maintain a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00 at the end of each fiscal quarter. For the purpose of this covenant, the Fixed Charge Coverage Ratio shall be determined on the basis of Adjusted EBITDA, as defined in the 2014 Credit Agreement, for the trailing four-quarter period ended on the applicable quarterly compliance test date, based on a quarterly build beginning with the fourth quarter of 2016.

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(2) To maintain of leverage ratio as follows:

Fiscal Quarter Ending:	Maximum Leverage Ratio
June 30, 2017	4.50	:	1.00
September 30, 2017	4.50	:	1.00
December 31, 2017	7.00	:	1.00
March 31, 2018	5.50	:	1.00

On March 31, 2017, the Company entered into the Tenth Amendment to the 2014 Credit Agreement that among other things (i) required the Company to raise $1.5 million in subordinated debt or post a letter of credit in favor of the bank by March 31, 2017; (ii) raise an additional $1 million of subordinated debt by May 15, 2017; (iii) reduced the maturity date of the loan from September 12, 2019 to April 30, 2018; (iv) changed the definition of Adjusted EBITDA to include proceeds from subordinated debt; and (v) changed the calculation of fixed charge and leverage ratio from a trailing four-quarter basis to a quarterly build from the quarter ended December 31, 2016. On March 31, 2017, the Company’s largest shareholder, Cross River Partners, L.P. ("Cross River"), whose managing member is the chairman of our Board of Directors, posted a letter of credit in the amount of $1.5 million in accordance with the terms of the Tenth Amendment. The letter of credit was converted into subordinated debt with a maturity date of June 28, 2022 with a stated interest rate of 10% per annum and a five-year warrant to purchase 967,741 shares of our common stock at an exercise price of $.31 per share. On May 10, 2017, Cross River also provided $1.0 million in subordinated debt to the Company as required under the terms of our Tenth Amendment to the PNC Credit Agreement. This subordinated debt has a stated annual interest rate of 10% and maturity date of June 28, 2022. In connection with this issuance of subordinated debt, Cross River was granted a five-year warrant to purchase 645,161 shares of our common stock at an exercise price of $0.31 per share. We accounted for the warrants issued in connection with the subordinated debt as a liability in the accompanying consolidated balance sheet as of June 30, 2017.

As of June 30, 2017, the Company had an outstanding principal loan balance under the 2014 Credit Agreement of approximately $20.4 million. The interest rate at June 30, 2017 ranged from 5.55% to 5.72% per year for the $18.5 million of outstanding LIBOR Rate Loans and 7.25% per year for the $1.9 million of outstanding Domestic Rate Loans. As of June 30, 2017, approximately $1.5 million was available under the 2014 Credit Agreement.

As of December 31, 2016, the Company had an outstanding principal loan balance under the 2014 Credit Agreement of $23.2 million. The interest rate at December 31, 2016 ranged from 5.21% to 5.27% per year for the $21.3 million of outstanding LIBOR Rate Loans and 6.75% per year for the $1.9 million of outstanding Domestic Rate Loans. As of December 31, 2016, approximately $4.5 million was available under the 2014 Credit Agreement.

As of June 30, 2017 and December 31, 2016, the Company was in compliance with its covenants under the 2014 Credit Agreement.

As described in more detail in Note 13, Subsequent Events, subsequent to June 30, 2017, the Company entered into a Loan and Security Agreement with East West Bank (the "2017 Credit Agreement"). On August 10, 2017 we repaid all amounts due under the 2014 Credit Agreement using proceeds from 2017 Credit Agreement, and therefore have classified the $20.4 million loan balance outstanding under the 2014 Credit Agreement as a long-term liability in the accompanying consolidated balance sheet.

Debt Issuance Costs

The Company has capitalized certain debt issuance costs incurred in connection with the PNC senior revolving credit facility discussed aboveand these costs are being amortized to interest expense over the term of the credit facility on a straight-line basis. As of June 30, 2017 and December 31, 2016, approximately $147,000 and $171,000, respectively of unamortized debt issuance costs were included in Prepaid Expenses and Other Current assets in the accompanying consolidated balance sheet. The remaining long-term portion of debt issuance costs of $51,000 and $259,000 is included in Other Assets in the accompanying consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively. During the three and six months ended June 30, 2017, the Company amortized approximately $37,000 and $292,000 of these costs to Interest Expense. During the three and six months ended June 30, 2016, the Company amortized approximately $39,000 and $74,000 of these costs to Interest Expense, respectively. Due to the maturity date moving from September 12, 2019 to April 30, 2018, the Company recognized an additional $217,000 of debt issuance amortization expenses during the six months ended June 30, 2017.

Upon the repayment of the 2014 Credit Agreement subsequent to June 30, 2017, we expect to write off all remaining debt issuance costs incurred in connection with the facility. Such unamortized debt issuance costs totaled approximately $197,000 as of June 30, 2017. 

Interest Rate Swap

On September 17, 2015, the Company entered into an interest rate swap agreement with PNC in order to hedge against the variability in cash flows from future interest payments related to the 2014 Credit Agreement. The terms of the interest rate swap agreement include an initial notional amount of $10.0 million, a fixed payment rate of 1.88% plus applicable a margin ranging from 4.50% to 5.50% paid by the Company and a floating payment rate equal to LIBOR plus applicable margin of 4.50% to 5.50% paid by PNC. The purpose of the swap agreement is to adjust the interest rate profile of the Company’s debt obligations and to achieve a targeted mix of floating and fixed rate debt.

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During the three months ended June 30, 2017, the fair market value of the swap instrument decreased by approximately $11,000 and resulted in an increase to the liability and an increase in interest expense. During the six months ended June 30, 2017, the fair market value of the swap instrument increased by approximately $19,000 and resulted in a decrease to the liability and a reduction in interest expense. During the three and six months ended June 30, 2016, the fair market value of the swap instrument decreased by $74,000 and $172,000, respectively, and resulted in an increase in the liability and an increase in interest expense. The interest rate swap liability is included in accounts payable and accrued liabilities on the Company’s balance sheet. As of June 30, 2017 and December 31, 2016 the interest rate swap liability was $72,000 and $91,000, respectively.

In connection with the termination of the 2014 Credit Agreement, subsequent to June 30, 2017, we terminated the interest rate swap agreement with PNC. We expect to enter into a similar interest rate swap agreement in connection with the 2017 Credit Agreement.

Note 6 – Long-Term Debt

Long-term debt (excluding borrowings under our 2014 Credit Agreement described in Note 5) consists of the following:

	June 30,			December 31,
	2017			2016
Real Estate Loan for facility in North Dakota, interest at 3.75%, monthly principal and interest payment of $5,255 ending October 3, 2028. Collateralized by land and property purchased with the loan.	$	329,815		$	355,033
Note payable to the seller of Heat Waves. The note was garnished by the Internal Revenue Service (“IRS”) in 2009 and is due on demand; paid in annual installments of $36,000 per agreement with the IRS.		125,000			170,000
Mortgages payable to banks, interest ranging from 5.9% to 7.25%, due in monthly principal and interest payments of $6,105, secured by land. Remaining principal balances were paid in February 2017.		-			97,839
Total		454,815			622,872
Less current portion		(176,403	)		(318,499	)
Long-term debt, net of current portion	$	278,412		$	304,373

Aggregate maturities of debt, (excluding borrowings under our 2014 Credit Agreement described in Note 5), are as follows:

Twelve Months Ending June 30,
2017	$	176,403
2018		53,392
2019		55,438
2020		57,602
2021		59,831
Thereafter		52,149
Total	$	454,815

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Note 7 – Fair Value Measurements

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy:

	Fair Value Measurement Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurement
June 30, 2017
Derivative Instrument
Warrant liability	$	-	$	-	$	306,648	$	306,648
Interest rate swap	$	-	$	72,000	$	-	$	72,000
December 31, 2016
Derivative Instrument
Interest rate swap	$	-	$	91,000	$	-	$	91,000

The warrant liability as of June 30, 2017 consists of a liability of approximately $307,000 (classified within Warrant liability). The interest rate swap as of June 30, 2017 consists of a liability of $72,000 (classified within Accounts payable and accrued liabilities).

The Company's warrant liability was valued as a derivative instrument at issuance and at June 30, 2017 using the Black-Scholes option pricing model, using observable market inputs and management judgment based on the following assumptions: a risk-free interest rate of 1.51%, expected dividend yield of 0%, a term of 2.5 years, and a volatility of 96.39%. The valuation policies used are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate.

The Company’s interest rate swap is valued using models which require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, and correlations of such inputs. Some of the model inputs used in valuing the derivative instruments trade in liquid markets, and therefore the derivative instrument is classified within Level 2 of the fair value hierarchy. For applicable financial assets carried at fair value, the credit standing of the counterparties is analyzed and factored into the fair value measurement of those assets. The fair value estimates of our derivative financial instruments do not reflect their actual trading value.

Note 8 – Income Taxes

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period.  The provision for income taxes for the three months ended June 30, 2017 and 2016 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 34% to pre-tax income primarily because of state income taxes and estimated permanent differences.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year.  The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

During the three and six months ended June 30, 2017, the Company recorded net income tax benefit of $1.0 million and $992,000, respectively, primarily due to our net operating losses during the three and six months ended June 30, 2017. As of June 30, 2017, the Company had recorded a deferred tax asset, net, of approximately $547,000. 

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Note 9 – Commitments and Contingencies

Operating Leases

As of June 30, 2017, the Company leases facilities and certain equipment under lease commitments that expire through June 2022. Future minimum lease commitments for these operating lease commitments are as follows:

Twelve Months Ending June 30,
2018	$	622,242
2019		562,518
2020		569,194
2021		381,370
2022		290,046
Thereafter		-
Total	$	2,425,370

Rent expense under operating leases, including month-to-month leases, for the three and six months ended June 30, 2017 were approximately $191,000 and $405,000, respectively. Rent expense under operating leases, including month-to-month leases, for the three and six months ended June 30, 2016 were $200,000 and $404,000 respectively.

HydroFLOW Agreement

             Pursuant to a Sales Agreement with HydroFLOW USA, HWWM has the exclusive right to sell or rent patented hydropath devices in connection with bacteria deactivation and scale treatment services for treating injection and disposal wells, fracking water and recycled water in the oil and gas industry to HWWM customers in the United States. Pursuant to the sales agreement, HWWM is required to pay 3.5% royalties of its gross revenues on certain rental transactions and, in order to maintain the exclusivity provision under the agreement, the Company is required to purchase approximately $655,000 of equipment per year commencing in 2016 and ending 2025. In November 2016, the Company and HydroFLOW USA agreed to allocate $220,000 of the 2016 commitment to 2017, thereby increasing the minimum purchase requirement for 2017 to $875,000. During the six months ended June 30, 2017, the Company completed the purchase of $280,000 of equipment to fulfill its 2016 purchase commitment for exclusivity. During the three and six months ended June 30, 2017 and 2016, the Company did not accrue or pay any royalties to HydroFLOW. The Company has negotiated a release of all 2016 and 2017 purchase commitments, while leaving intact the exclusive right to sell or rent the patented hydropath devices through 2017. 

Self-Insurance

In June 2015, the Company became self-insured under its Employee Group Medical Plan for the first $75,000 per individual participant. The Company had an accrued liability of approximately $63,000 and $23,000 as of June 30, 2017 and December 31, 2016, respectively, for insurance claims that it anticipates paying in the future related to claims that occurred prior to quarter end.

Effective April 1, 2015, the Company entered into a workers’ compensation and employer’s liability insurance policy with a term through March 31, 2018. Under the terms of the policy, the Company is required to pay premiums in addition to a portion of the cost of any claims made by our employees, subject to a maximum of approximately $1.5 million over the term of the policy. In June, 2017, an employee of one of our subsidiaries sustained bodily injury while in the course of employment, and the projected cost of the claim exceeded the amount we had previously paid in under the policy. As a result, subsequent to June 30, 2017, we made a payment of approximately $612,000 under the terms of the policy. The amount was based on an estimate of the total cost of the claim, including costs that have not yet been incurred in connection with the claim. During the three and six months ended June 30, 2017, we recorded an accrual based on our estimate of amounts incurred under the claim of approximately $250,000, and recorded the remaining $362,000 of the payment as a long-term asset, which will be recognized as expense as claim costs are incurred in connection with the claim. As a result, expense of $250,000 is included within Expenses, Water hauling services in the accompanying statement of operations. Per the terms of our policy, subsequent to June 30, 2017, we had paid in approximately $1.4 million of the projected maximum plan cost of $1.5 million. Therefore, our contnued exposure to this and other workers' compensation claims through the term of our policy and additional policy premiums is approximately $163,000.

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Litigation

Enservco Corporation (“Enservco”) and its subsidiary Heat Waves Hot Oil Service LLC (“Heat Waves”) are defendants in a civil lawsuit in federal court in Colorado, Civil Action No. 1:15-cv-00983-RBJ (“Colorado Case”), that alleges that Enservco and Heat Waves, in offering and selling frac water heating services, infringed and induced others to infringe two patents owned by Heat-On-The-Fly, LLC (“HOTF”). The complaint relates to only a portion of the frac water heating services provided by Heat Waves. The Colorado Case is now stayed pending resolution of appeal by HOTF of a North Dakota court’s ruling that the primary patent (“the ‘993 Patent”) in the Colorado Case was invalid. Neither Enservco nor Heat Waves is a party to the North Dakota Case, which involves other energy companies.

The ‘993 Patent has undergone several reexaminations by the USPTO and in February 2015, the USPTO rejected all 99 claims of the ‘993 Patent in the latest reexamination.  However, in May 2016, the USPTO reversed its decision and confirmed all 99 claims as being patentable over the cited prior art in the reexamination proceeding. Further, in September 2016 and February 2017, HOTF was issued two additional patents, both of which could be asserted against the Company. Management believes that final findings of invalidity and/or unenforceability of the ‘993 Patent based on inequitable conduct could serve as a basis to affect the validity and/or enforceability of each of HOTF’s patents. If these Patents are ultimately held to be invalid and/or enforceable, the Colorado Case would become moot.

In the event that HOTF’s appeal is successful and the ‘993 Patent is found to be valid and/or enforceable in the North Dakota Case, the Colorado Case may resume. To the extent that Enservco and Heat Waves are unsuccessful in their defense of the Colorado Case, they could be liable for enhanced damages/attorneys’ fees (both of which may be significant) and Heat Waves could possibly be enjoined from using any technology that is determined to be infringing. Either result could negatively impact Heat Waves’ business and operations. At this time, the Company is unable to predict the outcome of this case, and accordingly has not recorded an accrual for any potential loss.

Note 10 – Stockholders’ Equity

Warrants

In conjunction with a private placement transaction and subordinated debt conversion in November 2012, the Company granted warrants to purchase shares of the Company’s common stock, exercisable at $0.55 per share for a five year term. Each of the warrants may be exercised on a cashless basis. The warrants also provide that subject to various conditions, the holders have piggy-back registration rights with respect to the shares of common stock that may be acquired upon the exercise of the warrants. As of June 30, 2017, 150,001 of these warrants remain outstanding.

In June 2016, the Company granted a principal of the Company’s existing investor relations firm warrants to acquire 30,000 shares of the Company’s common stock in connection with a reduction of the firms ongoing monthly cash service fees. The warrants had a grant-date fair value of $0.36 per share and vest over a one year period, 15,000 on December 21, 2016 and 15,000 on June 21, 2017. As of June 30, 2017, 30,000 of these warrants remain outstanding.

In June 2017, in connection with a subordinated loan agreement described in more detail in Note 2 and Note 5, the Company granted Cross River two five-year warrants to buy an aggregate total of 1,612,902 shares of the Company’s common stock at an exercise price of $0.31 per share, the average closing price of the Company’s common stock for the 20 day period ended May 11, 2017. The warrants had a grant-date fair value of $0.19 per share and vested in full on June 28, 2017. These warrants are accounted for as a liability in the accompanying balance sheet. As of June 30, 2017, all of these warrants remain outstanding.

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A summary of warrant activity for the six months ended June 30, 2017 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
Warrants	Shares		Price		Life (Years)		Value
Outstanding at December 31, 2016		180,001	$	0.57		1.51	$	-
Issued		1,612,902		0.31		5.00		-
Exercised		-		-
Forfeited/Cancelled		-		-
Outstanding at June 30, 2017		1,792,903	$	0.34		4.60		-
Exercisable at June 30, 2017		1,792,903	$	0.34		4.60		-

Stock Issued for Services

During the six months ended June 30, 2016, the Company issued 3,031 shares of common stock to a consultant as partial compensation for services provided to the Company. The shares were granted under the 2010 Stock Incentive Plan and were fully vested and unrestricted at the time of issuance. During the six months ended June 30, 2016, the Company recorded $1,700 of consulting expense for these services.

Note 11 – Stock Options

Stock Option Plans

On July 27, 2010, the Company’s Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Plan”). The aggregate number of shares of common stock that could be granted under the 2010 Plan was reset at the beginning of each year based on 15% of the number of shares of common stock then outstanding. As such, on January 1, 2016 the number of shares of common stock available under the 2010 Plan was reset to 5,719,069 shares based upon 38,127,129 shares outstanding on that date. Options were typically granted with an exercise price equal to the estimated fair value of the Company's common stock at the date of grant with a vesting schedule of one to three years and a contractual term of 5 years. As discussed below, the 2010 Plan has been replaced by a new stock option plan and no additional stock option grants will be granted under the 2010 Plan. As of June 30, 2016, there were options to purchase 2,251,168 shares outstanding under the 2010 Plan.

On July 18, 2016, the Board of Directors unanimously approved the adoption of the Enservco Corporation 2016 Stock Incentive Plan (the “2016 Plan”), which was approved by the stockholders on September 29, 2016. The aggregate number of shares of common stock that may be granted under the 2016 Plan is 8,000,000 shares plus authorized and unissued shares from the 2010 Plan totaling 2,391,711 for a total reserve of 10,391,711 shares. As of June 30, 2016, there were options to purchase 1,960,000 shares outstanding under the 2016 Plan.

A summary of the range of assumptions used to value stock options granted for the three and six months ended June 30, 2017 and 2016 are as follows:

	For the Three Months Ended								For the Six Months Ended
	June 30,								June 30,
	2017				2016				2017				2016
Expected volatility		89%	-	93%		81%	-	84%		89%	-	93%		81%	-	102%
Risk-free interest rate			1.4%				0.9%				1.4%			0.9%	-	1.2%
Forfeiture rate			0%				0%				0%				0%
Dividend yield			0%				0%				0%				0%
Expected term (in years)		3.0	-	3.5		3.1	-	3.5		3.0		3.5		3.1	-	3.5

During the six months ended June 30, 2017, the Company granted options to acquire 2,171,600 shares of common stock with a weighted-average grant-date fair value of $0.18 per share. During the six months ended June 30, 2017, no options were exercised. During the six months ended June 30, 2016, the Company granted options to acquire 1,565,000 shares of common stock with a weighted-average grant-date fair value of $0.33 per share. On July 18, 2016, the Company cancelled 875,000 of these stock option grants pursuant to letter agreements between the Company and option holders. The Company subsequently granted 875,000 of New Options under the 2016 Plan.

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The following is a summary of stock option activity for all equity plans for the six months ended June 30, 2017:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016		4,211,168		$	1.09		2.85	$	46,233
Granted		2,171,600			0.31		4.93		24,000
Exercised		-			-		-		-
Forfeited or Expired		(533,335	)		1.38		1.55
Outstanding at June 30, 2017		5,849,433		$	0.78		2.81		24,000
Vested or Expected to Vest at June 30, 2017		3,732,666		$	0.99		1.82		8,333
Exercisable at June 30, 2017		3,732,666		$	0.99		1.82	$	8,333

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the estimated fair value of the Company’s common stock on June 30, 2017, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on June 30, 2017.

During the three and six months ended June 30, 2017, the Company recognized stock-based compensation costs for stock options of approximately $311,000 and $446,000 respectively, in general and administrative expenses. During the three and six months ended June 30, 2016, the Company recognized stock-based compensation costs for stock options of approximately $167,000 and $318,000, respectively, in general and administrative expenses. The Company currently expects all outstanding options to vest. Compensation cost is revised if subsequent information indicates that the actual number of options vested due to service is likely to differ from previous estimates.

A summary of the status of non-vested shares underlying the options are presented below:

	Number of Shares			Weighted-Average Grant- Date Fair Value
Non-vested at December 31, 2016		1,659,834		$	0.58
Granted		2,171,600			0.18
Vested		(1,651,333	)		0.45
Forfeited		(70,001	)		0.35
Non-vested at June 30, 2017		2,110,100		$	0.26

As of June 30, 2017, there was approximately $492,000 of total unrecognized compensation costs related to non-vested shares under the Company’s stock option plans which will be recognized over the remaining weighted-average period of 1.87 years.

Note 12- Segment Reporting

Enservco’s reportable business segments are Well Enhancement Services, Water Transfer Services, Water Hauling Services, and Construction Services. These segments have been selected based on changes in management’s resource allocation and performance assessment in making decisions regarding the Company.

The following is a description of the segments.

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Well Enhancement Services: This segment utilizes a fleet of frac water heating units, hot oil trucks and acidizing units to provide well enhancement and completion services to the domestic oil and gas industry. These services include frac water heating, hot oil services, pressure testing, and acidizing services.

Water Transfer Services: This segment utilizes high and low volume pumps, lay flat hose, aluminum pipe and manifolds and related equipment to move fresh and/or recycled water from a water source such as a pond, lake, river, stream, or water storage facility to frac tanks at drilling locations to be used in connection with well completion activities. Also included in this segment are water treatment services whereby the Company uses patented hydropath technology under a sales agreement with HydroFLOW USA to remove bacteria and scale from water.

Water Hauling Services: This segment utilizes a fleet of trucks and related assets, including specialized tank trucks, vacuum trailers, storage tanks, and disposal facilities to provide various water hauling services. These services are primarily provided by Dillco in the Hugoton Field in Kansas.

Construction Services: This segment utilizes a fleet of trucks and equipment to provide excavation grading, and dirt hauling services to the oil and gas and construction industry. In 2016, the Company started utilizing these assets to provide dirt hauling services to a general contractor in Colorado.

Unallocated and other includes general overhead expenses and assets associated with managing all reportable operating segments which have not been allocated to a specific segment.

The following tables set forth certain financial information with respect to Enservco’s reportable segments:

	Well Enhancement			Water Transfer Services			Water Hauling			Construction Services			Unallocated & Other			Total
Three Months Ended June 30, 2017:
Revenues	$	5,819,435		$	305,994		$	880,801		$	99,811		$	-		$	7,106,041
Cost of Revenue		4,324,845			616,468			1,192,372			67,483			231,585			6,432,753
Segment Profit	$	1,494,590		$	(310,474	)	$	(311,572	)	$	32,328		$	(231,585	)	$	673,288
Depreciation and Amortization	$	1,252,801		$	246,137		$	167,866		$	-		$	8,071		$	1,674,875
Capital Expenditures (Excluding Acquisitions)	$	140,287		$	139,983		$	69,043		$	-		$	528		$	349,841
Three Months Ended June 30, 2016:
Revenues	$	2,660,526		$	-		$	888,892		$	588,934		$	-		$	4,138,352
Cost of Revenue		2,790,690			420,316			830,872			712,326			183,977		$	4,938,181
Segment Profit	$	(130,164	)	$	(420,316	)	$	58,020		$	(123,392	)	$	(183,977	)	$	(799,829	)
Depreciation and Amortization	$	1,224,851		$	215,946		$	169,396		$	-		$	7,427		$	1,617,620
Capital Expenditures (Excluding Acquisitions)	$	50,545		$	11,359		$	5,739		$	-		$	-		$	67,643

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	Well Enhancement		Water Transfer Services			Water Hauling			Construction Services			Unallocated & Other			Total
Six Months Ended June 30, 2017:
Revenues	$	17,803,064	$	1,058,006		$	1,765,806		$	254,066		$	-		$	20,880,942
Cost of Revenue		12,773,391		1,292,256			2,105,057			211,644			428,809			16,811,157
Segment Profit	$	5,029,673	$	(234,250	)	$	(339,252	)	$	42,422		$	(428,809	)	$	4,069,785
Depreciation and Amortization	$	2,424,124	$	477,796		$	333,487		$	-		$	15,897		$	3,251,304
Capital Expenditures (Excluding Acquisitions)	$	404,316	$	454,518		$	106,431		$	-		$	5,561		$	970,826
Identifiable assets (1)	$	30,974,297	$	3,885,676		$	1,932,607		$	-		$	344,823		$	37,137,403
Six Months Ended June 30, 2016:
Revenues	$	9,820,349	$	31,688		$	2,004,440		$	588,934		$	-		$	12,445,411
Cost of Revenue		7,747,146		879,252			2,020,876			712,326			348,666		$	11,708,266
Segment Profit	$	2,073,203	$	(847,564	)	$	(16,436	)	$	(123,392	)	$	(348,666	)	$	737,145
Depreciation and Amortization	$	2,577,218	$	431,893		$	338,198		$	-		$	18,283		$	3,365,592
Capital Expenditures (Excluding Acquisitions)	$	369,281	$	164,045		$	27,473		$	-		$	16,331		$	577,130
Identifiable assets (1)	$	34,399,312	$	3,903,753		$	2,526,981		$	-		$	325,765		$	41,155,811

(1) Identifiable assets is calculated by summing the balances of accounts receivable, net; inventories; property and equipment, net; and other assets.

The following table reconciles the segment profits reported above to the loss from operations reported in the consolidated statements of operations:

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Segment profit (loss)	$	673,288		$	(799,829	)	$	4,069,785		$	737,145
General and administrative expenses		(1,289,616	)		(901,321	)		(2,284,299	)		(1,927,896	)
Patent litigation and defense costs		(24,542	)		(39,446	)		(67,230	)		(75,612	)
Severance and Transition Costs		(767,755	)		-			(767,755	)		-
Depreciation and amortization		(1,674,875	)		(1,617,620	)		(3,251,304	)		(3,365,592	)
Income (loss) from Operations	$	(3,083,501	)	$	(3,358,216	)	$	(2,300,803	)	$	(4,631,955	)

Note 13- Subsequent Events

East West Bank Revolving Credit Facility

On August 10, 2017, the Company entered into the 2017 Credit Agreement with East West Bank which provides for a three-year $30 million senior secured revolving credit facility (the "New Credit Facility"). The 2017 Credit Agreement allows the Company to borrow up to 85% of eligible receivables and up to 85% of the appraised value of eligible equipment. Under the 2017 Credit Agreement, there are no required principal payments until maturity and the Company has the option to pay variable interest rate based on (i) 1 month LIBOR plus a margin of 3.5% for LIBOR Rate Loans or (ii) interest at the Wall Street Journal prime rate plus a margin of 1.75%. Interest is calculated monthly and paid in arrears. Additionally, the New Credit Facility is subject to an unused credit line fee of 0.5% per annum multiplied by the amount by which total availability exceeds the average monthly balance of the New Credit Facility, payable monthly in arrears. The New Credit Facility is collateralized by substantially all of the Company’s assets and subject to financial covenants. The outstanding principal loan balance matures on August 10, 2020. Under the terms of the 2017 Credit Agreement, collateral proceeds will be collected in bank-controlled lockbox accounts and credited to the New Credit Facility within one business day.

Related to the 2017 Credit Agreement, the Company is subject to the following financial covenants:

(1) To maintain a Fixed Charge Coverage Ratio (“FCCR”) of not less than 1.10 to 1.00 at the end of each month, with a build up beginning with January 1, 2017, through December 31, 2017, upon which the ratio will be measured on a trailing twelve-month basis;
 

(2) In periods when the trailing 12 month FCCR is less than 1.20x, the Company is required to maintain minimum liquidity of $1,500,000 (including excess availability under the 2017 Credit Agreement and balance sheet cash).
 

On August 10, 2017, an initial advance of approximately $21.7 million was made under the New Credit Facility to repay in full all obligations outstanding under the Prior Credit Facility including fees and expenses incurred in connection with the termination of the 2014 Credit Agreement. As of August 10, 2017, the Company was in compliance with the financial covenants related to the 2017 Credit Agreement.

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ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information regarding the results of operations for the three and six month periods ended June 30, 2017 and 2016, and our financial condition, liquidity and capital resources as of June 30, 2017, and December 31, 2016. The financial statements and the notes thereto contain detailed information that should be referred to in conjunction with this discussion.

Forward-Looking Statements

The information discussed in this Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). All statements, other than statements of historical facts, included herein concerning, among other things, planned capital expenditures, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could,” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, among others:      

● Our capital requirements and the uncertainty of being able to obtain additional funding on terms acceptable to us;

● The financial constraints imposed as a result of our indebtedness, including restrictions imposed on us under the terms of our credit facility agreement and our need to generate sufficient cash flows to repay our debt obligations;

● The volatility of domestic and international oil and natural gas prices and the resulting impact on production and drilling activity, and the effect that lower prices may have on our customers’ demand for our services, the result of which may adversely impact our revenues and financial performance;

● The broad geographical diversity of our operations which, while expected to diversify the risks related to a slow-down in one area of operations, also adds to our costs of doing business;

● Our history of losses and working capital deficits which, at times, were significant;

● Adverse weather and environmental conditions;

● Our reliance on a limited number of customers;

● Our ability to retain key members of our senior management and key technical employees;

● The potential impact of environmental, health and safety, and other governmental regulations, and of current or pending legislation with which we and our customers must comply;

● Developments in the global economy;

● Changes in tax laws;

● The effects of competition;

● The risks associated with the use of intellectual property that may be claimed by others and actual or potential litigation related thereto;

● The effect of unseasonably warm weather during winter months; and

● The effect of further sales or issuances of our common stock and the price and volume volatility of our common stock.

Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our filings with the SEC. For additional information regarding risks and uncertainties, please read our filings with the SEC under the Exchange Act and the Securities Act, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report. Other than as required under securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

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OVERVIEW

The Company, through its subsidiaries, provides the following services to the domestic onshore oil and natural gas industry – (i) frac water heating, hot oiling and acidizing (well enhancement services); (ii) water transfer and water treatment services (water transfer services); (iii) water hauling, fluid disposal, frac tank rental (water hauling services); and, (iv) dirt excavating and dirt hauling (construction services). The Company owns and operates through its subsidiaries a fleet of more than 650 specialized trucks, trailers, frac tanks and other well-site related equipment and serves customers in several major domestic oil and gas areas including the DJ Basin/Niobrara area in Colorado, the Bakken area in North Dakota, the Marcellus and Utica Shale areas in Pennsylvania and Ohio, the Jonah area, Green River and Powder River Basins in Wyoming, the Eagle Ford Shale in Texas and the Mississippi Lime and Hugoton areas in Kansas and Oklahoma.

RESULTS OF OPERATIONS

Executive Summary

The six months ended June 30, 2017 brought several positive developments.  Overall demand for our services increased due to improved industry conditions and cooler temperatures in several of our heating markets compared to the same period in 2016.  In addition, we added three major customers that expanded our frac water heating business and helped to offset warm weather in the Marcellus/Utica shale market.  Also, we continued to grow and expand our water transfer business.  We acquired these assets in January 2016 and due to the dramatic drop in crude oil prices in early 2016 were not able to able to generate any business until late in the fourth quarter of 2016.

Revenues for the six months ended June 30, 2017 increased $8.4 million, or 68%, from the comparative period last year due to an 81% increase in our core well enhancement revenue.  Higher frac water heating revenues in our Rocky Mountain region, improved demand for hot oil services in the Bakken, and continued expansion of hot oiling and acidizing services in the Eagle Ford all contributed to the increase in well enhancement revenues.  Water transfer revenues were approximately $1.0 million higher than the comparable period last year due to continued expansion of services.

Segment profits for the three months ended June 30, 2017 were up $3.3 million or 452% from the comparative period last year due to the increase in higher margin well enhancement service revenues.  General & administrative expenses, excluding severance and transition costs, increased by approximately $356,000, due primarily to an increase in stock compensation expense, resulting from (i) the accelerated vesting of stock options provided for in the separation agreement with our former President and CEO, and (ii) the issuance of option grants to several employees including the incoming President and CEO. Severance and transition costs related to the resignation of the Company’s former President and Chief Executive Officer and Chief Financial Officer of approximately $768,000 were incurred during the six months ended June 30, 2017. Depreciation expense decreased by 3%, which resulted from reductions in capital expenditures since June 30, 2016.  Interest expense for the six months ended June 30, 2017 increased $336,000 from the first six months of 2016 primarily due to $255,000 of additional amortization of debt issuance costs related to reduction in term on the credit facility provided by PNC, and due to an increase in borrowing costs due to the higher weighted-average interest rate paid on borrowings with PNC and other lenders, partially offset by savings related to carrying a lower average borrowing balance.

For the six months ended June 30, 2017, the Company recognized a net loss of approximately $2.5 million or ($0.05) per share compared to a net loss of $3.5 million or ($0.09) per share last year primarily due to the aforementioned increase in higher margin well enhancement revenues.

Adjusted EBITDA for the six months ended June 30, 2017 was $2.2 million compared to a loss of $873,000 for the comparable period last year. For further details regarding the calculation of Adjusted EBITDA see Adjusted EBITDA section below.

Industry Overview

During 2015 and 2016, a majority of our customers scaled back drilling and completion programs, required substantial concessions from service vendors, and reduced or delayed certain maintenance-related work to preserve capital. Certain of these customers also shifted capital resources to basins where we do not have established operations. Further, the overall reduction in service activity resulted in same amount of service vendors pursuing fewer jobs which put even further downward pressure on the pricing of services. Some competitors responded by pricing work at what we believe to be negative margins. Although the Company has been able to partially mitigate the impact of the operating environment by deploying resources to more active customers and basins, our revenue growth and operating margins were significantly negatively impacted by reduced overall demand for our services, required pricing concessions and delays in requiring the services we provide. 

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Crude prices and the North American rig count have increased since the low points in February 2016 and May 2016, respectively, signaling that the industry downturn may have stabilized, although as of August, 2017, crude oil and natural gas prices are lower than they were in January, 2017. The United States rig count bottomed out at approximately 400 in the spring of 2016 and has increased to approximately 950 as of June 30, 2017, which translated into increased activity for the six months ended June 30, 2017, compared to the same period in 2016. However, the growth in the rig count is overweighted to the Permian Basin. We started to see an increase in completion and production maintenance service activity towards the end of the fourth quarter of 2016, due to some stabilization of commodity prices and the oil and gas industry overall.  We believe this industry turnaround has contributed to an increase in demand for service activity compared to 2016.

Liquidity Update

As described in more detail in the section titled Liquidity and in Note 13 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q, subsequent to June 30, 2017, the Company entered into a Loan and Security Agreement (the "2017 Credit Agreement") with East West Bank (“East West Bank”) which provides for a three-year $30 million senior secured revolving credit facility (the "New Credit Facility"), to replace the five year $30 million senior secured revolving credit Facility (the "Prior Credit Facility") provided under the Amended and Restated Revolving Credit and Security Agreement (the "2014 Credit Agreement") with PNC Bank, National Association ("PNC"). The 2017 Credit Agreement allows the Company to borrow up to 85% of eligible receivables and up to 85% of the appraised value of eligible equipment. The Company believes that the 2017 Credit Agreement will provide us with (i) improved liquidity due to an increase in collateral advance rates and the removal of the availability block compared to the Prior Credit Facility, (ii) a decrease in borrowing costs due to favorable pricing compared to the Prior Credit Facility, and (iii) more favorable covenant requirements compared to the Prior Credit Facility. Upon execution of the 2017 Credit Agreement, an initial advance of approximately $21.7 million was made under the New Credit Facility to repay in full all obligations outstanding under the Prior Credit Facility, including fees and expenses incurred in connection with the termination of the 2014 Credit Agreement, resulting in an extinguishment of debt and termination of the related agreement. 

Segment Overview

Enservco’s reportable business segments are Well Enhancement Services, Water Transfer Services, Water Hauling Services, and Construction Services. These segments have been selected based on changes in management’s resource allocation and performance assessment in making decisions regarding the Company.

The following is a description of the segments:

Well Enhancement Services: This segment utilizes a fleet of frac water heating units, hot oil trucks and acidizing units to provide well enhancement and completion services to the domestic oil and gas industry. These services include frac water heating, hot oil services, pressure testing, and acidizing services.

Water Transfer Services: This segment utilizes high and low volume pumps, lay flat hose, aluminum pipe and manifolds and related equipment to move fresh and/or recycled water from a water source such as a pond, lake, river, stream, or water storage facility to frac tanks at drilling locations to be used in connection with well completion activities. Also included in this segment are water treatment services whereby to remove bacteria and scale from water, the Company uses patented hydropath technology under an agreement with HydroFLOW USA.

Water Hauling Services:This segment utilizes a fleet of trucks and related assets, including specialized tank trucks, vacuum trailers, storage tanks, and disposal facilities to provide various water hauling services. These services are primarily provided by Dillco in the Hugoton area in Kansas and Oklahoma.

Construction Services: This segment utilizes a fleet of trucks and equipment to provide supplementary construction and roustabout services to the oil and gas and construction industry. In 2016, the Company started utilizing this fleet of equipment to provide dirt hauling services to a general construction contractor in Colorado.

Segment Results:

The following tables set forth revenue from operations and segment profits for the Company’s business segments for the three and six months ended June 30, 2017 and 2016:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
REVENUES:
Well enhancement services	$	5,819,435	$	2,660,526	$	17,803,064	$	9,820,349
Water transfer services		305,994		-		1,058,006		31,688
Water hauling services		880,801		888,892		1,765,806		2,004,440
Construction services		99,811		588,934		254,066		588,934
Total Revenues	$	7,106,041	$	4,138,352	$	20,880,942	$	12,445,411

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	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
SEGMENT PROFIT (LOSS):
Well enhancement services	$	1,494,590		$	(130,164	)	$	5,029,673		$	2,073,203
Water transfer services		(310,474	)		(420,316	)		(234,250	)		(847,564	)
Water hauling services		(311,571	)		58,020			(339,251	)		(16,436	)
Construction services		32,328			(123,392	)		42,422			(123,392	)
Unallocated & Other		(231,585	)		(183,977	)		(428,809	)		(348,666	)
Total Segment Profit (loss)	$	673,288		$	(799,829	)	$	4,069,785		$	737,145

Well Enhancement Services

Well Enhancement Services, which accounted for 82% of total revenues for the three months ended June 30, 2017, increased $3.2 million, or 119%, to $5.8 million for the three months ended June 30, 2017. Well Enhancement Services accounted for 85% of total revenues for the six months ended June 30, 2017, increased $8.0 million, or 81%, compared to the same period in 2016. Increased demand for services due to improved industry conditions, the addition of three major customers in our frac water heating business, more normal winter temperatures, and an extended heating season in our heating markets all contributed to the increase in revenues over last year.

Frac water heating revenues for the three months ended June 30, 2017 increased $2.0 million, or 398%, from 2016. Frac water heating revenues for the six months ended June 30, 2017, increased by $6.2 million, or 137% compared to the same period in 2016. Improved industry conditions including relatively stable commodity prices and increased drilling rig activity has increased demand for our services since December 2016. Further, the addition of three additional customers in the Rocky Mountain region also contributed to a substantial increase in frac water heating in this area. Warm winter temperatures in the Northeast for the second consecutive heating season continued to negatively impact frac water heating in the Marcellus/Utica Shale market, which was down significantly during the three and six months ended June 30, 2017 compared to the same period in 2016.

Hot oil revenues for the three months ended June 30, 2017 increased approximately $705,000, or 43%, compared to the same period in 2016, and increased approximately $1.0 million, or 22%, during the six months ended June 30, 2017, compared to the same period in 2016. Incremental hot oil service revenues from our geographic expansion into the Eagle Ford combined with increased revenues in North Dakota due to improved commodity prices were the primary reasons for the increase over last year.

Acidizing revenues for the three and six months ended June 30, 2017 increased by approximately  $333,000, or 84%, and $674,000, or 130%, respectively, over the comparable periods in 2016, primarily due to incremental acidizing revenues from our geographic expansion into the Eagle Ford.

Segment profits for our core well enhancement services increased by $1.6 million (from a loss of $130,000) for the three months ended June 30, 2017 compared to the same period in 2016. For the six months ended June 30, 2017, segment profits increased by approximately $3.0 million, or 143%, compared to the six months ended June 30, 2016. Increased revenues from the aforementioned more normal winter tempuratures, the extension of heating season into the second quarter, the rebound of oil prices, and addition of new customers contributed to the improved segment profits. In the near future, the Company plans to continue to re-deploy equipment to more active basins to increase utilization and improve this segment’s profits.

Water Transfer Services:

Water Transfer Services, which accounted for 4% of total revenues for the three months ended June 30, 2017, increased to $306,000, compared to no revenues during the three months ended June 30, 2016. For the six months ended June 30, 2017, Water Transfer Services accounted for 5% of total revenue, and increased by $1.0 million, to $1.1 million, due to the incremental revenues from two new customers during 2017. The Company is scheduled for additional water transfer projects through the end of 2017. We consider the water transfer services segment to be an opportunity to grow our business with both new and existing customers and believe it offers opportunity to reduce the level of seasonality we have historically experienced. Segment results for the water transfer segment in the three and six months ended June 30, 2017 include approximately $74,000 and $159,000 of marketing and trial costs related to the HydroFLOW water treatment services, respectively.

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Water Transfer segment losses for the three months ended June 30, 2017 were $310,000, compared to a loss of $420,000 for the comparable period in 2016. For the six months ended June 30, 2017, we realized segment losses of $234,000, compared to losses of $848,000 in the six months ended June 30, 2016.

The Company continues to market and conduct proof of concept studies for the new water treatment technology utilized in devices sold under the name of HydroFLOW. HydroFLOW products offer water treatment services based on patented hydropath technology that can remove bacteria and scale from water using electrical induction to reduce or eliminate down-hole scaling and corrosion. During  During the three and six months ended June 30, 2017 and 2016, the Company did not recognized any revenues related to HydroFLOW products.

Water Hauling Services

Water hauling service revenues, which represent 12% of revenues for the three months ended June 30, 2017, decreased $8,000, or 1%, during the three months ended June 30, 2017 compared to the comparable period in 2016; for the six months ended  June 30, 2017, water hauling service revenues decreased $239,000, or 12%, primarily due to cessation of certain low margin accounts and reduced service activity in our Central USA region due to heavy rains during February.

The Company recorded a segment loss of $312,000 for the three months ended June 30, 2017 compared to segment profit of $58,000 for the comparable period in 2016. The segment loss for the six months ended June 30, 2017 of $339,000 compares to a segment loss of $16,000 during the six months ended June 30, 2016. The three and six months ended June 30, 2017 include a $250,000 accrual for costs related to a workers' compensation claim related to an injury sustained by an employee in our water hauling subsidiary. Segment revenues during the six months ended June 30, 2017 were also negatively impacted by the aforementioned heavy rains.

Construction Services:

In May 2016, the Company began to provide dirt excavation and hauling services to general contractors in the construction industry to offset some of the seasonal decline in revenues from our frac heating business and to utilize and retain key frac heating operators over the summer months. The Company used some of its existing construction equipment in both Heat Waves and Dillco to launch this service.

For the three months ended June 30, 2017, the Company recognized approximately $100,000 of construction service revenue, and segment profits of $32,000, which compares to revenues of $589,000 and a segment loss of $123,000 during the three months ended June 30, 2016. For the six months ended June 30, 2017, the Company recognized approximately $254,000 in construction services revenues, compared to approximately $589,000 during the comparable period in 2016. The revenues recognized in the three and six months ended June 30, 2016 primarily resulted from one large dirt hauling project that concluded in 2016. The Company plans to utilize the construction segment to retain employees during slow periods, but expects to focus primarily on dirt hauling projects that are less labor intensive.

Unallocated and Other:

Unallocated and other costs include costs which are not specifically allocated to the business segments above including labor, travel, and operating costs for regional managers and sales personnel that sell services for various segments.

During the three months ended June 30, 2017, unallocated segment costs increased by $48,000, or 26%, to approximately $232,000 compared to $184,000 for the comparable period in 2016. For the six months ended June 30, 2017, unallocated segment costs increased by $80,000, or 23%, to $429,000, primarily due to an increase in personnel costs.

Geographic Areas:

The Company operates solely in the United States, in what it believes are three geographically diverse regions. The following table sets forth revenue from operations for the Company’s three geographic regions during the three and six months ended June 30, 2017 and 2016:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
BY GEOGRAPHY
Rocky Mountain Region (1)	$	4,303,539	$	1,905,413	$	15,205,996	$	6,992,862
Central USA Region (2)		2,646,653		2,111,516		5,277,518		4,448,022
Eastern USA Region (3)		155,849		121,423		397,428		1,004,527
Total Revenues	$	7,106,041	$	4,138,352	$	20,880,942	$	12,445,411

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Notes to tables:

(1) Includes the DJ Basin/Niobrara field (northeastern Colorado and southeastern Wyoming), the Powder River and Green River Basins (northeastern and southwestern Wyoming), the Bakken Field (western North Dakota and eastern Montana). Heat Waves is the only Company subsidiary operating in this region.

(2) Includes the Eagle Ford Shale (Southern Texas) and Mississippi Lime and Hugoton Field (southwestern Kansas, north central Oklahoma, and the Texas panhandle). Both Dillco and Heat Waves engage in business operations in this region.

(3) Consists of the southern region of the Marcellus Shale formation (southwestern Pennsylvania and northern West Virginia) and the Utica Shale formation (eastern Ohio). Heat Waves is the only Company subsidiary operating in this region.

Revenues in the Rocky Mountain Region increased $2.4 million, or 126%, to $4.3 million for the three months ended June 30, 2017, compared to $1.9 million during the same period in 2016. Revenues for the six months ended June 30, 2017 increased $8.2 million, or 117%, to $15.2 million, compared to $7.0 million during the same period in 2016 due to several factors including (i) increased frac water heating activity in the DJ Basin/Niobrara Shale, Bakken Field, and Wyoming basins due to the normal winter temperatures and incremental revenues generated from three new customers; and (ii) increased hot oiling service activity in the Bakken Field and DJ Basin.

Revenues in the Central USA region increased by approximately $535,000, or 25%, compared to the same period in 2016, to $2.6 million for the three months ended June 30, 2017. Revenues for the six months ended June 30, 2017 increased by approximately $829,000, or 19%, compared to the same period in 2016, primarily due to incremental revenues from our geographic expansion into the Eagle Ford Shale. This increase was offset by a decline in water hauling activity in the Hugoton field area. Scaled back service work due to heavy rains in February, 2017, price concessions and elimination of certain low margin water hauling customers were the primary reasons for a decline in water hauling business in the Hugoton field area.

Revenues in the Eastern USA region increased approximately $34,000, or 28%, compared to the same period in 2016, to $156,000 for the three months ended June 30, 2017. Revenues for the six months ended June 30, 2017 decreased approximately $607,000, or 60%, compared to the same period in 2016,  primarily due to lower frac water heating and hot oil service activity in the Marcellus and Utica shale basin. Unseasonably warm weather during the last two heating seasons has significantly reduced demand for heating services in this basin and essentially eliminated most of our frac water heating revenue in the six months ended June 30, 2017. During 2017, the Company redeployed certain frac heating equipment to other regions to increase utilization rates.

Historical Seasonality of Revenues:

Because of the seasonality of our frac water heating and hot oiling business, revenues generated during the first and fourth quarters of our fiscal year, covering the months during our “heating season”, are significantly higher than our revenues during the second and third quarters of our fiscal year. In addition, the revenue mix of our service offerings also changes outside our heating season as our Well Enhancement services (which includes frac water heating and hot oiling) may decrease as a percentage of total revenues and Water Hauling services and other services increase. Thus, the revenues recognized in our quarterly financial statements in any given period are not indicative of the annual or quarterly revenues through the remainder of that fiscal year.

As an indication of this quarter-to-quarter seasonality, the Company generated 72% of its 2016 revenues during the first and fourth quarters of 2016 compared to 28% during the second and third quarters of 2016.

General and Administrative Expenses:

During the three months ended June 30, 2017, general and administrative expenses increased $388,000, or 43%, due to (i) an increase in stock compensation expense, including approximately $115,000 in incremental expense due to the accelerated vesting of options granted to our former President and CEO, and (ii) consulting costs and contract labor costs incurred during the executive transition period. During the six months ended June 30, 2017, general and administrative expenses increased $356,000, or 18% for the aforementioned reasons. 

Patent Litigation and Defense Costs:

Patent litigation and defense costs decreased slightly to $25,000 and $67,000 for the three and six months ended June 30, 2017, respectively. As discussed in Item 3. – Litigation, the U.S. District Court for the District of Colorado issued a decision on July 20, 2015 to stay the Company’s case with HOTF pending an appeal of a 2015 judgment by a North Dakota Court invalidating the ‘993 Patent. As a result of the stay, litigation and defense costs have been minimal since July 2015.

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Enservco and Heat Waves deny that they are infringing any valid, enforceable claim of the asserted HOTF patents, and intend to continue to vigorously defend themselves in the Colorado Case and challenge the validity and/or enforceability of these patents should the lawsuit resume. The Company expects associated legal fees to be minimal going forward until the Colorado Case is resumed. In the event that HOTF’s appeal is successful and the ‘993 Patent is found to be valid and/or enforceable in the North Dakota Case, the Colorado Case may resume.

Depreciation and Amortization:

Depreciation and amortization expense for the three months ended June 30, 2017 increased $57,000, or 4%, from the same period in 2016, due to asset acquisitions subsequent to June 30, 2016. For the six months ended June 30, 2017, depreciation expense decreased by $114,000, or 3%, primarily due to several assets becoming fully depreciated or amortized in 2016 and 2017.

Severance and Transition Costs:

During the three and six months ended June 30, 2017, the Company recognized costs of approximately $768,000 related to the departures of the former President and Chief Executive Officer and the Chief Financial Officer. The costs incurred include payments to the former executives pursuant to their respective termination agreements and legal costs directly related to their departures. In addition, as described above with regards to our General and Administrative Expenses, the accelerated vesting of option grants made to our former President and CEO caused us to recognize an incremental $115,000 in stock-based compensation expense.

Income (Loss) from operations:

For the three months ended June 30, 2017, the Company recognized a loss from operations of $3.1 million compared to a loss from operations of $3.4 million for the comparable period in 2016. The $275,000 improvement resulted primarily from a $1.5 million increase in segment profits, partially offset by the increases in General and Administrative Expenses and Severance and Transition Costs discussed above. For the six months ended June 30, 2017, the Company recognized a loss from operations of $2.3 million compared to a loss from operations of $4.6 million in the comparable period in 2016. The improvement of $2.3 million is primarily due to a $3.3 million increase in segment profits, partially offset by the increase in General and Administrative Expenses and Severance and Transition Costs discussed above.

Interest Expense:

Interest expense decreased slightly for the three months ended June 30, 2017, compared to the same period in 2016, due to a lower average borrowing balance. Interest expense for the six months ended June 30, 2017 increased $336,000, or 38%, to $1.2 million compared to $873,000 during the same period in 2016, primarily to due to $255,000 of additional amortization expense of debt issuance costs during the six months ended June 30, 2017 related to reduction in term on our PNC credit facility. In addition, higher amendment fees and increases in our effective interest rate due to amendments to our PNC credit facility also contributed to the increase. These increases were partially offset by a $191,000 reduction in interest expense from last year related to the fair value adjustments on the PNC interest rate swap agreement.

Income Taxes:

Income tax benefit was $1.0 million for the three months ended June 30, 2017 compared to a tax benefit of $1.2 million in the comparable period in 2016. For the six months ended June 30, 2017, we recognized an income tax benefit of $1.0 million, compared to an income tax benefit of $1.8 million for the six months ended June 30, 2016. Our effective tax rate was approximately 33% for the three and six months ended June 30, 2017 and 35% for the three and six months ended June 30, 2016. Our effective tax benefit in 2017 and 2016 approximates the federal statutory rate of 35%.

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Adjusted EBITDA*

Management believes that, for the reasons set forth below, Adjusted EBITDA (a non-GAAP measure) is a valuable measurement of the Company's liquidity and performance and is consistent with the measurements offered by other companies in Enservco's industry.

The following table presents a reconciliation of our net income to our Adjusted EBITDA for each of the periods indicated:

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Adjusted EBITDA*
Income (Loss)	$	(2,527,357	)	$	(2,380,651	)	$	(2,477,000	)	$	(3,456,220	)
Add Back (Deduct)
Interest Expense		499,288			500,783			1,209,705			873,451
Provision for income taxes (benefit) expense		(1,018,644	)		(1,239,865	)		(991,529	)		(1,808,707	)
Depreciation and amortization		1,674,875			1,617,620			3,251,304			3,365,592
EBITDA*		(1,371,838	)		(1,502,113	)		992,480			(1,025,884	)
Add Back (Deduct)
Stock-based compensation		329,928			167,071			445,755			317,504
Severance and Transition Costs		767,755			-			767,755			-
Patent Litigation and defense costs		24,542			39,446			67,230			75,612
(Gain) on sale and disposal of equipment		-			(233,473	)		-			(233,473	)
Interest and other income		(36,787	)		(5,010	)		(41,979	)		(7,006	)
Adjusted EBITDA*	$	(286,400	)	$	(1,534,079	)	$	2,231,241		$	(873,247	)

*Note: See below for discussion of the use of non-GAAP financial measurements.

Use of Non-GAAP Financial Measures: Non-GAAP results are presented only as a supplement to the financial statements and for use within management’s discussion and analysis based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader's understanding of the Company’s financial performance, but no non-GAAP measure should be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of the most directly comparable GAAP measures to non-GAAP measures are provided herein.

EBITDA is defined as net income (earnings), before interest expense, income taxes, and depreciation and amortization. Adjusted EBITDA excludes stock-based compensation from EBITDA and, when appropriate, other items that management does not utilize in assessing the Company’s ongoing operating performance as set forth in the next paragraph. None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure.

All of the items included in the reconciliation from net income to EBITDA and from EBITDA to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles, stock-based compensation, warrants issued, etc.) or (ii) items that management does not consider to be useful in assessing the Company’s ongoing operating performance (e.g., income taxes, severance and transition costs related to the executive management team, gain on sale of investments, loss on disposal of assets, patent litigation and defense costs, etc.). In the case of the non-cash items, management believes that investors can better assess the Company’s operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect the Company’s ability to generate free cash flow or invest in its business.

We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired. Additionally, our leverage and fixed charge ratio covenants associated with our 2014 Credit Agreement require the use of Adjusted EBITDA (with certain adjustments from the Adjusted EBITDA presented above) in specific calculations.

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Because not all companies use identical calculations, the Company’s presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the Company’s performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures.

Changes in Adjusted EBITDA*

Adjusted EBITDA for the three months ended June 30, 2017 increased $1.2 million, from a loss of $1.5 million to a loss of $286,000, primarily due to the increase in revenues and segment profits from well enhancement and water transfer services discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our statements of cash flows for the six months ended June 30, 2017 and 2016:

	For the Six Months Ended June 30,
	2017			2016
Net cash provided by operating activities	$	2,018,216		$	2,173,302
Net cash used in investing activities		(850,288	)		(4,250,593	)
Net cash (used in) provided by financing activities		(1,168,057	)		1,839.740
Net Decrease in Cash and Cash Equivalents		(129	)		(237,551	)
Cash and Cash Equivalents, Beginning of Period		620,764			804,737
Cash and Cash Equivalents, End of Period	$	620,635		$	567,186

The following table sets forth a summary of certain aspects of our balance sheet at June 30, 2017 and December 31, 2016:

	June 30, 2017		December 31, 2016
Current Assets	$	5,765,412	$	7,037,068
Total Assets		39,089,265		42,369,996
Current Liabilities		3,476,492		4,001,098
Total Liabilities		26,705,064		27,954,550
Stockholders’ equity		12,384,201		14,415,446
Working Capital (Current Assets net of Current Liabilities)		2,288,920		3,035,970
Long-term debt to Equity		1.85 to 1		1.63 to 1

Overview:

We have relied on cash flow from operations, borrowings under our revolving credit agreements, and equity and debt offerings to satisfy our liquidity needs. Our ability to fund operating cash flow shortfalls, fund capital expenditures, and make acquisitions will depend upon our future operating performance and on the availability of equity and debt financing.  At June 30, 2017, we had approximately $621,000 of cash and cash equivalents and approximately $1.5 million available under our asset-based senior revolving credit facility. Our capital requirements over the next 12 months are anticipated to include, but are not limited to, operating expenses, debt servicing, and capital expenditures including maintenence of our existing fleet of assets. 

As described in more detail in Note 13 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q, on August 10, 2017, the Company entered into the 2017 Credit Agreement with East West Bank which provides for a three-year $30 million senior secured revolving credit facility. The 2017 Credit Agreement allowed the Company to borrow up to 85% of eligible receivables and up to 85% of the appraised value of eligible equipment. Upon entering into the 2017 Credit Agreement, we had approximately $4.7 million available under the terms of the agreement, and we were in compliance with the covenants related to the 2017 Credit Agreement. We expect that operating cash flows and liquidity available pursuant to the 2017 Credit Agreement will provide sufficient liquidity to fund our operations over the next twelve months.

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In September 2014, the Company entered into an Amended and Restated Revolving Credit and Security Agreement (the "2014 Credit Agreement") with PNC Bank, National Association ("PNC") which provides for a five-year $30 million senior secured revolving credit facility which replaced a prior revolving credit facility and term loan with PNC that totaled $16 million (the "2012 Credit Agreement"). The 2014 Credit Agreement allows the Company to borrow up to 85% of eligible receivables and up to 75% of the appraised value of trucks and equipment. Under the 2014 Credit Agreement, there are no required principal payments until maturity and the Company has the option to pay variable interest rate based on (i) 1, 2 or 3 month LIBOR plus an applicable margin ranging from 4.50% to 5.50% for LIBOR Rate Loans or (ii) interest at PNC Base Rate plus an applicable margin of 3.00% to 4.00% for Domestic Rate Loans. Interest is calculated monthly and added to the principal balance of the loan. Additionally, the Company incurs an unused credit line fee of 0.375%. The revolving credit facility is collateralized by substantially all of the Company’s assets and subject to financial covenants. The outstanding principal loan balance matures on April 30, 2018.

The Company has entered into various amendments to the 2014 Credit Agreement that among other things, (i) modified certain financial covenants, (ii) increased the then applicable margin for Domestic Rate Loans and LIBOR Rate Loans; (iii) modified the advance rates on appraised equipment (iv) reinstated a full cash dominion requirement; and (iv) change various administrative terms under the agreement. As of June 30, 2017, the Company is subject to the following financial covenants:

(1) To maintain a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00 at the end of each fiscal quarter. For the purpose of this covenant, the Fixed Charge Coverage Ratio shall be determined on the basis of Adjusted EBITDA for the trailing four-quarter period ended on the applicable quarterly compliance test date.

(2) To maintain of leverage ratio as follows:

Fiscal Quarter Ending:	Maximum Leverage Ratio
June 30, 2017	4.50:1.00
September 30, 2017	4.50:1.00
December 31, 2017	7.00:1.00
March 31, 2018	5.50:1.00

On March 31, 2017, the Company entered into the Tenth Amendment to the 2014 Credit Agreement that among other things (i) required the Company to raise $1.5 million in subordinated debt or post a letter of credit in favor of the bank by March 31, 2017; (ii) raise an additional $1 million of subordinated debt by May 15, 2017; (iii) reduced the maturity date of the loan from September 12, 2019 to April 30, 2018; (iv) changed the definition of Adjusted EBITDA to include proceeds from subordinated debt; and (v) change the calculation of fixed charge and leverage ratio from a trailing four-quarter basis to a quarterly build from the quarter ended December 31, 2016. On March 31, 2017, the Company’s largest shareholder, Cross River Partners, L.P., posted a letter of credit in the amount of $1.5 million in accordance with the terms of the Tenth Amendment. The letter of credit was converted into subordinated debt with a maturity date of June 28, 2022 with a stated interest rate of 10% per annum and a five-year warrant to purchase 967,741 shares of our common stock at an exercise price of $.31 per share. On May 10, 2017, Cross River Partners, L.P. also provided $1 million in subordinated debt to the Company as required under the terms of our Tenth Amendment to the PNC Credit Agreement. This subordinated debt has a stated annual interest rate of 10% and maturity date of June 28, 2022. In connection with this issuance of subordinated debt, Cross River Partners L.P. was granted a five-year warrant to purchase 645,161 shares of our common stock at an exercise price of $0.31 per share.

As of June 30, 2017, the Company had an outstanding principal loan balance under the Credit Agreement of approximately $20.4 million. The interest rate at June 30, 2017 ranged from 5.55% to 5.72% per year for the $18.5 million of outstanding LIBOR Rate Loans and 7.25% per year for the $1.9 million of outstanding Domestic Rate Loans. As of June 30, 2017, approximately $1.5 million was available under the 2014 Credit Agreement.

As of June 30, 2017 and December 31, 2016, the Company was in compliance with its 2014 Credit Agreement covenants.

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Interest Rate Swap

On September 17, 2015, the Company entered into an interest rate swap agreement with PNC in order to hedge against the variability in cash flows from future interest payments related to the 2014 Credit Agreement. The terms of the interest rate swap agreement include an initial notional amount of $10 million, a fixed payment rate of 1.88% plus an applicable margin ranging from 4.50% to 5.50% paid by the Company and a floating payment rate equal to LIBOR plus an applicable margin of 4.50% to 5.50% paid by PNC. The purpose of the swap agreement is to adjust the interest rate profile of the Company’s debt obligations and to achieve a targeted mix of floating and fixed rate debt.

The Company engaged a valuation expert firm to complete the value of the swap utilizing an income approach from a discounted cash flow model. The cash flows were discounted by the credit risk of the Company derived by industry and Company performance. As of June 30, 2017 and December 31, 2016, the annual discount rate was 13.40% for both periods.

During the three months ended June 30, 2017, the fair market value of the swap instrument decreased by approximately $11,000 and resulted in an increase to the liability and an increase in interest expense. During the six months ended June 30, 2017, the fair market value of the swap instrument increased by approximately $19,000 and resulted in a decrease to the liability and a reduction in interest expense. During the three and six months ended June 30, 2016, the fair market value of the swap instrument decreased by $74,000 and $172,000, respectively, and resulted in an increase in the liability and an increase in interest expense. The interest rate swap liability is included in accounts payable and accrued liabilities on the Company’s balance sheet. As of June 30, 2017 and December 31, 2016 the interest rate swap liability was $72,000 and $91,000, respectively.

In connection with the termination of the 2014 Credit Agreement, subsequent to June 30, 2017, we terminated the interest rate swap agreement with PNC. We expect to enter into a similar interest rate swap agreement in connection with the 2017 Credit Agreement.

Liquidity:

As of June 30, 2017, the Company’s available liquidity was $2.1 million, which was substantially comprised of $1.5 million of availability on the credit facility and $621,000 in cash. The Company continues to utilize the 2014 Credit Facility to fund working capital requirements, though during the six months ended June 30, 2017, we made net principal repayments of approximately $3.5 million, which were funded by (i) proceeds form the issuance of subordinated debt and (ii) cash provided by operating activities.

As noted above, the tenth amendment to the Company’s 2014 Credit Agreement with PNC modified the maturity date of the loan balance to April 30, 2018. On August 10, 2017 an initial advance of $21.7 million was made under the New Credit Facility to repay in full all obligations outstanding under the Prior Credit Facility and fees and expenses incurred in connection with the termination of the 2014 Credit Agreement. Upon entering the 2017 Credit Agreement and repaying all amounts due pursuant to the 2014 Credit Agreement, we had availability of approximately $4.7 million under the New Credit Facility. 

Working Capital:

As of June 30, 2017, the Company had working capital of approximately $2.3 million compared to $3.0 million as of December 31, 2016, primarily attributable to our year-end accounts receivable balance, which was higher due to higher frac water heating revenues during the fourth quarter of 2016. We use excess working capital to reduce our debt balance upon the monetization of accounts receivable (which increase during heating season), which results in a reduction in working capital in warmer periods.

Deferred Tax Asset, net:

As of June 30, 2017, the Company had recorded a deferred tax asset, net, of approximately $547,000. The primary source of the deferred tax asset is the Company's operating losses during the three and six months ended June 30, 2017. The Company has performed an analysis and determined that it is more likely than not to realize the amount recorded. 

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Cash flow from Operating Activities:

For the six months ended June 30, 2017, the Company had $2.0 million in cash flows provided by operating activities compared to $2.2 million in cash provided by operating activities during the comparable period in 2016. The decrease is partially attributable to higher general and administrative, and severance and transition costs paid during the six months ended June 30, 2017, which is partially offset by improved cash flows from our core operations.

Cash flow from Investing Activities:

Cash flow used in investing activities during the six months ended June 30, 2017 was $850,000 as compared to $4.3 million, during the comparable period last year, primarily due to the $4.2 million purchase of water transfer assets and patented hydropath technology assets from WET and HIIT in the six months ended June 30, 2016. The $971,000 of capital expenditures for the six months ended June 30, 2017 primarily comprised capital expenditures for maintenance of our existing fleet of assets and for assets acquired pursuant to our agreement with HydroFLOW.

Cash flow from Financing Activities:

Cash used in financing activities for the six months ended June 30, 2017 was $1.2 million compared to $1.8 million in cash provided by financing activities for the comparable period in 2016. During the six months ended June 30, 2017, the Company repaid a net of $3.5 million (proceeds net of principal payments, and excluding advances for interest payments) under the PNC revolving credit facility upon the issuance of subordinated debt of $2.5 million and the monetization of our accounts receivable. During the six months ended June 30, 2016, the Company borrowed a net of approximately $1.9 million under the PNC revolving credit facility to fund capital expenditures including the $4.2 million purchase of water transfer assets, partially offset by repayments made upon the monetization of accounts receivable.

Outlook:

We believe that the current oil and gas environment provides us an opportunity to optimize our asset base and increase our cash flow through the increase in both the oil prices and oil and gas well drilling, although the price for crude oil has decreased significantly since January 2017. Our goal is to right-size our balance sheet and increase the utilization rate of our assets. If we overcome this, we believe we can take advantage of the current market conditions. The Company plans to continue to look for opportunities to expand its business operations through organic growth such as geographic expansion and increasing the volume and scope of services offered to our existing customers as capital permits. The Company will continue to explore adding high margin services that reduce our seasonality, diversify our service offerings, and maintain a good balance between recurring maintenance work and drilling and completion related services.

Capital Commitments and Obligations:

The Company’s capital obligations as of June 30, 2017 consist primarily of scheduled principal payments under certain term loans and operating leases.  The Company repaid all amounts due under the 2014 Credit Agreement using proceeds from the 2017 Credit Agreement. The Company does not have any scheduled principal payments under the 2017 Credit Agreement until August 10, 2020, however, the Company may need to make future principal payments based upon collateral availability. General terms and conditions for amounts due under these commitments and obligations are summarized in the notes to the financial statements.    

Pursuant to a Sales Agreement with HydroFLOW USA, HWWM has the exclusive right to sell or rent patented hydropath devices in connection with bacteria deactivation and scale treatment services for treating injection and disposal wells, fracking water and recycled water in the oil and gas industry to HWWM customers in the United States. Pursuant to the sales agreement, HWWM is required to pay 3.5% royalties of its gross revenues on certain rental transactions and, in order to maintain the exclusivity provision under the agreement, the Company must purchase approximately $655,000 of equipment per year commencing in 2016 and ending 2025. In November 2016, the Company and HydroFLOW USA agreed to allocate $220,000 of the 2016 commitment to 2017, thereby increasing the minimum purchase requirement for 2017 to $875,000. During 2017, the Company purchased $280,000 of equipment to meet its 2016 purchase commitment for exclusivity. During the six months ended June 30, 2017 and 2016, the Company did not accrue or pay any royalties to HydroFLOW. The Company has negotiated a release of all 2016 and 2017 purchase commitments, while leaving intact the exclusive right to sell or rent the patented hydropath devices through 2017. 

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OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2017, the Company had no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies and estimates have not changed from those reported in Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations" in in our 2016 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of June 30, 2017, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer). Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2017.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were not any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the 1934 Act) during the quarter ended June 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1.LEGAL PROCEEDINGS

Enservco Corporation (“Enservco”) and its subsidiary Heat Waves Hot Oil Service LLC (“Heat Waves”) are defendants in a civil complaint, Civil Action No. 1:15-cv-00983-RBJ (“Colorado Case”), that alleges that Enservco and Heat Waves, in offering and selling frac water heating services, infringed and induced others to infringe two patents owned by Heat-On-The-Fly, LLC (“HOTF”). The complaint relates to only a portion of the frac water heating services provided by Heat Waves. The Colorado Case is now stayed pending resolution of appeal by HOTF of a North Dakota court’s ruling that the primary patent (“the ‘993 Patent”) in the Colorado Case was invalid. Neither Enservco nor Heat Waves is a party to the North Dakota Case, which involves other energy companies.

The ‘993 Patent has undergone several reexaminations by the USPTO and in February 2015, the USPTO rejected all 99 claims of the ‘993 Patent in the latest reexamination.  However, in May 2016, the USPTO reversed its decision and confirmed all 99 claims as being patentable over the cited prior art in the reexamination proceeding. Further, in September 2016 and February 2017, HOTF was issued two additional patents, both of which could be asserted against the Company. Management believes that final findings of invalidity and/or unenforceability of the ‘993 Patent based on inequitable conduct could serve as a basis to affect the validity and/or enforceability of each of HOTF’s patents. If these Patents are ultimately held to be invalid and/or enforceable, the Colorado Case would become moot.

As noted above, the Colorado Case has been stayed. However, in the event that HOTF’s appeal is successful and the ‘993 Patent is found to be valid and/or enforceable in the North Dakota Case, the Colorado Case may resume. To the extent that Enservco and Heat Waves are unsuccessful in their defense of the Colorado Case, they could be liable for enhanced damages and attorneys’ fees (both of which may be significant) and Heat Waves could possibly be enjoined from using any technology that is determined to be infringing. Either result could negatively impact Heat Waves’ business and operations. At this time, the Company is unable to predict the outcome of this case, and accordingly has not recorded an accrual for any potential loss.

ITEM 1A. RISK FACTORS

In addition to the risk factors in the Company’s annual report on Form 10-K for the year ended December 31, 2016 filed on March 31, 2017, the Company is also subject to the following risks:

We may be unable to meet the obligations of various financial covenants that are contained in the terms of our loan agreements with our principal lender, East West Bank, a California banking corporation.

The Company’s agreements with East West Bank impose various obligations and financial covenants on the Company. The outstanding amount under the Loan and Security Agreement, entered into with East West Bank in August 2017 (the “2017 Credit Agreement”), is due in full on August 10, 2020. The 2017 Credit Agreement has a variable interest rate and is collateralized by substantially all of the assets of the Company and its subsidiaries.

Further, the related agreements with East West Bank impose various financial covenants on the Company including maintaining a prescribed fixed charge coverage ratio, minimum liquidity levels, and limit the Company’s ability to incur additional debt or operating lease obligations. A downturn in the domestic oil and natural gas exploration and production sector will likely result in reduced drilling activity in our service areas and make it more difficult to meet our financial covenants.

Our debt obligations, which may increase in the future, may reduce our financial and operating flexibility.

As of August 10, 2017, the Company had borrowed approximately $21.7 million under the 2017 Credit Agreement and had approximately $4.7 million of borrowing capacity available under this facility. Although the Company plans to utilize cash flow from operations during the second half of 2017 to reduce its outstanding borrowings, it may incur substantial additional indebtedness in the future. If the Company is unable to reduce debt as planned or new debt or other liabilities are added to its current debt levels, the related risks that it now faces would increase.

A high level of indebtedness subjects the Company to a number of adverse risks. In particular, a high level of indebtedness may make it more likely that a reduction in the borrowing base of the Company’s credit facility following a periodic redetermination could require it to repay a portion of outstanding borrowings, may impair the Company’s ability to obtain additional financing in the future, and increases the risk that it may default on its debt obligations. In addition, the Company may be required to devote a significant portion of its cash flows to servicing its debt, and the Company is subject to interest rate risk under the Company’s credit facility, which bears interest at a variable rate. Any further increase in the Company’s interest rates (whether by amendment to its 2017 Credit Agreement or as the result of economic conditions) would likely have an adverse impact on its financial condition, results of operations and growth prospects.

The Company’s ability to meet its debt obligations and to reduce its level of indebtedness depends on its future performance. General economic conditions, oil and natural gas prices and financial, business and other factors affect the Company’s operations and its future performance. Many of these factors are beyond the Company’s control. If the Company does not have sufficient funds on hand to pay its debt when due, the Company may be required to seek a waiver or amendment from its lenders, refinance its indebtedness, incur additional indebtedness, sell assets or sell additional shares of its equity securities. The Company may not be able to complete such transactions on terms acceptable to it, or at all. The Company’s failure to generate sufficient funds to pay its debts or to undertake any of these actions successfully could result in a default on its debt obligations, which would materially adversely affect its business, results of operations and financial condition.

35

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

The following information is included in this Form 10-Q pursuant to Item 1.01 “Entry into a Material Definitive Agreement”, Item 1.02 “Termination of a Material Definitive Agreement”, and Item 2.03 “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant” of Form 8-K, in lieu of filing a separate Form 8-K to disclose such events.

Entry into a Material Definitive Agreement

On August 10, 2017, the Company entered into a Loan and Security Agreement (the “2017 Credit Agreement”) with East West Bank, a California banking corporation (“East West Bank”), which provides for a three-year $30 million senior secured revolving credit facility (the “New Credit Facility”). The New Credit Facility replaced the five-year $30 million senior secured revolving credit facility (the “Prior Credit Facility”) provided under the Amended and Restated Revolving Credit and Security Agreement (as the same has been amended from time to time, the “2014 Credit Agreement”) by and between the Company and PNC Bank, National Association (“PNC”), and an initial advance of  approximately $21.7 million was made under the New Credit Facility to repay in full all obligations outstanding under the Prior Credit Facility and fees and expenses incurred in connection with the termination of the 2014 Credit Agreement, as well as the termination of an interest rate swap agreement with PNC.

The 2017 Credit Agreement allows the Company to borrow up to 85% of eligible receivables and up to 85% of the appraised value of eligible equipment. Under the 2017 Credit Agreement, there are no required principal payments until maturity and the Company has the option to pay a variable interest rate based on (i) 1 month LIBOR plus a margin of 3.5%, or (ii) the Wall Street Journal prime rate plus a margin of 1.75%. Interest is calculated monthly and paid in arrears. Additionally, the New Credit Facility is subject to an unused credit line fee of 0.5% per annum multiplied by the amount by which total availability exceeds the average monthly balance of the New Credit Facility, payable monthly in arrears.

The 2017 Credit Agreement contains certain restrictive financial covenants which require, among other things, that the Company meet a minimum fixed charge coverage ratio of 1.10 to 1.00, and that the Company maintain Liquidity (generally defined in the 2017 Credit Agreement as of any date of determination, the sum of (a) excess availability on the New Credit Facility on such date and (b) the aggregate amount of Borrowers’ collective unrestricted balance sheet cash on such date) of not less than $1,500,000 at all times that a Liquidity Testing Trigger Period (defined in the 2017 Credit Agreement generally as the period (a) commencing on the first day of the month immediately following the last day of any month for which the fixed charge coverage ratio, determined on the basis of the trailing twelve month period ended on such last day of the month, is less than 1.20 to 1.00 and (b) continuing until the first day of the month that both (i) no default period is in effect and (ii) the fixed charge coverage ratio as of the last day of the immediately preceding two consecutive months, determined on the basis of the respective trailing twelve-month periods ended on the last day of the immediately preceding two consecutive months, is at least 1.20 to 1.00) is in effect. The 2017 Credit Agreement also contains covenants that restrict the Company and its subsidiaries’ ability to incur certain types and amounts of indebtedness, incur liens on certain assets, make material changes in corporate structure or the nature of its business, dispose of material assets, or enter into any merger, acquisition or consolidation without the prior consent of East West Bank.

The obligations under the 2017 Credit Agreement are secured by substantially all of the personal property of the Company and its subsidiaries. The outstanding principal balance of the New Credit Facility matures on August 10, 2020.

A copy of the 2017 Credit Agreement is filed as Exhibit 10.1 to this report and is incorporated herein by reference. The descriptions of the 2017 Credit Agreement in this report are summaries and are qualified in their entirety by the terms of the 2017 Credit Agreement attached hereto as Exhibit 10.1.

Termination of a Material Definitive Agreement

 In connection with the Company’s entry into the 2017 Credit Agreement, as further disclosed under the heading “Entry into a Material Definitive Agreement” above, the 2014 Credit Agreement and the loan documents executed in connection therewith have terminated, effective August 10, 2017. All obligations under the Prior Credit Facility have been satisfied pursuant to an initial advance under the New Credit Facility. 

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

 See the disclosure under the heading “Entry into a Material Definitive Agreement” above for a discussion of the Company’s obligations to East West Bank pursuant to the 2017 Credit Agreement described therein.

36

ITEM 6. EXHIBITS

Exhibit No.	Title
3.01	Second Amended and Restated Certificate of Incorporation (1)
3.02	Certificate of Amendment of Second Amended and Restated Certificate of Incorporation (2)
3.03	Amended and Restated Bylaws (3)
10.1	Loan and Security Agreement with East West Bank, a California banking corporation. Filed herewith.
10.2	Subordinated Loan Agreement (4)
10.3	Subordinated Promissory Note – $1.0 Million (4)
10.4	Subordinated Promissory Note – $1.5 Million (4)
10.5	Warrant – 645,161 Shares (4)
10.6	Warrant – 967,741 Shares (4)
10.7	Executive Severance Agreement dated May 5, 2017, by and between Rick D. Kasch and the Company (5)
10.8	Executive Severance Agreement dated June 8, 2017, by and between Robert J. Devers and the Company (6)
11.1	Statement of Computation of per share earnings (contained in Note 3 to the Condensed Consolidated Financial Statements).
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Ian Dickinson, Principal Executive Officer). Filed herewith.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Tucker Franciscus, Principal Financial Officer). Filed herewith.
32	Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Ian Dickinson, Chief Executive Officer, and Tucker Franciscus, Chief Financial Officer). Filed herewith.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

(1)	Incorporated by reference from the Company’s Current Report on Form 8-K dated December 30, 2010, and filed on January 4, 2011.
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K dated June 20, 2014, and filed on June 25, 2014.
(3)	Incorporated by reference from the Company’s Current Report on Form 8-K dated July 27, 2010, and filed on July 28, 2010.
(4)	Incorporated by reference from the Company’s Current Report on Form 8-K dated June 28, 2017, and filed on July 3, 2017.
(5)	Incorporated by reference from the Company’s Current Report on Form 8-K dated May 5, 2017, and filed on May 11, 2017.
(6)	Incorporated by reference from the Company’s Current Report on Form 8-K dated June 8, 2017, and filed on June 12, 2017.

37

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.

	ENSERVCO CORPORATION
Date: August 14, 2017		/s/ Ian Dickinson
		Ian Dickinson, Principal Executive Officer and Chief Executive Officer
Date: August 14, 2017		/s/ Tucker Franciscus
		Tucker Franciscus, Principal Financial Officer and Chief Financial Officer

39

EX-10.1

Exhibit 10.1

Execution Version

 

LOAN AND SECURITY AGREEMENT

by and between 

EAST WEST BANK,
as Lender

and

ENSERVCO CORPORATION,
DILLCO FLUID SERVICE, INC.,
HEAT WAVES HOT OIL SERVICE LLC
and
HEAT WAVES WATER MANAGEMENT LLC,
as Borrowers

Dated as of August 10, 2017

TABLE OF CONTENTS

		Page
1.        DEFINITIONS AND CONSTRUCTION		1
1.1	Definitions	1
1.2	Accounting Terms	1
1.3	Other Definitional Terms; Rules of Interpretation	1
2.        LOAN AND TERMS OF PAYMENT.		1
2.1	Credit Extensions	1
2.2	Interest Rates, Payments, and Calculations	3
2.3	Crediting Payments	4
2.4	Fees	5
2.5	Additional Costs	5
2.6	Additional Provisions Regarding Letters of Credit	6
2.7	Taxes	6
2.8	Mandatory Prepayments	7
2.9	Term	7
3.        CONDITIONS OF LOANS.		8
3.1	Conditions Precedent to Initial Credit Extension	8
3.2	Conditions Precedent to all Credit Extensions	8
4.        CREATION OF SECURITY INTEREST.		9
4.1	Grant of Security Interest	9
4.2	Perfection of Security Interest	9
4.3	Pledge of Shares	9
4.4	Assignment of Insurance	10
4.5	Lockbox and Blocked Account	10
4.6	Collection of Accounts	11
4.7	Application of Collected Funds	11
4.8	Account Statements	11
5.        REPRESENTATIONS AND WARRANTIES.		12
5.1	Due Organization and Qualification	12
5.2	Due Authorization; No Conflict	12
5.3	Enforceability	12
5.4	Indebtedness	12
5.5	Margin Security and Use of Proceeds	12
5.6	Parent, Subsidiaries and Affiliates	12
5.7	No Defaults	12
5.8	Employee Matters	12
5.9	Intellectual Property	12
5.10	Environmental Matters	13
5.11	ERISA Matters	13
5.12	Anti Money Laundering and Economic Sanctions Laws	13
5.13	Collateral	13
5.14	Name; Location of Chief Executive Office; Locations of Collateral	14
5.15	Litigation	14
5.16	Accuracy of Financial Statements	14
5.17	Solvency, Payment of Debts	14
5.18	Compliance with Laws and Regulations	15
5.19	Government Consents	15
5.20	Affiliate Transactions	15
5.21	Names and Trade Names	15

i

TABLE OF CONTENTS

(continued)

		Page
5.22	Accounts and Equipment	15
5.23	Full Disclosure	15
6.        AFFIRMATIVE COVENANTS.		15
6.1	Good Standing and Government Compliance	15
6.2	Financial Statements, Collateral Reports and Certificates	16
6.3	[Reserved]	17
6.4	Taxes	17
6.5	Insurance.	17
6.6	Primary Depository	18
6.7	Financial Covenants	18
6.8	Maintenance of Books and Records	18
6.9	Notices	18
6.10	Compliance with Laws and Maintenance of Permits	19
6.11	Inspection and Field Examinations	20
6.12	Equipment Appraisals	20
6.13	Collateral	20
6.14	Use of Proceeds	20
6.15	Intellectual Property	20
6.16	Patriot Act, Bank Secrecy Act and Office of Foreign Assets Control	20
6.17	[Reserved]	20
6.18	Creation of Subsidiaries	21
6.19	Further Assurances	21
7.        NEGATIVE COVENANTS.		21
7.1	Dispositions	21
7.2	Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year	21
7.3	Mergers or Acquisitions	21
7.4	Indebtedness	21
7.5	Encumbrances	21
7.6	Distributions	22
7.7	Investments	22
7.8	Transactions with Affiliates	22
7.9	Subordinated Debt	22
7.10	Location of Equipment	22
7.11	No Investment Company; Margin Regulation	22
7.12	Capital Expenditure Limitations	22
7.13	Settling of Accounts	22
7.14	Article 8	23
7.15	ERISA	23
8.        EVENTS OF DEFAULT.		23
8.1	Payment Default	23
8.2	Covenant Default.	23
8.3	Defective Perfection	23
8.4	Levy, Seizure or Attachment	23
8.5	Insolvency	23
8.6	Other Agreements	23
8.7	Subordinated Debt	24
8.8	Judgments	24
8.9	Misrepresentations	24

ii

TABLE OF CONTENTS

(continued)

		Page
8.10	Material Adverse Effect	24
8.11	Guaranty	24
8.12	Change in Control	24
9.        LENDER’S RIGHTS AND REMEDIES.		24
9.1	Rights and Remedies	24
9.2	Power of Attorney	25
9.3	Accounts Collection	26
9.4	Lender Expenses	26
9.5	Lender’s Liability for Collateral	26
9.6	No Obligation to Pursue Others	26
9.7	Remedies Cumulative	26
9.8	Demand; Protest	26
10.      NOTICES.		26
11.      CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL PREFERENCE.		27
11.1	Governing Law and Venue	27
11.2	JURY TRIAL WAIVER	27
11.3	JUDICIAL REFERENCE PROVISION	27
12.      GENERAL PROVISIONS.		28
12.1	Successors and Assigns	28
12.2	Indemnification	28
12.3	Time of Essence	28
12.4	Severability of Provisions	28
12.5	Correction of Loan Documents	28
12.6	Amendments in Writing, Integration	28
12.7	Counterparts; Electronic Execution	28
12.8	Survival	28
12.9	Confidentiality	29
12.10	Patriot Act	29
12.11	No Consequential Damages	29
12.12	Joint and Several Liability	29
12.13	Waivers	29
12.14	Extent of Liability; Contribution	30
12.15	Joint Enterprise	30
12.16	Subordination	31
12.17	Borrower Agent	31
12.18	One Obligation	31
12.19	Publicity	31

iii

TABLE OF CONTENTS

(continued)

EXHIBITS
A	-	Definitions
B	-	Collateral Description
C	-	Loan Advance/Paydown Request Form
D	-	Borrowing Base Certificate
E	-	Form of Compliance Certificate
F	-	Form of LIBOR Loan Continuation Certificate
DISCLOSURE SCHEDULES
Permitted Indebtedness (Exhibit A)
Permitted Investments (Exhibit A)
Permitted Liens (Exhibit A)
Capitalization of Borrower (Section 5.6)
Intellectual Property (Section 5.9)
ERISA Matters (Section 5.11)
Third-Party Collateral Locations (Section 5.14(d))
Prior Names, Chief Executive Office (Section 5.15)
Litigation (Section 5.16)
Affiliate Transactions (Section 5.21)
Trade Names (Section 5.22)

iv

This LOAN AND SECURITY AGREEMENT (as amended, modified or supplemented from time to time, this “Agreement”), dated as of August 10, 2017, is entered into by and between EAST WEST BANK, a California banking corporation (“Lender”), on the one hand, and ENSERVCO CORPORATION, a Delaware corporation (“Enservco”), DILLCO FLUID SERVICE, INC., a Kansas corporation, HEAT WAVES HOT OIL SERVICE LLC, a Colorado limited liability company, and HEAT WAVES WATER MANAGEMENT LLC, a Colorado limited liability company (each a “Borrower” and collectively, “Borrowers”), on the other hand.

RECITALS

Borrowers wish to obtain credit from time to time from Lender, and Lender desires to extend credit to Borrowers. This Agreement sets forth the terms on which Lender will extend credit to Borrowers and Borrowers will repay the amounts owing to Lender.

AGREEMENT

The parties agree as follows:

1.           DEFINITIONS AND CONSTRUCTION.

1.1       Definitions. As used in this Agreement, capitalized terms shall have the respective meanings set forth on Exhibit A. The terms “Account Debtor,” “Chattel Paper,” “Commercial Tort Claims,” “Control,” “Control Agreement,” “Deposit Accounts,” “Documents,” “Electronic Chattel Paper,” “Fixtures,” “General Intangibles,” “Goods,” “Instruments,” “Inventory,” “Investment Property,” “Letter-of-Credit Right,” “Proceeds,” “Security Certificate,” “Intangible Chattel Paper,” and any other term defined in the UCC and used herein without definition shall have the respective meanings given to such terms in the UCC.

1.2       Accounting Terms. Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP, and all financial covenant calculations shall be made in accordance with GAAP, unless otherwise specified herein. The term “financial statements” shall include the accompanying notes and schedules.

1.3     Other Definitional Terms; Rules of Interpretation. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Sections, subsections, Exhibits, Schedules and the like, are to Sections and subsections of, or Exhibits or Schedules attached to, this Agreement unless otherwise expressly provided. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” Unless the context in which used herein otherwise clearly requires, “or” has the inclusive meaning represented by the phrase “and/or.” Defined terms include in the singular number the plural and in the plural number the singular. Reference to any agreement (including the Loan Documents), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof (and, if applicable, in accordance with the terms hereof and the other Loan Documents), except where otherwise explicitly provided, and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor. Reference to any law, rule, regulation, order, decree, requirement, policy, guideline, directive or interpretation means as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect on the determination date, including rules and regulations promulgated thereunder.

2.           LOAN AND TERMS OF PAYMENT.

2.1         Credit Extensions.

(a)         Promise to Pay. Borrowers hereby unconditionally promise to pay to Lender, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Lender to Borrowers, together with accrued and unpaid interest on the unpaid principal amount of such Credit Extensions at the rates set forth herein, and all other Obligations owing by Borrowers to Lender, in each case as and when due in accordance with the terms hereof.

1

(b)         Revolving Advances.

(i)     Amount; Principal and Interest Payments. Subject to and upon the terms and conditions of this Agreement, Borrowers may request Revolving Advances in an aggregate outstanding amount at any time not in excess of Availability. Amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed at any time prior to the Revolving Maturity Date. On the Revolving Maturity Date, all Revolving Advances under this Section 2.1(b) shall be immediately due and payable. If an Overadvance occurs on any date or for any reason, Borrowers shall immediately pay to Lender, upon Lender’s election and demand, in cash, the amount of such Overadvance, which Lender shall use to repay the outstanding Revolving Advances. Borrowers may prepay Revolving Advances under this Section 2.1(b) without penalty or premium, provided that the prepayment of any Revolving Advance that constitutes a LIBOR Loan shall be subject to Section 2.2(e)(iv). Interest shall accrue from the date of each Revolving Advance at the rate specified in Section 2.2(a)(i) and shall be payable in accordance with Section 2.2(c).

(ii)     Form of Revolving Advance Request. Whenever Borrowers desire a Revolving Advance under this Section 2.1(b) other than the initial Revolving Advance to be made on the Closing Date, Administrative Borrower will notify Lender by electronic mail, facsimile transmission or telephone no later than 10:00 a.m. Pacific time, (A) on the Business Day that the Revolving Advance is to be made if the Revolving Advance will be a Prime Rate Advance or (B) at least two (2) Business Days prior to the day the Revolving Advance is to be made if the Revolving Advance will be a LIBOR Loan. Each such notification shall be promptly confirmed by a Loan Advance/Paydown Request Form. Lender is authorized to make Revolving Advances under this Agreement based upon instructions received from a Responsible Officer of Administrative Borrower or a designee of such Responsible Officer, or without instructions if in Lender’s Permitted Discretion such Revolving Advances are necessary to meet Obligations when due or to make payments to any third parties when due (and Borrowers shall be deemed to have requested such a Revolving Advance hereunder). Lender shall be entitled to rely on any telephonic notice given by a person who Lender reasonably believes to be a Responsible Officer of Administrative Borrower or a designee thereof, and Borrowers shall indemnify and hold Lender harmless for any damages or loss suffered by Lender as a result of such reliance.

(iii)     Disbursement of Proceeds of Revolving Advances. Borrowers hereby irrevocably authorize Lender to disburse the proceeds of each Revolving Advance requested by Borrowers, or deemed to be requested by Borrowers, in lawful money of the United States of America in immediately available funds, (A) in the case of the initial borrowing, in accordance with the terms of the written disbursement instructions from Borrower, and (B) in the case of each subsequent borrowing, by wire transfer or internal transfer or credit to such bank account as may be agreed upon by Borrowers and Lender from time to time, or elsewhere if pursuant to a written direction from Borrowers.

(iv)     Letter of Credit Sublimit. Subject to Availability and to the other terms and conditions of this Agreement, at any time and from time to time from the date hereof through the date that is ninety (90) days prior to the Revolving Maturity Date, Lender shall issue for the account of any Borrower such Letters of Credit denominated in Dollars as Borrowers may request by delivering to Lender a duly executed letter of credit application on Lender’s standard form; provided, however, the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed the Letter of Credit Sublimit and (ii) shall be deemed to constitute Revolving Advances for the purpose of calculating Availability. Any drawn but unreimbursed amounts under any Letters of Credit shall be charged as a Revolving Advance. All Letters of Credit shall be in form and substance acceptable to Lender in its sole discretion and shall be subject to the terms and conditions of Lender’s standard-form letter of credit application. Borrowers agree to execute and deliver to Lender any further documentation in connection with any Letter of Credit as Lender may reasonably request. Borrowers will pay any standard issuance and other fees that Lender notifies Borrowers it will charge for issuing and processing Letters of Credit.

(v)       [Reserved].

(c)         Bank Products. Borrowers may request, and Lender or its affiliates may, in their sole and absolute discretion, provide, Bank Products. If Borrowers request Lender and/or its affiliates to procure or provide Bank Products, then Borrowers agree with Lender and/or such affiliates, as applicable, to pay when due all indebtedness, liabilities and obligations with respect to Bank Products and further agree to indemnify and hold Lender and/or such affiliates harmless from any and all indebtedness, liabilities, obligations, losses, costs and expenses (including reasonable attorney’s fees) now or hereafter owing to or incurred by Lender (including those under agreements of indemnifications or assurances provided by Lender to its affiliates) and/or its affiliates with respect to Bank Products, all as the same may arise. If Borrowers shall not have paid to Lender and/or its affiliates such amounts as the same may arise, Lender may cover such amounts by a Revolving Advance, which Revolving Advance shall be deemed to have been requested by Borrowers. Borrowers acknowledge and agree that (a) all indebtedness, liabilities and obligations with respect to Bank Products provided by Lender or its affiliates, and all of its agreements under this Section 2.1(e), are part of the Obligations secured by the Collateral, and (b) the obtaining of Bank Products from Lender or its affiliates (i) is in the sole and absolute discretion of Lender and its applicable affiliates and (ii) is subject to all rules and regulations of Lender and its applicable affiliates.

2

2.2     Interest Rates, Payments, and Calculations.

(a)     Interest Rates. Except as set forth in Section 2.2(b), each Revolving Advance shall bear interest, on the outstanding daily balance thereof, at Borrowers’ option, either (A) if such Revolving Advance is a Prime Rate Loan, at a variable rate per annum equal to 1.75% above the Prime Rate or (B) if such Revolving Advance is a LIBOR Loan, at a fixed rate per annum equal to 3.50% above the LIBOR-Based Rate for the Interest Period applicable to such Revolving Advance.

(b)     Late Fee; Default Rate. If any payment is not made within ten (10) days after the date such payment is due, at the option of Lender, Borrowers shall pay Lender a late fee equal to the greater of (i) 6% of the amount of such unpaid amount or (ii) $5.00 (or if less, the maximum amount permitted to be charged under applicable law). At the option of Lender, all Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to two (2) percentage points above the respective interest rates applicable immediately prior to the occurrence of the Event of Default; provided that in the case of an Event of Default under Section 8.1 or 8.5, such higher rate shall automatically apply without the need for Lender to make any election.

(c)     Payments. Interest hereunder on each Prime Rate Loan shall be due and payable on the first calendar day of each month during the term hereof. Interest hereunder on each LIBOR Loan shall be due and payable on the last day of each Interest Period applicable to such LIBOR Loan, provided that if the Interest Period for any LIBOR Loan is longer than three (3) months, interest on such LIBOR Loan shall be payable on the day that is three (3) months after the start of such LIBOR period and on the last day of such LIBOR period. Lender shall, at its option, charge such interest, all Lender Expenses, all Periodic Payments and all other Obligations against any of Borrowers’ deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

(d)     Changes in Prime Rate; Computation of Interest and Fees. If the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder on Prime Rate Loans shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.

(e)     Additional Provisions Regarding LIBOR Loans.

(i)     Borrowers may from time to time submit in writing a request that any existing LIBOR Loan continue for an additional Interest Period or convert to a Prime Rate Loan. Each written request for a continuation of a LIBOR Loan shall be substantially in the form of a LIBOR Loan Continuation Certificate substantially in the form of Exhibit F, with appropriate insertions, which shall be duly executed by a Responsible Officer. Each written request for a conversion from a LIBOR Loan to a Prime Rate Loan shall be substantially in the form of the Loan Advance/Paydown Request Form attached as Exhibit C. Subject to the terms and conditions contained herein, after Lender’s receipt of such a request from Borrower, such LIBOR Loan shall continue or convert, as the case may be, provided that:

3

(A)     In the case of any request for the continuation of a LIBOR Loan, no Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists;

(B)     no party hereto shall have sent any notice of termination of this Agreement;

(C)     Borrowers shall have complied with such customary procedures as Lender has established from time to time for Borrower’s requests for LIBOR Loans;

(D)     the amount of a LIBOR Loan shall be at least $1,000,000 and in integral multiples of $100,000 in excess thereof;

(E)     Lender shall have determined that the Interest Period or LIBOR is available to Lender as of the date of the request for such LIBOR Loan; and

(F)     such request for a LIBOR Loan shall be delivered to Lender by 10:00 a.m. Pacific time at least two (2) Business Days prior to the proposed date of the requested LIBOR Loan.

Any request by Borrowers to continue any existing LIBOR Loan shall be irrevocable. Notwithstanding anything to the contrary contained herein, Lender shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable LIBOR market to fund any LIBOR Loan, but the provisions hereof shall be deemed to apply as if Lender had purchased such deposits to fund such LIBOR Loan.

(ii)       At no time shall more than five (5) LIBOR Loans be outstanding under this Agreement.

(iii)     Any LIBOR Loan shall automatically continue for the same Interest Period upon the last day of the applicable Interest Period, unless Lender has received and approved a complete and proper request to continue such LIBOR Loan for a different Interest Period by 10:00 a.m. Pacific time on the last day of the applicable Interest Period in accordance with the terms hereof. Any LIBOR Loan shall, at Lender’s option, convert to a Prime Rate Loan at the end of the applicable Interest Period in the event that an Event of Default shall occur and be continuing. Borrowers shall pay to Lender, upon demand by Lender, any amounts required to compensate Lender for any loss or documented cost or expense incurred by Lender, as a result of the conversion of any LIBOR Loan to a Prime Rate Loan pursuant to the foregoing.

(iv)     If for any reason (including voluntary or mandatory prepayment or acceleration), Lender receives all or part of the principal amount of a LIBOR Loan prior to the last day of the Interest Period for such LIBOR Loan, Borrowers shall on demand by Lender, pay Lender the amount (if any) by which (i) the additional interest which would have been payable on the amount so received had it not been received until the last day of such Interest Period or term exceeds (ii) the amount of interest that Lender actually received through the date on which Borrowers prepaid such LIBOR Loan.

(v)     If Lender shall have determined in its Permitted Discretion that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining LIBOR for such Interest Period, Lender shall give email or telephonic notice (promptly confirmed in writing) thereof to Borrowers. If such notice is given (x) any LIBOR Loan requested to be made on the first day of such Interest Period shall be made as a Prime Rate Loan, and (y) any outstanding LIBOR Loan shall be converted, on the last day of the then-current Interest Period, to a Prime Rate Loan. Until such notice has been withdrawn by Lender, no further LIBOR Loans shall be made or continued as such, nor shall Borrowers have the right to convert Credit Extensions to LIBOR Loans.

2.3     Crediting Payments. Lender shall apply any wire transfer of funds, check, or other item of payment Lender may receive, as set forth in Section 4.5, to conditionally reduce Obligations in accordance with the terms of this Agreement, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Lender after 2:00 p.m. Pacific time shall be deemed to have been received by Lender as of the opening of business on the immediately following Business Day. Whenever any payment to Lender under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.

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2.4     Fees. Borrower shall pay to Lender the following:

(a)     Closing Fee. On the Closing Date, a closing fee equal to $150,000, which fee shall be nonrefundable;

(b)     Unused Revolving Line Fee. A fee equal to 0.50% per annum of the difference between the Revolving Line and the Average Monthly Balance in each month, which fee shall be payable monthly in arrears on the first Business Day of each month and shall be nonrefundable;

(c)     Letter of Credit Fee. A Letter of Credit fee equal to 3.50% per annum of the aggregate undrawn face amount of all issued and outstanding Letters of Credit, which fee shall be payable monthly in arrears on the last Business Day of each month for commercial Letters of Credit and payable in advance of issuance and annually thereafter for standby Letters of Credit. Borrowers shall also pay to Lender on demand Lender’s normal and customary administrative charges for the issuance, amendment, negotiation, renewal or extension of any Letter of Credit;

(d)     Early Termination Fee. A fee in an amount equal to, as applicable: (x) 1.00% of the Maximum Revolving Advances Limit if this Agreement is terminated prior to the first anniversary of the Closing Date; (y) 0.50% of the Maximum Revolving Advances Limit if this Agreement is terminated on or after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date; and (z) $0 if this Agreement is terminated on or after the second anniversary of the Closing Date and prior to the Revolving Maturity Date; provided, however, Borrowers shall not be obligated to pay any early termination fee to Lender if this Agreement is terminated at any time after the first anniversary of the Closing Date as a consequence of a refinance transaction with Lender or any Affiliate of Lender (or with a lending syndicate in which Lender or any Affiliate of Lender is a syndicate member);

(e)     Collateral Monitoring Fee. A fee of $1,000, payable monthly in advance, on the first Business Day of each month; and

(f)     Lender Expenses. On the Closing Date, all Lender Expenses incurred through the Closing Date, and, after the Closing Date, all Lender Expenses, as and when requested by Lender.

2.5     Additional Costs. If Lender shall determine that the implementation of any applicable law, final rule or regulation, or the ratification of any treaty regarding capital adequacy, or any adopted and implemented change therein, or any change in the legally binding interpretation or administration thereof by any governmental authority, central bank, or comparable agency, in each case having jurisdiction over Lender, charged with the interpretation or administration thereof, or compliance by Lender (or its applicable lending office) with any request or directive regarding capital adequacy of any such authority, central bank, or comparable agency, has the effect of reducing the rate of return on capital of Lender or any person or entity controlling Lender (a “Lender’s Parent”) as a consequence of its obligations hereunder to a level below that which Lender (or Lender’s Parent) would have achieved but for such adoption, change, or compliance (taking into consideration policies with respect to capital adequacy) by an amount deemed by Lender to be material, then from time to time, within ten (10) business days after demand by Lender, Borrowers shall pay to Lender such additional amount or amounts as will compensate Lender for such reduction. Notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, final rules and regulations, guidelines or directives thereunder or issued in connection therewith, and (ii) all requests, final rules, guidelines or directives concerning capital adequacy promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) (including pursuant to Basel III) shall in each case be deemed to be a change in law for purposes of this Agreement, regardless of the date enacted, adopted or issued. A reasonably detailed statement of Lender, providing citation to the applicable law, final rule or regulation, or treaty pursuant to which Lender claims compensation under this Section 2.5, setting forth the additional amount or amounts to be paid to it hereunder, and providing a reasonably detailed calculation of such additional amount or amounts to be paid to Lender hereunder, shall be conclusive absent manifest error. Notwithstanding anything to the contrary in this Section 2.5, Borrowers shall not be required to compensate Lender pursuant to this Section 2.5 for any amounts incurred more than six (6) months prior to the date that Lender notifies Borrowers of Lender’s intention to claim compensation therefor; provided that if the circumstances giving rise to such claim have a retroactive effect, then such six-month period shall be extended to include the period of such retroactive effect. The obligations of Borrowers arising pursuant to this Section 2.5 shall survive the Revolving Maturity Date, the termination of this Agreement and the repayment of all Obligations.

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2.6     Additional Provisions Regarding Letters of Credit.

(a)     Reimbursement. Payments made by Lender to any Person on account of any Letter of Credit shall be immediately payable by Borrowers without notice, presentment or demand, and Borrowers agree that each payment made by Lender in respect of a Letter of Credit shall constitute a request by Borrowers for a Revolving Advance to reimburse Lender for such payment. If such Revolving Advance is not made by Lender for any reason, such reimbursement obligations shall become part of the Obligations hereunder and shall bear interest at the rate then applicable to Revolving Advances constituting Prime Rate Loans until repaid.

(b)     Requests for Letters of Credit. Borrowers shall make requests for Letters of Credit in writing at least two (2) Business Days prior to the date such Letter of Credit is to be issued. Each such request shall specify the date such Letter of Credit is to be issued, the amount thereof, the name and address of the beneficiary thereof and a description of the transaction to be supported thereby.

(c)     Obligations Unconditional. Borrowers shall be obligated to reimburse Lender for any payments made by Lender in respect of any Letter of Credit, which obligation shall be unconditional and irrevocable and shall be paid regardless of: (a) any lack of validity or enforceability of any Letter of Credit, (b) any amendment or waiver of or consent or departure from all or any provisions of any Letter of Credit, this Agreement or any other Loan Document, (c) the existence of any claim, set off, defense or other right which Borrowers or any other Person may have against any beneficiary of any Letter of Credit, or Lender as the issuer of the Letter of Credit, (d) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect, (e) any payment under any Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, and (f) any other act or omission to act or delay of any kind of Lender as the issuer of such Letter of Credit or any other Person or any other event or circumstance that might otherwise constitute a legal or equitable discharge of Borrower’s obligations hereunder. It is understood and agreed by Borrowers that Lender may accept documents that appear on their face to be in order without further investigation or inquiry, regardless of any notice or information to the contrary.

(d)     Expiry Dates. The expiration date of each Letter of Credit shall be no later than the earlier of (a) one (1) year from the date of issuance and (b) sixty (60) days prior to the Maturity Date. Notwithstanding the foregoing, a Letter of Credit may provide for automatic extensions of its expiration date for one or more one (1) year periods, so long as Lender has the right to terminate the Letter of Credit at the end of each one (1) year period. If in its sole discretion, and without any obligation to do so, Lender agrees to issue a Letter of Credit with an expiry date after the Maturity Date, then, at Lender’s request, upon Lender’s issuance of such Letter of Credit, Borrowers shall provide Lender with cash collateral, in form and substance acceptable to Lender, in an amount equal to one hundred five percent (105%) of the aggregate amount available to be drawn under such Letter of Credit. Lender shall hold the cash collateral as security for the Letter of Credit Obligations until the outstanding Letters of Credit have expired, been canceled, or drawn upon and paid.

2.7     Taxes.

(a)     Withholding. Any and all payments by Borrowers to or on account of any obligation of Borrowers hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that, if Borrowers shall be required by any applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then: (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.7(a)), Lender receives an amount equal to the sum it would have received had no such deductions been made; (ii) Borrowers shall make such deductions; and (iii) Borrowers shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

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(b)     Obligation to Pay. Without limiting the provisions of Section 2.7(a), Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)     Indemnity. Borrowers shall indemnify Lender, within ten days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Taxes imposed or asserted on or attributable to amounts payable under this this Section 2.7) paid by Lender and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrowers by Lender shall be conclusive absent manifest error.

(d)     Receipts. If requested in writing by Lender, Borrowers shall deliver to Lender, as soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrowers to a Governmental Authority, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Lender.

(e)     Refunds. If Lender receives a refund of any Taxes or Other Taxes as to which it has been indemnified by Borrowers or with respect to which Borrowers have paid additional amounts pursuant to this Section 2.7, Lender shall pay to Borrowers an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrowers under this Section 2.7 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out of pocket expenses of Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that Borrowers, upon the request of Lender, agree to repay the amount paid over to Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Lender in the event Lender is required to repay such refund to such Governmental Authority. This Section 2.7(e) shall not be construed to require Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to Borrowers or any other Person.

2.8     Mandatory Prepayments.

(a)     Sale of Assets. Upon receipt of the net proceeds of the sale or other disposition of any Equipment of Borrower which is subject to a Lien in favor of Lender, Borrowers shall pay such net proceeds to Lender as a mandatory prepayment of the Obligations, such payment to be applied in such manner as Lender may elect. Notwithstanding the foregoing, provided no Default Period is in effect, (A) no prepayment of the Obligations need be made from sales proceeds of assets received on account of Borrowers’ Equipment subject to a Lien in favor of Lender if and to the extent such proceeds are applied to the replacement of such assets within ninety (90) days after Borrowers’ receipt thereof, and (B) no prepayment of the Obligations need be made from sale proceeds if the net proceeds of any sale or disposition of any item of property or of various items of property in a fiscal year are less than $50,000.00.

(b)     Insured Losses/Condemnation. If any Equipment of Borrowers which is subject to a Lien in favor of Lender is damaged, destroyed or taken by condemnation in whole or in part, Borrowers shall pay the proceeds thereof to Lender as a mandatory prepayment of the Obligations, such payment to be applied in such manner as Lender may elect. Notwithstanding the foregoing, provided no Default Period is in effect, no prepayment of the Obligations need be made from insurance proceeds received on account of damage or destruction of Borrowers’ Equipment if and to the extent that such insurance proceeds are applied to the repair or replacement of such assets within ninety (90) days after Borrowers’ receipt thereof.

2.9     Term. This Agreement shall become effective on the Closing Date and, subject to Section 12.8, shall continue in full force and effect for so long as any Obligations remain outstanding or Lender has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Lender shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.

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3.     CONDITIONS OF LOANS.

3.1     Conditions Precedent to Initial Credit Extension. The obligation of Lender to make the initial Credit Extensions hereunder is subject to the satisfaction or waiver on or before the date hereof of each of the following conditions:

(a)     Lender shall have received this Agreement and each of the other agreements, documents, instruments, opinions, reports, approvals, consents, certificates and other items set forth on Lender’s closing document checklist, in each case duly executed by the appropriate party and in form and substance satisfactory to Lender;

(b)     since December 31, 2016, no event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect, as determined by Lender in its Permitted Discretion;

(c)     Lender shall have received payment of the fees and Lender Expenses then due pursuant to Section 2.4;

(d)     Lender shall have determined that immediately after giving effect to (i) the making of the initial Revolving Advances, if any, requested to be made on the date hereof, (ii) the issuance of the initial Letter of Credit, if any, requested to be made on such date, (iii) the payment of all fees due upon such date, (iv) the payment or reimbursement by Borrowers of Lender for all closing costs and expenses incurred in connection with the transactions contemplated hereby, and (v) the payment of all trade payables more than sixty (60) days past due or the making of other payment arrangements satisfactory to Lender with respect to such accounts payable, Borrowers have Excess Availability as of the date of this Agreement of not less than $3,000,000;

(e)     Lender shall have conducted, or caused to be conducted, and been satisfied with the results of, a field examination of the Collateral;

(f)     Lender shall have received Enservco’s current financial statements, including audited statements for Enservco’s most recently ended fiscal year, together with an unqualified opinion, and company-prepared consolidated and consolidating balance sheets and income statements through June 30, 2017, in accordance with Section 6.2, and such other updated financial information as Lender may reasonably request;

(g)     all Indebtedness of Borrower to its Owners shall have been subordinated to the Obligations pursuant to a subordination agreement in form and substance reasonably satisfactory to Lender; and

(h)     the Loan Parties shall have executed and delivered to Lender all such other documents, instruments and agreements as Lender may reasonably deem necessary or appropriate.

3.2     Conditions Precedent to all Credit Extensions. The obligation of Lender to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:

(a)     if such Credit Extension is a Revolving Advance, timely receipt by Lender of a Loan Advance/Paydown Request Form;

(b)     the representations and warranties contained in Section 5 shall be true, correct and complete in all respects on and as of the date of such Loan Advance/Payment Request Form and on the effective date of each Credit Extension as though made at and as of each such date (provided, however, that (i) those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such other date and (ii) any representation or warranty that is qualified by materiality, Material Adverse Effect or any similar standard shall be true, correct and complete in all respects); and

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(c)     no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension.

The request for each Credit Extension shall be deemed to be a representation and warranty by Borrowers on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.

4.           CREATION OF SECURITY INTEREST.

4.1     Grant of Security Interest. Each Borrower grants and pledges to Lender a continuing security interest in and Lien on all of its Collateral, whether now or hereafter owned, existing, acquired or arising and wherever now or hereafter located, to secure the prompt payment of any and all Obligations and to secure the prompt performance by Borrowers of each of their covenants and duties under the Loan Documents. Except as set forth in the Disclosure Schedules, and subject only to Permitted Liens that may have priority by operation of law, such security interest constitutes a valid, first-priority security interest in all presently existing Collateral of each Borrower, and will constitute a valid, first-priority security interest in all after-acquired Collateral of each Borrower. Notwithstanding any termination of this Agreement, Lender’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.

4.2     Perfection of Security Interest. Each Borrower authorizes Lender to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of such Borrower and (ii) contain any other information required by the Uniform Commercial Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether such Borrower is an organization, the type of organization and any organizational identification number issued to such Borrower, if applicable. Borrowers shall from time to time endorse and deliver to Lender, at the request of Lender, all Negotiable Collateral and other documents that Lender may reasonably request, in form satisfactory to Lender, to perfect and continue perfected Lender’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrowers shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Lender chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, Borrowers shall take such steps as Lender reasonably requests for Lender to (i) obtain an acknowledgment, in form and substance satisfactory to Lender, of the bailee that the bailee holds such Collateral for the benefit of Lender, (ii) obtain Control of any Collateral consisting of Investment Property, Deposit Accounts, Letter-of-Credit Rights or Electronic Chattel Paper by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Lender. Borrowers will not create any Chattel Paper without placing a legend on the Chattel Paper acceptable to Lender indicating that Lender has a security interest in the Chattel Paper. Borrowers from time to time may deposit with Lender specific cash collateral to secure specific Obligations; each Borrower authorizes Lender to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.

4.3     Pledge of Shares. Enservco hereby pledges, assigns and grants to Lender a security interest in and Lien on all of Enservco’s right, title and interest in the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing (collectively, the “Shares Collateral,” as security for the performance of the Obligations; provided, however, that notwithstanding the foregoing, the term “Shares Collateral” shall not include securities representing at any time more than 65% of the aggregate voting power of the capital stock of a “controlled foreign corporation,” as defined in Section 957 of the Code). The certificate or certificates for the Shares, if any, will be delivered to Lender, accompanied by an instrument of assignment undated and duly executed in blank by Enservco, and Enservco shall cause the books of each entity whose shares are part of the Shares and any transfer agent to reflect the pledge of the Shares. Upon the occurrence and during the continuance of an Event of Default, Lender may effect the transfer of the Shares into the name of Lender and cause new certificates representing such securities to be issued in the name of Lender or its transferee and shall thereafter have the right to exercise all voting rights with respect to the Shares. Enservco will execute and deliver such documents, and take or cause to be taken such actions, as Lender may reasonably request to perfect or continue the perfection of Lender’s security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, Enservco shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default, and all such rights thereupon shall vest in Lender alone.

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4.4        Assignment of Insurance. As additional security for the payment and performance of the Obligations, each Borrower hereby assigns to Lender any and all monies (including proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of such Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto, and such Borrower hereby directs the issuer of any such policy to pay all such monies directly to Lender. At any time, whether or not an Event of Default then exists, Lender may (but need not), in Lender’s name or in the appropriate Borrower’s name, execute and deliver proof of claim, receive all such monies, endorse checks and other instruments representing payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy. Subject to Section 2.8, any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Lender to be applied, at the option of Lender, either to the prepayment of the Obligations or shall be disbursed to Borrowers under staged payment terms reasonably satisfactory to Lender for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed prior to such damage or destruction.

4.5         Lockbox and Blocked Account.

(a)     Each Borrower shall direct all of its Account Debtors to make all payments on the Accounts directly to the Lock Box that such Borrower shall establish for the deposit of all payments received by such Borrower. Each Borrower shall immediately deposit in the Blocked Account all other payments received by such Borrower on Accounts in the identical form in which such payments were received, whether by cash or check. If any Borrower, any Affiliate or Subsidiary, any shareholder, officer, director, employee or agent of any Borrower or any Affiliate or Subsidiary, or any other Person acting for or in concert with any Borrower shall receive any monies, checks, notes, drafts or other payments relating to or as Proceeds of Accounts or other Collateral, such Borrower and each such Person shall receive all such items in trust for, and as the sole and exclusive property of, Lender and, immediately upon receipt thereof, shall remit the same (or cause the same to be remitted) in kind to the Blocked Account.

(b)     The financial institution with which the Lock Box and the Blocked Account are established shall acknowledge and agree, in a manner satisfactory to Lender, that the amounts on deposit in the Lock Box and Blocked Account are the sole and exclusive property of Lender, that such financial institution will follow the instructions of Lender with respect to disposition of funds in the Lock Box and Blocked Account without further consent from Borrowers, that such financial institution has no right to setoff against the Lock Box or Blocked Account or against any other account maintained by such financial institution into which the contents of the Lock Box or Blocked Account are transferred, and that such financial institution shall wire, or otherwise transfer in immediately available funds to Lender in a manner satisfactory to Lender, funds deposited in the Blocked Account on a daily basis as such funds are collected.

(c)     Borrowers agree that all payments made to the Lock Box or the Blocked Account or otherwise received by Lender, whether in respect of the Accounts or as Proceeds of other Collateral or otherwise (except for proceeds of Collateral which are required to be delivered to the holder of a Permitted Lien which is prior in right of payment to Lender), will be applied on account of the Obligations in accordance with the terms of this Agreement; provided, that so long as no Default Period is in effect, payments received by Lender shall not be applied to the unmatured portion of the LIBOR Rate Loans, but at Lender’s election either (i) shall be held in a cash collateral account maintained by Lender until the earlier of (a) the last Business Day of the Interest Period applicable to such LIBOR Loan and (b) the occurrence of an Event of Default or (ii) shall be remitted to such deposit account of Borrower as Borrower may request.

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(d)     Borrowers agree to pay all customary fees, costs and expenses in connection with opening and maintaining the Lock Box and Blocked Account. All of such fees, costs and expenses if not paid by Borrowers when due, may be paid by Lender and in such event all amounts paid by Lender shall constitute Obligations hereunder, shall be payable to Lender by Borrowers upon demand, and, until paid, shall bear interest at the highest rate then applicable to Advances hereunder. All checks, drafts, instruments and other items of payment or Proceeds of Collateral shall be endorsed by the applicable Borrower to Lender, and, if that endorsement of any such item shall not be made for any reason, Lender is hereby irrevocably authorized to endorse the same on such Borrower’s behalf. For the purpose of this section, each Borrower irrevocably hereby makes, constitutes and appoints Lender (and all Persons designated by Lender for that purpose) as such Borrower’s true and lawful attorney and agent-in-fact (i) to endorse such Borrower’s name upon such items of payment and/or Proceeds of Collateral and upon any Chattel Paper, Document, Instrument, invoice or similar document or agreement relating to any Account of such Borrower or Goods pertaining thereto; (ii) to take control in any manner of any item of payment or Proceeds thereof and (iii) to have access to any lock box or postal box into which any of such Borrower’s mail is deposited, and open and process all mail addressed to such Borrower and deposited therein.

4.6      Collection of Accounts. Lender may, at any time and from time to time following the occurrence and during the continuation of an Event of Default, whether before or after notification to any Account Debtor and whether before or after the maturity of any of the Obligations, (a) enforce collection of any of Borrowers’ Accounts or other amounts owed to Borrowers by suit or otherwise; (b) exercise all of Borrowers’ rights and remedies with respect to proceedings brought to collect any Accounts or other amounts owed to any Borrower or any Collateral therefor; (c) surrender, release or exchange all or any part of any Accounts or other amounts owed to any Borrower, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder; (d) sell or assign any Account of any Borrower or other amount owed to any Borrower upon such terms, for such amount and at such time or times as Lender deems advisable; (e) prepare, file and sign each Borrower’s name on any proof of claim in bankruptcy or other similar document against any Account Debtor or other Person obligated to any Borrower; and (f) do all other acts and things which are necessary, in Lender’s sole discretion, to fulfill Borrowers’ obligations under the Loan Documents and to allow Lender to collect the Accounts or other amounts owed to Borrowers. In addition to any other provision hereof, Lender may at any time, following the occurrence and during the continuation of an Event of Default, at Borrowers’ expense, notify any parties obligated on any of the Accounts to make payment directly to Lender of any amounts due or to become due thereunder.

4.7         Application of Collected Funds.

(a)     For the purpose of determining Availability, the balance in the Blocked Account as of the end of a Business Day shall, without duplication, be applied as a provisional credit against the Revolving Advances (subject to reversal to the extent that any portion of such credited balance is dishonored) at the beginning of the next Business Day.

(b)     For the purpose of determining the Borrowing Base, that portion of the balance in the Blocked Account as of the end of a Business Day consisting of payments on Accounts, without duplication, at Lender’s election, shall be applied to reduce the total amount of Eligible Accounts set forth in the most recent Borrowing Base Certificate delivered to Lender by Borrower as the same may have been previously adjusted pursuant to this Section 4.7(b).

(c)     For the purpose of calculating interest and fees due under this Agreement, Lender shall apply all collected and available funds one (1) Business Day after application of the proceeds pursuant to Section 4.7(a).

4.8         Account Statements. On a monthly basis, Lender shall deliver to Borrowers an account statement showing all Credit Extensions, charges and payments, which shall be deemed final, binding and conclusive upon Borrowers unless Borrowers notify Lender in writing, specifying any error therein, within thirty (30) days of the date such account statement is sent to Borrowers and any such notice shall only constitute an objection to the items specifically identified.

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5.           REPRESENTATIONS AND WARRANTIES.

Each Borrower represents and warrants as follows:

5.1     Due Organization and Qualification. Each Loan Party is a corporation duly existing under the laws of the state in which it is incorporated and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

5.2     Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within each Loan Party’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in such Loan Party’s organizational documents, nor will they constitute an event of default under any material agreement by which any Loan Party is bound. No Loan Party is in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.

5.3     Enforceability. The Loan Documents to which each Loan Party is a party are the legal, valid and binding obligations of such Loan Party and are enforceable against such Loan Party in accordance with their respective terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditor’s rights generally and to general principles of equity.

5.4     Indebtedness. Except for Permitted Indebtedness and the Obligations, no Loan Party is obligated (directly or indirectly), for any loans or other Indebtedness.

5.5     Margin Security and Use of Proceeds. None of the proceeds of the Loans hereunder shall be used for the purpose of purchasing or carrying any margin securities or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase any margin securities or for any other purpose not permitted by Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.

5.6     Parent, Subsidiaries and Affiliates. Except as set forth in the Disclosure Schedules, no Loan Party has any Parents, Subsidiaries or other Affiliates or divisions, nor is any Loan Party engaged in any joint venture or partnership with any other Person.

5.7     No Defaults. No Loan Party is in default under any material contract, lease or commitment to which it is a party or by which it is bound. Borrowers do not know of any dispute regarding any contract, lease or commitment of any Loan Party which would have a Material Adverse Effect.

5.8     Employee Matters. There are no controversies pending or threatened between any Loan Party and any of its employees, agents or independent contractors other than employee grievances arising in the ordinary course of business which would not, in the aggregate, have a Material Adverse Effect, and each Loan Party is in compliance with all federal and state laws respecting employment and employment terms, conditions and practices except for such non-compliance which would not have a Material Adverse Effect.

5.9     Intellectual Property.

(a)     Intellectual Property Rights. The Disclosure Schedules contain a complete list of all patents, applications for patents, trademarks, applications to register trademarks, service marks, applications to register service marks, mask works, trade dress and copyrights for which each Loan Party is the owner of record (the “Intellectual Property”). Except as disclosed in the Disclosure Schedules, (i) each Loan Party owns the Intellectual Property free and clear of all restrictions (including covenants not to sue a third party), court orders, injunctions, decrees, writs or Liens, whether by written agreement or otherwise, (ii) no Person other than the applicable Loan Party owns or has been granted any right in the Intellectual Property, (iii) all Intellectual Property is valid, subsisting and enforceable and (iv) the applicable Loan Party has taken all commercially reasonable action necessary to maintain and protect the Intellectual Property. The use of such Intellectual Property by each Loan Party and the operation of its businesses does not infringe any valid and enforceable intellectual property rights of any other Person, except to the extent any such infringement could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party infringes upon any rights held by any other Person, except to the extent any such infringement could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as specifically disclosed in the Disclosure Schedules, no claim or litigation regarding any of the foregoing is pending or, to Borrowers’ knowledge, threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to Borrowers’ knowledge, proposed, which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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(b)     Licensed Intellectual Property. No Loan Party possesses any licenses other than (i) as set forth in the Disclosure Schedules, and (ii) readily available, non-negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks.

5.10     Environmental Matters. No Loan Party has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any material respect any Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of each Loan Party comply in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder. There has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other Person, nor is any pending or to the best of Borrower’s knowledge threatened with respect to any non-compliance with or violation of the requirements of any Environmental Law by any Loan Party or the release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects any Loan Party or its business, operations or assets or any properties at which any Loan Party has transported, stored or disposed of any Hazardous Materials. No Loan Party has material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials.

5.11     ERISA Matters. Except as set forth in the Disclosure Schedules, neither any Loan Party nor any ERISA Affiliate (a) maintains or has maintained any Pension Plan, (b) contributes or has contributed to any Multiemployer Plan or (c) provides or has provided post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the Code or applicable state law). Neither any Loan Party nor any ERISA Affiliate has received any notice or has any knowledge to the effect that it is not in full compliance with any of the requirements of ERISA, the Code or applicable state law with respect to any Plan. No Reportable Event exists in connection with any Pension Plan. Each Plan which is intended to qualify under the Code is so qualified, and no fact or circumstance exists which may have an adverse effect on the Plan’s tax qualified status. Neither any Loan Party nor any ERISA Affiliate has (i) any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code) under any Plan, whether or not waived, (ii) any liability under Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan or (iii) any liability or knowledge of any facts or circumstances which could result in any liability to the PBGC, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than routine claims for benefits under the Plan).

5.12     Anti Money Laundering and Economic Sanctions Laws.

(a)     To the extent applicable, each Loan Party and each of its Subsidiaries is in compliance with (i) the Patriot Act in all material respects and (ii) any applicable anti-money laundering laws or any applicable Sanctions requirements of law that in each case are binding on them, except in the case of this clause (ii) where the failure to be in compliance would not reasonably be expected to have a Material Adverse Effect. To the knowledge of management of Borrowers, none of the Loan Parties, their respective Subsidiaries or their respective officers or directors is an Embargoed Person.

(b)     No part of the proceeds of the Loans will be used, directly or, to the knowledge of management of any Borrower, indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

(c)     None of the Loan Parties or their respective Subsidiaries or, to the knowledge of management of any Borrower, any of their respective officers and directors, will directly or indirectly use any proceeds of the Loans or lend, contribute or otherwise make available such proceeds to any Person for the purpose of financing the activities of or with any Person or in any country or territory that, at the time of funding, is an Embargoed Person.

5.13     Collateral.

(a)     Each applicable Loan Party has rights in or the power to transfer the portion of the Collateral, and its title to such Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens.

(b)     All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made.

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(c)     No Equipment is a fixture to real estate unless such real estate is owned by a Loan Party and is subject to a mortgage in favor of Lender, or if such real estate is leased, is subject to a landlord’s agreement in favor of Lender on terms acceptable to Lender, or an accession to other personal property unless such personal property is subject to a first priority lien in favor of Lender.

(d)     Except as set forth in the Disclosure Schedules, none of the Collateral is maintained or invested with a Person other than Lender or Lender’s affiliates.

5.14     Name; Location of Chief Executive Office; Locations of Collateral. Except as disclosed in the Disclosure Schedules, no Loan Party has done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive office of each Borrower, at which such Borrower keeps its books, records and accounts (or copies thereof) concerning the Collateral, is located in the Chief Executive Office State at the address indicated in Section 10 hereof; the chief executive office of each Loan Party (other than Borrowers), at which such Loan Party keeps its books, records and accounts (or copies thereof) concerning the Collateral, is disclosed in the Disclosure Schedules. The Collateral, including the Equipment (except any part thereof which Borrowers shall have advised Lender in writing consists of Collateral normally used in more than one state) is kept, or, in the case of vehicles, based, only at the address set forth in Section 10 hereof, and at other locations within the continental United States of which Lender has been advised by Borrowers in writing.

5.15     Litigation. Except as set forth in the Disclosure Schedules, there are no actions or proceedings pending by or against any Loan Party before any court or administrative agency in which a likely adverse decision would reasonably be expected to have a Material Adverse Effect. No Loan Party has any Commercial Tort Claims pending other than those set forth in the Disclosure Schedules and those of which Lender has been advised by Borrowers in writing.

5.16     Accuracy of Financial Statements. All consolidated and consolidating financial statements related to any Loan Party that are delivered by Borrowers to Lender fairly present in all material respects the financial condition of the Loan Parties as of the date thereof and the results of operations of such Persons for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of the Loan Parties since the date of the most recent audited financial statements submitted to Lender.

5.17     Solvency, Payment of Debts. Each Loan Party is able to pay its debts (including trade debts) as they mature; the fair saleable value of such Loan Party’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and no Loan Party is left with unreasonably small capital after the transactions contemplated by this Agreement.

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5.18     Compliance with Laws and Regulations. Each Loan Party has met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from any Loan Party’s failure to comply with ERISA that is reasonably likely to result in such Loan Party’s incurring any liability that could have a Material Adverse Effect. No Loan Party is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. No Loan Party is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Each Loan Party has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Each Loan Party is in compliance with all environmental laws, regulations and ordinances except where the failure to comply is not reasonably likely to have a Material Adverse Effect. No Loan Party violated any statutes, laws, ordinances or rules applicable to it, the violation of which could reasonably be expected to have a Material Adverse Effect. Each Loan Party has filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to have a Material Adverse Effect.

5.19     Government Consents. Each Loan Party has obtained all consents, approvals, franchises, certificates, licenses, permits and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of such Loan Party’s business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

5.20     Affiliate Transactions. Except as set forth in the Disclosure Schedules, no Loan Party is conducting, permitting or suffering to be conducted, transactions with any Affiliate other than transactions with Affiliates for the purchase or sale of Inventory or services in the ordinary course of business pursuant to terms that are no less favorable to such Loan Party than the terms upon which such transactions would have been made had they been made to or with a Person that is not an Affiliate.

5.21     Names and Trade Names. Each Borrower’s name has always been as set forth on the first page of this Agreement and no Loan Party uses any trade names, assumed names, fictitious names or division names in the operation of its business, except as set forth in the Disclosure Schedules.

5.22     Accounts and Equipment. Each Account or item of Equipment which Borrowers shall, expressly or by implication, request Lender to classify as an Eligible Account or as Eligible Equipment, respectively, shall, as of the time when such request is made, conform in all respects to the requirements of such classification as set forth in the respective definitions of “Eligible Account” and “Eligible Equipment” as set forth herein and as otherwise established by Lender from time to time.

5.23     Full Disclosure. No representation, warranty or other statement made by any Borrower in any certificate or written statement furnished to Lender taken together with all such certificates and written statements furnished to Lender contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Lender that the projections and forecasts provided by Borrowers in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.

6.     AFFIRMATIVE COVENANTS.

Each Borrower covenants that, until payment in full of all outstanding Obligations, and for so long as Lender may have any commitment to make a Credit Extension hereunder, such Borrower shall do all of the following:

6.1     Good Standing and Government Compliance. Each Borrower shall maintain, and at Lender’s request provide Lender evidence of, its organizational existence and good standing in the state in which it is organized, shall maintain, and at Lender’s request provide Lender evidence of, qualification and good standing in each other jurisdiction in which the failure to so qualify could have a Material Adverse Effect, and shall furnish to Lender the organizational identification number issued to such Borrower by the authorities of the state in which such Borrower is organized, if applicable. Each Loan Party other than Borrowers shall maintain, and at Lender’s request provide Lender evidence of, its organizational existence and good standing in its state of organization, shall maintain, and at Lender’s request provide Lender evidence of, qualification and good standing in each other jurisdiction in which the failure to so qualify could have a Material Adverse Effect, and shall furnish to Lender the organizational identification number issued to such Loan Party by the authorities of the state in which such Loan Party is organized, if applicable. Each Loan Party shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Each Loan Party shall comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required thereunder where the failure to do so could have a Material Adverse Effect. Each Loan Party shall comply with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain in force all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.

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6.2     Financial Statements, Collateral Reports and Certificates. Borrowers shall deliver the following to Lender:

(a)     as soon as available, but in any event within one hundred twenty (120) days after the end of each Fiscal Year, audited consolidated and consolidating financial statements of Borrowers and their respective Subsidiaries prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified on such financial statements of an independent certified public accounting firm selected by Borrowers and reasonably acceptable to Lender and a copy of any management letter sent to Borrowers by such accountants;

(b)     as soon as available, but in any event within, as applicable, (i) thirty (30) days after the end of each calendar month, in the case of each month other than a month that is the last month of a calendar quarter, or (ii) forty-five (45) days after the end of each month that is the last month of a calendar quarter, company-prepared consolidated and consolidating financial statements of Borrowers and their respective Subsidiaries, including a balance sheet and statements of income, retained earnings and cash flow, and a comparison against budget for such period, in a form reasonably acceptable to Lender and certified by a Responsible Officer of Administrative Borrower;

(c)     no earlier than ninety (90) days prior to and no later than the beginning of each Fiscal Year, the Loan Parties’ financial and business projections and budget (including a balance sheet, an income statement, a statement of cash flows, an availability projection, a projection of Capital Expenditures, and a demonstration of pro forma financial covenant compliance) of Borrowers and their respective Subsidiaries, presented in a month-by-month format, for such Fiscal Year, with written certification signed by a Responsible Officer of Administrative Borrower of approval thereof by Enservco’s board of directors, which shall include the assumptions used therein, together with appropriate supporting details as reasonably requested by Lender;

(d)     such sales projections, budgets, operating plans or other financial information generally prepared by Borrowers in the ordinary course of business as Lender may reasonably request from time to time;

(e)     at Lender’s request, within thirty (30) days after the last day of each fiscal quarter during which any Loan Party has made any applications or registrations in respect of any Patents, Copyrights or Trademarks, a report signed by Borrowers, in form and substance reasonably satisfactory to Lender, listing such applications or registrations listing any such applications or registrations that any Loan Party has made or filed and the status of any outstanding applications or registrations, as well as any material change in each Loan Party’s Patents, Copyrights or Trademarks, including but not limited to any subsequent ownership right of any Loan Party in or to any Trademark, Patent or Copyright not previously identified to Lender;

(f)     concurrently with delivery of the monthly financial statements required by clause (b) above and the annual financial statements required by clause (a) above, a Compliance Certificate certified as of the last day of the applicable month or Fiscal Year and signed by a Responsible Officer of Administrative Borrower, in substantially the form of Exhibit E hereto;

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(g)     as soon as available, but in any event within twenty-five (25) days after the end of each calendar month, as of the last day of the immediately preceding month (or, during a Weekly Collateral Reporting Trigger Period, at least once each week, no later than Friday of such week, as of Friday of the immediately preceding week), an executed Borrowing Base Certificate which, at Lender’s request, shall be accompanied by reports of the following: (i) sales, (ii) cash receipts, (iii) purchases, (iv) non-cash charges, (v) credit memo journals, (vi) an accounts receivable “roll-forward” and (vii) an updated Equipment listing. Such Borrowing Base Certificate shall reflect the activity of Borrowers with respect to Accounts for the immediately preceding month or week (as applicable), and shall be in a form and with such specificity as is satisfactory to Lender and shall contain such additional information concerning Accounts and Equipment as may be reasonably requested by Lender;

(h)     as soon as practicable, but in any event within twenty-five (25) days after the end of each calendar month, (i) a summary and detailed aging by invoice date of Borrowers’ Accounts, in form and substance satisfactory to Lender, in its Permitted Discretion, (ii) a summary and detailed aging of Borrowers’ accounts payable in form and substance satisfactory to Lender in its Permitted Discretion, (iii) a perpetual Equipment report for Borrowers, setting forth each category of Equipment and the cost value of such Equipment and otherwise in form and substance satisfactory to Lender in its Permitted Discretion, and (iv) reconciliations of Accounts, accounts payable, and loan balances to the general ledger;

(i)     Upon Lender’s request from time to time, a list of the names and addresses of all Account Debtors of Borrowers;

(j)     promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which any Loan Party files with the SEC, as well as promptly providing to Lender copies of any reports and proxy statements delivered to its shareholders; and

(k)     promptly following request therefor by Lender, (i) a listing of any held checks, and (ii) such other business or financial data, reports, appraisals and projections as Lender may reasonably request.

Borrowers may deliver to Lender on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Lender shall be entitled to rely on the information contained in the electronic files, provided that Lender in good faith believes that the files were delivered by a Responsible Officer of Administrative Borrower. If Borrowers deliver any such information electronically, Borrowers shall also deliver such information to Lender by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within five (5) Business Days after Borrowers’ electronic submission of such information.

6.3     [Reserved].

6.4     Taxes. Each Loan Party shall make due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Lender, on demand, proof satisfactory to Lender indicating that such Loan Party has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that no Loan Party need make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by such Loan Party.

6.5     Insurance.

(a)     Each Loan Party, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where such Loan Party’s business is conducted on the date hereof. Each Loan Party shall also maintain liability and other insurance in amounts and of a type that are customary to businesses similar in size and scope to such Loan Party’s business.

(b)     All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Lender. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Lender, showing Lender as a lender’s loss payee, and all liability insurance policies shall show Lender as an additional insured and, in each case, specify that the insurer must give at least twenty (20) days’ notice to Lender before canceling its policy for any reason. Upon Lender’s request, Borrowers shall deliver to Lender certified copies of the policies of insurance and evidence of all premium payments. Subject to Section 2.08(b), if no Default Period is in effect, proceeds payable under any casualty policy will, at Borrowers’ option, be payable to the applicable Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Lender has been granted a first priority security interest. If a Default Period is in effect, all proceeds payable under any such policy shall, at Lender’s option, be payable to Lender to be applied on account of the Obligations.

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6.6     Primary Depository. Each Loan Party shall maintain its primary depository and operating accounts with Lender. Each Loan Party shall cause all banks or other depositary institutions with which such Loan Party maintains any deposit account to enter into a deposit account control agreement with Lender, in form and reasonably substance satisfactory to Lender.

6.7     Financial Covenants. Borrowers shall maintain the following financial ratios and covenants:

(a)     Liquidity. At all times that a Liquidity Testing Trigger Period is in effect, Liquidity of not less than $1,500,000.

(b)     Fixed Charge Coverage Ratio. A Fixed Charge Coverage Ratio of at least 1:10 to 1.00.

Lender shall test Borrower’s compliance with the financial covenant set forth in clause (a) of this Section 6.7 at all times that a Liquidity Testing Trigger Period is in effect. Lender shall test Borrowers’ compliance with the financial covenant set forth in clause (b) of this Section 6.7 as of the last day of each month, commencing June 30, 2017, for, as applicable, (i) the trailing twelve-month period ended on such date or (ii) the shorter cumulative period commencing on January 1, 2017 and ended on such compliance test date.

6.8     Maintenance of Books and Records. Each Loan Party shall at all times keep accurate and complete books, records and accounts with respect to all of such Loan Party’s business activities, in accordance with GAAP.

6.9     Notices. Borrowers shall provide written notice to Lender of the following:

(a)     Locations. Promptly upon becoming aware of (but in no event less than ten (10) days prior to the occurrence thereof) the proposed opening of any new place of business or new location of Collateral, the closing of any existing place of business or location of Collateral, any change of in the location of any Loan Party’s books, records and accounts (or copies thereof), the opening or closing of any post office box, the opening or closing of any bank account or, if any of the Collateral consists of Goods of a type normally used in more than one state, the use of any such Goods in any state other than a state in which such Loan Party has previously advised Lender that such Goods will be used.

(b)     Eligible Accounts and Equipment. Promptly upon becoming aware thereof, if any Account or Equipment identified by Borrowers to Lender as an Eligible Account or Eligible Equipment becomes ineligible for any reason.

(c)     Litigation and Proceedings. Promptly upon becoming aware thereof, (i) of any litigation, arbitration, governmental investigation or other actions or proceedings which are pending or threatened against any Loan Party or any Subsidiary or to which any of the properties of any thereof is subject which involves an amount in controversy in excess of $250,000 or which could reasonably be expected to have a Material Adverse Effect, and (ii) of any Commercial Tort Claims of any Loan Party which may arise.

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(d)     Names and Trade Names. Within ten (10) days after the change of any Loan Party’s name or the use of any trade name, assumed name, fictitious name or division name not previously disclosed to Lender in writing.

(e)     ERISA Matters. Promptly upon (i) the occurrence of any Reportable Event which might result in the termination by the PBGC of any Plan covering any officers or employees of any Loan Party, any benefits of which are, or are required to be, guaranteed by the PBGC, (ii) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefore, (iii) its intention to terminate or withdraw from any Plan, (iv) the institution of any steps by any member of the Controlled Group or any other Person to terminate any Pension Plan, (v) the failure of any Loan Party or any ERISA Affiliate of any member of the Controlled Group or any other Person to make a required contribution to any Pension Plan (if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA) or to any Multiemployer Plan, (vi) the taking of any action with respect to a Pension Plan which could result in the requirements that any Loan Party furnish a bond or other security to the PBGC or such Pension Plan, (vii) the occurrence of any event with respect to any Pension Plan or Multiemployer Plan which could result in the incurrence by any ERISA Affiliate or any member of the Controlled Group of any liability, fine or penalty (including any claim or demand for withdrawal liability or partial withdrawal from any Multiemployer Plan) in excess of $250,000, (viii) any increase in excess of $250,000 in the contingent liability of any Loan Party with respect to any post-retirement welfare plan benefit, or (ix) any notice that any Multiemployer Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.

(f)     Environmental Matters. Immediately upon becoming aware of any investigation, proceeding, complaint, order, directive, claim, citation or notice with respect to any non-compliance with or violation of the requirements of any Environmental Law by any Loan Party or the generation, use, storage, treatment, transportation, manufacture handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter which affects any Loan Party or its business operations or assets or any properties at which any Loan Party has transported, stored or disposed of any Hazardous Materials unless the foregoing could not reasonably be expected to result in liability to the Loan Parties in excess of $250,000, or which could reasonably be expected to have a Material Adverse Effect.

(g)     Default; Material Adverse Change. Promptly of (i) any Material Adverse Effect, (ii) the occurrence of any Event of Default hereunder, or (iii) the occurrence of any event which, if uncured, will become an Event of Default after notice or lapse of time (or both).

All of the foregoing notices shall be provided by Borrowers to Lender in writing and shall describe the steps being taken by any Loan Party or any Subsidiary affected thereby with respect thereto.

6.10     Compliance with Laws and Maintenance of Permits. Each Loan Party shall maintain all governmental consents, franchises, certificates, licenses, authorizations, approvals and permits, the lack of which would have a Material Adverse Effect and such Loan Party shall remain in compliance with all applicable federal, state, local and foreign statutes, orders, regulations, rules and ordinances (including Environmental Laws and statutes, orders, regulations, rules and ordinances relating to taxes, employer and employee contributions and similar items, securities, ERISA or employee health and safety) the failure with which to comply would have a Material Adverse Effect. Following any determination by Lender that there is non-compliance, or any condition which requires any action by or on behalf of any Loan Party in order to avoid non-compliance, with any Environmental Law, at Borrower’s expense cause an independent environmental engineer acceptable to Lender to conduct such tests of the relevant site(s) as are appropriate and prepare and deliver a report setting forth the results of such tests, a proposed plan for remediation and an estimate of the costs thereof.

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6.11     Inspection and Field Examinations. Each Loan Party shall permit Lender, or any Persons designated by Lender, to call at such Loan Party’s places of business at any reasonable times, and, without hindrance or delay, to inspect the Collateral and to inspect, audit, check and make extracts from such Loan Party’s books, records, journals, orders, receipts and any correspondence and other data relating to such Loan Party’s business, the Collateral or any transactions between the parties hereto, and shall have the right to make such verification concerning such Loan Party’s business as Lender may consider reasonable under the circumstances. Notwithstanding the foregoing, no such inspections of the Collateral by Lender or any Persons designated by Lender, shall unduly interfere with any Loan Party’s use of said Collateral in the ordinary course of its business. Borrowers shall furnish to Lender such information relevant to Lender’s rights under the Loan Documents as Lender shall at any time and from time to time request. Lender, through its officers, employees or agents shall have the right, at any time and from time to time, in Lender’s name, to verify the validity, amount or any other matter relating to any of Borrowers’ Accounts, by mail, telephone, telecopy, electronic mail, or otherwise, provided that prior to the occurrence of an Event of Default, Lender shall conduct such verification in the name of a nominee of Lender or in a Borrower’s name. Each Borrower authorizes Lender to discuss the affairs, finances and business of the Loan Parties with any officers, employees or directors of such Borrower or with its Parent or any Affiliate or the officers, employees or directors of its Parent or any Affiliate, and to discuss the financial condition of the Loan Parties with such Borrower’s independent public accountants. Any such discussions shall be without liability to Lender or to such independent public accountants. For each inspection or audit conducted by Lender hereunder, Borrowers shall pay to Lender (a) fees at Lender’s then-current per diem rate (which, as of the Closing Date, is $950 per auditor), plus (b) all costs and out-of-pocket expenses incurred by Lender. All such fees, costs and expenses shall constitute Obligations hereunder, shall be payable on demand and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder. Unless a Default Period is then in effect, Lender will conduct no more than two (2) inspections or audits in any year of the term of this Agreement.

6.12     Equipment Appraisals. Borrower shall permit Lender to engage an independent appraiser satisfactory to Lender in its Permitted Discretion to conduct periodic appraisals of Borrower’s Equipment. Each such appraisal shall be at Borrower’s expense. Unless a Default Period is then in effect, Lender will conduct no more than two (2) appraisals of Borrowers’ Equipment in any year of the term of this Agreement.

6.13     Collateral. Each Loan Party shall keep the Collateral in good condition, repair and order, ordinary wear and tear excepted, and shall make all necessary repairs to the Equipment and replacements thereof so that the operating efficiency and the value thereof shall at all times be preserved and maintained in all material respects. Subject to the limitations on inspection rights set forth in Section 6.11, each Loan Party shall permit Lender to examine any of the Collateral at any time and wherever the Collateral may be located and, each Loan Party shall, immediately upon request therefor by Lender, deliver to Lender any and all evidence of ownership of any of the Equipment including certificates of title and applications of title. Each Loan Party shall, at the request of Lender, indicate on its records concerning the Collateral a notation, in form satisfactory to Lender, of the security interest of Lender hereunder.

6.14     Use of Proceeds. Borrowers shall use the proceeds of each Credit Extension solely for Borrowers’ business purposes, consistent with Borrowers’ business as conducted on the Closing Date.

6.15     Intellectual Property. Each Loan Party shall maintain adequate licenses, Patents, Copyrights, Trademarks and other Intellectual Property to continue its business as heretofore conducted by it or as hereafter conducted by it unless the failure to maintain any of the foregoing could not reasonably be expected to have a Material Adverse Effect.

6.16     Patriot Act, Bank Secrecy Act and Office of Foreign Assets Control. As required by federal law and the Lender’s policies and practices, Lender may need to obtain, verify and record certain customer identification information and documentation in connection with opening or maintaining accounts, or establishing or continuing to provide services and Borrowers agree to provide such information. In addition, and without limiting the foregoing sentence, Borrowers shall (a) ensure, and cause each other Loan Party to ensure, that no Person who owns a controlling interest in or otherwise controls any Borrower or such other Loan Party is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by OFAC, the Department of the Treasury or included in any Executive Orders, (b) not use or permit the use of the proceeds of the Loans to violate any of the foreign asset control regulations of OFAC or any enabling statute or Executive Order relating thereto, and (c) comply, and cause each Subsidiary to comply, with all applicable bank secrecy act laws and regulations.

6.17     [Reserved].

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6.18     Creation of Subsidiaries. If any Loan Party creates any new Subsidiary, Borrowers shall promptly notify Lender of the creation of such new Subsidiary and take all such action as may be reasonably required by Lender to cause such new Subsidiary, if a domestic Subsidiary, to guarantee the Obligations of Borrowers under the Loan Documents and to grant a continuing pledge and security interest in and to the collateral of such new domestic Subsidiary (substantially as described on Exhibit B hereto), and the applicable Borrower (or the applicable Subsidiary) shall grant and pledge to Lender a perfected security interest in 100% of the Shares of such new Subsidiary, if a domestic Subsidiary or in 65% of the Shares of such new Subsidiary, if such new Subsidiary is a foreign Subsidiary.

6.19     Further Assurances. At any time and from time to time each Loan Party shall execute and deliver such further instruments and take such further action as may reasonably be requested by Lender to effect the purposes of this Agreement.

7.     NEGATIVE COVENANTS.

Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Lender may have any commitment to make any Credit Extensions, such Borrower will not do any of the following:

7.1     Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any other Loan Party to Transfer, all or any part of its business or property, or, subject to Section 6.6, move cash balances on deposit with Lender to accounts opened at another financial institution, other than Permitted Transfers.

7.2     Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year. Change its name or the Borrower State or relocate its chief executive office without 30 days prior written notification to Lender; permit any other Loan Party to change its name or state of organization or relocate its chief executive office without 30 days’ prior written notification to Lender; replace, or permit any other Loan Party to replace, its chief executive officer or chief financial officer (i) without prompt notice to Lender and (ii) unless a replacement for such officer is approved by such Person’s Board of Directors and engaged by such Person within ninety (90) days after such change; engage in any business, or permit any of the other Loan Parties to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by such Persons; or change or permit any other Loan Party to change, its fiscal year end.

7.3     Mergers or Acquisitions. Without Lender’s prior consent, which consent shall not be unreasonably withheld, conditioned or delayed, enter into any merger or consolidation or permit any other Loan Party to do so; purchase the stock, other equity interests or all or a material portion of the assets of any Person or division of such Person or permit any other Loan Party to do so; or enter into any other transaction outside the ordinary course of such Borrower’s or any other Loan Party’s business, including any purchase, redemption or retirement of any shares of any class of its stock or any other equity interest, and any issuance of any shares of, or warrants or other rights to receive or purchase any shares of, any class of its stock or any other equity interest. Without Lender’s prior consent, which consent shall not be unreasonably withheld, conditioned or delayed, no Loan Party shall form any Subsidiaries or enter into any joint ventures or partnerships with any other Person.

7.4     Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any other Loan Party to do so, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on such Borrower or any other Loan Party an obligation to prepay any Indebtedness, except Indebtedness to Lender.

7.5     Encumbrances. Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any other Loan Party to do so, except for Permitted Liens, or covenant to any other Person that such Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property, or permit any other Loan Party to do so.

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7.6     Distributions. Declare or pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock or other applicable equity interest in such Borrower, or permit any other Loan Party to do so. Notwithstanding the foregoing to the contrary, (a) so long as such Borrower is a “pass-through” tax entity for United States federal income tax purposes, provided no Default Period is in effect, and after first providing such supporting documentation as the Lender may request (including the personal state and federal tax returns (and all schedules thereto) of each Owner) net of any prior year loss carry-forward, such Borrower (and any applicable Parent) may pay Pass-Through Tax Liabilities; and (b) so long as the Payment Conditions have been satisfied, any Borrower may make lawful dividends or distributions to its Owners.

7.7     Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any other Loan Party to do so, other than Permitted Investments, or maintain or invest any of its property with a Person other than Lender or Lender’s Affiliates or permit any other Loan Party to do so unless such Person has entered into a control agreement with Lender, in form and substance satisfactory to Lender, or suffer or permit any other Loan Party to be a party to, or be bound by, an agreement that restricts such Loan Party from paying dividends or otherwise distributing property to such Borrower.

7.8     Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of such Borrower, or permit any other Loan Party to do so, except for transactions that are in the ordinary course of such Loan Party’s business, upon fair and reasonable terms that are no less favorable to such Loan Party than would be obtained in an arm’s length transaction with a non-affiliated Person.

7.9     Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any other Loan Party to make any such payment, except in compliance with the terms of such Subordinated Debt and the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision of any document evidencing such Subordinated Debt, except in compliance with the terms of the subordination agreement relating to such Subordinated Debt, or amend any provision affecting Lender’s rights contained in any documentation relating to the Subordinated Debt without Lender’s prior written consent.

7.10     Location of Equipment. Store any Equipment with a bailee, warehouseman, or similar third party unless the third party has been notified of Lender’s security interest and Lender has received a bailment agreement or other acknowledgment from the third party that it is holding or will hold such Equipment for Lender’s benefit, which bailment agreement or other acknowledgment shall be in form and substance satisfactory to Lender in its Permitted Discretion. Except for such other locations as Lender may approve in writing, each Loan Party shall keep the Equipment only at the location set forth in Section 10 and such other locations as are listed on the Disclosure Schedules or of which Borrowers give Lender prior written notice. No Loan Party shall (a) permit any Equipment to become a Fixture to real property unless such real property is owned by such Loan Party and is subject to a mortgage in favor of Lender, or if such real estate is leased, is subject to a landlord’s agreement in favor of Lender on terms acceptable to Lender, or (b) permit any Equipment to become an accession to any other personal property unless such personal property is subject to a first priority lien in favor of Lender.

7.11     No Investment Company; Margin Regulation. Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose, or permit any other Loan Party to do so.

7.12     Capital Expenditure Limitations. Borrowers shall not make any Capital Expenditure if, after giving effect to such Capital Expenditure, the aggregate cost of all Capital Expenditures made by Borrowers, collectively, in any Fiscal Year would exceed $2,500,000. For Fiscal Year 2018 and each subsequent Fiscal Year, in addition to making Capital Expenditures in an aggregate amount of up to $2,500,000 for such Fiscal Year, Borrowers may carry over to, and use in, such Fiscal Year any unused permitted Capital Expenditures allocation from the immediately preceding Fiscal Year.

7.13     Settling of Accounts. During any Default Period, no Loan Party shall settle or adjust any Account without the consent of Lender.

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7.14     Article 8. Borrowers shall not permit any of the operating agreements, limited partnership agreements or other agreements governing any of its equity interests, or the equity interests of any of their respective Subsidiaries, to provide that the equity interests governed thereby are securities governed by Article 8 of the UCC as in effect in any relevant jurisdiction or permit such equity interests to be certificated.

7.15     ERISA. Except as disclosed to the Lender in writing prior to the date hereof, directly or through any ERISA Affiliate, (a) adopt, create, assume or become a party to any Pension Plan, (b) incur any obligation to contribute to any Multiemployer Plan, (c) incur any obligation to provide post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required by law) or (d) amend any Plan in a manner that would materially increase its funding obligations.

8.     EVENTS OF DEFAULT.

The occurrence of any one or more of the following events shall constitute an “Event of Default” under this Agreement:

8.1     Payment Default. If Borrowers fail to pay when due any payment of principal or interest due on the Credit Extensions, or Borrowers fail to pay any fee within three (3) Business Days after the due date thereof, or Borrowers fail to pay any Lender Expenses or any other amount payable hereunder or under any Loan Document within ten (10) Business Days after the due date thereof;

8.2     Covenant Default.

(a)     If the Loan Parties fail to perform any obligation under Section 6 or violate any of the covenants contained in Section 7 of this Agreement; or

(b)     If any Loan Party fails or neglects to perform or observe any other term, provision, condition or covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between any Loan Party and Lender and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within thirty (30) days after any Borrower receives notice thereof or any officer of a Borrower becomes aware thereof;

8.3     Defective Perfection. If Lender shall receive at any time following the Closing Date an SOS Report indicating that except for Permitted Liens, Lender’s Lien on the Collateral is not prior to all other security interests or Liens of record reflected in the report;

8.4     Levy, Seizure or Attachment. If any material portion of any Loan Party’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) Business Days, or if any Loan Party is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of any Loan Party’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of any Loan Party’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within five (5) days after the applicable Loan Party receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by the applicable Loan Party (provided that no Credit Extensions will be made during such cure period);

8.5     Insolvency. If any Loan Party becomes insolvent, or if an Insolvency Proceeding is commenced by any Loan Party, or if an Insolvency Proceeding is commenced against any Loan Party and is not dismissed or stayed within sixty (60) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);

8.6     Other Agreements. If there is a default or other failure to perform in any agreement to which any Loan Party is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $100,000 or that would reasonably be expected to have a Material Adverse Effect;

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8.7     Subordinated Debt. If any Loan Party makes any payment on account of Subordinated Debt, except to the extent the payment is allowed under any subordination agreement entered into with Lender relating to such Subordinated Debt;

8.8     Judgments. If one or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least $100,000 (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against any Loan Party and the same are not within ten (10) Business Days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order or decree);

8.9     Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Lender by any Responsible Officer pursuant to this Agreement or to induce Lender to enter into this Agreement or any other Loan Document;

8.10     Material Adverse Effect. If a Material Adverse Effect occurs, as determined by Lender in its Permitted Discretion or if any event occurs which, in Lender’s Permitted Discretion, could have a Material Adverse Effect;

8.11     Guaranty. If any guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for any reason to be in full force and effect, or any guarantor fails to perform any obligation under any Guaranty or any security agreement securing any Guaranty (collectively, the “Guaranty Documents”), or any event of default occurs under any Guaranty Document or any guarantor revokes or purports to revoke a Guaranty, or any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Lender in connection with any Guaranty Document, or if any of the circumstances described in Sections 8.3 through 8.8 occur with respect to any guarantor; or

8.12     Change in Control. If any Change in Control occurs.

9.     LENDER’S RIGHTS AND REMEDIES.

9.1     Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Lender may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrowers:

(a)     Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Lender);

(b)     Demand that Borrowers (i) deposit cash with Lender in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit, and Borrowers shall promptly deposit and pay such amounts;

(c)     Cease advancing money or extending credit to or for the benefit of Borrowers under this Agreement or under any other agreement between any Borrower and Lender;

(d)     settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order Lender considers advisable in Lender’s Permitted Discretion;

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(e)     Make such payments and do such acts as Lender considers necessary or reasonable to protect its security interest in the Collateral. Borrowers agree to assemble the Collateral if Lender so requires, and to make the Collateral available to Lender as Lender may designate. Borrowers authorize Lender to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Lender’s determination appears to be prior or superior to its Lien and to pay all expenses incurred in connection therewith. With respect to any of Borrowers’ owned premises, Borrowers hereby grant Lender a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Lender’s rights or remedies provided herein, at law, in equity, or otherwise;

(f)     Set off and apply to the Obligations any and all (i) balances and deposits of Borrowers held by Lender, and (ii) indebtedness at any time owing to or for the credit or the account of any Borrower held by Lender;

(g)     Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Lender is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, each Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Lender’s exercise of its rights under this Section 9.1, each Borrower’s rights under all licenses and all franchise agreements shall inure to Lender’s benefit;

(h)     Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers’ premises) as Lender determines is commercially reasonable in Lender’s Permitted Discretion, and apply any proceeds to the Obligations in whatever manner or order Lender deems appropriate in Lender’s Permitted Discretion. Lender may sell the Collateral without giving any warranties as to the Collateral. Lender may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Lender sells any of the Collateral upon credit, Borrowers will be credited only with payments actually made by the purchaser, received by Lender, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Lender may resell the Collateral and Borrowers shall be credited with the proceeds of the sale;

(i)     Lender may credit bid and purchase at any public sale;

(j)     Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of any Borrower, any guarantor or any other Person liable for any of the Obligations; and

(k)     Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrowers or any Guarantor.

Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

9.2     Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, each Borrower hereby irrevocably appoints Lender (and any of Lender’s designated officers, or employees) as such Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Lender’s security interest in the Accounts; (b) endorse such Borrower’s name on any checks or other forms of payment or security that may come into Lender’s possession, cash or deposit such checks or other items of payment or security, and apply to the Obligations all proceeds of such checks or other items; (c) sign such Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral and apply all cash sale proceeds to the Obligations; (e) make, settle, and adjust all claims under and decisions with respect to such Borrower’s policies of insurance and apply to the Obligations all amounts received by Lender pursuant to such policies; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Lender determines to be reasonable, and apply to the Obligations all amounts received by Lender in connection with any such settlement and adjustment; and (g) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral. The appointment of Lender as each Borrower’s attorney in fact, and each and every one of Lender’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Lender’s obligation to provide advances hereunder is terminated.

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9.3     Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default, Lender may notify any Person owing funds to any Borrower of Lender’s security interest in such funds and verify the amount of such Account. Each Borrower shall collect all amounts owing to such Borrower for Lender, receive in trust all payments as Lender’s trustee, and immediately deliver such payments to Lender in their original form as received from the account debtor, with proper endorsements for deposit.

9.4     Lender Expenses. If Borrowers fail to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Lender may do any or all of the following after reasonable notice to Borrowers: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Lender deems necessary to protect Lender from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Lender deems prudent in Lender’s Permitted Discretion. Any amounts so paid or deposited by Lender shall constitute Lender Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Lender shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default under this Agreement.

9.5     Lender’s Liability for Collateral. Lender has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrowers.

9.6     No Obligation to Pursue Others. Lender has no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them and Lender may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Lender’s rights against Borrowers. Each Borrower waives any right it may have to require Lender to pursue any other Person for any of the Obligations.

9.7     Remedies Cumulative. Lender’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default on Borrowers’ part shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it. No waiver by Lender shall be effective unless made in a written document signed on behalf of Lender and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrowers expressly agree that this Section 9.7 may not be waived or modified by Lender by course of performance, conduct, estoppel or otherwise.

9.8     Demand; Protest. Except as otherwise provided in this Agreement, each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.

10.     NOTICES.

Unless otherwise provided in this Agreement, all notices, demands and other communications by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements, compliance certificates and other informational documents which may be sent by first-class mail, postage prepaid or e-mail) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, to Borrower or to Lender, as the case may be, at its addresses set forth below:

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If to Borrower:                   c/o ENSERVCO CORPORATION
501 S. Cherry Street, Suite 1000
Denver, CO 80246
Attn:     Ian Dickinson
E-mail: idickinson@enservco.com

If to Lender:                       EAST WEST BANK
135 N. Los Robles Avenue, 6^th Floor
Pasadena, CA 91101
Attn:     Nima Rassouli
E-mail: nima.rassouli@eastwestbank.com

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

11.     CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL PREFERENCE.

11.1     Governing Law and Venue. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrowers and Lender hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Los Angeles, State of California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Lender from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Lender. Each Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and each Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Each Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Administrative Borrower at the address set forth in, or subsequently provided by Administrative Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon Administrative Borrower’s actual receipt thereof.

11.2     JURY TRIAL WAIVER. BORROWERS AND LENDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

11.3     JUDICIAL REFERENCE PROVISION. WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Los Angeles County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Los Angeles County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential, and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Los Angeles County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure§ 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

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12.     GENERAL PROVISIONS.

12.1     Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by any Borrower without Lender’s prior written consent, which consent may be granted or withheld in Lender’s sole discretion. Lender shall have the right without the consent of or notice to Borrowers to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Lender’s obligations, rights and benefits hereunder.

12.2     Indemnification. Borrowers shall defend, indemnify and hold harmless Lender and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement or any other Loan Document; and (b) all losses or Lender Expenses in any way suffered, incurred, or paid by Lender, its officers, employees and agents as a result of or in any way arising out of, transactions between Lender and Borrowers whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Lender’s gross negligence or willful misconduct.

12.3     Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.

12.4     Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

12.5     Correction of Loan Documents. Lender may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties.

12.6     Amendments in Writing, Integration. All amendments to or termination of this Agreement or the other Loan Documents must be in writing and signed by the parties to this Agreement or to such other Loan Document, as applicable. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the other Loan Documents.

12.7     Counterparts; Electronic Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of a signature page of this Agreement or any of the Loan Documents by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.

12.8     Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Lender has any obligation to make any Credit Extension to Borrowers. The obligations of Borrowers to indemnify Lender with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Lender have run.

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12.9     Confidentiality. In handling any confidential information, Lender and all employees and agents of Lender shall exercise the same degree of care that Lender exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of Lender in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrowers and have delivered a copy to Borrowers, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Lender, (v) to Lender’s accountants, auditors and regulations, and (vi)  as Lender may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Lender when disclosed to Lender, or becomes part of the public domain after disclosure to Lender through no fault of Lender; or (b) is disclosed to Lender by a third party, provided Lender does not have actual knowledge that such third party is prohibited from disclosing such information. Notwithstanding the foregoing, Borrowers hereby consent to Lender’s publishing a tombstone or similar advertising material relating to the financial transaction contemplated by this Agreement.

12.10     Patriot Act. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account, all in compliance with the Patriot Act. WHAT THIS MEANS FOR YOU: when you open an account, we will ask your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

12.11     No Consequential Damages. No party to this Agreement or any other Loan Document, nor any agent or attorney of such party or Lender, shall be liable to any other party to this Agreement or any other Person on any other theory of liability of any special, indirect, consequential or punitive damages.

12.12     Joint and Several Liability. Each Borrower agrees that it is jointly and severally liable for, and absolutely and unconditionally guarantees to Lender the prompt payment and performance of, all Obligations. Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and performance and not of collection, that such obligations shall not be discharged until payment in full, in cash, of the Obligations and termination of all of Lender’s obligations hereunder to extend credit (such payment and termination, “Full Payment”), and that such obligations are absolute and unconditional, irrespective of (a) the genuineness, validity, regularity, enforceability, subordination or any future modification of, or change in, any Obligations or Loan Document, or any other document, instrument or agreement to which any Obligor is or may become a party or be bound; (b) the absence of any action to enforce this Agreement (including this Section) or any other Loan Document, or any waiver, consent or indulgence of any kind by Lender with respect thereto; (c) the existence, value or condition of, or failure to perfect a Lien or to preserve rights against, any security or guaranty for any Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any security or guaranty); (d) the insolvency of any Obligor; (e) any election by Lender in an Insolvency Proceeding for the application of Section 1111(b)(2) of the United States Bankruptcy Code; (f) any borrowing or grant of a Lien by any other Borrower, as debtor-in-possession under Section 364 of the United States Bankruptcy Code or otherwise; (g) the disallowance of any claims of Lender against any Obligor for the repayment of any Obligations under Section 502 of the United States Bankruptcy Code or otherwise; or (h) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except Full Payment.

12.13     Waivers.

(a)     Each Borrower expressly waives all rights that it may have now or in the future under any statute, at common law, in equity or otherwise, to compel Lender to marshal assets or to proceed against any Obligor, other Person or security for the payment or performance of any Obligations before, or as a condition to, proceeding against such Borrower. Each Borrower waives all defenses available to a surety, guarantor or accommodation co-obligor other than Full Payment and waives, to the maximum extent permitted by law, any right to revoke any guaranty of Obligations as long as it is a Borrower. It is agreed among each Borrower and Lender that the provisions of Sections 12.12 through 12.17 are of the essence of the transaction contemplated by the Loan Documents and that, but for such provisions, Lender would decline to make Revolving Advances. Each Borrower acknowledges that its guaranty pursuant to Section 12.12 is necessary to the conduct and promotion of its business, and can be expected to benefit such business.

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(b)     Lender may, in its discretion, pursue such rights and remedies as it deems appropriate, including realization upon Collateral or any real estate by judicial foreclosure or nonjudicial sale or enforcement, without affecting any rights and remedies hereunder. If, in taking any action in connection with the exercise of any rights or remedies, Lender shall forfeit any other rights or remedies, including the right to enter a deficiency judgment against any Borrower or other Person, whether because of any applicable Laws pertaining to “election of remedies” or otherwise, each Borrower consents to such action and waives any claim based upon it, even if the action may result in loss of any rights of subrogation that any Borrower might otherwise have had. Any election of remedies that results in denial or impairment of the right of Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower’s obligation to pay the full amount of the Obligations. Each Borrower waives all rights and defenses arising out of an election of remedies, such as nonjudicial foreclosure with respect to any security for Obligations, even though that election of remedies destroys such Borrower’s rights of subrogation against any other Person. Lender may bid Obligations, in whole or part, at any foreclosure, trustee or other sale, including any private sale, and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Lender or any other Person is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral, and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under Section 12.12, notwithstanding that any present or future law or court decision may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale.

12.14     Extent of Liability; Contribution.

(a)     Notwithstanding anything herein to the contrary, each Borrower’s liability under Section 12.12 shall not exceed the greater of (i) all amounts for which such Borrower is primarily liable, as described in clause (c) below, and (ii) such Borrower’s Allocable Amount.

(b)     If any Borrower makes a payment under Section 12.12 of any Obligations (other than amounts for which such Borrower is primarily liable) (a “Guarantor Payment”) that, taking into account all other Guarantor Payments previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payments in the same proportion that such Borrower’s Allocable Amount bore to the total Allocable Amounts of all Borrowers, then such Borrower shall be entitled to receive contribution and indemnification payments from, and to be reimbursed by, each other Borrower for the amount of such excess, ratably based on their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. The “Allocable Amount” for any Borrower shall be the maximum amount that could then be recovered from such Borrower without rendering such payment voidable under Section 548 of the United States Bankruptcy Code or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.

(c)     Section 12.14(a) shall not limit the liability of any Borrower to pay or guarantee Revolving Advances made directly or indirectly to it (including Revolving Advances hereunder to any other Person and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower), Bank Products and Hedging Obligations incurred to support its business, and all accrued interest, fees, expenses and other related Obligations with respect thereto, for which such Borrower shall be primarily liable for all purposes hereunder. Lender shall have the right, at any time in its discretion, to condition Revolving Advances upon a separate calculation of borrowing availability for each Borrower and to restrict the disbursement and use of Revolving Advances to a Borrower based on that calculation.

12.15     Joint Enterprise. Each Borrower has requested that Lender make this credit facility available to Borrowers on a combined basis, in order to finance Borrowers’ business most efficiently and economically. Borrowers’ business is a mutual and collective enterprise, and the successful operation of each Borrower is dependent upon the successful performance of the integrated group. Borrowers believe that consolidation of their credit facility will enhance the borrowing power of each Borrower and ease administration of the facility, all to their mutual advantage. Borrowers acknowledge that Lender’s willingness to extend credit and to administer the Collateral on a combined basis hereunder is done solely as an accommodation to Borrowers and at Borrowers’ request.

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12.16     Subordination. Each Borrower hereby subordinates any claims, including any rights at law or in equity to payment, subrogation, reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against any other Obligor, howsoever arising, to Full Payment.

12.17     Borrower Agent. Each Borrower hereby designates Enservco Corporation (“Administrative Borrower”) as its representative and agent for all purposes under the Loan Documents, including requests for and receipt of Revolving Advances, designation of interest rates, delivery or receipt of communications, delivery of Borrowing Base and financial information and reports, payment of Obligations, requests for waivers, amendments or other accommodations, actions under the Loan Documents (including in respect of compliance with covenants), and all other dealings with Lender. Administrative Borrower hereby accepts such appointment. Lender shall be entitled to rely upon, and shall be fully protected in relying upon, any notice or communication (including any notice of borrowing) delivered by Administrative Borrower on behalf of any Borrower. Lender may give any notice or communication with a Borrower hereunder to Administrative Borrower Agent on behalf of such Borrower. Lender shall have the right, in its discretion, to deal exclusively with Administrative Borrower for all purposes under the Loan Documents. Each Borrower agrees that any notice, election, communication, delivery, representation, agreement, action, omission or undertaking by Administrative Borrower hereunder shall be binding upon and enforceable against such Borrower.

12.18     One Obligation. The Revolving Advances and other Obligations all constitute one general obligation of Borrowers and are secured by Lender’s Lien on all Collateral; provided, however, that Lender shall be deemed to be a creditor of, and the holder of a separate claim against, each Borrower to the extent of any Obligations jointly or severally owed by such Borrower.     

12.19     Publicity. Borrowers hereby authorize Lender to make appropriate announcements of the financial arrangement between Borrowers and Lender, including announcements which are commonly known as tombstones, in such publications and to such selected parties as Lender shall deem appropriate.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written.

BORROWERS:

ENSERVCO CORPORATION,
a Delaware corporation

By:  /s/ Ian Dickinson                                          
Name:     Ian Dickinson                                       
Title:  President and Chief Executive Officer

DILLCO FLUID SERVICE, INC.,
a Kansas corporation

By:    /s/ Ian Dickinson                                        
Name:  Ian Dickinson                                          
Title:    President and Chief Executive Officer

HEAT WAVES HOT OIL SERVICES LLC,
a Colorado limited liability company

By:      /s/ Ian Dickinson                                      
Name:      Ian Dickinson                                      
Title:   Manager and President                             

HEAT WAVES WATER MANAGEMENT, LLC,
a Colorado limited liability company

By:   /s/ Ian Dickinson                                        
Name:    Ian Dickinson                                       
Title:    Manager and President                           

Loan and Security Agreement

LENDER:

EAST WEST BANK,
a California banking corporation

By:   /s/ Nima Michael Rassouli

Name:     Nima Michael Rassouli                    

Title:     Vice President                                     

Loan and Security Agreement

EXHIBIT A

DEFINITIONS

“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to any Loan Party arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by any Loan Party and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by any Loan Party and any Loan Party’s Books relating to any of the foregoing.

“Administrative Borrower” has the meaning assigned in Section 12.17.

“Affiliate” means any Person (a) which directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, any Borrower, (b) which beneficially owns or holds five percent (5%) or more of the voting control or equity interests of any Borrower, or (c) five percent (5%) or more of the voting control or equity interests of which is beneficially owned or held by any Borrower.

“Agreement” has the meaning assigned in the introduction hereto.

“Availability” means, at any time, the amount, if any, by which (a) the lesser of (i) the Borrowing Base and (ii) the Maximum Revolving Advances Limit exceeds (b) the sum of (i) the outstanding principal balance of the Revolving Advances, (ii) the Letter of Credit Obligations and (iii) all applicable Reserves.

“Average Monthly Balance” means the amount derived from adding the ending outstanding balance under the Revolving Line for each day in the month and dividing by the number of days in the month.

“Bank Products” means any service or facility extended to any Loan Party by Lender or any affiliate of Lender, or procured for such Loan Party from any third party by Lender or any affiliate of Lender by means of a full-recourse agreement or other credit support extended to such third party including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, (f) cash management, including controlled disbursement, accounts or services, (g) letters of credit, or (h) Hedging Agreements.

“Blocked Account” means an account established by any Loan Party in Lender’s name maintained with Lender or with another financial institution acceptable to Lender in its Permitted Discretion.

“Borrowing Base” means, at any time, the sum of:

(a) eighty-five percent (85%) of Borrower’s Eligible Accounts;

(b) the lesser of (i) sixty-five percent (65%) of the cost of Eligible Used Equipment and (ii) eighty-five percent (85%) of the appraised net orderly liquidation value of Eligible Used Equipment; and

(c) the lesser of (i) seventy-five percent (75%) of the cost of Eligible New Equipment and (ii) ninety percent (90%) of the net book value of Eligible New Equipment.

“Borrowing Base Certificate” means a certificate in the form attached hereto as Exhibit D, with appropriate insertions.

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.

“Capital Expenditures” means with respect to any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including expenditures for capitalized lease obligations) by the Loan Parties during such period that are required by GAAP, to be included in or reflected by the property, plant and equipment or similar fixed asset accounts (or intangible accounts subject to amortization) on the balance sheet of the Loan Parties.

Exhibit A - 1

“Change in Control” means either: (a) the occurrence of any event (whether in one or more transactions) which results in a transfer of control of or the power to vote more than 25% of the equity interests (on a fully diluted basis) of Enservco; or (b) Enservco shall cease to own 100% of the equity interests of each of its Subsidiaries, other than in connection with a transaction permitted pursuant to this Agreement.

“Closing Date” means the date of this Agreement.

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder, all as in effect from time to time.

“Collateral” means the property described on Exhibit B attached hereto.

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.

“Compliance Certificate” means a certificate in the form attached hereto as Exhibit E, with appropriate insertions.

“Controlled Group” means a controlled group of corporations as defined in 26 U.S.C. § 1563.

“Copyrights” means, collectively:

(a) All present and future United States registered copyrights and copyright registrations (including all of the exclusive rights afforded a copyright registrant in the United States under 17 U.S.C. Section 106 and any exclusive rights which may in the future arise by act of Congress or otherwise), and all present and future applications for copyright registrations (including applications for copyright registrations of derivative works and compilations) (collectively, “Registered Copyrights”), and any and all royalties, payments and other amounts payable to any Loan Party in connection with Registered Copyrights, together with all renewals and extensions of Registered Copyrights, the right to recover for all past, present and future infringements of Registered Copyrights, and all computer programs and tangible property embodying or incorporating Registered Copyrights, and all other rights of every kind whatsoever accruing thereunder or pertaining thereto; and

(b) All present and future copyrights, Mask Works, computer programs and other rights subject to (or capable of becoming subject to) United States copyright protection which are not registered in the United States Copyright Office (collectively, “Unregistered Copyrights”), whether now owned or hereafter acquired, and any and all royalties, payments, and other amounts payable to Borrower in connection with Unregistered Copyrights, together with all renewals and extensions of Unregistered Copyrights, the right to recover for all past, present and future infringements of Unregistered Copyrights, and all computer programs and all tangible property embodying or incorporating Unregistered Copyrights, and all other rights of every kind whatsoever accruing thereunder or pertaining thereto.

“Credit Extension” means each Revolving Advance, each Letter of Credit issuance, or any other extension of credit by Lender to or for the benefit of Borrowers hereunder.

“Default Period” means the period of time commencing on the day an Event of Default occurs and continuing through the date the Event of Default has been cured or waived.

“Disclosure Schedules” means the schedule of exceptions attached hereto and approved by Lender, if any.

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

Exhibit A - 2

“EBITDA” means, for any period, the sum of the Loan Parties’: (a) net income after taxes for such period; plus (b) Interest Expense for such period; plus (c) income tax expense for such period; plus (d) depreciation and amortization for such period; plus or minus (e) any other non-cash charges or gains which have been subtracted or added in calculating net income after taxes for such period (e.g. stock-based compensation and warrants issued); plus or minus, (f) any extraordinary, unusual or non-recurring items decreasing or increasing net income for such period (e.g. severance and transition costs related to executive officers, gain on sale of investments, loss on disposal of assets or patent litigation and defense costs), all on a consolidated basis; provided, however, EBITDA shall not include the results of any foreign Subsidiary of any Loan Party except to the extent that such foreign Subsidiary has repatriated its net income to Borrowers.

“Eligible Account” means all Accounts owing to any Borrower which are acceptable to Lender, in its Permitted Discretion, for lending purposes, net of any discounts, credits, or allowances, but excluding any Account having any of the following characteristics:

(a) Accounts which remain unpaid for more than the earlier of (i) ninety (90) days after their invoice date or (ii) sixty (60) days after their due date;

(b) Accounts owing by a single Account Debtor if fifty percent (50%) of the balance owing by such Account Debtor is ineligible as a result of clause (a) above;

(c) Accounts which are not due and payable within sixty (60) days after their invoice dates;

(d) Accounts with respect to which the Account Debtor is a director, officer, employee or agent of a Borrower or is a Parent, a Subsidiary or an Affiliate of a Borrower;

(e) Accounts with respect to which payment by the Account Debtor is or becomes conditional upon the Account Debtor’s approval of the related Goods or services, or is otherwise subject to any repurchase obligation or return right, as with sales made on a, guaranteed sale, sale on approval, sale or return or consignment basis;

(f) Accounts which are owed by an Account Debtor which (i) does not maintain its chief executive office in the United States of America or Canada, or (ii) is not organized under the laws of the United States of America, any State of the United States of America, Canada or any Province of Canada unless, in any case, such Account is backed by a letter of credit acceptable to Lender which is in the possession of, has been assigned to and is directly drawable by Lender;

(g) Accounts with respect to which the Account Debtor is (i) the United States of America or any department, agency or instrumentality thereof, unless Borrower assigns its right to payment of such Accounts to Lender in accordance with the Assignment of Claims Act of 1940, as amended, or (ii) any country other than the United States of America or any department, agency or instrumentality thereof;

(h) The face amount of any Accounts with respect to which the applicable Borrower is or may become liable to the Account Debtor for Goods sold or services rendered by such Account Debtor to such Borrower, but only to the extent of the maximum aggregate amount of such Borrower’s liability to such Account Debtor;

(i) Accounts with respect to which (i) the Goods giving rise thereto have not been shipped and delivered to and accepted as satisfactory by the Account Debtor, or (ii) the services performed have not been completed and accepted as satisfactory by the Account Debtor;

(j) Accounts with respect to which possession or control of the Goods sold is held, maintained or retained by a Borrower, or by any agent or custodian of a Borrower, for the account of or subject to further or future direction from the Account Debtor as with sales made on a bill-and-hold basis (unless the Account Debtor has executed a setoff waiver in form and substance acceptable to Lender);

(k) Accounts which are owing by any Account Debtor involved as a debtor in any bankruptcy or other state or federal insolvency proceeding, whether voluntary or involuntary;

Exhibit A - 3

(l) Accounts which arise in any manner other than the sale of Inventory or services in the ordinary course of a Borrower’s business;

(m) Accounts with respect to which the Account Debtor is located in a state which requires the applicable Borrower, as a precondition to commencing or maintaining an action in the courts of that state, either to (i) receive a certificate of authority to do business and be in good standing in such state, or (ii) file a notice of business activities report or similar report with such state’ s taxing authority, unless (A) such Borrower has taken one of the actions described in clauses (i) or (ii), (B) the failure to take one of the actions described in either clause (i) or (ii) may be cured retroactively by such Borrower at its election, without incurring material fees, charges or penalties, or (C) such Borrower has proven, to Lender’s satisfaction, that it is exempt from any such requirements under any such state’s laws;

(n) Accounts (i) with respect to which any of the representations and warranties contained in this Agreement are untrue; or (ii) which violate any of the covenants of Borrowers contained in this Agreement;

(o) Accounts which are not subject to a first priority Lien in favor of Lender or which are subject to any other claim, Lien, security interest or encumbrance whatsoever, other than Permitted Lien;

(p) Accounts for which the Account Debtor has paid a deposit to a Borrower, but only to the extent of such deposit;

(q) Accounts for which Borrowers have failed to deliver to Lender such documents as Lender may have requested pursuant to Section 6.1 hereof;

(r) Accounts which, when added to a particular Account Debtor’s other indebtedness to Borrowers, exceeds twenty-five percent (25%) of all Accounts of Borrowers (except that Accounts excluded from Eligible Accounts solely by reason of this clause (r) shall be Eligible Accounts to the extent of such credit limit);

(s) Accounts which are subject to markdowns, discounts, rebates, credits or other items reducing accounts receivable;

(t) Accounts that constitute retainage receivables;

(u) Accounts as to which Lender, at any time or times hereafter, determines in its Permitted Discretion that the prospect of payment or performance by the Account Debtor is or will be impaired; and

(v) Accounts that Lender in its Permitted Discretion deems to be ineligible for any reason.

In calculating delinquent portions of Accounts under clauses (a) and (b) above, credit balances more than 90 days old will be excluded.

“Eligible Equipment” means all rental Equipment of Borrowers which is acceptable to Lender, in its Permitted Discretion, for lending purposes, but excluding any Equipment having any of the following characteristics:

(a) it is not owned by a Borrower, a Borrower does not have the right to subject it to a security interest in favor of Lender or it is not subject to a first priority perfected Lien in favor of Lender, free of any other claim, Lien, security interest or encumbrance whatsoever, other than Permitted Liens;

(b) it is not located in the United States;

(c) it is stored with a bailee, consignee, warehouseman, mechanic or similar party without Lender’s prior written approval or the applicable Borrower has not caused any such bailee, consignee, warehouseman, mechanic or similar party to issue and deliver to Lender, in form and substance acceptable to Lender, an appropriate bailee’s agreement or collateral access agreement, such Uniform Commercial Code financing statements, waivers and other documents as Lender shall require;

Exhibit A - 4

(d) it is stored at a leased location and Lender has not received a landlord lien waiver or subordination agreement, in form and substance acceptable to Lender, with respect to such location or established a Reserve against Availability in the amount of three (3) months’ rent for such location;

(e) Lender has determined in its Permitted Discretion, in accordance with Lender’s customary business practices, that it is not acceptable due to age, type, quality, or quantity;

(f) it is Equipment (i) with respect to which any of the representations and warranties contained in this Agreement are untrue; or (ii) which violates any of the covenants of Borrowers contained in this Agreement; or

(g) it is Equipment that Lender in its Permitted Discretion deems to be ineligible for any other reason.

“Eligible New Equipment” means, as of any date of determination, Eligible Equipment purchased by a Borrower no more than 180 days prior to such date.

“Eligible Used Equipment” means all Eligible Equipment that is not Eligible New Equipment.

“Embargoed Person” means (a) any country or territory that is the target of a sanctions program administered by OFAC or (b) any Person that (i) is or is owned or controlled by a Person publicly identified on the most current list of “Specially Designated Nationals and Blocked Persons” published by OFAC, (ii) is the target of a sanctions program or sanctions list (A) administered by OFAC, or (B) under the Iran Sanctions Act, as amended, section 1245 of the National Defense Authorization Act for Fiscal Year 2012 or Executive Order 13590 “Authorizing the Imposition of Certain Sanctions with respect to the Provision of Services, Technology or Support for Iran’s Energy and Petro-chemical Sectors,” effective November 21, 2011 (collectively, “Sanctions”) or (iii) resides, is organized or chartered, or has a place of business in a country or territory that is the subject of a sanctions program administered by OFAC.

“Enservco” has the meaning assigned in the introduction to this Agreement.

“Environmental Laws” means all federal, state, district, local and foreign laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to any Loan Party’s business or facilities owned or operated by any Loan Party, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.

“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which any Loan Party has any interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, modified or restated from time to time.

“ERISA Affiliate” means any Person who for purposes of Title IV of ERISA is a member of a Borrower’s Controlled Group, or under common control with any Loan Party, within the meaning of Section 414 of the Code.

“Event of Default” has the meaning assigned in Section 8.

“Excess Availability” means, as of any date of determination by Lender, Availability less the sum of (a) all unpaid fees and Lender Expenses, (b) all accounts payable which remain unpaid more than sixty (60) days after the due dates thereof unless Borrowers have made other arrangements satisfactory to Lender for the payment of such accounts payable, and (c) any book overdraft relating to accounts payable more than sixty (60) days past due.

Exhibit A - 5

“Excluded Swap Obligation” means, with respect to any Loan Party, any Swap Obligation if, and to the extent that, all or a portion of the guarantee of such Loan Party of, or the grant by such Loan Party of a security interest to secure, such Swap Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act at the time the guarantee of or grant of security interest by such Loan Party becomes effective with respect to such related Swap Obligation (such determination being made after giving effect to any applicable keepwell, support, or other agreement for the benefit of the applicable Loan Party).

“Excluded Taxes” means, with respect to Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder or under any other Loan Document, any taxes on or measured by overall net income (however denominated), franchise taxes (in lieu of net income taxes) and branch profits taxes, in each case imposed on it by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of Lender, in which its applicable lending office is located.

“Fiscal Year” means each twelve (12) month accounting period of the Loan Parties, which ends on December 31^st of each year.

“Fixed Charge Coverage Ratio” means, as of any date of determination, for any period ending on such date, for Enservco and its Subsidiaries on a consolidated basis, the ratio of: (a) the sum of (without duplication): (i) EBITDA for such period; minus (ii) Capital Expenditures made and not financed for such period; minus (iii) all payments in cash for Taxes made for such period; minus (iv) cash dividends paid or accrued and cash withdrawals paid or accrued to Owners or other Affiliates for such period; to (b) Fixed Charges for such period.

“Fixed Charges” means, for any period, for Enservco and its Subsidiaries on a consolidated basis without duplication, the sum of: (a) scheduled payments of principal; plus (b) Interest Expense but excluding non-cash payment-in-kind interest; plus (c) any pre-payments of Indebtedness.

“GAAP” means United States generally accepted accounting principles, consistently applied, as in effect on the Closing Date.

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra national bodies such as the European Union or the European Central Bank).

“Guarantor” means each Person that guarantees the Obligations.

“Hazardous Materials” means any hazardous, toxic or dangerous substance, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law).

“Hedging Agreement” means any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rate, currency exchange rates or commodity prices.

“Hedging Obligation” means, with respect to any Person, any liability of such Person under any Hedging Agreements. The amount of any Person’s obligations in respect of any Hedging Obligation shall be deemed to be the incremental obligations that would be reflected in the financial statements of such Person in accordance with GAAP.

Exhibit A - 6

“Indebtedness” of a Person means at any time the sum at such time of: (a) indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (b) any obligations of such Person in respect of letters of credit, banker’s or other acceptances or similar obligations issued or created for the account of such Person; (c) lease indebtedness, liabilities and other obligations of such Person with respect to capital leases; (d) obligations of third parties which are being guarantied or indemnified against by such Person or which are secured by the property of such Person; (e) any obligation of such Person under an employee stock ownership plan or other similar employee benefit plan; (f) any obligation of such Person or a commonly controlled entity to a multi-employer plan; and (g) any obligations, liabilities or indebtedness, contingent or otherwise, under or in connection with, transactions, agreements or documents now existing or hereafter entered into, which provides for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices; but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with customary trade practices) or which are being disputed in good faith by such Person and for which adequate reserves are being provided on the books of such Person in accordance with GAAP consistently applied.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“Intellectual Property” has the meaning assigned in Section 5.9.

“Interest Expense” means, for any period, for Enservco and its Subsidiaries on a consolidated basis, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses (excluding any and all closing fees, costs and expenses owing to Lender and associated with this transaction) in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets during such period, plus (b) all payments made under interest rate Hedging Agreements during such period to the extent not included in clause (a) of this definition, minus (c) all payments received under interest rate Hedging Agreements during such period, plus (d) the portion of rent expense with respect to such period under capital leases that is treated as interest in accordance with GAAP.

“Interest Period” means, for any LIBOR Loan, the period commencing on the date of such LIBOR Loan, or on the conversion/continuation date on which such LIBOR Loan is converted into or continued as a LIBOR Loan, and ending on the date that is one (1), three (3) or six (6) months thereafter, or such other period upon which Lender and Borrower may agree, in each case as Borrower may elect in the applicable Payment/Advance Form or LIBOR Loan Continuation Certificate; provided, however, that (a) no Interest Period with respect to any LIBOR Loan shall end later than the Revolving Maturity Date, (b) the last day of an Interest Period shall be determined in accordance with the practices of the LIBOR interbank market as from time to time in effect, (c) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of a LIBOR Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day, (d) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period, and (e) interest shall accrue from and include the first Business Day of an Interest Period but exclude the last Business Day of such Interest Period.

“Investment” means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

Exhibit A - 7

“Laws” means all ordinances, statutes, rules, regulations, orders, injunctions, writs, or decrees of any Governmental Authority.

“Lender” has the meaning assigned in the introduction to this Agreement.

“Lender Expenses” means all documented costs or expenses (including all documented attorneys’ fees and expenses, whether generated in-house or by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; Collateral field examination fees; and Lender’s documented attorneys’ fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), at any time, including before, during and after an Insolvency Proceeding, whether or not suit is brought.

“Letter of Credit” means a commercial or standby letter of credit or similar undertaking issued by Lender at Borrower’s request in accordance with Section 2.1(b)(iv).

“Letter of Credit Obligations” means, as of any date of determination, the sum of (a) the aggregate undrawn face amount of all Letters of Credit, plus (b) the aggregate unreimbursed amount of all drawn Letters of Credit not already converted to Revolving Advances hereunder.

“Letter of Credit Sublimit” means a sublimit for Letters of Credit under the Revolving Line not to exceed $3,000,000.

“LIBOR” means, for any Interest Period for any Advance to be made, continued as or converted into a LIBOR Loan, the rate of interest per annum determined by Lender’s Treasury Desk to be the rate for deposits in Dollars for such Interest Period which appears on the Bloomberg Screen B TMM Page under the heading “LIBOR Fix” as of 11:00 a.m. (London time) on the second Business Day prior to the start of such Interest Period (adjusted for any and all assessments, surcharges and reserve requirements). If such interest rate shall cease to be available from the above-described Bloomberg report, the London interbank offered rate shall be determined from such financial reporting service as Lender shall reasonably determine and use with respect to its other loan facilities on which interest is determined based on the London interbank offered rate.

“LIBOR-Based Rate” means, for any Interest Period in respect of any LIBOR Loan, an interest rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) equal to LIBOR for such Interest Period divided by 1 minus the Reserve Requirement for such Interest Period.

“LIBOR Interest Payment Date” means, with respect to any LIBOR Loan, the last day of each Interest Period applicable to such LIBOR Loan.

“LIBOR Loan” means the portion of any Revolving Advance that bears interest based on the LIBOR-Based Rate.

“LIBOR Loan Continuation Certificate” means a form substantially similar to Exhibit E attached hereto, with appropriate insertions.

“LIBOR Rate Determination Date” means each date for calculating LIBOR for the purpose of determining the interest rate in respect of an Interest Period. The LIBOR Rate Determination Date shall be the second Business Day prior to the first day of the related Interest Period for a LIBOR Loan.

“Lien” means any security interest, mortgage, deed of trust, pledge, lien, charge, judgment lien, assignment, financing statement, encumbrance, title retention agreement or analogous instrument or device, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or subsequently acquired and whether arising by agreement or operation of law, all whether perfected or unperfected.

“Liquidity” means, as of any date of determination, the sum of (a) Excess Availability on such date and (b) the aggregate amount of Borrowers’ collective unrestricted balance sheet cash on such date.

Exhibit A - 8

“Liquidity Testing Trigger Period” means the period (a) commencing on the first day of the month immediately following the last day of any month for which the Fixed Charge Coverage Ratio, determined on the basis of the trailing twelve-month period ended on such last day of the month, is less than 1.20 to 1.00, and (b) continuing until the first day of the month that both (i) no Default Period is in effect and (ii) the Fixed Charge Coverage Ratio as of the last day of the immediately preceding two consecutive months, determined on the basis of the respective trailing twelve-month periods ended on the last day of the immediately preceding two consecutive months, is at least 1.20 to 1.00.

“Loan Advance/Paydown Request Form” shall be a form substantially similar to Exhibit C attached hereto, with appropriate insertions.

“Loan Documents” means, collectively, this Agreement and all other agreements, instruments and documents including promissory notes, guaranties, deeds of trust, mortgages, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements, Hedging Agreements and all other writings heretofore, now or from time to time hereafter executed by or on behalf of any Borrower, any other Loan Party, or any other Person and delivered to Lender or to any parent, affiliate or subsidiary of Lender in connection with the Obligations or the transactions contemplated hereby, as each of the same may be amended, modified or supplemented from time to time.

“Loan Party” means each Borrower, each Guarantor, and each of their respective Subsidiaries, individually, and “Loan Parties” means Borrowers, all Guarantors and all of their respective Subsidiaries, collectively.

“Loan Party’s Books” means all of each Loan Party’s books and records including: ledgers; records concerning such Loan Party’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment containing such information.

“Lock Box” means a post office box designated by, and under the exclusive control of, Lender, at a financial institution acceptable to Lender.

“Mask Works” means mask works or similar rights available for the protection of semiconductor chips, whether now owned or hereafter acquired by any Loan Party.

“Material Adverse Effect” means any of the following: (a) a material adverse change in, or material adverse effect upon, the business, condition (financial or otherwise), operations, performance, or prospects of either: (i) a Borrower; or (ii) the Loan Parties taken as a whole; (b) a material impairment of the ability of either a Borrower or the Loan Parties taken as a whole, to perform their respective obligations under the Loan Documents; or (c) a material adverse effect upon: (i) the legality, validity, binding effect or enforceability of any Loan Document to which any Loan Party is a party against either: (A) a Borrower; or (B) the Loan Parties taken as a whole; or (ii) the rights and remedies of Lender under or in respect of any Loan Document.

“Material Collateral” means Collateral with an aggregate value in excess of $100,000, except for those items specified in the Disclosure Schedules.

“Maximum Revolving Advances Limit” means $30,000,000.

“Multiemployer Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which any Loan Party or any ERISA Affiliate contributes or is obligated to contribute.

“Negotiable Collateral” means all of each Loan Party’s present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, Documents, documents of title, Chattel Paper, and each Loan Party’s Books relating to any of the foregoing.

“Obligations” means, in each case, whether now in existence or hereafter arising: (a) the principal of and interest on (including interest accruing after the filing of any bankruptcy or similar petition) the Revolving Advances, (b) the Letter of Credit Obligations, (c) all liabilities of any Loan Party to Lender or to any affiliate of Lender arising out of or relating to Bank Products, (d) Lender Expenses, (e) Hedging Obligations of any Loan Party, and (f) all other fees and commissions (including documented attorneys’ fees and expenses), charges, indebtedness, loans, liabilities, financial accommodations, obligations, covenants and duties owing by the Loan Parties and each of their respective Subsidiaries to Lender or to any parent, affiliate or subsidiary of Lender of every kind, nature and description, direct or indirect, primary or secondary, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, whether several, joint, or joint and several, and whether or not evidenced by any note, and including any debt, liability or obligation owing from any Loan Party to others that Lender may have obtained by assignment or otherwise, and interest and fees that accrue after the commencement by or against any Loan Party of any bankruptcy or similar proceeding, naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding; provided, however, Obligations shall not include any Excluded Swap Obligation.

Exhibit A - 9

“OFAC” means the United States Office of Foreign Assets Control.

“Other Taxes” means all present or future stamp, intangible or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Overadvance” means that the sum of (i) the aggregate outstanding Revolving Advances on any date and (ii) the aggregate Letter of Credit Obligations on such date exceeds the lesser of (i) the Borrowing Base and (ii) the Maximum Revolving Advances Limit.

“Owner” means with respect to any Borrower, each Person having legal or beneficial title to an ownership interest in such Borrower or a right to acquire such an interest.

“Parent” means any Person now or at any time or times hereafter owning or controlling (alone or with any other Person) at least a majority of the issued and outstanding equity of a Borrower.

“Pass-Through Tax Liabilities” means the amount of state and federal income Tax paid or to be paid by the Owners on taxable income earned by a Borrower and attributable to the Owners as a result of such Borrower’s “pass-through” Tax status, assuming the highest marginal income Tax rate for federal and state (for the state or states in which any Owner is liable for income Taxes with respect to such income) income Tax purposes, after taking into account any deduction for state income taxes in calculating the federal income Tax liability and all other deductions, credits, deferrals and other reductions available to the Owners from or through such Borrower.

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

“Payment Conditions” means, as of any date of determination and in connection with any payment or distribution by a Borrower, that (a) no Event of Default exists or would result therefrom, and (b) after taking such payment or distribution into account, Borrowers would have (x) a Fixed Charge Coverage Ratio (as of the last day of the immediately preceding month, determined on a trailing twelve-month basis) of at least 1.20:1.00 and (y) Excess Availability of at least $3,000,000.

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of any Loan Party or any ERISA Affiliate and covered by Title IV of ERISA.

“Periodic Payments” means all installments or similar recurring payments that Borrowers may now or hereafter become obligated to pay to Lender pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrowers and Lender.

“Permitted Discretion” means a determination made in the exercise of reasonable (from the perspective of an asset-based secured lender) business judgment.

Exhibit A - 10

“Permitted Indebtedness” means:

(a) Indebtedness of the Loan Parties in favor of Lender arising under this Agreement or any other Loan Document;

(b) Hedging Obligations of the Loan Parties in favor of Lender or any Affiliate of Lender;

(c) Indebtedness existing on the Closing Date and disclosed in the Disclosure Schedules;

(d) Indebtedness not to exceed $100,000 in the aggregate in any fiscal year of the Loan Parties secured by a Lien described in clause (d) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;

(e) unsecured Subordinated Debt in an aggregate principal amount outstanding at any time not to exceed $6,500,000;

(f) Indebtedness to trade creditors incurred in the ordinary course of business; and

(g) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon the applicable Loan Party.

“Permitted Investment” means:

(a) Investments existing on the Closing Date disclosed in the Disclosure Schedules;

(b) Investments made pursuant to Hedging Agreements with Lender or any Affiliate of Lender;

(c) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Lender’s certificates of deposit maturing no more than one year from the date of investment therein, and (iv) Lender’s money market accounts;

(d) repurchases of stock from former employees or directors of any Loan Party under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed $100,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to any Loan Party regardless of whether an Event of Default exists;

(e) Investments accepted in connection with Permitted Transfers;

(f) Investments of a Borrower in another Borrower, Investments of Subsidiaries in or to other Subsidiaries or a Borrower and Investments by a Borrower in Subsidiaries that are not Borrowers not to exceed $100,000 in the aggregate in any fiscal year;

(g) Investments not to exceed $100,000 in the aggregate in any fiscal year consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of any Loan Party pursuant to employee stock purchase plan agreements approved by the applicable Loan Party’s Board of Directors;

Exhibit A - 11

(h) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of any Loan Party’s business; and

(i) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (i) shall not apply to Investments of a Borrower in any Subsidiary.

“Permitted Liens” means:

(a) statutory Liens of landlords, carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred in the ordinary course of business and securing amounts not yet due or declared to be due by the claimant thereunder or amounts which are being contested in good faith and by appropriate proceedings and for which the Loan Parties have maintained adequate reserves;

(b) Liens or security interests in favor of Lender;

(c) zoning restrictions and easements, licenses, covenants and other restrictions affecting the use of real property that do not individually or in the aggregate have a Material Adverse Effect;

(d) Liens in connection with purchase money indebtedness with respect to Equipment and capitalized leases otherwise permitted pursuant to this Agreement, provided, that such Liens attach only to the assets the purchase of which was financed by such purchase money indebtedness or which is the subject of such capitalized leases;

(e) Liens set forth in the Disclosure Schedules;

(f) Liens specifically permitted by Lender in writing;

(g) involuntary Liens securing amounts less than $100,000 and which are released or for which a bond acceptable to Lender, in its sole discretion, has been posted within ten (10) days of its creation;

(h) Liens for taxes, assessments and other government charges or levies not yet due and payable or which are being contested in good faith and by appropriate proceedings and for which the Loan Parties have maintained adequate reserves;

(i) Liens consisting of deposits or pledges made in the ordinary course of business in connection with workers’ compensation, unemployment, social security and similar laws, or to secure the performance of statutory obligations, bids, leases, government contracts, trade contracts, and other similar obligations (exclusive of obligations for the payment of borrowed money);

(j) licenses (with respect to intellectual property and other property), leases and subleases granted to third parties and not interfering in any material respect with ordinary conduct of business of the Loan Parties;

(k) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

(l) Liens of collecting banks under the Uniform Commercial Code on items in the course of collection, statutory Liens and rights of set-off of banks;

(m) Liens arising from filing Uniform Commercial Code financing statements relating solely to leases not prohibited by this Agreement;

Exhibit A - 12

(n) pledges and deposits in the ordinary course of business securing insurance premiums or reimbursement obligations or indemnification obligations under insurance policies or self-insurance arrangements, in each case payable to insurance carriers that provide insurance to the Loan Parties;

(o) Liens on cash and cash equivalents on deposit with Lenders and affiliates of Lenders securing obligations owing to such Persons under any treasury, depository, overdraft or other cash management services agreements or arrangements with any Loan Party;

(p) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by any Loan Party in the ordinary course of business and not prohibited by this Agreement; and

(q) judgment Liens in respect of judgments that do not constitute an Event of Default.

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by any Loan Party of:

(a) Inventory in the ordinary course of business;

(b) non-exclusive licenses and similar arrangements for the use of the property of the Loan Parties in the ordinary course of business;

(c) worn-out or obsolete Equipment; or

(d) other assets of any Loan Party that do not in the aggregate exceed $100,000 during any Fiscal Year.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, entity, party or foreign or United States government (whether federal, state, county, city, municipal or otherwise), including any instrumentality, division, agency, body or department thereof.

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of any Loan Party or any ERISA Affiliate.

“Prime Rate” means the variable rate of interest, per annum, set forth in the “Money Rates” section of the Wall Street Journal as the “prime rate,” whether or not such rate is the lowest rate available from Lender.

“Prime Rate Loan” means the portion of any Revolving Advance that bears interest based on the Prime Rate.

“Regulatory Change” means, with respect to Lender, any change on or after the date of this Agreement in United States federal, state, or foreign laws or regulations, or the adoption or making on or after such date of any interpretations, directives, or requests applying to a class of lenders including Lender, of or under any United States federal or state, or any foreign laws or regulations (whether or not having the force of law) by any court, Governmental Authority or monetary authority charged with the interpretation or administration thereof.

“Reportable Event” means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC.

“Reserve” means, as of any date of determination, any amount that Lender, in its Permitted Discretion, may establish from time to time as a reserve against the Borrowing Base or the Maximum Revolving Advances Limit, for any purpose, including (a) to reflect events, conditions, contingencies or risks which affect the assets, business or prospects of the Loan Parties, or the Collateral or its value (including dilution of Accounts at a rate in excess of 5%), or the enforceability, perfection or priority of Lender’s Lien in the Collateral, (b) to reflect Lender’s judgment in its Permitted Discretion that any collateral report or financial information relating to the Loan Parties and furnished to Lender may be incomplete, inaccurate or misleading in any material respect, (c) in respect of any state of facts which does or would with notice or passage of time or both, constitute an Event of Default, (d) to reflect liability, contingent or otherwise, of Lender or any affiliate of Lender to any third party in connection with any Bank Product or (e) to reflect liabilities of any Loan Party to any third Person.

Exhibit A - 13

“Reserve Requirement” means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental, or emergency reserves) are required to be maintained during such Interest Period under Regulation D of the Federal Reserve against “Eurocurrency liabilities” (as such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Lender by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of “LIBOR” or (b) any category of extensions of credit or other assets which include advances hereunder.

“Responsible Officer” means each of the Chief Executive Officer, the Chief Financial Officer and the Controller of any Borrower.

“Revolving Advance” or “Revolving Advances” means a cash advance or cash advances under the Revolving Line.

“Revolving Line” means a Credit Extension consisting of Revolving Advances of up to the Maximum Revolving Advances Limit (inclusive of any amounts outstanding under the Letter of Credit Sublimit).

“Revolving Maturity Date” means August __, 2020.

“SEC” means the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

“Shares” means the issued and outstanding capital stock, membership units or other securities owned or held of record by any Person in any Subsidiary of such Person.

“SOS Reports” means the official reports from the Secretary of State of the state of organization for each Borrower and from all other applicable federal, state or local government offices identifying all current security interests filed against the Collateral and Liens of record as of the date of such report.

“Subordinated Debt” means any debt incurred by any Loan Party that is subordinated in writing to the debt owing by the Loan Parties to Lender on terms reasonably acceptable to Lender.

“Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by a Borrower, either directly or through an Affiliate.

“Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register (other than “intent to use” applications until a verified statement of use is filed with respect to such application) and registrations of the same and like protections, and the entire goodwill of the business of the Loan Parties connected with and symbolized by such trademarks.

Exhibit A - 14

“UCC” means the Uniform Commercial Code as in effect in the State of California, as amended or supplemented from time to time.

“Weekly Collateral Reporting Trigger Period” means the period (a) commencing upon the day that Excess Availability has been less than the greater of $1,500,000 or 5% of the Revolving Line for three (3) consecutive Business Days and (b) continuing until the day that both (i) no Default Period is in effect and (b) Excess Availability has been greater than $3,000,000 or 10% of the Revolving Line for thirty (30) consecutive calendar days.

Exhibit A - 15

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ian Dickinson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Enservco Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 10, 2017	/s/ Ian Dickinson
	Ian Dickinson, Principal Executive Officer, and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert J. Devers, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Enservco Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 10, 2017	/s/ Tucker Franciscus
	Tucker Franciscus, Principal Financial Officer, and Chief Financial Officer

EX-32

 Exhibit 32

ENSERVCO CORPORATION

Certification pursuant to 18 U.S.C. §1350 of the

Chief Executive Officer and Chief Financial Officer

In connection with the Quarterly Report on Form 10-Q (the “Report”) of Enservco Corporation (the “Company”) for the quarter ended June 30, 2017, each of the undersigned Ian Dickinson, the Chief Executive Officer and principal executive officer of the Company, and Tucker Franciscus, the Chief Financial Officer and the principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned’s knowledge and belief:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 10, 2017	/s/ Ian Dickenson
	Ian Dickinson, Principal Executive Officer, and Chief Executive Officer
August 10, 2017	/s/ Tucker Franciscus
	Tucker Franciscus, Principal Financial Officer, and Chief Financial Officer

The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and are not to be incorporated by reference into any filing of Enservco Corporation under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 05, 2017
Document Information [Line Items]
Entity Registrant Name	Enservco Corporation
Entity Central Index Key	0000319458
Trading Symbol	ensv
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		51,067,660
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Current Assets
Cash and cash equivalents	$ 620,635	$ 620,764
Accounts receivable, net	3,950,781	4,814,276
Prepaid expenses and other current assets	783,979	970,802
Inventories	410,017	407,379
Income tax receivable		223,847
Total current assets	5,765,412	7,037,068
Property and Equipment, net	32,270,514	34,617,961
Deferred Tax Asset, net	547,248
Other Assets	506,091	714,967
TOTAL ASSETS	39,089,265	42,369,996
Current Liabilities
Accounts payable and accrued liabilities	3,300,089	3,682,599
Current portion of long-term debt	176,403	318,499
Total current liabilities	3,476,492	4,001,098
Long-Term Liabilities
Senior revolving credit facility	20,445,049	23,180,514
Subordinated debt	2,198,463
Long-term debt, less current portion	278,412	304,373
Deferred income taxes, net		468,565
Warrant liability	306,648
Total long-term liabilities	23,228,572	23,953,452
Total liabilities	26,705,064	27,954,550
Commitments and Contingencies (Note 9)
Stockholders' Equity
Preferred stock, $.005 par value, 10,000,000 shares authorized, no shares issued or outstanding
Common stock, $.005 par value, 100,000,000 shares authorized, 51,171,260 and 51,171,260 shares issued, respectively; 103,600 shares of treasury stock; and 51,067,660 and 51,067,660 shares outstanding, respectively	255,337	255,337
Additional paid-in capital	19,313,457	18,867,702
Accumulated deficit	(7,184,593)	(4,707,593)
Total stockholders' equity	12,384,201	14,415,446
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 39,089,265	$ 42,369,996

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
Preferred stock, par value (in dollars per share)	$ 0.005	$ 0.005
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.005	$ 0.005
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	51,171,260	51,171,260
Common stock, shares outstanding (in shares)	51,067,660	51,067,660
Treasury stock, shares (in shares)	103,600	103,600

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenue
Revenues		$ 7,106,041	$ 4,138,352	$ 20,880,942	$ 12,445,411
Expenses
Cost of Revenue		6,432,753	4,938,181	16,811,157	11,708,266
General and administrative expenses		1,289,616	901,321	2,284,299	1,927,896
Patent litigation and defense costs		24,542	39,446	67,230	75,612
Severance and Transition Costs (1)	[1]	767,755		767,755
Depreciation and amortization		1,674,875	1,617,620	3,251,304	3,365,592
Total operating expenses		10,189,541	7,496,568	23,181,745	17,075,366
Income (loss) from Operations		(3,083,501)	(3,358,216)	(2,300,803)	(4,631,955)
Other Income (Expense)
Interest expense		(499,288)	(500,783)	(1,209,705)	(873,451)
Gain (Loss) on disposals of equipment			233,473		233,473
Other income		36,787	5,010	41,979	7,006
Total other expense		(462,501)	(262,300)	(1,167,726)	(632,972)
Income (Loss) Before Tax Expense		(3,546,001)	(3,620,516)	(3,468,529)	(5,264,927)
Income Tax Benefit (Expense)		1,018,644	1,239,865	991,529	1,808,707
Net Loss		$ (2,527,357)	$ (2,380,651)	$ (2,477,000)	$ (3,456,220)
Earnings (Loss) per Common Share - Basic (in dollars per share)		$ (0.05)	$ (0.06)	$ (0.05)	$ (0.09)
Earnings (Loss) per Common Share – Diluted (in dollars per share)		$ (0.05)	$ (0.06)	$ (0.05)	$ (0.09)
Basic weighted average number of common shares outstanding (in shares)		51,067,660	38,130,160	51,067,660	38,129,910
Add: Dilutive shares assuming exercise of options and warrants (in shares)
Diluted weighted average number of common shares outstanding (in shares)		51,067,660	38,130,160	51,067,660	38,129,910
Well Enhancement [Member]
Revenue
Revenues		$ 5,819,435	$ 2,660,526	$ 17,803,064	$ 9,820,349
Expenses
Cost of Revenue		4,324,845	2,790,690	12,773,391	7,747,146
Depreciation and amortization		1,252,801	1,224,851	2,424,124	2,577,218
Water Transfer Services [Member]
Revenue
Revenues		305,994		1,058,006	31,688
Expenses
Cost of Revenue		616,468	420,316	1,292,256	879,252
Water Hauling [Member]
Revenue
Revenues		880,801	888,892	1,765,806	2,004,440
Expenses
Cost of Revenue		1,192,372	830,872	2,105,057	2,020,876
Depreciation and amortization		167,866	169,396	333,487	338,198
Construction Services [Member]
Revenue
Revenues		99,811	588,934	254,066	588,934
Expenses
Cost of Revenue		67,483	712,326	211,644	712,326
Depreciation and amortization
Unallocated and Other Segments [Member]
Revenue
Revenues
Expenses
Cost of Revenue		231,585	183,977	428,809	348,666
Depreciation and amortization		$ 8,071	$ 7,427	$ 15,897	$ 18,283

[1] Severance and transition costs comprise (i) payments and accruals for future payments to our former Chief Executive Officer and Chielf Financial Officer and (ii) legal fees directly related to separation and transition activities.

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016
OPERATING ACTIVITIES
Net loss		$ (2,477,000)	$ (3,456,220)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		3,251,304	3,365,592
(Gain) loss on disposal of equipment			(233,473)
Deferred income taxes		(878,657)	(1,808,707)
Stock-based compensation		445,755	317,504
Stock issued for services			1,714
Amortization of debt issuance costs and warrants		297,557	74,694
Bad debt expense		49,402	86,949
Changes in operating assets and liabilities
Accounts receivable		729,113	4,247,742
Inventories		(2,638)	(49,834)
Prepaid expense and other current assets		151,843	(35,030)
Income taxes receivable		223,847	(1,400)
Other assets		(32,335)
Accounts payable and accrued liabilities		260,025	(336,229)
Net cash provided by operating activities		2,018,216	2,173,302
INVESTING ACTIVITIES
Purchases of property and equipment		(970,825)	(4,572,318)
Proceeds from disposal of equipment		120,537	321,725
Net cash used in investing activities		(850,288)	(4,250,593)
FINANCING ACTIVITIES
Net line of credit (repayments) borrowings		(2,000,000)	1,911,099
Proceeds from issuance of long-term debt		1,000,000
Repayment of long-term debt		(168,057)	(71,359)
Net cash (used in) provided by financing activities		(1,168,057)	1,839,740
Net Decrease in Cash and Cash Equivalents		(129)	(237,551)
Cash and Cash Equivalents, beginning of period		620,764	804,737
Cash and Cash Equivalents, end of period		620,635	567,186
Supplemental cash flow information:
Cash paid for interest		35,967	38,430
Cash (received) paid for taxes		(222,110)	1,400
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Non-cash proceeds from subordinated debt borrowings (1)	[1]	1,500,000
Non-cash proceeds from revolving credit facility (2)	[2]	814,535	584,029
Non-cash repayment of revolving credit facility (1)	[1]	$ (1,500,000)

[1] As discussed in more detail in Note 5, during the six months ended June 30, 2017, we received proceeds from two subordinated promissory notes issued by our largest shareholder. Proceeds from such borrowings were remitted directly to our lender to reduce the outstanding balance under our senior revolving credit facility.

[2] Interest and other charges incurred pursuant to our senior revolving credit facility are calculated periodically and added to the principal balance of the loan. As such, we do not make cash payments for interest charges related to this facility.

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Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1

– Basis of Presentation

Enservco Corporation (“Enservco”) through its wholly-owned subsidiaries (collectively referred to as the “Company”, “we” or “us”) provides various services to the domestic onshore oil and natural gas industry. These services include frac water heating, hot oiling and acidizing (well enhancement services); water transfer and water treatment services (water transfer services); water hauling, fluid disposal, frac tank rental (water hauling services); and dirt hauling and other general oilfield services (construction services).

The accompanying unaudited condensed consolidated financial statements have been derived from the accounting records of Enservco Corporation, Heat Waves Hot Oil Service LLC (“Heat Waves”), Dillco Fluid Service, Inc. (“Dillco”), Heat Waves Water Management LLC (“HWWM”), HE Services LLC (“HES”), and Real GC LLC (“Real GC”) (collectively, the “Company”) as of

June 30, 2017

and

December 31, 2016

and the results of operations for the

three

and

six

months ended

June 30, 2017

and

2016.

The below table provides an overview of the Company

’s current ownership hierarchy:

Name	State of Formation	Ownership	Business
Dillco Fluid Service, Inc. (“Dillco”)	Kansas	100% by Enservco	Oil and natural gas field fluid logistic services.
Heat Waves Hot Oil Service LLC (“Heat Waves”)	Colorado	100% by Enservco	Oil and natural gas well services, including logistics and stimulation.
Heat Waves Water Management LLC (“HWWM”)	Colorado	100% by Enservco	Water Transfer and Water Treatment Services.
HE Services LLC (“HES”)	Nevada	100% by Heat Waves	No active business operations. Owns construction equipment used by Heat Waves.
Real GC, LLC (“Real GC”)	Colorado	100% by Heat Waves	No active business operations. Owns real property in Garden City, Kansas that is utilized by Heat Waves.

The accompanying unaudited

condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form

10

-Q and Article

8

of Regulation S-

X.

Accordingly, they do

not

include all of the disclosures required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all of the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are

not

necessarily indicative of the operating results of a full year or of future years.

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and follow the same accounting policies and methods of their application as the most recent annual financial statements. These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Annual Report on Form

10

-K of Enservco Corporation for the year ended

December 31, 2016.

All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.

The accompanying

unaudited condensed consolidated balance sheet at

December 31, 2016

has been derived from the audited financial statements at that date, but does

not

include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form

10

-K for the year ended

December 31, 2016.

XML

Note 2 - Liquidity and Managements' Plans

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Substantial Doubt about Going Concern [Text Block]

Note

2

– Liquidity and Managements’ Plans

As of

June 30, 2017,

the Company’s available liquidity was approximately

$2.1

million, which was substantially comprised of

$1.5

million of availability under our credit facility (the "Prior Credit Facility") provided pursuant to the Amended and Restated Revolving Credit and Security Agreement with PNC Bank, N.A. (the

“2014

Credit Agreement”) and approximately

$621,000

in cash. During the

six

months ended

June 30, 2017,

the Company repaid approximately

$3.5

million under the Prior Credit Facility using proceeds from subordinated debt borrowings and net cash provided by our operations (partially offset by interest expense accrued to the borrowing balance). 

On

March 31, 2017,

the Company entered into the Tenth Amendment to the

2014

Credit Agreement that among other things (i) required the Company to raise

$1.5

million in subordinated debt or post a letter of credit in favor of the bank by

March 31, 2017; (

ii) raise an additional

$1

million of subordinated debt by

May 15, 2017; (

iii) reduced the maturity date of the loan from

September 12, 2019

to

April 30, 2018; (

iv) changed the definition of Adjusted EBITDA to include proceeds from subordinated debt; and (v) changed the calculation of fixed charge and leverage ratio from a trailing

four

-quarter basis to a quarterly build from the quarter ended

December 31, 2016.

As described in more detail in Note

5,

the Company complied with such requirements. However, upon entering the Tenth Amendment, the Company determined that the Prior Credit Facility did

not

provide sufficient liquidity on an ongoing basis, and that cash flow from operations and other sources would

not

generate sufficient cash to cover current obligations, most notably the maturity of the Prior Credit Facility provided under the

2014

Credit Agreement in

April 2018. 

Due to the decreased term and restrictions imposed by the lender upon entering the

10th

Amendment, during the

six

months ended

June 30, 2017,

the Company began exploring alternative financing to provide ongoing liquidity with more favorable terms with regards to availability of credit, borrowing costs, and covenants. 

As described in more detail in Note

13,

Subsequent Events

, subsequent to

June 30, 2017,

the Company entered into a

Loan and Security Agreement

(the

"2017

Credit Agreement")

 with East West Bank, a California banking corporation

 ("East West Bank"), 

which provides for a

three

-year

$30

million senior secured revolving credit facility (the “New Credit Facility”)

. On

August 10, 2017

we repaid all amounts due under the Prior Credit Facility using proceeds from New Credit Facility, and therefore have classified the

$20.4

million loan balance outstanding under the Prior Credit Facility as a long-term liability in the accompanying consolidated balance sheet. Upon entering the

2017

Credit Agreement and repaying all amounts due pursuant to the

2014

Credit Agreement, we had availability of approximately

$4.7

million under the New Credit Facility. 

XML

Note 3 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note

3

- Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Enservco maintains its excess cash in various financial institutions, where deposits

may

exceed federally insured amounts at times.

Accounts Receivable

Accounts receivable are stated at the amounts billed to customers, net of an allowance for uncollectible accounts. The Company provides an allowance for uncollectable accounts based on a review of outstanding receivables, historical collection information and existing economic conditions. The allowance for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management's best estimate of uncollectible amounts and is determined based on historical collection experience related to accounts receivable coupled with a review of the current status of existing receivables. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance. As of

June 30, 2017

and

December 31, 2016,

the Company had an allowance for doubtful accounts of approximately

$83,000

and

$34,000,

respectively. For the

three

and

six

months ended

June 30, 2017,

the Company recorded bad debt expense (net of recoveries) of approximately

$20,000

and

$49,000,

respectively. For the

three

and

six

months ended

June 30, 2016,

the Company recorded bad debt expense (net of recoveries) of approximately

$48,000

and

$87,000,

respectively.

Inventories

Inventory consists primarily of propane, diesel fuel and chemicals that are used in the servicing of oil wells and is carried at the lower of cost or market in accordance with the

first

in,

first

out method (FIFO). The Company periodically reviews the value of items in inventory and provides write-downs or write-offs, of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. For the

three

and

six

months ended

June 30, 2017

and

2016,

no

amounts were expensed for write-downs and write-offs.

Property and Equipment

Property and equipment consists of (

1

) trucks, trailers and pickups; (

2

) water transfer pumps, pipe, lay flat hose, trailers, and other support equipment; (

3

) real property which includes land and buildings used for office and shop facilities and wells used for the disposal of water; and (

4

) other equipment such as tools used for maintaining and repairing vehicles, office furniture and fixtures, and computer equipment. Property and equipment is stated at cost less accumulated depreciation. The Company capitalizes interest on certain qualifying assets that are undergoing activities to prepare them for their intended use. Interest costs incurred during the fabrication period are capitalized and amortized over the life of the assets. The Company charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the remaining useful life, expand the capacity or efficiency of the assets. Depreciation is recorded on a straight-line basis over estimated useful lives of

5

to

30

years.

Any difference between net book value of the property and equipment and the proceeds of an assets’ sale or settlement of an insurance claim is recorded as a gain or loss in the Company’s earnings.

Leases

The Company conducts a major part of its operations from leased facilities. Each of these leases is accounted for as an operating lease. Normally, the Company records rental expense on its operating leases over the lease term as it becomes payable. If rental payments are

not

made on a straight-line basis, per terms of the agreement, the Company records a deferred rent expense and recognizes the rental expense on a straight-line basis throughout the lease term. The majority of the Company

’s facility leases contain renewal clauses and expire through

June 2022.

In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company amortizes leasehold improvements over the shorter of the life of the lease or the life of the improvements.

The Company has leased equipment in the normal course of business, which are recorded as operating leases. The Company recorded

rental expense on equipment under operating leases over the lease term as it becomes payable; there were

no

rent escalation terms associated with these equipment leases. The equipment leases contain purchase options that allow the Company to purchase the leased equipment at the end of the lease term, based on the market price of the equipment at the time of the lease termination. There are

no

significant equipment leases outstanding as of

June 30, 2017.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recovered. The Company reviews both qualitative and quantitative aspects of the business during the analysis of impairment. During the quantitative review, the Company reviews the undiscounted future cash flows in its assessment of whether or

not

long-lived assets have been impaired.

No

impairments were recorded during the

three

or

six

months ended

June 30, 2017

and

2016.

Revenue Recognition

The Company recognizes revenue when evidence of an arrangement exists, the fee is fixed or determinable, services are provided, and collection is reasonably assured.

Earnings (Loss) Per Share

Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the diluted weighted average number of common shares. The diluted weighted average number of common shares is computed using the treasury stock method for common stock that

may

be issued for outstanding stock options and warrants.

As of

June 30, 2017

and

2016,

there were outstanding stock options and warrants to acquire an aggregate

of

5,749,433

and

5,120,669

shares of Company common stock

, respectively, which have a potentially dilutive impact on earnings per share. For the

three

and

six

months ended

June 30, 2017,

the diluted share instruments did

not

have an intrinsic value, as a result, were

not

included in the diluted share calculation. Dilution is

not

permitted if there are net losses during the period. As such, the Company does

not

show dilutive earnings per share for the

three

and

six

months ended

June 30, 2017

and

2016.

Loan Fees and Other Deferred Costs

In the normal course of business, the Company enters into loan agreements and amendments thereto with its primary lending institutions. The majority of these lending agreements and amendments require origination fees and other fees in the course of executing the agreements. For all costs associated with the execution of the lending agreements, the Company recognizes these as capitalized costs and amortizes these costs over the term of the loan agreement. All other costs

not

associated with the execution of the loan agreements are expensed as incurred. As of

June 30, 2017,

we had approximately

$197,000

in unamortized loan fees and other deferred costs associated with the

2014

Credit Agreement, which we expect to charge to expense upon the termination of that agreement. 

Income Taxes

The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in income in the period that includes the enactment date. A deferred tax asset or liability that is

not

related to an asset or liability for financial reporting is classified according to the expected reversal date.  The Company records a valuation allowance to reduce deferred tax assets to an amount that it believes is more likely than

not

to be realized.

The Company accounts for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if, in the Company’s opinion, it is more likely than

not

that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous.  As such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and

may

result in changes to the Company’s subjective assumptions and judgments which can materially affect amounts recognized in the consolidated balance sheets and consolidated statements of income. The result of the reassessment of the Company’s tax positions did

not

have an impact on the consolidated financial statements.

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company files tax returns in the

United States and in the states in which it conducts its business operations. The tax years

2012

through

2016

remain open to examination in the taxing jurisdictions to which the Company is subject.

Fair Value

The Company follows authoritative guidance that applies to all financial assets and liabilities required to be measured and reported on a fair value basis. The Company also applies the guidance to non-financial assets and liabilities measured at fair value on a nonrecurring basis, including non-competition agreements and goodwill. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The Company did

not

change its valuation techniques nor were there any transfers between hierarchy levels during the

six

months ended

June 30, 2017.

The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The hierarchy is broken down into

three

levels based on the reliability of the inputs as follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or

Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

Stock-based Compensation

Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award as described below, and is recognized over the requisite service period, which is generally the vesting period of the equity grant.

The Company uses the Black-Scholes pricing model as a method for determining the estimated grant date fair value for all stock options awarded to employees, independent contractors, officers, and directors. The expected term of the options is based upon evaluation of historical and expected further exercise behavior. The risk-free interest rate is based upon U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of our stock and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be

none

as we have

not

paid dividends nor do we anticipate paying any dividends in the foreseeable future.

The Company also uses the Black-Scholes valuation model to determine the fair value of warrants. Expected volatility is based upon the weighted average of historical volatility over the contractual term of the warrant and implied volatility. The risk-free interest rate is based upon implied yield on a U.S. Treasury

zero

-coupon issue with a remaining term equal to the contractual term of the warrants. The dividend yield is assumed to be

none.

Management Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the realization of accounts receivable, stock based compensation expense, income tax provision, the valuation of derivative financial instruments (warrants and interest rate swaps), and the valuation of deferred taxes. Actual results could differ from those estimates.

Reclassifications

Certain prior-period amounts have been reclassified for comparative purposes to conform to the fiscal

201

7

presentation. These reclassifications have

no

effect on the Company’s consolidated statement of operations.

Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2014

-

09,

“Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In

August 2015

the FASB agreed to defer the effective date by

one

year, the new standard becomes effective for us on

January 1, 2018.

Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently determining the impact of the new standard on revenue from the services we provide. Our approach includes performing a detailed review of key contracts representative of our different subsidiary businesses and comparing historical accounting policies and practices to the new standard. Our services are primarily short-term in nature, and our assessment at this stage is that we do

not

expect the new revenue recognition standard will have a material impact on our financial statements upon adoption. We expect that the new standard will require more robust disclosure of details surrounding our revenue from contracts with customers. We currently intend to adopt the new standard as of

January 1, 2018.

In

February 2016,

the FASB issued ASU

2016

-

02

“Leases (Topic

842

)”, which requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We continue to evaluate the impact of this new standard on our consolidated financial statements Once adopted, the Company expects to recognize additional assets and liabilities on its consolidated balance sheet related to operating leases with terms longer than

one

year.

In

August 2016,

the FASB issued ASU

2016

-

15,

 “Statement of Cash Flows (Topic

230

), Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force) (ASU

2016

-

15

)”, that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than

one

class of cash flows. The guidance will be effective for annual periods beginning after 

December 15, 2017 

and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect of ASU

2016

-

15

on its consolidated financial statements.

Recently Adopted

In

March 2016,

the FASB issued ASU

2016

-

09

“Compensation – Stock Compensation (Topic

718

)”, which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The adoption of this guidance did

not

impact the Company’s consolidated financial position, results of operations, or cash flows.

XML

Note 4 - Property and Equipment

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

Note

4

- Property and Equipment

Property and equipment consists of the following:

	June 30,			December 31,
	201 7			2016
Trucks and vehicles	$	54,855,287		$	54,353,632
Water transfer equipment		4,906,505			4,520,155
Other equipment		2,913,112			2,898,457
Buildings and improvements		3,896,865			3,896,865
Land		784,636			784,636
Disposal wells		391,003			391,003
Total property and equipment		67,747,408			66,844,748
Accumulated depreciation		(35,476,894	)		(32,226,787	)
Property and equipment – net	$	32,270,514		$	34,617,961

Effective

January 1, 2016,

HWWM acquired various water transfer assets from WET Oil Services, LLC (“WET”) and HII Technologies, Inc. (“HIIT”) for approximately

$4

million. These assets include high and low volume pumps, aluminum pipe, manifolds, lay flat hose, generators, other support equipment including vehicles and trailers. As part of the HIIT acquisition, HWWM also acquired a new water treatment technology utilized in devices sold under the name of HydroFLOW. In accordance with FASB Accounting Standards Codification

805,

Business Combinations, the Company has accounted for the transactions with both HIIT and WET as asset acquisitions.

XML

Note 5 - PNC Credit Facility

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

5

– Revolving Credit Facilities

PNC

Revolving

Credit Facility

In

September 2014,

the Company entered into an Amended and Restated Revolving Credit and Security Agreement (the

"2014

Credit Agreement") with PNC Bank, National Association ("PNC") which provided for a

five

-year

$30

million senior secured revolving credit facility. The

2014

Credit Agreement allowed the Company to borrow up to

85%

of eligible receivables and up to

75%

of the appraised value of trucks and equipment. Under the

2014

Credit Agreement, there are

no

required principal payments until maturity and the Company has the option to pay variable interest rate based on (i)

1,

2

or

3

month LIBOR plus an applicable margin ranging from

4.50%

to

5.50%

for LIBOR Rate Loans or (ii) interest at PNC Base Rate plus an applicable margin of

3.00%

to

4.00%

for Domestic Rate Loans. Interest is calculated monthly and added to the principal balance of the loan. Additionally, the Company incurs an unused credit line fee of

0.375%.

The revolving credit facility is collateralized by substantially all of the Company’s assets and subject to financial covenants. The outstanding principal loan balance matures on

April 30, 2018.

The Company has entered into various amendments to the

2014

Credit Agreement that among other things,

(i) modified certain financial covenants, (ii) increased the then applicable margin for Domestic Rate Loans and LIBOR Rate Loans; (iii) modified the advance rates on appraised equipment (iv) reinstated a full cash dominion requirement; and (iv) change various administrative terms under the agreement. As of

June 30, 2017,

the Company is subject to the following financial covenants:

( 1 ) To maintain a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00 at the end of each fiscal quarter. For the purpose of this covenant, the Fixed Charge Coverage Ratio shall be determined on the basis of Adjusted EBITDA, as defined in the 2014 Credit Agreement, for the trailing four -quarter period ended on the applicable quarterly compliance test date, based on a quarterly build beginning with the fourth quarter of 2016.

( 2 ) To maintain of leverage ratio as follows:

Fiscal Quarter Ending:	Maximum Leverage Ratio
June 30, 2017	4.50	:	1.00
September 30, 2017	4.50	:	1.00
December 31, 2017	7.00	:	1.00
March 31, 2018	5.50	:	1.00

On

March 31, 2017,

the Company entered into the Tenth Amendment to the

2014

Credit Agreement that among other things (i) required the Company to raise

$1.5

million in subordinated debt or post a letter of credit in favor of the bank by

March 31, 2017; (

ii) raise an additional

$1

million of subordinated debt by

May 15, 2017; (

iii) reduced the maturity date of the loan from

September 12, 2019

to

April 30, 2018; (

iv) changed the definition of Adjusted EBITDA to include proceeds from subordinated debt; and (v) changed the calculation of fixed charge and leverage ratio from a trailing

four

-quarter basis to a quarterly build from the quarter ended

December 31, 2016.

On

March 31, 2017,

the Company’s largest shareholder, Cross River Partners, L.P. ("Cross River"), whose managing member is the chairman of our Board of Directors, posted a letter of credit in the amount of

$1.5

million in accordance with the terms of the Tenth Amendment. The letter of credit was converted into subordinated debt with a maturity date of

June 28, 2022

with a stated interest rate of

10%

per annum and a

five

-year warrant to purchase

967,741

shares of our common stock at an exercise price of

$.31

per share. On

May 10, 2017,

Cross River also provided

$1.0

million in subordinated debt to the Company as required under the terms of our Tenth Amendment to the PNC Credit Agreement. This subordinated debt has a stated annual interest rate of

10%

and maturity date of

June 28, 2022.

In connection with this issuance of subordinated debt, Cross River was granted a

five

-year warrant to purchase

645,161

shares of our common stock at an exercise price of

$0.31

per share. We accounted for the warrants issued in connection with the subordinated debt as a liability in the accompanying consolidated balance sheet as of

June 30, 2017.

As of

June 30, 2017,

the Company had an outstanding principal loan balance under the

2014

Credit Agreement of approximately

$20.4

million. The interest rate at

June 30, 2017

ranged from

5.55%

to

5.72%

per year for the

$18.5

million of outstanding LIBOR Rate Loans and

7.25%

per year for the

$1.9

million of outstanding Domestic Rate Loans. As of

June 30, 2017,

approximately

$1.5

million was available under the

2014

Credit Agreement.

As of

December 31, 2016,

the Company had an outstanding principal loan balance under the

2014

Credit Agreement of

$23.2

million. The interest rate at

December 31, 2016

ranged from

5.21%

to

5.27%

per year for the

$21.3

million of outstanding LIBOR Rate Loans and

6.75%

per year for the

$1.9

million of outstanding Domestic Rate Loans. As of

December 31, 2016,

approximately

$4.5

million was available under the

2014

Credit Agreement.

As of

June 30, 2017

and

December 31, 2016,

the Company was in compliance with its covenants under the

2014

Credit Agreement.

As described in more detail in Note

13,

Subsequent Events

, subsequent to

June 30, 2017,

the Company entered into a Loan and Security Agreement with East West Bank (the

"2017

Credit Agreement"). On

August 10, 2017

we repaid all amounts due under the

2014

 Credit Agreement using proceeds from

2017

Credit Agreement, and therefore have classified the

$20.4

million loan balance outstanding under the

2014

Credit Agreement as a long-term liability in the accompanying consolidated balance sheet.

Debt Issuance Costs

The Company has capitalized certain debt issuance costs incurred in connection with the PNC senior revolving credit facility discussed above

and these costs are being amortized to interest expense over the term of the credit facility on a straight-line basis. As of

June 30, 2017

and

December 31, 2016,

approximately

$147,000

and

$171,000,

respectively of unamortized debt issuance costs were included in Prepaid Expenses and Other Current assets in the accompanying consolidated balance sheet. The remaining long-term portion of debt issuance costs of

$51,000

and

$259,000

is included in Other Assets in the accompanying consolidated balance sheets as of

June 30, 2017

and

December 31, 2016,

respectively. During the

three

and

six

months ended

June 30, 2017,

the Company amortized approximately

$37,000

and

$292,000

of these costs to Interest Expense. During the

three

and

six

months ended

June 30, 2016,

the Company amortized approximately

$39,000

and

$74,000

of these costs to Interest Expense, respectively. Due to the maturity date moving from

September 12, 2019

to

April 30, 2018,

the Company recognized an additional

$217,000

of debt issuance amortization expenses during the

six

months ended

June 30, 2017.

Upon the repayment of the

2014

Credit Agreement subsequent to

June 30, 2017,

we expect to write off all remaining debt issuance costs incurred in connection with the facility. Such unamortized debt issuance costs totaled approximately

$197,000

as of

June 30, 2017. 

Interest Rate Swap

On

September 17, 2015,

the Company entered into an interest rate swap agreement with PNC in order to hedge against the variability in cash flows from future interest payments related to the

2014

Credit Agreement. The terms of the interest rate swap agreement include an initial notional amount of

$10.0

million, a fixed payment rate of

1.88%

plus applicable a margin ranging from

4.50%

to

5.50%

paid by the Company and a floating payment rate equal to LIBOR plus applicable margin of

4.50%

to

5.50%

paid by PNC. The purpose of the swap agreement is to adjust the interest rate profile of the Company’s debt obligations and to achieve a targeted mix of floating and fixed rate debt.

During the

three

months ended

June 30, 2017,

the fair market value of the swap instrument decreased by approximately

$11,000

and resulted in an increase to the liability and an increase in interest expense. During the

six

months ended

June 30, 2017,

the fair market value of the swap instrument increased by approximately

$19,000

and resulted in a decrease to the liability and a reduction in interest expense. During the

three

and

six

months ended

June 30, 2016,

the fair market value of the swap instrument decreased by

$74,000

and

$172,000,

respectively, and resulted in an increase in the liability and an increase in interest expense. The interest rate swap liability is included in accounts payable and accrued liabilities on the Company’s balance sheet. As of

June 30, 2017

and

December 31, 2016

the interest rate swap liability was

$72,000

and

$91,000,

respectively.

In connection with the termination of the

2014

Credit Agreement, subsequent to

June 30, 2017,

we terminated the interest rate swap agreement with PNC. We expect to enter into a similar interest rate swap agreement in connection with the

2017

Credit Agreement.

XML

Note 6 - Long-term Debt

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Long-term Debt [Text Block]

Note

6

– Long-Term Debt

Long-term debt (excluding borrowings under our

2014

Credit Agreement described in Note

5

) consists of the following:

	June 30,			December 31,
	201 7			2016
Real Estate Loan for facility in North Dakota, interest at 3.75%, monthly principal and interest payment of $5,255 ending October 3, 2028. Collateralized by land and property purchased with the loan.	$	329,815		$	355,033
Note payable to the seller of Heat Waves. The note was garnished by the Internal Revenue Service (“IRS”) in 2009 and is due on demand; paid in annual installments of $36,000 per agreement with the IRS.		125,000			170,000
Mortgages payable to banks, interest ranging from 5.9% to 7.25%, due in monthly principal and interest payments of $6,105, secured by land. Remaining principal balances were paid in February 2017.		-			97,839
Total		454,815			622,872
Less current portion		(176,403	)		(318,499	)
Long-term debt, net of current portion	$	278,412		$	304,373

Aggregate maturities of debt, (excluding borrowings under our

2014

 Credit Agreement described in Note

5

), are as follows:

Twelve Months Ending June 30 ,
2017	$	176,403
2018		53,392
2019		55,438
2020		57,602
2021		59,831
Thereafter		52,149
Total	$	454,815

XML

Note 7 - Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

7

– Fair Value Measurements

The following table presents the Company

’s financial assets and liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy:

	Fair Value Measurement Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurement
June 30 , 2017
Derivative Instrument
Warrant liability	$	-	$	-	$	306,648	$	306,648
Interest rate swap	$	-	$	72,000	$	-	$	72,000
December 31, 201 6
Derivative Instrument
Interest rate swap	$	-	$	91,000	$	-	$	91,000

The warrant liability as of

June 30, 2017

consists of a liability of approximately

$307,000

(classified within

Warrant liability

). The interest rate swap as of

June 30, 2017

consists of a liability of

$72,000

(classified within

Accounts payable and accrued liabilities

).

The Company's warrant liability was valued

as a derivative instrument at issuance and at

June 30, 2017

using the Black-Scholes option pricing model, using observable market inputs and management judgment based on the following assumptions: a risk-free interest rate of

1.51%,

expected dividend yield of

0%,

a term of

2.5

years, and a volatility of

96.39%.

The valuation policies used are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company

’s Chief Executive Officer, as deemed appropriate.

The Company

’s interest rate swap is valued using models which require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, and correlations of such inputs. Some of the model inputs used in valuing the derivative instruments trade in liquid markets, and therefore the derivative instrument is classified within Level

2

of the fair value hierarchy. For applicable financial assets carried at fair value, the credit standing of the counterparties is analyzed and factored into the fair value measurement of those assets. The fair value estimates of our derivative financial instruments do

not

reflect their actual trading value.

XML

Note 8 - Income Taxes

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

8

– Income Taxes

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period.

  The provision for income taxes for the

three

months ended

June 30, 2017

and

2016

differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of

34

%

to pre-tax income primarily because of state income taxes and estimated permanent differences.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but

not

limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year.

  The accounting estimates used to compute the provision for income taxes

may

change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

During the

three

and

six

months ended

June 30, 2017,

the Company recorded net income tax benefit of

$1.0

million and

$992,000,

respectively, primarily due to our net operating losses during the

three

and

six

months ended

June 30, 2017.

As of

June 30, 2017,

the Company had recorded a deferred tax asset, net, of approximately

$547,000.

 

XML

Note 9 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

9

– Commitments and Contingencies

Operating Leases

As of

June 30, 2017,

the Company leases facilities and certain equipment under lease commitments that expire through

June 2022.

Future minimum lease commitments for these operating lease commitments are as follows:

Twelve Months Ending June 30,
2018	$	622,242
2019		562,518
2020		569,194
2021		381,370
2022		290,046
Thereafter		-
Total	$	2,425,370

Rent expense under operating leases, including month-to-month leases, for the

three

and

six

months ended

June 30, 2017

were approximately

$191,000

and

$405,000,

respectively. Rent expense under operating leases, including month-to-month leases, for the

three

and

six

months ended

June 30, 2016

were

$200,000

and

$404,000

respectively.

HydroFLOW Agreement

             Pursuant to a Sales Agreement with HydroFLOW USA, HWWM has the exclusive right to sell or rent patented hydropath devices in connection with bacteria deactivation and scale treatment services for treating injection and disposal wells, fracking water and recycled water in the oil and gas industry to HWWM customers in the United States. Pursuant to the sales agreement, HWWM is required to pay

3.5%

royalties of its gross revenues on certain rental transactions and, in order to maintain the exclusivity provision under the agreement, the Company

is required to purchase approximately

$655,000

of equipment per year commencing in

2016

and ending

2025.

In

November 2016,

the Company and HydroFLOW USA agreed to allocate

$220,000

of the

2016

commitment to

2017,

thereby increasing the minimum purchase requirement for

2017

to

$875,000.

During the

six

months ended

June 30, 2017,

the Company completed the purchase of

$280,000

of equipment to fulfill its

2016

purchase commitment for exclusivity. During the

three

and

six

months ended

June 30, 2017

and

2016,

the Company did

not

accrue or pay any royalties to HydroFLOW.

The Company has negotiated a release of all

2016

and

2017

purchase commitments, while leaving intact the exclusive right to sell or rent the patented hydropath devices through

2017.

 

Self-Insurance

In

June 2015,

the Company became self-insured under its Employee Group Medical Plan for the

first

 

$75,000

 per individual participant. The Company had an accrued liability of approximately

$63,000

and

$23,000

as of 

June 30, 2017 

and

December 31, 2016,

respectively, for insurance claims that it anticipates paying in the future related to claims that occurred prior to quarter end.

Effective

April 1, 2015,

the Company entered into a workers

’ compensation and employer’s liability insurance policy with a term through

March 31, 2018.

Under the terms of the policy, the Company is required to pay premiums in addition to a portion of the cost of any claims made by our employees, subject to a maximum of approximately

$1.5

million over the term of the policy. In

June, 2017,

an employee of

one

of our subsidiaries sustained bodily injury while in the course of employment, and the projected cost of the claim exceeded the amount we had previously paid in under the policy. As a result, subsequent to

June 30, 2017,

we made a payment of approximately

$612,000

under the terms of the policy. The amount was based on an estimate of the total cost of the claim, including costs that have

not

yet been incurred in connection with the claim. During the

three

and

six

months ended

June 30, 2017,

we recorded an accrual based on our estimate of amounts incurred under the claim of approximately

$

250,000

,

and recorded the remaining

$362,000

of the payment as a long-term asset, which will be recognized as expense as claim costs are incurred in connection with the claim. As a result, expense of

$250,000

is included within

Expenses, Water hauling services

in the accompanying statement of operations. Per the terms of our policy, subsequent to

June 30, 2017,

we had paid in approximately

$1.4

million of the projected maximum plan cost of

$1.5

million. Therefore, our contnued exposure to this and other workers' compensation claims through the term of our policy and additional policy premiums is approximately

$163,000.

Litigation

Enservco Corporation (“Enservco”) and its subsidiary Heat Waves Hot Oil Service LLC (“Heat Waves”) are defendants in a civil lawsuit in federal court in Colorado, Civil Action

No.

1:15

-cv-

00983

-RBJ (“Colorado Case”), that alleges that Enservco and Heat Waves, in offering and selling frac water heating services, infringed and induced others to infringe

two

patents owned by Heat-On-The-Fly, LLC (“HOTF”). The complaint relates to only a portion of the frac water heating services provided by Heat Waves. The Colorado Case is now stayed pending resolution of appeal by HOTF of a North Dakota court’s ruling that the primary patent (“the

‘993

Patent”) in the Colorado Case was invalid. Neither Enservco nor Heat Waves is a party to the North Dakota Case, which involves other energy companies.

The

‘993

Patent has undergone several reexaminations by the USPTO and in

February 2015,

the USPTO rejected all

99

claims of the

‘993

Patent in the latest reexamination.  However, in

May 2016,

the USPTO reversed its decision and confirmed all

99

claims as being patentable over the cited prior art in the reexamination proceeding. Further, in

September 2016

and

February 2017,

HOTF was issued

two

additional patents, both of which could be asserted against the Company. Management believes that final findings of invalidity and/or unenforceability of the

‘993

Patent based on inequitable conduct could serve as a basis to affect the validity and/or enforceability of each of HOTF’s patents. If these Patents are ultimately held to be invalid and/or enforceable, the Colorado Case would become moot.

In the event that HOTF’s appeal is successful and the

‘993

Patent is found to be valid and/or enforceable in the North Dakota Case, the Colorado Case

may

resume. To the extent that Enservco and Heat Waves are unsuccessful in their defense of the Colorado Case, they could be liable for enhanced damages/attorneys’ fees (both of which

may

be significant) and Heat Waves could possibly be enjoined from using any technology that is determined to be infringing. Either result could negatively impact Heat Waves’ business and operations. At this time, the Company is unable to predict the outcome of this case, and accordingly has

not

recorded an accrual for any potential loss.

XML

Note 10 - Stockholders Equity

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note

10

– Stockholders

’

Equity

Warrants

In conjunction with a private placement transaction and subordinated debt conversion in

November 2012,

the Com

pany granted warrants to purchase shares of the Company’s common stock, exercisable at

$0.55

per share for a

five

year term. Each of the warrants

may

be exercised on a cashless basis. The warrants also provide that subject to various conditions, the holders have piggy-back registration rights with respect to the shares of common stock that

may

be acquired upon the exercise of the warrants. As of

June 30, 2017,

150,001

of these warrants remain outstanding.

In

June 2016,

the Company granted a principal of the Company’s existing investor relations firm warrants to acquire

30,000

shares of the Company’s common stock in connection with a reduction of the firms ongoing monthly cash service fees. The warrants had a grant-date fair value of

$0.36

per share and vest over a

one

year period,

15,000

on

December 21, 2016

and

15,000

on

June 21, 2017.

As of

June 30, 2017,

30,000

of these warrants remain outstanding.

In

June 2017,

in connection with a subordinated loan agreement described in more detail in Note

2

and Note

5,

the Company granted Cross River

two five

-year warrants to buy an aggregate total of

1,612,902

shares of the Company’s common stock at an exercise price of

$0.31

per share, the average closing price of the Company’s common stock for the

20

day period ended

May 11, 2017.

The warrants had a grant-date fair value of

$0.19

per share and vested in full on

June 28, 2017.

These warrants are accounted for as a liability in the accompanying balance sheet. As of

June 30, 2017,

all of these warrants remain outstanding.

A summary of warrant activity for the

six

months ended

June 30, 2017

is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
Warrants	Shares		Price		Life (Years)		Value
Outstanding at December 31, 2016		180,001	$	0.57		1.51	$	-
Issued		1,612,902		0.31		5.00		-
Exercised		-		-
Forfeited/Cancelled		-		-
Outstanding at June 30, 2017		1,792,903	$	0.34		4.60		-
Exercisable at June 30, 2017		1,792,903	$	0.34		4.60		-

Stock Issued for Services

During the

six

months ended

June 30, 2016,

the Company issued

3,031

shares of common stock to a consultant as partial compensation for services provided to the Company. The shares were granted under the

2010

Stock Incentive Plan and were fully vested and unrestricted at the time of issuance. During the

six

months ended

June 30, 2016,

the Company recorded

$1,700

of consulting expense for these services.

XML

Note 11 - Stock Options

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note

1

1

– Stock Options

Stock Option Plans

On

July 27, 2010,

the Company’s Board of Directors adopted the

2010

Stock Incentive Plan (the

“2010

Plan”). The aggregate number of shares of common stock that could be granted under the

2010

Plan was reset at the beginning of each year based on

15%

of the number of shares of common stock then outstanding. As such, on

January 1, 2016

the number of shares of common stock available under the

2010

Plan was reset to

5,719,069

shares based upon

38,127,129

shares outstanding on that date.

Options were typically granted with an exercise price equal to the estimated fair value of the Company's common stock at the date of grant with a vesting schedule of

one

to

three

years and a contractual term of

5

years. As discussed below, the

2010

Plan has been replaced by a new stock option plan and

no

additional stock option grants will be granted under the

2010

Plan. As of

June 30, 2016,

there were options to purchase

2,251,168

shares outstanding under the

2010

Plan.

On

July 18, 2016,

the Board of Directors unanimously approved the adoption of the Enservco Corporation

2016

Stock Incentive Plan (the

“2016

Plan”), which was approved by the stockholders on

September 29, 2016.

The aggregate number of shares of common stock that

may

be granted under the

2016

Plan is

8,000,000

shares plus authorized and unissued shares from the

2010

Plan totaling

2,391,711

for a total reserve of

10,391,711

shares. As of

June 30, 2016,

there were options to purchase

1,960,000

shares outstanding under the

2016

Plan.

A summary of the range of assumptions used to value stock options granted for the

three

and

six

months ended

June 30, 2017

and

2016

are as follows:

	For the Three Months Ended								For the Six Months Ended
	June 30,								June 30,
	2017				2016				2017				2016
Expected volatility		89%	-	93%		81%	-	84%		89%	-	93%		81%	-	102%
Risk-free interest rate			1.4%				0.9%				1.4%			0.9%	-	1.2%
Forfeiture rate			0%				0%				0%				0%
Dividend yield			0%				0%				0%				0%
Expected term (in years)		3.0	-	3.5		3.1	-	3.5		3.0		3.5		3.1	-	3.5

During the

six

months ended

June 30, 2017,

the Company granted options to acquire

2,171,600

shares of common stock with a weighted-average grant-date fair value of

$0.18

per share. During the

six

months ended

June 30, 2017,

no

options were exercised. During the

six

months ended

June 30, 2016,

the Company granted options to acquire

1,565,000

shares of common stock with a weighted-average grant-date fair value of

$0.33

per share. On

July 18, 2016,

the Company cancelled

875,000

of these stock option grants pursuant to letter agreements between the Company and option holders. The Company subsequently granted

875,000

of New Options under the

2016

Plan.

The following is a summary of stock option activity for all equity plans for the

six

months ended

June 30, 2017:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31 , 2016		4,211,168		$	1.09		2.85	$	46,233
Granted		2,171,600			0.31		4.93		24,000
Exercised		-			-		-		-
Forfeited or Expired		(533,335	)		1.38		1.55
Outstanding at June 30, 2017		5,849,433		$	0.78		2.81		24,000
Vested or Expected to Vest at June 30, 2017		3,732,666		$	0.99		1.82		8,333
Exercisable at June 30, 2017		3,732,666		$	0.99		1.82	$	8,333

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the estimated fair value of the Company’s common stock on

June 30, 2017,

and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on

June 30, 2017.

During the

three

and

six

months ended

June 30, 2017,

the Company recognized stock-based compensation costs for stock options of approximately

$311,000

and

$446,000

respectively, in general and administrative expenses. During the

three

and

six

months ended

June 30, 2016,

the Company recognized stock-based compensation costs for stock options of approximately

$167,000

and

$318,000,

respectively, in general and administrative expenses. The Company currently expects all outstanding options to vest. Compensation cost is revised if subsequent information indicates that the actual number of options vested due to service is likely to differ from previous estimates.

A summary of the status of non-vested shares underlying the options are presented below:

	Number of Shares			Weighted-Average Grant- Date Fair Value
Non-vested at December 31, 2016		1,659,834		$	0.58
Granted		2,171,600			0.18
Vested		(1,651,333	)		0.45
Forfeited		(70,001	)		0.35
Non-vested at June 30, 2017		2,110,100		$	0.26

As of

June 30, 2017,

there was approximately

$492,000

of total unrecognized compensation costs related to non-vested shares under the Company’s stock option plans which will be recognized over the remaining weighted-average period of

1.87

years.

XML

Note 12 - Segment Reporting

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

1

2

- Segment Reporting

Enservco’s reportable business segments are Well Enhancement Services, Water Transfer Services, Water Hauling Services, and Construction Services. These segments have been selected based on changes in management’s resource allocation and performance assessment in making decisions regarding the Company.

The following is a description of the segments.

Well Enhancement Services

: This segment utilizes a fleet of frac water heating units, hot oil trucks and acidizing units to provide well enhancement and completion services to the domestic oil and gas industry. These services include frac water heating, hot oil services, pressure testing, and acidizing services.

Water Transfer Services

: This segment utilizes high and low volume pumps, lay flat hose, aluminum pipe and manifolds and related equipment to move fresh and/or recycled water from a water source such as a pond, lake, river, stream, or water storage facility to frac tanks at drilling locations to be used in connection with well completion activities. Also included in this segment are water treatment services whereby the Company uses patented hydropath technology under a sales agreement with HydroFLOW USA to remove bacteria and scale from water.

Water Hauling Services

: This segment utilizes a fleet of trucks and related assets, including specialized tank trucks, vacuum trailers, storage tanks, and disposal facilities to provide various water hauling services. These services are primarily provided by Dillco in the Hugoton Field in Kansas.

Construction Services

: This segment utilizes a fleet of trucks and equipment to provide excavation grading, and dirt hauling services to the oil and gas and construction industry. In

2016,

the Company started utilizing these assets to provide dirt hauling services to a general contractor in Colorado.

Unallocated and other includes general overhead expenses and assets associated with managing all reportable operating segments which have

not

been allocated to a specific segment.

The following tables set forth certain financial information with respect to Enservco’s reportable segments:

	Well Enhancement			Water Transfer Services			Water Hauling			Construction Services			Unallocated & Other			Total
Three Months Ended June 30, 2017:
Revenues	$	5,819,435		$	305,994		$	880,801		$	99,811		$	-		$	7,106,041
Cost of Revenue		4,324,845			616,468			1,192,372			67,483			231,585			6,432,753
Segment Profit	$	1,494,590		$	(310,474	)	$	(311,572	)	$	32,328		$	(231,585	)	$	673,288
Depreciation and  Amortization	$	1,252,801		$	246,137		$	167,866		$	-		$	8,071		$	1,674,875
Capital Expenditures  (Excluding Acquisitions)	$	140,287		$	139,983		$	69,043		$	-		$	528		$	349,841
Three Months Ended June 30, 2016:
Revenues	$	2,660,526		$	-		$	888,892		$	588,934		$	-		$	4,138,352
Cost of Revenue		2,790,690			420,316			830,872			712,326			183,977		$	4,938,181
Segment Profit	$	(130,164	)	$	(420,316	)	$	58,020		$	(123,392	)	$	(183,977	)	$	(799,829	)
Depreciation and  Amortization	$	1,224,851		$	215,946		$	169,396		$	-		$	7,427		$	1,617,620
Capital Expenditures  (Excluding Acquisitions)	$	50,545		$	11,359		$	5,739		$	-		$	-		$	67,643

	Well Enhancement		Water Transfer Services			Water Hauling			Construction Services			Unallocated & Other			Total
Six Months Ended June 30, 2017:
Revenues	$	17,803,064	$	1,058,006		$	1,765,806		$	254,066		$	-		$	20,880,942
Cost of Revenue		12,773,391		1,292,256			2,105,057			211,644			428,809			16,811,157
Segment Profit	$	5,029,673	$	(234,250	)	$	(339,252	)	$	42,422		$	(428,809	)	$	4,069,785
Depreciation and Amortization	$	2,424,124	$	477,796		$	333,487		$	-		$	15,897		$	3,251,304
Capital Expenditures (Excluding Acquisitions)	$	404,316	$	454,518		$	106,431		$	-		$	5,561		$	970,826
Identifiable assets (1)	$	30,974,297	$	3,885,676		$	1,932,607		$	-		$	344,823		$	37,137,403
Six Months Ended June 30, 2016:
Revenues	$	9,820,349	$	31,688		$	2,004,440		$	588,934		$	-		$	12,445,411
Cost of Revenue		7,747,146		879,252			2,020,876			712,326			348,666		$	11,708,266
Segment Profit	$	2,073,203	$	(847,564	)	$	(16,436	)	$	(123,392	)	$	(348,666	)	$	737,145
Depreciation and Amortization	$	2,577,218	$	431,893		$	338,198		$	-		$	18,283		$	3,365,592
Capital Expenditures (Excluding Acquisitions)	$	369,281	$	164,045		$	27,473		$	-		$	16,331		$	577,130
Identifiable assets (1)	$	34,399,312	$	3,903,753		$	2,526,981		$	-		$	325,765		$	41,155,811

( 1 ) Identifiable assets is calculated by summing the balances of accounts receivable, net; inventories; property and equipment, net; and other assets.

The following table reconciles the segment profits reported above to the loss from operations reported in the consolidated statements of operations:

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Segment profit (loss)	$	673,288		$	(799,829	)	$	4,069,785		$	737,145
General and administrative expenses		(1,289,616	)		(901,321	)		(2,284,299	)		(1,927,896	)
Patent litigation and defense costs		(24,542	)		(39,446	)		(67,230	)		(75,612	)
Severance and Transition Costs		(767,755	)		-			(767,755	)		-
Depreciation and amortization		(1,674,875	)		(1,617,620	)		(3,251,304	)		(3,365,592	)
Income (loss) from Operations	$	(3,083,501	)	$	(3,358,216	)	$	(2,300,803	)	$	(4,631,955	)

XML

Note 13 - Subsequent Event

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Subsequent Events [Text Block]

Note

1

3

- Subsequent Event

s

East West Bank

Revolving

Credit Facility

On

August 10, 2017,

the Company entered into

the

2017

Credit Agreement with East West Bank which provides for a

three

-year

$30

million senior secured revolving credit facility (the "New Credit Facility"). The

2017

Credit Agreement allows the Company to borrow up to

85%

of eligible receivables and up to

85%

of the appraised value of eligible equipment. Under the

2017

Credit Agreement, there are

no

required principal payments until maturity and the Company has the option to pay variable interest rate based on (i)

1

month LIBOR plus a margin of

3.5%

for LIBOR Rate Loans or (ii) interest at the Wall Street Journal prime rate plus a margin of

1.75%.

Interest is calculated monthly and paid in arrears. Additionally, the New Credit Facility is subject to an unused credit line fee of

0.5%

per annum multiplied by the amount by which total availability exceeds the average monthly balance of the New Credit Facility, payable monthly in arrears. The New Credit Facility is collateralized by substantially all of the Company’s assets and subject to financial covenants. The outstanding principal loan balance matures on

August 10, 2020.

Under the terms of the

2017

Credit Agreement, collateral proceeds will be collected in bank-controlled lockbox accounts and credited to the New Credit Facility within

one

business day.

Related to the

2017

Credit Agreement, the Company is subject to the following financial covenants:

(

1

) To maintain a

Fixed Charge Coverage Ratio (“FCCR”) of

not

less than

1.10

to

1.00

at the end of each month, with a build up beginning with

January 1, 2017,

through

December 31, 2017,

upon which the ratio will be measured on a trailing

twelve

-month basis;

 

(

2

) 

In periods when the trailing

12

month FCCR is less than

1.20x,

the Company is required t

o maintain minimum liquidity of

$1,500,000

(including excess availability under the

2017

Credit Agreement and balance sheet cash).

 

On

August 10, 2017,

an initial advance of approximately

$21.7

million

was made under the New Credit Facility to repay in full all obligations outstanding under the Prior Credit Facility including fees and expenses incurred in connection with the termination of the

2014

Credit Agreement. 

As of

August 10, 2017,

the Company was in compliance with the financial covenants related to the

2017

Credit Agreement.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Enservco maintains its excess cash in various financial institutions, where deposits

may

exceed federally insured amounts at times.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable

Accounts receivable are stated at the amounts billed to customers, net of an allowance for uncollectible accounts. The Company provides an allowance for uncollectable accounts based on a review of outstanding receivables, historical collection information and existing economic conditions. The allowance for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management's best estimate of uncollectible amounts and is determined based on historical collection experience related to accounts receivable coupled with a review of the current status of existing receivables. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance. As of

June 30, 2017

and

December 31, 2016,

the Company had an allowance for doubtful accounts of approximately

$83,000

and

$34,000,

respectively. For the

three

and

six

months ended

June 30, 2017,

the Company recorded bad debt expense (net of recoveries) of approximately

$20,000

and

$49,000,

respectively. For the

three

and

six

months ended

June 30, 2016,

the Company recorded bad debt expense (net of recoveries) of approximately

$48,000

and

$87,000,

respectively.

Inventory, Policy [Policy Text Block]

Inventories

Inventory consists primarily of propane, diesel fuel and chemicals that are used in the servicing of oil wells and is carried at the lower of cost or market in accordance with the

first

in,

first

out method (FIFO). The Company periodically reviews the value of items in inventory and provides write-downs or write-offs, of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. For the

three

and

six

months ended

June 30, 2017

and

2016,

no

amounts were expensed for write-downs and write-offs.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment consists of (

1

) trucks, trailers and pickups; (

2

) water transfer pumps, pipe, lay flat hose, trailers, and other support equipment; (

3

) real property which includes land and buildings used for office and shop facilities and wells used for the disposal of water; and (

4

) other equipment such as tools used for maintaining and repairing vehicles, office furniture and fixtures, and computer equipment. Property and equipment is stated at cost less accumulated depreciation. The Company capitalizes interest on certain qualifying assets that are undergoing activities to prepare them for their intended use. Interest costs incurred during the fabrication period are capitalized and amortized over the life of the assets. The Company charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the remaining useful life, expand the capacity or efficiency of the assets. Depreciation is recorded on a straight-line basis over estimated useful lives of

5

to

30

years.

Any difference between net book value of the property and equipment and the proceeds of an assets’ sale or settlement of an insurance claim is recorded as a gain or loss in the Company’s earnings.

Lessee, Leases [Policy Text Block]

Leases

The Company conducts a major part of its operations from leased facilities. Each of these leases is accounted for as an operating lease. Normally, the Company records rental expense on its operating leases over the lease term as it becomes payable. If rental payments are

not

made on a straight-line basis, per terms of the agreement, the Company records a deferred rent expense and recognizes the rental expense on a straight-line basis throughout the lease term. The majority of the Company

’s facility leases contain renewal clauses and expire through

June 2022.

In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company amortizes leasehold improvements over the shorter of the life of the lease or the life of the improvements.

The Company has leased equipment in the normal course of business, which are recorded as operating leases. The Company recorded

rental expense on equipment under operating leases over the lease term as it becomes payable; there were

no

rent escalation terms associated with these equipment leases. The equipment leases contain purchase options that allow the Company to purchase the leased equipment at the end of the lease term, based on the market price of the equipment at the time of the lease termination. There are

no

significant equipment leases outstanding as of

June 30, 2017.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recovered. The Company reviews both qualitative and quantitative aspects of the business during the analysis of impairment. During the quantitative review, the Company reviews the undiscounted future cash flows in its assessment of whether or

not

long-lived assets have been impaired.

No

impairments were recorded during the

three

or

six

months ended

June 30, 2017

and

2016.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenue when evidence of an arrangement exists, the fee is fixed or determinable, services are provided, and collection is reasonably assured.

Earnings Per Share, Policy [Policy Text Block]

Earnings (Loss) Per Share

Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the diluted weighted average number of common shares. The diluted weighted average number of common shares is computed using the treasury stock method for common stock that

may

be issued for outstanding stock options and warrants.

As of

June 30, 2017

and

2016,

there were outstanding stock options and warrants to acquire an aggregate

of

5,749,433

and

5,120,669

shares of Company common stock

, respectively, which have a potentially dilutive impact on earnings per share. For the

three

and

six

months ended

June 30, 2017,

the diluted share instruments did

not

have an intrinsic value, as a result, were

not

included in the diluted share calculation. Dilution is

not

permitted if there are net losses during the period. As such, the Company does

not

show dilutive earnings per share for the

three

and

six

months ended

June 30, 2017

and

2016.

Loan Fees and Other Deferred Costs [Policy Text Block]

Loan Fees and Other Deferred Costs

In the normal course of business, the Company enters into loan agreements and amendments thereto with its primary lending institutions. The majority of these lending agreements and amendments require origination fees and other fees in the course of executing the agreements. For all costs associated with the execution of the lending agreements, the Company recognizes these as capitalized costs and amortizes these costs over the term of the loan agreement. All other costs

not

associated with the execution of the loan agreements are expensed as incurred. As of

June 30, 2017,

we had approximately

$197,000

in unamortized loan fees and other deferred costs associated with the

2014

Credit Agreement, which we expect to charge to expense upon the termination of that agreement. 

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in income in the period that includes the enactment date. A deferred tax asset or liability that is

not

related to an asset or liability for financial reporting is classified according to the expected reversal date.  The Company records a valuation allowance to reduce deferred tax assets to an amount that it believes is more likely than

not

to be realized.

The Company accounts for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if, in the Company’s opinion, it is more likely than

not

that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous.  As such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and

may

result in changes to the Company’s subjective assumptions and judgments which can materially affect amounts recognized in the consolidated balance sheets and consolidated statements of income. The result of the reassessment of the Company’s tax positions did

not

have an impact on the consolidated financial statements.

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The Company files tax returns in the

United States and in the states in which it conducts its business operations. The tax years

2012

through

2016

remain open to examination in the taxing jurisdictions to which the Company is subject.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value

The Company follows authoritative guidance that applies to all financial assets and liabilities required to be measured and reported on a fair value basis. The Company also applies the guidance to non-financial assets and liabilities measured at fair value on a nonrecurring basis, including non-competition agreements and goodwill. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The Company did

not

change its valuation techniques nor were there any transfers between hierarchy levels during the

six

months ended

June 30, 2017.

The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The hierarchy is broken down into

three

levels based on the reliability of the inputs as follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or

Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-based Compensation

Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award as described below, and is recognized over the requisite service period, which is generally the vesting period of the equity grant.

The Company uses the Black-Scholes pricing model as a method for determining the estimated grant date fair value for all stock options awarded to employees, independent contractors, officers, and directors. The expected term of the options is based upon evaluation of historical and expected further exercise behavior. The risk-free interest rate is based upon U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of our stock and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be

none

as we have

not

paid dividends nor do we anticipate paying any dividends in the foreseeable future.

The Company also uses the Black-Scholes valuation model to determine the fair value of warrants. Expected volatility is based upon the weighted average of historical volatility over the contractual term of the warrant and implied volatility. The risk-free interest rate is based upon implied yield on a U.S. Treasury

zero

-coupon issue with a remaining term equal to the contractual term of the warrants. The dividend yield is assumed to be

none.

Use of Estimates, Policy [Policy Text Block]

Management Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the realization of accounts receivable, stock based compensation expense, income tax provision, the valuation of derivative financial instruments (warrants and interest rate swaps), and the valuation of deferred taxes. Actual results could differ from those estimates.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain prior-period amounts have been reclassified for comparative purposes to conform to the fiscal

201

7

presentation. These reclassifications have

no

effect on the Company’s consolidated statement of operations.

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2014

-

09,

“Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In

August 2015

the FASB agreed to defer the effective date by

one

year, the new standard becomes effective for us on

January 1, 2018.

Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently determining the impact of the new standard on revenue from the services we provide. Our approach includes performing a detailed review of key contracts representative of our different subsidiary businesses and comparing historical accounting policies and practices to the new standard. Our services are primarily short-term in nature, and our assessment at this stage is that we do

not

expect the new revenue recognition standard will have a material impact on our financial statements upon adoption. We expect that the new standard will require more robust disclosure of details surrounding our revenue from contracts with customers. We currently intend to adopt the new standard as of

January 1, 2018.

In

February 2016,

the FASB issued ASU

2016

-

02

“Leases (Topic

842

)”, which requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We continue to evaluate the impact of this new standard on our consolidated financial statements Once adopted, the Company expects to recognize additional assets and liabilities on its consolidated balance sheet related to operating leases with terms longer than

one

year.

In

August 2016,

the FASB issued ASU

2016

-

15,

 “Statement of Cash Flows (Topic

230

), Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force) (ASU

2016

-

15

)”, that clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than

one

class of cash flows. The guidance will be effective for annual periods beginning after 

December 15, 2017 

and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect of ASU

2016

-

15

on its consolidated financial statements.

Recently Adopted

In

March 2016,

the FASB issued ASU

2016

-

09

“Compensation – Stock Compensation (Topic

718

)”, which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The adoption of this guidance did

not

impact the Company’s consolidated financial position, results of operations, or cash flows.

XML

Note 1 - Basis of Presentation (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Current Ownership Hierarchy [Table Text Block]

Name	State of Formation	Ownership	Business
Dillco Fluid Service, Inc. (“Dillco”)	Kansas	100% by Enservco	Oil and natural gas field fluid logistic services.
Heat Waves Hot Oil Service LLC (“Heat Waves”)	Colorado	100% by Enservco	Oil and natural gas well services, including logistics and stimulation.
Heat Waves Water Management LLC (“HWWM”)	Colorado	100% by Enservco	Water Transfer and Water Treatment Services.
HE Services LLC (“HES”)	Nevada	100% by Heat Waves	No active business operations. Owns construction equipment used by Heat Waves.
Real GC, LLC (“Real GC”)	Colorado	100% by Heat Waves	No active business operations. Owns real property in Garden City, Kansas that is utilized by Heat Waves.

XML

Note 4 - Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

	June 30,			December 31,
	201 7			2016
Trucks and vehicles	$	54,855,287		$	54,353,632
Water transfer equipment		4,906,505			4,520,155
Other equipment		2,913,112			2,898,457
Buildings and improvements		3,896,865			3,896,865
Land		784,636			784,636
Disposal wells		391,003			391,003
Total property and equipment		67,747,408			66,844,748
Accumulated depreciation		(35,476,894	)		(32,226,787	)
Property and equipment – net	$	32,270,514		$	34,617,961

XML

Note 5 - PNC Credit Facility (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Leverage Ratio [Table Text Block]

Fiscal Quarter Ending:	Maximum Leverage Ratio
June 30, 2017	4.50	:	1.00
September 30, 2017	4.50	:	1.00
December 31, 2017	7.00	:	1.00
March 31, 2018	5.50	:	1.00

XML

Note 6 - Long-term Debt (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30,			December 31,
	201 7			2016
Real Estate Loan for facility in North Dakota, interest at 3.75%, monthly principal and interest payment of $5,255 ending October 3, 2028. Collateralized by land and property purchased with the loan.	$	329,815		$	355,033
Note payable to the seller of Heat Waves. The note was garnished by the Internal Revenue Service (“IRS”) in 2009 and is due on demand; paid in annual installments of $36,000 per agreement with the IRS.		125,000			170,000
Mortgages payable to banks, interest ranging from 5.9% to 7.25%, due in monthly principal and interest payments of $6,105, secured by land. Remaining principal balances were paid in February 2017.		-			97,839
Total		454,815			622,872
Less current portion		(176,403	)		(318,499	)
Long-term debt, net of current portion	$	278,412		$	304,373

Schedule of Maturities of Long-term Debt [Table Text Block]

Twelve Months Ending June 30 ,
2017	$	176,403
2018		53,392
2019		55,438
2020		57,602
2021		59,831
Thereafter		52,149
Total	$	454,815

XML

Note 7 - Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Fair Value Measurement Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Measurement
June 30 , 2017
Derivative Instrument
Warrant liability	$	-	$	-	$	306,648	$	306,648
Interest rate swap	$	-	$	72,000	$	-	$	72,000
December 31, 201 6
Derivative Instrument
Interest rate swap	$	-	$	91,000	$	-	$	91,000

XML

Note 9 - Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Twelve Months Ending June 30,
2018	$	622,242
2019		562,518
2020		569,194
2021		381,370
2022		290,046
Thereafter		-
Total	$	2,425,370

XML

Note 10 - Stockholders Equity (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
Warrants	Shares		Price		Life (Years)		Value
Outstanding at December 31, 2016		180,001	$	0.57		1.51	$	-
Issued		1,612,902		0.31		5.00		-
Exercised		-		-
Forfeited/Cancelled		-		-
Outstanding at June 30, 2017		1,792,903	$	0.34		4.60		-
Exercisable at June 30, 2017		1,792,903	$	0.34		4.60		-

XML

Note 11 - Stock Options (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	For the Three Months Ended								For the Six Months Ended
	June 30,								June 30,
	2017				2016				2017				2016
Expected volatility		89%	-	93%		81%	-	84%		89%	-	93%		81%	-	102%
Risk-free interest rate			1.4%				0.9%				1.4%			0.9%	-	1.2%
Forfeiture rate			0%				0%				0%				0%
Dividend yield			0%				0%				0%				0%
Expected term (in years)		3.0	-	3.5		3.1	-	3.5		3.0		3.5		3.1	-	3.5

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31 , 2016		4,211,168		$	1.09		2.85	$	46,233
Granted		2,171,600			0.31		4.93		24,000
Exercised		-			-		-		-
Forfeited or Expired		(533,335	)		1.38		1.55
Outstanding at June 30, 2017		5,849,433		$	0.78		2.81		24,000
Vested or Expected to Vest at June 30, 2017		3,732,666		$	0.99		1.82		8,333
Exercisable at June 30, 2017		3,732,666		$	0.99		1.82	$	8,333

Schedule of Nonvested Share Activity [Table Text Block]

	Number of Shares			Weighted-Average Grant- Date Fair Value
Non-vested at December 31, 2016		1,659,834		$	0.58
Granted		2,171,600			0.18
Vested		(1,651,333	)		0.45
Forfeited		(70,001	)		0.35
Non-vested at June 30, 2017		2,110,100		$	0.26

XML

Note 12 - Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Well Enhancement			Water Transfer Services			Water Hauling			Construction Services			Unallocated & Other			Total
Three Months Ended June 30, 2017:
Revenues	$	5,819,435		$	305,994		$	880,801		$	99,811		$	-		$	7,106,041
Cost of Revenue		4,324,845			616,468			1,192,372			67,483			231,585			6,432,753
Segment Profit	$	1,494,590		$	(310,474	)	$	(311,572	)	$	32,328		$	(231,585	)	$	673,288
Depreciation and  Amortization	$	1,252,801		$	246,137		$	167,866		$	-		$	8,071		$	1,674,875
Capital Expenditures  (Excluding Acquisitions)	$	140,287		$	139,983		$	69,043		$	-		$	528		$	349,841
Three Months Ended June 30, 2016:
Revenues	$	2,660,526		$	-		$	888,892		$	588,934		$	-		$	4,138,352
Cost of Revenue		2,790,690			420,316			830,872			712,326			183,977		$	4,938,181
Segment Profit	$	(130,164	)	$	(420,316	)	$	58,020		$	(123,392	)	$	(183,977	)	$	(799,829	)
Depreciation and  Amortization	$	1,224,851		$	215,946		$	169,396		$	-		$	7,427		$	1,617,620
Capital Expenditures  (Excluding Acquisitions)	$	50,545		$	11,359		$	5,739		$	-		$	-		$	67,643

	Well Enhancement		Water Transfer Services			Water Hauling			Construction Services			Unallocated & Other			Total
Six Months Ended June 30, 2017:
Revenues	$	17,803,064	$	1,058,006		$	1,765,806		$	254,066		$	-		$	20,880,942
Cost of Revenue		12,773,391		1,292,256			2,105,057			211,644			428,809			16,811,157
Segment Profit	$	5,029,673	$	(234,250	)	$	(339,252	)	$	42,422		$	(428,809	)	$	4,069,785
Depreciation and Amortization	$	2,424,124	$	477,796		$	333,487		$	-		$	15,897		$	3,251,304
Capital Expenditures (Excluding Acquisitions)	$	404,316	$	454,518		$	106,431		$	-		$	5,561		$	970,826
Identifiable assets (1)	$	30,974,297	$	3,885,676		$	1,932,607		$	-		$	344,823		$	37,137,403
Six Months Ended June 30, 2016:
Revenues	$	9,820,349	$	31,688		$	2,004,440		$	588,934		$	-		$	12,445,411
Cost of Revenue		7,747,146		879,252			2,020,876			712,326			348,666		$	11,708,266
Segment Profit	$	2,073,203	$	(847,564	)	$	(16,436	)	$	(123,392	)	$	(348,666	)	$	737,145
Depreciation and Amortization	$	2,577,218	$	431,893		$	338,198		$	-		$	18,283		$	3,365,592
Capital Expenditures (Excluding Acquisitions)	$	369,281	$	164,045		$	27,473		$	-		$	16,331		$	577,130
Identifiable assets (1)	$	34,399,312	$	3,903,753		$	2,526,981		$	-		$	325,765		$	41,155,811

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Segment profit (loss)	$	673,288		$	(799,829	)	$	4,069,785		$	737,145
General and administrative expenses		(1,289,616	)		(901,321	)		(2,284,299	)		(1,927,896	)
Patent litigation and defense costs		(24,542	)		(39,446	)		(67,230	)		(75,612	)
Severance and Transition Costs		(767,755	)		-			(767,755	)		-
Depreciation and amortization		(1,674,875	)		(1,617,620	)		(3,251,304	)		(3,365,592	)
Income (loss) from Operations	$	(3,083,501	)	$	(3,358,216	)	$	(2,300,803	)	$	(4,631,955	)

XML

Note 1 - Basis of Presentation - Current Ownership Hierarchy (Details)	6 Months Ended
	Jun. 30, 2017
Dillco Fluid Service Inc at Kansas [Member]
Subsidiary or Equity Method Investee	100.00%
Heat Waves Hot Oil Service LLC at Colorado [Member]
Subsidiary or Equity Method Investee	100.00%
Heat Waves Water Management LLC at Colorado [Member]
Subsidiary or Equity Method Investee	100.00%
HE Services LLC at Nevada [Member] | Heat Waves [Member]
Subsidiary or Equity Method Investee	100.00%
Real GC LLC at Colorado [Member] | Heat Waves [Member]
Subsidiary or Equity Method Investee	100.00%

XML

Note 2 - Liquidity and Managements' Plans (Details Textual) - USD ($)			6 Months Ended
	Aug. 10, 2017	Aug. 08, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2014
Available Liquidity			$ 2,100,000
Long-term Debt			454,815		$ 622,872
Cash			621,000
The 2017 Credit Agreement [Member] | East West Bank [Member] | Subsequent Event [Member]
Line of Credit Facility, Expiration Period	3 years	3 years
Line of Credit Facility, Maximum Borrowing Capacity	$ 30,000,000	$ 30,000,000
Line of Credit Facility, Remaining Borrowing Capacity	$ 4,700,000
Two Thousand Fourteen Credit Agreement [Member] | Revolving Credit Facility [Member]
Repayments of Lines of Credit			3.50
Debt Instrument, Required Funds to be Raised				$ 1,500,000
Line of Credit Facility, Maximum Borrowing Capacity						$ 30,000,000
Long-term Debt			20,400,000		23,200,000
Line of Credit Facility, Remaining Borrowing Capacity			$ 1,500,000		$ 4,500,000
Two Thousand Fourteen Credit Agreement [Member] | Revolving Credit Facility [Member] | Subordinated Debt [Member]
Debt Instrument, Required Additional Funds to be Raised				$ 1,000,000

XML

Note 3 - Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Allowance for Doubtful Accounts Receivable, Current	$ 83,000		$ 83,000		$ 34,000
Provision for Doubtful Accounts	20,000	$ 48,000	49,402	$ 86,949
Inventory Write-down	0	0	0	0
Asset Impairment Charges	$ 0	$ 0	$ 0	$ 0
Number of Outstanding Stock Based Option Awards and Warrants	5,749,433	5,120,669	5,749,433	5,120,669
Diluted Share Instruments, Intrinsic Value	$ 0		$ 0
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	0	0	0
Revolving Credit Facility [Member] | Two Thousand Fourteen Credit Agreement [Member]
Unamortized Debt Issuance Expense	$ 197,000		$ 197,000
Minimum [Member]
Property, Plant and Equipment, Useful Life			5 years
Maximum [Member]
Property, Plant and Equipment, Useful Life			30 years

XML

Note 4 - Property and Equipment (Details Textual) $ in Millions	Jan. 01, 2016 USD ($)
Water Management Assets of HII Technologies and Wet Oilfield Services, LLC [Member] | HWWM [Member]
Payments to Acquire Productive Assets	$ 4

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Note 4 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Property and equipment - gross	$ 67,747,408	$ 66,844,748
Accumulated depreciation	(35,476,894)	(32,226,787)
Property and equipment – net	32,270,514	34,617,961
Vehicles [Member]
Property and equipment - gross	54,855,287	54,353,632
Water Transfer Equipment [Member]
Property and equipment - gross	4,906,505	4,520,155
Property, Plant and Equipment, Other Types [Member]
Property and equipment - gross	2,913,112	2,898,457
Building and Building Improvements [Member]
Property and equipment - gross	3,896,865	3,896,865
Land [Member]
Property and equipment - gross	784,636	784,636
Disposal Wells [Member]
Property and equipment - gross	$ 391,003	$ 391,003

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Note 5 - PNC Credit Facility (Details Textual)				1 Months Ended	3 Months Ended		6 Months Ended		9 Months Ended	12 Months Ended	30 Months Ended
	May 10, 2017 USD ($) $ / shares shares	Mar. 31, 2017 USD ($) $ / shares shares	Sep. 17, 2015 USD ($)	Sep. 30, 2014 USD ($)	Jun. 30, 2017 USD ($) $ / shares	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($) $ / shares	Jun. 30, 2016 USD ($)	Sep. 30, 2014 USD ($)	Dec. 31, 2016 USD ($) $ / shares	Sep. 30, 2019
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares					$ 0.34		$ 0.34			$ 0.57
Long-term Debt					$ 454,815		$ 454,815			$ 622,872
Amortization of Debt Issuance Costs					37,000	$ 39,000	297,557	$ 74,694
Fair Value Hedging [Member] | Interest Rate Swap [Member]
Derivative, Notional Amount			$ 10,000,000
Derivative, Swaption Interest Rate			1.88%
Derivative Liability					72,000		72,000			91,000
Fair Value Hedging [Member] | Interest Rate Swap [Member] | Interest Expense [Member]
Unrealized Gain (Loss) on Derivatives					(11,000)	$ (74,000)	19,000	$ (172,000)
Prepaid Expenses and Other Current Assets [Member]
Unamortized Debt Issuance Expense					147,000		147,000			171,000
Other Assets [Member]
Unamortized Debt Issuance Expense					$ 51,000		$ 51,000			$ 259,000
Cross River Partners, L.P. [Member]
Proceeds from Issuance of Subordinated Long-term Debt	$ 1,000,000
Class of Warrant or Right, Expiration Period	5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares	645,161
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares	$ 0.31
Subordinated Debt [Member]
Debt Instrument, Interest Rate, Stated Percentage		10.00%
Subordinated Debt [Member] | Cross River Partners, L.P. [Member]
Debt Instrument, Interest Rate, Stated Percentage	10.00%
Two Thousand Fourteen Credit Agreement [Member]
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage									0.375%
Two Thousand Fourteen Credit Agreement [Member] | Warrants Purchased in Credit Agreement [Member]
Class of Warrant or Right, Expiration Period		5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares		967,741
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares		$ 0.31
Two Thousand Fourteen Credit Agreement [Member] | Domestic Rate Loans [Member]
Debt Instrument, Interest Rate, Effective Percentage					7.25%		7.25%			6.75%
Long-term Debt					$ 1,900,000		$ 1,900,000			$ 1,900,000
Two Thousand Fourteen Credit Agreement [Member] | LIBOR Based Loans [Member]
Long-term Debt					18,500,000		$ 18,500,000			$ 21,300,000
Two Thousand Fourteen Credit Agreement [Member] | Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			4.50%				5.55%		4.50%	5.21%
Two Thousand Fourteen Credit Agreement [Member] | Minimum [Member] | Base Rate [Member] | Domestic Rate Loans [Member]
Debt Instrument, Basis Spread on Variable Rate			4.50%						3.00%
Two Thousand Fourteen Credit Agreement [Member] | Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			5.50%				5.72%		5.50%	5.27%
Two Thousand Fourteen Credit Agreement [Member] | Maximum [Member] | Base Rate [Member] | Domestic Rate Loans [Member]
Debt Instrument, Basis Spread on Variable Rate			5.50%						4.00%
Two Thousand Fourteen Credit Agreement [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Remaining Borrowing Capacity					1,500,000		$ 1,500,000			$ 4,500,000
Debt Instrument, Required Funds to be Raised		$ 1,500,000
Debt Instrument, Letters of Credit Issued		1,500,000
Long-term Debt					20,400,000		20,400,000			$ 23,200,000
Amortization of Debt Issuance Costs Due to Change in Maturity Date							217,000
Unamortized Debt Issuance Expense					$ 197,000		$ 197,000
Debt Instrument, Term				5 years
Line of Credit Facility, Maximum Borrowing Capacity				$ 30,000,000					$ 30,000,000
Line of Credit Facility Limitation on Borrowings Percentage of Eligible Receivables				85.00%					85.00%
Line of Credit Facility Limitation on Borrowings Percentage of Appraised Value of Trucks and Equipment				75.00%					75.00%
Two Thousand Fourteen Credit Agreement [Member] | Revolving Credit Facility [Member] | Scenario, Forecast [Member]
Debt Covenant, Minimum Fixed Charge Coverage Ratio											1.25
Two Thousand Fourteen Credit Agreement [Member] | Revolving Credit Facility [Member] | Subordinated Debt [Member]
Debt Instrument, Required Additional Funds to be Raised		$ 1,000,000

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Note 5 - PNC Credit Facility - Summary of Quarterly Leverage Ratio (Details) - Two Thousand Fourteen Credit Agreement [Member]	3 Months Ended			6 Months Ended
	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017
Minimum [Member]
Maximum leverage ratio				4.5
Minimum [Member] | Scenario, Forecast [Member]
Maximum leverage ratio	5.5	7	4.5
Maximum [Member]
Maximum leverage ratio				1
Maximum [Member] | Scenario, Forecast [Member]
Maximum leverage ratio	1	1	1

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Note 6 - Long-term Debt - Summary of Long-term Debt Instruments (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Long-term debt	$ 454,815	$ 622,872
Less current portion	(176,403)	(318,499)
Long-term debt, net of current portion	278,412	304,373
Real Estate Loan 1 [Member]
Long-term debt	329,815	355,033
Note Payable To Seller Of Heat Waves [Member]
Long-term debt	125,000	170,000
Mortgage Payable Through February 2017 [Member]
Long-term debt		$ 97,839

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Note 6 - Long-term Debt - Summary of Long-term Debt Instruments (Details) (Parentheticals) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Real Estate Loan 1 [Member]
Debt Instrument, Periodic Payment	$ 5,255	$ 5,255
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	3.75%	3.75%
Debt Instrument, Maturity Date	Oct. 03, 2028	Oct. 03, 2028
Note Payable To Seller Of Heat Waves [Member]
Debt Instrument, Periodic Payment	$ 36,000	$ 36,000
Mortgage Payable Through February 2017 [Member]
Debt Instrument, Periodic Payment		$ 6,105
Mortgage Payable Through February 2017 [Member] | Minimum [Member]
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate		5.90%
Mortgage Payable Through February 2017 [Member] | Maximum [Member]
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate		7.25%

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Note 6 - Long-term Debt - Summary of Maturities of Long-term Debt (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
2017	$ 176,403
2018	53,392
2019	55,438
2020	57,602
2021	59,831
Thereafter	52,149
Total	$ 454,815	$ 622,872

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Note 7 - Fair Value Measurements (Details Textual)	6 Months Ended
	Jun. 30, 2017 USD ($)
Warrants [Member]
Fair Value Assumptions, Risk Free Interest Rate	1.51%
Fair Value Assumptions, Expected Dividend Rate	0.00%
Fair Value Assumptions, Expected Term	2 years 182 days
Fair Value Assumptions, Expected Volatility Rate	96.39%
Warrant Liability [Member] | Warrants [Member]
Derivative Liability	$ 307,000
Accounts Payable and Accrued Liabilities [Member] | Interest Rate Swap [Member]
Derivative Liability	$ 72,000

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Note 7 - Fair Value Measurements - Financial Assets and Liabilities Measured on Recurring Basis (Details) - Fair Value, Measurements, Recurring [Member] - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Warrants [Member]
Derivative instrument	$ 306,648
Interest Rate Swap [Member]
Derivative instrument	72,000	$ 91,000
Fair Value, Inputs, Level 3 [Member] | Warrants [Member]
Derivative instrument	306,648
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Derivative instrument	$ 72,000	$ 91,000

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Note 8 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Deferred Tax Assets, Net, Noncurrent	$ 547,248		$ 547,248
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%	34.00%
Income Tax Expense (Benefit)	$ (1,018,644)	$ (1,239,865)	$ (991,529)	$ (1,808,707)

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Note 9 - Commitments and Contingencies (Details Textual) - USD ($)	1 Months Ended			3 Months Ended		6 Months Ended		12 Months Ended
	Aug. 08, 2017	Nov. 30, 2016	Jun. 30, 2015	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Apr. 01, 2015
Operating Leases, Rent Expense				$ 191,000	$ 200,000	$ 405,000	$ 404,000
Self Insurance Reserve				63,000		63,000		$ 23,000
Workers' Compensation, Maximum Coverage Policy									$ 1,500,000
Self-insured Amount per Individual Claim			$ 75,000
Other Noncurrent Assets [Member]
Worker's Compensation, Prepaid Amount				362,000		362,000
Expenses, Water Hauling Services [Member]
Workers' Compensation, Estimated Accruals				250,000		250,000
Subsequent Event [Member]
Payments on Workers' Compensation Claims	$ 612,000
Workers' Compensation, Accumulated Payments on Claims	1,400,000
Workers' Compensation, Remaining Policy Premiums	$ 163,000
Sales Agreement with HydroFLOW USA [Member]
Licencing Agreement, Royalties on Gross Revenues Payable, Percentage								3.50%
Purchase Commitment, Minimum Amount Committed Per Year								$ 655,000
Purchase Commitment, Current Period Obligation Payment Allocated to Following Fiscal Year		$ 220,000
Purchase Commitment, Minimum Amount Committed, Next Twelve Months								$ 875,000
Purchase Commitment, Amount Ordered						280,000
Payments for Royalties				0	0	0	0
Accrued Royalties				$ 0	$ 0	$ 0	$ 0

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Note 9 - Commitments and Contingencies - Summary of Future Minimum Operating Lease Commitments (Details)	Jun. 30, 2017 USD ($)
2018	$ 622,242
2019	562,518
2020	569,194
2021	381,370
2022	290,046
Thereafter
Total	$ 2,425,370

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Note 10 - Stockholders Equity (Details Textual) - USD ($)				1 Months Ended		3 Months Ended		6 Months Ended
	Jun. 21, 2017	Dec. 21, 2016	Nov. 30, 2012	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	May 10, 2017	Dec. 31, 2016
Class of Warrant or Right, Outstanding				1,792,903		1,792,903		1,792,903			180,001
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 0.34		$ 0.34		$ 0.34			$ 0.57
Class of Warrant or Right, Issued During Period								1,612,902
Class of Warrant or Right, Issued During Period, Exercise Price								$ 0.31
Allocated Share-based Compensation Expense						$ 311,000	$ 167,000	$ 446,000	$ 318,000
Option Plan 2010 Member | Consultant [Member]
Stock Issued During Period, Shares, Issued for Services									3,031
Allocated Share-based Compensation Expense									$ 1,700
Warrants Issued in June 2016 [Member]
Class of Warrants or Rights, Vesting Period					1 year
Class of Warrants or Rights, Vested During the Period	15,000	15,000
Class of Warrant or Right, Outstanding				30,000		30,000		30,000
Class of Warrant or Right, Issued During Period					30,000
Class of Warrant or Right, Grants in Period, Grant-date Fair Value					$ 0.36
Warrant [Member]
Share Based Compensation Warrants Outstanding				150,001		150,001		150,001
Investors [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights			$ 0.55
Warrants Expiration Period			5 years
Cross River Partners, L.P. [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights										$ 0.31
Warrants Expiration Period				5 years
Class of Warrant or Right, Issued During Period				1,612,902
Class of Warrant or Right, Issued During Period, Exercise Price				$ 0.31
Class of Warrant or Right, Grants in Period, Grant-date Fair Value				$ 0.19

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Note 10 - Stockholders Equity - Summary of Warrant Activity (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016	Mar. 31, 2017
Outstanding (in shares)	180,001
Outstanding, weighted average exercise price (in dollars per share)	$ 0.57
Outstanding, weighted average exercise price (in dollars per share)	$ 0.34	$ 0.57
Outstanding, weighted average remaining contractual life (Year)	4 years 219 days	1 year 186 days
Outstanding, aggregate intrinsic value
Issued (in shares)	1,612,902
Issued (in dollars per share)	$ 0.31
Issued, weighted average remaining contractual life (Year)	5 years
Exercised (in shares)
Exercised, weighted average exercise price (in dollars per share)
Forfeited/Cancelled (in shares)
Exercisable (in shares)	1,792,903
Exercisable, weighted average exercise price (in dollars per share)	$ 0.34
Exercisable, weighted average remaining contractual life (Year)	4 years 219 days
Exercisable, aggregate intrinsic value
Forfeited/Cancelled, weighted average exercise price (in dollars per share)
Outstanding (in shares)	1,792,903	180,001

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Note 11 - Stock Options (Details Textual) - USD ($)				3 Months Ended		6 Months Ended
	Jul. 18, 2016	Jan. 02, 2016	Jul. 27, 2010	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	10,391,711
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number				5,849,433		5,849,433		4,211,168
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period						0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						2,171,600	1,565,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value						$ 0.18	$ 0.33
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period						533,335
Allocated Share-based Compensation Expense				$ 311,000	$ 167,000	$ 446,000	$ 318,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized				$ 492,000		$ 492,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition						1 year 317 days
Option Plan 2010 Member
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Outstanding Stock Maximum			15.00%
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		5 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		5,719,069		0		0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number		38,127,129			2,251,168		2,251,168
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period	875,000
Option Plan 2010 Member | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		1 year
Option Plan 2010 Member | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years
The 2016 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	2,391,711
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	8,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number					1,960,000		1,960,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	875,000

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Note 11 - Stock Options - Summary of Stock Valuation Assumptions (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Risk-free interest rate	1.40%	0.90%	1.40%
Forfeiture rate	0.00%	0.00%	0.00%	0.00%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Minimum [Member]
Expected volatility	89.00%	81.00%	89.00%	81.00%
Risk-free interest rate				0.90%
Expected term (Year)	3 years	3 years 36 days	3 years	3 years 36 days
Maximum [Member]
Expected volatility	93.00%	84.00%	93.00%	102.00%
Risk-free interest rate				1.20%
Expected term (Year)	3 years 182 days	3 years 182 days	3 years 182 days	3 years 182 days

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Note 11 - Stock Options - Summary of Stock Option Activity (Details) - USD ($)		6 Months Ended
	Dec. 31, 2016	Jun. 30, 2017	Jun. 30, 2016
Outstanding (in shares)		4,211,168
Outstanding, weighted average exercise price (in dollars per share)		$ 1.09
Outstanding, weighted average exercise price (in dollars per share)	$ 1.09	$ 0.78
Outstanding, weighted average remaining contractual life (Year)	2 years 310 days	2 years 295 days
Outstanding, aggregate intrinsic value	$ 46,233	$ 24,000
Granted (in shares)		2,171,600	1,565,000
Granted, weighted average exercise price (in dollars per share)		$ 0.31
Granted, weighted average remaining contractual life (Year)		4 years 339 days
Granted		$ 24,000
Exercised (in shares)		0
Exercised, weighted average exercise price (in dollars per share)
Forfeited or Expired (in shares)		(533,335)
Forfeited or Expired, weighted average exercise price (in dollars per share)		$ 1.38
Forfeited or Expired (Year)		1 year 200 days
Vested or Expected to Vest (in shares)		3,732,666
Vested or Expected to Vest, weighted average exercise price (in dollars per share)		$ 0.99
Vested or Expected to Vest, weighted average remaining contractual life (Year)		1 year 299 days
Vested or Expected to Vest, aggregate intrinsic value		$ 8,333
Exercisable (in shares)		3,732,666
Exercisable, weighted average exercise price (in dollars per share)		$ 0.99
Outstanding (in shares)	4,211,168	5,849,433
Exercisable, weighted average remaining contractual life (Year)		1 year 299 days
Exercisable, aggregate intrinsic value		$ 8,333

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Note 11 - Stock Options - Summary of the Status of Non-vested Shares (Details) - $ / shares	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Balance, non-vested (in shares)	1,659,834
Balance, non-vested, weighted average grant date fair value (in dollars per share)	$ 0.58
Granted, non-vested (in shares)	2,171,600	1,565,000
Granted, weighted average grant date fair value (in dollars per share)	$ 0.18	$ 0.33
Vested, non-vested (in shares)	(1,651,333)
Vested, weighted average grant date fair value (in dollars per share)	$ 0.45
Forfeited, non-vested (in shares)	(70,001)
Forfeited, weighted average grant date fair value (in dollars per share)	$ 0.35
Balance, non-vested (in shares)	2,110,100
Balance, non-vested, weighted average grant date fair value (in dollars per share)	$ 0.26

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Note 12 - Segment Reporting - Reportable Segments (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues		$ 7,106,041	$ 4,138,352	$ 20,880,942	$ 12,445,411
Cost of Revenue		6,432,753	4,938,181	16,811,157	11,708,266
Segment Profit		673,288	(799,829)	4,069,785	737,145
Depreciation and amortization		1,674,875	1,617,620	3,251,304	3,365,592
Capital Expenditures (Excluding Acquisitions)		349,841	67,643	970,826	577,130
Identifiable assets (1)	[1]	37,137,403	41,155,811	37,137,403	41,155,811
Well Enhancement [Member]
Revenues		5,819,435	2,660,526	17,803,064	9,820,349
Cost of Revenue		4,324,845	2,790,690	12,773,391	7,747,146
Segment Profit		1,494,590	(130,164)	5,029,673	2,073,203
Depreciation and amortization		1,252,801	1,224,851	2,424,124	2,577,218
Capital Expenditures (Excluding Acquisitions)		140,287	50,545	404,316	369,281
Identifiable assets (1)	[1]	30,974,297	34,399,312	30,974,297	34,399,312
Fluid Management [Member]
Revenues		305,994		1,058,006	31,688
Cost of Revenue		616,468	420,316	1,292,256	879,252
Segment Profit		(310,474)	(420,316)	(234,250)	(847,564)
Depreciation and amortization		246,137	215,946	477,796	431,893
Capital Expenditures (Excluding Acquisitions)		139,983	11,359	454,518	164,045
Identifiable assets (1)	[1]	3,885,676	3,903,753	3,885,676	3,903,753
Water Hauling [Member]
Revenues		880,801	888,892	1,765,806	2,004,440
Cost of Revenue		1,192,372	830,872	2,105,057	2,020,876
Segment Profit		(311,572)	58,020	(339,252)	(16,436)
Depreciation and amortization		167,866	169,396	333,487	338,198
Capital Expenditures (Excluding Acquisitions)		69,043	5,739	106,431	27,473
Identifiable assets (1)	[1]	1,932,607	2,526,981	1,932,607	2,526,981
Construction Services [Member]
Revenues		99,811	588,934	254,066	588,934
Cost of Revenue		67,483	712,326	211,644	712,326
Segment Profit		32,328	(123,392)	42,422	(123,392)
Depreciation and amortization
Capital Expenditures (Excluding Acquisitions)
Identifiable assets (1)	[1]
Unallocated and Other Segments [Member]
Revenues
Cost of Revenue		231,585	183,977	428,809	348,666
Segment Profit		(231,585)	(183,977)	(428,809)	(348,666)
Depreciation and amortization		8,071	7,427	15,897	18,283
Capital Expenditures (Excluding Acquisitions)		528		5,561	16,331
Identifiable assets (1)	[1]	$ 344,823	$ 325,765	$ 344,823	$ 325,765

[1] Identifiable assets is calculated by summing the balances of accounts receivable, net; inventories; property and equipment, net; and other assets.

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Note 12 - Segment Reporting - Loss From Operations (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Segment profit (loss)		$ 673,288	$ (799,829)	$ 4,069,785	$ 737,145
General and administrative expenses		(1,289,616)	(901,321)	(2,284,299)	(1,927,896)
Patent litigation and defense costs		(24,542)	(39,446)	(67,230)	(75,612)
Severance and Transition Costs	[1]	(767,755)		(767,755)
Depreciation and amortization		(1,674,875)	(1,617,620)	(3,251,304)	(3,365,592)
Income (loss) from Operations		$ (3,083,501)	$ (3,358,216)	$ (2,300,803)	$ (4,631,955)

[1] Severance and transition costs comprise (i) payments and accruals for future payments to our former Chief Executive Officer and Chielf Financial Officer and (ii) legal fees directly related to separation and transition activities.

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Note 13 - Subsequent Event (Details Textual) - East West Bank [Member] - The 2017 Credit Agreement [Member] - Subsequent Event [Member] - USD ($)	Aug. 10, 2017	Aug. 08, 2017
Line of Credit Facility, Expiration Period	3 years	3 years
Line of Credit Facility, Maximum Borrowing Capacity	$ 30,000,000	$ 30,000,000
Line of Credit Facility, Maximum Borrowing Capacity, Percent of Eligible Receivables		85.00%
Line of Credit Facility, Maximum Borrowing Capacity, Percentage of Trucks and Equipment		85.00%
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage		0.50%
Line of Credit Facility, Terms, Fixed Charge Coverage Ratio		1.1
Minimum [Member]
Line of Credit Facility Terms, Minimum Liquidity		$ 1,500,000
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		3.50%
Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate		1.75%