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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-19793
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MARCUM NATURAL GAS SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
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DELAWARE 84-1169358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 Broadway, Suite 2150
Denver, Colorado 80202
(Address of principal executive offices) (Zip code)
(303)592-5555
(Issuer's telephone number, including area code)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes x No
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As of July 31, 1997, there were 12,307,327 shares of the issuer's
Common Stock outstanding.
Transitional Small Business Disclosure Format
Yes No x
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MARCUM NATURAL GAS SERVICES, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1997 (unaudited) and December 31, 1996 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended June 30, 1997 and
June 30, 1996
For the Six Months Ended June 30, 1997 and
June 30, 1996 5
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1997 and
June 30, 1996 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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(UNAUDITED)
<S> <C> <C>
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 1,285,290 $ 889,543
Trade receivables, less allowance for doubtful accounts
of $120,156 and $136,967, respectively 3,397,541 3,097,756
Other receivables 90,994 116,779
Inventory 2,670,877 2,428,466
Net assets of discontinued operations 836,120 2,676,898
Prepaid expenses and other current assets 246,328 315,200
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Total current assets 8,527,150 9,524,642
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PROPERTY, PLANT AND EQUIPMENT, AT COST:
Equipment 2,263,073 2,169,729
Vehicles 50,896 50,896
Furniture and fixtures 463,644 454,558
Land, building and improvements 415,378 382,323
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Total 3,192,991 3,057,506
Less accumulated depreciation 1,908,024 1,782,102
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Property, plant and equipment, net 1,284,967 1,275,404
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OTHER ASSETS:
Customer list (net of accumulated amortization
of $1,842,826 and $1,620,204, respectively) 7,050,061 7,272,683
Goodwill and other intangibles (net of accumulated
amortization of $392,188 and $306,481, respectively) 940,789 1,026,496
Investments in unconsolidated affiliates 287,839 297,584
Other assets 211,122 192,626
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Total other assets 8,489,811 8,789,389
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TOTAL $18,301,928 $19,589,435
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</TABLE>
See notes to unaudited consolidated financial statements.
3
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 848,142 $ 446,121
Accrued and other liabilities 1,100,489 1,204,692
Current maturities of notes payable 642,414 581,071
Current maturities of long-term debt and
capital lease obligations 14,612 10,866
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Total current liabilities 2,605,657 2,242,750
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LONG-TERM NOTE PAYABLE 244,445 46,845
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CAPITAL LEASE OBLIGATIONS 17,985 7,353
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Redeemable preferred stock - Series A, $.01 par value;
authorized, 1,000,000 shares; none issued and outstanding
Redeemable preferred stock - Series B, $.01 par value;
authorized, 1,000,000 shares; none issued and outstanding
Redeemable preferred stock - Series C, $.01 par value;
authorized, 500,000 shares; none issued and outstanding
Common stock, $.01 par value; authorized, 25,000,000 shares;
issued and outstanding, 12,307,327 and 12,231,327
shares, respectively 123,073 122,313
Additional paid-in capital 36,910,187 36,844,447
Foreign currency translation adjustment 6,658 (4,354)
Accumulated deficit (21,606,077) (19,669,919)
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Total stockholders' equity 15,433,841 17,292,487
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TOTAL $18,301,928 $19,589,435
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</TABLE>
See notes to unaudited consolidated financial statements.
4
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES:
Natural gas measurement sales and services $5,435,643 $4,735,276 $ 9,695,667 $9,439,976
Other 83,195 258,407 182,591 407,255
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Total revenues 5,518,838 4,993,683 9,878,258 9,847,231
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COSTS AND EXPENSES:
Cost of measurement sales and services 3,361,421 3,159,513 6,040,236 6,187,523
General and administrative 937,555 964,689 1,960,458 1,866,555
Selling, marketing and service 420,122 427,930 777,486 795,232
Depreciation and amortization 232,717 216,284 467,230 438,931
Research and development 287,670 159,819 504,682 327,487
Interest and other 18,878 26,515 54,977 46,547
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Total costs and expenses 5,258,363 4,954,750 9,805,069 9,662,275
---------- ---------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS 260,475 38,933 73,189 184,956
---------- ---------- ----------- ----------
DISCONTINUED OPERATIONS:
Loss from operations (389,869) (278,769) (812,809)
Loss from disposal (430,578) (1,730,578)
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LOSS FROM DISCONTINUED OPERATIONS (430,578) (389,869) (2,009,347) (812,809)
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NET LOSS $ (170,103) $ (350,936) $(1,936,158) $ (627,853)
========== ========== =========== ==========
INCOME (LOSS) PER SHARE:
Continuing operations $0.02 $0.00 $0.00 $0.02
Discontinued operations (0.03) (0.03) (0.16) (0.07)
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NET LOSS PER SHARE $(0.01) $(0.03) $(0.16) $(0.05)
========== ========== =========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 12,307,327 12,017,868 12,297,874 11,973,869
========== ========== =========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
5
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,936,158) $ (627,853)
Adjustments to reconcile net loss to net cash provided
by continuing operations:
Loss from discontinued operations 278,769 812,809
Loss from disposal of discontinued operations 1,730,578
Depreciation and amortization 467,230 438,931
Stock compensation expense 135,101
Royalty payments made with restricted stock 29,167
Loss on disposal of assets 3,780 6,124
Equity in income of unconsolidated affiliates (27,768) (48,096)
Changes in other assets and liabilities:
Trade receivables (299,785) 668,324
Inventory (242,411) (46,356)
Other current assets 94,657 364,767
Other noncurrent assets (9,750) (44,449)
Accounts payable 402,021 (112,914)
Accrued and other liabilities (104,203) (241,535)
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Net cash provided by continuing operations 356,960 1,334,020
Net cash used by discontinued operations (168,569) (730,640)
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Net cash provided by operating activities 188,391 603,380
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (151,923) (102,075)
Additions to manufacturing rights and software development costs (235,369)
Net cash from acquisitions 164,308
Proceeds from sale of assets 4,583 24,440
Investment in unconsolidated affiliate (245,125)
Distributions from unconsolidated affiliates 37,512 9,050
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Net cash used in investing activities (109,828) (384,771)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new promissory note 400,000
Payments on notes payable to bank (141,058)
Issuance of common stock 66,500 63,551
Payments on long-term debt and capital lease obligations (8,258) (4,763)
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Net cash provided by financing activities 317,184 58,788
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NET INCREASE IN CASH AND CASH EQUIVALENTS 395,747 277,397
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 889,543 1,500,812
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,285,290 $1,778,209
=========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
6
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1997 and December 31, 1996
For the Three Month Periods Ended June 30, 1997 and 1996 and
For the Six Month Periods Ended June 30, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Marcum Natural Gas Services, Inc. and its wholly-owned subsidiaries
and have been prepared pursuant to rules and regulations of the Securities and
Exchange Commission. The accompanying consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996.
In the opinion of the Company's management, all adjustments (all of
which are normal and recurring) have been made which are necessary for a fair
statement of the consolidated financial position of the Company and its
subsidiaries as of June 30, 1997 and the consolidated results of their
operations and cash flows for the three and six month periods ended June 30,
1997 and 1996.
2. DISCONTINUED OPERATIONS
On June 27, 1997, the Company, through its wholly-owned subsidiary,
Marcum Fuel Systems, Inc. ("MFS"), sold its refueling equipment segment and
substantially all of the operating assets related thereto to Natural Fuels
Corporation ("Natural"), an affiliate of Public Service Co. of Colorado and
Colorado Interstate Gas, pursuant to the provisions of an Asset Purchase
Agreement, dated as of June 27, 1997 (the "Asset Purchase Agreement").
Subsequent to the sale, MFS changed its name to Marcum Denver, Inc.
The assets sold by MFS to Natural included certain inventory,
equipment, contracts, patents, trademarks and technology of MFS used in the
compressed natural gas vehicle fueling business, but excluded receivables and
payables (other than those attributed to assumed jobs), certain inventory and
contracts attributable to jobs in progress as of the closing date, and the
capital stock of its wholly-owned subsidiaries.
7
<PAGE> 8
Pursuant to the Asset Purchase Agreement, (a) Natural paid MFS
$373,628 in cash at closing; (b) Natural agreed to pay an additional $47,735 in
cash for certain vehicles and equipment upon transfer of title to such vehicles
and equipment; (c) Natural assumed the warranty and service obligations of MFS
with respect to jobs completed by MFS and certain liabilities and obligations
of MFS in connection with pending jobs and job quotes assumed by Natural; (d)
Natural agreed to pay MFS 30% of the gross margin upon Natural's completion of
the assumed jobs; and (e) Natural agreed to pay MFS a royalty on the sale by
Natural and its affiliates of compressed natural gas vehicle refueling
dispensers that incorporate MFS metering technology in an amount equal to (i)
$750 per dispenser sold until the earlier of the sale of the first 500
dispensers or five years from the closing date, plus (ii) $500 per dispenser
sold thereafter until the earlier of the sale of 500 additional dispensers or
five additional years. MFS also granted to Natural a one-year license of the
name "Marcum Fuel Systems, Inc." and certain other trademarks and trade names
pursuant to a License Agreement.
The Asset Purchase Agreement provides for mutual respective
indemnification in the event of a breach of representations, warranties,
covenants, or obligations by either MFS or Natural. The obligations of MFS to
Natural under the Asset Purchase Agreement have been guaranteed by the Company.
In addition, the Company and W. Phillip Marcum, the Chairman of the Board,
President, Chief Executive Officer and a director of the Company, also entered
into a noncompetition agreement with Natural, pursuant to which the Company and
Mr. Marcum have agreed not to compete with Natural in the compressed natural
gas vehicle refueling business for four years from the closing date.
MFS will complete certain jobs in progress as of the closing date
which were not sold to Natural and will liquidate its remaining assets. MFS
has subcontracted certain projects to Natural until appropriate consents are
obtained to transfer the projects to Natural. MFS, as well as the Company and
its other wholly-owned subsidiaries, will remain as indemnitors with respect to
certain bonds underwritten in connection with certain projects of MFS that will
be completed by Natural. Pursuant to the Asset Purchase Agreement, Natural
will use commercially reasonable efforts to assume the obligations of MFS and
its affiliates under such bonds or to replace such bonds, but there is no
assurance that such assumption or replacement of bonds or obligations will
occur.
The Company incurred a loss on the disposition of the segment of
$1,730,578. The results of the refueling equipment segment have been reported
separately as discontinued operations. Prior year consolidated financial
statements have also been reclassified to present the refueling equipment
segment as a discontinued operation. Revenues of the discontinued segment were
$2,593,088 and $2,091,946 for the six months ended June 30, 1997 and 1996,
respectively. Net assets of the discontinued segment at June 30, 1997 and
December 31, 1996 consisted of the following:
8
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<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets (mainly trade
receivables and inventory) $1,475,954 $3,190,250
Other assets, net 5,647 883,300
Accounts payable, accrued
expenses and other
disposal costs (645,481) (1,396,652)
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Net assets of discontinued
operations $ 836,120 $2,676,898
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</TABLE>
3. DEBT AGREEMENTS
In order to fund the organization of and its expected investment in
Marcum Midstream 1997-1 Business Trust ("MM 1997-1"), the Company, through its
wholly-owned subsidiaries, Marcum Gas Transmission, Inc. ("MGT") and Southern
Flow Companies, Inc. ("Southern Flow"), entered into a loan agreement on April
18, 1997, as amended May 14, 1997, with a commercial bank for a $400,000 term
loan repayable in equal monthly principal payments plus interest over a 36
month period (the "MGT Loan"). The MGT Loan is secured by the accounts
receivable, inventory, selected equipment and real estate of Southern Flow and
an assignment of MGT's preferred and performance share interest in MM 1997-1
and is guaranteed by the Company. The loan agreement requires the Company to
maintain a minimum consolidated tangible net worth and Southern Flow to
maintain a minimum debt service coverage ratio, and contains other standard
covenants related to the operations of Southern Flow and MGT. The outstanding
balance under the loan agreement is limited to an amount equal to 80% of the
eligible accounts receivable of Southern Flow.
On May 30, 1997, the Company, through its wholly-owned subsidiary,
Metretek, Incorporated ("Metretek"), entered into a loan agreement (the
"Metretek Loan") with its commercial lender for an additional $200,000 line of
credit that will convert into a term loan on March 15, 1998, after which any
outstanding balance due on the line of credit will become payable in monthly
principal payments plus interest over an 18 month period. No amounts have been
borrowed under the Metretek Loan at June 30, 1997. The loan agreement also
extended the term of Metretek's existing $400,000 working capital line of
credit with the commercial bank from January 31, 1998 to April 30, 1998. The
Metretek Loan, together with the existing indebtedness to the commercial
lender, are secured by Metretek's accounts receivable, inventory and equipment,
cross-collateralized and cross-defaulted, and guaranteed by the Company. The
loan agreement requires Metretek to maintain a minimum adjusted working capital
level, a minimum current ratio, a maximum debt to tangible net worth ratio and
contains other standard covenants related to operations by Metretek.
Cumulative borrowings under the loan agreement are limited to the sum of 75% of
eligible domestic trade accounts receivable, 55% of eligible foreign trade
accounts receivable and 50% of raw materials inventory of Metretek.
9
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4. LEGAL PROCEEDINGS
On July 24, 1997, the action in Denver District Court filed by a
former employee against the Company and its subsidiary, DVCO Fuel Systems, Inc.
("DVCO"), was dismissed as a result of the Court's grant of the motion by the
Company and DVCO for summary judgement against the former employee's claims.
The Company is currently evaluating whether to proceed with its counterclaims
against the former employee.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion of the results of operations for the Company
for the six month periods ended June 30, 1997 and 1996 and of the consolidated
financial condition of the Company as of June 30, 1997 should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth selected information related to the
Company's primary products and services and should assist in an understanding
of the Company's results of operations for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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1997 1996
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(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
REVENUES:
Southern Flow $ 5,505 $5,364
Metretek 4,191 4,076
Other 182 407
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Total $ 9,878 $9,847
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GROSS PROFIT:
Southern Flow $ 1,405 $1,352
Metretek 2,251 1,901
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Total $ 3,656 $3,253
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NET INCOME (LOSS):
Southern Flow $ 535 $ 459
Metretek 208 294
Other (670) (568)
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Income from continuing operations 73 185
Loss from discontinued operations (2,009) (813)
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Total $(1,936) $ (628)
======= ======
</TABLE>
On June 27, 1997, the Company sold its natural gas refueling equipment
segment and substantially all of the operating assets related thereto. The
financial statements have been reclassified to exclude the operating results of
the natural gas refueling equipment segment from continuing operations and to
account for this segment as discontinued operations (see Note 2 to the
Unaudited Consolidated Financial Statements). The following discussion relates
only to the Company's continuing operations.
11
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues. Revenues increased $31,027, or less than 1%, for the six
months ended June 30, 1997 compared to the same period in 1996. Revenues from
Southern Flow increased $140,770, or 3%, for the six months ended June 30,
1997, compared to the same period in 1996 due to overall higher activity levels
in its operations. Revenues from Metretek increased $114,921, or 3%, for the
six months ended June 30, 1997, compared to the same period in 1996, which was
comprised of an increase in international sales of $135,705, offset in part by
a decrease in Metretek's domestic sales of $20,784. The increase in
international sales was due primarily to an increase in sales to one Canadian
customer. The decrease in Metretek's domestic sales was comprised of a
decrease in OEM product sales of approximately $386,000, offset in part by an
increase of approximately $187,000 in automatic meter reading (AMR) systems and
an increase of approximately $178,000 of circuit board assembly sales through
Metretek's wholly-owned subsidiary, Sigma VI, which was acquired in June 1996.
Other revenues decreased $224,664, or 55%, for the six months ended June 30,
1997 compared to the same period in 1996. This decrease resulted primarily
from the one-time receipt in 1996 of approximately $124,000 in settlement with
a former Metretek licensee coupled with reduced interest income and reduced
equity income from unconsolidated affiliates for the six months ended June 30,
1997, compared to the same period in 1996.
Costs and Expenses. Cost of sales and services decreased $147,287, or
2%, for the six months ended June 30, 1997 compared to the same period in 1996.
Costs of sales and services from Metretek decreased $235,370, or 11%, in the
six month period in 1997 compared to the same period in 1996 and was due
primarily to cost reductions in raw material components of certain of its
products. As a result, Metretek's gross profit margin after costs of sales and
services increased from 46.6% to 53.7% in the 1997 period compared to the same
period in 1996. Cost of sales and services from Southern Flow increased
$88,083, or 2%, in the six months ended June 30, 1997 compared to the same
period last year, primarily as a result of its increased sales and services
activity in 1997. Southern Flow's gross profit margin after costs of sales and
services increased slightly from 25.2% to 25.5% in the 1997 period compared to
the same period in the previous year.
General and administrative expenses increased $93,903, or 5%, for the
six months ended June 30, 1997 compared to the same period in 1996. This
increase resulted primarily from increases in expenses of Metretek of
approximately $84,000 due primarily to costs incurred at its wholly-owned
subsidiaries, Metretek Europe and Sigma VI, which were acquired during 1996, and
an increase in expenses of MGT of approximately $179,000 for costs incurred in
connection with the organization and formation of a new business trust in 1997.
These increases were partially offset by a decrease in general and corporate
expenses of approximately $148,000 attributable to a reduction in personnel
costs together with reduced stock compensation expense related to the employee
stock purchase plan which was discontinued in late 1996 and a decrease in
expenses of Southern Flow of approximately $21,000 attributable to reduced
personnel costs offset, in part, by increased state and franchise taxes in 1997
compared to 1996.
12
<PAGE> 13
Selling, marketing and service expenses decreased $17,746, or 2%, for
the six months ended June 30, 1997 compared to the same period in 1996. This
decrease resulted primarily from a reduction in advertising and promotional
expenses at Metretek.
Depreciation and amortization expenses increased $28,299, or 6%, for
the six months ended June 30, 1997 compared to the same period in 1996. This
increase resulted primarily from increased amortization associated with
capitalized software development at Metretek.
Research and development expenses increased $177,195, or 54%, for the
six months ended June 30, 1997 compared to the same period in 1996, all of
which related to new product development projects at Metretek.
Interest and other expenses increased $8,430, or 18%, for the six
months ended June 30, 1997 compared to the same period in 1996. This increase
resulted primarily from foreign currency exchange losses incurred at Metretek's
wholly-owned subsidiary, Metretek Europe.
SEASONALITY AND CYCLICALITY
The business of Metretek is subject to seasonal and cyclical
fluctuations, being largely dependent on sales to natural gas utilities. The
utility industry is generally characterized by long budget and purchase cycles.
Purchases of Metretek's products by utilities are, to a substantial extent,
deferrable in the event utilities reduce capital expenditures as a result of
such conditions as unfavorable regulatory decisions, poor revenues due to
weather conditions or general economic downturns.
FINANCIAL CONDITION AND LIQUIDITY
The Company requires capital principally for (i) the financing of
inventory and accounts receivable, (ii) research and development expenses,
(iii) capital expenditures for property and equipment and software development,
and (iv) the funding of possible future acquisitions.
Net cash provided by operating activities was approximately $188,000
for the six months ended June 30, 1997. The principal components of this
increase in cash were (i) approximately $516,000 of cash provided by continuing
operations, before changes in assets and liabilities, (ii) cash provided in the
amount of approximately $402,000 for the increase of accounts payable, (iii)
cash used of approximately $300,000 due to the increase in accounts
receivables, (iv) cash used in the amount of approximately $242,000 related to
the increases in inventory levels, (v) approximately $19,000 of net cash used
for a combination of the payment of miscellaneous liabilities offset by
proceeds from miscellaneous assets, and (vi) approximately $169,000 of cash
used in discontinued operations.
13
<PAGE> 14
The Company plans to continue research and development efforts to
enhance its existing products and develop new products. The Company
anticipates that its research and development costs in 1997 will be
approximately $1,200,000, all of which will relate to Metretek's business.
Research and development expenses in the amount of $504,682 were incurred in
the six month period ended June 30, 1997.
The Company anticipates capital expenditures in 1997 of approximately
$250,000, primarily for production and laboratory equipment, computer software
and hardware. Capital expenditures for the six month period ended June 30,
1997 totalled $151,923.
In order to fund the organization of and MGT's expected investment in
Marcum Midstream 1997-1 Business Trust ("MM 1997-1"), MGT and Southern Flow
entered into a loan agreement on April 18, 1997, as amended May 14, 1997, with
a commercial bank for a $400,000 term loan repayable in equal monthly principal
payments plus interest over a 36 month period (the "MGT Loan"). The MGT Loan
is secured by the accounts receivable, inventory, selected equipment and real
estate of Southern Flow and an assignment of MGT's preferred and performance
share interest in MM 1997-1 and is guaranteed by the Company. The loan
agreement requires the Company to maintain a minimum consolidated tangible net
worth and Southern Flow to maintain a minimum debt service coverage ratio, and
contains other standard covenants related to the operations of Southern Flow and
MGT. The outstanding balance under the loan agreement is limited to an amount
equal to 80% of the eligible accounts receivable of Southern Flow.
On May 30, 1997, Metretek entered into a loan agreement (the "Metretek
Loan") with its commercial lender for an additional $200,000 line of credit
that will convert to a term loan on March 15, 1998, after which any outstanding
balance due on the line of credit will become payable in monthly principal
payments plus interest over an 18 month period. No amounts have been borrowed
under the Metretek Loan at June 30, 1997. The loan agreement also extended the
term of its existing $400,000 working capital line of credit with the
commercial bank from January 31, 1998 to April 30, 1998. The Metretek Loan,
together with the existing indebtedness to the commercial lender are secured by
Metretek's accounts receivable, inventory and equipment, cross-collateralized
and cross-defaulted, and guaranteed by the Company. The loan agreement
requires Metretek to maintain a minimum adjusted working capital level, a
minimum current ratio, a maximum debt to tangible net worth ratio and contains
other standard covenants related to operations by Metretek. Cumulative
borrowings under the loan agreement are limited to the sum of 75% of eligible
domestic trade accounts receivable, 55% of eligible foreign trade accounts
receivable and 50% of raw materials inventory of Metretek.
Based on the Company's current plans and assumptions, management
believes that its capital resources, including its cash on hand, expected
additional proceeds from the disposition of the remaining net assets of its
discontinued operations, expected cash flow from continuing operations and its
borrowings, will be sufficient to fund its currently anticipated working
capital needs, capital commitments and debt service requirements for at least
the next twelve months. Depending upon the Company's financial condition,
including its liquidity needs and business
14
<PAGE> 15
activity, the conditions in the capital and other financial markets, as well as
other factors, the Company may from time to time seek additional funds from the
proceeds of debt financing, the sale of equity or assets or other financing
methods. However, there can be no assurance that the Company will be able to
obtain any such additional funds when needed or on terms that will be favorable
to the Company.
FORWARD-LOOKING STATEMENTS
Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as in certain other parts of this
report on Form 10-QSB that look forward in time, which includes everything
other than historical information, are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements which are other than statements of historical
facts. From time to time, the Company may publish or otherwise make available
forward-looking statements of this nature. All such forward-looking statements
are based on the current expectations of management and are subject to, and are
qualified by, risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by those statements. These risks
and uncertainties include, but are not limited to, the amount of additional
proceeds from the disposition of the remaining net assets, and the gross margin
payments on the disposed portion, of the MFS segment; changes in the energy
industry in general and the natural gas industry in particular; the capital
resources, technological requirements and internal business plans of the
natural gas utilities industry; technological changes in the natural gas
industry; the timely development and market acceptance of new product designs
and technologies; general economic conditions; reliance on strategic alliances;
the receipt and timing of future customer orders; changes in competitive
factors affecting the Company's operations; unanticipated impacts of
restructuring initiatives in natural gas utilities; occurrences of events
affecting the Company's ability to obtain funds from operations, debt or equity
to finance needed capital expenditures and other investments; the ability to
successfully identify and finance natural gas opportunities; the impact of
current and future laws and government regulations affecting the energy
industry in general and the natural gas industry in particular; as well as
other risks and uncertainties that are discussed in this report or that are
discussed from time to time in the Company's other reports and filings with the
Securities and Exchange Commission. The Company assumes no responsibility to
update any forward-looking statements, whether as a result of new information,
future events or otherwise.
15
<PAGE> 16
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 24, 1997, the action in Denver District Court filed by a
former employee against the Company and its subsidiary, DVCO Fuel Systems, Inc.
("DVCO"), was dismissed as a result of the Court's grant of the motion by the
Company and DVCO for summary judgement against the former employee's claims.
The Company is currently evaluating whether to proceed with its counterclaims
against the former employee.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of Marcum Natural Gas Services,
Inc., held on June 12, 1997, the following proposals were submitted to a vote
of security holders:
Proposal 1: To elect two directors of the Company, each for a three year
term expiring at the 2000 Annual Meeting of Stockholders.
<TABLE>
<CAPTION>
FOR WITHHOLD
--- --------
<S> <C> <C>
U. E. Patrick 8,931,884 2,190,033
Anthony D. Pell 10,271,987 849,930
</TABLE>
Proposal 2: To consider and vote upon a proposal to amend Article Fourth
of the Company's Restated Certificate of Incorporation to
implement a reverse split ("Reverse Split") of the Company's
Common Stock in the range between one-for-two and
one-for-four, inclusive, in the event the Board of Directors
determines that a Reverse Split is necessary or advisable at
any time within one year from the date of the Annual Meeting,
with the exact size of the Reverse Split to be determined by
the Board of Directors.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C>
10,205,067 413,134 42,480 461,236
</TABLE>
Proposal 3: To ratify the appointment of Deloitte & Touche LLP as the
Company's independent public accountants for the fiscal year
ending December 31, 1997.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
10,851,391 219,039 51,487
</TABLE>
All of the proposals were adopted by the shareholders.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Loan Agreement, dated May 30, 1997, by and between
First Union National Bank of Florida and Metretek,
Incorporated.
27 Financial Data Schedule
(b) Subsequent to June 30, 1997, the Company filed a report on
Form 8-K dated July 14, 1997 (Items 2 and 7), reporting the completion of the
sale of its compressed natural gas vehicle refueling business and substantially
all of the operating assets related thereto.
17
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARCUM NATURAL GAS SERVICES, INC.
Date: August 8, 1997 By: /s/ W. Phillip Marcum
------------------ ------------------------------------
W. Phillip Marcum
President and Chief Executive
Officer
Date: August 8, 1997 By: /s/ A. Bradley Gabbard
------------------ ------------------------------------
A. Bradley Gabbard
Executive Vice President
and Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number
- ------
[S] [C]
10 Loan Agreement, dated May 30, 1997, by and between
First Union National Bank of Florida and Metretek,
Incorporated.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10
LOAN AGREEMENT
BANK: FIRST UNION NATIONAL BANK OF FLORIDA ("Bank")
FL0070
214 NORTH HOGAN STREET
JACKSONVILLE, FL 32202
BORROWER(S): METRETEK INCORPORATED ("Borrower")
300 NORTH DRIVE
MELBOURNE, FL 32934
This Loan Agreement ("Agreement") is entered into this 30th day of May, 1997,
by and between Bank and METRETEK INCORPORATED, a corporation organized under
the laws of the State of Florida.
Borrower has applied to Bank for a loan or loans (individually and
collectively, the "loan") evidenced by one or more promissory notes (whether
one or more, the "Note") as follows:
o Revolver with termout - in the principal amount of
$200,000.00, or such sum as may be advanced from time to time,
as evidenced by the Promissory Note dated May 30, 1997.
o Working Capital Line of Credit - in the principal amount of
$400,000.00 as evidenced by the Promissory Note dated August
5, 1996, under which Borrower may borrow, repay, and reborrow,
from time to time, so long as the total indebtedness
outstanding at any one time does not exceed the principal
amount. Bank's obligation to advance and readvance under the
Line of Credit Note shall terminate if Borrower is in Default
under the Line of Credit Note or in any event, on April 30,
1998, which constitutes an extension from original Promissory
Note, unless renewed or extended by Bank in writing upon such
terms then satisfactory to Bank.
o Term Loan - in the original principal amount of $421,607.00,
as evidenced by a Promissory Note dated August 5, 1996, with a
balance outstanding of $210,803.51 as of the date of this Loan
Agreement.
This Agreement applies to the loan and all Loan Documents. The terms "Loan
Documents" and "Obligations", as used in this Agreement, are defined in the
Note.
Relying upon the covenants, agreements, representations and warranties
contained in this Agreement, Bank is willing to extend credit to Borrower upon
the terms and subject to the conditions set forth herein, and the Bank and
Borrower agree as follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final
1
<PAGE> 2
payment in full of the Obligations: ACCURATE INFORMATION. All written
information now and hereafter furnished to Bank by Borrower is and will be
true, correct and complete. Any such information relating to Borrower's
financial condition will accurately reflect Borrower's financial condition as
of the date(s) thereof, including all contingent liabilities of every type, and
Borrower further represents that its financial condition has not changed
materially or adversely since the date(s) of such documents. AUTHORIZATION;
NON-CONTRAVENTION. The execution, delivery and performance by Borrower and any
guarantor, as applicable, of this Agreement and other Loan Documents to which
it is a party are (i) within its power, have been duly authorized by all
necessary action taken by the duly authorized officers of Borrower and any
guarantors and if necessary, by making appropriate filings with any
governmental agency or unit and are the legal, binding, valid and enforceable
obligations of Borrower and any guarantors; and (ii) do not (A) contravene, or
constitute (with or without the giving of notice or lapse of time or both) a
violation of any provision of applicable law, a violation of the organizational
documents of Borrower or any guarantor, or a default under any agreement,
judgment, injunction, order, decree or other instrument binding upon or
affecting Borrower or any guarantor, (B) result in the creation or imposition
of any lien (other than the lien(s) created by the Loan Documents) on any of
Borrower's or guarantor's assets, or (C) give cause for the acceleration of any
obligations of Borrower or any guarantor to any other creditor. ASSET
OWNERSHIP. Borrower has good and marketable title to all of the properties and
assets reflected on the balance sheets and financial statements supplied Bank
by Borrower, and that all such properties and assets are free and clear of
mortgages, security deeds, pledges, liens charges, and all other encumbrances,
except for those granted to Bank or as otherwise disclosed to Bank by Borrower
in writing ("Permitted Liens"). To Borrower's knowledge, no default has
occurred under any Permitted Liens and no claims or interests adverse to
Borrower's present rights in its properties and assets have arisen. DISCHARGE
OF LIENS AND TAXES. Borrower has duly filed, paid and/or discharged all taxes
or other claims which may become a lien on any of its property or assets,
except to the extent that such items are being appropriately contested in good
faith and an adequate reserve for the payment thereof is being maintained.
SUFFICIENCY OF CAPITAL. Borrower is not, and after consummation of this
Agreement and after giving effect to all indebtedness incurred and liens
created by Borrower in connection with the loan will not be insolvent within
the meaning of 11 U.S.C. Section 101. COMPLIANCE WITH LAWS. Borrower is in
compliance in all respects with all federal, state and local laws, rules and
regulations applicable to its properties, operations, business, and finances,
including, without limitation, any federal or state laws relating to liquor
(including 18 U.S.C. Section 3617 et seq.) or narcotics (including 21 U.S.C.
Section 801 et seq.) and/or any commercial crimes; all applicable federal,
state and local laws and regulations intended to protect the environment; and
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if
applicable. NO LITIGATION. There are no pending or threatened suits, claims
or demands against Borrower or any guarantor that has not been disclosed to
Bank by Borrower in writing. ORGANIZATION AND AUTHORITY. Each Borrower and
any guarantor, as applicable, is duly created, validly existing and in good
standing under the laws of the state of its organization, and has all powers,
governmental licenses, authorization, consents and approvals required to
operate its business as now conducted. Each Borrower and any guarantor is duly
qualified, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers, and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a material adverse effect on the business, financial position,
results of operations, properties or prospects of Borrower or any such
guarantor. ERISA. Each employee pension benefit plan, as defined in ERISA,
maintained by Borrower meets, as of the date hereof, the minimum funding
standards of ERISA and all applicable regulations thereto and requirements
thereof, and of the Internal Revenue Code of 1954, as amended. No "Prohibited
Transaction" or "Reportable Event" (as both terms are defined by ERISA) has
occurred with respect to any such plan.
2
<PAGE> 3
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement
and until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing: BUSINESS CONTINUITY. Borrower shall conduct its business
in substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES. Borrower shall maintain,
preserve and keep its property in good repair, working order and condition,
making all needed replacements, additions and improvements thereto, to the
extent allowed by this Agreement. ACCESS TO BOOKS & RECORDS. Borrower shall
allow Bank, or its agents, during normal business hours, access to the books,
records and such other documents of Borrower as Bank shall reasonably require,
and allow Bank to make copies thereof at Bank's expense. INSURANCE. Borrower
shall maintain adequate insurance coverage with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by companies of established reputation engaged in the same or
similar businesses, including, without limitation, commercial general liability
insurance, workmen's compensation insurance, and business interruption
insurance, and upon all Collateral (as defined in the Loan Documents) securing
the Obligations, such insurance as specified in the Loan Documents; all
acquired in such amounts and from such companies as the Bank may reasonably
require. NOTICE OF DEFAULT AND OTHER NOTICES. I. NOTICE OF DEFAULT.
Borrower shall furnish to Bank immediately upon becoming aware of the existence
of any condition or event which constitutes a Default (as defined in the Note
and Loan Documents) or any event which, upon the giving of notice or lapse of
time or both, may become a Default, written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto. II. OTHER NOTICES. Borrower shall promptly
notify Bank in writing of (A) any material adverse change in its financial
condition or its business; (B) any default under any material agreement,
contract or other instrument to which it is a party or by which any of its
properties are bound, or any acceleration of the maturity of any indebtedness
owed by Borrower; (C) any material adverse claim against or affecting Borrower;
or any part of its properties; (D) the commencement of, and any material
determination in, any litigation with any third party or any proceeding before
any governmental agency or unit affecting Borrower; and (E) at least thirty
(30) days prior thereto, any change in Borrower's name or address as shown
above, and/or any change in Borrower's corporate or entity structure.
COMPLIANCE WITH OTHER AGREEMENTS. Borrower shall comply with all terms and
conditions contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in the Note. PAYMENTS OF DEBTS.
Borrower shall pay and discharge when due, and before subject to penalty or
further charge, and otherwise satisfy before maturity or delinquency, all
obligations, debts, taxes, and liabilities of whatever nature or amount, except
those which Borrower in good faith disputes. ESTOPPEL CERTIFICATE. Borrower,
within fifteen (15) days of request by Bank, will furnish a written statement
duly acknowledged of the amount due under the loan and whether offsets or
defenses exist against the Obligations. DEPOSIT RELATIONSHIP. Borrower will
maintain its primary depository relationship with Bank.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing: GOVERNMENT INTERVENTION. Borrower shall not permit the
assertion or making of any seizure, vesting or intervention by or under
authority of any government by which the management of Borrower or any
guarantor is displaced of its authority in the conduct of its respective
business or such business is curtailed or materially impaired. PREPAYMENT OF
OTHER DEBT. Borrower shall not retire any long-term debt entered into prior to
the date of this Agreement at a date in advance of its legal obligation to do
so. RETIRE OR REPURCHASE CAPITAL STOCK. Borrower shall not retire or
otherwise acquire any of its capital stock. DEFAULT ON OTHER CONTRACTS OR
OBLIGATIONS. Borrower shall not default on any material contract with or
obligations when due to a third party or default in the performance of any
obligation to a third party incurred for money borrowed. JUDGMENT ENTERED.
Borrower shall not
3
<PAGE> 4
permit the entry of any monetary judgment or the assessment against, the filing
of any tax lien against, or the issuance of any writ of garnishment or
attachment against any property of or debts due Borrower. CHANGE OF CONTROL.
Borrower shall not make a material change of ownership that effectively changes
control of Borrower. CROSS COLLATERAL. All loans with the Borrower shall be
cross- collateralized. CROSS DEFAULT. No default shall occur in payment or
performance of any obligation under any other loans, contracts, or agreements
of Borrower, any subsidiary, or parent company, MARCUM NATURAL GAS SERVICES,
INC., any general partner of or the holder(s) of the majority ownership
interest of Borrower, with First Union or its affiliates. AGGREGATE
INDEBTEDNESS. The aggregate of all loans is subject to total Bank debt not
greater than the lesser of required monthly borrowing base certificate
availability or balance of $400,000 line of credit plus the balance under both
term loans. LOANS AND ADVANCES. Except for existing balances set forth in
Schedule A attached, Borrower shall not during any fiscal year, make loans or
advances, excepting ordinary course of business travel and expense advances, to
Parent or any other Related Entity, which total more than thirty thousand
dollars ($30,000) in the aggregate, except for loans and advances to the
Guarantor of up to a maximum of $300,000 at any point during the fiscal year
1997, and all years thereafter, as long as such activity would not otherwise
cause an event of default.
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date
of this Agreement and until final payment in full of the Obligations, unless
Bank shall otherwise consent in writing: CURRENT RATIO. Borrower shall, at
all times, maintain a Current Ratio of not less than 2.00 to 1.00. "Current
Ratio" shall mean the ratio of current assets adjusted for accounts receivable
from affiliates divided by current liabilities adjusted for accounts payable to
affiliates. TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. Borrower shall, at
all times, maintain a ratio of Total Liabilities, reduced by debt fully
subordinated to the loan, divided by Tangible Net Worth of not more than .75 to
1.00. For purposes of this computation, "Total Liabilities" shall mean all
liabilities, including capitalized leases and all reserves for deferred taxes
and other deferred sums appearing on the liabilities side of a balance sheet,
in accordance with generally accepted accounting principles applied on a
consistent basis. "Tangible Net Worth" shall mean total assets minus total
liabilities. For purposes of this computation, the aggregate amount of any
intangible asset of Borrower including without limitation, goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks, and brand names, shall be subtracted from total assets. WORKING
CAPITAL. Borrower shall, at all times, maintain Working Capital of at least
One Million Eight Hundred Thousand dollars ($1,800,000). "Working Capital"
shall mean current assets minus current liabilities. For purposes of this
computation, current assets shall mean all assets computed in accordance with
GAAP, adjusted for accounts receivable from affiliates, and current liabilities
shall mean all liabilities computed in accordance with GAAP, adjusted for
accounts payable to affiliates. DIVIDENDS. Borrower shall not, during any
fiscal year, declare or pay dividends.
FINANCIAL REPORTS. Borrower agrees to the following provision(s) from the date
of this Agreement and until final payment in full of the Obligations, unless
Bank shall otherwise consent in writing: ANNUAL FINANCIAL STATEMENTS.
Borrower shall deliver to Bank, within 90 days after the close of each fiscal
year, unaudited management-prepared consolidated financial statements
reflecting its operations during such fiscal year, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules. Such statements shall be certified by the
Chief Financial Officer or President of the Borrower, or the Controller of the
Guarantor as being true and accurate. ACCOUNTS RECEIVABLE AGING. Borrower
shall, from time to time hereafter but not less than monthly deliver to Bank
within 30 days of the end of each such period, a detailed aging of accounts by
total, a summary aging of accounts by customer, and a reconciliation statement.
Said aging should also include the original date of each invoice. OTHER
FINANCIAL INFORMATION.
4
<PAGE> 5
Borrower shall deliver promptly such other information regarding the operation,
business affairs, and financial condition of Borrower which Bank may reasonably
request.
CONDITIONS PRECEDENT. (I) PRIOR TO INITIAL AND SUBSEQUENT ADVANCES. The
obligations of Bank to make the initial advance and any subsequent advances for
the loan pursuant to this Agreement are subject to the following conditions
precedent: COMPLIANCE WITH LOAN DOCUMENTS. Borrower's full compliance with
the Loan Documents. ADDITIONAL DOCUMENTS. Receipt by Bank of such additional
supporting documents as Bank reasonably requests. (II) PRIOR TO INITIAL
ADVANCE. The obligations of Bank to make the initial advance for the loan
pursuant to this Agreement are subject to the following conditions precedent:
RESOLUTIONS. Bank shall have received from Borrower, as applicable, certified
copies of resolutions of the Board of Directors of Borrower authorizing the
execution, delivery and performance of this Agreement and all other Loan
Documents.
BORROWING BASE. As to the Line of Credit Note in the principal amount of
$400,000.00, the following provision shall apply:
BORROWING LIMITATION. The maximum principal amount that Borrower may borrow
shall be the lessor of the principal amount stated in the line of credit Note
or the maximum principal amount allowed under the addendum (the "Maximum
Principal Amount"). The Maximum Principal Amount shall be an amount equal to
75% of the net amount of Eligible Domestic Accounts, 55% of the net amount of
Eligible Foreign Accounts, plus 50% of an amount equal to its value of Eligible
Inventory, less the amount of any reserve required by the Bank. The inventory
advance shall be limited to no greater than $400,000.
"Eligible Domestic Accounts" refers to an account receivable not more than
sixty (60) days after the due date of the invoice that arises in the ordinary
course of Borrower's business and meets the following eligibility requirements:
(a) the sale of goods or services reflected in such account is final and such
goods and services have been delivered or provided and accepted by the account
debtor and payment for such is owing; except for accounts arising from software
maintenance agreements or contracts, or which do not represent a final sale;
(b) the invoices comprising an account are not subject to any claims, returns
or disputes of any kind; (c) the account debtor is not insolvent; (d) the
account debtor has its principal place of business in the United States; (e)
the account debtor is not a subsidiary or affiliate of Borrower and is not a
supplier to Borrower and the account is not otherwise exposed to risk of
set-off; (f) not more than fifty percent of the original invoices owing the
Borrower by the account debtor are more than 60 days from the date of the
original invoice.
"Eligible Foreign Accounts" refers to an account receivable owed by an account
debtor including, without limitation, Metretek Europe, with an invoice address
outside the United States which otherwise meet the criteria of the Eligible
Domestic Account.
"Eligible Inventory" means the inventory of raw materials in Borrower's
possession that is held for use or sale in the ordinary course of the
Borrower's business and is merchantable and is not obsolete, and is subject to
a first priority security interest in favor of Bank. The value of the
Inventory will be determined by Bank and will be valued at the lower of cost or
market on a first- in, first-out basis.
"Reserves" may be required at any time and from time to time by the Bank
without prior notice to Borrower in amounts deemed by to be adequate to reserve
against outstanding letter of credit, outstanding bankers acceptances,
Borrower's obligations to Bank or its affiliates or any guaranties or other
contingent debt of Borrower.
5
<PAGE> 6
REQUIRED REPORTS. Within 30 days of the end of each month, the Borrower shall
certify to Bank, the amount of Eligible Accounts and the value of Eligible
Inventory, on forms required by Bank together with all detail and supporting
documents requested by Bank. Bank may at any time and from time to time,
during Bank's normal business hours, enter upon any business premises of
Borrower and audit Borrower's accounts and inventory. Bank's determination of
the amount of Eligible Accounts and the value of Eligible Inventory shall at
all times be indisputable and deemed correct. The Borrower, at all times,
shall cooperate with Bank without limitation by providing Bank information and
access to Borrower's premises and business records and shall be courteous to
Bank's agents.
CONTINUING REPRESENTATIONS. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Note, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the principal amount stated in the Line of Credit
Note (the "Borrowing Limit"). Borrower agrees to pay any advances in excess of
the Borrowing Limit within ten (10) business days upon receipt by Borrower of
written notice that the Borrowing Limit has been exceeded.
IN WITNESS WHEREOF, Borrower, on the day and year first written above, has
caused this Agreement to be executed under seal.
METRETEK INCORPORATED
Corporate By: /s/ Ronald W. McKee
Seal ------------------------------------
Ronald W. McKee
President
TAXPAYER IDENTIFICATION NUMBER(S):
METRETEK INCORPORATED 59-1716210
FIRST UNION NATIONAL BANK OF FLORIDA
By: /s/ Ralph Betancourt
------------------------------------
Ralph Betancourt
Asst Vice President
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB FOR THE PERIOD ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,285,290
<SECURITIES> 0
<RECEIVABLES> 3,517,697
<ALLOWANCES> 120,156
<INVENTORY> 2,670,877
<CURRENT-ASSETS> 8,527,150
<PP&E> 3,192,991
<DEPRECIATION> 1,908,024
<TOTAL-ASSETS> 18,301,928
<CURRENT-LIABILITIES> 2,605,657
<BONDS> 262,430
0
0
<COMMON> 123,073
<OTHER-SE> 15,310,768
<TOTAL-LIABILITY-AND-EQUITY> 18,301,928
<SALES> 9,695,667
<TOTAL-REVENUES> 9,878,258
<CGS> 6,040,236
<TOTAL-COSTS> 9,750,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,977
<INCOME-PRETAX> 73,189
<INCOME-TAX> 0
<INCOME-CONTINUING> 73,189
<DISCONTINUED> (2,009,347)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,936,158)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
