<PAGE> 1
SECURITIES AND EXCHANGE COMMISSSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MAY 4, 1998
MARCUM NATURAL GAS SERVICES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 0-19793 84-1169358
-------- ------- ----------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
1675 BROADWAY, SUITE 2150, DENVER, COLORADO 80202
-------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303)592-5555
-------------
NOT APPLICABLE
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 4, 1998, Metretek, Incorporated ("Metretek"), a wholly-owned
subsidiary of Marcum Natural Gas Services, Inc. (the "Company"), purchased
certain of the assets and business of Eagle Research Corporation ("Eagle"), a
wholly-owned subsidiary of American Meter Company ("American Meter"), in
exchange for $1,300,000 in cash, 439,560 shares of common stock, par value $.01
per share ("Common Stock"), of the Company, and a four-year convertible
subordinated promissory note (the "Note") bearing 7.5% interest payable
quarterly in arrears. The purchase price is subject to a maximum $600,000
additional contingent consideration in the event that Metretek's actual sales of
products in the business acquired from Eagle exceeds certain target levels. The
purchase price is also subject to upward or downward adjustment based upon
changes in Eagle's inventory from December 31, 1997 to May 4, 1998. Up to
$1,028,107 of the principal balance of the Note is convertible at any time at
the option of Eagle into up to 180,766 unregistered shares of Common Stock of
the Company at the rate of $5.6875 of principal per share. In connection with
the acquisition, (i) the Company granted Eagle certain registration rights with
respect to the Common Stock issued to Eagle at the closing or issuable to Eagle
upon conversion of the Note, (ii) Metretek, Eagle and American Meter entered
into a License Agreement, (iii) American Meter and Eagle entered into a
Non-Competition Agreement with the Company and Metretek, and (iv) Harry I.
Skilton, President, Chief Executive Officer and a director of American Meter and
Vice President of Eagle, became a member of the Board of Directors of the
Company.
The information in this Item 2 and the Pro Forma Unaudited Consolidated
Financial Statements, including the notes thereto, have been adjusted to give
effect to a 1-for-4 reverse split of the Company's Common Stock effected on July
6, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
On May 12, 1998, the Company filed a Current Report on Form 8-K, dated
May 4, 1998 (the "Form 8-K") in connection with the acquisition described in
Item 2 above. Pursuant to Items 7(a)(4) and 7(b)(2), the following financial
statements, which were not included in the Form 8-K, are hereby filed by this
amendment.
2
<PAGE> 3
(a) FINANCIAL STATEMENTS OF EAGLE RESEARCH CORPORATION
Attached Page
Number Reference
----------------
Report of Independent Public Accountants F-1
Balance Sheet as of December 31, 1997 F-2
Statement of Loss and Retained
Deficit for the year ended December 31, 1997 F-3
Statement of Cash Flows for the year
ended December 31, 1997 F-4
Notes to Financial Statements F-5
(b) PRO FORMA FINANCIAL INFORMATION
Introduction PF-1
Pro Forma Unaudited Consolidated Balance
Sheet as of March 31, 1998 PF-2
Pro Forma Unaudited Consolidated Statement
of Operations for the three months ended
March 31, 1998 PF-3
Pro Forma Unaudited Consolidated Statement
of Operations for the year ended December
31, 1997 PF-4
Notes to Pro Forma Unaudited Consolidated
Financial Statements PF-5
(c) EXHIBITS
23.1 Consent of Arthur Andersen LLP
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MARCUM NATURAL GAS SERVICES, INC.
By: /s/ W. Phillip Marcum
-------------------------------------
W. Phillip Marcum
President and Chief Executive Officer
Dated: July 16, 1998
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Eagle Research Corporation:
We have audited the accompanying balance sheet of Eagle Research Corporation as
of December 31, 1997, and the related statements of loss and retained deficit
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eagle Research Corporation as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
March 23, 1998
F-1
<PAGE> 6
EAGLE RESEARCH CORPORATION
--------------------------
BALANCE SHEET
-------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 13,420
Accounts receivable-
Trade, net of allowance for doubtful accounts of $61,616 833,209
Intercompany and affiliates 179,147
Inventories 1,543,299
Prepaid expenses and other current assets 120,344
-----------
Total current assets 2,689,419
-----------
PROPERTY AND EQUIPMENT:
Land 131,000
Buildings 670,560
Machinery and equipment 1,222,321
Furniture and fixtures 145,542
Computer software and equipment 808,294
-----------
2,977,717
Less- Accumulated depreciation (1,458,651)
-----------
Net property and equipment 1,519,066
-----------
Total assets $ 4,208,485
===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C>
CURRENT LIABILITIES:
Bank indebtedness and debt $ 986,371
Intercompany note payable 50,000
Accounts payable-
Trade 350,914
Intercompany and affiliates (Note 6) 9,075,870
Accrued expenses 175,208
Accrued and withheld taxes 10,548
Customer deposits 79,055
-----------
Total current liabilities 10,727,966
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock--$1 par value; 5,000 shares
authorized, issued, and outstanding 5,000
Additional paid-in capital 4,725
Retained deficit (6,529,206)
-----------
Total stockholders' deficit (6,519,481)
-----------
Total liabilities and stockholders' deficit $ 4,208,485
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE> 7
EAGLE RESEARCH CORPORATION
--------------------------
STATEMENT OF LOSS AND RETAINED DEFICIT
--------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
NET SALES $ 4,801,375
COST OF GOODS SOLD 3,836,840
-----------
Gross profit 964,535
SELLING, ADMINISTRATIVE AND OTHER EXPENSES 2,057,006
INTEREST EXPENSE, net 67,587
-----------
Loss before income taxes (1,160,058)
INCOME TAX BENEFIT 390,179
-----------
Net loss (769,879)
RETAINED DEFICIT, beginning (5,759,327)
-----------
RETAINED DEFICIT, ending $(6,529,206)
===========
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 8
EAGLE RESEARCH CORPORATION
--------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(769,879)
Adjustments to reconcile net loss to net cash used by
operating activities-
Depreciation and amortization 278,821
Income tax benefit (390,179)
Bad debt provision (22,913)
Excess and obsolete inventory provision 54,660
Changes in noncash working capital-
Accounts receivable--trade (96,225)
Accounts receivable--intercompany 120,516
Inventory (345,138)
Prepaid expenses and other assets 2,868
Accounts payable--trade 135,255
Accounts payable--intercompany 513,970
Accrued expenses (45,908)
Accrued and withheld taxes (7,729)
Customer deposits 45,464
---------
Net cash used in operating activities (526,417)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (253,184)
---------
Net cash used in investing activities (253,184)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from additional bank borrowings 307,527
Repayments of bank and other borrowings (41,637)
Cash advances from Parent 237,110
---------
Net cash provided by financing activities 503,000
---------
NET DECREASE IN CASH (276,601)
CASH, at beginning of period 290,021
---------
CASH, at end of period $ 13,420
=========
SUPPLEMENTAL INFORMATION:
Interest paid $ 63,373
=========
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 9
EAGLE RESEARCH CORPORATION
--------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
1. ORGANIZATION AND OPERATIONS:
----------------------------
Eagle Research Corporation (the Company) was incorporated in July 1976 in the
state of West Virginia and is an 80%-owned subsidiary of American Meter Company,
which is a wholly owned subsidiary of American Meter Holdings Company (together,
the Parent).
The Company designs, manufactures and sells a diversified line of
high-technology process control and telemetry systems to utility companies and
contractors which support utility companies in the natural gas and petroleum
industries. During 1997, approximately 52% of the Company's sales were to ten
major customers.
The Company has incurred cumulative operating losses and operating cash flow
deficits, and has a total stockholders' deficit at December 31, 1997 of
$6,519,481. The funds required to support the Company's operations to date have
been provided by the Parent, principally in the form of noninterest-bearing
advances classified as current accounts payable at December 31, 1997. Without
the continued financial support of the Parent, it is unlikely the Company could
continue its operations. The Parent has expressed its intention to continue to
provide the financial support necessary to enable the Company to continue
operating throughout 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Revenue Recognition
- -------------------
Revenues are recorded when products are shipped. Revenues from installation
projects are recorded upon completion of the project.
Inventories
- -----------
Inventories are stated at the lower of first in, first out (FIFO) cost or market
and include material, labor and manufacturing overhead.
Property and Equipment
- ----------------------
Property and equipment and other improvements that significantly extend the
useful life of existing plant and equipment are carried at cost.
F-5
<PAGE> 10
Depreciation is recorded using the straight-line and accelerated methods using
the following depreciable lives:
Class Depreciable Life
------------------------------ ----------------
Buildings 30 to 40 years
Machinery and equipment 3 to 10 years
Furniture and fixtures 3 to 10 years
Computer software and equipment 5 years
Cost and accumulated depreciation of property retired or disposed of are removed
from the accounts. Gain or loss on disposal is credited or charged to earnings.
Expenditures for maintenance and repairs are charged to expense as incurred.
Research and Development
- ------------------------
Research and development expenditures are charged to expense as incurred and are
included in selling, administrative and other expenses.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from those estimates.
3. INVENTORIES:
------------
Inventories at December 31, 1997 consist of the following:
Raw materials $1,131,810
Work in process 573,535
Finished goods 11,437
----------
1,716,782
Reserve for excess and obsolete inventory (173,483)
----------
$1,543,299
==========
4. BANK INDEBTEDNESS AND DEBT:
---------------------------
The Company maintains a revolving credit arrangement with a local financial
institution that provides for a maximum credit line of $450,000. Borrowings
under this arrangement ($400,000 as of December 31, 1997) bear interest at the
prime rate plus 1% (9.5% at December 31, 1997) and are secured by accounts
receivable and inventory. Interest expense on these borrowings was approximately
$24,500 during 1997.
F-6
<PAGE> 11
During 1990, the Company entered into two debt arrangements to finance its
purchase of a building. The first was a $356,535 promissory note payable to the
West Virginia Economic Development Authority which bears interest at 6% per
annum and requires monthly payments of principal and interest totaling $2,554
through June 2010. The second arrangement, which was refinanced in 1993, was an
installment note payable to a local financial institution of $356,535, which
bears interest at 9% per annum and requires monthly payments of principal and
interest totaling $3,275 through June 1998, with a final payment of $288,000 in
July 1998.
The Company also has a capital lease obligation which requires monthly payments
of $1,342 through February 1999.
As of December 31, 1997, bank indebtedness and debt consists of the following:
Revolving credit arrangement borrowings $400,000
West Virginia Economic Development Authority 270,348
Installment note payable 297,671
Capital lease obligation 18,352
--------
$986,371
========
In connection with the sale of certain assets, as discussed in Note 8, the
Company intends to repay its outstanding debt. As a result, all outstanding debt
has been classified as a current liability on the accompanying balance sheet.
5. INCOME TAXES:
-------------
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." This standard requires an
asset and liability approach to the recognition of deferred tax assets and
liabilities related to the expected future tax consequences of events that have
been recognized in the financial statements or tax returns. The Company has no
significant book/tax differences as of December 31, 1997.
Effective April 8, 1994 (the date the Parent acquired an 80% ownership
interest), the Company has been included in the consolidated federal income tax
return filed by the Parent. The Company and its Parent have a formal tax sharing
agreement, whereby, among other things, the Company calculates its federal tax
income provision or benefit on a separate-company basis. Intercompany
receivables from the Parent include federal income tax benefits of $119,548 at
December 31, 1997.
Through April 8, 1994, the Company filed a separate federal income tax return
and has available net operating loss carryforwards of approximately $3.6 million
which expire between 2006 and 2009. The Company's ability to utilize such losses
to reduce future taxable income will be limited due to ownership changes and
other factors, and accordingly, no tax benefit for these losses has been
reflected in the accompanying financial statements.
F-7
<PAGE> 12
6. RELATED-PARTY TRANSACTIONS:
---------------------------
The Company conducts business with its Parent and other entities related to the
Parent. An operating division of the Parent conducts its operations at the
Company's facility in West Virginia, and utilizes Company personnel to
supplement its own work force.
The following related-party transactions are reflected in the accompanying
financial statements during 1997:
1997
--------
Sales to Parent and affiliates $174,000
Sales commissions paid to Parent and affiliates 215,000
Reimbursement from a division of Parent for
services performed by the Company 600,000
Selling, administrative and other expenses includes $122,000 in charges from the
Parent for advertising costs and programs attributable to the Company's products
and other allocations.
Additionally, the Company had approximately $418,000 in sales during 1997 to a
distributor in Korea in which the Parent has a 49% joint venture interest.
The Company has issued a $50,000 note payable to the Parent, payable on demand,
which bears interest at the prime rate. Accrued interest related to this note
totals approximately $44,000.
During 1997, the Parent advanced the Company funds of $237,110 to support its
liquidity requirements, and such amounts have been included in accounts
payable--intercompany in the accompanying balance sheet.
7. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company is party to various claims and other matters arising in the normal
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
The Parent has the obligation to purchase (in 1998, 2002 and 2005), at the
option of the minority shareholder, the remaining 20% of the Company's
outstanding shares at the greater of a predefined formula price designed to
approximate fair value or an established price per share (see Note 8).
Additionally, the Parent has entered into an employment agreement with the
minority shareholder. Under the terms of this agreement, the Parent is obligated
to purchase the outstanding shares of the Company under certain circumstances of
separation of employment of the minority shareholder.
F-8
<PAGE> 13
The Company has a noncancellable operating lease agreement on certain equipment.
At December 31, 1997 the total future minimum payment under this arrangement is
$1,821, due in 1998.
8. SUBSEQUENT EVENT
----------------
Effective March 1998, the Company entered into an agreement to sell
substantially all of the inventory and property and equipment related to its
hardware business to Marcum Natural Gas Industries (Marcum) for minimum
consideration totaling approximately $3.9 million, prior to working capital
adjustments as defined in the asset purchase agreement. The purchase price can
be increased to $4.5 million contingent on the achievement of certain sales
thresholds as defined in the asset purchase agreement.
In connection with the sale, the Company entered into an agreement to purchase
the stock of the minority shareholder for consideration of $520,000 and rights
to certain product lines. The purchase price can be increased to $600,000
contingent on the Company's receipt of additional sales proceeds from Marcum.
F-9
<PAGE> 14
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA UNAUDITED
FINANCIAL INFORMATION
On May 4, 1998, Marcum Natural Gas Services, Inc. (the "Company"),
through its wholly owned subsidiary Metretek, Incorporated, acquired certain of
the assets and business of Eagle Research Corporation ("Eagle"), a wholly-owned
subsidiary of American Meter Company. The assets and business acquired from
Eagle pertain to its electronic correctors and non-radio-frequency meter reading
devices in the natural gas and electric utility industry.
The acquisition was accounted for using the purchase method of
accounting, with the assets acquired recorded at fair values. The results of
operations of the acquired business will be included in the Company's
consolidated financial statements from the date of acquisition.
The following Pro Forma Unaudited Consolidated Balance Sheet as of
March 31, 1998 is presented as if the acquisition occurred on such date. The
following Pro Forma Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1998 and the year ended December 31, 1997 are
presented as if the acquisition occurred on January 1, 1998 and January 1, 1997,
respectively. The pro forma adjustments represent the Company's determination of
all material adjustments necessary to present fairly the Company's pro forma
financial position and results of operations and are based on available
information and certain assumptions considered reasonable under the
circumstances.
On July 6, 1998, the Company effected a 1-for-4 reverse split of the
Company's common stock. Accordingly, all historical amounts contained in the
following pro forma financial information, including weighted average share and
per share amounts in the consolidated statement of operations as well as common
stock and additional paid-in capital amounts in the consolidated balance sheet,
have been adjusted to reflect the reverse stock split on a retroactive basis.
The following pro forma unaudited financial information should be read
in conjunction with the Company's historical financial statements and notes
thereto filed in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 and the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1998. The pro forma unaudited financial statements
are not necessarily indicative of the actual financial position or results of
operations that would have occurred if the acquisition had occurred on the dates
indicated, nor are they necessarily indicative of the financial position or
results of operations of the Company as of any future date or for any future
period.
PF-1
<PAGE> 15
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
Pro Forma Unaudited Consolidated Balance Sheet
March 31, 1998
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
Marcum Eagle Adjustments Combined
------ ----- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,448,595 $ 95,419 $ (895,419)(1),(2) $ 1,648,595
Trade receivables, net 2,946,131 654,030 (654,030)(2) 2,946,131
Other receivables 345,063 136,781 (136,781)(2) 345,063
Inventory 2,824,175 1,614,568 (364,568)(1),(2) 4,074,175
Net assets of discontinued operations 180,169 180,169
Prepaid expenses and other current assets 244,675 114,460 (114,460)(2) 244,675
------------ ----------- ------------ ------------
Total current assets 8,988,808 2,615,258 (2,165,258) 9,438,808
------------ ----------- ------------ ------------
Property, Plant and Equipment, at cost 3,336,632 2,985,271 (2,735,271)(1),(2) 3,586,632
Less accumulated depreciation 2,115,875 1,535,192 (1,535,192)(2) 2,115,875
------------ ----------- ------------ ------------
Property, plant and equipment, net 1,220,757 1,450,079 (1,200,079) 1,470,757
------------ ----------- ------------ ------------
Other Assets:
Customer list, net 6,716,127 -- -- 6,716,127
Goodwill and other intangibles, net 811,776 -- 2,400,000 (1) 3,211,776
Investments in unconsolidated affiliates 372,193 -- -- 372,193
Other assets 391,687 -- -- 391,687
------------ ----------- ------------ ------------
Total other assets 8,291,783 -- 2,400,000 10,691,783
------------ ----------- ------------ ------------
Total assets $ 18,501,348 $ 4,065,337 $ (965,337) $ 21,601,348
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 632,366 $ 272,828 $ (272,828)(2) $ 632,366
Accrued and other liabilities 1,413,610 272,821 (272,821)(2) 1,413,610
Intercompany and affiliate payables -- 9,546,638 (9,546,638)(2) --
Bank indebtedness and debt -- 975,610 (975,610)(2) --
Current maturities of capital lease obligations 12,969 -- -- 12,969
------------ ----------- ------------ ------------
Total current liabilities 2,058,945 11,067,897 (11,067,897) 2,058,945
------------ ----------- ------------ ------------
Long term notes payable 478,778 -- 1,100,000 (3) 1,578,778
------------ ----------- ------------ ------------
Capital lease obligations 11,507 -- -- 11,507
------------ ----------- ------------ ------------
Stockholders' Equity:
Common stock 30,979 5,000 (604)(3) 35,375
Additional paid-in capital 37,091,345 4,725 1,990,879 (3) 39,086,949
Foreign currency translation 6,657 -- -- 6,657
Accumulated deficit (21,176,863) (7,012,285) 7,012,285 (2) (21,176,863)
------------ ----------- ------------ ------------
Total stockholders' equity 15,952,118 (7,002,560) 9,002,560 17,952,118
------------ ----------- ------------ ------------
Total liabilities and stockholders' equity $ 18,501,348 $ 4,065,337 $ (965,337) $ 21,601,348
============ =========== ============ ============
</TABLE>
See notes to pro forma unaudited consolidated financial information.
PF-2
<PAGE> 16
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
Pro Forma Unaudited Consolidated Statement of Operations
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
Marcum Eagle(4) Adjustments Combined
------ -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Natural gas measurement sales and services $4,449,796 $1,092,246 $(137,206)(5) $5,404,836
Other 218,809 922 (922)(5) 218,809
---------- ---------- --------- ----------
Total revenues 4,668,605 1,093,168 (138,128) 5,623,645
---------- ---------- --------- ----------
Costs and Expenses:
Cost of measurement sales and services 2,895,471 926,065 (391,633)(5) 3,429,903
General and administrative 985,638 74,095 (74,095)(6) 985,638
Selling, marketing and service 307,759 224,922 (87,831)(6) 444,850
Depreciation and amortization 237,292 76,541 (20,292)(7) 293,541
Research and development 213,543 251,943 (190,443)(6) 275,043
Interest and other 11,709 22,681 11,694 (8) 46,084
---------- ---------- --------- ----------
Total costs and expenses 4,651,412 1,576,247 (752,600) 5,475,059
---------- ---------- --------- ----------
Income (Loss) From Continuing
Operations Before Taxes 17,193 (483,079) 614,472 148,586
Income Tax Provision -- -- -- --
---------- ---------- --------- ----------
Income (Loss) From Continuing Operations $ 17,193 $ (483,079) $ 614,472 $ 148,586
========== ========== ========= ==========
Income (Loss) Per Basic Common Share from
Continuing Operations $ 0.00 $ 0.04
========== ==========
Income (Loss) Per Common Share from
Continuing Operations - Assuming Dilution $ 0.00 $ 0.04
========== ==========
Weighted average basic common shares
outstanding 3,082,958 3,522,518(10)
Incremental shares from assumed conversion
of stock options 12,208 12,208
---------- ----------
Weighted average common shares assuming
dilution 3,095,166 3,534,726(10)
========== ==========
</TABLE>
See notes to pro forma unaudited consolidated financial information.
PF-3
<PAGE> 17
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
Pro Forma Unaudited Consolidated Statement of Operations
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
Marcum Eagle(4) Adjustments Combined
------ -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Natural gas measurement sales and services $20,390,102 $ 4,801,375 $ (978,196)(5) $24,213,281
Other 826,655 5,216 (5,216)(5) 826,655
----------- ----------- ----------- -----------
Total revenues 21,216,757 4,806,591 (983,412) 25,039,936
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of measurement sales and services 12,920,612 3,661,183 (1,256,733)(5) 15,325,062
General and administrative 3,802,815 348,390 (348,390)(6) 3,802,815
Selling, marketing and service 1,642,556 675,967 (203,881)(6) 2,114,642
Depreciation and amortization 944,956 278,821 (53,821)(7) 1,169,956
Research and development 1,062,264 929,485 (683,485)(6) 1,308,264
Interest and other 91,038 72,803 66,522 (8) 230,363
----------- ----------- ----------- -----------
Total costs and expenses 20,464,241 5,966,649 (2,479,788) 23,951,102
----------- ----------- ----------- -----------
Income (Loss) From Continuing
Operations Before Taxes 752,516 (1,160,058) 1,496,376 1,088,834
Income Tax Provision -- 390,179 (390,179)(9) --
----------- ----------- ----------- -----------
Income (Loss) From Continuing Operations $ 752,516 $ (769,879) $ 1,106,197 $ 1,088,834
=========== =========== =========== ===========
Income (Loss) Per Basic Common Share from
Continuing Operations $ 0.24 $ 0.31
=========== ===========
Income (Loss) Per Common Share from
Continuing Operations - Assuming Dilution $ 0.24 $ 0.31
=========== ===========
Weighted average basic common shares
outstanding 3,075,957 3,515,517(10)
Incremental shares from assumed conversion
of stock options 8,178 8,178
----------- -----------
Weighted average common shares assuming
Dilution 3,084,135 3,523,695(10)
=========== ===========
</TABLE>
See notes to pro forma unaudited consolidated financial information.
PF-4
<PAGE> 18
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) The purchase price for the assets acquired included $1,300,000 cash, a
$1,200,000 convertible subordinated promissory note ($600,000 of which
is contingent upon Metretek exceeding certain target sales levels), and
439,560 shares of common stock of the Company valued at $2,000,000. The
Company used $800,000 cash on hand and $500,000 borrowings on its loan
and security agreement to satisfy the cash portion of the purchase
price. Although a final determination of the allocation of the purchase
price has not been made, a preliminary allocation is as follows:
Purchase Price Allocation:
Inventory $1,250,000
Property, plant and equipment 250,000
Goodwill and other intangibles 2,400,000
-----------
$3,900,000
===========
The purchase price is subject to upward adjustment based upon
Metretek's actual sales of products in the business acquired from Eagle
during the 18-month period commencing July 1, 1998. If Metretek's
annualized sales of products in the acquired business are greater than
$3,900,000 during such period, then the purchase price will be
increased on a dollar-for-dollar basis to the extent of such sales
surplus, but the purchase price will not be increased above $4,500,000
even if annualized sales are greater than that amount. Any increase in
the purchase price will be reflected as an adjustment to the principal
balance of the promissory note and allocated to goodwill.
(2) The adjustment reflects the elimination of assets not acquired,
liabilities not assumed and Eagle's retained deficit.
(3) The adjustment reflects the subordinated promissory note, additional
borrowings on the Company's loan and security agreement, the issuance
of 439,560 shares of common stock of the Company in connection with the
acquisition, and the elimination of Eagle's common stock and additional
paid-in capital.
PF-5
<PAGE> 19
(4) Cost of goods sold, selling, administrative and other expenses of Eagle
have been reclassified to conform to the Company's presentation and
have no impact on income (loss) items.
(5) The adjustment reflects the elimination of sales and cost of sales
associated with product lines not acquired.
(6) The adjustment reflects the reduction for certain expenses associated
with (i) duplicative administrative functions eliminated when Eagle's
operations are relocated to the Company's existing facility; (ii)
service related functions that were not acquired; and (iii) research
and development projects not acquired.
(7) The adjustment eliminates Eagle's historic depreciation and includes
the depreciation and amortization that would have been incurred
assuming the assets had been acquired at the beginning of the
respective period at assigned lives of ten years for property and
equipment and twelve years for goodwill and other intangibles.
(8) The adjustment eliminates Eagle's historic interest expense and
includes the interest expense that would have been incurred assuming
the subordinated note payable and additional borrowings on the
Company's loan and security agreement had been outstanding at the
beginning of the respective period and incurred interest at a rate of
7.5% and 9.5% per annum, respectively.
(9) The adjustment eliminates Eagle's income tax provision.
(10) The weighted average common shares outstanding have been increased by
439,560 shares as though the acquisition had been made at the beginning
of the respective period.
PF-6
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 23, 1998 on the Eagle Research Corporation
financial statements included in this Form 8-K/A into Marcum Natural Gas
Services, Inc.'s previously filed Registration Statements File Nos. 33-54398,
33-78348, 333-07515, 333-43547 and 333-56697. It should be noted that we have
not audited any financial statements of Eagle Research Corporation subsequent to
December 31, 1997 or performed any audit procedures subsequent to the date of
our report.
/s/ ARTHUR ANDERSON LLP
Philadelphia, Pennsylvania
July 15, 1998
