<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
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 SEPTEMBER 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File Number 0-19793
METRETEK TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
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)
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
--- ---
As of October 29, 1999 there were 3,467,156 shares of the issuer's
Common Stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
--- ---
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METRETEK TECHNOLOGIES, INC.
<TABLE>
FORM 10-QSB
TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended September 30, 1999 and
September 30, 1998
For the Nine Months Ended September 30, 1999 and
September 30, 1998 5
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1999 and
September 30, 1998 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 2. Changes in Securities and Use of Proceeds 27
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
</TABLE>
2
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 349,813 $ 639,448
Trade receivables, less allowance for doubtful accounts
of $138,811 and $117,469, respectively 3,584,680 5,006,914
Other receivables 27,509 152,084
Inventories 4,329,613 4,412,100
Net assets of discontinued operations 278,556 319,393
Prepaid expenses and other current assets 441,287 275,782
----------- -----------
Total current assets 9,011,458 10,805,721
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Equipment 2,320,456 2,235,732
Vehicles 52,277 24,733
Furniture and fixtures 504,390 486,857
Land, building and improvements 714,892 714,423
----------- -----------
Total 3,592,015 3,461,745
Less accumulated depreciation 1,970,415 1,686,721
----------- -----------
Property, plant and equipment, net 1,621,600 1,775,024
----------- -----------
OTHER ASSETS:
Customer lists (net of accumulated amortization
of $2,844,627 and $2,510,694, respectively) 6,048,260 6,382,193
Goodwill and other intangibles (net of accumulated
amortization of $960,511 and $734,365, respectively) 2,937,926 3,204,606
Other assets 180,792 218,739
----------- -----------
Total other assets 9,166,978 9,805,538
----------- -----------
TOTAL $19,800,036 $22,386,283
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
3
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<TABLE>
<CAPTION>
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 523,179 $ 720,459
Accrued and other liabilities 1,260,863 1,055,372
Current maturities of capital lease obligations 3,691 4,507
------------ ------------
Total current liabilities 1,787,733 1,780,338
------------ ------------
LONG-TERM NOTES PAYABLE 1,888,503 3,161,702
------------ ------------
DEPOSITS AND NON-CURRENT CAPITAL
LEASE OBLIGATIONS 5,000 5,342
------------ ------------
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, 3,460,344 and 3,489,181
shares, respectively 34,603 34,892
Additional paid-in capital 39,047,744 38,930,724
Accumulated other comprehensive income (loss) (4,098) 6,657
Accumulated deficit (22,959,449) (21,533,372)
------------ ------------
Total stockholders' equity 16,118,800 17,438,901
------------ ------------
TOTAL $ 19,800,036 $ 22,386,283
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
4
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<TABLE>
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Natural gas measurement sales and services $4,616,837 $4,635,454 $14,509,001 $13,330,600
Other 4,428 (2,029) 22,539 37,632
---------- ---------- ----------- -----------
Total revenues 4,621,265 4,633,425 14,531,540 13,368,232
---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Cost of measurement sales and services 3,211,286 2,993,568 10,041,543 8,632,665
General and administrative 809,752 769,460 2,460,479 2,594,614
Selling, marketing and service 448,462 390,810 1,487,582 1,055,039
Depreciation and amortization 317,790 314,707 954,312 791,125
Research and development 233,616 253,758 797,483 705,122
Interest, finance charges and other 71,361 24,792 216,218 99,504
---------- ---------- ----------- -----------
Total costs and expenses 5,092,267 4,747,095 15,957,617 13,878,069
---------- ---------- ----------- -----------
LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES (471,002) (113,670) (1,426,077) (509,837)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (471,002) (113,670) (1,426,077) (509,837)
---------- ---------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS -- (41,436) -- (13,587)
---------- ---------- ----------- -----------
NET LOSS $ (471,002) $ (155,106) $(1,426,077) $ (523,424)
========== ========== =========== ===========
NET LOSS PER BASIC AND DILUTED
COMMON SHARE:
Continuing operations $ (0.14) $ (0.03) $ (0.41) $ (0.15)
Discontinued operations 0.00 (0.01) 0.00 (0.01)
---------- ---------- ----------- -----------
NET LOSS PER BASIC AND
DILUTED COMMON SHARE $ (0.14) $ (0.04) $ (0.41) $ (0.16)
========== ========== =========== ===========
WEIGHTED AVERAGE BASIC AND
DILUTED COMMON SHARES
OUTSTANDING 3,452,414 3,555,568 3,466,768 3,342,462
========== ========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
5
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<TABLE>
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,426,077) $ (523,424)
Adjustments to reconcile net loss to net cash
provided (used) by continuing operations:
Loss from discontinued operations -- 13,587
Depreciation and amortization 954,312 791,125
Stock based compensation expense 17,226 88,629
Loss on disposal of property, plant and equipment 417 1,641
Changes in other assets and liabilities:
Trade receivables 1,422,234 (502,847)
Inventories 82,487 (1,008,108)
Other current assets 123,528 (9,058)
Other noncurrent assets 8,488 (21,589)
Accounts payable (197,280) (173,325)
Accrued and other liabilities 205,491 (253,951)
----------- -----------
Net cash provided (used) by continuing operations 1,190,826 (1,597,320)
Net cash provided (used) by discontinued operations 48,051 (76,830)
----------- -----------
Net cash provided (used) by operating activities 1,238,877 (1,674,150)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (197,003) (208,503)
Acquisitions (1,570,764)
Proceeds from sale of property, plant and equipment 7,800 8,681
----------- -----------
Net cash used by investing activities (189,203) (1,770,586)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable to bank -- 2,203,419
Payments on notes payable to bank (1,273,199) (49,545)
Issuance of common stock 20,584 88,629
Repurchase of common stock (85,536) (100,000)
Payments on capital lease obligations (1,158) (8,387)
----------- -----------
Net cash provided (used) by financing activities (1,339,309) 2,134,116
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (289,635) (1,310,620)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 639,448 1,938,554
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 349,813 $ 627,934
=========== ===========
See notes to unaudited consolidated financial statements.
</TABLE>
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
For the Three Month Periods Ended September 30, 1999 and 1998 and
For the Nine Month Periods Ended September 30, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On June 8, 1999, pursuant to stockholder approval, the Company filed an
amendment to its Restated Certificate of Incorporation, as amended, changing its
name to "Metretek Technologies, Inc." As used in these notes, references to the
"Company" mean Metretek Technologies, Inc. and its wholly owned subsidiaries:
Metretek, Incorporated (referred to herein as "Metretek") and Southern Flow
Companies, Inc. (referred to herein as "Southern Flow").
The Company recently formed two wholly owned subsidiaries engaged in
the energy information and services businesses, Metretek Internet Services, Inc.
and TotalEnergyPlan, Inc. ("TEP"). The operations of these new subsidiaries were
not material through September 30, 1999.
The accompanying consolidated financial statements include the accounts
of Metretek Technologies, 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, 1998.
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
presentation of the consolidated financial position of the Company and its
subsidiaries as of September 30, 1999 and the consolidated results of their
operations and cash flows for the three and nine month periods ended September
30, 1999 and 1998.
2. COMPREHENSIVE INCOME (LOSS)
The Company's comprehensive loss for the nine months ended September
30, 1999 and 1998 was $1,436,832 and $523,424, respectively. The Company's
comprehensive loss includes net loss and foreign currency translation
adjustments.
3. COMPUTER SOFTWARE COSTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which the Company adopted
effective January 1, 1999. SOP No. 98-1 requires that the Company capitalize
certain costs
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incurred in connection with developing or obtaining software for internal use.
The adoption of SOP No. 98-1 did not have a material effect on the financial
position or results of operations of the Company.
4. NEW BUSINESS VENTURE AND AMENDMENT TO LOAN AGREEMENT
On September 13, 1999, the Company entered into a strategic
relationship with Scient Corporation ("Scient") to assist the Company in
designing and creating an internet-based eBusiness to enable the Company to take
its measurement information products, services, and data measurement
technologies to the market of end-users of natural gas and electricity (the
"eBusiness Project"). The eBusiness Project is being developed and will be
operated through the Company's newly formed wholly owned subsidiary, Metretek
Internet Systems, Inc. Simultaneously, the Company entered into a joint venture
agreement with Mercator Energy Incorporated ("Mercator") whereby Mercator will
provide consulting services (the "Mercator Consulting Agreement") to TEP, a
newly formed wholly owned subsidiary of the Company. TEP was organized to
develop and market "TotalEnergyPlan", the Company's proprietary turnkey data
collection and software management system that enables commercial users of
natural gas and electricity to monitor and better manage their energy purchases
and consumption, which is designed to capitalize on a continuing trend toward
deregulation within the industry.
In order to facilitate its internet-based eBusiness Project, the
Company, together with Metretek and Southern Flow, entered into an amendment
(the "Loan Amendment") to the terms of its $5,000,000 credit facility with its
commercial lender. The Loan Amendment amends certain covenants of the loan
agreement, including the Company's minimum annual net income (or maximum annual
net loss in 1999), minimum tangible net worth and minimum debt service coverage
ratio. The Loan Amendment also permits the Company to utilize up to $700,000 of
its credit facility to finance expenditures on the first phase of the eBusiness
Project.
The Company anticipates that the costs of the eBusiness Project, which
involves several phases, will require estimated expenditures of approximately
between $4,000,000 and $5,000,000 over the next nine to twelve months. The
Company has the right to terminate the eBusiness Project on 30 days notice, with
maximum additional expenditures of $100,000. The Loan Amendment is intended to
provide the financing for the first phase of the eBusiness Project. In order to
finance the remaining phases and the completion of the eBusiness Project, the
Company will need to raise additional funds from the proceeds of public or
private equity financing, debt financing, or from other sources. Any such
capital raising will be subject to the consent of the Company's commercial
lender. There can be no assurance that such additional funds will be available
to the Company on a timely basis or that, if available on a timely basis, such
funds can be obtained on terms satisfactory to the Company or its commercial
lender. In the event the Company cannot obtain sufficient additional funds on a
timely basis, then the Company will not be able to complete the eBusiness
Project. The inability of the Company to finance or complete the eBusiness
Project
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could have a material adverse effect on the Company's business, financial
condition and results of operations.
In connection with the eBusiness Project, the Company issued to Scient
a warrant (the "Scient Warrant") to purchase 125,000 shares of common stock of
the Company. The Scient Warrant becomes exercisable in September 2000, at
exercise prices split between $5.00 and $10.00 per share, and expires in
September 2002. Scient has registration rights with respect to the common stock
issuable upon the exercise of the Scient Warrant.
Pursuant to the Mercator Consulting Agreement, Mercator will provide
broker-agent natural gas consulting services to TEP for a fee of $7,500 per
month. The term of the Mercator Consulting Agreement is six months, renewable by
mutual consent for six additional months. In connection with the Mercator
Consulting Agreement, the Company issued to Mercator an option to purchase up to
25% of the capital stock of TEP for a purchase price equal to 25% of TEP's
cumulative net loss, which is exercisable only during the term of the Consulting
Agreement. The Company also issued to Mercator a warrant (the "Mercator
Warrant") to purchase 60,000 shares of common stock of the Company. The Mercator
Warrant vests in three tranches from the date of issuance through March 2000,
with exercise prices ranging between $4.50 and $5.50 per share, and expires in
September 2002. Mercator has registration rights with respect to the common
stock issuable upon the exercise of the Mercator Warrant.
In connection with the Loan Amendment, the Company paid customary fees
to the commercial lender and issued a warrant (the "Lender Warrant") to purchase
20,000 shares of common stock of the Company. The Lender Warrant is exercisable
for three years at an exercise price of $5.00 per share. The commercial lender
has registration rights with respect to the common stock issuable upon the
exercise of the Lender Warrant.
Compensation expense for the fair value of the Scient, Mercator and
Lender Warrants is being recognized in accordance with the provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," over the period in which the services are being performed or the
remaining term of the Loan Agreement. Compensation expense associated with the
warrants in the amount of $17,226 has been recognized in the consolidated
statement of operations during the nine months ended September 30, 1999.
5. SEGMENT INFORMATION
The Company currently has two reportable business segments: automated
energy data management and natural gas measurement services. The operations of
the Company's automated energy data management segment are conducted by
Metretek. Metretek's manufactured products fall into three categories: remote
data collection products; electronic corrector products; and
application-specific products. Metretek also provides energy data collection and
management services and post-sale support
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services for its manufactured products.
The operations of the Company's natural gas measurement services
segment are conducted by Southern Flow. Southern Flow's services include on-site
field services, chart processing and analysis, laboratory analysis, and data
management and reporting. These services are provided principally to customers
involved in natural gas production, gathering, transportation and processing.
The Company recently formed two wholly owned subsidiaries engaged in
the energy information and services businesses, Metretek Internet Services, Inc.
and TEP. The operations of these new subsidiaries were not material through
September 30, 1999.
The Company evaluates the performance of its operating segments based
on income (loss) before income taxes, nonrecurring items and interest income and
expense. Intersegment sales are not significant.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes corporate
related items, results of insignificant operations and, as it relates to segment
profit, income and expense not allocated to reportable segments.
<TABLE>
<CAPTION>
AUTOMATED NATURAL GAS
ENERGY DATA MEASUREMENT
MANAGEMENT SERVICES OTHER TOTAL
---------- -------- ----- -----
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1999
Revenues $ 6,206,372 $ 8,302,629 $ 22,539 $14,531,540
Segment profit (loss) (909,156) 680,168 (1,197,089) (1,426,077)
Total assets 9,159,787 9,935,794 704,455 19,800,036
Capital expenditures 95,065 57,508 44,430 197,003
Depreciation and amortization 483,973 459,734 10,605 954,312
SEPTEMBER 30, 1998
Revenues $ 5,210,893 $ 8,119,707 $ 37,632 $13,368,232
Segment profit (loss) 7,382 543,843 (1,061,062) (509,837)
Total assets 10,317,948 10,521,388 1,019,715 21,859,051
Capital expenditures 106,745 98,572 3,186 208,503
Depreciation and amortization 334,420 449,534 7,171 791,125
</TABLE>
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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 nine month periods ended September 30, 1999 and 1998 and of the
consolidated financial condition of the Company as of September 30, 1999 should
be read in conjunction with the Company's consolidated financial statements and
related notes thereto included elsewhere herein. As used in this Item,
references to the "Company" mean Metretek Technologies, Inc. and its wholly
owned subsidiaries: Metretek, Incorporated (referred to herein as "Metretek")
and Southern Flow Companies, Inc. (referred to herein as "Southern Flow").
The Company recently formed two wholly owned subsidiaries engaged in
the energy information and services businesses, Metretek Internet Services, Inc.
and TotalEnergyPlan, Inc. ("TEP"). The operations of these new subsidiaries were
not material through September 30, 1999.
RESULTS OF OPERATIONS
The following table sets forth selected information related to the
Company's primary business segments and is intended to assist the reader in an
understanding of the Company's results of operations for the periods presented.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1999 1998
------- -------
(dollar amounts in thousands)
<S> <C> <C>
REVENUES:
Southern Flow $ 8,303 $ 8,120
Metretek 6,206 5,211
Other 22 37
------- -------
Total $14,531 $13,368
======= =======
GROSS PROFIT:
Southern Flow $ 1,937 $ 1,821
Metretek 2,530 2,877
------- -------
Total $ 4,467 $ 4,698
======= =======
SEGMENT PROFIT (LOSS):
Southern Flow $ 680 $ 544
Metretek (909) 7
Other (1,197) (1,061)
------- -------
Loss from continuing operations (1,426) (510)
Loss from discontinued operations -- (13)
------- -------
Total $(1,426) $ (523)
======= =======
</TABLE>
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The Company currently has two reportable business segments: automated
energy data management; and natural gas measurement services. The operations of
the Company's automated energy data management segment are conducted by
Metretek. Metretek's manufactured products fall into three categories: remote
data collection products; electronic corrector products; and
application-specific products. Metretek also provides energy data collection and
management services and post-sale support services for its manufactured
products.
The operations of the Company's natural gas measurement services segment
are conducted by Southern Flow. Southern Flow's services include on-site field
services, chart processing and analysis, laboratory analysis, and data
management and reporting. These services are provided principally to customers
involved in natural gas production, gathering, transportation and processing.
The Company evaluates the performance of its operating segments based on
income (loss) before taxes, nonrecurring items and interest income and expense.
Other profit (loss) amounts in the table above include corporate related items,
results of insignificant operations, and income and expense not allocated to its
operating segments.
During 1998, the Company decided to discontinue its business segment
engaged in acquiring or financing the acquisition of natural gas assets through
private programs. The 1998 financial statements have been reclassified to
exclude the operating results of this segment from continuing operations and to
account for this segment as discontinued operations. The following discussion
relates only to the Company's continuing operations.
NINE MONTHS MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. The Company's consolidated revenues for the nine months ended
September 30, 1999 increased $1,163,308, or 9%, compared to the same period in
1998, due to an increase in revenues by each of the Company's two operating
segments. Southern Flow's revenues increased $182,922, or 2%, for the nine
months ended September 30, 1999, compared to the same period in 1998. Metretek's
revenues for the nine months ended September 30, 1999 increased $995,479, or
19%, compared to the same period in 1998, consisting of an increase in domestic
sales of $1,207,369, offset in part by a decrease in international sales of
$211,890. The increase in Metretek's domestic sales was primarily the result of
the inclusion in its revenues for the nine months ended September 30, 1999 of
sales of its electronic corrector product line, which it acquired from America
Meter in May 1998 but did not fully market until the mid-third quarter of 1998.
Sales of Metretek's traditional line of remote data collection products and
systems increased slightly in the first nine months of 1999 due primarily to
increased demand for Year 2000 compliant systems, but this was more than offset
by a decrease in circuit board assembly sales resulting partially from reduced
industry demand and partially from the timing of orders which are expected to
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be filled in the fourth quarter of 1999. International sales, which are subject
to fluctuation because the Company does not currently have a steady base of
international customers, decreased in the nine months ended September 30, 1999
because Metretek did not capture as many new international projects during such
period as compared to the same period in 1998. A comparison of Metretek's
current domestic and international product mix is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Remote data collection
products and systems $3,711 60% $3,591 69%
Electronic corrector products 1,830 29% 625 12%
Circuit board assembly sales 665 11% 995 19%
------ ------
Total $6,206 $5,211
====== ======
</TABLE>
Costs and Expenses. Costs of sales and services include materials,
labor, personnel and related overhead costs incurred by the Company to
manufacture products and provide services. Cost of sales and services for the
nine months ended September 30, 1999 increased $1,408,878, or 16%, compared to
the same period in 1998. Metretek's cost of sales and services for the nine
months ended September 30, 1999 increased $1,341,605, or 57%, compared to the
same period in 1998. This increase was due primarily to higher personnel and
related overhead costs associated with the integration and manufacturing of the
electronic corrector product line which was acquired by Metretek in May 1998.
Although Metretek's revenues for the nine months ended September 30, 1999
increased approximately 19% compared to the same period in 1998, Metretek's
overall gross profit margin decreased from 55.2% to 40.8% compared to the same
period in 1998. Southern Flow's cost of sales and services for the nine months
ended September 30, 1999 increased $67,273, or 1%, compared to the same period
in 1998. Southern Flow's gross profit margin for the nine months ended September
30, 1999 increased slightly from 22.4% to 23.3% compared to the same period in
1998, which is within the range of normal fluctuations.
General and administrative expenses include personnel and related
overhead costs for the support and administration functions of the Company.
General and administrative expenses for the nine months ended September 30, 1999
decreased $134,135, or 5%, compared to the same period in 1998, due principally
to the effect of the following factors: (i) a decrease in expenses of Metretek
of approximately $72,000 attributable to overall cost savings at Metretek and
Sigma VI resulting from combining certain administrative functions; (ii)
decreases in general and corporate expenses of approximately $87,000 primarily
due to the elimination of compensation costs associated with the Company's 1998
Employee Stock Purchase Plan, which was terminated in July 1998; and (iii) a
decrease in expenses of Southern Flow of approximately $32,000 primarily
attributable to reduced state and franchise taxes in
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1999 compared to 1998. These decreases in general and administrative expenses
were partially offset by approximately $56,000 of costs incurred by the
Company's newly formed eBusiness Project subsidiaries, primarily attributable to
the compensation cost of common stock warrants issued to its consultants and
joint venture partners, for which there were no comparable costs during the nine
months ended September 30, 1998.
Selling, marketing and service expenses consist of personnel and
related overhead costs, including commissions for the sale and marketing
activities of the Company, together with advertising and promotion costs.
Selling, marketing and service expenses for the nine months ended September 30,
1999 increased $432,543, or 41%, compared to the same period in 1998,
substantially all of which related to activities at Metretek. The increase in
these expenses was due principally to an increase in the number of sales and
customer service personnel in 1999 compared to the same period in 1998 primarily
associated with the integration of the electronic corrector product line as well
as increased activities related to marketing the Company's internet energy
information and services operations.
Depreciation and amortization expenses include the depreciation and
amortization of the Company's real property, customer list, goodwill and
capitalized software development costs. Depreciation and amortization expenses
for the nine months ended September 30, 1999 increased $163,187, or 21%,
compared to the same period in 1998. This increase was due to additional
goodwill amortization costs related to Metretek's acquisitions in the second
quarter of 1998 as well as increased depreciation expenses at both Metretek and
Southern Flow.
Research and development expenses include personnel and related
overhead costs for product and service development, enhancements, and upgrades.
Research and development expenses for the nine months ended September 30, 1999
increased $92,361, or 13%, compared to the same period in 1998, primarily due to
increased personnel costs.
Interest, finance charges and other expenses include interest and
finance charges on the Company's credit facility as well as other non-operating
expenses. Interest, finance charges and other expenses for the nine months ended
September 30, 1999 increased $116,714, or 117%, compared to the same period in
1998. The increase reflects interest expense on additional borrowings in 1999
compared to 1998 in order to fund Metretek's acquisitions in the second quarter
of 1998 and the subsequent growth and development of the acquired businesses,
borrowings to finance increases in Metretek's inventory and accounts receivable,
and the amortized portion of capitalized finance charges incurred in 1998 to
obtain the Company's current credit facility.
SEASONALITY AND CYCLICALITY
Metretek historically derives substantially all of its revenues from
sales of its products and services to the utility industry. Metretek has
experienced variability of
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operating results on both an annual and a quarterly basis due primarily to
utility purchasing patterns and delays of purchasing decisions as a result of
mergers and acquisitions in the utility industry and changes or potential
changes to the federal and state regulatory frameworks within which the utility
industry operates. The utility industry, both domestic and foreign, is generally
characterized by long budgeting, purchasing and regulatory process cycles that
can take up to several years to complete. Metretek's utility customers typically
issue requests for quotes and proposals, establish committees to evaluate the
purchase, review different technical options with vendors, analyze performance
and cost/benefit justifications and perform a regulatory review, in addition to
applying the normal budget approval process within a utility. Purchases of
Metretek's products are, to a substantial extent, deferrable in the event that
utilities reduce capital expenditures as a result of mergers and acquisitions,
pending or unfavorable regulatory decisions, poor revenues due to weather
conditions, rising interest rates or general economic downturns, among other
factors.
Based upon the discussion set forth in this item, the Company believes
that future revenues, expenses and results of operations are likely to vary
significantly from quarter to quarter. As a result, quarterly comparisons of
operating results are not necessarily meaningful or indicative of future
performance.
FINANCIAL CONDITION AND LIQUIDITY
The Company requires capital principally for (i) the financing of
inventory and accounts receivable, (ii) research and development expenses,
including the development of its internet-based eBusiness Project, (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 $1,239,000
for the nine months ended September 30, 1999, that was the net result of the
following: (i) approximately $454,000 of cash used to fund continuing
operations, before changes in assets and liabilities; (ii) approximately
$1,645,000 of cash provided by changes in working capital and other asset and
liability accounts; and (iii) approximately $48,000 of cash provided by
discontinued operations.
The Company plans to continue research and development efforts to
enhance its existing products and develop new products, including its
internet-based eBusiness Project. The Company anticipates that its research and
development costs in 1999 will be approximately $2,500,000, of which $1,100,000
will relate to Metretek's business and $1,400,000 is expected to be incurred in
connection with developing the Company's internet-based eBusiness Project.
Research and development expenses in the amount of $797,483 were incurred in the
nine month period ended September 30, 1999.
The Company anticipates capital expenditures in 1999 of approximately
$275,000, primarily for production and laboratory equipment, computer software
and
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hardware. Capital expenditures for the nine month period ended September 30,
1999 totaled $197,003.
On May 4, 1998, the Company acquired substantially all of the assets
and business of American Meter Software Corporation ("American Meter Software"),
a subsidiary of American Meter Company, pertaining to electronic correctors and
non-radio-frequency meter reading devices in the natural gas and electric
utility industry. In consideration for this purchase, the Company delivered to
American Meter Software an aggregate purchase price consisting of $1,300,000 in
cash, 439,560 unregistered shares of Common Stock of the Company, and a
$1,200,000 convertible subordinated promissory note, $600,000 of which is
contingent upon Metretek exceeding certain sales targets, as discussed below.
The purchase price is subject to upward adjustment based on Metretek's actual
sales of products in the acquired business during the eighteen-month period that
ends December 31, 1999. If Metretek's annualized sales of products in the
business acquired 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 shall not be increased above
$4,500,000 even if annualized sales are greater than that amount. Any increase
in the purchase price will be effected by adjusting the principal balance of the
note. Up to $1,028,107 of the note is convertible at any time at the option of
American Meter Software into 180,766 shares of Common Stock of the Company at
the rate of $5.75 principal per share. The note bears interest on the unpaid
principal balance at a fixed rate equal to 7.5% per annum, payable quarterly in
arrears. The note is due and payable on May 4, 2002, and may be prepaid by the
Company at any time without penalty or premium.
On April 14, 1998, the Company, Metretek and Southern Flow, entered
into a loan and security agreement (the "Loan Agreement") with a commercial bank
(the "Lender") providing for a combined $5,000,000 credit facility consisting of
loans (the "Loans") and letters of credit subject to limitations described
below. The Loan Agreement provides for daily advances in the form of Loans to
fund capital requirements, and daily paydowns on outstanding balances of the
Loans from collection of customer accounts receivable. The Company makes monthly
interest payments computed at prime plus 1% (9.25% at September 30, 1999) on
outstanding balances of the Loans. The Loans mature on March 14, 2001.
The Loans are secured by the tangible and intangible assets of the
Company, Southern Flow, and Metretek, including equipment, inventory,
receivables, and cash deposits, and the pledge of the shares of the Company's
subsidiaries. The Loan Agreement requires the Company to maintain a minimum
tangible net worth, a maximum debt to tangible net worth ratio, minimum annual
net income, a minimum debt service coverage ratio, and contains other standard
covenants related to operations of the Company, including prohibitions on the
payment of dividends and the issuance or repurchase of securities (with certain
exceptions) without the Lender's consent.
Borrowings on the Loans are limited to the sum of 80% of eligible
accounts receivable of Southern Flow and Metretek and 50% of raw materials and
finished
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goods inventory (up to a combined maximum of $1,500,000) of Southern Flow and
Metretek. At September 30, 1999, the Company had a combined $3,287,595 Loan
availability, of which $1,288,503 had been borrowed by Southern Flow and
Metretek, leaving $1,999,092 in unused Loan availability.
On September 13, 1999, the Company entered into a strategic
relationship with Scient Corporation ("Scient") to assist the Company in
designing and creating an internet-based eBusiness to enable the Company to take
its measurement information products, services, and data measurement
technologies to the market of end-users of natural gas and electricity (the
"eBusiness Project"). The eBusiness Project is being developed and will be
operated through the Company's newly formed wholly owned subsidiary, Metretek
Internet Systems, Inc. Simultaneously, the Company entered into a joint venture
agreement with Mercator Energy Incorporated ("Mercator") whereby Mercator will
provide consulting services (the "Mercator Consulting Agreement") to TEP, a
newly formed wholly owned subsidiary of the Company. TEP was organized to
develop and market "TotalEnergyPlan", the Company's proprietary turnkey data
collection and software management system that enables commercial users of
natural gas and electricity to monitor and better manage their energy purchases
and consumption, which is designed to capitalize on a continuing trend toward
deregulation within the industry.
In order to facilitate its internet-based eBusiness Project, the
Company, together with Metretek and Southern Flow, entered into an amendment
(the "Loan Amendment") to the terms of its Loan Agreement. The Loan Amendment
amends certain covenants of the Loan Agreement, including the Company's minimum
annual net income (or maximum annual net loss in 1999), minimum tangible net
worth and minimum debt service coverage ratio. The Loan Amendment also permits
the Company to utilize up to $700,000 of its credit facility to finance
expenditures on the first phase of the eBusiness Project.
The Company anticipates that the costs of the eBusiness Project, which
involves several phases, will require estimated expenditures of approximately
between $4,000,000 and $5,000,000 over the next nine to twelve months. The
Company has the right to terminate the eBusiness Project on 30 days notice, with
maximum additional expenditures of $100,000. The Loan Amendment is intended to
provide the financing for the first phase of the eBusiness Project. In order to
finance the remaining phases and the completion of the eBusiness Project, the
Company will need to raise additional funds from the proceeds of public or
private equity financing, debt financing, or from other sources. Any such
capital raising will be subject to the consent of the Company's Lender. There
can be no assurance that such additional funds will be available to the Company
on a timely basis or that, if available on a timely basis, such funds can be
obtained on terms satisfactory to the Company or its Lender. In the event the
Company cannot obtain sufficient additional funds on a timely basis, then the
Company will not be able to complete the eBusiness Project. The inability of the
Company to finance or complete the eBusiness Project could have a material
adverse effect on the Company's business, financial condition and results of
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operations.
In connection with the eBusiness Project, the Company issued to Scient
a warrant (the "Scient Warrant") to purchase 125,000 shares of common stock of
the Company. The Scient Warrant becomes exercisable in September 2000, at
exercise prices split between $5.00 and $10.00 per share, and expires in
September 2002. Scient has registration rights with respect to the common stock
issuable upon the exercise of the Scient Warrant.
Pursuant to the Mercator Consulting Agreement, Mercator will provide
broker-agent natural gas consulting services to TEP for a fee of $7,500 per
month. The term of the Mercator Consulting Agreement is six months, renewable by
mutual consent for six additional months. In connection with the Mercator
Consulting Agreement, the Company issued to Mercator an option to purchase up to
25% of the capital stock of TEP for a purchase price equal to 25% of TEP's
cumulative net loss, which is exercisable only during the term of the Consulting
Agreement. The Company also issued to Mercator a warrant (the "Mercator
Warrant") to purchase 60,000 shares of common stock of the Company. The Mercator
Warrant vests in three tranches from the date of issuance through March 2000,
with exercise prices ranging between $4.50 and $5.50 per share, and expires in
September 2002. Mercator has registration rights with respect to the common
stock issuable upon the exercise of the Mercator Warrant.
In connection with the Loan Amendment, the Company paid customary fees
to the Lender and issued a warrant (the "Lender Warrant") to purchase 20,000
shares of common stock of the Company. The Lender Warrant is exercisable for
three years at an exercise price of $5.00 per share. The Lender has registration
rights with respect to the common stock issuable upon the exercise of the Lender
Warrant.
Compensation expense for the fair value of the Scient, Mercator and
Lender Warrants is being recognized in accordance with the provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," over the period in which the services are being performed or the
remaining term of the Loan Agreement. Compensation expense associated with the
warrants in the amount of $17,226 has been recognized in the consolidated
statement of operations during the nine months ended September 30, 1999.
In September 1998, the Board of Directors of the Company adopted a
stock repurchase plan (the "Stock Repurchase Plan") pursuant to which the
Company was authorized to purchase up to approximately 7% of its outstanding
common stock in open market transactions, from time to time as management deemed
appropriate, based on the market price of the Company's stock. Through September
30, 1999, the Company repurchased 96,116 shares of its common stock at an
average price of $2.22 per share. The Stock Repurchase Plan was discontinued on
October 6, 1999. All of the repurchased shares have been retired.
Based on the Company's current plans and assumptions, management
believes
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that the Company's capital resources, including cash and cash equivalents,
amounts available under existing credit facilities and funds generated from
continuing operations, and additional proceeds from the disposition of the
remaining assets of its discontinued operations, will be sufficient to meet its
currently anticipated cash needs, including its working capital needs, capital
commitments and debt service requirements, other than those pertaining to its
eBusiness Project, for which the Company will need to raise additional capital
from public or private sales of equity, debt financing, sale of assets or from
other sources. The Company will also have a continuing need for additional
capital to accomplish its business strategy with respect to its existing
businesses and its newly developed businesses in the future, as well as to grow
these businesses. In addition, unanticipated events, over which the Company may
have no control, could increase its operating costs or decrease its ability to
generate revenues from product and service sales. The Company will also require
additional capital in the future in order to make any significant acquisition of
businesses or technologies.
Obtaining additional financing will depend on many factors, including
market conditions, the Company's operating performance and investor sentiment.
Terms of debt financing could restrict the Company's ability to operate its
business, or to expand its operations. In addition, if the Company raises
additional capital by issuing capital stock or securities convertible into
capital stock, stockholders of the Company could suffer a significant dilution
of their percentage ownership interests, and the new capital stock or other new
securities could have rights, preferences or privileges senior to those of the
Company's current stockholders. Any such capital raising will be subject to the
consent of the Company's lender. There can be no assurance that such additional
funds will be available to the Company on a timely basis or that, if available
on a timely basis, that such funds can be obtained on terms satisfactory to the
Company or to its lender. The inability of the Company to obtain sufficient
additional capital on a timely basis on terms that are acceptable to the Company
and to its lender could have a material adverse effect on the Company's
business, financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which, as amended by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS No. 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
The Company is currently evaluating the impact SFAS No. 133 will have on its
financial statements, if any.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
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Software Developed or Obtained for Internal Use", which the Company adopted
effective January 1, 1999. SOP No. 98-1 requires that the Company capitalize
certain costs incurred in connection with developing or obtaining software for
internal use. The adoption of SOP No. 98-1 did not have a material effect on the
financial position or results of operations of the Company.
YEAR 2000 COMPLIANCE
The "Year 2000 issue," which presents potential risks and uncertainties
to virtually all businesses, is the result of computer programs that use two
digits rather than four to define the applicable year. Any computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This situation could result in system failures
or miscalculations causing disruptions to operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar or normal business activities.
The Company has completed its evaluation and assessment of its
information technology and non-information technology systems, including
software, hardware and equipment that may be potentially affected by the Year
2000 issue. The Company has and will continue to modify and replace portions of
its existing information technology systems so they will function properly with
respect to dates in the year 2000 and thereafter. The Company believes that any
Year 2000 issues with respect to its internal information technology systems
have been substantially resolved by either internal software programming
adjustments or by the installation of Year 2000 compliant information systems.
The Company has completed substantially all modifications and replacements
required for Year 2000 compliance in its information systems. The Company has
also substantially completed its assessment of non-information technology
systems containing embedded chips that may be Year 2000 sensitive to identify
operating systems and equipment that are necessary or critical for continued
operations. The Company has tested and will continue to test essential operating
systems and equipment containing embedded chips for Year 2000 compliance and to
reprogram or replace such equipment as appropriate. Based upon its assessments
to date, the Company is not aware of any significant Year 2000 issues in its
control that have not been substantially resolved.
The Company has also extensively tested the technologies it sells for
Year 2000 issues. The Company believes that the technologies and services it
currently sells are Year 2000 compliant, but the Company intends to continue
testing to address any Year 2000 issues that may arise. The Company has made
available Year 2000 modifications, upgrades and replacement technology to its
customers that purchased prior technologies that were not Year 2000 compliant.
Metretek's website includes a listing of products that Metretek has identified
as either Year 2000 compliant, non-compliant, or compliant with qualifications
as noted. The Company intends to make all requisite modifications, replacements
and patches in order to resolve any Year 2000 issues that arise with respect to
technologies and services sold by the Company.
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The Company believes that the greatest risk from Year 2000 issues will
result from the failure of third parties, with which the Company has material
relationships, to become Year 2000 compliant. The Company relies on third party
service providers for services such as telecommunications, internet services,
utilities and other key services. Interruption of these services due to Year
2000 issues could materially adversely effect the Company's operations. The
Company has communicated with certain third parties, including vendors,
suppliers, service providers and customers, that the Company believes are
critical to its business operations and with respect to which the Company
believes Year 2000 issues could materially affect the Company's business.
Although the Company is not presently aware of any significant vendor, supplier,
service provider or customer that will have Year 2000 issues material to the
Company's operations, many businesses are resistant to providing any written or
binding assurances that they will be Year 2000 compliant. In addition, the
Company has no control over Year 2000 compliance programs by third parties.
Accordingly, the Company cannot provide any assurance that the systems of its
essential vendors, suppliers, service providers or customers will be Year 2000
compliant. The lack of Year 2000 compliance by such third parties could have a
material adverse impact on the Company's results of operations, financial
condition and business. If any such third parties (other than customers) are not
Year 2000 compliant and such non-compliance had or is likely to have a material
adverse effect on the Company, then the Company expects to utilize alternate
vendors, suppliers and service providers (subject to availability) which are
Year 2000 compliant. The Company intends to have in inventory a reserve of raw
materials, which it believes is sufficient to avoid a disruption in its
manufacturing process, to minimize the risk associated with third-party
suppliers experiencing Year 2000 issues. However, the loss or shortage of supply
in any critical component of inventory, due to supplier Year 2000 issues or
otherwise, could materially and adversely affect the Company's manufacturing
operations.
The Company expects total incremental costs (other than internal labor
time) of becoming Year 2000 compliant not to exceed approximately $200,000, of
which the Company has spent approximately $183,000 through September 30, 1999.
The Company is funding the costs associated with Year 2000 compliance through
operating cash flows and does not expect to defer any significant information
technology projects in order to become Year 2000 compliant. The Company intends
to capitalize and depreciate costs which represent investments in new or
upgraded technology that qualify as capital investments and to expense all other
costs as incurred.
It is difficult to predict with a high degree of accuracy, and
impossible to guaranty, what impact any Year 2000 issues will have on the
Company. The Company is in the process of attempting to assess the most
reasonably likely worst case Year 2000 scenario, although the Company believes
that it, as most businesses, will not be able to identify such scenario with any
meaningful degree of certainty, given all the risks and uncertainties related to
the Year 2000 issue, many of which are outside of its control. The Company
currently anticipates a minimal level of disruption, inconveniences and
inefficiencies in its operations as a result of systems failures, primarily
related to non-compliance by third parties. The Company believes the risks
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are greatest with respect to electric power and water supply, telecommunications
and transportation. Outages in any of these supplies could prevent the Company
from providing its services in measuring and monitoring the energy consumption
of its customers. Even if the Company could perform its services, these outages
could prevent or delay the delivery of the information results to its customers.
If the Company is unable to provide such services, then its revenues and results
of operation, will be materially reduced. Year 2000 issues may also cause
temporary delays in the delivery of raw materials and supplies, but the Company
does not expect any such delays to materially affect the Company's operations.
Other possible consequences include, but are not limited to, interruption of
banking and commercial payment systems, invoicing errors, collection
difficulties, inability to process customer transactions or otherwise engage in
similar normal business activities, which events are beyond the reasonable
ability of the Company to assess or control. There can be no assurance that Year
2000 issues will not be material to the Company, or that the cost of
interruptions with the systems of third parties will not have a material adverse
effect on the Company's business, financial condition or results of operations.
Although the Company has not created a specific contingency plan to
address the most reasonably likely worst case Year 2000 scenario, the Company
has developed contingency plans for certain Year 2000 problems, such as
identifying alternate vendors, suppliers and service providers, identifying
alternative methods for transmitting energy measurement and monitoring
information to its customers and preparing manual back-up methods for certain
software-intensive operations. However, as the Company continues to assess the
Year 2000 issue, in the event management believes it is warranted, the Company
will develop a specific Year 2000 "worst case" contingency plan. The Company
will continually refine its contingency plans as additional information becomes
available.
This item discussing Year 2000 issues contains forward-looking
statements. The costs and anticipated completion dates for Year 2000 compliance
by the Company and the estimated impact of Year 2000 issues on the Company are
based upon management's best estimates at this time, which were derived
utilizing numerous assumptions as to future events and third party activities,
including the continued availability of certain resources, third party
modifications plans and other factors, and may be updated from time to time as
additional information becomes available. However, the Company cannot guarantee
that these estimates will be achieved, and actual results could differ
materially from those anticipated. Specific factors that may cause such material
differences include, but are not limited to, the availability and costs of Year
2000 compliant technology, the ability to identify and correct all potential
Year 2000 sensitive issues, the ability of essential third parties to bring
their systems into Year 2000 compliance, the level of Year 2000 disruptions
experienced by the Company's vendors, suppliers, service providers and
customers, the success of any required contingency actions and similar
uncertainties.
The Year 2000 statements in this item, as well as other Company
disclosures regarding Year 2000 issues, are intended to constitute "Year 2000
Readiness
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Disclosures" under the Year 2000 Information and Readiness Disclosure Act.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains, under "Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations", as well as other
parts of this Form 10-QSB, certain forward-looking statements within the meaning
of and made pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. From time to time, the Company may publish or otherwise
make available forward-looking statements of this nature. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance, and underlying assumptions and other statements,
which are not historical facts. The words "may", "could", "will", "project",
"intend", "continue", "believe", "anticipate", "estimate", "expect", "plan" and
similar expressions are intended to identify forward-looking statements.
Examples of forward-looking statements include statements regarding, among other
matters, the Company's plans, intentions, beliefs and expectations with respect
to the following:
o the Company's future prospects, including revenues, income,
margins, profitability, cash flow, liquidity, financial condition
and results of operations;
o the Company's products and services, market position, market
share, business and growth strategies, and strategic
relationships;
o industry trends, competitive conditions and market conditions,
segments and trends;
o the Company's capital requirements and capital resources;
o the sufficiency of funds from operations and available borrowings
to meet the Company's future working capital and capital
expenditure needs;
o the development of an eBusiness market for energy information
products and services, and the Company's ability to successfully
design, create and sell such products and services over the
Internet;
o the Company's ability to finance its eBusiness Project; and
o Year 2000 issues.
The Company's forward-looking statements are based on the current
plans, intentions, beliefs and expectations of management as well as assumptions
made by and information currently available to management. The readers are
cautioned not to place
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undue reliance on these forward-looking statements. Forward-looking statements
are not guarantees of future performance or events, but are subject to and
qualified by risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by the forward-looking statements.
These risks and uncertainties include, but are not limited to, the following:
o the Company's ability to successfully develop and implement an
Internet-based business;
o the emergence and growth of a market for online energy information
and services;
o the success of the Company's strategic relationships with Scient
and Mercator;
o changes in the energy industry in general and the natural gas and
electricity industry in particular;
o the Company's ability to successfully implement, and the market's
acceptance of, Metretek's "TotalPlan(TM)" and
"TotalEnergyPlan(TM)" offerings;
o the ability of the Company to raise sufficient funds to finance
the eBusiness Project and the Company's other capital requirements
on terms satisfactory to the Company, and the willingness of the
Company's Lender, to consent to the terms of such financing
arrangements;
o the Company's history of losses and uncertainty of future
profitability;
o the Company's lack of operating history in its new energy
information and services businesses and the unproven business
models in those businesses;
o the capital resources, technological requirements, and internal
business plans of the natural gas and electricity utilities
industry;
o technological and market changes within the natural gas industry;
o the complexity, uncertainty and time constraints associated with
the development and market acceptance of new product and service
designs and technologies;
o general economic and business conditions;
o the Company's ability to successfully integrate and utilize the
product lines and business acquired from American Meter, including
the risks that revenues from the acquired business could be lower
than expected and
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that related costs could be higher than expected;
o the impact and timing of the deregulation of the various energy
markets;
o utility purchasing patterns and delays and potential changes to
the federal and state regulatory frameworks within which the
utility industry operates;
o risks and uncertainties associated with Year 2000 issues;
o fluctuations in quarterly operating results;
o effects of a change in product mix on the Company's expected gross
margins and net income;
o the effects of any corporate acquisitions, dispositions or other
corporate transactions;
o risks associated with international operations;
o risks inherently associated with the Company's management of
private energy programs;
o the amount of additional proceeds from the disposition of the
remaining net assets and other revenues from discontinued
operations;
o the receipt and timing of future customer orders;
o the impact of competitive factors affecting the Company's
operations, including the introduction of competitor's products,
services and technologies by competitors;
o unexpected events affecting the Company's ability to obtain funds
from operations, debt or equity to finance operations, pay
interest and other obligations, and fund needed capital
expenditures and other investments;
o the Company's ability to protect its proprietary information and
technology;
o the impact of current and future laws and government regulations
affecting the energy industry in general and the natural gas
industry in particular; and
o other risks and uncertainties that are discussed in this Form
10-QSB or that are discussed from time to time in the Company's
other reports and filings with the Securities and Exchange
Commission.
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The Company does not intend, and assumes no responsibility, to update
any oral or written forward-looking statements made by the Company, whether as
the result of new information, further events or otherwise.
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PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Between July 1, 1999 and September 30, 1999, the Company issued the
following securities without registration under the Securities Act of 1933:
(1) On July 19, 1999, the Company issued a warrant to purchase
15,000 shares of Common Stock to Silverman Heller Associates, as consideration
in part for consulting services to the Company. As of September 30, 1999, this
warrant was exercisable for 7,500 shares of Common Stock at an exercise price of
$2.47 per share, and for an additional 7,500 shares of Common Stock at an
exercise price of $4.50 per share. This warrant expires July 19, 2004.
(2) On September 7, 1999, the Company issued a warrant to
purchase 125,000 shares of Common Stock to Scient Corporation, as consideration
in part for eBusiness consulting services to the Company. As of September 30,
1999, this warrant was not exercisable. This warrant becomes exercisable
September 7, 2000 for 62,500 shares of Common Stock at an exercise price of
$5.00 per share and for an additional 62,500 shares of Common Stock at an
exercise price of $10.00 per share. This warrant expires September 7, 2003.
(3) On September 7, 1999, the Company issued a warrant to
purchase 20,000 shares of Common Stock at an exercise price of $5.00 per share
to National Bank of Canada, as consideration in part for the amendment of the
Company's credit facility. As of September 30, 1999, this warrant was fully
exercisable. This warrant will expire September 7, 2002.
(4) On September 13, 1999, the Company issued a warrant to
purchase 60,000 shares of Common Stock to Mercator Energy Incorporated, as
consideration in part for entering into a consulting and joint venture
arrangement with a subsidiary of the Company. As of September 30, 1999, this
Warrant was exercisable for 20,000 shares of Common Stock at an exercise price
of $4.50 per share. Commencing September 13, 2000, this Warrant will become
exercisable for 20,000 additional shares of Common Stock at an exercise price of
$5.00 per share. Commencing March 13, 2001, this Warrant will become exercisable
for an additional 20,000 shares of Common Stock at an exercise price of $5.50
per share. This Warrant expires on September 13, 2002.
Each of the issuances of securities described above was made in
reliance upon an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) of the Securities Act as a transaction not involved
in a public offering. The Company reasonably believed that each recipient of
such securities had such knowledge and experience in financial and business
matters to be capable of evaluating the risks and merits of the investment, and
each recipient represented its intention to
27
<PAGE> 28
acquire the securities for investment only and not with a view to or for the
sale in connection with any distribution thereof. All recipients had adequate
access, through their relationships with the Company, to information about the
Company and its business and operation. In connection with the foregoing
issuances of securities, no underwriters or broker-dealers were involved, no
commissions were paid, and appropriate legends were affixed to the warrant
certificates issued in such transactions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) The Company filed a report on Form 8-K with the Securities and
Exchange Commission on September 14, 1999 (Item 5), reporting an
amendment to the terms of its $5,000,000 credit facility provided
under its Loan Agreement in order to facilitate the first phase of
its internet-based eBusiness Project with Scient Corporation and
the Consulting and Joint Venture Arrangement with Mercator Energy
Incorporated.
28
<PAGE> 29
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.
METRETEK TECHNOLOGIES, INC.
Date: November 12, 1999 By: /s/ W. Phillip Marcum
------------------ -------------------------
W. Phillip Marcum
President and Chief Executive Officer
Date: November 12, 1999 By: /s/ A. Bradley Gabbard
------------------ --------------------------
A. Bradley Gabbard
Executive Vice President
and Chief Financial Officer
29
<PAGE> 30
EXHIBIT INDEX
Exhibit
Number
- ------
27.1Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB FOR THE PERIOD ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 349,813
<SECURITIES> 0
<RECEIVABLES> 3,723,491
<ALLOWANCES> 138,811
<INVENTORY> 4,329,613
<CURRENT-ASSETS> 9,011,458
<PP&E> 3,592,015
<DEPRECIATION> 1,970,415
<TOTAL-ASSETS> 19,800,036
<CURRENT-LIABILITIES> 1,787,733
<BONDS> 1,893,503
0
0
<COMMON> 34,603
<OTHER-SE> 16,084,197
<TOTAL-LIABILITY-AND-EQUITY> 19,800,036
<SALES> 14,509,001
<TOTAL-REVENUES> 14,531,540
<CGS> 10,041,543
<TOTAL-COSTS> 15,741,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,218
<INCOME-PRETAX> (1,426,077)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,426,077)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,426,077)
<EPS-BASIC> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
