<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, 2000
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 November 10, 2000 there were 5,908,067 shares of the issuer's
Common Stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
--- ---
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<PAGE> 2
METRETEK TECHNOLOGIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended September 30, 2000 and
September 30, 1999
For the Nine Months Ended September 30, 2000 and
September 30, 1999 5
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 2000 and
September 30, 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,305,448 $ 361,658
Trade receivables, less allowance for doubtful accounts
of $103,312 and $125,573, respectively 4,063,778 3,802,818
Other receivables 4,726 2,818
Inventories 4,254,073 4,155,429
Net assets of discontinued operations 520,647 338,455
Prepaid expenses and other current assets 256,891 435,734
------------- ------------
Total current assets 10,405,563 9,096,912
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Equipment 5,563,277 2,453,492
Vehicles 46,630 52,277
Furniture and fixtures 668,778 508,490
Land, building and improvements 906,799 718,604
------------- ------------
Total 7,185,484 3,732,863
Less accumulated depreciation 2,583,328 2,179,015
------------- ------------
Property, plant and equipment, net 4,602,156 1,553,848
------------- ------------
OTHER ASSETS:
Customer lists (net of accumulated amortization
of $3,289,872 and $2,955,939, respectively) 5,603,014 5,936,948
Goodwill and other intangibles (net of accumulated
amortization of $1,458,679 and $1,048,676, respectively) 4,480,327 2,842,036
Other assets 495,706 180,690
------------- ------------
Total other assets 10,579,047 8,959,674
------------- ------------
TOTAL $ 25,586,766 $19,610,434
============= ============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 861,287 $ 658,900
Accrued and other liabilities 1,362,730 1,365,240
Current portion of notes payable 1,627,371 -
------------- ------------
Total current liabilities 3,851,388 2,024,140
------------- ------------
LONG-TERM NOTES PAYABLE 2,179,759 869,968
------------- ------------
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST IN SUBSIDIARY - -
------------- ------------
REDEEMABLE PREFERRED STOCK - SERIES B,
$.01 PAR VALUE; AUTHORIZED, 1,000,000 SHARES;
7,000 AND 1,450 ISSUED AND OUTSTANDING
RESPECTIVELY; REDEMPTION VALUE $1,000
PER SHARE 6,723,008 1,457,310
------------- ------------
STOCKHOLDERS' EQUITY:
Redeemable Preferred Stock - undesignated, $.01 par value; authorized,
2,000,000 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, 5,893,769 and 3,784,045
shares, respectively 58,938 37,840
Additional paid-in capital 49,522,317 40,434,688
Accumulated other comprehensive loss (5,926) (4,098)
Accumulated deficit (36,742,718) (25,209,414)
------------- ------------
Total stockholders' equity 12,832,611 15,259,016
------------- ------------
TOTAL $ 25,586,766 $19,610,434
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Natural gas measurement sales and services $ 4,996,434 $ 4,616,837 $15,152,330 $14,509,001
Other 53,958 4,428 285,099 22,539
------------- ------------ ------------- ------------
Total revenues 5,050,392 4,621,265 15,437,429 14,531,540
------------- ------------ ------------- ------------
COSTS AND EXPENSES:
Cost of measurement sales and services 3,771,220 3,211,286 11,315,106 10,041,543
General and administrative 1,347,150 809,752 3,963,264 2,460,479
Selling, marketing and service 700,345 448,462 1,728,753 1,487,582
Depreciation and amortization 474,372 317,790 1,164,064 954,312
Research and development 2,214,006 233,616 9,546,833 797,483
Interest, finance charges and other 33,208 71,361 112,864 216,218
------------- ------------ ------------- ------------
Total costs and expenses 8,540,301 5,092,267 27,830,884 15,957,617
------------- ------------ ------------- ------------
LOSS FROM OPERATIONS BEFORE
MINORITY INTEREST AND TAXES (3,489,909) (471,002) (12,393,455) (1,426,077)
MINORITY INTEREST IN NET LOSS 183,727 860,143
INCOME TAXES - - - -
------------- ------------ ------------- ------------
NET LOSS (3,306,182) (471,002) (11,533,312) (1,426,077)
PREFERRED STOCK DEEMED DISTRIBUTION (180,477) - (5,258,388) -
------------- ------------ ------------- ------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(3,486,659) $ (471,002) $(16,791,700) $(1,426,077)
============= ============ ============= ============
NET LOSS PER COMMON SHARE:
Basic $(0.63) $(0.14) $(3.32) $(0.41)
====== ====== ====== ======
Diluted $(0.63) $(0.14) $(3.32) $(0.41)
====== ====== ====== ======
WEIGHTED AVERAGE BASIC AND
DILUTED COMMON SHARES
OUTSTANDING 5,507,496 3,452,414 5,065,010 3,466,768
============= ============ ============= ============
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
2000 1999
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,533,312) $ (1,426,077)
Adjustments to reconcile net loss to net cash
(used) provided by continuing operations:
Depreciation and amortization 1,164,064 954,312
Minority interest in PowerSpring (860,143)
Stock based compensation expense 133,200 17,226
Loss on disposal of property, plant and equipment 13,022 417
Changes in other assets and liabilities, net of effect of acquisition:
Trade receivables (260,960) 1,422,234
Inventories (98,644) 82,487
Other current assets 45,643 123,528
Other noncurrent assets (1,907) 8,488
Accounts payable 3,048,813 (197,280)
Accrued and other liabilities (321,076) 205,491
------------- -------------
Net cash (used) provided by continuing operations (8,671,300) 1,190,826
Net cash (used) provided by discontinued operations (182,192) 48,051
------------- -------------
Net cash (used) provided by operating activities (8,853,492) 1,238,877
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition (463,484) -
Additions to property, plant and equipment (3,253,743) (197,003)
Proceeds from sale of property, plant and equipment 11,249 7,800
------------- -------------
Net cash used by investing activities (3,705,978) (189,203)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement 10,586,895 -
Payments on notes payable to bank (273,659) (1,273,199)
Exercise of stock options and warrants 3,197,840 20,584
Repurchase of Common Stock (85,536)
Payments on capital lease obligations (7,816) (1,158)
------------- -------------
Net cash provided (used) by financing activities 13,503,260 (1,339,309)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 943,790 (289,635)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 361,658 639,448
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,305,448 $ 349,813
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE> 7
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2000 and December 31, 1999
For the Three Month Periods Ended September 30, 2000
and 1999 and
For the Nine Month Periods Ended September 30, 2000 and 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of Metretek Technologies, Inc. and its subsidiaries, primarily Metretek,
Incorporated ("Metretek"), Southern Flow Companies, Inc. ("Southern Flow"),
PowerSpring, Inc. ("PowerSpring") and PowerSecure, Inc. ("PowerSecure") 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, 1999.
Minority interest amounts included in the consolidated financial
statements represent an outside shareholder's 12.5% ownership interest in
PowerSpring. In addition, certain 1999 amounts have been reclassified to conform
to current year presentation.
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, 2000 and the consolidated results of their
operations and cash flows for the three and nine month periods ended September
30, 2000 and 1999.
2. COMPREHENSIVE LOSS
The Company's comprehensive loss for the nine months ended September
30, 2000 and 1999 was $11,535,140 and $1,436,832, respectively. The Company's
comprehensive loss includes net loss and foreign currency translation
adjustments.
3. PRIVATE PLACEMENT
On February 4, 2000, the Company completed a $14,000,000 private
placement (the "Units Private Placement") of 7,000 "Units", including 1,450
Units the Company issued on December 9, 1999. Each Unit consisted of 200 shares
of Common Stock, 1 share of Series B Preferred Stock and warrants ("Unit
Warrants") to purchase 100 shares of Common Stock. In the Units Private
Placement, the Company issued 1,400,000 shares of Common Stock, 7,000 shares of
Series B Preferred Stock and Unit Warrants to purchase 700,000 shares of Common
Stock. The Units Private Placement was approved and ratified by the stockholders
of the
7
<PAGE> 8
Company at a special meeting held on February 3, 2000.
Each share of Series B Preferred Stock is mandatorily redeemable on
December 9, 2004 at a liquidation preference of $1,000 per share plus accrued
and unpaid dividends, accrues dividends at 8% annually payable quarterly in
arrears, and is convertible at any time after June 9, 2000 at the option of the
holder into 168.5374 shares of Common Stock of the Company. In addition, the
Company has the right to redeem the Series B Preferred Stock on or after
December 9, 2000, if the Company's Common Stock is trading at 200% of the
conversion price of the Series B Preferred Stock. The conversion rate of the
Series B Preferred Stock may be subject to downward adjustment on December 9,
2000 if the average closing bid price of the Company's Common Stock for the 30
trading days immediately preceding that date is less than the conversion price
then in effect, provided that the conversion price cannot be reduced by more
than 50%. The Series B Preferred Stock is also subject to certain anti-dilution
provisions.
Each Unit Warrant entitles the holder to purchase one share of the
Company's Common Stock at an initial exercise price of $6.7425 per share. The
initial exercise price of the Unit Warrants may also be subject to downward
adjustment on December 9, 2000 if the average closing bid price of the Company's
Common Stock for the 30 trading days immediately preceding that date is less
than the exercise price of the Unit Warrants then in effect.
The proceeds from the sale of the Units, including the 1,450 Units
issued on December 9, 1999, have been allocated to Common Stock, the Unit
Warrants, and the Series B Preferred Stock based on the relative fair value of
each on the date of issuance. This allocation process resulted in the Series B
Preferred Stock issued on February 4, 2000 being initially recorded at a
discount of $141 per share from its $1,000 per share liquidation value. This
discount will be recorded as a deemed distribution over the term of the Series B
Preferred Stock. Another discount resulted from the increase in the fair market
value of a share of the Company's Common Stock from the date the Company offered
to sell 5,550 Units to February 4, 2000, the date the Units were issued. This
increase caused the conversion feature of the Series B Preferred Stock to be "in
the money" on February 4, 2000. The discount of $859 per share related to the
"in the money" conversion feature was recorded as a deemed distribution between
February 4 and June 9, 2000, the date the Series B Preferred Stock could first
be converted into Common Stock of the Company.
The primary purpose of the Units Private Placement was to raise capital
to enable the Company to develop the Internet-based business of PowerSpring and
to repay outstanding indebtedness.
8
<PAGE> 9
4. ACQUISITION
On March 17, 2000, the Company acquired Mercator Energy Incorporated
("Mercator") through a merger with a wholly owned subsidiary of PowerSpring.
Mercator is a Denver-based natural gas services and brokerage company that acts
as an independent broker-agent for both producers and users. This acquisition
provides PowerSpring with Mercator's expertise in the area of energy
procurement, which is an important element in the Company's Internet business
strategy.
In consideration for the acquisition of Mercator, the Company delivered
to the sole shareholder of Mercator prior to the acquisition, $408,334 in cash,
a $741,666 non-negotiable promissory note payable by PowerSpring over two years
and secured by a general security interest in the assets of PowerSpring, and
2,500,000 shares of Common Stock of PowerSpring. Subsequent to the acquisition
of Mercator, the Company owns 87.5% of the outstanding shares of PowerSpring
Common Stock, and Mercator has become a wholly owned subsidiary of PowerSpring.
PowerSpring and Metretek entered into a stockholder's agreement with the former
owner of Mercator that addresses certain rights related to PowerSpring Common
Stock, including a right for the former owner of Mercator to put his shares of
PowerSpring Common Stock back to PowerSpring at an appraised value over three
years if PowerSpring has not completed an initial public offering or has not
sold its business within two years.
The acquisition was accounted for as a purchase with the operating
results of Mercator included in the consolidated statements of operation from
the date of acquisition. The purchase price of the Mercator acquisition, subject
to future minor adjustment, was allocated as follows:
Property, plant and equipment $ 14,000
Goodwill 1,993,000
----------
$2,007,000
==========
Pro forma results of operations for the nine months ended September 30,
2000 and 1999 assuming the acquisition had occurred on January 1, 2000 and 1999
have not been included herein as the effects of the acquisition were not
material to the Company's results of operations.
PowerSpring also entered into a two-year employment agreement with the
former owner of Mercator which included an option to purchase 60,000 shares of
Common Stock of the Company, exercisable at $17.88 per share, and an option to
purchase 200,000 shares of PowerSpring Common Stock, exercisable at $.30 per
share.
In September 1999, the Company had entered into a consulting and joint
venture agreement with Mercator, under which Mercator provided energy
procurement consulting services to the Company. In connection with the
acquisition of Mercator, the consulting and
9
<PAGE> 10
joint venture agreement and a related stock option agreement were terminated.
5. SEGMENT INFORMATION
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business requires different technology and marketing strategies.
The Company has four reportable business segments: automated energy
data management; natural gas measurement services; Internet-based energy
information and services; and distributed generation.
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. Historically, Metretek's products and services have been
provided principally to natural gas local distribution companies ("LDCs").
Typically LDCs install Metretek products in conjunction with custody transfer
meters on their larger customers for the purpose of meeting deregulation
requirements.
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 operations of the Company's Internet-based energy information and
services segment are conducted by PowerSpring. PowerSpring has incurred
operating costs through September 30, 2000. PowerSpring commenced limited
revenue generating operations in the second quarter of 2000 subsequent to the
acquisition described in Note 4.
The operations of the Company's distributed generation segment are
conducted by PowerSecure. PowerSecure commenced operations in September 2000.
For the nine months ended September 30, 2000, PowerSource has not incurred
significant revenues or expenses.
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.
10
<PAGE> 11
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 or loss, income and expense not allocated to reportable segments. All
amounts shown are prior to the deduction of minority interest in PowerSpring.
<TABLE>
<CAPTION>
INTERNET-BASED
AUTOMATED NATURAL GAS ENERGY
ENERGY DATA MEASUREMENT INFORMATION DISTRIBUTED
MANAGEMENT SERVICES AND SERVICES GENERATION OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 2000
Revenues $6,563,420 $8,272,739 $ 316,171 $ - $ 285,099 $15,437,429
Segment profit (loss) (647,815) 755,791 (11,383,169) (69,392) (1,048,870) (12,393,455)
Total assets 8,950,057 9,941,129 5,748,214 2,437 944,929 25,586,766
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
</TABLE>
6. CONVERSION OF DEBT
On May 4, 1998, the Company acquired substantially all of the assets
and business of 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 an aggregate purchase price consisting of $1,300,000
in cash, 439,560 unregistered shares of Common Stock, and a $600,000 convertible
subordinated promissory note. In April 2000, American Meter converted the note
into 105,495 shares of Common Stock under the terms of the note. Until it was
converted, the note bore interest on the unpaid principal balance at a fixed
rate equal to 7.5% per annum, payable quarterly in arrears, and was due and
payable on May 4, 2002.
On September 28, 2000, the Company issued a $2.8 million unsecured
convertible promissory note to Scient Corporation, the Internet-based business
consultant to PowerSpring, in fulfillment of its account payable to Scient. The
convertible note is payable in quarterly installments, due March 31, 2002, bears
no interest, and is convertible at any time at Scient's discretion into either
shares of the Company's Common Stock at the rate of $5.94 per share or shares of
PowerSpring common stock at the rate of $0.60 per share.
11
<PAGE> 12
7. REDEMPTION OF WARRANTS
On July 14, 2000, pursuant to the provisions of the Warrant Agency Agreement,
dated as of September 10, 1998 (the "Warrant Agreement"), between the Company
and Computershare Trust Company, Inc. (formerly known as American Securities
Transfer & Trust, Inc.) (the "Warrant Agent"), the Company sent a written Notice
of Redemption to all holders of its Common Stock Purchase Warrants (the
"Warrants") issued under the Warrant Agreement. The Company had issued the
Warrants as a dividend in September 1998 to all holders of its Common Stock.
Pursuant to the Notice of Redemption and the Warrant Agreement, the Company has
redeemed all Warrants that remained outstanding and unexercised at 5:00 p.m.,
Denver, Colorado time, on August 14, 2000 (the "Redemption Date"), the date
fixed for the redemption of the Warrants. The Warrants, which previously were
traded on the Nasdaq SmallCap Market under the symbol "MTEKW", ceased trading
after the Redemption Date.
Until 5:00 p.m., Denver, Colorado time, on the Redemption Date, each Warrant was
exercisable for one share of Common Stock at an exercise price of $4.00 per
share. A total of 694,046 Warrants were exercised, for 694,046 shares of Common
Stock, after the Notice of Redemption was given, resulting in net proceeds to
the Company, after fees and expenses, of approximately $2.6 million. These
expenses included the fees and expenses of Stifel, Nicolaus & Company, Inc.,
which served as the dealer manager in connection with the redemption of the
Warrants. The Company used the net proceeds from the Warrant exercises
primarily to fund the development, operation and growth of PowerSpring.
The 145,629 Warrants that were not exercised as of the Redemption Date have
ceased to be exercisable and holders thereof are entitled only to the redemption
price of $.01 per Warrant.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion of our results of operations for the nine
month periods ended September 30, 2000 and 1999 and of our financial condition
as of September 30, 2000 should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this
report.
RESULTS OF OPERATIONS
The following table sets forth selected information related to our
primary business segments and is intended to assist you in an understanding of
our results of operations for the periods presented. All amounts shown are prior
to the deduction of minority interest in PowerSpring.
Nine Months Ended
September 30,
---------------------------
2000 1999
-------- --------
(dollar amounts in thousands)
REVENUES:
Southern Flow $ 8,273 $ 8,303
Metretek 6,563 6,206
PowerSpring 316 -
PowerSecure - -
Other 285 22
-------- -------
Total $ 15,437 $14,531
======== =======
GROSS PROFIT:
Southern Flow $ 2,068 $ 1,937
Metretek 2,055 2,530
PowerSpring (286) -
-------- -------
Total $ 3,837 $ 4,467
======== =======
SEGMENT PROFIT (LOSS):
Southern Flow $ 756 $ 680
Metretek (648) (909)
PowerSpring (11,383) -
PowerSecure (69) -
Other (1,049) (1,197)
-------- -------
Total $(12,393) $(1,426)
======== =======
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<PAGE> 14
Our reportable segments are strategic business units that offer different
products and services. They are managed separately because each business
requires different technology and marketing strategies.
We currently have four reportable business segments: automated energy
data management; natural gas measurement services; Internet-based energy
information and services; and distributed generation.
The operations of our 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 our 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 operations of our Internet-based energy information and services
segment are conducted by PowerSpring. PowerSpring has incurred operating costs
through September 30, 2000. PowerSpring commenced limited revenue generating
operations in the second quarter of 2000.
The operatons of the Company's distributed generation segment are
conducted by PowerSecure. PowerSecure commenced operations in September 2000.
For the nine months ended September 30, 2000, PowerSource has not incurred
significant revenues or expenses.
We evaluate the performance of our operating segments based on income
(loss) before taxes, nonrecurring items and interest income and expense.
Intersegment sales are not significant.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenues. Our consolidated revenues for the nine months ended September
30, 2000 increased $906,000, or 6.2%, compared to the same period in 1999. The
increase was due to an increase in other revenues, the generation of revenue by
PowerSpring, and an increase in revenues by Metretek. Other revenues increased
by $263,000, primarily due to increased interest income generated by higher cash
balances during the period. PowerSpring recorded revenues of $316,000 for the
nine months ended September 30, 2000. There were no comparable revenues for the
same period in 1999. Metretek's revenues increased $357,000, or 5.8%, compared
to the same period in 1999, consisting of an increase in domestic sales of
14
<PAGE> 15
$224,000 and an increase in international sales of $133,000.
The increase in Metretek's domestic sales was primarily the result of an
increase in circuit board assembly sales. The increase in international sales is
attributable to an increase in sales of Metretek's remote data collection
products and systems in the United Kingdom. A comparison of Metretek's current
domestic and international product mix is as follows:
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
---- ----
(dollar amounts in thousands)
Remote data collection
products and systems $ 3,504 54% $3,711 60%
Electronic corrector products 1,408 21% 1,830 29%
Circuit board assembly sales 1,651 25% 665 11%
----- ------
Total $ 6,563 $6,206
====== =====
Costs and Expenses. Costs of sales and services include materials,
labor, personnel and related overhead costs incurred to manufacture products and
provide services. Cost of sales and services for the nine months ended September
30, 2000 increased $1,274,000, or 12.7%, compared to the same period in 1999.
Southern Flow's cost of sales and services for the nine months ended September
30, 2000 decreased $161,000, or 2.5%, compared to the same period in 1999.
Southern Flow's gross profit margin after costs of sales and services increased
to 25.0% for the nine months ended September 30, 2000 from 23.3% for the same
period in 1999, which is within the range of normal fluctuations. Metretek's
cost of sales and services for the nine months ended September 30, 2000
increased $833,000, or 22.7%, compared to the same period in 1999. This increase
was primarily due to higher personnel and related overhead costs associated with
circuit board assembly sales. As a result, although Metretek's revenues for the
nine months ended September 30, 2000 increased approximately 5.8% compared to
the same period in 1999, Metretek's overall gross profit margin decreased from
40.8% to 31.3% compared to the same period in 1999. PowerSpring incurred costs
of sales and services in the amount of $602,000 during the nine months ended
September 30, 2000, for which there were no comparable costs during the same
period in 1999.
General and administrative expenses include personnel and related
overhead costs for the support and administrative functions. General and
administrative expenses for the nine months ended September 30, 2000 increased
$1,503,000, or 61.1%, compared to the same period in 1999, due principally to
increases in general and corporate expenses of approximately $1,450,000 related
to increased professional services, personnel, travel and overhead costs
incurred as a result of PowerSpring, for which there were no comparable costs
during the same period in 1999.
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Selling, marketing and service expenses consist of personnel and
related overhead costs, including commissions for sales and marketing
activities, together with advertising and promotion costs. Selling, marketing
and service expenses for the nine months ended September 30, 2000 increased
$241,000, or 16.2%, compared to the same period in 1999. The increase in
selling, marketing and service expenses relate to expenses incurred by
PowerSpring of $737,000, for which there were no comparable costs during the
same period in 1999, partially offset by a decrease in selling related costs by
Metretek of $496,000.
Depreciation and amortization expenses include the depreciation and
amortization of real property, customer list, goodwill and capitalized software
development costs. Depreciation and amortization expenses for the nine months
ended September 30, 2000 increased $210,000, or 22.0%, compared to the same
period in 1999, due to the addition of depreciable equipment in connection with
the development of PowerSpring.
Research and development expenses include payments to third parties,
personnel and related overhead costs for product and service development,
enhancements, and upgrades. Research and development expenses for the nine
months ended September 30, 2000 increased $8,749,000, or 1,097.1%, compared to
the same period in 1999. The increase is due primarily to PowerSpring
development expenditures for which there were no comparable costs in 1999.
Interest, finance charges and other expenses include interest and
finance charges on our credit facility as well as other non-operating expenses.
Interest, finance charges and other expenses for the nine months ended September
30, 2000 decreased $103,000, or 47.8%, compared to the same period in 1999. The
decrease reflects reduced borrowings in 2000 compared to the same period in 1999
as we utilized private placement proceeds to limit borrowings on our 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 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
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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 and analysis in this item, we believe that
our 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
We require capital principally for (i) the financing of inventory and
accounts receivable, (ii) research and development expenses, (iii) capital
expenditures for property and equipment and software development, and (iv) the
funding of possible future acquisitions.
Net cash used by operating activities of approximately $8,853,000 for
the nine months ended September 30, 2000 was the net result of the following:
(i) approximately $11,083,000 of cash used to fund continuing operations, before
changes in assets and liabilities; (ii) approximately $2,412,000 of cash
provided by changes in working capital and other asset and liability accounts;
and (iii) approximately $182,000 of cash used by discontinued operations.
We plan to continue and expand our research and development efforts to
enhance our existing products and services and to develop new products. Research
and development expenses in the amount of $9,547,000 were incurred in the nine
months ended September 30, 2000. We anticipate that our research and development
costs in 2000 will total approximately $9,800,000, of which $800,000 relates to
Metretek's business and $9,000,000 relates to PowerSpring's business.
We anticipate capital expenditures in 2000 of approximately $3,400,000,
primarily for computer software and hardware purchased to support PowerSpring's
Internet-based business. Capital expenditures for the nine months ended
September 30, 2000 totaled $3,341,000.
On July 14, 2000, pursuant to the provisions of our Warrant Agency
Agreement, dated as of September 10, 1998 (the "Warrant Agreement"), with
Computershare Trust Company, Inc. (formerly known as American Securities
Transfer & Trust, Inc.) (the "Warrant Agent"), we sent a written Notice of
Redemption to all holders of our Common Stock Purchase Warrants (the
"Warrants") issued under the Warrant Agreement. We had issued the Warrants as a
dividend in September 1998 to all holders of our Common Stock. Pursuant to the
Notice of Redemption and the Warrant Agreement, we have redeemed all Warrants
that remained outstanding and unexercised at 5:00 p.m., Denver,
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Colorado time, on August 14, 2000 (the "Redemption Date"), the date fixed for
the redemption of the Warrants. Until 5:00 p.m., Denver, Colorado time, on the
Redemption Date, each Warrant was exercisable for one share of Common Stock at
an exercise price of $4.00 per share. A total of 694,046 Warrants were
exercised, for 694,046 shares of Common Stock, after the Notice of Redemption
was given, resulting in net proceeds to us, after fees and expenses, of
approximately $2.6 million. These expenses included the fees and expenses of
Stifel, Nicolaus & Company, Inc., which served as the dealer manager in
connection with the redemption of the Warrants. We used the net proceeds from
the Warrant exercises primarily to fund the development, operation and growth of
PowerSpring. The 145,629 Warrants that were not exercised as of the Redemption
Date have ceased to be exercisable and holders thereof are entitled only to the
redemption price of $.01 per Warrant.
On March 17, 2000, we acquired Mercator Energy Incorporated through a
merger of Mercator with a wholly owned subsidiary of PowerSpring. Mercator is a
Denver-based natural gas services and brokerage company that acts as an
independent broker-agent for both producers and consumers of natural gas. In
consideration for the acquisition of Mercator, we delivered to John A. Harpole,
the President and sole shareholder of Mercator prior to the acquisition,
$408,334 in cash, a $741,666 non-negotiable promissory note payable by
PowerSpring over two years and secured by a general security interest in the
assets of PowerSpring, and 2,500,000 shares of Common Stock of PowerSpring.
Subsequent to the acquisition of Mercator, we own 87.5% of the outstanding
shares of PowerSpring Common Stock, Mr. Harpole owns 12.5% of the outstanding
shares of PowerSpring Common Stock, and Mercator has become a wholly owned
subsidiary of PowerSpring. We, PowerSpring and Mr. Harpole entered into a
stockholders agreement that addresses certain rights related to Mr. Harpole's
PowerSpring Common Stock, including a right for Mr. Harpole to put his shares of
PowerSpring Common Stock back to PowerSpring at an appraised value for each
payable over three years if PowerSpring has not completed an initial public
offering or has not sold its business within two years. PowerSpring also entered
into a two-year employment agreement with Mr. Harpole, who will serve as the
Executive Vice President, Chief Operating Officer and a director of PowerSpring.
Under the employment agreement, Mr. Harpole received an option to purchase
60,000 shares of our Common Stock, exercisable at $17.88 per share, and an
option to purchase 200,000 shares of PowerSpring Common Stock, exercisable at
$.30 per share.
On February 4, 2000, we completed the $14,000,000 Units Private
Placement by issuing 7,000 Units, including 1,450 Units we issued on December 9,
1999. Each Unit consisted of 200 shares of Common Stock, one share of Series B
Preferred Stock and Unit
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Warrants to purchase 100 shares of Common Stock. In the Units Private Placement,
we issued 1,400,000 shares of Common Stock, 7,000 shares of Series B Preferred
Stock and Unit Warrants to purchase 700,000 shares of Common Stock. The Units
Private Placement was approved and ratified by our stockholders at a special
meeting of stockholders held on February 3, 2000. The Units were issued to
institutional investors and other "accredited investors" (as defined in
Regulation D under the Securities Act). The primary purpose of the Units Private
Placement was to raise capital to enable us to develop the Internet-based
business of PowerSpring and to repay outstanding indebtedness.
On September 13, 1999, we entered into a strategic relationship with
Scient Corporation to assist us in designing and creating an Internet-based
business to enable us to take its measurement information products, services,
and data measurement technologies to the market of end-users of natural gas and
electricity. The Internet project is being developed and operated through
PowerSpring. In connection with the development of PowerSpring, we issued to
Scient a warrant to purchase 125,000 shares of Common Stock. The Scient Warrant
is exercisable until 2002, at exercise prices split between $5.00 and $10.00 per
share. Scient has registration rights with respect to the Common Stock issuable
upon the exercise of the Scient warrant.
This initial development phase of PowerSpring, which was completed in
September 2000, required aggregate expenditures of approximately $12.1 million,
consisting primarily of research and development costs, consulting fees and
expenses and costs of acquiring the requisite technology, including hardware and
software.
On September 28, 2000, we issued a $2.8 million unsecured convertible
promissory note to Scient in fulfillment of our account payable to Scient. The
convertible note is payable in quarterly installments, due March 31, 2002, bears
no interest, and is convertible at any time at Scient's discretion into either
shares of our Common Stock at the rate of $5.94 per share or shares of
PowerSpring common stock at the rate of $0.60 per share.
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 $133,200 has been recognized in the consolidated
statement of operations during the nine months ended September 30, 2000.
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<PAGE> 20
On September 13, 1999, we entered into a consulting and joint venture
agreement with Mercator, under which Mercator provided its energy procurement
services to us on a consulting basis. In connection with our acquisition of
Mercator, we issued to Mercator a warrant to purchase 60,000 shares of Common
Stock. The Mercator warrant vests in three tranches from the date of issuance
through March 2001, 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 our acquisition of Mercator, the consulting agreement, and a
related stock option agreement between TotalPlan, Inc. and Mercator, were
terminated, and Mercator transferred the Mercator warrant to Mr. Harpole.
On April 14, 1998, we 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. We make monthly interest payments computed at prime plus 1%
(9.5% at September 30, 2000) on outstanding balances of the Loans. The Loans
mature on March 14, 2001.
The Loans are secured by our tangible and intangible assets, including
the equipment, inventory, receivables and cash deposits, and the pledge of the
shares of our subsidiaries. The Loan Agreement requires us 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 our operations, 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 goods inventory (up to a combined maximum of $1,500,000) of Southern
Flow and Metretek. At September 30, 2000, we had a combined $3,349,836 in Loan
availability, none of which was outstanding.
On May 4, 1998, we acquired substantially all of the assets and
business of 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, we delivered to
American Meter an aggregate purchase price consisting of $1,300,000 in cash,
439,560 unregistered shares of Common Stock, and a $600,000 convertible
subordinated promissory note. In April 2000, American Meter converted the note
into 105,495 shares of Common Stock under the terms of the note. Until it was
converted, the note bore interest on the unpaid principal balance at a fixed
rate equal to 7.5% per annum, payable quarterly in arrears, and was due and
payable on May 4, 2002.
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Based on our current plans and assumptions, management believes that
our capital resources, including cash and cash equivalents, amounts available
under existing credit facilities and funds generated from operations will be
sufficient to meet our currently anticipated cash needs, including our working
capital needs, capital commitments and debt service requirements. However, we
will have a continuing need for additional capital to accomplish our business
strategy with respect to the growth of our businesses. Also, our existing line
of credit expires in March 2001, and, depending upon our capital needs at that
time, may need to be renewed or replaced. In addition, unanticipated events,
over which we may have no control, could increase our operating costs or
decrease our ability to generate revenues from product and service sales. We
will also require additional capital in the future in order to make any
significant acquisition of businesses or technologies.
We may seek to raise any required additional capital from public or
private equity financing, debt financing, or from other sources. Obtaining
additional financing will depend on many factors, including market conditions,
our operating performance and investor sentiment. Terms of debt financing could
restrict our ability to operate our business or to expand our operations. In
addition, if we raise additional capital by issuing capital stock or securities
convertible into capital stock, stockholders 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 our
current stockholders.
Any capital raising will be subject to the consent of the Lender, if
our credit facility is then in effect. In addition, depending on how it is
structured, any capital raising could require the consent of the holders of our
Series B Preferred Stock. We cannot assure you that sufficient additional funds
will be available to us on a timely basis or that, if available on a timely
basis, such funds can be obtained on terms satisfactory to us, to the Lender and
to the holders of our Series B Preferred Stock, if their consents are required.
Our inability to obtain sufficient additional capital on a timely basis on terms
that are acceptable could have a material adverse effect on our business,
financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued and,
in June 2000, was amended by Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" (collectively, "new derivative accounting"). We will be required to
the new derivative accounting for our fiscal year ending December 31, 2001.
However, because we do not utilize derivative financial instruments, we do not
believe the impact of the new derivative accounting will be material to our
financial position or results of operations.
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In December 1998, the AICPA issued Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions" ("SOP 98-9"). SOP 98-9 requires use of the "residual
method" for recognition of revenue when vendor-specific objective evidence
exists for undelivered elements but does not exist for delivered elements of a
software arrangement. We were required to comply with the provisions of SOP
98-9 for transactions entered into beginning January 1, 2000. The adoption of
SOP 98-9 did not have a material effect on our financial position or results of
operations.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements of all public registrants. Any
change in the Company's revenue recognition policy resulting from the
interpretation of SAB 101 would be reported as a change in accounting principle
in the quarter ended December 31, 2000. While the Company has not completed its
assessment of the impact of the adoption of SAB 101, it believes that the
implementation will not have a material impact on its existing revenue
recognition policies.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements within the meaning
of and made under 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, we 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", "should", "will", "project",
"intend", "continue", "believe", "anticipate", "estimate", "expect", "plan",
"intend", "potential", or "scheduled" and similar expressions are intended to
identify forward-looking statements. Examples of forward-looking statements
include statements regarding, among other matters, our plans, intentions,
beliefs and expectations with respect to the following:
- our future prospects, including our revenues, income, margins,
profitability, cash flow, liquidity, financial condition and results
of operations;
- the sufficiency of funds from operations and available borrowings to
meet our future working capital and capital expenditure needs;
- our ability to successfully develop, implement and operate
PowerSpring, including to design, develop and sell our products and
services over the Internet and achieve our Internet-based business
objectives;
- our ability to finance PowerSpring;
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- our business trends and strategies;
- our products and services, market position, market share, business and
growth strategies, and strategic relationships; and
- industry trends, competitive conditions and market conditions,
segments and trends.
These 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. You are cautioned not to
place 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 substantial 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:
- our ability to successfully develop, implement and market PowerSpring
and its products and services;
- our ability to raise sufficient funds to finance PowerSpring and our
other capital requirements on terms satisfactory to us, and the
willingness of the Lender and any other persons required to consent to
the terms of such financing arrangements;
- the emergence and growth of a viable market for online energy
information and services;
- changes in the energy industry in general and the natural gas and
electricity industry in particular;
- our history of losses and uncertainty of future profitability;
- our ability to renew or replace our existing line of credit, which
currently is set to expire in March 2001;
- our lack of operating history in our new energy information and
services businesses and the unproven business models in those
businesses;
- the willingness of energy users to accept the Internet as a medium for
energy commerce;
- the development and maintenance of the Internet infrastructure, and
the security and confidentiality of transactions on the Internet;
- our ability to manage the anticipated growth of PowerSpring;
- the capital resources, technological requirements, and internal
business plans of the natural gas and electricity utilities industry;
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- restrictions on our capital raising ability imposed by the terms of
our current credit facility and the Series B Preferred Stock;
- dividends on the Series B Preferred Stock increasing our future net
loss available to common shareholders and net loss per share;
- technological and market changes within the natural gas and
electricity industries;
- the complexity, uncertainty and time constraints associated with the
development and market acceptance of new product and service designs
and technologies;
- general economic and business conditions;
- our ability to successfully integrate and utilize any product lines
and business acquired in future acquisitions, including the risks that
revenues from the acquired business could be lower than expected and
that related costs could be higher than expected;
- the impact and timing of the deregulation of the various energy
markets;
- utility purchasing patterns and delays and potential changes to the
federal and state regulatory frameworks within which the utility
industry operates;
- fluctuations in our quarterly operating results;
- effects of a change in product mix on our expected gross margins and
net income;
- risks inherent in international operations;
- risks associated with our management of private energy programs;
- the receipt and timing of future customer orders;
- the effects of competition in our market including the introduction of
competitor products, services and technologies;
- unexpected events affecting our 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;
- our ability to protect our proprietary information and technology;
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- the impact of current and future laws and government regulations
affecting the energy industry in general and the natural gas and
electricity industries in particular; and
- other risks and uncertainties that are discussed in this report or
that are discussed from time to time in our other reports and filings
with the SEC.
We do not intend, and we undertake no duty or obligation, to update or
revise any forward-looking statements for any reason, whether as the result of
new information, future events or otherwise.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1993, a former employee filed a lawsuit in Denver District Court
against us and DVCO Fuel Systems, Inc. ("DVCO"), one of our former subsidiaries,
alleging that we had conspired with third parties to defraud him and that we
intentionally interfered with contracts in which he had an interest. We denied
the former employee's claims and asserted counterclaims against him. In August
2000, the lawsuit was resolved pursuant to a settlement agreement with the
release of all claims against us and DVCO. The impact of the settlement did not
have a material adverse effect on our business, financial condition or results
of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 14, 2000, pursuant to the provisions of the Warrant Agency
Agreement, dated as of September 10, 1998 (the "Warrant Agreement"), between us
and Computershare Trust Company, Inc. (formerly known as American Securities
Transfer & Trust, Inc.) (the "Warrant Agent"), we sent a written Notice of
Redemption to all holders of our Common Stock Purchase Warrants (the "Warrants")
issued under the Warrant Agreement. We had issued the Warrants as a dividend in
September 1998 to all holders of our Common Stock. Pursuant to the Notice of
Redemption and the Warrant Agreement, we have redeemed all Warrants that
remained outstanding and unexercised at 5:00 p.m., Denver, Colorado time, on
August 14, 2000 (the "Redemption Date"), the date fixed for the redemption of
the Warrants. The Warrants, which previously were traded on the Nasdaq SmallCap
Market under the symbol "MTEKW", ceased trading after the Redemption Date.
Until 5:00 p.m., Denver, Colorado time, on the Redemption Date, each
Warrant was exercisable for one share of Common Stock at an exercise price of
$4.00 per share. A total of 694,046 Warrants were exercised, for 694,046 shares
of Common Stock, after the Notice of Redemption was given, resulting in net
proceeds, after fees and expenses, of approximately $2.6 million. These expenses
included the fees and expenses of Stifel, Nicolaus & Company, Inc., which served
as the dealer manager in connection with the redemption of the Warrants. We used
the net proceeds from the Warrant exercises primarily to fund the development,
operation and growth of PowerSpring. The 145,629 Warrants that were not
exercised as of the Redemption Date have ceased to be exercisable and holders
thereof are entitled only to the redemption price of $.01 per Warrant.
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On September 28, 2000, we issued a $2.8 million convertible promissory
note to Scient Corporation, the Internet-based business consultant to
PowerSpring, in fulfillment of our account payable to Scient. The convertible
note is payable in quarterly installments, due March 31, 2002, bears no
interest, and is convertible at any time at Scient's discretion into either
shares of our Common Stock at the rate of $5.94 per share or shares of
PowerSpring common stock at the rate of $0.60 per share. This issuance 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 involving a public offering. We reasonably believed that the recipient of
the convertible note had such knowledge and experience in financial and business
matters to be capable of evaluating the risks and merits of the investment, and
represented its intention to acquire the convertible note for investment only
and not with a view to or for the sale in connection with any distribution
thereof. The recipient had adequate access, through its relationship with us, to
information about us and our business and operations. In connection with the
foregoing issuance, no underwriters or broker-dealers were involved, no
commissions were paid, and appropriate legends will be affixed to any common
stock issued upon exercise thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Non-Negotiable Convertible Promissory Note, dated
September 28, 2000, issued by Metretek Technologies, Inc.
to Scient Corporation.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Since June 30, 2000, we filed the following Current
Reports on Form 8-K with the Securities and Exchange Commission:
FILING DATE ITEM NO. DESCRIPTION
----------- -------- -----------
July 14, 2000 5, 7 Notice of Warrant Redemption
August 25, 2000 5 Completion of Warrant Redemption
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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 10, 2000 By: /s/ W. PHILLIP MARCUM
----------------- -----------------------
W. Phillip Marcum
President and Chief Executive Officer
Date: November 10, 2000 By: /s/ A. BRADLEY GABBARD
----------------- ------------------------
A. Bradley Gabbard
Executive Vice President
and Chief Financial Officer
28
