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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 MARCH 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-19793
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
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As of April 28, 2000 there were 5,164,723 shares of the issuer's Common
Stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
--- ---
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METRETEK TECHNOLOGIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended March 31, 2000 and
March 31, 1999 5
Unaudited Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 2000 and
March 31, 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,494,114 $ 361,658
Trade receivables, less allowance for doubtful accounts
of $114,105 and $125,573, respectively 3,589,615 3,802,818
Other receivables 6,860 2,818
Inventories 4,205,573 4,155,429
Net assets of discontinued operations 962,571 338,455
Prepaid expenses and other current assets 365,624 435,734
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Total current assets 17,624,357 9,096,912
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PROPERTY, PLANT AND EQUIPMENT, AT COST:
Equipment 2,769,981 2,453,492
Vehicles 52,277 52,277
Furniture and fixtures 523,772 508,490
Land, building and improvements 720,383 718,604
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Total 4,066,413 3,732,863
Less accumulated depreciation 2,285,601 2,179,015
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Property, plant and equipment, net 1,780,812 1,553,848
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OTHER ASSETS:
Customer lists (net of accumulated amortization
of $3,067,250 and $2,955,939, respectively) 5,825,637 5,936,948
Goodwill and other intangibles (net of accumulated
amortization of $1,157,763 and $1,048,676, respectively) 4,674,727 2,842,036
Other assets 180,930 180,690
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Total other assets 10,681,294 8,959,674
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TOTAL $30,086,463 $19,610,434
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</TABLE>
See notes to unaudited consolidated financial statements.
3
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,208,583 $ 658,900
Accrued and other liabilities 2,385,400 1,365,240
Current portion of notes payable 449,859 --
------------ ------------
Total current liabilities 5,043,842 2,024,140
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LONG-TERM NOTES PAYABLE 933,333 869,968
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COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST IN SUBSIDIARY 761,342 --
------------ ------------
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 3,971,019 1,457,310
------------ ------------
STOCKHOLDERS' EQUITY:
Redeemable preferred stock - Series A, $.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, 5,006,039 and 3,784,045
shares, respectively 50,060 37,840
Additional paid-in capital 48,790,329 40,434,688
Accumulated other comprehensive loss (5,926) (4,098)
Accumulated deficit (29,457,536) (25,209,414)
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Total stockholders' equity 19,376,927 15,259,016
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TOTAL $ 30,086,463 $ 19,610,434
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</TABLE>
See notes to unaudited consolidated financial statements.
4
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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<S> <C> <C>
REVENUES:
Natural gas measurement sales and services $ 4,608,585 $ 4,954,670
Other 33,814 10,857
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Total revenues 4,642,399 4,965,527
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COSTS AND EXPENSES:
Cost of measurement sales and services 3,480,977 3,660,723
General and administrative 1,251,369 866,764
Selling, marketing and service 513,237 470,843
Depreciation and amortization 315,481 318,838
Research and development 3,379,726 274,643
Interest, finance charges and other 45,532 76,756
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Total costs and expenses 8,986,322 5,668,567
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LOSS FROM OPERATIONS BEFORE MINORITY
INTEREST AND TAXES (4,343,923) (703,040)
MINORITY INTEREST IN NET LOSS 95,801 --
INCOME TAXES -- --
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NET LOSS (4,248,122) (703,040)
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PREFERRED STOCK DEEMED DISTRIBUTION (2,513,709) --
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(6,761,831) $ (703,040)
=========== ===========
NET LOSS PER COMMON SHARE:
Basic $ (1.49) $ (0.20)
=========== ===========
Diluted (1.49) (0.20)
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WEIGHTED AVERAGE BASIC AND DILUTED
COMMON SHARES OUTSTANDING 4,539,229 3,475,496
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
5
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,248,122) $(703,040)
Adjustments to reconcile net income (loss) to net cash
provided (used) by continuing operations:
Depreciation and amortization 315,481 318,838
Stock based compensation expense 50,808 --
Loss (gain) on disposal of property, plant and equipment (150) 2,613
Changes in other assets and liabilities, net of effect of acquisition:
Trade receivables 316,382 715,343
Inventories (50,144) 44,952
Other current assets 15,260 129,408
Other noncurrent assets (1,423) (8,075)
Accounts payable 1,525,528 (370,315)
Accrued and other liabilities 1,019,643 (10,479)
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Net cash (used) provided by continuing operations (1,056,737) 119,245
Net cash (used) provided by discontinued operations (624,356) 1,342
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Net cash (used) provided by operating activities (1,681,093) 120,587
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition (408,334) --
Additions to property, plant and equipment (327,975) (42,477)
Proceeds from sale of property, plant and equipment 150 5,600
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Net cash used by investing activities (736,159) (36,877)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement 10,583,696 --
Payments on notes payable to bank (228,442) (334,064)
Exercise of stock options and warrants 297,454 --
Preferred stock distribution (103,000) --
Repurchase of common stock -- (34,403)
Payments on capital lease obligations -- (200)
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Net cash provided (used) by financing activities 10,549,708 (368,667)
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,132,456 (284,957)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 361,658 639,448
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,494,114 $ 354,491
=========== =========
</TABLE>
See notes to unaudited consolidated financial statements.
6
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2000 and December 31, 1999 and
For the Three Month Periods Ended March 31, 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") and
PowerSpring, Inc. ("PowerSpring"), 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 represents 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 March 31, 2000 and the consolidated results of their
operations and cash flows for the three and twelve month periods ended March 31,
2000 and December 31, 1999.
2. COMPREHENSIVE LOSS
The Company's comprehensive loss for the three months ended March 31,
2000 and 1999 was $4,345,751 and $713,795, 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 Company at a special meeting held on February 3, 2000.
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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 commons 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 will also be recorded as a deemed distribution
between February 4 and June 9, 2000, the date the Series B Preferred Stock can
first be converted into common stock of the Company. The balance of the
unamortized discounts at March 31, 2000 and December 31, 1999 was $3,139,291 and
$0, respectively.
The primary purpose of the Units Private Placement was to raise capital
to enable the Company to develop the Internet-based business of PowerSpring. A
portion of the proceeds was also used to repay outstanding indebtedness, and the
remaining proceeds will be used for general corporate and working capital
purposes, including potentially providing the funds to finance an acquisition
opportunity, if one were to arise.
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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
will provide 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:
<TABLE>
<S> <C>
Accounts receivable $ 101,000
Property, plant and equipment 14,000
Goodwill 1,915,000
Accounts payable and accrued expenses (23,000)
----------
$2,007,000
==========
</TABLE>
Pro forma results of operations for the three months ended March 31,
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
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consulting services to the Company. In connection with the acquisition of
Mercator, the consulting and 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 three reportable business segments: automated energy
data management; natural gas measurement services; and Internet-based energy
information and 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. 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 March 31, 2000. PowerSpring commenced limited revenue
generating operations in the second quarter of 2000 subsequent to the
acquisition described in Note 4.
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.
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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
MANAGEMENT SERVICES AND SERVICES OTHER TOTAL
<S> <C> <C> <C> <C> <C>
MARCH 31, 2000
Revenues $1,920,941 $ 2,687,644 $ -- $ 33,814 $ 4,642,399
Segment profit (loss) (527,461) 213,402 (3,432,085) (597,779) (4,343,923)
Total assets 8,650,716 9,868,726 4,577,757 6,989,264 30,086,463
MARCH 31. 1999
Revenues $1,897,534 $ 3,057,136 $ -- $ 10,857 $ 4,965,527
Segment profit (loss) (533,736) 261,376 -- (430,680) (703,040)
Total assets 9,693,044 10,718,552 -- 511,432 20,923,028
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of our results of operations for
the three month periods ended March 31, 2000 and 1999 and of our consolidated
financial condition as of March 31, 2000 should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
report.
RESULTS OF OPERATIONS
The following table sets forth information related to our current
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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
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(dollar amounts in thousands)
<S> <C> <C>
REVENUES:
Southern Flow $ 2,687 $3,057
Metretek 1,921 1,898
PowerSpring -- --
Other 34 11
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Total $ 4,642 $4,966
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GROSS PROFIT:
Southern Flow $ 678 $ 684
Metretek 473 610
PowerSpring (23) --
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Total $ 1,128 $1,294
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SEGMENT PROFIT (LOSS):
Southern Flow $ 213 $ 261
Metretek (527) (534)
PowerSpring (3,432) --
Other (598) (430)
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Total $(4,344) $ (703)
======= ======
</TABLE>
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 current have three reportable business segments: automated energy
data management; natural gas measurement services; and Internet-based energy
information and services. The operations of our automated energy data management
segment are
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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 March 31, 2000. PowerSpring commenced limited revenue generating
operations in the second quarter of 2000, subsequent to the acquisition of
Mercator.
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.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues. Our consolidated revenues for the three months ended March
31, 2000 decreased $323,128, or 7%, compared to the same period in 1999, due to
a decrease in revenues by Southern Flow. Southern Flow's revenues decreased
$369,492, or 12%, for the three months ended March 31, 2000, compared to the
same period in 1999. Metretek's revenues for the three months ended March 31,
2000 increased $23,407, or 1%, compared to the same period in 1999, consisting
of an increase in domestic sales of $49,607, offset in part by a decrease in
international sales of $26,200. The increase in Metretek's domestic sales was
primarily the result of an increase in circuit board assembly sales. The
decrease in international sales is attributable to a decrease 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:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
2000 1999
---- ----
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Remote data collection
products and systems $1,016 53% $1,127 59%
Electronic corrector products 399 21% 673 36%
Circuit board assembly sales 506 26% 98 5%
------ ------
Total $1,921 $1,898
====== ======
</TABLE>
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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 three months ended March
31, 2000 decreased $179,746, or 5%, compared to the same period in 1999.
Southern Flow's cost of sales and services for the three months ended March 31,
2000 decreased $363,990, or 15%, compared to the same period in 1999. Southern
Flow's gross profit margin after costs of sales and services for the three
months ended March 31, 2000 increased from 22.4% to 25.2% compared to the same
period in 1999, which is within the range of normal fluctuations. Metretek's
cost of sales and services for the three months ended March 31, 2000 increased
$161,177, or 13%, compared to the same period in 1999. This increase was due
primarily to higher personnel and related overhead costs associated with circuit
board assembly sales. As a result, although Metretek's revenues for the three
months ended March 31, 2000 increased approximately 1% compared to the same
period in 1999, Metretek's overall gross profit margin decreased from 32.2% to
24.6% compared to the same period in 1999.
General and administrative expenses include personnel and related
overhead costs for support and administrative functions. General and
administrative expenses for the three months ended March 31, 2000 increased
$384,605, or 44%, compared to the same period in 1999, due principally to the
net effect of the following factors: (i) an increase in expenses of Southern
Flow of approximately $44,000 primarily attributable to increased personnel
costs; (ii) a decrease in expenses of Metretek of approximately $11,000; and
(iii) increases in general and corporate expenses of approximately $352,000 due
to increased professional services, personnel, travel costs and related overhead
costs incurred as a result of PowerSpring for which there were no comparable
costs during the same period in 1999.
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 three months ended March 31, 2000 increased
$42,394, or 9%, compared to the same period in 1999. The increase relates to
sales and marketing personnel and related overhead costs incurred by PowerSpring
for which there were no comparable costs during the same period in 1999.
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 three months
ended March 31, 2000 decreased $3,357, or 1%, compared to the same period in
1999.
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 three
months ended March 31, 2000 increased $3,105,083, or 1,131%, compared to the
same period in 1999. The increase is due primarily to PowerSpring development
expenditures of approximately $3,150,000 for which there were no comparable
costs in 1999.
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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 three months ended March
31, 2000 decreased $31,224, or 41%, 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 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 (1) the financing of inventory and
accounts receivable, (2) research and development expenses, including the
development of PowerSpring, (3) capital expenditures for property and equipment
and software development, and (4) the funding of possible future acquisitions.
Net cash used by operating activities was approximately $1,681,000 for
the three months ended March 31, 2000, which was the net result of the
following: (1) approximately $3,882,000 of cash used to fund continuing
operations, before changes in assets and liabilities; (2) approximately
$2,825,000 of cash provided by changes in working capital and other asset and
liability accounts; and (3) approximately $624,000 of cash used by discontinued
operations.
15
<PAGE> 16
We plan to continue and expand our research and development efforts to
enhance our existing products and services, and to develop new products,
especially in the business of PowerSpring. We anticipate that our research and
development costs in 2000 will be approximately $8,400,000 of which $1,200,000
will relate to Metretek's business and $7,200,000 is expected to be incurred in
connection with further developing PowerSpring. Research and development
expenses in the amount of $3,380,000 were incurred in the three months ended
March 31, 2000.
We anticipate capital expenditures in 2000 of approximately $8,100,000,
primarily for computer software and hardware production and laboratory
equipment. Capital expenditures for the three months ended March 31, 2000
totaled $328,000.
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, 1 share of Series B
Preferred Stock and Unit 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. A portion of the proceeds was also used
to repay outstanding indebtedness, and the remaining proceeds will be used for
general corporate and working capital purposes, including potentially providing
the funds to finance an acquisition opportunity, if one were to arise.
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
16
<PAGE> 17
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 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 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 March 31, 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 (or maximum annual net loss in 1999), 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 March 31, 2000, we had a combined $3,373,431 Loan
availability, of which $41,526 had been borrowed by Southern Flow and Metretek
Florida, leaving $3,331,905 in unused Loan availability.
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
17
<PAGE> 18
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 March
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 13, 1999, we entered into a strategic relationship with
Scient 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
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.
We estimate that this initial development phase and launch of
PowerSpring will require aggregate expenditures of approximately $9.0 million,
consisting of consulting fees and expenses payable to Scient and costs of
acquiring the requisite technology, including hardware and software, as well as
research and development costs. Through March 31, 2000, these costs were
approximately $4.6 million.
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 $50,808 has been recognized in the consolidated
statement of operations during the three months ended March 31, 2000.
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 continuing operations,
and additional proceeds from the disposition of the remaining assets of its
discontinued operations, will be sufficient to meet our currently anticipated
cash needs, including our working capital needs, capital commitments and debt
service requirements, including those pertaining to the launch of the business
of PowerSpring. However, we will also have a continuing need for additional
capital to accomplish our business strategy with respect to our existing
businesses. The continued development of the business of PowerSpring will also
require substantial capital after launch. 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.
18
<PAGE> 19
We expect that after the initial development stage of PowerSpring is
completed and our website is launched, the further development and growth of
PowerSpring, including staff, organizational and start up expenses, marketing
costs and additional capital expenditures, will require significant additional
funds, beyond the proceeds of the Units Private Placement, from the proceeds of
public or private equity financing, debt financing or from other sources. We
intend to raise any needed additional capital to fund the development and
operations of PowerSpring primarily through financing at the PowerSpring level.
However, depending upon the availability of capital, market conditions, our
consolidated operations and the operations of PowerSpring, we may also or
instead raise additional capital at the Metretek level. For example, depending
on market conditions and other factors we deem appropriate, we may call our
Dividend Warrants for redemption. Due to the trading price of our Common Stock,
as of the date of this Report we have the right, upon 30 days notice, to call
the Dividend Warrants for redemption, and we will continue to have this
redemption right as long as the closing sale price of the Common Stock as
reported on the Nasdaq National Market equals or exceeds $6.50 per share. We
expect that, subject to market conditions, most or all Dividend Warrants will be
exercised after we call them for redemption, resulting in gross proceeds of up
to $3.5 million to us.
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.
Our 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, our 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 our 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, the Financial Accounting Standards Board issued Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. We will be required to adopt
FAS 133 for our fiscal year ending December 31, 2001. However, because we do not
utilize derivative
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<PAGE> 20
financial instruments, we do not believe the impact of FAS 133 will be material
to our financial position or results of operations.
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.
YEAR 2000 COMPLIANCE
The "Year 2000 issue," which presented potential risks and
uncertainties to virtually all businesses, was to have resulted from computer
programs that used two digits rather than four to define the applicable year.
Any computer programs that had time-sensitive software could have recognized a
date using "00" as the year 1900 rather than the year 2000. This situation could
have resulted 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.
As of the date of this Report, we have not experienced any known
material adverse impacts on our current products and services, internal
information systems or other internal operating systems as a result of the Year
2000 issue, and we have not received notice of any material Year 2000 compliance
issues from our suppliers or customers. Based on the work done to date, costs
directly associated with our Year 2000 compliance efforts were approximately
$200,000. We do not expect that any future expenditures to address the Year 2000
issues will be material. However, it remains possible that Year 2000 issues
associated with our products or systems may still arise or that we could receive
notice of Year 2000 issues that have arisen with our products and services. We
plan to continue to monitor the Year 2000 issues closely. Therefore, we cannot
assure you that Year 2000 issues will not have a material adverse effect on our
results of operations or financial condition.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains, under this item, as well as other parts of
this Form 10-QSB, 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" 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;
- 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 trend.
The 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 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 and implement PowerSpring;
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<PAGE> 21
- the emergence and growth of a viable market for online energy
information and services;
- the success of our acquisition of Mercator;
- changes in the energy industry in general and the natural gas
and electricity industry in particular;
- our ability to successfully implement, and the market's
acceptance of, our "TotalEnergyPlan(TM)" offerings;
- 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
who consent is required to consent to the terms of such
financing arrangements;
- our history of losses and uncertainty of future profitability;
- our lack of operating history in its 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;
- 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;
21
<PAGE> 22
- 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;
- the impact of current and future laws and government
regulations affecting the energy industry in general and the
natural gas and electricity industries 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, further events or otherwise.
22
<PAGE> 23
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Information regarding sales of unregistered securities during the
period covered by this report were previously reported in Item 5 of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information regarding a special meeting of the stockholders of the
Company held on February 3, 2000 was previously reported in Item 4 of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
During the quarter ended March 31, 2000, the Company filed the
following Current Report on Form 8-K with the Securities and Exchange
Commission:
Filing Date Item No. Description
----------- -------- -----------
February 4, 2000 1, 5, 7 Closing of $14
million Units
Private Placement of
Common Stock, Series
B Preferred Stock
and warrants to
purchase Common Stock
23
<PAGE> 24
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: May 15, 2000 By: /s/ W. Phillip Marcum
------------ -------------------------------------
W. Phillip Marcum
President and Chief Executive Officer
Date: May 15, 2000 By: /s/ A. Bradley Gabbard
-------------- -------------------------------------
A. Bradley Gabbard
Executive Vice President
and Chief Financial Officer
24
<PAGE> 25
EXHIBIT INDEX
Exhibit
Number
- ------
27.1 Financial 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
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 8,494,114
<SECURITIES> 0
<RECEIVABLES> 3,703,720
<ALLOWANCES> 114,105
<INVENTORY> 4,205,573
<CURRENT-ASSETS> 17,624,357
<PP&E> 4,066,413
<DEPRECIATION> 2,285,601
<TOTAL-ASSETS> 30,086,463
<CURRENT-LIABILITIES> 5,043,842
<BONDS> 933,333
3,971,019
0
<COMMON> 50,060
<OTHER-SE> 19,326,867
<TOTAL-LIABILITY-AND-EQUITY> 30,086,463
<SALES> 4,608,585
<TOTAL-REVENUES> 4,642,399
<CGS> 3,480,977
<TOTAL-COSTS> 8,940,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,532
<INCOME-PRETAX> (4,343,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,248,122)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,248,122)
<EPS-BASIC> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
