##### Table of Contents



UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 or
 o
    
    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.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    84-1169358
(I.R.S. Employer
Identification No.)303 East Seventeenth Avenue, Suite 660
Denver, Colorado
(Address of principal executive offices)
    
    80203
(Zip code)
 
 þ o
  o o þ
 o þ




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##### 



METRETEK TECHNOLOGIES, INC.
 FORM 10-Q
For the Quarterly Period Ended June 30, 2006
 TABLE OF CONTENTS
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsUnaudited Consolidated Balance Sheets  June 30, 2006 and December 31, 2005
    
    
    3Unaudited Consolidated Statements of Operations  For the Three and Six Months Ended June 30, 2006 and June 30, 2005
    
    
    5Unaudited Consolidated Statements of Cash Flows  For the Six Months Ended June 30, 2006 and June 30, 2005
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4.
    
    Controls and Procedures
    
    
    39PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    41Item 1A.
    
    Risk Factors
    
    
    41Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    42Item 5.
    
    Other Information
    
    
    43Item 6.
    
    Exhibits
    
    
    44Signatures
    
    
    45EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
(unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    20,981,665
    
    
    $
    2,188,310Trade receivables, net of allowance for doubtful accounts
of $171,103 and $95,144, respectively
    
    
    31,629,470
    
    
    
    12,031,539Other receivables
    
    
    82,356
    
    
    
    36,669Inventories
    
    
    8,308,338
    
    
    
    3,450,267Prepaid expenses and other current assets
    
    
    496,655
    
    
    
    527,269Total current assets
    
    
    61,498,484
    
    
    
    18,234,054PROPERTY, PLANT AND EQUIPMENT:Equipment
    
    
    6,185,877
    
    
    
    5,669,788Vehicles
    
    
    176,441
    
    
    
    132,988Furniture and fixtures
    
    
    614,691
    
    
    
    550,863Land, building and improvements
    
    
    624,970
    
    
    
    517,511Total property, plant and equipment, at cost
    
    
    7,601,979
    
    
    
    6,871,150Less accumulated depreciation and amortization
    
    
    3,826,848
    
    
    
    3,657,856Property, plant and equipment, net
    
    
    3,775,131
    
    
    
    3,213,294OTHER ASSETS:Goodwill
    
    
    8,840,148
    
    
    
    8,840,148Patents and capitalized software costs, net of accumulated
amortization of $1,381,057 and $1,280,019 respectively
    
    
    453,745
    
    
    
    479,221Investment in unconsolidated affiliate
    
    
    4,010,513
    
    
    
    2,299,218Assets of discontinued operations
    
    
    152,449
    
    
    
    192,821Other assets
    
    
    183,787
    
    
    
    60,170Total other assets
    
    
    13,640,642
    
    
    
    11,871,578TOTAL
    
    $
    78,914,257
    
    
    $
    33,318,926
 See accompanying notes to unaudited consolidated financial statements.
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    15,489,567
    
    
    $
    3,283,898Accrued and other liabilities
    
    
    13,039,907
    
    
    
    8,786,830Notes payable
    
    
    
    
    
    
    1,248,286Capital lease obligations
    
    
    4,106
    
    
    
    3,884Total current liabilities
    
    
    28,533,580
    
    
    
    13,322,898LONG-TERM NOTES PAYABLE
    
    
    
    
    
    
    3,593,523NON-CURRENT CAPITAL LEASE OBLIGATIONS
    
    
    1,100
    
    
    
    3,210COMMITMENTS AND CONTINGENCIESMINORITY INTEREST IN SUBSIDIARY
    
    
    
    
    
    
    169,755STOCKHOLDERS EQUITY:Preferred stock  undesignated, $.01 par value; 2,000,000 shares
authorized; none issued and outstandingPreferred stock  Series C, $.01 par value; 500,000 shares
authorized; none issued and outstandingCommon stock, $.01 par value; 25,000,000 shares
authorized; 15,707,421 and 12,577,530 shares issued
and outstanding, respectively
    
    
    157,074
    
    
    
    125,775Additional paid-in-capital
    
    
    101,541,936
    
    
    
    72,321,099Deferred compensation
    
    
    (33,000
    )
    
    
    (66,000
    )Accumulated deficit
    
    
    (51,286,433
    )
    
    
    (56,151,334
    )Total stockholders equity
    
    
    50,379,577
    
    
    
    16,229,540TOTAL
    
    $
    78,914,257
    
    
    $
    33,318,926
 See accompanying notes to unaudited consolidated financial statements.
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
(unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUES:Sales and services
    
    $
    35,905,938
    
    
    $
    13,947,328
    
    
    $
    50,642,812
    
    
    $
    21,645,668Other
    
    
    337,473
    
    
    
    88,433
    
    
    
    432,928
    
    
    
    200,730Total revenues
    
    
    36,243,411
    
    
    
    14,035,761
    
    
    
    51,075,740
    
    
    
    21,846,398COSTS AND EXPENSES:Cost of sales and services
    
    
    26,393,531
    
    
    
    10,260,229
    
    
    
    36,524,893
    
    
    
    15,698,262General and administrative
    
    
    4,502,431
    
    
    
    1,992,983
    
    
    
    7,937,780
    
    
    
    3,809,466Selling, marketing and service
    
    
    1,172,870
    
    
    
    723,368
    
    
    
    1,931,931
    
    
    
    1,296,981Depreciation and amortization
    
    
    203,898
    
    
    
    133,564
    
    
    
    376,304
    
    
    
    258,005Research and development
    
    
    195,058
    
    
    
    164,053
    
    
    
    372,684
    
    
    
    325,857Interest, finance charges and other
    
    
    46,336
    
    
    
    146,642
    
    
    
    134,711
    
    
    
    293,840Total costs and expenses
    
    
    32,514,124
    
    
    
    13,420,839
    
    
    
    47,278,303
    
    
    
    21,682,411Income from continuing operations before
minority interest and income taxes
    
    
    3,729,287
    
    
    
    614,922
    
    
    
    3,797,437
    
    
    
    163,987Equity in income of unconsolidated affiliate
    
    
    520,974
    
    
    
    364,786
    
    
    
    1,251,442
    
    
    
    922,041Minority interest
    
    
    
    
    
    
    (45,441
    )
    
    
    (72,464
    )
    
    
    (116,565
    )Income taxes
    
    
    (22,999
    )
    
    
    
    
    
    
    (111,514
    )
    
    
    (13,285
    )Income from continuing operations
    
    
    4,227,262
    
    
    
    934,267
    
    
    
    4,864,901
    
    
    
    956,178Loss from disposal of discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net income
    
    $
    4,227,262
    
    
    $
    934,267
    
    
    $
    4,864,901
    
    
    $
    656,178PER SHARE AMOUNTS (Note 1):Income from continuing operations:Basic
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.34
    
    
    $
    0.08Diluted
    
    $
    0.25
    
    
    $
    0.07
    
    
    $
    0.30
    
    
    $
    0.07Net income:Basic
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.34
    
    
    $
    0.05Diluted
    
    $
    0.25
    
    
    $
    0.07
    
    
    $
    0.30
    
    
    $
    0.05WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    15,513,274
    
    
    
    12,258,782
    
    
    
    14,354,964
    
    
    
    12,226,928Diluted
    
    
    17,071,389
    
    
    
    12,781,075
    
    
    
    16,065,350
    
    
    
    12,757,620
 See accompanying notes to unaudited consolidated financial statements.
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
(unaudited)
 Six Months EndedJune 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    4,864,901
    
    
    $
    656,178Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Loss on disposal of discontinued operations
    
    
    
    
    
    
    300,000Depreciation and amortization
    
    
    376,304
    
    
    
    258,005Minority interest in subsidiary
    
    
    72,464
    
    
    
    116,565Loss on disposal of property, plant and equipment
    
    
    4,759
    
    
    
    3,276Equity in income of unconsolidated affiliate
    
    
    (1,251,442
    )
    
    
    (922,041
    )Distributions from unconsolidated affiliate
    
    
    361,302
    
    
    
    559,199Stock compensation expense
    
    
    373,628
    
    
    
    33,000Changes in other assets and liabilities:Trade receivables, net
    
    
    (19,597,931
    )
    
    
    (3,234,439
    )Inventories
    
    
    (4,858,071
    )
    
    
    290,265Other current assets
    
    
    (15,073
    )
    
    
    270,546Other noncurrent assets
    
    
    (123,617
    )
    
    
    3,159Accounts payable
    
    
    12,205,669
    
    
    
    608,969Accrued and other liabilities
    
    
    4,327,940
    
    
    
    2,516,041Net cash provided by (used in) continuing operations
    
    
    (3,259,167
    )
    
    
    1,458,723Net cash provided by (used in) discontinued operations of MCM
    
    
    40,372
    
    
    
    (345,065
    )Net cash provided by (used in) operating activities
    
    
    (3,218,795
    )
    
    
    1,113,658CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (826,986
    )
    
    
    (662,574
    )Additions to patents and software development
    
    
    (75,562
    )
    
    
    (42,605
    )Investment in unconsolidated affiliate
    
    
    (1,246,359
    )
    
    
    Proceeds from sale of property, plant and equipment
    
    
    16,375
    
    
    
    Net cash used in investing activities
    
    
    (2,132,532
    )
    
    
    (705,179
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from private placement, net
    
    
    26,223,364
    
    
    
    Proceeds from stock warrant and option exercises
    
    
    2,688,144
    
    
    
    105,342Net borrowings (payments) on line of credit
    
    
    (1,314,200
    )
    
    
    32,579Proceeds from equipment loan
    
    
    
    
    
    
    335,247Principal payments on long-term notes payable
    
    
    (3,375,494
    )
    
    
    (596,481
    )Cash distributions to minority interests
    
    
    (381
    )
    
    
    (55,125
    )Payments on preferred stock redemptions
    
    
    (74,863
    )
    
    
    (422,758
    )Payments on capital lease obligations
    
    
    (1,888
    )
    
    
    (1,690
    )Net cash provided by (used in) financing activities
    
    
    24,144,682
    
    
    
    (602,886
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    18,793,355
    
    
    
    (194,407
    )CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
    
    
    2,188,310
    
    
    
    2,951,489CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    20,981,665
    
    
    $
    2,757,082
 See accompanying notes to unaudited consolidated financial statements.
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 Notes to Unaudited Consolidated Financial Statements
 1. Summary of Significant Accounting Policies
 Organization
   Basic and Diluted Earnings Per Share 
 7




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income from continuing operations
    
    $
    4,227,262
    
    
    $
    934,267
    
    
    $
    4,864,901
    
    
    $
    956,178Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net income
    
    $
    4,227,262
    
    
    $
    934,267
    
    
    $
    4,864,901
    
    
    $
    656,178Basic weighted-average common
shares outstanding in period
    
    
    15,513,274
    
    
    
    12,258,782
    
    
    
    14,354,964
    
    
    
    12,226,928Add dilutive effects of stock options
and warrants
    
    
    1,558,115
    
    
    
    522,293
    
    
    
    1,710,386
    
    
    
    530,692Diluted weighted-average common
shares outstanding in period
    
    
    17,071,389
    
    
    
    12,781,075
    
    
    
    16,065,350
    
    
    
    12,757,620Basic earnings (loss) per common share:Income from continuing operations
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.34
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.03
    )Basic earnings per common share
    
    $
    0.27
    
    
    $
    0.08
    
    
    $
    0.34
    
    
    $
    0.05Diluted earnings (loss) per common share:Income from continuing operations
    
    $
    0.25
    
    
    $
    0.07
    
    
    $
    0.30
    
    
    $
    0.07Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Diluted earnings per common share
    
    $
    0.25
    
    
    $
    0.07
    
    
    $
    0.30
    
    
    $
    0.05
 Stock Based Compensation
   8




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WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueBalance, December 31, 2005
    
    
    2,289,143
    
    
    $
    2.98Granted
    
    
    268,500
    
    
    
    12.93Exercised
    
    
    (412,419
    )
    
    
    2.21Canceled
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Balance, June 30, 2006
    
    
    2,145,224
    
    
    $
    4.37
    
    
    
    6.96
    
    
    $
    15.69Exercisable, June 30, 2006
    
    
    1,560,891
    
    
    $
    3.06
    
    
    
    6.13
    
    
    $
    18.08
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Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net income  as reported
    
    $
    934,267
    
    
    $
    656,178Deduct: Total stock-based employee
compensation expense determined
under fair value based method
    
    
    (103,937
    )
    
    
    (185,310
    )Net income  pro forma
    
    $
    830,330
    
    
    $
    470,868Income per basic common share:As reported
    
    $
    0.08
    
    
    $
    0.05Pro forma
    
    $
    0.07
    
    
    $
    0.04Income per diluted common share:As reported
    
    $
    0.07
    
    
    $
    0.05Pro forma
    
    $
    0.06
    
    
    $
    0.04
  10




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Statement of Cash Flows 
 Minority Interest
 Reclassification
 2. Significant Equity Transactions
 Stock Warrant Exercises 
 Private Placement 
  11




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3. Investment in Unconsolidated Affiliate
  June 30,
    
    
    December 31,2006
    
    
    2005Total current assets
    
    $
    4,005,132
    
    
    $
    2,173,222Property, plant and equipment, net
    
    
    6,071,081
    
    
    
    6,180,090Total other assets
    
    
    11,565
    
    
    
    15,429Total assets
    
    $
    10,087,778
    
    
    $
    8,368,741Total current liabilities
    
    $
    898,848
    
    
    $
    1,151,906Long-term note payable
    
    
    630,927
    
    
    
    912,799Total shareholders equity
    
    
    8,558,003
    
    
    
    6,304,036Total liabilities and shareholders equity
    
    $
    10,087,778
    
    
    $
    8,368,741
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Total revenues
    
    $
    2,560,603
    
    
    $
    2,359,060
    
    
    $
    5,490,776
    
    
    $
    5,064,647Total costs and expenses
    
    
    1,118,669
    
    
    
    1,184,855
    
    
    
    2,236,809
    
    
    
    2,096,699Net income
    
    $
    1,441,934
    
    
    $
    1,174,205
    
    
    $
    3,253,967
    
    
    $
    2,967,948
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4. Debt
  June 30
    
    
    December 312006
    
    
    2005Lines of credit
    
    $
    
    
    
    $
    1,314,200Term loans:Settlement note payable
    
    
    
    
    
    
    1,687,500Equipment and project loans
    
    
    
    
    
    
    1,210,604Investment loan
    
    
    
    
    
    
    629,505Total notes payable
    
    
    
    
    
    
    4,841,809Less current maturities:Settlement note payable
    
    
    
    
    
    
    (750,000
    )Equipment and project loans
    
    
    
    
    
    
    (300,453
    )Investment loan
    
    
    
    
    
    
    (197,833
    )Current maturities of notes payable
    
    
    
    
    
    
    (1,248,286
    )Long-term maturities of notes payable
    
    $
    
    
    
    $
    3,593,523
  5. Commitments and Contingencies
 Class Action and Related Litigation
  13




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Other Matters 
    14




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Preferred Stock Redemption 
 6. Segment Information
     15




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TM
  16




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##### Table of Contents



Summarized Segment Financial Information(all amounts reported in thousands)Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Southern Flow
    
    $
    3,974
    
    
    $
    3,351
    
    
    $
    8,314
    
    
    $
    6,587PowerSecure
    
    
    31,080
    
    
    
    9,727
    
    
    
    40,744
    
    
    
    13,545Metretek Florida
    
    
    851
    
    
    
    870
    
    
    
    1,585
    
    
    
    1,514Other
    
    
    338
    
    
    
    88
    
    
    
    433
    
    
    
    200Total
    
    $
    36,243
    
    
    $
    14,036
    
    
    $
    51,076
    
    
    $
    21,846Segment profit (loss) (1):Southern Flow
    
    $
    805
    
    
    $
    568
    
    
    $
    1,485
    
    
    $
    1,027PowerSecure
    
    
    3,540
    
    
    
    824
    
    
    
    3,796
    
    
    
    690Metretek Florida
    
    
    (85
    )
    
    
    (141
    )
    
    
    (129
    )
    
    
    (327
    )Other
    
    
    (531
    )
    
    
    (636
    )
    
    
    (1,355
    )
    
    
    (1,226
    )Total
    
    $
    3,729
    
    
    $
    615
    
    
    $
    3,797
    
    
    $
    164Capital expenditures:Southern Flow
    
    $
    13
    
    
    $
    28
    
    
    $
    46
    
    
    $
    74PowerSecure
    
    
    460
    
    
    
    131
    
    
    
    828
    
    
    
    576Metretek Florida
    
    
    
    
    
    
    40
    
    
    
    1
    
    
    
    55Other
    
    
    2
    
    
    
    
    
    
    
    28
    
    
    
    Total
    
    $
    475
    
    
    $
    199
    
    
    $
    903
    
    
    $
    705Depreciation and amortization:Southern Flow
    
    $
    30
    
    
    $
    34
    
    
    $
    60
    
    
    $
    68PowerSecure
    
    
    125
    
    
    
    59
    
    
    
    217
    
    
    
    108Metretek Florida
    
    
    30
    
    
    
    34
    
    
    
    61
    
    
    
    67Other
    
    
    19
    
    
    
    7
    
    
    
    38
    
    
    
    15Total
    
    $
    204
    
    
    $
    134
    
    
    $
    376
    
    
    $
    258
 June 30,2006
    
    
    2005Total assets:Southern Flow
    
    $
    10,828
    
    
    $
    9,514PowerSecure
    
    
    41,395
    
    
    
    16,467Metretek Florida
    
    
    3,870
    
    
    
    4,414Other
    
    
    22,821
    
    
    
    2,513Total
    
    $
    78,914
    
    
    $
    32,908
 
 (1)
    
    Segment profit (loss) represents income from continuing operations before equity income
in our unconsolidated affiliate, minority interest and income taxes. 17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Overview
  
    
    PowerSecure, which designs, sells and manages distributed generation systems;
    
    Southern Flow, which provides natural gas measurement services; and
    
    Metretek Florida, which designs, manufactures and sells data collection and energy measurement monitoring systems.
    18




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19




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20




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Critical Accounting Policies
   Results of Operations
  21




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(all amounts reported in thousands)Revenues:Southern Flow
    
    $
    3,974
    
    
    $
    3,351
    
    
    $
    8,314
    
    
    $
    6,587PowerSecure
    
    
    31,080
    
    
    
    9,727
    
    
    
    40,744
    
    
    
    13,545Metretek Florida
    
    
    851
    
    
    
    870
    
    
    
    1,585
    
    
    
    1,514Other
    
    
    338
    
    
    
    88
    
    
    
    433
    
    
    
    200Total
    
    $
    36,243
    
    
    $
    14,036
    
    
    $
    51,076
    
    
    $
    21,846Gross Profit:Southern Flow
    
    $
    1,168
    
    
    $
    893
    
    
    $
    2,285
    
    
    $
    1,769PowerSecure
    
    
    7,848
    
    
    
    2,331
    
    
    
    10,868
    
    
    
    3,405Metretek Florida
    
    
    496
    
    
    
    463
    
    
    
    965
    
    
    
    773Total
    
    $
    9,512
    
    
    $
    3,687
    
    
    $
    14,118
    
    
    $
    5,947Segment Profit (Loss) (1):Southern Flow
    
    $
    805
    
    
    $
    568
    
    
    $
    1,485
    
    
    $
    1,027PowerSecure
    
    
    3,540
    
    
    
    824
    
    
    
    3,796
    
    
    
    690Metretek Florida
    
    
    (85
    )
    
    
    (141
    )
    
    
    (129
    )
    
    
    (327
    )Other
    
    
    (531
    )
    
    
    (636
    )
    
    
    (1,355
    )
    
    
    (1,226
    )Total
    
    $
    3,729
    
    
    $
    615
    
    
    $
    3,797
    
    
    $
    164
 
 (1)
    
    Segment profit (loss) represents income from continuing operations before equity income in our
unconsolidated affiliate, minority interest and income taxes.    22




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TM
  Second Quarter 2006 Compared to Second Quarter 2005
 Revenues.
  23




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Costs and Expenses.
 24




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Quarter-over-QuarterQuarter Ended June 30,
    
    
    Difference2006
    
    
    2005
    
    
    $
    
    
    %(In thousands)Costs and Expenses:Costs of Sales and Services
Southern Flow
    
    $
    2,806
    
    
    $
    2,458
    
    
    $
    348
    
    
    
    14
    %PowerSecure
    
    
    23,232
    
    
    
    7,396
    
    
    
    15,836
    
    
    
    214
    %Metretek Florida
    
    
    355
    
    
    
    406
    
    
    
    (51
    )
    
    
    -13
    %Total
    
    
    26,393
    
    
    
    10,260
    
    
    
    16,133
    
    
    
    157
    %General and administrative
    
    
    4,502
    
    
    
    1,993
    
    
    
    2,509
    
    
    
    126
    %Selling, marketing and service
    
    
    1,173
    
    
    
    723
    
    
    
    450
    
    
    
    62
    %Depreciation and amortization
    
    
    204
    
    
    
    134
    
    
    
    70
    
    
    
    52
    %Reserarch and development
    
    
    195
    
    
    
    164
    
    
    
    31
    
    
    
    19
    %Interest, finance charges and other
    
    
    46
    
    
    
    147
    
    
    
    (101
    )
    
    
    -69
    %Income taxes
    
    
    23
    
    
    
    
    
    
    
    23
    
    
    na
       25




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Six Month Period 2006 Compared to Six Month Period 2005
 Revenues.
  26




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Costs and Expenses.
 27




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Period-over-PeriodSix Months Ended June 30,
    
    
    Difference2006
    
    
    2005
    
    
    $
    
    
    %(In thousands)Costs and Expenses:Costs of Sales and Services
Southern Flow
    
    $
    6,029
    
    
    $
    4,817
    
    
    $
    1,212
    
    
    
    25
    %PowerSecure
    
    
    29,875
    
    
    
    10,140
    
    
    
    19,735
    
    
    
    195
    %Metretek Florida
    
    
    621
    
    
    
    741
    
    
    
    (120
    )
    
    
    -16
    %Total
    
    
    36,525
    
    
    
    15,698
    
    
    
    20,827
    
    
    
    133
    %General and administrative
    
    
    7,938
    
    
    
    3,809
    
    
    
    4,129
    
    
    
    108
    %Selling, marketing and service
    
    
    1,932
    
    
    
    1,297
    
    
    
    635
    
    
    
    49
    %Depreciation and amortization
    
    
    376
    
    
    
    258
    
    
    
    118
    
    
    
    46
    %Reserarch and development
    
    
    373
    
    
    
    326
    
    
    
    47
    
    
    
    14
    %Interest, finance charges and other
    
    
    135
    
    
    
    294
    
    
    
    (159
    )
    
    
    -54
    %Income taxes
    
    
    112
    
    
    
    13
    
    
    
    99
    
    
    
    762
    %
      28




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Quarterly Fluctuations
  
    
    the size, timing and terms of sales and orders, including large customer orders, such as
the recent significant Publix orders at PowerSecure, as well as the effects of customers
delaying, deferring or canceling purchase orders or making smaller purchases than expected;
    
    the effects of severe weather conditions, such as hurricanes, on the demand requirements
of our customers;
    
    our ability to obtain adequate supplies of key components and materials for our products
on a timely and cost-effective basis;
    
    our ability to implement our business plans and strategies and the timing of such
implementation;
    
    the pace of development of our new businesses, including PowerSecures new businesses,
and the growth of their markets;
    
    the timing, pricing and market acceptance of our new products and services such as
Metretek Floridas new M2M offerings;
    
    changes in our pricing policies and those of our competitors;
 29




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
    
    variations in the length of our product and service implementation process;
    
    changes in the mix of products and services having differing margins;
    
    changes in the mix of international and domestic revenues;
    
    the life cycles of our products and services;
    
    budgeting cycles of utilities and other major customers;
    
    general economic and political conditions;
    
    the effects of litigation, claims and other proceedings;
    
    the effects of governmental regulations and regulatory changes in our markets;
    
    economic conditions in the energy industry, especially in the natural gas and
electricity sectors including the effect of cyclical changes in energy prices;
    
    changes in the prices charged by our suppliers;
    
    our ability to make and obtain the expected benefits from acquisitions of technology or
businesses, and the costs related to such acquisitions;
    
    changes in our operating expenses; and
    
    the development and maintenance of business relationships with strategic partners.
    30




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Liquidity and Capital Resources
 Capital Requirements.
 
    
    operations;
    
    inventory;
    
    accounts receivable;
    
    research and development efforts;
    
    property and equipment acquisitions, including investments in shared savings projects;
    
    software development;
    
    debt service requirements; and
    
    business and technology acquisitions and other growth transactions.
 Cash Flow.
 31




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32




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Project Loans
  Working Capital Credit Facility.
  33




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Preferred Stock Redemption
 Term Loan
 34




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Settlement Note.
 Contractual Obligations and Commercial Commitments.
 Payments Due by Period (1)Remainder of
    
    
    Years
    
    
    Years
    
    
    AfterTotal
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    2010Contractual ObligationsCredit Facility (2)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital Lease Obligations
    
    
    5,000
    
    
    
    2,000
    
    
    
    3,000
    
    
    
    
    
    
    
    Operating Leases
    
    
    4,024,000
    
    
    
    372,000
    
    
    
    1,257,000
    
    
    
    771,000
    
    
    
    1,624,000Series B Preferred Stock
    
    
    330,000
    
    
    
    330,000
    
    
    
    
    
    
    
    
    
    
    
    Caterpillar Equipment Line (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,359,000
    
    
    $
    704,000
    
    
    $
    1,260,000
    
    
    $
    771,000
    
    
    $
    1,624,000
 
 (1)
    
    Does not include interest that may become due and payable on such obligations in any
future period.(2)
    
    Total repayments are based upon borrowings outstanding as of June 30, 2006, not projected
borrowings under the Credit Facility or the Caterpillar Equipment Line. Off-Balance Sheet Arrangements
 Liquidity.
 35




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Recent Accounting Pronouncements
     36




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##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements
  
    
    our prospects, including our future revenues, expenses, net income, margins,
profitability, cash flow, liquidity, financial condition and results of operations;
    
    our products and services and the markets therefor, including market position, market
share, market demand and benefits to customers;
    
    our ability to successfully develop, operate and grow our businesses;
    
    our business plans, strategies, goals and objectives;
    
    the sufficiency of our capital resources, including our cash and cash equivalents, funds
generated from operations, available borrowings under our credit arrangements and other
 37




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capital resources, to meet our future working capital, capital expenditure, debt service
and business growth needs;
    
    industry trends and customer preferences;
    
    the nature and intensity of our competition, and our ability to successfully compete in our markets;
    
    business acquisitions, combinations, sales, alliances, ventures and other similar
business transactions and relationships;
    
    the effects on our business, financial condition and results of operations of litigation
and other claims and proceedings that arise from time to time; and
    
    future economic, business, market and regulatory conditions.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   38




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Limitations in Control systems
  39




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40




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PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Terrorist activities and other international hostilities, including the expanding hostilities
in the Middle East, could adversely affect our business and our results of operations.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  41




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Item 4. Submission of Matters to a Vote of Security Holders
  Proposal 1:
    
    To elect one director for a three-year term and until his successor is duly elected and qualified.
 For
    
    WithheldAnthony D. Pell
    
    12,210,102
    
    280,200
 Proposal 2:
    
    To approve amendments to our 1998 Stock Incentive Plan to (i) increase the number
of shares of Common Stock authorized for issuance thereunder by 1,000,000 shares, (ii)
eliminate the provision requiring formula grants of stock options to non-employee
directors, (iii) prohibit the repricing of stock options without stockholder approval,
and (iv) address and comply with Section 409A of the Internal Revenue Code of 1986, as
amended.
 For
    
    Against
    
    Abstain
    
    Broker Non-Votes5,641,187
    
    1,341,299
    
    28,912
    
    5,478,274
 42




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##### Table of Contents



Proposal 3:
    
    To ratify the appointment of Hein & Associates LLP as the Companys
independent registered public accounting firm for the fiscal year ending December 31,
2006.
 For
    
    Against
    
    Abstain12,106,732
    
    378,070
    
    5,500
 
 Item 5. Other Information
   
    
    The elimination of the annual facility fee;
    
    A reduction by 50% in the annual unused fee to 0.125% of the average unused amount of the Credit Facility;
    
    The elimination of the accounts and inventory of Metretek Florida from the definitions
and computations of eligible accounts receivable and eligible inventory, respectively;
    
    A reduction in the rate of interest on the Credit Facility to the prime rate;
    
    The elimination of the monthly borrowing base report and accounts receivable aging until
the Company takes future advances under the Credit Facility;
    
    The elimination of certain restrictions on payments by PowerSecure to reduce its
inter-company liability to the Company;
    
    The elimination of certain, and the modification of certain other, financial covenants
by PowerSecure, Southern Flow and the Company; and
    
    The modification of the limitation on investments and advances by the Company,
PowerSecure and Southern Flow.
 43




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    First Modification to Loan Documents, effective as of June 30, 2006, by
and among First national Bank of Colorado, Metretek Technologies, Inc., Southern
Flow Companies, Inc., PowerSecure, Inc., and Metretek Incorporated (Filed
herewith).10.2
    
    PowerSecure, Inc. Key Employee Long-Term Retention Plan (Filed
herewith).10.3
    
    Metretek Technologies, Inc. 1998 Stock Incentive Plan, amended and
restated as of June 12, 2006 (Incorporated by reference to Metreteks Registration
Statement on Form S-8, Registration No. 333-134938).31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350 and Rule 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Furnished herewith).32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350 and Rule 13a-14(b) or 15d-14(b) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Furnished herewith).
 44




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SIGNATURES
  METRETEK TECHNOLOGIES, INC.Date: August 11, 2006
    By:
    /s/ W. Phillip MarcumW. Phillip MarcumPresident and Chief Executive OfficerDate: August 11, 2006
    By:
    /s/ A. Bradley GabbardA. Bradley GabbardExecutive Vice President
and Chief Financial Officer 45