##### Table of Contents



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




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##### Table of Contents



METRETEK TECHNOLOGIES, INC.
 FORM 10-Q
For the Quarterly Period Ended September 30, 2006
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Consolidated Balance Sheets  September 30, 2006 and December 31, 2005
    
    
    3Unaudited Consolidated Statements of Operations  For the Three and Nine Months Ended September 30, 2006 and September 30, 2005
    
    
    5Unaudited Consolidated Statements of Cash Flows  For the Nine Months Ended September 30, 2006 and September 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
    
    
    39Item 4. Controls and Procedures
    
    
    39PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 6. Exhibits
    
    
    41Signatures
    
    
    42EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
(unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    18,005,317
    
    
    $
    2,188,310Trade receivables, net of allowance for doubtful accounts
of $163,370 and $95,144, respectively
    
    
    34,359,571
    
    
    
    12,031,539Other receivables
    
    
    95,729
    
    
    
    36,669Inventories
    
    
    11,644,294
    
    
    
    3,450,267Prepaid expenses and other current assets
    
    
    745,347
    
    
    
    527,269Total current assets
    
    
    64,850,258
    
    
    
    18,234,054PROPERTY, PLANT AND EQUIPMENT:Equipment
    
    
    6,362,858
    
    
    
    5,669,788Vehicles
    
    
    166,894
    
    
    
    132,988Furniture and fixtures
    
    
    590,253
    
    
    
    550,863Land, building and improvements
    
    
    636,682
    
    
    
    517,511Total property, plant and equipment, at cost
    
    
    7,756,687
    
    
    
    6,871,150Less accumulated depreciation and amortization
    
    
    3,862,698
    
    
    
    3,657,856Property, plant and equipment, net
    
    
    3,893,989
    
    
    
    3,213,294OTHER ASSETS:Goodwill
    
    
    8,840,148
    
    
    
    8,840,148Intangible rights and capitalized software costs, net of
accumulated
amortization of $1,519,799 and $1,280,019, respectively
    
    
    1,830,131
    
    
    
    479,221Investment in unconsolidated affiliate
    
    
    4,636,421
    
    
    
    2,299,218Assets of discontinued operations
    
    
    144,490
    
    
    
    192,821Other assets
    
    
    178,427
    
    
    
    60,170Total other assets
    
    
    15,629,617
    
    
    
    11,871,578TOTAL
    
    $
    84,373,864
    
    
    $
    33,318,926
 See accompanying notes to unaudited consolidated financial statements.
 3




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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    8,780,995
    
    
    $
    3,283,898Accrued and other liabilities
    
    
    21,801,838
    
    
    
    8,786,830Notes payable
    
    
    
    
    
    
    1,248,286Capital lease obligations
    
    
    5,708
    
    
    
    3,884Total current liabilities
    
    
    30,588,541
    
    
    
    13,322,898LONG-TERM NOTES PAYABLE
    
    
    
    
    
    
    3,593,523NON-CURRENT CAPITAL LEASE OBLIGATIONS
    
    
    7,835
    
    
    
    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; 15,768,671 and 12,577,530 shares issued
and outstanding, respectively
    
    
    157,687
    
    
    
    125,775Additional paid-in-capital
    
    
    102,012,205
    
    
    
    72,321,099Deferred compensation
    
    
    (16,500
    )
    
    
    (66,000
    )Accumulated deficit
    
    
    (48,375,904
    )
    
    
    (56,151,334
    )Total stockholders equity
    
    
    53,777,488
    
    
    
    16,229,540TOTAL
    
    $
    84,373,864
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUES:Sales and services
    
    $
    33,125,164
    
    
    $
    10,074,442
    
    
    $
    83,767,976
    
    
    $
    31,720,110Other
    
    
    319,969
    
    
    
    102,346
    
    
    
    752,897
    
    
    
    303,076Total revenues
    
    
    33,445,133
    
    
    
    10,176,788
    
    
    
    84,520,873
    
    
    
    32,023,186COSTS AND EXPENSES:Cost of sales and services
    
    
    24,055,211
    
    
    
    7,146,321
    
    
    
    60,580,104
    
    
    
    22,844,583General and administrative
    
    
    5,535,861
    
    
    
    2,007,820
    
    
    
    13,473,641
    
    
    
    5,817,286Selling, marketing and service
    
    
    936,415
    
    
    
    692,186
    
    
    
    2,868,346
    
    
    
    1,989,167Depreciation and amortization
    
    
    306,332
    
    
    
    134,778
    
    
    
    682,636
    
    
    
    392,783Research and development
    
    
    163,411
    
    
    
    189,430
    
    
    
    536,095
    
    
    
    515,287Interest, finance charges and other
    
    
    13,898
    
    
    
    201,604
    
    
    
    148,609
    
    
    
    495,444Total costs and expenses
    
    
    31,011,128
    
    
    
    10,372,139
    
    
    
    78,289,431
    
    
    
    32,054,550Income (loss) from continuing
operations
before minority interest and
income taxes
    
    
    2,434,005
    
    
    
    (195,351
    )
    
    
    6,231,442
    
    
    
    (31,364
    )Equity in income of unconsolidated
affiliate
    
    
    627,020
    
    
    
    418,690
    
    
    
    1,878,462
    
    
    
    1,340,731Minority interest
    
    
    
    
    
    
    (51,789
    )
    
    
    (72,464
    )
    
    
    (168,354
    )Income taxes
    
    
    (150,496
    )
    
    
    (2,405
    )
    
    
    (262,010
    )
    
    
    (15,690
    )Income from continuing operations
    
    
    2,910,529
    
    
    
    169,145
    
    
    
    7,775,430
    
    
    
    1,125,323Loss from disposal of discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net income
    
    $
    2,910,529
    
    
    $
    169,145
    
    
    $
    7,775,430
    
    
    $
    825,323PER SHARE AMOUNTS (Note 1):Income from continuing operations:Basic
    
    $
    0.19
    
    
    $
    0.01
    
    
    $
    0.52
    
    
    $
    0.09Diluted
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.47
    
    
    $
    0.08Net income:Basic
    
    $
    0.19
    
    
    $
    0.01
    
    
    $
    0.52
    
    
    $
    0.07Diluted
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.47
    
    
    $
    0.06WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:Basic
    
    
    15,730,954
    
    
    
    12,289,743
    
    
    
    14,818,667
    
    
    
    12,248,096Diluted
    
    
    17,250,856
    
    
    
    13,456,174
    
    
    
    16,507,783
    
    
    
    12,912,244
 See accompanying notes to unaudited consolidated financial statements.
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METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
(unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    7,775,430
    
    
    $
    825,323Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Loss on disposal of discontinued operations
    
    
    
    
    
    
    300,000Depreciation and amortization
    
    
    682,636
    
    
    
    392,783Minority interest in subsidiary
    
    
    72,464
    
    
    
    168,354Loss on disposal of property, plant and equipment
    
    
    33,294
    
    
    
    2,880Equity in income of unconsolidated affiliate
    
    
    (1,878,462
    )
    
    
    (1,340,731
    )Distributions from unconsolidated affiliate
    
    
    361,302
    
    
    
    1,128,453Stock compensation expense
    
    
    578,141
    
    
    
    49,500Changes in other assets and liabilities:Trade receivables, net
    
    
    (22,328,032
    )
    
    
    (1,607,610
    )Inventories
    
    
    (8,194,027
    )
    
    
    (2,649
    )Other current assets
    
    
    (277,138
    )
    
    
    (147,051
    )Other noncurrent assets
    
    
    (118,257
    )
    
    
    91,153Accounts payable
    
    
    5,497,097
    
    
    
    112,944Accrued and other liabilities
    
    
    13,095,743
    
    
    
    986,912Net cash provided by (used in) continuing operations
    
    
    (4,699,809
    )
    
    
    960,261Net cash provided by (used in) discontinued operations of MCM
    
    
    48,331
    
    
    
    (675,592
    )Net cash provided by (used in) operating activities
    
    
    (4,651,478
    )
    
    
    284,669CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (1,117,194
    )
    
    
    (780,550
    )Additions to intangible rights and software development
    
    
    (1,590,690
    )
    
    
    (148,417
    )Investment in unconsolidated affiliate
    
    
    (1,260,360
    )
    
    
    (58,045
    )Proceeds from sale of property, plant and equipment
    
    
    16,375
    
    
    
    Net cash used in investing activities
    
    
    (3,951,869
    )
    
    
    (987,012
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from private placement, net
    
    
    26,221,123
    
    
    
    Proceeds from stock warrant and option exercises
    
    
    2,973,254
    
    
    
    330,117Net payments on line of credit
    
    
    (1,314,200
    )
    
    
    (806,115
    )Proceeds from equipment loan
    
    
    
    
    
    
    335,247Principal payments on long-term notes payable
    
    
    (3,375,494
    )
    
    
    (910,222
    )Cash distributions to minority interests
    
    
    (381
    )
    
    
    (96,075
    )Payments on preferred stock redemptions
    
    
    (80,735
    )
    
    
    (450,648
    )Payments on capital lease obligations
    
    
    (3,213
    )
    
    
    (2,571
    )Net cash provided by (used in) financing activities
    
    
    24,420,354
    
    
    
    (1,600,267
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    15,817,007
    
    
    
    (2,302,610
    )CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
    
    
    2,188,310
    
    
    
    2,951,489CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    18,005,317
    
    
    $
    648,879
 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income from continuing operations
    
    $
    2,910,529
    
    
    $
    169,145
    
    
    $
    7,775,430
    
    
    $
    1,125,323Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Net income
    
    $
    2,910,529
    
    
    $
    169,145
    
    
    $
    7,775,430
    
    
    $
    825,323Basic weighted-average common
shares outstanding in period
    
    
    15,730,954
    
    
    
    12,289,743
    
    
    
    14,818,667
    
    
    
    12,248,096Add dilutive effects of stock options
and warrants
    
    
    1,519,902
    
    
    
    1,166,431
    
    
    
    1,689,116
    
    
    
    664,148Diluted weighted-average common
shares outstanding in period
    
    
    17,250,856
    
    
    
    13,456,174
    
    
    
    16,507,783
    
    
    
    12,912,244Basic earnings (loss) per common share:Income from continuing operations
    
    $
    0.19
    
    
    $
    0.01
    
    
    $
    0.52
    
    
    $
    0.09Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Basic earnings per common share
    
    $
    0.19
    
    
    $
    0.01
    
    
    $
    0.52
    
    
    $
    0.07Diluted earnings (loss) per common share:Income from continuing operations
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.47
    
    
    $
    0.08Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Diluted earnings per common share
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.47
    
    
    $
    0.06
 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
    
    
    293,500
    
    
    
    12.78Exercised
    
    
    (473,669
    )
    
    
    2.53Canceled
    
    
    
    
    
    
    Forfeited
    
    
    (12,500
    )
    
    
    8.57Balance, September 30, 2006
    
    
    2,096,474
    
    
    $
    4.42
    
    
    
    6.74
    
    
    $
    7.52Exercisable, September 30, 2006
    
    
    1,544,932
    
    
    $
    3.00
    
    
    
    5.90
    
    
    $
    8.94
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Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2005
    
    
    September 30, 2005Net income  as reported
    
    $
    169,145
    
    
    $
    825,323Deduct: Total stock-based employee
compensation expense determined
under fair value based method
    
    
    (78,356
    )
    
    
    (263,666
    )Net income  pro forma
    
    $
    90,789
    
    
    $
    561,657Income per basic common share:As reported
    
    $
    0.01
    
    
    $
    0.07Pro forma
    
    $
    0.01
    
    
    $
    0.05Income per diluted common share:As reported
    
    $
    0.01
    
    
    $
    0.06Pro forma
    
    $
    0.01
    
    
    $
    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
  September 30,
    
    
    December 31,2006
    
    
    2005Total current assets
    
    $
    5,744,715
    
    
    $
    2,173,222Property, plant and equipment, net
    
    
    5,896,470
    
    
    
    6,180,090Total other assets
    
    
    10,166
    
    
    
    15,429Total assets
    
    $
    11,651,351
    
    
    $
    8,368,741Total current liabilities
    
    $
    877,215
    
    
    $
    1,151,906Long-term note payable
    
    
    487,037
    
    
    
    912,799Total shareholders equity
    
    
    10,287,099
    
    
    
    6,304,036Total liabilities and shareholders equity
    
    $
    11,651,351
    
    
    $
    8,368,741
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Total revenues
    
    $
    2,866,781
    
    
    $
    2,332,456
    
    
    $
    8,357,557
    
    
    $
    7,397,103Total costs and expenses
    
    
    1,137,685
    
    
    
    1,008,545
    
    
    
    3,374,494
    
    
    
    3,105,245Net income
    
    $
    1,729,096
    
    
    $
    1,323,911
    
    
    $
    4,983,063
    
    
    $
    4,291,858
  12




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4. Intangible Contract Rights Acquired
  5. Debt
  September 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
  6. Commitments and Contingencies
 Class Action and Related Litigation
 13




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Other Matters 
   14




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Preferred Stock Redemption 
 7. Segment Information
     15




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TM
  16




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Summarized Segment Financial Information
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Southern Flow
    
    $
    3,941
    
    
    $
    3,096
    
    
    $
    12,255
    
    
    $
    9,683PowerSecure
    
    
    28,221
    
    
    
    5,980
    
    
    
    68,964
    
    
    
    19,525Metretek Florida
    
    
    964
    
    
    
    999
    
    
    
    2,549
    
    
    
    2,512Other
    
    
    320
    
    
    
    102
    
    
    
    753
    
    
    
    303Total
    
    $
    33,446
    
    
    $
    10,177
    
    
    $
    84,521
    
    
    $
    32,023Segment profit (loss) (1):Southern Flow
    
    $
    710
    
    
    $
    296
    
    
    $
    2,196
    
    
    $
    1,323PowerSecure
    
    
    2,767
    
    
    
    159
    
    
    
    6,563
    
    
    
    849Metretek Florida
    
    
    (5
    )
    
    
    (7
    )
    
    
    (134
    )
    
    
    (334
    )Other
    
    
    (1,038
    )
    
    
    (643
    )
    
    
    (2,394
    )
    
    
    (1,869
    )Total
    
    $
    2,434
    
    
    $
    (195
    )
    
    $
    6,231
    
    
    $
    (31
    )Capital expenditures:Southern Flow
    
    $
    26
    
    
    $
    19
    
    
    $
    72
    
    
    $
    93PowerSecure
    
    
    1,759
    
    
    
    170
    
    
    
    2,587
    
    
    
    746Metretek Florida
    
    
    20
    
    
    
    32
    
    
    
    21
    
    
    
    87Other
    
    
    
    
    
    
    3
    
    
    
    28
    
    
    
    3Total
    
    $
    1,805
    
    
    $
    224
    
    
    $
    2,708
    
    
    $
    929Depreciation and amortization:Southern Flow
    
    $
    30
    
    
    $
    32
    
    
    $
    90
    
    
    $
    100PowerSecure
    
    
    228
    
    
    
    65
    
    
    
    446
    
    
    
    173Metretek Florida
    
    
    29
    
    
    
    31
    
    
    
    90
    
    
    
    98Other
    
    
    19
    
    
    
    7
    
    
    
    57
    
    
    
    22Total
    
    $
    306
    
    
    $
    135
    
    
    $
    683
    
    
    $
    393
 September 30,2006
    
    
    2005Total assets:Southern Flow
    
    $
    11,564
    
    
    $
    9,521PowerSecure
    
    
    49,907
    
    
    
    13,887Metretek Florida
    
    
    3,875
    
    
    
    3,960Other
    
    
    19,028
    
    
    
    2,583Total
    
    $
    84,374
    
    
    $
    29,951
 
 (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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(all amounts reported in thousands)Revenues:Southern Flow
    
    $
    3,941
    
    
    $
    3,096
    
    
    $
    12,255
    
    
    $
    9,683PowerSecure
    
    
    28,221
    
    
    
    5,980
    
    
    
    68,964
    
    
    
    19,525Metretek Florida
    
    
    964
    
    
    
    999
    
    
    
    2,549
    
    
    
    2,512Other
    
    
    320
    
    
    
    102
    
    
    
    753
    
    
    
    303Total
    
    $
    33,446
    
    
    $
    10,177
    
    
    $
    84,521
    
    
    $
    32,023Gross Profit:Southern Flow
    
    $
    1,092
    
    
    $
    682
    
    
    $
    3,377
    
    
    $
    2,451PowerSecure
    
    
    7,468
    
    
    
    1,675
    
    
    
    18,337
    
    
    
    5,080Metretek Florida
    
    
    510
    
    
    
    571
    
    
    
    1,474
    
    
    
    1,345Total
    
    $
    9,070
    
    
    $
    2,928
    
    
    $
    23,188
    
    
    $
    8,876Segment Profit
(Loss) (1):Southern Flow
    
    $
    710
    
    
    $
    296
    
    
    $
    2,196
    
    
    $
    1,323PowerSecure
    
    
    2,767
    
    
    
    159
    
    
    
    6,563
    
    
    
    849Metretek Florida
    
    
    (5
    )
    
    
    (7
    )
    
    
    (134
    )
    
    
    (334
    )Other
    
    
    (1,038
    )
    
    
    (643
    )
    
    
    (2,394
    )
    
    
    (1,869
    )Total
    
    $
    2,434
    
    
    $
    (195
    )
    
    $
    6,231
    
    
    $
    (31
    )
 
 (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
  Third Quarter 2006 Compared to Third Quarter 2005
 Revenues.
 23




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Costs and Expenses.
 24




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Quarter-over-QuarterQuarter Ended September 30,
    
    
    Difference2006
    
    
    2005
    
    
    $
    
    
    %(In thousands)Costs and Expenses:Costs of Sales and ServicesSouthern Flow
    
    $
    2,849
    
    
    $
    2,414
    
    
    $
    435
    
    
    
    18
    %PowerSecure
    
    
    20,752
    
    
    
    4,305
    
    
    
    16,447
    
    
    
    382
    %Metretek Florida
    
    
    454
    
    
    
    427
    
    
    
    27
    
    
    
    6
    %Total
    
    
    24,055
    
    
    
    7,146
    
    
    
    16,909
    
    
    
    237
    %General and administrative
    
    
    5,536
    
    
    
    2,008
    
    
    
    3,528
    
    
    
    176
    %Selling, marketing and service
    
    
    936
    
    
    
    692
    
    
    
    244
    
    
    
    35
    %Depreciation and amortization
    
    
    306
    
    
    
    135
    
    
    
    171
    
    
    
    127
    %Reserarch and development
    
    
    163
    
    
    
    189
    
    
    
    (26
    )
    
    
    -14
    %Interest, finance charges and other
    
    
    14
    
    
    
    202
    
    
    
    (188
    )
    
    
    -93
    %Income taxes
    
    
    150
    
    
    
    2
    
    
    
    148
    
    
    na
      25




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




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Costs and Expenses.
 27




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Nine Months Ended
    
    
    Period-over-PeriodSeptember 30,
    
    
    Difference2006
    
    
    2005
    
    
    $
    
    
    %(In thousands)Costs and Expenses:Costs of Sales and ServicesSouthern Flow
    
    $
    8,878
    
    
    $
    7,232
    
    
    $
    1,646
    
    
    
    23
    %PowerSecure
    
    
    50,627
    
    
    
    14,445
    
    
    
    36,182
    
    
    
    250
    %Metretek Florida
    
    
    1,075
    
    
    
    1,168
    
    
    
    (93
    )
    
    
    -8
    %Total
    
    
    60,580
    
    
    
    22,845
    
    
    
    37,735
    
    
    
    165
    %General and administrative
    
    
    13,474
    
    
    
    5,817
    
    
    
    7,657
    
    
    
    132
    %Selling, marketing and service
    
    
    2,868
    
    
    
    1,989
    
    
    
    879
    
    
    
    44
    %Depreciation and amortization
    
    
    683
    
    
    
    393
    
    
    
    290
    
    
    
    74
    %Reserarch and development
    
    
    536
    
    
    
    515
    
    
    
    21
    
    
    
    4
    %Interest, finance charges and other
    
    
    149
    
    
    
    495
    
    
    
    (346
    )
    
    
    -70
    %Income taxes
    
    
    262
    
    
    
    16
    
    
    
    246
    
    
    
    1538
    %
      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
 29




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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;
    
    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.
 31




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Cash Flow.
     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
    
    
    17,000
    
    
    
    2,000
    
    
    
    9,000
    
    
    
    6,000
    
    
    
    Operating Leases
    
    
    3,838,000
    
    
    
    186,000
    
    
    
    1,257,000
    
    
    
    771,000
    
    
    
    1,624,000Series B Preferred Stock
    
    
    324,000
    
    
    
    324,000
    
    
    
    
    
    
    
    
    
    
    
    Caterpillar Equipment Line (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,179,000
    
    
    $
    512,000
    
    
    $
    1,266,000
    
    
    $
    777,000
    
    
    $
    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 September 30, 2006, not
projected borrowings under the Credit Facility or the Caterpillar Equipment Line. Off-Balance Sheet Arrangements
 35




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Liquidity.
 Recent Accounting Pronouncements
    
 36




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Cautionary Note Regarding Forward-Looking Statements
  37




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##### Table of Contents




    
    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 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.
   38




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  39




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Changes in Internal Control over Financial Reporting
  Limitations in Control Systems
  40




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 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).
 41




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SIGNATURES
  METRETEK TECHNOLOGIES, INC.Date: November 6, 2006
    
    By:
    
    /s/ W. Phillip MarcumW. Phillip MarcumPresident and Chief Executive OfficerDate: November 6, 2006
    
    By:
    
    /s/ A. Bradley GabbardA. Bradley GabbardExecutive Vice Presidentand Chief Financial Officer
 42