UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ENERGY & TECHNOLOGY, CORP.
(Exact name of registrant as specified in Charter)
| DELAWARE | 333-143215 | 26-0198662 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File No.) | (IRS
Employee Identification No.) |
Petroleum Towers, Suite 530
3639 Ambassador Caffery Blvd
Mail to: P.O. Box 52523
Lafayette, LA 70505
(Address of Principal Executive Offices)
+ 1-337- 984-2000
(Issuer Telephone number)
+ 1-337- 988-1777
Issuer Fax Number
www.engt.com
www.energyntechnology.com
| Securities registered under Section 12(b) of the Exchange Act: | None. |
| Securities registered under Section 12(g) of the Exchange Act: | Common stock, par value $0.001 per share. |
| (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| (Do not check if a smaller reporting company) | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
According to the Company’s transfer agent of record, Olde Monmoth Stock Transfer Agent’s latest records, the number of shares outstanding of each of the Company’s classes of common equity, as of the end of the fiscal quarter covered by this report, is 165,560,766 shares of common stock. The company has issued no stock since that date.
ENERGY & TECHNOLOGY, CORP.
FORM 10-Q
March 31, 2018
INDEX
| PART I—FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition | 10 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 12 |
| Item 4. | Control and Procedures | 12 |
| PART II—OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 13 |
| Item 2. | Risk Factors | 13 |
| Item 3. | Unregistered Sales of Equity Securities and Use of Proceeds | 13 |
| Item 4. | Defaults Upon Senior Securities | 13 |
| Item 5. | Submission of Matters to a Vote of Security Holders | 13 |
| Item 6. | Other Information | 13 |
| Item 7. | Exhibits and Reports on Form 8-K | 13 |
| SIGNATURE | 14 | |
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 about Energy & Technology, Corp. (the “Company”) and our subsidiaries, Technical Industries, Inc. (TII), Energy Pipe, LLC (EP), (a variable interest entity), and Energy Technology Manufacturing & Threading, LLC (ETMT), (a variable interest entity), that are subject to risks and uncertainties. Forward-looking statements include information concerning future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may increase,” “may fluctuate” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” and “could” are generally forward-looking in nature and not historical facts. Actual results may differ materially from those projected, implied, anticipated or expected in the forward-looking statements. Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report. The statements are representative only as of the date they are made. The Company, Technical Industries, Inc. (TII), Energy Pipe, LLC (EP), and Energy Technology Manufacturing & Threading, LLC (ETMT), (sometimes referred to herein on a consolidated basis as the Company, we, us, or similar phrasing) undertakes no obligation to update any forward-looking statement.
These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, estimates, financial condition, results of operations, future performance and business, including management's expectations and estimates with respect to revenues, expenses, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors, some of which are beyond the control of the Company. The following factors, among others, could cause the Company's results or financial performance to differ materially from its goals, plans, objectives, intentions, expectations and other forward-looking statements:
| ● | general economic and industry conditions; | |
| ● | our capital requirements and dependence on the sale of our equity securities; | |
| ● | the liquidity of the Company’s common stock will be affected by the lack of a trading market; | |
| ● | industry competition; | |
| ● | shortages in availability of qualified personnel; | |
| ● | legal and financial implications of unexpected catastrophic events; | |
| ● | regulatory or legislative changes effecting the industries we serve; and | |
| ● | reliance on, and the ability to attract, key personnel. |
For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s S-1 Report filed with the SEC, which is available on the SEC’s website at www.sec.gov. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof. New factors emerge from time to time, and it is not possible for us to predict which factors, if any, will arise. In addition, the Company cannot assess the impact of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
PART I. Financial Information
ITEM 1. Financial Statements
ENERGY & TECHNOLOGY, CORP.
Consolidated Balance Sheets
As of March 31, 2018 and December 31, 2017
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | 110,351 | $ | 36,168 | ||||
| Investments | 2,332 | 2,289 | ||||||
| Accounts Receivable | ||||||||
| Trade, Net | 372,059 | 273,183 | ||||||
| Inventory, Net | 903,373 | 903,373 | ||||||
| Prepaid Expenses | 74,300 | 50,835 | ||||||
| Other Current Assets | 164,010 | 126,168 | ||||||
| Total Current Assets | 1,626,424 | 1,392,016 | ||||||
| Property and Equipment, Net | ||||||||
| Held for Operations, Net | 2,060,551 | 2,099,840 | ||||||
| Construction in Progress | 350,418 | 350,418 | ||||||
| 2,410,969 | 2,450,258 | |||||||
| Total Assets | $ | 4,037,393 | $ | 3,842,274 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 860,943 | $ | 978,740 | ||||
| Accrued Liabilities | 257,212 | 82,035 | ||||||
| Accrued Rent | 2,445,000 | 2,407,500 | ||||||
| Current Maturities of Notes Payable | 4,476,442 | 4,425,147 | ||||||
| Due to Affiliates | 841,709 | 858,545 | ||||||
| Income Taxes Payable | 25,287 | 25,287 | ||||||
| Total Current Liabilities | 8,906,593 | 8,777,254 | ||||||
| Long-Term Liabilities | ||||||||
| Notes Payable | 10,922 | 13,142 | ||||||
| Total Liabilities | $ | 8,917,516 | $ | 8,790,396 | ||||
| Stockholders' Equity | ||||||||
| Preferred Stock - $.001 Par Value; 10,000,000 Shares Authorized, None Issued | - | - | ||||||
| Common Stock - $.001 Par Value; 250,000,000 Shares Authorized, 169,198,117 | ||||||||
| Shares Issued at March 31, 2018 and December 31, 2017, respectively | 169,198 | 169,198 | ||||||
| Paid-In Capital | 4,209,592 | 4,209,592 | ||||||
| Treasury Stock, at cost (3,637,351 Shares) | (4,076,441 | ) | (4,076,441 | ) | ||||
| Retained Earnings | (5,182,472 | ) | (5,250,470 | ) | ||||
| Total Stockholders' Equity | (4,880,122 | ) | (4,948,121 | ) | ||||
| Total Liabilities and Stockholders' Equity | $ | 4,037,393 | $ | 3,842,274 | ||||
See notes to consolidated financial statements.
| 1 |
ENERGY & TECHNOLOGY, CORP.
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 2018 and March 31, 2017
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2018 | 2017 | |||||||
| Revenues | $ | 793,698 | $ | 544,654 | ||||
| Cost of Revenues | ||||||||
| Materials and Supplies | 56,374 | 67,241 | ||||||
| Contractor | 121,557 | 113,747 | ||||||
| Depreciation | 19,696 | 64,463 | ||||||
| Employees and Related Costs | 138,098 | 102,906 | ||||||
| Repairs and Maintenance | 30,166 | 28,335 | ||||||
| Insurance | 8,259 | 16,996 | ||||||
| Other Costs | 128,360 | 106,578 | ||||||
| Total Cost of Revenues | 502,510 | 500,265 | ||||||
| Gross Profit | 291,188 | 44,389 | ||||||
| Operating Expenses | ||||||||
| Selling, General, and Administration | 221,313 | 318,136 | ||||||
| Depreciation | 27,054 | 27,525 | ||||||
| Total Operating Expenses | 248,368 | 345,662 | ||||||
| Income (Loss) from Operations | 42,821 | (301,273 | ) | |||||
| Other Income (Expense) | ||||||||
| Income from Insurance Claim | 78,281 | |||||||
| Investment Income (Expense) | 55 | (726 | ) | |||||
| Interest Expense | (53,159 | ) | (5,388 | ) | ||||
| Total Other Income (Expense) | 25,177 | (6,114 | ) | |||||
| Loss Before Provision for Income Taxes | 67,998 | (307,387 | ) | |||||
| Benefit for Income Taxes | 0 | 0 | ||||||
| Loss | $ | 67,998 | $ | (307,387 | ) | |||
| Loss per Share - Basic | $ | NM | $ | NM | ||||
| Loss per Share - Diluted | $ | NM | $ | NM | ||||
See notes to consolidated financial statements.
| 2 |
ENERGY & TECHNOLOGY CORP.
Consolidated Statements of Changes in Stockholders' Equity
For theyears ended ended December 31, 2018 and December 31, 2017
| Common Stock | Treasury Stock | Additional Paid-In | Retained | Total Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance at January 1, 2017 | 169,198,117 | $ | 169,198 | (3,637,351 | ) | $ | (4,076,441 | ) | $ | 4,209,591 | (3,940,586 | ) | $ | (3,638,238 | ) | |||||||||||||
| Net (Loss) | - | - | - | - | (1,309,884 | ) | $ | (1,309,884 | ) | |||||||||||||||||||
| Balance at December 31, 2017 | 169,198,117 | $ | 169,198 | (3,637,351 | ) | $ | (4,076,441 | ) | $ | 4,209,591 | $ | (5,250,470 | ) | $ | (4,948,121 | ) | ||||||||||||
| Balance at January 1, 2018 | 169,198,117 | 169,198 | (3,637,351 | ) | (4,076,441 | ) | 4,209,591 | (5,250,470 | ) | (4,948,121 | ) | |||||||||||||||||
| Net Income (Loss) | - | - | - | 67,998 | $ | 67,998 | ||||||||||||||||||||||
| Balance at December 31, 2018 | 169,198,117 | $ | 169,198 | $ | (3,637,351 | ) | $ | (4,076,441 | ) | $ | 4,209,591 | $ | (5,182,472 | ) | $ | (4,880,122 | ) | |||||||||||
See notes to consolidated financial statements.
| 3 |
ENERGY & TECHNOLOGY, CORP.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2018 and 2017
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2018 | 2017 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (Loss) | $ | 67,998 | $ | (307,388 | ) | |||
| Adjustments to Reconcile Net Income to Net Cash Provided by | ||||||||
| Operating Activities | ||||||||
| Depreciation | 46,750 | 91,988 | ||||||
| Change in FMV of Investments | $ | (43 | ) | 757 | ||||
| Changes in Assets and Liabilities | ||||||||
| Trade Receivables | (98,876 | ) | (346,777 | ) | ||||
| Inventory | - | 31,597 | ||||||
| Prepaid Expenses | (23,465 | ) | (24,257 | ) | ||||
| Accounts Payable | (117,797 | ) | 97,455 | |||||
| Accrued Liabilities | 175,177 | 33,132 | ||||||
| Accrued Rent | 37,500 | 37,500 | ||||||
| Net Cash Provided by Operating Activities | 87,244 | (385,993 | ) | |||||
| Cash Flows from Investing Activities | ||||||||
| Other Assets | (37,842 | ) | (11,904 | ) | ||||
| Purchase of Property | (7,461 | ) | ||||||
| Net Cash Provided by (Used in) Investing Activities | (45,303 | ) | (11,904 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Borrowings (Principal Repayments) to Affiliates | (16,833 | ) | 256,277 | |||||
| Borrowings (Principal Repayments) on Notes Payable | 49,075 | 12,917 | ||||||
| Net Cash Provided by (Used in) Financing Activities | 32,242 | 269,194 | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 74,183 | (128,703 | ) | |||||
| Cash and Cash Equivalents, Beginning of Year | 36,168 | 158,068 | ||||||
| Cash and Cash Equivalents, End of Year | $ | 110,351 | $ | 29,365 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash Paid During the Period for Interest | $ | 13,807 | $ | 5,388 | ||||
See notes to consolidated financial statements.
| 4 |
ENERGY &TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
| Note 1. | Organization |
This Financial statement is unaudited.
Energy and Technology, Corp. (the Company) was formed November 29, 2006 under the laws of the State of Delaware in order to acquire and to take over the assets and business of Technical Industries, Inc. (TII). On that date, the Company issued 125,000,000 shares of common stock to American Interest, LLC, in exchange for founder services rendered. The fair value of these services was considered immaterial, and no amounts were recognized in the financial statements. At the time the shares were issued to American Interest, LLC, the Company had no assets, operations, or cash flows. As such, the stock had no value at the time the Company was established. The par value was arbitrarily established in order to comply with the State of Delaware laws. In order to reflect the par value of the shares issued, the Company recognized a discount on capital stock as a contra-equity account within the equity section of the consolidated balance sheets.
On January 3, 2007, the Company entered into a Stock Exchange Agreement and Share Exchange (the Agreement) whereby the sole shareholder of TII exchanged all of the outstanding shares of TII to the Company in exchange for 50,000,000 shares of Company stock. Accordingly, TII became a wholly-owned subsidiary of the Company. The assets acquired and liabilities assumed were recorded at the carrying value to TII since TII and the Company were under common control prior to the acquisition.
TII specializes in the non-destructive testing of structures, vessels, oilfield equipment and pipe, including magnetic and ultrasonic testing, utilizing the latest technologies. These technologies enable TII to (i) provide detailed information to customers regarding each pipe tested, and (ii) reach energy reserves present technology cannot reach without extra cost to the oil and gas companies. Because of the intense scrutiny applied to each section of pipe, TII is able to generate data which allows the pipe to be used in the most extreme conditions, and has been proven especially useful in critical and deep water drilling operations in the Gulf of Mexico.
On August 29, 2009, the Company effected a name change from Technical Industries & Energy Corp. to Energy & Technology, Corp. to better reflect the nature of the Company’s business.
| Note 2. | Summary of Significant Accounting Policies |
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Technical Industries, Inc., the accounts of Energy Pipe, LLC (a variable interest entity), and the accounts of Energy Technology Manufacturing & Threading, LLC (a variable interest entity). All significant intercompany balances and transactions have been eliminated.
The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of financial information for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.
Basis of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the financial statements. Accordingly, actual results could differ from those estimates due to information that becomes available subsequent to the issuance of the financial statements or for other reasons.
Revenue Recognition
Revenue for inspection services and manufacturing and threading services is recognized upon completion of the services rendered. Revenue for the sales of pipe is recognized when pipe is delivered and the customer takes ownership and assumes the risks of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.
Trade Receivables
Trade accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus receivables do not bear interest, although a finance charge may be applied to amounts past due. Trade accounts receivable are periodically evaluated for collectability based on past credit.
Allowance for Doubtful Accounts
The company calculates the allowance based on the history with customers and their current financial condition. Provisions of uncollectible amounts are determined based on management’s estimate of collectability. Allowance for doubtful accounts was $3,078 and $3,078 at March 31, 2018 and at December 31, 2017, respectively.
Inventory
Inventory is stated at the lower of cost determined by the specific identification method or market. At March 31, 2018 and at December 31, 2017, inventory consisted of pipe available for sale.
| 5 |
ENERGY & TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
| Note 2. | Summary of Significant Accounting Policies (Continued) |
Property and Equipment
Property and equipment are stated at cost. Expenditures for property and equipment and items that substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred. The cost and related accumulated depreciation of property and equipment disposed of are eliminated from the accounts, and any resulting gain or loss is recognized. Depreciation is provided utilizing the straight-line method over the estimated useful lives of the assets capitalized.
Valuation of Long-Lived Assets
In the event facts and circumstances indicate that carrying amounts of long-lived assets may be impaired, the Company evaluates the recoverability of its long-lived assets using the estimated future undiscounted cash flows associated with the asset compared to the asset’s carrying amount to determine if a write-down is required, pursuant to the provisions of Financial Accounting Standards Board (FASB) ASC 360-10-35. Any impairment loss is measured as the difference between the carrying amount and the fair value of the impaired asset.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. Concentration of credit risk with respect to trade receivables is limited due to the Company’s large number of customers. At the end of the fiscal quarter covered by this report, the balance due from three customers represented 76.4 % of receivables, and sales to three customers represented 71.2 % of revenues.
The Company maintains cash balances at several financial institutions, and periodically maintains cash in bank accounts in excess of insured limits. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice.
Advertising
The Company charges the costs of advertising to expense as incurred. Advertising expense was $2,740 and $1,762, for the three months ended March 31, 2018 and 2017, respectively.
Cash Flows
For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Income Taxes
The Company recognizes income taxes in accordance with FASB ASC 740, “Income Taxes” (formerly Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes). ASC 740 uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to the difference between financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future income taxes.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.
Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above would be reflected as a liability for unrecognized tax benefits in the consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits would be classified as additional income taxes in the statement of operations.
Emerging Growth Company Critical Accounting Policy Disclosure
The Company qualifies as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company may elect to take advantage of the benefits of this extended transition period in the future.
Recent Accounting Pronouncements
Management does not expect any impact from the adoption of new accounting pronouncements.
Comprehensive Income
The Company had no components of comprehensive income. Therefore, net income (loss) equals comprehensive income (loss) for the periods presented.
| 6 |
ENERGY &TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
| Note 3. | Patent |
On September 4, 2007, the Company’s chief executive officer was awarded a patent from the United States Patent and Trademark Office pertaining to his development of specialized testing procedures for tubing casing, line pipe, and expandable liners utilized by oil-exploration companies which was subsequently transferred to the Company.
| Note 4. | Property and Equipment |
Property and equipment consists of the following at March 31, 2018 and December 31, 2017, respectively:
| 2017 | 2016 | ||||||||
| Buildings and Improvements | $ | 3,157,937 | $ | 3,157,937 | |||||
| Equipment | 5,982,669 | 5,949,208 | |||||||
| Autos and Trucks | 276,682 | 260,932 | |||||||
| Office Furniture | 34,025 | 34,025 | |||||||
| Construction in Progress | 350,418 | 356,667 | |||||||
| 9,801,731 | 9,758,769 | ||||||||
| Less: Accumulated Depreciation | -7,390,763 | -7,068,048 | |||||||
| Total | $ | 2,410,969 | $ | 2,690,722 | |||||
Depreciation expense amounted to $46,750 and $91,988 for the three months ended March 31, 2017 and 2016, respectively.
| Note 5. | Related Party Transactions |
Energy & Technology, Corp is a holding company. Its subsidiaries include: Technical Industries, Inc. (NDT Inspection Services, maintenance, and storage are done in this company), Energy Technology Manufacturing & Threading, LLC (threading and manufacturing services are done in this company), and Energy Pipe, LLC (pipe sales are done in this company). All significant intercompany transactions are eliminated in consolidation.
Additionally, St. Charles Real Estate Corp LLC owns the land in Houston, Texas where the Company maintains its pipe inventory, as well as the Houston facility. The Company has a month to month lease for $12,500 with St. Charles Real Estate but is accruing rent instead of paying. As of March 31, 2018 and December 31, 2017 the total owed is $2,445,000 and $2,407,500, respectively. St. Charles Real Estate Corp LLC is owned by various members of the Sfeir family.
| Note 6. | Notes Payable |
Notes payable at March 31, 2018 and December 31, 2017 consist of the following:
| 2017 | 2017 | |||||||
| Secured fixed term note of $48,601.50 due November 2020; fixed interest rate of 3.39% | 19,838 | 22,057 | ||||||
| Unsecured variable term note of $3,935,217 ; fixed interest rate of 4.0% | 4,455,584 | 4,416,232 | ||||||
| Secured fixed term note of $22,214 due December 2018; fixed interest rate of 6.95% | 11,942 | - | ||||||
| $ | 4,487,364 | $ | 4,438,289 | |||||
| Less: Current Portion | 4,476,442 | 4,425,147 | ||||||
| Long-Term Portion | $ | 10,922 | $ | 13,142 | ||||
Following are maturities of long-term debt at December 31, 2017:
| Fiscal Year Ending December 31, | Amount | ||||
| 2019 | 7,352 | ||||
| 2020 | 3,570 | ||||
| Total | $ | 10,922 | |||
| Note 7. | Equity |
The Company is authorized to issue 250,000,000 shares of common stock at a par value of $.001 per share. The number of shares issued and outstanding are 165,560,766 and 165,560,766 as of March 31, 2018 and December 31, 2017, respectively. The Company is authorized to issue 10,000,000 shares of preferred stock. As of March 31, 2018 and December 31, 2017, there were no shares issued and outstanding. In 2014, the company purchased 3,617,075 shares of common stock now in Treasury.
| 7 |
ENERGY &TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
| Note 8. | Earnings per Share |
Earnings (loss) per share are calculated in accordance with ASC 260 “Earnings per Share”. The weighted average number of common shares outstanding during each period is used to compute basic earnings (loss) per share. Diluted earnings per share are computed using the weighted average number of shares and potentially dilutive common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised. Potentially dilutive common shares consist of stock options and are excluded from the diluted earnings per share computation in periods where the Company has incurred a net loss, as their effect would be considered anti-dilutive.
There were no potentially dilutive common stock equivalents as of the end of the fiscal quarter covered by this report, therefore basic earnings per share equals diluted earnings per share for the fiscal quarter covered by this report. As the Company incurred a net loss during the fiscal quarter covered by this report, the basic and diluted loss per common share is the same amount, as any common stock equivalents would be considered anti-dilutive.
The weighted average common shares outstanding were 165,560,766 and 165,560,766 for the fiscal quarter covered by this report and the year ended December 31, 2017.
| Note 9. | Commitments |
The Company leases office premises, operating facilities, and equipment under operating leases expiring in various years through 2030. The Company also leases land for operating purposes on a month to month basis.
| Note 10. | Litigation and Contingent Liabilities |
In the ordinary course of our business, we are, from time to time, subject to various legal proceedings, including matters involving employees, customers, and suppliers. We may enter into discussions regarding settlement of claims or lawsuits, and may enter into settlement agreements, if we believe settlement is in the best interest of our stockholders. We do not believe that any existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on our financial condition, results of operations, or liquidity.
| Note 11. | Major Customers |
For the end of the fiscal quarter covered by this report, the Company had three customers which generated revenues in excess of 10% of the Company’s total revenues. Revenues for these customers were approximately 78.02% of total revenues.
| Note 12. | Estimated Fair Value of Financial Instruments |
The following disclosure is made in accordance with the requirements of FASB ASC 825, Financial Instruments. Financial instruments are defined as cash and contractual rights and obligations that require settlement, directly or indirectly, in cash. In cases where quoted market prices are not available, fair values have been estimated using the present value of future cash flows or other valuation techniques.
The result of these techniques are highly sensitive to the assumptions used, such as those concerning appropriate discount rates and estimates of future cash flows, which require considerable judgment. Accordingly, estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current settlement of the underlying financial instruments. ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. These disclosures should not be interpreted as representing an aggregate measure of the underlying value of the Company.
While these estimates of fair value are based on management's judgment of appropriate factors, there is no assurance that if the Company had disposed of such items at March 31, 2018 or December 31, 2017, the estimated fair values would have been achieved. Market values may differ depending on various circumstances not taken into consideration in this methodology. The estimated fair values at March 31, 2017 and December 31, 2016, should not necessarily be considered to apply at subsequent dates.
| March 31, | December 31, | ||||||||||||||||
| 2018 | 2017 | ||||||||||||||||
| Carrying | Fair | Carrying | Fair | ||||||||||||||
| Amount | Value | Amount | Value | ||||||||||||||
| Financial Assets | |||||||||||||||||
| Investments | $ | 2,332 | $ | 2,332 | $ | 2,289 | $ | 2,289 | |||||||||
| $ | 2,332 | $ | 2,332 | $ | 2,289 | $ | 2,289 | ||||||||||
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ENERGY &TECHNOLOGY, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
| Note 12. | Estimated Fair Value of Financial Instruments (Continued) |
The following methods and assumptions were used by the Company in estimating fair values for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet approximates fair value.
Notes Payable: The fair value of notes payable approximates the carrying amount reported in the balance sheet.
Due to Affiliates: The carrying amount of due to affiliates approximates fair values.
| Note 13. | Subsequent Events |
In accordance with the subsequent events topic of the FASB ASC, Topic No. 855, Subsequent Events, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements. The effects of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements at the end of the fiscal quarter covered by this report. In preparing these financial statements, the Company evaluated the events and transactions through the date these financial statements were issued.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Headquartered in Lafayette, Louisiana, with production facilities in Houston, Texas and Abbeville, Louisiana, Energy & Technology, Corp. provides non-destructive testing (NDT) services, OCTG and oilfield pipe sales, service and storage, and rig and equipment sales. Originally founded on May 11, 1971 as an inspection company, Energy & Technology, Corp. currently serves customers throughout the oil patch of Louisiana and Texas as well as in Canada, Mexico, and in the Gulf of Mexico. The Company’s customer base of over 130 accounts consists of major oil companies, steel mills, material suppliers, drilling companies, tool rental companies, and natural gas storage operators. As noted in Note 11, the company is dependent on a few customers, mainly from the U.S. Government and D.O.T. sub-contracts, due to the oil industry decline. The company’s customers base has slowed down and many closed or bankrupt. Due to the nature of its technology, the Company maintains competitive advantages in offshore deep water and other onshore critical projects. In order to increase revenue and add services andproduct in the current depressed energy industry, the company is now involved in project management, contracting, engineering, manufacturing, procurement, rentals, equipment and supplies providers, coating, storage, maintenance, drilling completion, and logistics.
Technical Industries, Inc., a wholly owned subsidiary of Energy & Technology, Corp., manufactures its own proprietary NDT equipment. The Company’s patented ultrasonic systems have some of the largest OD and pipe length capabilities in the industry and the deepest penetration capability offered for wall thickness measurement. The Company holds patents on certain exclusive inspection technology that allows oil and gas companies to use their current drill strings and other equipment to reach depths that were previously unreachable. This technology can make wells safer, increase the success rate for critical wells, and greatly reduce the chances of a failure. As the industry moves to ever deeper reserves and makes advances in horizontal drilling, oil and gas wells are becoming more and more expensive and difficult to drill, making this technology more of a necessity.
In the oilfield pipe sales and storage segment, Energy & Technology, Corp utilizes a state-of-the-art web based inventory management system that allows each client to view and track projects during processing, to locate inventory throughout the plant, and access reports, bill of ladings, tally sheets, logs and other required information.
Key Ongoing Operational Processes:
Update ISO Certification
Energy & Technology, Corp. recognizes that quality is every bit as important as price and prompt service. This is even truer of the Company’s typical client, who often contracts for services that other companies are not able to provide. In response to our clients’ requirements, the Company has obtained the latest ISO: 9001 certification by Moody’s, recognized in the industry as representing the highest quality control available. As the Company’s business lines are very synergistic, management feels that it can leverage this dominant position to increase share in the markets in which it competes, and likely more in the critical service arena.
Increased Sales and Marketing Effort
Energy & Technology, Corp. hired three qualified personnel in order to help the marketing and sales effort. New business was generated from referrals, technical sessions given to oil and gas and industry related companies, the Company website, and through the use of a marketing company on a limited basis. Recently, several new deep water well permits were issued in the Gulf of Mexico. As a result, ENGT has experienced significant new interest from major oil and gas companies - including site visits and evaluations - for its VisonArray™ deep water and critical well technologies, and ENGT Manufacturing facilities. Currently, there are several employees whose duties are focused on sales, and one marketing and promotional activity director. Management believes revenue can be greatly increased by expanding the Company's sales force.
Diversification
Energy & Technology, Corp. has diligently worked to diversify its business model by adding sales, service, and storage of OCTG and all types of oilfield pipe, as well as equipment leasing and sales. Additional growth will come domestically, but management feels that overseas expansion is critical to the ultimate success of the business plan.
Critical Accounting Policies
The Company has identified the following accounting policies to be the critical accounting policies of the Company:
Revenue Recognition. Revenue for inspection services and manufacturing and threading services are recognized upon completion of the services rendered. Revenue for the sales of pipe is recognized when pipe is delivered and the customer takes ownership and assumes the risks of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.
Inventory. Inventory is stated at the lower of cost determined by the specific identification method or market. At the end of the fiscal quarter covered by this report, inventory consisted of pipe available for sale.
Property and Equipment. Property and equipment are stated at cost. Expenditures for property and equipment and items that substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred. The cost and related accumulated depreciation of property and equipment disposed of are eliminated from the accounts, and any resulting gain or loss is recognized. Depreciation is provided utilizing the straight-line method over the estimated useful lives of the assets capitalized.
Valuation of Long-Lived Assets. In the event facts and circumstances indicate that carrying amounts of long-lived assets may be impaired, the Company evaluates the recoverability of its long-lived assets using the estimated future undiscounted cash flows associated with the asset compared to the asset’s carrying amount to determine if a write-down is required, pursuant to the provisions of SFAS Financial Accounting Standards Board (FASB) ASC 360-10-35. Any impairment loss is measured as the difference between the carrying amount and the fair value of the impaired asset.
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Discussion of Changes in Financial Condition from December 31, 2017 to March 31, 2018
At March 31, 2018, total assets amounted to $4,037,393 compared to $3,842,274 at December 31, 2017, an increase of $195,119, or 5.8%. The increase is primarily due to an increase in cash and cash equivalents of $74,183 and by an increase in net accounts receivable of $98,876, partially offset by a decrease in net property plant and equipment of $39,289.
Our liabilities at March 31, 2018, totaled $8,917,516 compared to $8,790,396 at December 31, 2017, an increase of $127,120, or 1.45%. The increase is primarily due to an increase in accrued rent of $37,500, an increase in accrued liabilities of $175,177, and an increase in notes payable of $49,075.
Total stockholder’s equity increased from ($4,948,121) at December 31, 2017, to ($4,880,122) at March 31, 2018. This increase was due to our net income for the end of the fiscal quarter covered by this report.
Cash and Cash Equivalents
Cash and Cash Equivalents totaled $110,351 at March 31, 2018, an increase of $74,183 from the balance of $36,168 at December 31, 2017. The increase in cash and cash equivalents was primarily due to the cash generated from operating activities partially offset by the amounts used to reduce debt for the end of the fiscal quarter covered by this report.
Inventory
Inventory consists primarily of pipe held for sale to our customers. We began purchasing pipe for sale to customers in December, 2007. This was an opportunity for us to expand our services to our customers. It is anticipated that the Company will continue its efforts to expand its sales of pipe.
Property and Equipment
The decrease in property and equipment is primarily due to depreciation for the end of the fiscal quarter covered by this report of $46,750.
Accounts Payable
Accounts payable at March 31, 2018 totaled $860,943 compared to $978,740 at December 31, 2017, a decrease of $117,797. The decrease is primarily due to the accounts owed in the course of operations.
Discussion of Results of Operations for the Three Months Ended March 31, 2018 compared to the Three Months Ended March 31, 2017
Revenues
Our revenue for the three months ended March 31, 2018, was $793,698, compared to $544,653, for the three months ended March 31, 2017 an increase of $249,045. The increase is attributable primarily to an increase in exploration technologies.
The following table presents the composition of revenue for the three months ended March 31, 2017 and 2016:
| 2016 | 2017 | Variance | ||||||||||||||||||
| Revenue: | Dollars | Percentage | Dollars | Percentage | Dollars | |||||||||||||||
| Exploration Technologies | $ | 464,570 | 58.5 | % | $ | 238,984 | 43.9 | % | $ | 225,586 | ||||||||||
| Drilling, OCTG, & Equipment Sales | $ | 91,535 | 11.5 | % | $ | 28,871 | 5.3 | % | $ | 62,664 | ||||||||||
| Warehouse & Storage Fees | $ | 70,463 | 8.9 | % | $ | 76,401 | 14.0 | % | $ | (5,938 | ) | |||||||||
| Rebillable Income | $ | 67,928 | 8.6 | % | $ | 33,364 | 6.1 | % | $ | 34,564 | ||||||||||
| Manufacturing | $ | 99,202 | 12.5 | % | $ | 167,033 | 30.7 | % | $ | (67,831 | ) | |||||||||
| Total Revenue | $ | 793,698 | 100.0 | % | $ | 544,653 | 100.0 | % | $ | 249,045 | ||||||||||
Cost of Revenue and Gross Profit
Our cost of revenue for the three months ended March 31, 2018, was $502,510, compared to $500,266, for the three months ended March 31, 2017. The overall decrease in our cost of revenue is primarily due to a decrease in Depreciation.
The following table presents the composition of cost of revenue for the three months ended March 31, 2018 and 2017:
| 2018 | 2017 | Variance | ||||||||||||||||||
| Cost of Revenue: | Dollars | Percentage | Dollars | Percentage | Dollars | |||||||||||||||
| Materials and Supplies | 56,374 | 11.2 | % | 67,241 | 13.4 | % | $ | (10,867 | ) | |||||||||||
| Contractor | 121,557 | 24.2 | % | 113,747 | 22.7 | % | $ | 7,810 | ||||||||||||
| Depreciation | 19,696 | 3.9 | % | 64,463 | 12.9 | % | $ | (44,767 | ) | |||||||||||
| Employees and Related Costs | 138,098 | 27.5 | % | 102,906 | 20.6 | % | $ | 35,192 | ||||||||||||
| Repairs and Maintenance | 30,166 | 6.0 | % | 28,335 | 5.7 | % | $ | 1,831 | ||||||||||||
| Insurance | 8,259 | 1.6 | % | 16,996 | 3.4 | % | $ | (8,737 | ) | |||||||||||
| Other Costs | 128,360 | 25.5 | % | 106,578 | 21.3 | % | $ | 21,782 | ||||||||||||
| Total Cost of Revenues | $ | 502,510 | 100.0 | % | $ | 500,266 | 100.0 | % | $ | 2,244 | ||||||||||
Due to limitations with the pool of qualified individuals, we utilized the services of subcontractors to assist us in providing timely and quality service to our customers. We will continue our efforts to attract employ and retain qualified individuals to serve the needs of our customers.
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Operating Expenses
For the three months ended March 31, 2018, our operating expenses totaled $248,368 as compared to $345,662 in 2017, representing a decrease of $97,294. The largest components of our operating expense for 2018 consist of salaries and wages and professional services. Salaries and wages for general and administrative personnel was $108,539 for the three months ended March 31, 2018, compared to $131,175 for the three months ended March 31, 2017. The decrease is primarily attributable to the company eliminating the role of a Chief Operational Officer. Professional services expense increased from $8,370 for the three months ended March 31, 2018, to $21,833 for the three months ended March 31, 2017, a decrease of $13,463. The decrease is primarily a result of a decrease in consulting fees.
Other Income and Expense
Other income and expense consists of investment income, interest expense, and gains and losses from the sale and disposal of assets. Other income, net, totaled $25,177 for the three months ended March 31, 2018, compared to other expense, net, of $6,114, for the three months ended March 31, 2017, an increase of $31,291. This increase is primarily due to income from insurance claim settlement.
Interest expense totaled $53,159 for the three months ended March 31, 2018, as compared to $5,388 for the three months ended March 31, 2017, an increase of $47,771. Interest expense pertains primarily to amounts due to affiliates as well as to our notes payable with third parties.
Capital Resources and Liquidity
As of the end of the fiscal quarter covered by this report, we had $110,351 in cash and cash equivalents. Our cash outflows have consisted primarily of expenses associated with our operations. These outflows have been offset by the timely inflows of cash from our customers for sales that have been made. We have been able to utilize our relationships with affiliated entities to stabilize our liquidity needs.
We believe we can satisfy our cash requirements for the next twelve months only with our current cash and additional loans. However, completion of our plan of operation is subject to attaining adequate revenue. We cannot assure investors that adequate revenues will be generated. In the absence of our projected revenues, we may be unable to proceed with our plan of operations. Even without adequate revenues within the next twelve months, we still anticipate being able to continue with our present activities, but we will require financing to potentially achieve our growth goals.
In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed with our business plan for the development and marketing of our core services. Should this occur, we would likely seek additional financing to support the continued operation of our business.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls. The Company maintains a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely discussion regarding required disclosure. Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of the end of the fiscal period covered in this report .
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Changes in internal control over financial reporting. There have been no changes in the Company’s internal control over financial reporting during the first quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of our business, we are, from time to time, subject to various legal proceedings, including matters involving employees, customers, and suppliers. We may enter into discussions regarding settlement of claims or lawsuits, and may enter into settlement agreements, if we believe settlement is in the best interest of our stockholders. We do not believe that any existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on our financial condition, results of operations, or liquidity.
Item 1A. Risk Factors.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits
(b) Reports of Form 8-K
None.
Item 7. Up-dates and Clarifications to prior non-financial information
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENERGY & TECHNOLOGY, CORP. | ||
| Date: May 15, 2018 | By: | /s/ George M. Sfeir |
| George M. Sfeir | ||
| Chief Executive Officer, Chief Financial Officer, President, Director, and Treasurer | ||
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