UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

 

FORM 10-Q

  

S	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2014

 

£	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

P.O. Box 52523

Lafayette, LA 70505

(Address of Principal Executive Offices)

_______________

 

337- 984-2000

(Issuer Telephone number)

 

334- 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 S

 

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 S

 

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  S   No £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	£	Smaller reporting company	S
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

 

According to the Company’s only 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 June 30, 2014, is 169,165,841 shares of common stock. The company has issued no stock since that date.

 

 

 

ENERGY & TECHNOLOGY, CORP.

 

FORM 10-Q

 

June 30, 2014

 

INDEX

 

PART I—FINANCIAL INFORMATION

 

Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Control and Procedures	21

 

PART II—OTHER INFORMATION

 

Item 1.	Legal Proceedings	23
Item 2.	Risk Factors	23
Item 3.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 4.	Defaults Upon Senior Securities	23
Item 5.	Submission of Matters to a Vote of Security Holders	23
Item 6.	Other Information	23
Item 7.	Exhibits and Reports on Form 8-K	23
SIGNATURE		24

 

  

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 June 30, 2014 and December 31, 2013

 

		June 30,				December 31,
		2014				2013
		(Unaudited)				(Audited)
Assets
Current Assets
Cash and Cash Equivalents		$	1,124,597			$	1,875,187
Accounts Receivable
Trade, Net			580,611				1,029,761
Other			1,340				73,800
Inventory			2,119,165				2,309,048
Prepaid Expenses			80,854				37,173
Deferred Tax Asset			1,156,059				962,436
Total Current Assets			5,062,626				6,287,405
Property and Equipment, Net
Held for Operations, Net			3,435,499				3,650,236
Held for Investment			-				-
Total Property & Equipment			3,435,499				3,650,236
Other Assets
Patent, net			399,594				409,539
Deposits			4,988				4,988
Other Assets			7,573				4,393
Total Other Assets			412,155				418,920
Total Assets		$	8,910,280			$	10,356,561

 

See notes to consolidated financial statements

 

ENERGY & TECHNOLOGY, CORP.

Consolidated Balance Sheets

As of June 30, 2014 and December 31, 2013

 

		June 30,				December 31,
		2014				2013
		(Unaudited)				(Audited)
Liabilities and Stockholders' Equity
Current Liabilities
Current Maturities of Notes Payable		$	200,863			$	364,046
Accounts Payable			2,174,387				2,109,713
Accrued Payroll and Payroll Liabilities			42,483				54,357
Accrued Rent			2,012,500				1,937,500
Income Taxes Payable			25,287				149,936
Total Current Liabilities			4,455,520				4,615,552
Long-Term Liabilities
Notes Payable			1,046				8,066
Deferred Taxes Payable			495,162				604,271
Due to Affiliates			148,715				691,935
Total Long-Term Liabilities			644,923				1,304,272
Total Liabilities			5,100,443				5,919,824
Stockholders' Equity
Preferred Stock - $.001 Par Value; 10,000,000 Shares Authorized, None Issued			-				-
Common Stock - $.001 Par Value; 250,000,000 Shares Authorized, 169,165,841 and 169,186,117 Shares Issued and Outstanding at June 30, 2014 and December 31, 2013, With 80,834,159 and 80,813,883 Shares unissued at June 30, 2014 and December 31, 2013			169,186				169,186
Discount on Common Stock			(115,100	)			(115,100	)
Treasury Stock			(120,845	)			(120,845	)
Paid-In Capital			4,297,022				4,297,022
Retained Earnings			(420,426	)			206,474
Total Stockholders' Equity			3,809,837				4,436,737
Total Liabilities and Stockholders' Equity		$	8,910,280			$	10,356,561

 

See notes to consolidated financial statements

 

ENERGY & TECHNOLOGY, CORP.

Consolidated Statements of Operations (Unaudited)

For the Three Months Ended June 30, 2014 and June 30, 2013

For the Six Months Ended June 30, 2014 and June 30, 2013

 

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2014				2013				2014				2013
Revenues		$	968,123			$	1,319,313			$	1,920,333			$	2,279,988
Cost of Revenues
Materials and Supplies			171,559				281,365				344,487				817,218
Subcontract Labor			184,831				207,304				379,839				369,041
Depreciation			192,116				202,733				383,544				405,907
Employees and Related Costs			111,662				132,097				232,366				233,652
Repairs and Maintenance			17,410				16,038				31,747				26,095
Insurance			46,330				43,574				91,861				99,846
Other Costs			228,462				37,588				415,156				63,519
Patent Amortization			7,196				0				14,393				0
Total Cost of Revenues			959,567				920,699				1,893,394				2,015,278
Gross Profit			8,556				398,614				26,940				264,710
Operating Expenses
Administrative Salaries and Wages			100,515				137,008				229,591				245,572
Other			62,299				19,621				156,763				82,449
Professional Services			57,741				70,665				146,491				277,708
Rent			8,400				48,948				17,520				98,728
Depreciation			29,079				38,300				59,588				79,319
Travel, Lodging and Meals			20,575				29,052				58,692				58,075
Utilities			15,477				13,856				36,464				26,792
Office Supplies and Expenses			23,306				11,361				53,189				38,057
Repairs and Maintenance			19,899				25,046				44,833				25,046
Communications			5,751				10,326				15,955				21,371
Patent Amortization							7,197								14,393
Bad Debts			2,050				-				116,723				-
Total Operating Expenses			345,092				411,380				935,809				967,510
Loss from Operations			(336,536	)			(12,766	)			(908,870	)			(702,800	)
Other Income (Expense)
Gain (Loss) on Sale of Assets			-				-				(214	)			-
Investment Income (Expense)			8,561				6,523				13,763				13,930
Interest Expense			(16,992	)			(40,100	)			(34,312	)			(80,601	)
Total Other Income (Expense)			(8,431	)			(33,577	)			(20,763	)			(66,671	)
Loss Before Provision for Income Taxes			(344,967	)			(46,343	)			(929,633	)			(769,471	)
Benefit for Income Taxes			(129,026	)			(19,607	)			(302,733	)			(258,516	)
Loss		$	(215,941	)		$	(26,736	)		$	(626,900	)		$	(510,955	)
Loss per Share - Basic		$	NM			$	NM			$	NM			$	NM
Loss per Share - Diluted		$	NM			$	NM			$	NM			$	NM

 

See notes to consolidated financial statements

 

 

ENERGY & TECHNOLOGY CORP.

Consolidated Statements of Changes in Stockholders' Equity

For the Years Ended December 31, 2013 and the Six Months Ended June 30, 2014

 

										Discount on				Additional												Total
		Common Stock								Capital				Paid-In				Treasury				Retained				Stockholders'
		Shares				Amount				Stock				Capital				Stock				Earnings				Equity
Balance at January 1, 2013			169,144,950			$	169,145			$	(115,100	)		$	4,288,830			$	-			$	453,611			$	4,796,486
Share buyback			-				-				-				-				(120,845	)			-			$	(120,845	)
Bonus shares issued			41,167				41				-				8,192				-				-			$	8,233
Net (Loss)			-				-				-				-				-				(247,137	)		$	(247,137	)
Balance at December 31, 2013			169,186,117			$	169,186			$	(115,100	)		$	4,297,022			$	(120,845	)		$	206,474			$	4,436,737
Balance at January 1, 2014			169,186,117			$	169,186			$	(115,100	)		$	4,297,022			$	(120,845	)		$	206,474			$	4,436,737
Share buyback			(20,276	)			-				-				-				-							$	-
Bonus shares issued			-				-				-				-								-			$	-
Net (Loss)			-				-				-				-								(626,900	)		$	(626,900	)
Balance at June 30, 2014			169,165,841			$	169,186			$	(115,100	)		$	4,297,022			$	(120,845	)		$	(420,426	)		$	3,809,837

 

See notes to consolidated financial statements 

 

 

ENERGY & TECHNOLOGY, CORP.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2014 and 2013

 

		Six Months Ended
		June 30,				June 30,
		2014				2013
Cash Flows from Operating Activities
Net Loss		$	(626,900	)		$	(510,955	)
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Bad Debts			(116,723	)
Depreciation			443,132				485,226
Amortization of Patent Costs			14,394				14,393
Loss on disposal of asset			214
Deferred Income Taxes			(302,733	)			(258,516	)
Changes in Assets and Liabilities
Trade Receivables			565,873				(570,370	)
Other Receivables			(540	)			(800	)
Inventory			189,883				569,037
Prepaid Expenses			(43,681	)			25,998
Accounts Payable			64,674				(236,962	)
Accrued Payroll and Payroll Liabilities			(11,874	)			20,306
Income Taxes Payable			(124,649	)			(6,840	)
Accrued Rent			75,000				75,000
Net Cash Provided by Operating Activities			126,070				(394,483	)
Cash Flows from Investing Activities
Decrease in Other Assets			(3,180	)			(3,594	)
Patent Cost			(4,449	)
Purchase of Property and Equipment			(228,608	)			(79,138	)
Other Receivables			73,000
Net Cash Provided by (Used in) Investing Activities			(163,237	)			(82,732	)
Cash Flows from Financing Activities
Purchase of Treasury Stock			-				(100,505	)
Borrowings (Principal Repayments) to Affiliates			(543,220	)			(47,237	)
Borrowings (Principal Repayments) on Notes Payable			(170,203	)			(244,670	)
Net Cash Provided by (Used in) Financing Activities			(713,423	)			(392,412	)
Net Increase (Decrease) in Cash and Cash Equivalents			(750,590	)			(869,627	)
Cash and Cash Equivalents, Beginning of Year			1,875,187				2,879,195
Cash and Cash Equivalents, End of Year		$	1,124,597			$	2,009,568
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for Interest		$	5,870			$	6,335
Cash Paid During the Period for Income Taxes		$	5,919			$	6,840

 

See notes to consolidated financial statements 

 

 

ENERGY & TECHNOLOGY, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

Note 1.   Organization

 

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 vessels, oilfield equipment and mainly pipe, including 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 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.

 

  

ENERGY & TECHNOLOGY, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

Note 2.   Summary of Significant Accounting Policies (Continued)

 

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 $3,274 and $9,035 at June 30, 2014 and at December 31, 2013, respectively.

 

Inventory

Inventory is stated at the lower of cost determined by the specific identification method or market.  At June 30, 2014 and at December 31, 2013, 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 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 June 30, 2014, the balance due from two customers represented 72% of receivables, and sales to three customers represented 57% of revenues for the six months ended June 30, 2014.

 

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 $27,768 and $12,065, for the six months ended June 30, 2014 and 2013, 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. 

 

 

ENERGY & TECHNOLOGY, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

Note 2.   Summary of Significant Accounting Policies (Continued)

 

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

In December 2011, the FASB issued guidance which relates to deconsolidation events. Under this amendment, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of the default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20, Property, Plant and Equipment - Real Estate Sales, to determine whether it should derecognize the in substance real estate. This guidance is effective for the fiscal year ending December 31, 2013 and did not have a significant impact on the Company’s financial statements.

 

In December 2011, The FASB issued authoritative guidance to provide enhanced disclosures in the financial statements about offsetting and netting arrangements. The new guidance requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. This guidance was issued to facilitate comparison between financial statements prepared on a U.S. GAAP and IFRS reporting. The new guidance was effective January 1, 2013 and did not have a significant impact on the Company’s financial statements.

 

On January 1, 2012, the Company adopted guidance issued by the FASB on accounting and disclosure requirements related to fair value measurements. The guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provided guidance on the applicability of premiums and discounts. Additionally, the guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation process and the sensitivity of the fair value to changes in unobservable inputs. Adoption of the new guidance did not have a material impact on our financial statements.

 

In July 2013, FASB issued authoritative guidance on Derivatives and Hedging, providing guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge. Among those risks for financial assets and financial liabilities is the risk of changes in a hedged item’s fair value or a hedged transaction’s cash flows attributable to changes in the designated benchmark interest rate. The guidance was issued as a direct result of the financial crisis in 2008 as the exposure to and the demand for hedging the Fed Fund rate has increased significantly. The new guidance was effective July 17, 2013, and did not have a significant impact on the Company’s financial statements.

 

In July 2013, guidance was issued on Topic 740, Income Taxes. The guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward with some exceptions. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The new guidance will be for fiscal years, and interim periods within those years, beginning after December 15, 2013. This guidance did not have a significant impact on the Company’s financial statements

 

Comprehensive Income

The Company had no components of comprehensive income. Therefore, net income (loss) equals comprehensive income (loss) for the periods presented.

 

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.

 

The Company’s costs associated with its development of these testing procedures and application for patent have been capitalized and recognized as an asset in the Company’s balance sheet, and is being amortized over 20 years. Amortization expense for the six months, ended June 30, 2014 and 2013, respectively, was $14,393 and $14,393, respectively

 

 

ENERGY & TECHNOLOGY, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

Note 4.   Property and Equipment

 

Property and equipment consists of the following at June 30, 2014 and December 31, 2013, respectively:

 

			2014				2013
	Buildings and Improvements		$	3,042,385			$	3,042,385
	Equipment			5,815,268				5,626,649
	Autos and Trucks			255,894				255,894
	Office Furniture			32,657				32,657
	Construction in Progress			38,179
				9,184,383				8,957,585
	Less: Accumulated Depreciation			(5,748,884	)			(5,307,349	)
	Total		$	3,435,499			$	3,650,236

 

Depreciation expense amounted to $443,132 and $485,226 for the six months ended June 30, 2014 and 2013, respectively.

 

During 2013, Property and Equipment held for investment was transferred for a reduction of Notes Payable, specifically Due to Affiliates, in the amount of $1,095,583.

 

On May 14, 2014, Energy Technology Manufacturing & Threading, LLC purchased the assets of Total Pipe Services, Inc. and embarked on relocating the assets to the Abbeville facility. Assets were purchased and construction was begun to better serve our customers.

 

Note 5.   Related Party Transactions

 

Included in due to affiliates at June 30, 2014 and December 31, 2013, is $148,715 and $1,755,783 respectively, in acquisition debts paid by affiliates upon the acquisition of the Company in 1999.  The affiliates maintain a lien on the Company’s accounts receivable and equipment to secure this loan.  The amounts due to the affiliates have no set terms of repayment and bear interest at 8.00%.  Interest expense associated with this obligation totaled $27,677 and $67,530 for the six months ended June 30, 2014 and 2013, respectively.

 

Note 6. Notes Payable

 

Notes payable at June 30, 2014 and December 31, 2013 consist of the following:

 

			2014				2013
	Secured fixed term note of $213,226 due October 2014; fixed interest rate of 5.98%		$	-			$	27,241
	Secured fixed term note of $340,990 due December 2014; fixed interest rate of 5.93%			31,964				66,554
	Secured fixed term note of $260,000 due May 2015; fixed interest rate of 5.4%			19,877				63,525
	Secured fixed term note of $60,303 due November 2015; fixed interest rate of 2.9%			11,316				18,312
	Secured fixed term note of $23,968 due February 2016; fixed interest rate of 6.0%			6,635				9,397
	Secured fixed term note of $449,000 due October 2014; fixed interest rate of 0.0%			74,833				187,083
	Secured fixed term note of $112,928 due November 2014; fixed interest rate of 6.99%			57,284				-
			$	201,909			$	372,112
	Less: Current Portion			200,863				364,046
	Long-Term Portion		$	1,046			$	8,066

 

Following are maturities of long-term debt at December 31, 2013:

 

	Fiscal Year Ending
	December 31,				Amount
		2014			$	364,046
		2015				8,066
		Total			$	372,112

   

 

ENERGY & TECHNOLOGY, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

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 169,165,841 and 169,186,117 as of June 30, 2014 and December 31, 2013, respectively.

 

The Company is authorized to issue 10,000,000 shares of preferred stock. As of June 30, 2014 and December 31, 2013, there were no shares issued and outstanding. In 2013, the company issued a total of 41,167 shares of common stock valued at an average of $0.199 a share to employees as compensation. In 2013, the company purchased 20,276 shares of common stock now in Treasury.

 

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 June 30, 2014, therefore basic earnings per share equals diluted earnings per share for the six months ended June 30, 2014. As the Company incurred a net loss during the six months ended June 30, 2014, the basic and diluted loss per common share is the same amount, as any common stock equivalents would be considered anti-dilutive.

 

As the Company incurred a net loss during the year ended December 31, 2013, 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 169,165,841 and 169,186,117 for the six months ended June 30, 2014 and the year ended December 31, 2013, respectively.

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

 

The Company is currently involved in litigation with a supplier regarding a contract agreement for the Company to serve as a distributor for the suppliers products. The Company has recorded a liability of $2,043,308 for net proceeds due the supplier from sales of its product.

 

Note 11. Major Customers

 

For the six months ended June 30, 2014, the Company had three customers which generated revenues in excess of 10% of the Company’s total revenues. Revenues for these three customers were approximately 57% of total revenues, and total balance due from these three customers at June 30, 2014 was $435,171.

 

 

ENERGY & TECHNOLOGY, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

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 June 30, 2014 or December 31, 2013, 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 June 30, 2014 and December 31, 2013, should not necessarily be considered to apply at subsequent dates.

 

			June 30,								December 31,
			2014								2013
			Carrying				Fair				Carrying				Fair
			Amount				Value				Amount				Value
	Financial Assets
	Cash		$	1,124,597			$	1,124,597			$	1,875,187			$	1,875,187
	Financial Liabilities
	Notes Payable		$	201,909			$	201,909			$	372,112			$	372,112
	Due to Affiliates			148,715				148,715				691,935				691,935
			$	1,475,221			$	1,475,221			$	2,939,234			$	2,939,234

 

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 as of June 30, 2014. In preparing these financial statements, the Company evaluated the events and transactions through the date these financial statements were issued.

 

 

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. Due to the nature of its technology, the Company maintains competitive advantages in offshore deep water and other onshore critical projects.

 

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.

 

Energy Technology Manufacturing & Threading, LLC’s new facility has been completed and is fully operational. This facility is capable of threading, bucking, and repair of drill pipe, casing, and tubing up to 11 7/8” diameter. The plant is equipped with a Computer Controlled lathe accurate to within the most critical of tolerances, and has the capability to manufacture, thread, repair, and manufacture pup joints and marker joints to any length the customer requires, as well as to machine any threads for which specs can be furnished. Technicians have between 10 and 34 years of experience in the manufacturing and threading industry. This new facility brings Energy & Technology, Corp. one step closer to its goal of supplying all tubular services under one roof.

 

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.

 

Foreign Trade Zone Status

Energy & Technology, Corp. has selected the well-known auditing and financial consulting firm KPMG to assist the Company in meeting the requirements to establish a Foreign Trade Zone at its Houston, Texas facility. KPMG has started the initial feasibility analysis with the formal application to follow. The establishment of a Foreign Trade Zone is expected to produce a substantial increase in the Company’s ability to sell to overseas markets, and make the Company a far more attractive distribution partner for foreign manufacturers. Management feels that market share could be taken through a successful designation as an FTZ subzone.

 

Increased Sales and Marketing Effort

Energy & Technology, Corp. has grown over the historical period without an aggressive 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. The Company’s new threading and repair facility, located on our Houston campus, became operational in July 2010 and on September 30, 2011 received numerous ISO and API certifications. 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 an 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 June 30, 2014, 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.

 

Discussion of Changes in Financial Condition from December 31, 2013 to June 30, 2014

 

At June 30, 2014, total assets amounted to $8,910,280 compared to $10,356,561 at December 31, 2013, a decrease of $1,446,281, or 13.96%. The decrease is primarily due to a decrease in cash of $750,590, a decrease in accounts receivable of $449,150, a decrease in inventory of $189,883, a decrease in other receivables of $72,460, and a decrease of property and equipment held for operations of $214,738, partially offset by an increase in deferred tax asset of $193,623, and an increase in prepaid expenses of $43,681.

 

Our liabilities at June 30, 2014, totaled $5,100,443 compared to $5,919,824 at December 31, 2013, a decrease of $819,381, or 13.84%. The decrease is primarily due to a decrease in due to affiliates of $543,220, a decrease in notes payable of $170,203, a decrease in income tax payable of $124,649, and a decrease in deferred taxes payable of $109,110, partially offset by an increase in accrued rent of $75,000.

 

Total stockholder’s equity decreased from $4,436,737 at December 31, 2013, to $3,809,837 at June 30, 2014. This decrease was due to our net loss for the six months ended June 30, 2014.

 

Cash and Cash Equivalents

Cash and Cash Equivalents totaled $1,124,597at June 30, 2014, a decrease of $750,590 from the balance of $1,875,187 at December 31, 2013. The decrease in cash and cash equivalents was primarily due to amounts used to reduce debt, partially offset by the cash generated from operating activities for the six months ended June 30, 2014.

 

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, totaling $214,738, is primarily due to depreciation for the six months ended June 30, 2014 partially offset by fixed asset additions.

 

Deferred Tax Asset/Income Taxes Payable

Due to the Company’s loss for the six months ended June 30, 2014, our deferred tax asset has increased by $193,623. We have decreased our deferred income taxes by $109,110 due to the change in book and tax depreciation differences.

 

Accounts Payable

Accounts payable at June 30, 2014 totaled $2,174,387 compared to $2,109,713 at December 31, 2013, an increase of $64,674. The increase is primarily due to the purchase of pipe.

 

Discussion of Results of Operations for the Three Months Ended June 30, 2014 compared to the Three Months Ended June 30, 2013

 

Revenues

Our revenue for the three months ended June 30, 2014, was $968,123, compared to $1,319,313, for the three months ended June 30, 2013, a decrease of $351,190, or 26.62%. The decrease is attributable primarily to a decrease in inspection fees.

 

The following table presents the composition of revenue for the three months ended June 30, 2014 and 2013:

 

		2014								2013								Variance
Revenue:		Dollars				Percentage				Dollars				Percentage				Dollars
Inspection		$	334,221				34.5	%		$	587,642				44.5	%		$	(253,421	)
Pipe and Equipment Sales		$	197,172				20.4	%		$	296,254				22.5	%		$	(99,082	)
Storage		$	107,200				11.1	%		$	108,999				8.3	%		$	(1,799	)
Rebillable Income		$	39,272				4.1	%		$	65,365				5.0	%		$	(26,093	)
Manufacturing		$	290,258				30.0	%		$	261,053				19.8	%		$	29,205
Total Revenue		$	968,123				100.0	%		$	1,319,313				100.0	%		$	(351,190	)

Cost of Revenue and Gross Profit

Our cost of revenue for the three months ended June 30, 2014, was $959,567, or 99.1% of revenues, compared to $920,699, or 69.8% of revenues, for the three months ended June 30, 2013. The overall increase in our cost of revenue is primarily due to an increase in transportation cost which included in the other costs category.

 

The following table presents the composition of cost of revenue for the three months ended June 30, 2014 and 2013:

 

		2014								2013								Variance
Cost of Revenue:		Dollars				Percentage				Dollars				Percentage				Dollars
Employee and Related Costs		$	111,662				11.6	%		$	132,097				14.3	%		$	(20,435	)
Materials and Supplies			171,559				17.9	%			281,365				30.6	%		$	(109,806	)
Subcontract Labor			184,831				19.3	%			207,304				22.5	%		$	(22,473	)
Depreciation and Amortization			199,312				20.8	%			202,733				22.0	%		$	(3,421	)
Repairs and Maintenance			17,410				1.8	%			16,038				1.7	%		$	1,372
Insurance			46,330				4.8	%			43,574				4.7	%		$	2,756
Other Costs			228,462				23.8	%			37,588				4.1	%		$	190,874
Total Cost of Revenues		$	959,567				100.0	%		$	920,699				100.0	%		$	38,868

 

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. 

 

 

Operating Expenses

For the three months ended June 30, 2014, our operating expenses totaled $345,092 as compared to $411,380 in 2013, representing a decrease of $66,288, or 16.11%. The largest components of our operating expense for 2014 consist of salaries and wages, other operating expenses, and professional services. Salaries and wages for general and administrative personnel was $100,515 for the three months ended June 30, 2014, compared to $137,008 the three months ended June 30, 2013, a decrease of $36,493, or 26.64%.

 

Professional services expense decreased from $70,665 for the three months ended June 30, 2013, to $57,741 for the three months ended June 30, 2014, a decrease of $12,924, or 18.29%. The decrease is primarily a result of employing an accountant to handle the company’s financials instead of using an accounting firm and a decrease in legal fees.

 

Other operating expenses increased from $19,621 at June 30, 2013 to $62,299 for the three months ended June 30, 2014, an increase of $42,678 or 217.51%. Other operating expense consists primarily of taxes and licenses, training, advertising, dues and subscriptions.

 

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 expense, net, totaled $8,431for the three months ended June 30, 2014, compared to other expenses, net, of $33,577, for the three months ended June 30, 2013, a decrease of $25,146 or 74.89%. Interest Investment income, which consists of interest, dividends, realized gains and losses, and unrealized gains and losses, amounted to income of $8,561 for the three months ended June 30, 2014, compared to income of $6,523 for the three months ended June 30, 2013.

 

Interest expense totaled $16,992 for the three months ended June 30, 2014, as compared to $40,100 for the three months ended June 30, 2013, a decrease of $23,108, or 57.63%. Interest expense pertains primarily to amounts due to affiliates as well as to our notes payable with third parties.

 

Provision for income taxes

For the three months ended June 30, 2014, we reported a deferred income tax benefit of $129,026 compared to income tax benefit of $19,607 for the three months ended June 30, 2013, an increase of $109,419, or 558.06%. The change was due to the net loss for the three month period.

 

Discussion of Results of Operations for the Six Months Ended June 30, 2014 compared to the Six Months Ended June 30, 2013

 

Revenues

Our revenue for the six months ended June 30, 2014, was $1,920,333, compared to $2,279,988, for the six months ended June 30, 2013, a decrease of $359,655, or 15.77%. The decrease is attributable primarily to a decrease in pipe sales.

 

The following table presents the composition of revenue for the six months ended June 30, 2014 and 2013:

 

		2014								2013								Variance
Revenue:		Dollars				Percentage				Dollars				Percentage				Dollars
Inspection		$	625,607				64.6	%		$	754,732				57.2	%		$	(129,125	)
Pipe and Equipment Sales		$	340,142				35.1	%		$	815,006				61.8	%		$	(474,864	)
Storage		$	214,300				22.1	%		$	220,592				16.7	%		$	(6,292	)
Rebillable Income		$	148,005				15.3	%		$	196,815				14.9	%		$	(48,810	)
Manufacturing		$	592,279				61.2	%		$	292,843				22.2	%		$	299,436
Total Revenue		$	1,920,333				100.0	%		$	2,279,988				172.8	%		$	(359,655	)

Cost of Revenue and Gross Profit

Our cost of revenue for the six months ended June 30, 2014, was $1,893,394, or 98.6% of revenues, compared to $2,015,278, or 88.4% of revenues, for the six months ended June 30, 2013. The overall increase in our cost of revenue is primarily due to an increase in transportation cost which included in the other costs category.

 

The following table presents the composition of cost of revenue for the six months ended June 30, 2014 and 2013:

 

		2014								2013								Variance
Cost of Revenue:		Dollars				Percentage				Dollars				Percentage				Dollars
Employee and Related Costs		$	232,366				12.3	%		$	233,652				11.6	%		$	(1,286	)
Materials and Supplies			344,487				18.2	%			817,218				40.6	%		$	(472,731	)
Subcontract Labor			379,839				20.1	%			369,041				18.3	%		$	10,798
Depreciation and Amortization			397,937				21.0	%			405,907				20.1	%		$	(7,970	)
Repairs and Maintenance			31,747				1.7	%			26,095				1.3	%		$	5,652
Insurance			91,861				4.9	%			99,846				5.0	%		$	(7,985	)
Other Costs			415,156				21.9	%			63,519				3.2	%		$	351,637
Total Cost of Revenues		$	1,893,394				100.0	%		$	2,015,278				100.0	%		$	(121,884	)

 

 

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.

 

Operating Expenses

For the six months ended June 30, 2014, our operating expenses totaled $935,809 as compared to $967,510 in 2013, representing a decrease of $31,701, or 3.28%. The largest components of our operating expense for 2014 consist of salaries and wages, other operating costs, and professional services. Salaries and wages for general and administrative personnel was $229,591 for the six months ended June 30, 2014, compared to $245,572 the six months ended June 30, 2013, a decrease of $15,981, or 6.51%.

 

Professional services expense decreased from $277,708 for the six months ended June 30, 2013, to $146,491 for the six months ended June 30, 2014, a decrease of $131,217, or 47.25%. The decrease is primarily a result of employing an accountant to handle the company’s financials instead of using an accounting firm and a decrease in legal fees.

 

Other operating expenses increased from $84,449 at June 30, 2013 to $156,763 for the six months ended June 30, 2014, an increase of $74,314 or 90.13%. Other operating expense consists primarily of taxes and licenses, training, advertising, dues and subscriptions.

 

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 expense, net, totaled $20,763 for the six months ended June 30, 2014, compared to other expenses, net, of $66,671, for the six months ended June 30, 2014, a decrease of $45,908 or 68.86%. Interest Investment income, which consists of interest, dividends, realized gains and losses, and unrealized gains and losses, amounted to income of $13,549 for the six months ended June 30, 2014, compared to income of $13,930 for the six months ended June 30, 2013.

 

Interest expense totaled $34,312 for the six months ended June 30, 2014, as compared to $80,601 for the six months ended June 30, 2013, a decrease of $46,289, or 57.43%. Interest expense pertains primarily to amounts due to affiliates as well as to our notes payable with third parties.

 

Provision for income taxes

For the six months ended June 30, 2014, we reported a deferred income tax benefit of $302,733 compared to income tax benefit of $258,516 for the six months ended June 30, 2013, a increase of $44,217, or 17.10%. The change was due to the net loss for the six month period.

 

Comparative financial information for the six months ended June 30

		June 30,				June 30,				June 30,				June 30,				June 30,
		2014				2013				2012				2011				2010
Revenues		$	1,920,333			$	2,279,988			$	5,269,659			$	592,655			$	1,604,066
Cost of Revenues			1,893,394				2,015,278				3,819,717				1,158,193				1,194,782
Gross Profit (Loss)			26,940				264,710				1,449,942				(565,538	)			409,284
Operating Expenses
General & Administrative Expenses			876,221				888,191				896,379				809,424				1,173,429
Depreciation			59,588				79,319				82,330				82,413				61,558
Total Operating Expenses			935,809				967,510				978,709				891,837				1,234,987
Income (Loss) from Operations			(908,870	)			(702,800	)			471,233				(1,457,375	)			(825,703	)
Other Income (Expense)			(20,763	)			(66,671	)			(67,241	)			(88,053	)			434,241
Income (Loss) Before Income Taxes			(929,633	)			(769,471	)			403,992				(1,545,428	)			(391,462	)
Provision for Income Taxes			(302,733	)			(258,516	)			133,004				(588,356	)			(140,588	)
Net Income (Loss)		$	(626,900	)		$	(510,955	)		$	270,988			$	(957,072	)		$	(250,874	)

 

Capital Resources and Liquidity

As of June 30, 2014, we had $1,124,597 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. Our management evaluated the effectiveness of our disclosure controls and procedures as of the end of our first fiscal quarter 2014 pursuant to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, management concluded that our disclosure controls and procedures were effective as of June 30, 2014.

 

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 our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting in 2014 as we implement our Sarbanes Oxley Act testing.

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body not previously reported or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

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

 

31.1		Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1		Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

 

(b) Reports of Form 8-K

 

None.

 

Item 7. Up-dates and Clarifications to prior non-financial information

 

None.

 

 

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: August 14, 2014	By:	/s/ George M. Sfeir
		George M. Sfeir
		President, Chief Executive Officer, Chief Financial Officer, and Director

 

 

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