UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended July 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from to
Commission File Number 014754
ELECTRIC & GAS TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Charter)
Texas 75-2059193
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
13636 Neutron Road, Dallas, Texas 75244-4410
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number: (214) 934-8797
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by check mark whether Registrant has (i) filed all reports
required by Section 13 or 15(d)of the Securities Exchange Act
of 1934 during the preceding twelve months, and (ii) been subject to such
filings requirements for the past ninety (90) days. Yes
X No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ( )
At October 16, 1995, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was
approximately $10,570,000. At such date there were 8,070,417 shares of the
registrant's Common Stock outstanding.
<PAGE>
PART I
Item 1. Business
General
Electric & Gas Technology, Inc.("the Company"or "ELGT") was organized
under the laws of the State of Texas on March 18, 1985,
to serve as a holding company for operating subsidiary corporations. In
April, 1985, the Company (i) acquired from Commercial
Technology, Inc. ("COMTEC"), an affiliated company, all of the stock of
Reynolds Equipment Company ("Reynolds") for stock of the
Company and (ii) acquired from a subsidiary of COMTEC all of the stock of
Test Switch Technology, Inc. ("Test Switch") [ formerly
Superior Technology, Inc. ("Superior")] for stock of the Company. In
1988, the Company acquired 85% (and subsequently 100%) of
the stock of Data Automation Company, Inc. ("DAC") from Video Science
Technology, Inc., formerly an affiliate of COMTEC and of the
Company; DAC owned 100% of Domac Plastics, Inc. ("Domac") and Logic
Design Metals, Inc. ("Logic"). Domac was subsequently sold.
During 1992 Logic merged into DAC, its parent, and DAC changed its name
to Logic Design Metals, Inc. and is referred to herein as
"Logic". In June 1986 Superior acquired from Petro Imperial Corp.
(A subsidiary of COMTEC) its ownership in American Brass, Inc.
("ABI"). Fridcorp Plastics, Inc. ("Fridcorp") was acquired by
the Company in January, 1992, in exchange for 162,000 shares of
Company Common Stock. Hydel Enterprises, Inc. ("Hydel") [formerly
Stelpro Limited ("Stelpro")] was acquired by the Company in
April, 1992, in exchange for 166,474 shares of Company Common
Stock and $1,100,000 (Cdn. funds)(April 30, 1992, exchange rate:
.8370). On August 1, 1992, Hydel acquired all of the outstand
ing capital stock of Hydel Engineering Limited ("Hydel Engineering")
for cash and notes payable of approximately $719,000 ($850,000 Cdn.).
The number of shares of Company Common Stock issued in the
acquisitions of Fridcorp and Hydel was, in each case, determined
through arms-length negotiations. Superior Magnetics, Inc.
("SMI") was formed by the Company to acquire the operating assets
of the business operations of Denison Magnetics of Texas
Instruments Incorporated on November 30, 1992 for cash and deferred
payments of approximately $2,900,000. The Company presently
is the owner of 100% of Test Switch, which currently owns 80% of
ABI and 100% of Hydel, which currently owns 100% of Hydel
Engineering; and the Company owns 100% of Logic, Reynolds, Fridcorp
and SMI, and, through such subsidiaries, operates in five
distinct business segments: (1) the manufacture and sale of electrical
switching devices, electric meter enclosures, and pole-
line hardware for the electric utility industry and the general public
(Test Switch, Hydel and Hydel Engineering); (2) the design
and manufacture of defense electronic components (SMI); (3) the
manufacture and sale of natural gas measurement, metering and
odorization equipment (Reynolds); (4) the manufacture and sale of
precision metal enclosures for telecommunication and computer
equipment (Logic); and (5) the manufacture of vacuum-form and
injection-mold products (Fridcorp). Effective January 31, 1993,
the Company discontinued the operations of its 80% owned ABI which
previously was engaged in the manufacture and sale of brass and
bronze ingots. The Company sold its Canadian heating division and
its U.S. meter socket division during fiscal 1995. Both
operations were part of the electric segment. The Company's
Headquarters is located at 13636 Neutron Road, Dallas, Texas 75244.
Its telephone number is (214) 934-8797 and its facsimile number is (214)
991-3265.
<PAGE>
Financial Information by Segment
The following table depicts revenues, operating income (loss) and
identifiable assets of the Company by segment, for the
fiscal years ended July 31,:
<TABLE>
Year Ended Year Ended Year Ended
July 31, 1995 July 31, 1994 July 31, 1993
(Restated)*
<S> <C> <C> <C>
Revenue
Electric $16,167,174 $19,438,285 $20,528,525
Defense electronics 6,577,333 7,374,479 6,303,982
Gas 3,143,711 3,420,071 2,604,729
Metal fabrication 14,105,717 14,955,581 12,236,232
Plastics 1,369,693 1,260,582 1,148,932
Operating Income (Loss):
Electric $ 659,788 $ (762,785) $ 1,005,001
Defense electronics (95,196) (71,322) 1,819,249
Gas 75,643 208,493 (146,384)
Metal fabrication 818,645 400,288 772,254
Plastics (25,483) 66,544 (142,653)
Identifiable Assets:
Electric $ 8,596,181 $12,857,150 $14,730,393
Defense electronics 3,974,844 3,523,317 4,778,132
Gas 2,493,657 2,275,869 2,466,174
Metal fabrication 9,877,149 9,299,649 7,253,063
Plastics 788,769 805,919 1,009,008
Corporate 2,503,133 1,597,414 6,097,485
</TABLE>
Geographic information
Financial data by geographic area for the fiscal year ended July
31, 1995 are as follows:
<TABLE>
Operating
(loss) Identifiable
Sales Profit Assets
<S> <C> <C> <C>
United States $32,281,705 $2,032,649 $20,449,381
Canada 9,081,923 (599,252) 5,281,219
Total $41,363,628 $1,433,397 $25,730,600
</TABLE>
* The 1994 consolidated financial statements have been restated to
correct an error in inventories (See Note 16 to the consolidated
financial statements).
<PAGE>
Electric (Test Switch, Hydel and Hydel Engineering)
History
Test Switch. Test Switch (formerly Superior) was incorporated
in Texas in May, 1984. It purchased the assets of Superior Switchboard
& Devices, Inc., an Ohio corporation ("SSDI"), in 1984. SSDI was
an old-line manufacturer of electrical testing equipment, organized in
1920 by a group of electrical utility employees. In about 1929,
electric utility companies began using meters on the outside of
residences to measure electricity consumption, creating a need for
metal enclosures to protect the meters. SSDI undertook the
manufacture of such enclosures, and (in 1943) was acquired by a
national company and operated as a division. In 1980, this division
was sold to the officers and employees of the division in a leveraged
buy-out. The business was not successfully operated under its then
current management, and the organizers of Test Switch arranged for the
purchase of the assets of SSDI by Test Switch in 1984. Effective
April 30, 1995, Superior changed its name to Test Switch upon the sale
of its meter socket division which was located in the Paris, Texas
plant. Test Switch maintains its executive office at 820 Tuscarawas
Street, Canton, Ohio 44707.
Hydel. Hydel (formerly Stelpro) was incorporated in 1977 under
the laws of the Province of Ontario, Canada, and has
operated as a manufacturer of electrical equipment for use in the
electric utility industry since its inception. In 1982, Hydel
purchased a baseboard heater manufacturing business from Westinghouse.
Stelpro changed its name to Hydel in January 1995 upon the
sale of its heating manufacturing business. Hydel operates primarily
within Canadian markets, though some sales of electric heaters were
made in the Northeastern United States. Hydel maintains its executive
office at 49 Howden Road, Scarborough, Ontario M1R 3C9.
Hydel Engineering. Hydel Engineering was incorporated in
November 1969 under the Laws of the province of Ontario, Canada, and
as in the case of Hydel operated as a manufacturer of electric
equipment for use in the electric utility industry since its inception.
Hydel Engineering originally manufactured service entrance equipment
and pole line hardware and in 1984 acquired the "Murray Jansen" line
of meter sockets. Sales of products are primarily within the
Canadian markets. Hydel Engineering maintains its executive office at
566 Ridge Road, Welland, Ontario L3B 5R4.
Hydel and Hydel Engineering are being consolidated and
merged into one entity, Hydel Enterprises, Inc. ("Hydel") effective
August 1, 1995.
Products
Test Switch. Test Switch operated two industrial facilities,
one in Canton, Ohio, the other in Paris, Texas during most of fiscal
1995. The Canton, Ohio, facility produces a line of proprietary products
approved by Underwriters' Laboratory ("U.L."), an independent testing
organization; a line of test switches. The Paris, Texas, facility,
the operations of which were sold,produced a full line of metal
cabinets, transformer boxes, meter pedestals and other metal enclosures
for the electric utility industry, marketed under various trade names.
Products include a combination of test switches and phasing transformers
marketed under the trade name "Reactiformer" and a voltage surge and
transient suppressor, which protects against overloads, marketed under
the trade name "Linegard". In addition, to U.L. approval of Test
Switch's products, they have also been approved by the National
Electrical Manufacturers Association for residential and industrial usage.
Hydel. Hydel operated two industrial facilities located within
metropolitan Toronto, Ontario. One facility which was sold in January
1995, manufactured and assembled a line of proprietary electric heating
products, including baseboard heaters and fan-driven heaters. The other
facility manufactures a full line of proprietary metal cabinets and
other metal enclosures, electric meter sockets and industrial safety
switches. All of Hydel's products have been approved by the Canadian
Standards Association which is the Canadian equivalent of U. L.
Hydel Engineering. Hydel Engineering operates out of two
industrial facilities: Scarborough, which is shared with Hydel, and
Welland. The Welland facility is primarily used to manufacture the
pole line hardware with assembly and finished goods storage in the
Scarborough plant. The "Murray Jansen" line is produced at the
Scarborough plant.
<PAGE>
Industry, Customers and Competition
Industry-Test Switch. Test Switch operates in an industry
consisting of suppliers of equipment and accessories to the public
utility industry. The customers for Test Switch's products are spread
nationwide.
Industry-Hydel. Hydel operates within the electric equipment
supply industry and manufacturing equipment for use in the electric
utility industry. Hydel competes primarily within Canadian markets.
Industry-Hydel Engineering. Hydel Engineering operates and
competes within the Canadian markets selling to the electric utilities
pole line hardware, meter sockets and related electrical equipment.
Customers-Test Switch. Test Switch sells its products to major
electric utilities across the nation.
Customers-Hydel. Hydel sells its electric utility supply
products to utilities in Canada. Hydel sold its electric heaters to
distributors throughout Canada, as well as in parts of the Northeastern
United States.
Customers-Hydel Engineering. Hydel Engineering sells principally
to utilities in Canada.
Competition-Test Switch. Test Switch faces competition from
numerous competitors. There is no single dominant competitor in
the industry. Test Switch's chief competitors are Milbank
Manufacturing Co., Inc., Meter Devices, Inc. and States Electric, Inc.
Competition-Hydel. Hydel faces extreme Canadian competition for
sales ofits electric utility supply products primarily from two electric
utility supply manufacturers, Microelectric and Commander.
Competition-Hydel Engineering. Hydel Engineering competes with
the same customers as Hydel, principally Microelectric and Commander
and to a lesser extent Hydel in its "Murray Jansen" product line. Pole
line hardware's main competitors are Salcan and Almet.
Marketing
Test Switch. Test Switch employs a general sales manager,
one outside salesman and twelve sales representatives to market its
products throughout the United States.
Hydel. Hydel employs a general sales manager who is responsible
for coordinating company-wide sales, as well as directing sales in the
Province of Ontario. Hydel utilizes independent manufacturers
representatives to promote sales in the remainder of Canada.
Hydel Engineering. Hydel Engineering's general manager also
serves as its sales manager who is responsible for coordinating
company-wide sales efforts. Other remote provinces are covered through
independent manufacturers representatives.
Raw Materials
Test Switch. Test Switch uses copper, brass, aluminum and
plastic which are all readily available through numerous vendors.
<PAGE>
Hydel. Hydel uses significant amounts of sheet aluminum and
sheet steel of various gauges in its manufacturing processes. Hydel
purchases these products directly from the mills or distributors. There are
adequate sources of such materials, though price fluctuations have occurred in
the past.
Hydel Engineering. Hydel Engineering purchases sheet steel
primarily through warehouses. Bar materials are purchased directly from
mills. Hydel Engineering uses two vendors to galvanize their pole line
hardware products. All such sources are considered adequate and no
anticipated shortages of materials or plating services are expected.
Employees
Test Switch. Test Switch's work force currently ranges,
annually, from 20 to 25 persons, including seven in administrative
and sales positions. The hourly paid employees are represented by a
local of the International Brotherhood of Electrical Works (A.F.L.-C.I.O.).
Union members are employed under a collective bargaining agreement expiring
in 1998. Employee relations have been considered good and no strike or
other work stoppage has been experienced or is anticipated. Test Switch
enjoys a low turn-over rate in its work force.
Hydel. Hydel currently employs 70 persons, including 8 in
administrative and sales positions. None of the employees is represented by
a labor union or other labor organization. Hydel enjoys good relations
with its employees and has never experienced a strike or work stoppage.
The jobs encompassed in Hydel's manufacturing operations do not require
highly skilled workers, except in a few positions.
Hydel Engineering. Hydel Engineering employs approximately
45 persons, including 7 in administration and sales positions. None of
the employees is represented by a labor union or other labor organization.
Hydel Engineering enjoys good relations with its employees and has never
experienced a strike or work stoppage. The jobs encompassed in Hydel
Engineering's manufacturing are similar to Hydel.
The corporate structure and operations of Hydel and Hydel
Engineering are being consolidated into one entity effective August 1, 1995.
Defense electronics (SMI)
History
Superior Magnetics, Inc. ("SMI") was incorporated in the state
of Texas on August 31, 1992 for the purpose of acquiring the magnetics
operations from Texas Instruments Incorporated (TI). SMI began
business on December 1, 1992 with an already established reputation as
a major producer of magnetics-based transformers, inductors, radar
modulators and high density devices for the defense and commercial
clientele. SMI maintains its manufacturing and executive offices at
3401 Texoma Drive, Denison, Texas 75020.
Products
SMI operates a single manufacturing facility in Denison, Texas in
which their design expertise and exacting manufacturing standards have
made their custom product lines of magnetic based transformers, inductor,
radar modulators and high density devices a significant part of the
modern-worlds defense and industrial electronics. Adherence to
stringent international ISO 9001 standards and the ability to meet the
requirements of MIL-I-45208 and MIL-I-9858 insures achieving product
excellence.
<PAGE>
Industry, Customers and Competition
Industry. SMI specializes in the custom design and manufacturing
of unique or special magnetics products. It currently sells almost
exclusively in defense related products, including missiles, avionics,
night-vision and control systems for the military. There are numerous
competitors producing magnetic products for defense and civilian uses.
Customers. SMI's principal customer is TI. SMI has been
successful in broadening its customer base to include other defense
contractors, such as Boeing and others.
Competition. SMI's current market is principally with TI where
it must compete with other vendors for the sale of magnetic products to
TI. SMI is a certified supplier to TI. SMI has an active marketing program
underway to broaden its customer base. Such efforts are resulting in new
orders from other defense contractors. The market is highly competitive.
SMI is believed to have one of the best design capabilities and exacting
manufacturing standards (ISO 9001), including the latest in design and
manufacturing processes (6-Sigma reliability standards).
Marketing
SMI has an in-house sales staff which works closely with the
design engineering in submitting proposals to potential customers. SMI
also engages 18 manufacturing representatives throughout the United States.
Raw Materials
Metal cores, wire and compounds comprise the bulk of primary
raw materials for SMI'S products. There is a readily available supply of
such materials and SMI doesn't foresee any difficulty in procuring such
materials in the future.
Employees
SMI employs approximately 90 full-time employees, including 35
clerical, engineering and administrative employees and approximately 55
hourly-paid plant workers. None of its employees is represented by a
union or other labor organization and relations with employees are
considered good. SMI has never experienced nor anticipates a strike or other
work stoppage.
Gas (Reynolds)
History
Reynolds Equipment Company ("Reynolds") was incorporated March 31,
1967 under laws of the State of Texas. In 1982, all of the stock of Reynolds
was acquired by COMTEC, an affiliate of the Company. Subsequently, the stock
of Reynolds was sold to Test Switch in exchange for common stock of the
Company and later transferred direct ownership to the Company. Reynolds
maintains its principal offices at 410 Kirby Street, Garland, Texas 75042.
Products
Reynolds manufactures equipment used in the natural gas
industry. Its principal products known as "RECOR" are electronic pressure,
temperature and volumetric instrumentation and accessories peripheral to
gas measurement. Reynolds continues to produce its traditional line of
mechanical instrumentation including pressure, temperature and
volumetric recording and indicating devices. In addition, Reynolds
provides engineering and equipment used to accomplish the odorization
of natural gas. Reynolds operates a manufacturers representative company
which generates sales commission derived from unaffiliated manufacturers.
<PAGE>
Industry, Customers and Competition
Industry. Reynolds operates in the industry which supplies
equipment to the natural gas industry. This equipment is used to measure,
control and monitor the flow of natural gas in pipelines. Reynolds estimates
that its industry develops annuals sales of approximately $100,000,000.
Odorization of natural gas is important and Reynolds is a recognized
provider to the industry with its expertise and service.
Customers. Reynolds sells to natural gas utilities,
pipeline and production companies domestically and worldwide. Products are
marketed through commissioned manufacturers representatives, resale
distributors and contract engineering firms.
Competition. Reynolds operates in a competitive industry that is
not dominated by one or a few large companies. It is a major factor in the
sale of chart drives and in the field of natural gas odorization. Its
principal competitors are Mercury Instruments, Inc., American Meter Company,
Equimeter Incorporated, YZ Industries and others.
Employees
Reynolds employs approximately 30 persons, including 2 company
officers and 13 administrative clerical personnel. None of the employees is
represented by a labor union or other labor association, and relations
with its employees are considered excellent. Reynolds has never experienced
nor anticipates a strike or other work stoppage.
Metal fabrication (Logic)
History
Logic Design Metals, Inc.("Logic") was incorporated in Texas on
March 16, 1977, and was acquired by Data Automation Company, Inc. ("DAC"),
in 1979. Test Switch acquired DAC in 1988 from Video Science Technology,
Inc., an affiliate of the Company, in exchange for shares of the Stock of
the Company. In April, 1992, Logic merged into DAC, its parent, and DAC
changed its name to "Logic Design Metals, Inc." and is now held directly by
the Company. Logic's manufacturing and administrative offices are at 3233
West Kingsley, Garland, Texas 75041.
Products
Logic creates customized, precision-formed metal enclosures for
the telecommunications and computer industries. These enclosures vary in
size from 1 x 4 x 6 for small switches, to 7 x 2 x 2 for housing
telephone switching devices and computer racks. Logic is equipped with
computerized production equipment which cuts, shapes, welds and finishes
enclosure products. The finished products bear the distinguishing marks
of the purchaser of the products, e.g., trade-names, trademarks, color
combinations and proprietary configurations. Logic has successfully completed
its ISO 9002 certification.
Industry, Customers and Competition
Industry. Logic operates in an industry which is not dominated
by any single company or a small group of companies, but consists of numerous
small specialty sheet metal products fabricators. Logic has maintained its
place in the market by keeping abreast of technological advances in machine
computerization and stressing quality control in its production. Logic has
received numerous awards for quality from its customers, including AT&T,
Siecor (division of Siemens Electric) and Rockwell International.
Customers. Logic's principal customers are nationally and
internationally known communications companies.
<PAGE>
Competition. Logic's market is in the southwestern United States,
where its principal competitors are Specialty Products Company, Rockwall,
Texas; Karlee Company, Garland, Texas and AA Manufacturing, Garland, Texas.
Competition is strong as it is relatively easy to enter the business due to
financing assistance from equipment manufacturers who desire to sell equipment.
Marketing
Logic engages the firm of Ammon & Rizos, Richardson, Texas, as its
exclusive sales and marketing representative.
Raw Materials
Sheet steel and sheet aluminum comprise the primary raw materials
for Logic's production of customized enclosures. There is a ready supply of
such materials and Logic foresees no difficulty in procurement in the future,
although shortages could occur.
Employees
Logic employs 260 full-time employees, including 30 clerical and
administrative employees and approximately 230 hourly-paid plant workers.
None of its employees is represented by a union or other labor organization
and relations with employees are considered good. Logic has never experienced
nor anticipates a strike or other work stoppage.
Plastics (Fridcorp)
History
Fridcorp Plastics, Inc. ("Fridcorp") was incorporated under the
laws of the State of Texas in April, 1988, under the name "Century
Enterprises, Inc." The name change to Fridcorp occurred in February,
1992. The Company acquired all of the stock of Fridcorp in exchange
for shares of common stock of the Company in January, 1992. Fridcorp
maintains its manufacturing and corporate office at 4809 Century Drive,
Fort Worth, Texas 76140.
Products
Fridcorp has two divisions, one of which manufactures injection-
mold plastic products ("Molding") and the other of which manufactures
vacuum-form plastic products ("Forming"), as well as tooling utilized in
such operations. Molding's primary products are plastic bases for boat
seats. Such product is proprietary in nature. Only one other company
is known to compete against Fridcorp for sales to boat manufacturers.
Forming provides customer tooling for a particular customer's
requirements and vacuum-mold manufacturing of various products. The
primary products of Forming are display cases and accessories for
express optical products retailers and parts sold in the air conditioning
and automobile parts aftermarket.
All of the products manufactured by Molding are comprised
primarily of recycled plastic material, such as plastic milk cartons,
plastic soft drink cases and the like. Also, the scrap plastic
generated in the manufacturing process of both Molding and Forming is
reused in later production runs or sold back to waste recycling firms.
Industry, Customers and Competition
Industry. Fridcorp operates in two distinct industries, the
injection mold plastic product manufacturing industry and the vacuum-
form plastic product manufacturing industry. Fridcorp is not a
significant factor in either of such industries.
<PAGE>
Customers. Fridcorp sells its injection mold products,
primarily plastic bases for boat seats, to boat seat manufacturers and
directly to boat manufactures. It sells its vacuum-form plastic products,
primarily jobbed products, to a wide range of customers.
Competition. Fridcorp's two divisions, Molding and Forming,
are subject to differing competitive pressures. Molding's primary product,
plastic bases for boat seats, is proprietary and Molding faces competition
from one other firm for sales of such product. Fridcorp has undertaken
expansion of its Molding product lines in an attempt to increase productivity.
Forming completes in an industry in which customer relations
and product quality play an important part. Forming maintains a good
reputation in the industry but faces strong competition for customers from
local companies.
Marketing
Fridcorp has an aggressive marketing plan in an effort to
increase sales and achieve greater product diversification and attempting to
rely less on its primary business of sales of boat seat bases and optical
display cases. The potential for success in such marketing plans appears
good, however, there is no assurance that such marketing plan will yield
higher sales or operating income.
Raw Materials
Both Molding and Forming utilize recycled plastic products as
well as new plastic materials in manufacturing its products. Fridcorp
does not foresee any shortage in supplies of such materials.
Employees
Fridcorp employs approximately 20 persons on a full-time basis,
of which 7 work in the Forming division, 9 persons are inthe Molding division
and 4 perform administrative functions. None of its employees is
represented by a union or other labor organization and relations with
employees are considered good. Fridcorp has never experienced nor anticipates
a strike or other work stoppage.
Discontinued operations-Metal extraction (ABI)
American Brass, Inc. ("ABI") was incorporated in the State of
Alabama in 1978. Until December 16, 1992, ABI operated a brass and
bronze ingot smelter in Headland, Alabama. Principal raw materials for
this operation consisted of various forms of scrap metal materials
containing high copper and other base materials utilized in the
production process. This process produces "Slag", which is refuse or
dross separated from the brass and bronze in the smelting process.
Inasmuch as the slag contains trace elements of lead, it is an
environmentally hazardous substance in view of the Environmental
Protection Agency (EPA). ABI processes its slag through a ball mill
which reduces the slag to a powdered saleable product used in
fertilizer. The ABI site is located on approximately 134 acres
including a number of special purpose buildings all under a long-term
lease with the Headland Industrial Development Foundation. ABI
has defaulted under this lease obligation. This operation is treated
as a discontinued operation. The Company on January 29, 1993 entered
into an agreement with an unaffiliated corporation, Trans Metals, Inc.
(TMI), to restart the smelting operation. Such agreement assigned
ABI's leasehold interest
together with 150,000 shares of the Company's common stock to TMI in
exchange for 850,000 shares of $5.00 par value preferred stock, a
$950,000 4% note payable due January 25, 1995 and $25,000 in cash.
Based on current economic conditions in the scrap, cooper and
brass markets and the estimated operating margins needed, a restart of
the facility under these conditions with similar manufacturing
processes would require an estimated $5,000,000 investment with
anticipated marginal returns. TMI has been unsuccessful to-date in
re-starting, seeking joint venture partners or selling the Alabama
operation. However, they are continuing their efforts
<PAGE>
to accomplish same. The Company has written down its investment in TMI
in the amount of $5,000,000 as of July 31, 1994.
ITEM 2. Properties
The Company maintains executive offices at 13636 Neutron Road,
Dallas, Texas 75244-4410 in a 7,800 sq. ft. one story building (owned
in fee) and is fully adequate to serve its needs.
Test Switch occupies an industrial building in Canton, Ohio
(leased). The Paris, Texas facility (owned) was vacated as result of
the sale of the meter socket division in April 1995. The Canton,
Ohio, facility consists of a brick building with approximately 20,000
square feet of space, including approximately 5,000 square feet of
office space and 15,000 square feet containing equipment and machinery
and inventory storage. The lease is on a month to month basis. The
Paris, Texas, facility, consists of a vacant industrial building
containing approximately 60,000 square feet of space, including
approximately 3,000 square feet of office space. The facility is
currently for sale or lease.
Hydel leases one industrial building in metropolitan Toronto,
Ontario. The Scarborough facility is leased until May 1997 and contains
approximately 67,000 square feet, including approximately 7,000 square
feet of office space.
Hydel Engineering utilizes a portion of Hydel's facilities
described above. In addition, Hydel Engineering owns a 22,000 square
foot manufacturing and office space on approximately 7 acres of land
located in Welland, Ontario. Such facility provides 20,000 square feet
of manufacturing and 2,000 square feet of office space.
SMI conducts its manufacturing and administrative functions
through a 86,000 square feet concrete leased building in Denison,
Texas. The lease expires on October 31, 1997. Approximately 48,000
square feet are used for manufacturing, testing and inventory storage and
16,000 square feet are used as engineering, sales and administration.
There is approximately 22,000 square feet under lease available for
expansion.
Reynolds carries on its manufacturing and sales activities in a
building owned by it situated on 40,000 square feet of land in Garland,
Texas. The plant is a one story, concrete building containing
approximately 15,500 square feet of floor space, which includes
approximately 2,000 feet of office space.
Logic owns its office and plant facility at 3233 West Kingsley,
Garland, Texas which consists of approximately 136,000 square feet of
manufacturing and 8,000 square feet of connected office space located
on approximately 7 acres of land. Logic acquired a paint facility
located in leased property near its plant. Such leased facility consists
of approximately 18,900 square feet of office, storage and production
areas.
Fridcorp carries on its manufacturing and sales activities in two
buildings owned by it, located on 8 acres of land in Fort Worth, Texas.
One of such buildings provides 2,000 square feet of space for Fridcorp's
offices, 1,200 square feet for a pattern shop, 10,000 square feet for the
Forming operations and a 5,000 square foot warehouse. The other of such
buildings houses the entire operations of Molding and contains
approximately 15,000 square feet and contains a small office (300 square
feet). The remainder of the building is divided among the actual
injection-mold manufacturing (7,500 square feet), a storage area for
finished goods (3,600 square feet) and a storage area for raw materials
(plastic chips) used in the manufacturing process (3,600 square feet).
Item 3. Legal Proceedings.
ABI discontinued its operation in January 1993 and is
involved in several lawsuits arising principally out of secured and
unsecured creditors' claims against ABI. Under most of these cases
the courts have awarded judgements against ABI for the amounts owed
such creditors plus costs. Although ABI has not declared
bankruptcy, there are insufficient assets to satisfy any of the
unsecured creditor claims. The principal secured
<PAGE>
creditor currently has a deficiency of approximately $1,500,000; however
thereare remaining assets which could be sufficient to satisfy their
claims. Superior had guaranteed this secured creditor. Accordingly, if
there were insufficient assets to satisfy this claims, the Company
could be liable for this deficiency. Management does not believe that
the Company will ultimately have any liability with respect to this
guarantee.
The Company and its subsidiaries are involved in various routine
litigation incident to its business operations. Management and Legal
Counsel do not believe that any of such litigation will have a material
adverse effect on the consolidated financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Annual meeting of stockholders, March 31, 1995.
(b) Not applicable.
(c) Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters:
(a) Principal Market
The Common Stock of the Registrant is traded in the Over-the-
Counter Market and quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) under the
symbol ELGT.
(b) Stock Prices and Dividend Information
The following table sets forth the range of "Bid" and "Ask"
prices, by quarters, since July 31, 1992, as compiled by NASDAQ
and representing prices between dealers which does not include
retail markups or commissions, thus, such prices may not
represent actual transactions.
<TABLE>
Fiscal year ended July 31, 1995:
High Low
<S> <C> <C>
First Quarter 2-9/16 1-1/2
Second Quarter 2-5/8 1-13/16
Third Quarter 3-7/16 2-1/8
Fourth Quarter 3-1/8 2-5/16
Fiscal year ended July 31, 1994:
High Low
First Quarter 6 5-1/16
Second Quarter 4-15/16 3-5/16
Third Quarter 3-15/16 2-7/16
Fourth Quarter 2-7/16 1-9/16
Fiscal year ended July 31, 1993:
High Low
First Quarter 5-3/4 4-3/8
Second Quarter 5-11/16 4-1/4
Third Quarter 7-5/8 4-5/16
Fourth Quarter 7-1/16 5-1/2
</TABLE>
No dividend has been paid on the Common Stock by the Company
and payment of dividends in the foreseeable future is not anticipated.
As of July 31, 1995 there were 515 holders of record of
the Common Stock of the Company, exclusive of beneficial ownership
through brokerage firm nominee name.
UNITS OF COMMON STOCK AND WARRANTS
In connection with the Company's financing agreement with The
CIT Group/Credit Finance, Inc. in 1994, the Company issued warrants to
purchase 25,000 shares of common stock of the Company at $4.25 per share.
Such warrants are exercisable in whole or part on or before November 24, 1998
and have piggy-back rights with respect to any shares to be registered by the
Company.
<PAGE>
Item 6. Selected Financial Data.
STATEMENT OF OPERATIONS DATA:
(In dollars, except shares outstanding)
<TABLE>
Fiscal Years Ended July 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(Restated)
Revenues $41,363,628 $46,448,998 $42,822,400 $27,898,721 $29,021,919
Gross Profit 10,448,022 9,957,441 12,742,943 6,673,944 7,789,038
Selling, G&A Expense 10,082,034 10,887,521 10,348,156 6,139,014 5,939,272
Other Income (Expense) 429,693 (1,518,022) (989,448) 185,719 (449,801)
Earnings (Loss) from
Continuing Operations 850,577 (2,106,377) 1,234,138 649,150 1,396,065
Net Earnings (loss) 850,577 (6,106,377) 981,189 404,030 1,524,003
Net Earnings (loss)
per Share .11 (.80) .13 .05 .23
Weighted Average
Number of Shares
Outstanding 7,615,474 7,634,432 7,353,489 6,920,223 6,747,524
BALANCE SHEET DATA:
As of July 31,
1995 1994 1993 1992 1991
(Restated)
Total Assets $28,233,733 $30,359,318 $36,334,255 $26,315,227 $22,880,608
Long-Term Obligations 6,379,001 6,014,513 6,372,631 1,961,608 605,688
Shareholders' Equity 10,427,861 9,289,393 15,301,380 14,526,111 11,791,891
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Background
The Company, through its subsidiaries, operates within five
separate industries. These are (i) the manufacture and sale of
electrical switching devices, metal enclosures and other electrical
equipment for use in the electric utility industry; (ii) the
manufacture and sale of defense electronic components; (iii) the
manufacture of natural gas measurement equipment and gas odorization
products; (iv) the manufacture and sale of precision customized metal
enclosures for telecommunications and electrical equipment; and (v) the
manufacture of vacuum-form and injection-mold products.
Results of Operations
The discussion below relates to the Company's operations during
the fiscal years ended July 31, 1995, 1994 and 1993.
Summary. The Company reported net earnings (loss) from
continuing operations before income taxes of $850,577, $(2,106,377)
and $1,405,339 and net earnings (loss) of $850,577, $(6,106,377) and
$981,189 for fiscal years 1995, 1994 and 1993, respectively. The 1994
earnings were restated due to an overstatement at July 31, 1994 of
ending inventories of approximately $720,000. The results of
discontinuing the ABI operation and the subsequent transaction with
Trans Metals, Inc. (TMI) had the following net effect on earnings
(loss) of $(4,000,000) and $(252,949) for fiscal years 1994 and 1993,
respectively. The increase in earnings between 1994 and 1995 from
continuing operations before income tax was $3,243,783 or 132.5% which
is attributable to the Electric and Metal
<PAGE>
fabrication segments offset by decreases in Defense, Gas and Plastic
segments. The increases in operating profits were $1,422,573 and
$418,357, respectively and decreases of $(23,874), $(132,850) and
$(92,027), respectively. The decrease in earnings between 1993 and
1994 from continuing operations before income taxes was $(3,853,441)
or (274.20)% which is attributable to the Electric, Defense electronics
and Metal fabrication segments offset by increases in Gas and Plastic
segments. Declines in operating profits were $(1,767,786), $(1,890,571)
and $(371,966), respectively and gains of $354,877 and $209,197,
respectively for these aforementioned segments (See further comments
under segment discussion). Earnings (loss) per common share were $.11,
$(.80) and $.13 in fiscal 1995, 1994 and 1993, respectively.
<TABLE>
For the Years Ended July 31,
1995 1994
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
<S> <C> <C> <C> <C>
Operating Revenues $(5,085,370) (10.95) $ 3,626,598 8.47
Operating Income 1,296,068 139.35 (3,324,867) (138.84)
Earnings (Loss) from
continuing operations
before income taxes 3,243,783 132.50 (3,853,441) (274.20)
Net Earnings Per Share .91 113.75 (.93) (75.38)
</TABLE>
The following table represents the changes [increase/(decrease)]
in operating revenues, operating income and earnings from continuing
operations before income taxes by the respective industry segments when
compared to the previous period:
<TABLE>
For the Years Ended July 31,
1995 1994
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
<S> <C> <C> <C> <C>
Electric $(3,271,111) (64.32) $(1,090,240) (30.06)
Defense electronics (797,146) (15.68) 1,070,497 29.52
Gas (276,360) (5.43) 815,342 22.48
Metal fabrication (849,864) (16.71) 2,719,349 74.98
Plastics 109,111 2.14 111,650 3.08
$(5,085,370) 100.00 $ 3,626,598 100.00
</TABLE>
<PAGE>
<TABLE>
For the Years Ended July 31,
1995 1994
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Income (Loss):
<S> <C> <C> <C> <C>
Electric $1,422,573 89.34 $(1,767,786) (51.00)
Defense electronics (23,874) (1.50) (1,890,571) (54.54)
Gas (132,850) (8.34) 354,877 10.24
Metal fabrication 418,357 26.28 (371,966) (10.73)
Plastics (92,027) (5.78) 209,197 6.03
1,592,179 100.00 (3,466,249) 100.00
General Corporate (296,111) 141,382
Other Income (Expense) 1,947,715 (528,574)
Earnings from Continuing
Operations Before Income
Taxes $3,243,783 $(3,853,441)
</TABLE>
Electric revenues decreased during 1995 by $(3,271,111) or
decreases in the Canadian operations of $(2,278,154) (Hydel $(2,206,455)
and Hydel Engineering $(71,699)) and U.S. operations of $(992,957).
Operating income for 1995 increased for Test Switch by $674,869 and
$747,704 in the Canadian operations or a total increase of $1,422,573.
The decline in revenues is attributed primarily to the sale in January
1995 of the heating division of Hydel and the sale in April 1995 of the
meter socket division of Test Switch. Operating profits, however,
improved substantially on these lower sales, returning this segment to
a positive contributor to the Company's profits. During 1994 the
revenues also decreased by $(1,090,240), such decrease was $(596,417)
in the Canadian operations and $(493,823) in the U.S. operations.
Operating profits decreased by $(1,767,786) the net effect of an increase
in the U.S. operating profits of $369,437 and a decrease of $(2,137,223)
in the Canadian operations after restatement of the 1994 inventories of
$720,790. The Canadian operations were affected by price competition,
increases in the cost of raw materials and the continuing slow Canadian
economy. Revenue increases of $8,722,900 in 1993 were attributable to
the addition of Hydel and Hydel Engineering which contributed sales
increases of $4,163,959 and $6,008,321, respectively and were offset
by a sales decline of $1,449,380 by Test Switch.
Gross profit margins were 22.59%, 14.47% and 26.76% for fiscal
1995, 1994 and 1993, with selling, general and administrative expenses as
a percentage of sales for the same period of 18.51%, 18.40% and 21.87%,
respectively. Gross profit margins regained part of what was lost
during 1994, i.e. margins after decreasing by 12.27% recovered by 8.12%
in fiscal 1995. Margins were unchanged at Hydel improving both at Test
Switch and Hydel Engineering, the result of a better product mix and
increased selling prices.
Defense electronics sales declined by $(797,146) due to cutbacks
in defense spending and the older defense programs completing
production. This segment's sales would have been decreased more were it
not for increasing their customer base. Sales increased by $1,070,497
during 1994, however, 1993 included only eight months of sales since
the inception of this segment on December 1, 1992. Annualized sales
would have amounted to approximately $9,500,000 based on the eight month
results during 1993. With this real decline in sales levels, operating
profits were significantly affected resulting in a loss of $(71,322)
when compared to profits of $1,819,249 or a $(1,890,571) in 1994 negative
swing. The operating losses between 1995 and 1994 increased by $23,874
to $(95,196). Sales declines are functions of declining defense
spending, development of new programs and reduced margins with current
business. In 1993 this segment produced revenues of $6,303,982 for the
first eight months the
<PAGE>
company was in business with a gross profit margin of 57.96% and operating
profits of $1,819,249 or 28.86% of sales.
Selling, general and administrative expenses were 44.22% in 1995
and 43.00% in 1994 after having grown from 29.10% in 1993, reflecting
similar overhead dollars on declining sales. A large portion of selling,
general and administrative expenses are fixed based on current
circumstances and continuing need to develop new business and sales.
Gas revenues decreased by $(276,360) or (8.08%). Sales of this
segment's main product, "Recor" was relatively unchanged with most of
the sales decline occurring in the odorization systems due to increased
industry competition. Revenues increased by $815,342 during 1994 after
having decreased by $(1,74,993) in 1993. The 1993 fiscal year was
a year of transition from representing another company's product to the
development during 1993 and marketing and selling efforts during 1994
of this segment's proprietary product "Recor", a gas electronic volume
corrector, replacing the older and less versatile imported "In-Line"
product. During fiscal 1993 there was a decline in odorization systems
sales due to added competition and fewer purchases from the Utilities.
Odorization remain stable in 1994 but as previously mentioned declined
again in 1995. Operating income (loss) was $75,643, $208,493 and
$(146,384) for fiscal 1995, 1994 and 1993, respectively.
Metal fabrication revenues were $14,105,717, $14,955,581 and
$12,236,232 for fiscal 1995, 1994 and 1993, respectively. While revenues
declined by $(849,864), operating profits increased by $418,357 to
$818,645 or a 104.53% increase. We have been reasonably successful in
turning down some business with lower margin sales thereby increasing
our operating profits. Operating profits were $818,645, $400,288 and
$772,254 for fiscal years 1995, 1994 and 1993, respectively. During
1994 all the manufacturing operations were consolidated into a new single
building. Although there were additional costs associated with this
move, the long-term benefits will accrue and provide room for sales
growth and capacity.
Plastics revenues increased slightly by $109,111 and $111,650 or
8.66% and 9.72% in 1995 and 1994, respectively. During fiscal 1993 there
was a decline in revenues of $280,669 or 19.63%. This decline was
attributable to declining revenues in the molding product line of boat
seating resulting from increased competition from Fridcorp's major
competitor. Operating profits suffered substantially from this lost
revenue resulting in a loss of $(142,653) for 1993. However, operating
profits after having improved to $66,544, declined to a loss of
$(25,483) in 1995. The decline in operating profit was directly
related to manufacturing problems which required replacement and
additional maintenance on key injection molding equipment.
Expense relationship to the various changes in sales revenues
remained fairly consistent among the segments for the three previous
years. Cost of sales as a percentage of revenues amounted to 74.74%,
78.56% and 70.24% for the years ended 1995, 1994 and 1993,
respectively. The 1993 cost of sales percentages were weighed favorably
by the much higher sales and profit margins in the Defense segment. The
1994 margins were impacted by poor Canadian and lower Defense
margins. Selling, general and administrative expenses as a percentage
of revenues were 21.79%, 21.78% and 22.03% for the years ended July 31,
1995, 1994 and 1993, respectively.
Discontinued operations of ABI and the subsequent transaction
with TMI, an unaffiliated company had the following net effects on
earnings: a decrease of $(4,000,000) and $(252,949) for fiscal years 1994
and 1993,respectively.
Liquidity and Capital Resources
Liquidity. Cash flow from operating activities amounted to
$(709,772), $502,785 and $2,158,944 for fiscal years 1995, 1994 and
1993, respectively. Such cash flows have been sufficient to meet all the
Company's obligations when they become due.
Current assets of the Company totaled $15,331,633 at July 31,
1995, down from current assets of $18,584,786 at July 31, 1994. Current
liabilities decreased from fiscal 1994 to fiscal 1995 by $3,628,541,
resulting
<PAGE>
in a increase in working capital (current assets less current
liabilities) to $3,904,762 at July 31, 1995, from $3,529,374, a increase
of 10.64%. This increase was largely due to the sale of the heating and
meter socket divisions in the Electric segment. The Company believes
that is operations will generate cash sufficient to meet its working
capital requirements and debt obligations.
Capital Resources. Hydel and Hydel Engineering have a working
capital line-of-credit with a Canadian bank in the amount of $2,200,200.
The Canadian credit facility is secured by receivables, inventories and
equipment of Hydel and Hydel Engineering.
Logic and Test Switch factored a portion of their receivables
during fiscal 1993. In November 1993 the Company began a five year
financing arrangement with the CIT Group Credit/Finance, Inc. (CIT).
Their total commitment to the Company amounted to $7,000,000 of term and
revolving credit at 2.75% above prime. However, the maximum amount to
be borrowed is determined based upon eligible collateral, including
equipment, receivables and inventory. Borrowing under this financing
amounted to $583,683 in term debt and $2,339,580 in revolving debt at
July 31, 1995. In June 1995, Logic refinanced a portion of its term
debt, not related to the CIT financing above, which provided an
additional $500,000 in proceeds with a finance company over 60 months.
The Company received $1,000,000 in proceeds from an SBA
mortgage loan which was funded on September 23, 1994. Such proceeds
were added to working capital. In January 1995, the Company funded a
ten year $2,000,000 mortgage loan to finance the new building purchase
by Logic replacing the lease purchase obligation due under the deferred
purchase contract.
The Company sold two divisions receiving approximately
$3,494,593 in cash proceeds which were used to pay current
obligation, reduce debt and provide additional working capital.
Substantially all of the Company's assets, including
certificates of deposit are pledged as collateral for the Company's
long-term and short-term indebtedness.
Capital Expenditures
The Company purchased equipment consisting of normal asset
acquisitions and replacement of approximately $622,122 during fiscal
1995. For fiscal 1994, the Company purchased machinery and
equipment of $2,491,210 principally for the new facility acquired
during fiscal 1993 by Logic. The Company does not anticipate any
other significant capital expenditures, other than in the ordinary
course of replacing worn-out or obsolete machinery and equipment
utilized by its subsidiaries. The Company may, from time to time,
purchase such machinery and equipment provided such assets serve as
additional collateral for outstanding loans to the Company (and its
subsidiaries).
The Company acquired the net assets of a paint facility for
approximately $400,000 in January 1995 for cash. The Company acquired
the operating assets and business of Hydel Engineering, a Canadian
manufacturer of electric utility meter boxes and electric pole
hardware effective August 1, 1992 for $423,000 cash and a $296,000
note. Also, effective December 1, 1992 the Company acquired certain
operating assets from Texas Instruments Incorporated, those assets were
used to design and manufacture magnetic and power systems for use in the
defense industry. Such acquisition included a cash expenditure and
deferred payments of approximately $2,900,000.
Dividend Policy
No cash dividends have been declared on common stock by the
Company's Board of Directors since the Company's inception. The
Company does not contemplate paying cash dividends in the foreseeable
future since it intends to utilize its cash flow to service debt, for
working capital and capital additions, and to finance expansion of its
operations.
<PAGE>
Other Business Matters
Accounting for Post-Retirement Benefits. The Company provides no
post-retirement benefits; therefore, FASB No. 106 will have no impact on
the Company's financial position or result of operations.
Inflation. The Company does not expect the current effects of
inflation to have any effect on its operations in the foreseeable
future. The largest single impact effecting the Company's overall
operations is the general state of the economy and principally the home
construction sector.
Item 8. Financial Statements and Supplementary Date.
Information required by this item appears in the Consolidated
Financial Statements and Auditor's Report of Electric & Gas Technology,
Inc. and Subsidiaries for July 31, 1995, 1994, and 1993 as listed under
Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no disagreements on accounting and financial
disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
(a) During fiscal year ended July 31, 1995, the following
persons served as directors of Registrant:
<TABLE>
<S> <C> <C> <C>
Shares
Beneficially
Director Owned (%) of
Name and Age Position Since Outstanding
S. Mort Zimmerman (68) Chairman of the Board, 1985 838,926 10.11%
President and Director
Daniel A. Zimmerman (34) Sr. Vice President 1989 357,353 4.31%
and Director
Edmund W. Bailey (53) Vice President, Chief 1994 46,666 0.56%
Financial Officer and
Director
Fred M. Updegraff (61) Vice President, 1987 73,295 0.88%
Treasurer and Director
</TABLE>
S. Mort Zimmerman and Daniel A. Zimmerman are father and son.
(b) Executive Officers:
The Executive Officers of Registrant are:
See (a) above.
Marie W. Pazol, Secretary
BACKGROUND
S. Mort Zimmerman: Chairman of the Board, President and Chief
Executive Officer of the Company since its formation in March 1985.
After attending Georgia Institute of Technology and Oglethorpe,
Mr. Zimmerman graduated in 1958 with a Bachelor of Science in
Electrical Engineering from Pacific International University. He
established the first electronics subsidiary for the predecessor
corporation of LTV Corporation which was formed to market a low cost
television camera invented by Zimmerman and for which he was awarded
a United States Patent in 1958. Prior to 1963 he participated in the
engineering and installation of 18 television stations.
In 1965 Mr. Zimmerman formed the first "one-bank holding company"
of its kind in the United States and which later served as a model from
which many bank holding companies were formed. He served as Chairman
of the Board of four individual banking institutions, three of which
were located in Florida (Springs National of Tampa, Metropolitan of
Miami and Mercantile National of Miami Beach) and New York City
(Underwriters Trust). After obtaining a public underwriting these banks
were sold to others. In 1967 Intercontinental Industries, Inc. was
organized and Mr. Zimmerman served as its Chairman and Chief Executive
Officer. This diversified holding company was primarily engaged in
the operations of Intercontinental Manufacturing Company, a weapons
manufacturer that was later sold. Through his research and development
in the field of video X-ray and imaging,
<PAGE>
Mr. Zimmerman caused the organization in 1981 of Video Science Technology,
Inc. in 1981 to exploit the inventions for which he was awarded two U.
S. Patents. Patents awarded include: Television Camera-Video Amplifier
and Blanking Circuits-1958, Electronic Thermometer-1963, Video-X-Ray
Imaging System and Method-1977, Video System and Method for Presentation
and Reproduction of X-Ray Film Images-1977, Electromagnetic Radio
Frequency Excited Explosion Proof Lighting Method and System-1986,
and Laser Display of an Electronically Generated Image Signal-1987.
Recently, Mr. Zimmerman participated as a co-inventor on new Electronic
Refrigeration technology to which patents are pending.
Daniel A. Zimmerman: Mr. Zimmerman was elected Senior Vice
President in 1991 and was re-elected as a Director of the Company in
1990 (Mr. Zimmerman served as a director from March, 1985 to January,
1988). Mr. Zimmerman is presently serving as President and Director
of Reynolds Equipment, Inc. and Vice President and Director of Test
Switch. He also serves as Vice President Marketing for SMI since its
inception, December 1, 1992. He received his Liberal Arts Degree from
Austin College in Sherman, Texas in May, 1982.
Edmund A. Bailey: Mr. Bailey has served as Vice President
and Chief Financial Officer of the Company since March, 1992. He
was elected a member oF The Board of Directors May 1994. From
January 1989, to March, 1992, Mr. Bailey was a shareholder in the
public accounting firm of Jackson & Rhodes P.C., Dallas, Texas.
From August, 1987, to December, 1988, Mr. Bailey served as Vice
President and Chief Financial Officer of Southern Foods Group,
Inc., an independent milk producer. From May, 1986, to July, 1987,
he was with the public accounting firm of Pannell Kerr Foster,
Dallas, Texas. Prior experience included 16 years in public
accounting with Fox & Company and Arthur Young & Company (now
Ernst & Young). Mr. Bailey earned a B.S. degree in Business from
Monmouth College, West Long Branch, New Jersey, and an M.B.A. degree
from Southern Methodist University, Dallas, Texas. Mr. Bailey is
licensed in the State of Texas as a Certified Public Accountant.
Fred M. Updegraff: Mr. Updegraff has served as Vice President
and Treasurer of the Company since 1985. He was elected Treasurer and
a member of the Board of Directors in May, 1987. Mr. Updegraff is also
Vice President, Controller and Director of DOL Resources which files
reports under Section 13 of the Securities Act of 1934. From 1976
to 1981, he was Vice President of a manufacturing company engaged in the
manufacture of brass valves for the plumbing industry. Mr. Updegraff
graduated from Emporia State University with Bachelor degrees in Business
Administration and Education.
(c) Significant and Key Employees:
The following provides certain information regarding key
employees who serve as officers of the subsidiary companies of
the Company:
W. Ken Wilemon: Mr. Wilemon, having served two years as
General Manager, was elected President of Logic in 1984. Prior to
his employment with Logic, he was a manufacturer's representative of
Electra III Corporation in Dallas, Texas.
Michael D. Beall: Mr. Beall presently serves as Vice
Chairman of the Board of Reynolds.. In 1986 he was elected
President of Reynolds and served in this position until 1992.
Mr. Beall was employed by Wilson Flow Measurement in 1968, which
was acquired by Louis Reynolds and the name changed in 1973.
Gabriel Prieto: Mr. Prieto became President of SMI on December
1, 1992, the effective date the Company completed the acquisition of
the Texas Instruments Incorporated magnetics operation in Denison,
Texas. He has also served as President of Fridcorp since its
acquisition in January, 1992. From 1989 until January, 1992, Mr. Prieto
was engaged as an independent business consultant. During 1988 and 1989,
he was an officer of Domac Plastics, Inc., a corporation formerly wholly
owned by the Company; from 1982 to 1988, he served as a Vice President
and Senior Petroleum Engineer for Nations Bank, N.A., Dallas, Texas; from
1980 to 1982, he was employed by Freeport McMoran, Inc. an oil and gas
exploration firm based in New Orleans, Louisiana;and from 1976 to 1980,
he was employed by Mobil Oil Corporation as a senior petroleum engineer
in its New Orleans, Louisiana offices and earned a B.S. degree in
Petroleum Engineering from Louisiana Tech University, Ruston,
Louisiana. He is a registered Petroleum Engineer in the State of Texas.
Also, Mr. Prieto is a member of the
<PAGE>
Society of Petroleum Engineers, the Society of Plastics Engineers and the
International Association of Energy Economists.
Richard R. Barkdoll: Mr. Barkdoll has served as Vice President
and Chief Financial Officer of Test Switch (and its predecessor
company) since 1972. In June, 1988 he was elected Chief Operations
Officer of the Manufacturing Division of Test Switch. Mr. Barkdoll
retired August 1, 1995 and will continue as a part-time consultant to
Test Switch.
Item 11. Executive Compensation
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
Other Restricted Number of Shares Long Term
Name and Principal Annual Stock Covered By Incentive Plan All Other
Position Year Salary Bonus Compensation Awards Option Grant Payout Compensation
S. Mort Zimmerma 1995 $110,000(a) $ - $ - - 232,000 - $642(b)
Chairman of the 1994 185,000(a) $ - $ - - 232,000 - $642(b)
Board & President
1993 185,000(a) $ - $ - - 200,000 - $642(b)
</TABLE>
(a) Includes accrued and unpaid compensation of $220,000, $120,833 and
$102,500 for fiscal year 1995, 1994 and 1993, respectively.
(b) Company match of 401 (K) employee contributions.
1995 Stock Option Grants
The following table sets forth stock options granted in fiscal 1995
to the Company's executive officer named in the Summary
Compensation Table and to all other employees as a group. The table
also sets forth the hypothetical gains that would exist for the
options at the end of their 5 year term, assuming rates of stock
appreciation of 0%, 5% and 10%. The actual future value of the
options depend on the market value of the Company's Common stock.
There were no option granted during fiscal 1995.
Aggregate Option Exercises and Year-end Option Values
Set forth below are the number of shares covered by exercisable
and unexercisable options held by S. Mort Zimmerman on July 31,
1995 and the aggregate gains that would have been realized had
these options been exercised on July 31, 1995, even though these
options were not exercised, and the unexercisable options would not
have been exercised, on July 31,1995.
Number of Shares Value of Unexercised
Covered by Unexercised In-The-Money
Options on 7/31/95 Options as of 7/31/95
Name Exercisable Unexercisable Exercisable Unexercisable(a)
S. Mort Zimmerman -0- -0- -0- -0-
(a) Market value of shares covered by in-the-money options on July 31,
1995 less option exercise price. Options are in-the-money if the market
value of the shares covered thereby is greater than the option exercise
price.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The following tables sets forth the number of shares of Common
Stock of holders of the Company known to the Company to be the
beneficial owner of more than five (5%) percent of its Common
Stock at July 31, 1995.
Name and Address Amount and Nature of Percent of
Beneficial Owner Class
S. Mort Zimmerman 838,926 (1) 10.11%
13636 Neutron Road
Dallas, Texas 75244-4410
(b) The following table sets forth the number of shares of Common
Stock of Registrant owned by all directors and officers as a group
as of July 31, 1995:
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
S. Mort Zimmerman 838,926 (1) 10.11%
Chairman of the
Board and President
Daniel A. Zimmerman(5) 357,353 (2) 4.31%
Sr. Vice President
and Director
Edmund W. Bailey 46,666 (3) .56%
Vice President &
Chief Financial Officer
Fred M. Updegraff 73,295 (4) .88%
Vice President
Treasurer & Director
All Officers &
Directors, as a
Group 1,327,573 15.99%
(1) Includes (i) 232,000 shares subject to options owned by Mr. S. Mort
Zimmerman; (ii) 81,685 shares of the 816,853 shares owned
beneficially and of record by Trans-Exchange Corporation, in which Mr. S.
Mort Zimmerman has a 10% beneficial interest; and (iii) 31,429 shares
owned by Glauber Management Company, a firm 42% owned by Mr. S. Mort
Zimmerman and in which he effectively controls the voting of the
Company's stock owned by such firm. Mr. S. Mort Zimmerman disclaims any
beneficial interest in the shares owned by his wife's estate and their
adult children.
(2) Includes 31,667 shares subject to options owned by Mr. Zimmerman.
(3) Includes 36,666 shares subject to options owned by Mr. Bailey.
(4) Includes 31,666 shares subject to options owned by Mr. Updegraff.
(5) S. Mort Zimmerman and Daniel A. Zimmerman are father and son.
<PAGE>
Item 13. Certain Relationships and Related Transactions
THE FOLLOWING IS A SUMMARY OF ADVANCES FROM/TO AFFILIATED COMPANIES AT
JULY 31, 1995.
<TABLE>
1995 1994
<S> <C> <C>
VSTI $150,000 $ 150,000
Comtec and others 452,681 (254,768)
$602,681 $(104,768)
</TABLE>
Approximately $530,000 of the receivable from Comtec and other
related parties at July 31, 1995 was secured by an agreement with
an officer. Per the terms of the agreement, the officer will
forego collection of $75,000 in salary annually until repayment
is made by Comtec and other related parties. In the event these
affiliates fail to pay the amounts due the Company, the accumulated
unpaid salary will be applied to the outstanding receivable
balance. The accrued and unpaid salary of $362,000, $362,000 and
$287,000 at July 31, 1995, 1994 and 1993, respectively have been
offset with the receivable in the accompanying financial
statements. During 1994 the Company purchased certain equipment
with a cost of approximately $47,000 and subsequently sold the
equipment to an affiliated company for $200,000. The gain of
approximately $153,000 is included in other income.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) Documents filed as part of this Report
1. Financial Statements
Consolidated Financial Statements of Electric & Gas
Technology, Inc. and Subsidiaries:
(i) Reports of Independent Certified Public
Accountants
(ii) Consolidated Balance Sheets July 31, 1995
and July 31, 1994.
(iii) Consolidated Statements of Operations for the
three years ended July 31, 1995.
(iv) Consolidated Statements of Changes in
Stockholders' Equity for the three years ended
July 31, 1995.
(v) Consolidated Statements of Cash Flows for the
three years ended July 31, 1995.
(vi) Notes to Consolidated Financial Statements
2. Financial Statement Schedules Required by Item 8
of Form 10-K and paragraph (d) of Item 14
None
3. Exhibits
3.1 Articles of Incorporation of Registration (filed as Exhibit
3.1 and3.2 to Registration Statement form S-18 - Registrant
No. 33-2147FW of Registrant and Incorporation herein by
reference.
3.2 By-laws of Registrant (filed as Exhibit 3.3 Registration
Statement on Form S-18 - Registrant No. 33-2147FW - of
Registrant and incorporated herein by reference.
4.1 Specimen Copy of Common Stock Certificate (filed as Exhibit
1.1 to Registration Statement under the Securities Exchange
Act on Form 8-A and incorporated herein by reference).
4.1 Warrant Agreement and Text of Warrant (filed Exhibit
4.1 to Amendment No. 1 to Registration Statement on Form S-18,
Registration #33-2147FW, of Registrant incorporated herein by
reference.
<PAGE>
10.1 Agreement and Plan of Acquisition between Petro Imperial Corp.
and Superior Technology, Inc. dated June 30, 1986 for the
acquisition of 80% of American Brass, Inc. (filed as Exhibit
1 to Registrant's Form 8-K Report dated July 9, 1986,
Commission File No. 0-14754 and incorporate herein by
reference).
10.2 Acquisition Agreement dated July 29, 1988 and Amendment thereto
dated November 15, 1988, (filed as Exhibit 1 to Form 8-K
Report, as amended on Form 8 filed August 9, 1988 and
incorporated herein by reference).
10.32 U. S. Small Business Administration authorization and loan
agreement dated August 3, 1994 between Independence Funding
Company Ltd. and Electric & Gas Technology, Inc.,
Reynolds Equipment Company, Superior Technology, Inc.
and Fridcorp Plastics, Inc. and Note for $1,000,000
(filed as exhibit 10.32 to Form 10-K, filed October 27, 1994
and incorporated herein by reference).
10.33 Asset Purchase Agreement dated as of April 18, 1995 by and
between Superior Technology, Inc. and American Circuit
Breaker Corporation (filed as exhibit 10.32 to Form 10-Q,
filed June 12, 1995 and incorporated herein by reference).
(b) Reports on form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
By: /s/ Edmund W. Bailey
Edmund W. Bailey, Vice President,
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Registrant and in the capacity and on the date set-
forth following their name:
Signature Capacity Date
/s/ S. Mort Zimmerman Chairman and President October 25, 1995
S. Mort Zimmerman
/s/ Daniel A. Zimmerman Senior Vice President
Daniel A. Zimmerman and Director October 25, 1995
/s/ Edmund W. Bailey Vice President, and
Edmund W. Bailey Chief Financial Officer October 25, 1995
/s/ Fred M. Updegraff Vice President, Treasurer
Fred M. Updegraff and Director October 25, 1995
/s/ Marie W. Pazol Secretary October 25, 1995
Marie W. Pazol
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC.
AND SUBSIDIARIES
JULY 31, 1995 AND 1994
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 29
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 30
CONSOLIDATED STATEMENTS OF OPERATIONS 31
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY 32
CONSOLIDATED STATEMENTS OF CASH FLOWS 33-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 35-49
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Electric & Gas Technology, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Electric & Gas Technology, Inc. and Subsidiaries as of July 31, 1995
and 1994, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the
three years in the period ended July 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Electric & Gas Technology, Inc. and Subsidiaries as of July 31,
1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended July
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 16 of Notes to Consolidated Financial
Statements, certain errors resulting in overstatement of
previously reported inventories as of July 31, 1994, were
discovered by management of the Company during the year ended
July 31, 1995. Accordingly, the 1994 financial statements have
been restated to correct the error.
Jackson & Rhodes P.C.
Dallas, Texas
October 19, 1995
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS
<TABLE>
CURRENT ASSETS 1995 1994
(Restated)
<S> <C> <C>
Cash and cash equivalents $ 1,044,851 $ 638,245
Accounts receivable trade, less allowance for doubtful
receivables of $184,317 in 1995 and $150,667 in 1994 5,112,853 6,541,832
Note receivable 684,031 -
Inventories 8,317,588 11,181,894
Prepaid expenses 172,310 222,815
Total current assets 15,331,633 18,584,786
PROPERTY, PLANT AND EQUIPMENT, net 9,944,103 10,223,493
OTHER ASSETS
Discontinued operations 484,842 508,914
Other assets 2,473,155 1,042,125
Total other assets 2,957,997 1,551,039
TOTAL ASSETS $28,233,733 $30,359,318
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 5,116,457 $ 6,605,442
Accounts payable 3,609,596 4,815,477
Accrued liabilities 1,485,334 2,152,330
Current maturities of long-term obligations 1,215,484 1,482,163
Total current liabilities 11,426,871 15,055,412
LONG-TERM OBLIGATIONS
Long-term obligations, less current maturities 5,944,202 5,296,956
Other 434,799 717,557
Total long-term obligations 6,379,001 6,014,513
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 5,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.01 par value, 30,000,000 shares authorized,
issued 7,905,416 in 1995 and 1994 79,054 79,054
Additional paid-in capital 9,823,534 9,843,734
Retained earnings 2,091,269 1,240,692
Pension liability adjustment (265,302) (473,823)
Cumulative translation adjustment (424,577) (460,847)
11,303,978 10,228,810
Less treasury stock, 274,792 shares in 1995 and 289,992
shares in 1994, at cost (876,117) (939,417)
Total stockholders' equity 10,427,861 9,289,393
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,233,733 $30,359,318
</TABLE>
See accompanying notes.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31,
<TABLE>
1995 1994 1993
(Restated)
<S> <C> <C> <C>
Sales $41,363,628 $46,448,998 $42,822,400
Cost of goods sold 30,915,606 36,491,557 30,079,457
Gross profit 10,448,022 9,957,441 12,742,943
Selling, general and administrative expenses 10,082,034 10,887,521 10,348,156
Operating profit (loss) 365,988 (930,080) 2,394,787
Other income and (expenses)
Interest, net (1,090,677) (1,042,380) (970,362)
Other, net (Note 2) 1,520,370 (475,642) (19,086)
429,693 (1,518,022) (989,448)
Earning (loss) from continuing operations
before income tax 795,681 (2,448,102) 1,405,339
Provision (credit) for income taxes (54,896) (341,725) 171,201
Earnings (loss) from continuing operations 850,577 (2,106,377) 1,234,138
Discontinued operations (Note 3):
Earnings (loss) from operations of
discontinued metal extraction segment - - (3,518,852)
Gain (loss) on disposal of metal extraction
segment, net of valuation allowance
of $5,000,000 in 1994 and $1,000,000
in 1993 - (4,000,000) 3,265,903
- (4,000,000) (252,949)
NET EARNINGS (LOSS) $ 850,577 $(6,106,377) $ 981,189
Earnings (loss) per common share:
Continuing operations $0.11 $(0.28) $ 0.16
Discontinued operations - (0.52) (0.03)
Net earnings $0.11 $(0.80) $ 0.13
Weighted average number of common
shares outstanding 7,615,474 7,634,432 7,353,489
</TABLE>
See accompanying notes.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended July 31, 1995, 1994 and 1993
<TABLE>
Common Stock Pension
Par Paid-in Retained liability Translation Treasury
Shares Value Capital Earnings adjustment adjustments Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1992 7,786,424 $77,864 $ 9,890,750 $6,365,880 $ - $ - $(1,808,383) $14,526,111
Net earnings for the year - - - 981,189 - - - 981,189
Pension liability
adjustment - - - - (424,965) - - (424,965)
Cumulative translation
adjustments - - - - - (305,955) - (305,955)
Sale of treasury stock - - 112,250 - - - 412,750 525,000
Balance at July 31, 1993 7,786,424 77,864 10,003,000 7,347,069 (424,965) (305,955) (1,395,633) 15,301,380
Net loss for the year
(Restated) - - - (6,106,377) - - - (6,106,377)
Pension liability
adjustment - - - - (48,858) - - (48,858)
Cumulative translation
adjustments - - - - - (154,892) - (154,892)
Treasury stock cancelled (156,008) (1,560) (472,156) - - - 473,716 -
Purchase of treasury stock - - - - - - (17,500) (17,500)
Exercise of options 80,000 800 112,040 - - - - 112,840
Investment in Techstar
Industries, Inc. 195,000 1,950 200,850 - - - - 202,800
Balance at July 31, 1994
(Reststed) 7,905,416 79,054 9,843,734 1,240,692 (473,823) (460,847) ( 939,417) 9,289,393
Net Earnings for the year - - - 850,577 - - - 850,577
Pension liability
adjustment - - - - 208,521 - - (208,521
Cumulative translation
adjustment - - - - - 36,270 - 36,270
Treasury stock transfered - - (20,200) - - - 80,800 60,600
Purchase of treasury stock - - - - - - (17,500) (17,500)
Balance July 31, 1995 7,905,416 $79,054 $9,823,534 $2,091,269 $(265,302) $(424,577) $( 876,117) $10,427,861
</TABLE>
See acccompanying notes.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Increase (decrease) in cash: (Restated)
Cash flows from operating activities:
Net earnings (loss) $ 850,577 $(6,106,377) $ 981,189
Adjustments to reconcile net earnings ( loss)
to net cash provided by operating activities:
Discontinued operations - 4,000,000 (1,350,000)
Depreciation of property, plant
and equipment 1,138,406 1,145,626 896,309
Deferred income tax (75,345) (206,463) 43,500
Amortization of goodwill and patents 6,892 26,850 36,932
Loss from discontinued operations - - 252,949
Treasury stock transferred for expenses 60,600 - -
Gain on sale of property, plant
and equipment (1,094,743) (156,749) -
Deferred income - (20,470) (16,550)
Changes in assets and liabilities:
Accounts receivable 1,428,979 (1,842,751) 692,382
Inventories (454,767) 2,604,561 (1,470,279)
Prepaid expenses 50,505 (50,041) 54,307
Other assets (749,107) 884,533 28,606
Accounts payable (1,130,536) 86,433 986,337
Accrued liabilities (741,233) 137,633 783,570
Income tax payable - - 239,692
Net cash provided by (used in) operating activities (709,772) 502,785 2,158,944
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 3,494,593 209,010 -
Purchase of property, plant and equipment (622,122) (1,009,577) (961,848)
Acquisition of subsidiary, less cash acquired - - (542,246)
Acquisition of paint facility (400,000) - -
(Increase) decrease in certificates of deposits - - 495,510
Net cash provided by (used in) investing activities 2,472,471 (800,567) (1,008,584)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 3,763,021 921,125 1,193,152
Issuance of common stock - 112,840 -
Payments on long-term obligations (3,640,352) (2,662,578) (4,373,536)
Purchase of treasury stock (17,500) (17,500) -
Increase (decrease) in notes payable (1,488,985) 610,265 1,913,352
Net cash provided by (used in) financing activities (1,383,816) (1,035,848) (1,267,032)
Effect of exchange rate changes on cash 27,723 (268,200) (305,955)
NET INCREASE (DECREASE) IN CASH 406,606 (1,601,830) (422,627)
Cash - beginning of year 638,245 2,240,075 2,662,702
Cash - end of year $ 1,044,851 $ 638,245 $ 2,240,075
</TABLE>
See accompanying notes.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended July 31,
<TABLE>
Supplemental disclosures of cash flow information:
1995 1994 1993
Cash paid during the year for:
<S> <C> <C> <C>
Interest $1,268,542 $1,139,243 $ 1,068,680
Income tax $24,969 $42,000 $96,838
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During the year ended July 31, 1995, the following noncash transactions
occurred:
The Company received non-cash consideration in the form of
notes and accounts receivable from the sale of the meter socket
division in the amount of $1,344,792.
The Company acquired machinery and equipment amounting to $257,898
with notes payable and lease purchase obligations.
During the year ended July 31, 1994, the following noncash transactions
occurred:
The Company acquired machinery and equipment amounting to $1,481,633
with notes payable and lease purchase obligations.
The Company acquired 600,000 shares of Techstar Industries, Inc. for
195,000 shares of the Company's common stock valued at $202,800.
The Company cancelled 156,000 shares of treasury stock valued at
$473,716.
The Company reduced the present value of future performance
obligations by $140,058.
During the year ended July 31, 1993, the following noncash transactions
occurred:
The Company acquired land and building amounting to $2,393,000 with
a lease purchase obligation.
The Company acquired Hydel Note 2). A portion of the consideration
was a note amounting to $296,000.
The Company acquires SMI (Note 2) for approximately $2,900,000 in
debt and deferred payments.
The Company discontinued the operations of ABI (Note 3) effective
January 31, 1993.
See accompanying notes.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements follows.
Organization:
Electric & Gas Technology, Inc.("the Company"or "ELGT") was organized
under the laws of the State of Texas on March 18, 1985, to serve as
a holding company for operating subsidiary corporations. In April,
1985, the Company (i) acquired from Commercial Technology, Inc.
("COMTEC"), an affiliated company, all of the stock of
Reynolds Equipment Company ("Reynolds") for stock of the Company
and (ii) acquired from a subsidiary of COMTEC all of the stock of
Test Switch Technology, Inc. ("Test Switch")[ formerly Superior
Technology, Inc. ("Superior")] for stock of the Company. In
1988, the Company acquired 85% (and subsequently 100%) of the stock
of Data Automation Company, Inc. ("DAC") from Video Science
Technology, Inc., formerly an affiliate of COMTEC and of the
Company; DAC owned 100% of Domac Plastics, Inc. ("Domac") and
Logic Design Metals, Inc. ("Logic"). Domac was subsequently
sold. During 1992 Logic merged into DAC, its parent, and DAC changed
its name to Logic Design Metals, Inc. and is referred to herein as
"Logic". In June 1986 Superior acquired from Petro Imperial Corp.
(A subsidiary of COMTEC) its ownership in American Brass, Inc.
("ABI"). Fridcorp Plastics, Inc. ("Fridcorp") was acquired by
the Company in January, 1992, in exchange for 162,000 shares of
Company Common Stock. Hydel Enterprises, Inc. ("Hydel")
[ formerly Stelpro Limited ("Stelpro")] was acquired by the Company
in April, 1992, in exchange for 166,474 shares of the Company
Common Stock and $1,100,000 (Cdn. funds)(April 30, 1992, exchange
rate: .8370). On August 1, 1992, Hydel acquired all of the
outstanding capital stock of Hydel Engineering Limited ("Hydel
Engineering") for cash and notes payable of approximately,
$719,000 ($850,000 Cdn.). The number of shares o Company
Common Stock issued in the Acquisitions of Fridcorp and Hydel was,
in each case, determined through arms-length negotiations.
Superior Magnetics, Inc. ("SMI") was formed by the Company
to acquire the operating assets of the business operations of
Denison Magnetics of Texas Instruments Incorporated on November
30, 1992 for cash and deferred payments of approximately
$2,900,000. Precision Techniques, Inc. ("Precision") consists
of a painting facility which was acquired for Logic in January
1995 for cash of $400,000.
The Company presently is the owner of 100% of Test Switch, which
currently owns 80% of ABI and 100% of Hydel, which currently owns 100%
of Hydel Engineering; and the Company owns 100% of Logic, Precision,
Reynolds, Fridcorp and SMI; and, through such subsidiaries,
operates in five distinct business segments: (1) the manufacture
and sale of electrical switching devices, electric meter enclosures
and pole-line hardware for the electric utility industry and the
general public (Test Switch, Hydel and Hydel Engineering); (2) the
design and manufacture of defense electronic components (SMI); (3)
the manufacture and sale of natural gas measurement, metering and
odorization equipment (Reynolds); (4) the manufactureand sale of
precision metal enclosures for telecommunication and computer
equipment (Logic and Precision); and (5) the manufacture of
vacuum-form and injection-mold products (Fridcorp). Effective
January 31, 1993, the Company discontinued the operations of its 80%
owned ABI which previously was engaged in the manufacture and sale
of brass and bronze ingots.
Reclassification and Restatement:
Certain reclassifications have been made to the 1994 and 1993
consolidated financial statements to conform to the 1995
presentation. The 1994 financial statements have been restated,
as explained in Note 16.
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SUMMARY OF ACCOUNTING POLICIES (Continued)
Inventories:
Inventories of raw materials, work-in-process and finished goods are
stated at the lower of cost or market as determined by the first-in,
first-out method.
Depreciation and Amortization:
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over
the lives of the respective leases or the service lives of the
improvements whichever is shorter. Leased property under capital
leases is amortized over the lives of the respective leases or over
the service lives of the assets for those leases which substantially
transfer ownership. The straight-line method of depreciation is
followed for newly acquired assets and straight-line and accelerated
methods have been used for older assets for financial reporting
purposes, accelerated methods are used for tax purposes.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
computed based on the following useful lives:
Years
Machinery and equipment 3 -15
Buildings and improvements 4 -33
Furniture, fixtures and equipment 3 -10
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity
of three months or Less to be cash equivalents.
Earnings Per Share:
Earnings per common share are computed by dividing net earnings by the
weighted average number of shares of common stock and common stock
equivalents outstanding during each period.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
DISPOSITIONS AND ACQUISITIONS
Effective April 30, 1995, the Company sold inventory, machinery and
equipment and the business operations of the meter socket division
of Superior. Proceeds amounted to approximately $3,064,000 of which
approximately $1,750,000 was for cash and the balance in a note and
receivable of approximately $1,315,000. The note is due in equal
monthly installments over a twenty-four month period commencing
September 1995. Such transaction resulted in a gain of approximately
$463,000 and is included in other income. On December 30, 1994, the
Company sold inventory, machinery and equipment and the business
operations of the heating division of its Canadian subsidiary, Hydel
for cash. Proceeds from the sale amounted to $1,688,963 which
resulted in a gain of approximately $623,000 and is included in other
income. Sales for the meter socket division amounted to
approximately $5,179,000, $6,378,000 and $6,936,000 for the years
ended July 31, 1995, 1994 and 1993, respectively. Superior renamed
itself, Test Switch Technology, Inc. and continued its test switch
business (See Note 17 Subsequent Events-pending sale). Sales for
the heating division amounted to approximately $2,262,000, $4,492,000
and $4,499,000 for the years ended July 31, 1995, 1994 and 1993,
respectively. Hydel continued its electric division operations
(See Note 17 Subsequent Events-pending sale).
The Company acquired for cash of approximately $400,000, Precision
Techniques, Inc., in January 1995, a company which consisted of a
painting facility. Precision currently paints almost exclusively
for Logic and this acquisition has been treated as an acquisition
of assets (Paint Facility) instead of a business combination. Prior
to the acquisition, Logic accounted for a significant part of the
prior business. Logic also uses other third-party facilities for its
painting needs.
The Company acquired the manufacturing assets of Texas Instruments
Incorporated's (TI) magnetics operation located in Denison, Texas on
October 20, 1992. The Company formed a new wholly owned subsidiary,
Superior Magnetics, Inc. (SMI) which closed the acquisition
effective December 1, 1992. SMI operates a high-quality
design engineering and manufacturing facility for sophisticated
electronic power transformers, power supplies and special magnetic
components. The acquisition was made with cash and deferred
payments of approximately $2,900,000 in value. Acquired assets
included raw materials and production machinery and equipment,
including test equipment and office fixtures and furniture. The
Company considered this acquisition to be the purchase of
assets and not a business combination. Accordingly, no pro forma
information is presented.
On August 1, 1992, Hydel, a wholly-owned subsidiary of the Company,
executed an agreement to acquire all of the outstanding capital
stock of Hydel Engineering Limited ("Hydel Engineering"), an
Ontario, Canada, corporation engaged in the manufacture and
sale ofelectric utility meter boxes and electric pole hardware.
Such agreement required (i) a cash payment of $422,900 (U.S.),
$500,000 (Cdn.) and (ii) delivery, at closing, of a promissory note,
in the amount of $296,030 (U.S.), bearing interest at 8% per annum,
with principal payments of $100,000 (Cdn.) due August 1, 1993,
1994 and 1995, and a payment of $50,000 (Cdn.) due August 1, 1996.
The closing under such agreement occurred on October 31, 1992. Such
transaction was accounted for as a purchase and, accordingly, Hydel
Engineering's results of operations have been included in the
accompanying consolidated financial statements from August 1, 1992.
3
DISCONTINUED OPERATIONS
Effective January 31, 1993, the Company discontinued the operations of
its 80% owned subsidiary, American Brass, Inc. (ABI). Prior periods
were reclassified to exclude the Company's former metal extraction
business as a discontinued operation as of July 31, 1993. The Company
sold the leasehold interests of ABI, subject to related debt and
150,000 shares of the Company's treasury stock to Trans Metals,
Inc. (TMI) for 850,000 shares of $5.00 preferred stock and a $950,000
4% note of TMI. The Company originally valued the stock and note at
$3,923,077 and $842,826, respectively, resulting in a gain on the
sale of the discontinued operation of $4,265,903. Subsequently in
1993, the Company determined that the carrying value of its
investment in TMI was less than the value originally recorded
and recorded a valuation reserve of $1,000,000. During fiscal 1994,
TMI with the assistance of the Company made every effort to
re-start and/or sell the Alabama operation. TMI continued to sell
the ball mill residue (Slag) as fertilizer.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
DISCONTINUED OPERATIONS (Continued)
However, it has become probable that little can be salvaged from this
operation. Accordingly, the Company provided in fiscal 1994 an
additional reserve against its investment in TMI of $4,000,000.
Summarized results of operations and financial position data of the
discontinued operations were as follows:
1995 1994 1993(a)
<TABLE>
<S> <C> <C> <C>
Results of operations:
Sales $ - $ - $11,367,660
Operating income (loss) $ - $ - $(2,937,082)
Net earnings(loss) from
discontinued operations $ - $ - $(3,518,852)
</TABLE>
(a) Operations were discontinued effective January 31, 1993.
4
INVENTORIES
Inventories consisted of the following at July 31,:
1995 1994
(Restated)
<TABLE>
<S> <C> <C>
Raw materials $4,015,142 $ 5,273,873
Work-in-process 1,906,392 2,358,874
Finished goods 2,396,054 3,549,147
$8,317,588 $11,181,894
</TABLE>
5
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at
July 31,:
1995 1994
<TABLE>
<S> <C> <C>
Land $ 633,406 $ 632,777
Buildings and improvements 5,649,578 5,459,555
Machinery and equipment 10,301,141 10,618,890
Furniture, fixtures & equipment 649,240 686,678
17,233,365 17,397,900
Less accumulated depreciation (7,289,262) (7,174,407)
$ 9,944,103 $10,223,493
</TABLE>
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
OTHER ASSETS
Other assets consisted of the following at July 31,:
1995 1994
<TABLE>
<S> <C> <C>
Note receivable $ 660,761 $ -
Investment in equity securities 391,857 241,240
Intangible pension asset 197,243 223,881
Deferred debt issue costs 283,653 214,224
Goodwill, net 134,317 141,209
Other receivables 150,000 210,180
Due from (to) affiliates 602,681 (104,768)
Deposits and other assets 27,425 90,941
Land held for resale 19,674 19,674
Research and development equipment 5,544 5,544
$2,473,155 $1,042,125
</TABLE>
7
NOTES PAYABLE
Notes payable consisted of the following at July 31,:
1995 1994
<TABLE>
<S> <C> <C>
Note payable, CIT (a) $2,339,580 $3,065,044
Note payable, bank (b) 650,000 650,000
Note payable, bank (c) 1,922,975 2,879,030
Note payable, bank (d) 203,902 11,368
$5,116,457 $6,605,442
</TABLE>
(a) Part of a $7,000,000 Revolving credit and term facility with
The CIT Group Credit/Finance, Inc. (CIT) due November 1998.
Interest due monthly at 2.75% above prime (11.5% and 10% at July 31,
1995 and 1994, respectively). The revolving credit borrowing base
is based on eligible accounts receivable and inventory, as defined
(See note 8).
(b) Note payable, bank, consists of a $650,000 promissory note as
of July 31, 1995 and 1994, respectively, due November 30, 1995.
Interest due monthly at 1.73% above Bank One certificate of deposit
rate (7.5% at July 31, 1995). The note is secured by a $200,000 and
$450,000 certificate of deposit of the Company and an affiliate of
the Company, respectively.
(c) Note payable, bank, consists of a line of credit with a maximum
loan amount of $2,200,200, payable on demand; bearing interest at
the bank's prime rate plus 1.75%; secured by trade receivables and
inventories of Hydel and Hydel Engineering.
(d) Various notes payable due on demand.
Information relating to short-term borrowing is as follows:
1995 1994
<TABLE>
<S> <C> <C>
Balance at end of year $5,116,457 $6,605,442
Maximum borrowing $6,225,406 $7,161,000
Average daily balance $5,730,108 $6,650,785
Average effective interest rate 10.9% 8.6%
</TABLE>
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSUDUARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
NOTES PAYABLE (Continued)
Maximum borrowing are the maximum amount of aggregate short-term
borrowing outstanding at any month end during the year.
The average short-term borrowing were computed by dividing the
aggregate borrowing for the year by the number of days the
borrowing were outstanding during the year. The weighted average
rate was computed by dividing the average borrowing into
total interest on short-term borrowing.
8
LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at July 31,:
<TABLE>
<S> <C> <C>
1995 1994
Term loan payable to The CIT Group Credit/Finance, Inc. (CIT)
under a $7,000,000 credit facility (See note 7), due in monthly
installments of $14,448, plus interest at prime plus 2.75%
(11.5 % and 10% at July 31, 1995 and 1994). The term portion is
secured by machinery and equipment of U.S. subsidiaries, however,
substantially all assets of U.S. subsidiaries are pledged under
the total facility as collateral. $ 583,683 $ 947,557
Notes payable to financing corporations, due in monthly installments
of approximately $57,000 in 1995 and $67,000 in 1994 including
interest at rates from 7.5% to 11.5%, through 2000, collateralized by
equipment. 2,253,726 2,084,229
Mortgage note payable due in monthly payments of principal and
interest at 2.75% above prime from October 10, 1994 over twenty
years. Guaranteed by the Small Business Administration. 988,703 -
Note payable to a bank, interest at the effective base lending
rate of the bank plus 1 1/2% (11.75% at July 31, 1995); due in
monthly installments of $3,053 plus interest through June 2000,
collateralized by land and building of the Company. 290,523 430,148
Present value of future performance payments due quarterly
through December, 1995 discounted at 10% interest.
Payments based on a percentage of sales of SMI ranging
from 3% to 5% quarterly. 105,502 529,641
Mortgage note payable at 9.625% interest, due in equal monthly
installments of $18,806, principal and interest, through
January 1, 2005 with a final payment of $1,445,706. 1,983,077 -
Lease purchase obligation at 10% interest due in six monthly
installments of $9,772 and subsequently twelve monthly
installments of $12,000 principal and interest. The balance
due January 1, 1995, secured by land and building. - 2,013,410
</TABLE>
<PAGE)
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
LONG-TERM OBLIGATIONS (Continued)
<TABLE>
<S> <C> <C>
1995 1994
Note payable to a bank, bearing interest at 1 1/2% over the
Canadian prime rate, due in monthly installments of $6,111
principal and interest with final balance due October 31, 1997. 165,023 234,395
Note payable bearing interest at 8% due $73,340 on August 1,
1993, 1994 and 1995 and final installment of $36,670 due
August 1, 1996 plus interest. 88,008 180,300
Various other installment notes and capitalized lease
obligations. 701,441 359,439
7,159,686 6,779,119
Less current maturities (1,215,484) (1,482,163)
$5,944,202 $5,296,956
</TABLE>
The prime rate was 8.75% and 7.25% at July 31, 1995 and 1994,
respectively.
The aggregate annual principal payments are as follows:
Year Ending
July 31,
<TABLE>
<S> <C>
1996 $1,215,484
1997 1,066,775
1998 968,198
1999 718,061
2000 435,569
Thereafter 2,755,599
</TABLE>
9
ACCRUED LIABILITIES
Accrued liabilities consisted of the following at July 31:
<TABLE>
1995 1994
<S> <C> <C>
Payroll $ 619,512 $ 490,099
Commissions 335,574 751,706
Pension plan 2,584 46,234
Vacation pay 164,468 244,665
Taxes 191,674 218,244
Interest 4,144 14,424
Miscellaneous 167,378 386,958
$1,485,334 $2,152,330
</TABLE>
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
COMMITMENTS AND CONTINGENCIES
Total rent expense for the years ended July 31, 1995, 1994 and
1993, was $675,104, $756,882 and $632,523, respectively, consisting
primarily of minimum rentals.
Litigation:
American Brass, Inc. (ABI) the Company's subsidiary which
discontinued its operation in January 1993, is involved in several
lawsuits arising principally out of secured and unsecured
creditors' claims against ABI. Under most of these cases the
courts have awarded judgements against ABI for the amounts owed such
creditors plus costs. Although ABI has not declared bankruptcy,
there are insufficient assets to satisfy any of the unsecured
creditor claims. The principal secured creditor currently has a
deficiency of approximately $1,500,000; however there are remaining
assets which could be sufficient enough to satisfy their claims.
Superior Technology, Inc. had guaranteed this secured creditor.
Accordingly, if there were insufficient assets to satisfy this
claim, the Company could be liable for this deficiency. Management
does not believe that the Company will ultimately have any
material liability with respect to this guarantee.
The Company through its subsidiaries is involved in various routine
litigation incident to its business. Management and the
Company's counsel believe that the final outcome of the litigation
will not have a material adverse effect on the Company's
consolidated financial position.
Other:
Reynolds has no insurance against risk of loss that may result from
product liability. Management considers such potential losses as
remote, accordingly, no provision has been made in the
consolidated financial statements for any claims or possible claims
that may arise.
The Company (with the exception of Reynolds and Ohio and Canadian
operations) operates as a non-subscriber of workers' compensation
in Texas, thereby providing benefits under a plan developed by the
Company and accrues benefits as claims arise pursuant to FASB No. 5.
Concentration of Credit Risk:
The Company invests its cash and certificates of deposit primarily
in deposits with major banks. Certain deposits are in excess of
federally insured limits. The Company has not incurred losses
related to its cash.
The Company sells a broad range of products to the electric and gas
utility industries, the defense industry and the telecommunications
industry. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers
comprising the Company's customer base. Ongoing credit evaluations
of customers' financial condition are performed and, generally,
no collateral is required. The Company maintains reserves for
potential credit losses and such losses have not exceeded
management's expectations.
11
STOCKHOLDERS' EQUITY
The Company transferred 20,200 shares of its treasury stock with a
basis of $4.00 per share on March 30, 1995 to a shareholder in
settlement of a potential claim. The market value of the Company's
common stock on March 30, 1995 was $3.00 per share, accordingly,
$60,600 was recorded as an expense and $20,200 reduced additional
paid-in capital.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
STOCKHOLDERS' EQUITY (Continued)
In connection with the Company's financing agreement with The CIT
Group/Credit Finance, Inc. in 1994, the Company issued warrants to
purchase 25,000 shares of common stock of the Company at $4.25
per share. Such warrants are exercisable in whole or part on
or before November 24, 1998 and have piggy-back rights with
respect to any shares to be registered by the Company.
The Company issued 195,000 shares of its common stock for 600,000
shares of Techstar Industries, Inc. common stock during fiscal
1994. The transaction was valued at $202,800 and is recorded in
other assets.
12
BENEFIT PLANS
Test Switch sponsors defined benefit pension plans that cover all of
its hourly employees. The plans call for benefits to be paid to
eligible employees at retirement based upon years of service and
compensation rates near retirement. Superior's policy is to fund
pension expenses accrued.
Pension expense for the years ended July 31,:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Service cost $ - $ - $ 825
Interest cost 127,781 129,662 118,728
Actual return on assets held for the plan (83,194) 11,800 (25,185)
Net amortization of prior service cost,
transition liability and net gain 53,872 (45,840) (26,206)
Pension expense $ 98,459 $ 95,622 $ 68,162
</TABLE>
The following sets forth the funded status of the plans and the
amounts shown in the accompanying consolidated balance sheets at
July 31,:
<TABLE>
1995 1994
<S> <C> <C>
Pension benefit obligations
Vested $1,653,170 $1,663,132
Non-vested 28,842 30,169
Projected benefit obligation 1,682,012 1,693,301
Fair value of assets held in plan 1,234,131 978,928
Unfunded excess of projected benefit obligation over plan assets $ 447,881 $ 714,373
Unrecognized net transition obligation $ 72,711 $ 84,830
Unrecognized prior service costs 124,532 139,051
Unrecognized net loss 265,302 473,823
Pension (asset) liability recognized (14,664) 16,669
Accrued pension liability $ 447,881 $ 714,373
</TABLE>
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
BENEFIT PLANS (Continued)
The Company has recognized a minimum pension liability for the
under-funded plans. The minimum liability is equal to the excess
of the projected benefit obligation over plan assets. A
corresponding amount is recognized as either an intangible asset or
reduction of stockholders' equity. The Company recorded additional
liabilities of $462,545 and $697,704, intangible assets of $197,243
and $223,881 and a stockholders' equity reduction of $265,302 and
$473,823 as of July 31, 1995 and 1994, respectively.
Superior will terminate these plans upon funding its pension
liability. The plan assets consist of common equities and
government securities administered by the trust department of
United Bank, Canton, Ohio.
The assumed long-term rate of investment return and the interest
rate for obligations used in determining the actuarial present
value of accumulated plan benefits was 8.5% and 8.0% at July 31,
1995 and 1994, respectively.
The Company has established a defined contribution (401-K) plan
covering substantially all U. S. employees. Charges to operations
for this plan for the years ended July 31, 1995, 1994 and 1993 were
$80,845, $84,001 and $46,669, respectively.
The Company adopted a new Stock Option Plan ("New Plan") replacing
the Incentive Stock Option Plan ("Old Plan") which terminated by
its own terms on April 14, 1995. All options under the Old Plan
have been granted. Options totaling 394,999 shares of common
stock remain in full force and effect and are outstanding. Such
options were exercisable December 21, 1994 with respect to 333,000
shares and on April 6, 1996 with respect to 61,999 shares. Both
the Old Plan and New Plan have substantially the same structure.
The option price must be at least 100% of the fair market value
of the common stock at the time options are granted. If the
person to whom the option is granted is more than a 10% shareholder
of the Company, the option price must be at least 110% of the fair
market value of the stock at the time options are granted. No
employee may be granted options in any calendar year greater than
a value of $100,000, plus certain carry-over allowances from the
previous years, as defined in the Plan. Each option becomes
exercisable only after two years continued employment following
the date the option is granted. On May 16, 1994, the stockholders
approved the New Plan which provides for 400,000 shares of common
stock. No shares have been granted under the New Plan.
Following is a summary of options under the plan as of and for the years
ended July 31,:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Options outstanding at beginning of year 394,999 465,000 112,000
Granted - 9,999 353,000
Exercised - (80,000) -
Options outstanding at end of year 394,999 394,999 465,000
Options exercisable at end of year 333,000 - 112,000
Exercise price per share $2.50 to $2.50 to $1.30 to
$4.68 $4.68 $4.68
</TABLE>
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
INCOME TAXES
Following is a reconciliation between reported income taxes and the
amount computed by applying the statutory federal income tax
rates to earnings (loss) from continuing operations before income
taxes for the periods ended July 31:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Expected provision (benefit) for federal income taxes $270,532 $(832,300) $391,800
Canadian income tax (benefit) (54,896) - 171,201
Utilization of tax loss carryforward (270,532) - (18,000)
Difference in Canadian rates - (54,400) -
Unavailable loss carrybacks - 544,975 -
Change in the valuation allowance
allocated to income tax expense - - (56,800)
Loss recognized for tax purposes in excess
of financial statement basis - - (317,000)
Income taxes (benefit) $(54,896) $(341,725) $171,201
</TABLE>
The Company files a consolidated tax return with its U.S.
subsidiaries.
As of July 31, 1995, the Company has available approximately
$170,000 in net operating loss carryforwards for tax purposes which
expire, if not utilized, in 2008 and 2009.
Income tax expense (benefit) (all attributable to income from
continuing operations) consisted of the following:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Current $ 20,449 $(135,262) $127,701
Deferred (75,345) (206,463) 43,500
$(54,896) $(341,725) $171,201
</TABLE>
Deferred tax expense (credit) and deferred tax liabilities in all
years (all Canadian) result principally from differences in
depreciation for tax and financial statement purposes.
The components of the net deferred tax liability included in
other long-term obligations are as follows at July 31,:
<TABLE>
1995 1994
<S> <C> <C>
Depreciation - Canada $ - $ 75,345
Depreciation - U. S. 86,020 149,950
Accrued liabilities and deferred income (109,378) (381,400)
Provision for loss on discontinued operations (886,052) (886,052)
Operating loss carryforward (57,929) (695,748)
Deferred tax asset valuation allowance 967,339 1,813,250
$ - $ 75,345
</TABLE>
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
RELATED PARTY TRANSACTIONS
The following is a summary of advances from/to affiliated companies
at July 31,:
<TABLE>
1995 1994
<S> <C> <C>
VSTI $150,000 $150,000
Comtec and others 452,681 (254,768)
$602,681 $(104,768)
</TABLE>
Approximately $530,000 of the receivable from Comtec and other
related parties is secured by an agreement with an officer.
Per the terms of the agreement, the officer will forego collection
of $75,000 in salary annually until repayment is made by Comtec and
other related parties. In the event these affiliates fail to pay
the amounts due the Company, the accumulated unpaid salary will be
applied to the outstanding receivable balance. Therefore, the
accrued and unpaid salary of $362,000 at July 31, 1995 and 1994,
has been offset with the receivable in the accompanying financial
statements. During 1994 the Company purchased certain equipment
with a cost of approximately $47,000 and subsequently sold the
equipment to an affiliated company for $200,000. The gain of
approximately $153,000 is included in other income.
15
SEGMENT INFORMATION
Industrial Segments
The Company operates principally in five industries: electric,
defense electronics, gas, metal fabrication and plastics.
Operations in the electric industry involve the manufacture
and sale of meter sockets and other electrical equipment.
Operations in the defense industry involve the manufacture and
sale of electronic components. Operations in the gas industry
involve the development, manufacture, and sale of gas meters
and measurement equipment. Operations in the metal fabrication
operation involve the manufacture and sale of precision sheet
metal. Operations in the plastics industry include the manufacture
and sale of vacuum-form and injection-mold products. The Company's
former segment, metal extraction has been treated as a discontinued
operation.
Following is a summary of segment information for the years
ended July 31,:
<TABLE>
1995 1994 1993
(Restated)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Electric $16,167,174 $19,438,285 $20,528,525
Defense electronics 6,577,333 7,374,479 6,303,982
Gas 3,143,711 3,420,071 2,604,729
Metal fabrication 14,105,717 14,955,581 12,236,232
Plastics 1,369,693 1,260,582 1,148,932
$41,363,628 $46,448,998 $42,822,400
Operating income (loss):
Electric $ 659,788 $ (762,785)$ 1,005,001
Defense electronics (95,196) (71,322) 1,819,249
Gas 75,643 208,493 (146,384)
Metal fabrication 818,645 400,288 772,254
</TABLE>
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
SEGMENT INFORMATION (Continued)
<TABLE>
1995 1994 1993
(Restated)
<S> <C> <C> <C>
Plastics (25,483) 66,544 (142,653)
1,433,397 (158,782) 3,307,467
General corporate expenses (1,067,409) (771,298) (912,680)
Other income (expense), net 429,693 (1,518,022) (989,448)
Earnings (loss) from continuing operations
before income taxes $ 795,681 $(2,448,102)$ 1,405,339
Identifiable assets:
Electric $ 8,596,181 $12,857,150 $14,730,393
Defense electronics 3,974,844 3,523,317 4,778,132
Gas 2,493,657 2,275,869 2,466,174
Metal fabrication 9,877,149 9,299,649 7,253,063
Plastics 788,769 805,919 1,009,008
25,730,600 28,761,904 30,236,770
General corporate assets 2,503,133 1,597,414 6,097,485
Total assets $28,233,733 $30,359,318 $36,334,255
Capital expenditures:
Electric $ 54,594 $ 157,458 $ 352,033
Defense electronics 250,672 170,150 242,547
Gas 176,724 161,224 329,310
Metal fabrication 344,274 1,988,215 2,783,963
Plastics 53,756 12,041 123,673
General corporate - 2,122 10,600
$ 880,020 $2,491,210 $ 3,842,126
Depreciation and amortization:
Electric $ 200,693 $ 305,641 $ 300,169
Defense electronics 294,239 280,281 171,217
Gas 155,730 125,454 49,966
Metal fabrication 409,478 351,927 279,800
Plastics 62,568 67,373 80,356
General corporate 15,698 14,950 14,801
$ 1,138,406 $1,145,626 $ 896,309
</TABLE>
Operating income represents sales less operating expenses for each
segment and excludes income and expenses of a general corporate
nature. Identifiable assets by segment are those assets that are
used in the Company's operations within that industry but exclude
investments in other industry segments. General corporate assets
consist principally of corporate cash, receivables from affiliates
and the corporate headquarters building.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
SEGMENT INFORMATION (Continued)
The defense electronics segment had one customer which accounted
for $5,490,000, $6,950,000 and $6,250,000 in sales for the year
ended July 31, 1995, 1994 and 1993, respectively.
Geographic information
Financial data by geographic area for the years ended July 31,:
1995
Operating
(loss) Identifiable
Sales Profit Assets
<TABLE>
<S> <C> <C> <C>
United States $32,281,705 $2,032,649 $20,449,381
Canada 9,081,923 (599,252) 5,281,219
Total $41,363,628 $1,433,397 $25,730,600
1994
(Restated)
United States $35,088,921 $1,188,174 $21,533,071
Canada 11,360,077 (1,346,956) 7,228,833
Total $46,448,998 $ (158,782) $28,761,904
</TABLE>
16
RESTATEMENT AND FOURTH QUARTER RESULTS
The Company discovered during the reconciliation process between
beginning and ending physical inventories for the year ended July 31, 1995
at Hydel, that errors were made in the July 31, 1994 inventories. The
July 31, 1994 inventories were determined to have been overstated by
$720,790, accordingly, the July 31, 1994 financial statements herein have
been restated to reflect this adjustment. There was no tax effect,
so the effect of the adjustment was to decrease inventories and retained
earnings and increase net loss by $720,790.
During the fourth quarter of fiscal 1994 and 1993, the Company
recorded the following adjustments which are unusual and non-recurring in
nature. The book to physical inventory adjustment at Hydel and Hydel
Engineering for fiscal 1994 amounted to a decrease of approximately
$1,100,000 and in fiscal 1993 Hydel Engineering's inventory was increased
by approximately, $325,000. The Company provided an additional $4,000,000
reserve against its investment in Trans Metals, Inc. bringing such reserve
to $5,000,000 after the $1,000,000 reserve provided in fiscal 1993.
Further, the Company wrote-off or wrote-down to their estimated
realizable value certain investments and receivables included in other
assets of approximately, $700,0000. The Company wrote off approximately
$150,000 in costs associated with the aborted public offering of senior
secured bonds in fiscal 1993.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
SUBSEQUENT EVENTS
On September 15, 1995 the Company signed a letter of intent to sell
the Test Switch operations, the remaining U.S. electric segment, for
cash of approximately $2,200,000. Such sale is expected to close
on or near October 31, 1995. In connection with the Company's
sale of its meter socket division in April 1995 an agreement was
drafted to sell part of the Canadian operation which has been
supplying certain meter sockets to the U.S. meter socket division.
Such transaction is currently pending and expected to close before
the end of calendar 1995. The Company also has a letter of intent
to acquire a company engaged in the manufacture of Oil and Gas
workover and drilling rigs. Cooper Manufacturing Corporation
(Cooper) has been in the rig business since 1918. The Company is
currently performing its due diligence with respect to Cooper and
should decide shortly how and if such acquisition will proceed.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR YEAR YEAR
YEAR
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JUL-31-1995
<PERIOD-END> JUL-31-1995 JUL-31-1995 JUL-31-1995 JUL-31-1995
JUL-31-1995
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0
<SECURITIES> 0 0 0 0
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<RECEIVABLES> 5,112,853 6,541,832 0 0
0
<ALLOWANCES> (184,317) (150,667) 0 0
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<INVENTORY> 8,317,588 11,181,894 0 0
0
<CURRENT-ASSETS> 15,331,633 18,584,786 0 0
0
<PP&E> 17,233,365 17,397,900 0 0
0
<DEPRECIATION> (7,289,262) (7,174,407) 0 0
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<TOTAL-ASSETS> 28,233,733 30,359,318 0 0
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<CURRENT-LIABILITIES> 11,426,871 15,055,412 0 0
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<BONDS> 0 0 0 0
0
<COMMON> 79,054 79,054 0 0
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0 0 0 0
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0 0 0 0
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<TOTAL-LIABILITY-AND-EQUITY> 28,233,733 30,359,318 0 0
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<SALES> 41,363,628 46,448,998 42,822,400 27,898,721
29,021,919
<TOTAL-REVENUES> 0 0 0 0
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<CGS> 30,915,606 36,491,557 30,079,457 21,224,777
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<TOTAL-COSTS> 0 0 0 0
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<LOSS-PROVISION> 0 0 0 0
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<INTEREST-EXPENSE> 1,090,677 1,042,380 970,362 449,405
525,730
<INCOME-PRETAX> 795,681 (2,448,102) 1,405,339 720,649
1,399,965
<INCOME-TAX> (54,896) (341,725) 171,201 71,499
3,900
<INCOME-CONTINUING> 850,577 (2,106,377) 1,234,138 649,150
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<DISCONTINUED> 0 (4,000,000) (252,949) (245,120)
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<EPS-DILUTED> .11 (.80) .13 .05
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