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, 1996
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: (972) 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 29, 1996, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was
approximately $3,500,000. At such date there were 8,250,416
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 Retech, Inc. ("Retech") [formerly
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 outstanding capital stock of Hydel Engineering Limited
("Hydel Engineering") for cash and notes payable of approximately
$719,000 ($850,000 Cdn.). Hydel Engineering was merged into
Hydel effective August 1, 1995. 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 Retech, which
currently owns 80% of ABI and the Company owns 100% of Logic,
Reynolds, Fridcorp, Hydel and SMI, and, through such
subsidiaries, operates in five distinct business segments: (1)
the manufacture and sale of electric meter enclosures and pole-
line hardware for the electric utility industry and the general
public (Hydel and Retech); (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 and Test Switch divisions during fiscal 1996
and 1995. These operations were part of the electric segment.
The Company's Headquarters is located at 13636 Neutron Road,
Dallas, Texas 75244. Its telephone number is (972) 934-8797 and
its facsimile number is (972) 991-3265.
2
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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>
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
July 31, 1996 July 31, 1995 July 31, 1994
Revenue
Electric $ 7,575,126 $16,167,174 $19,438,285
Defense electronics 7,013,706 6,577,333 7,374,479
Gas 2,935,326 3,143,711 3,420,071
Metal fabrication 15,168,121 14,105,717 14,955,581
Plastics 1,275,673 1,369,693 1,260,582
Operating Income (Loss):
Electric $ 324,602 $ 659,788 $ (762,785)
Defense electronics (279,348) (95,196) (71,322)
Gas (646,568) 75,643 208,493
Metal fabrication 234,116 818,645 400,288
Plastics 48,451 (25,483) 66,544
Identifiable Assets:
Electric $ 4,648,198 $ 8,596,181 $12,857,150
Defense electronics 3,581,838 3,974,844 3,523,317
Gas 2,198,034 2,493,657 2,275,869
Metal fabrication 9,301,349 9,877,149 9,299,649
Plastics 665,493 788,769 805,919
Corporate 2,694,693 2,503,133 1,597,414
</TABLE>
Geographic information
Financial data by geographic area for the fiscal year ended
July 31, 1996 are as follows:
<TABLE>
<S> <C> <C> <C>
Operating
(loss) Identifiable
Sales Profit Assets
United States $26,965,367 $(684,510) $16,442,797
Canada 7,002,585 365,763 3,952,115
Total $33,967,952 $(318,747) $20,394,912
</TABLE>
3
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Electric (Hydel and Retech)
History
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
Engineering which was merged into Hydel effective August 1, 1995,
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 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
and a manufacturing facility at 566 Ridge Road, Welland, Ontario
L3B 5R4.
Retech. Retech (formerly 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 Retech arranged
for the purchase of the assets of SSDI by Retech 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 and effective, October 31, 1995
Test Switch changed it name to Retech upon the sale of its
remaining operating division in Canton, Ohio. Retech a non-
operating entity maintains its office at 13636 Neutron Road,
Dallas, Texas 75244-4410.
Products
Hydel. Hydel operated two industrial facilities located
within metropolitan Toronto, Ontario until January 1995 when one
operation was sold. The business which was sold, manufactured
and assembled a line of proprietary electric heating products,
including baseboard heaters and fan-driven heaters. Hydel
Engineering which was merged and operations consolidate with
Hydel, operated out of two industrial facilities: Scarborough,
which was shared with Hydel, and Welland. The Welland facility
continues to be used primarily 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. The Scarborough plant 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.
Retech. Retech operated two industrial facilities, one in
Canton, Ohio, the other in Paris, Texas during most of fiscal
1995 and only its Canton facility during the first quarter of
fiscal 1996. The Canton, Ohio, facility produced a line of
proprietary products approved by Underwriters' Laboratory
("U.L."), an independent testing organization; a line of test
switches. The Paris, Texas, facility 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 included 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 Retech's products,
they were also approved by the National Electrical Manufacturers
Association for residential and industrial usage.
4
<PAGE>
Industry, Customers and Competition
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-Retech. Retech until October 1995, operated in an
industry consisting of suppliers of equipment and accessories to
the public utility industry. The customers for Retech's products
were spread nationwide.
Customers-Hydel. Hydel sells its electric utility supply
products to utilities and others in Canada. Hydel sold its
electric heaters to distributors throughout Canada, as well as in
parts of the Northeastern United States.
Customers-Retech. Retech sold its products to major
electric utilities across the nation.
Competition-Hydel. Hydel faces extreme Canadian competition
for sales of its electric utility supply products primarily from
two electric utility supply manufacturers, Microelectric and
Commander. Pole line hardware's main competitors are Salcan and
Almet.
Competition-Retech. Retech faced competition from numerous
competitors. There was no single dominant competitor in the
industry. Retech's chief competitors are Milbank Manufacturing
Co., Inc., Meter Devices, Inc. and States Electric, Inc.
Marketing
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.
Retech. Retech employed a general sales manager, one
outside salesman and twelve sales representatives to market its
products throughout the United States.
Raw Materials
Hydel. Hydel uses sheet aluminum and sheet steel of various
gauges in its manufacturing processes and two vendors to
galvanize their pole line hardware products. Bar materials are
purchased directly from mills. Hydel purchases products directly
from the mills or distributors. There are adequate sources of
such materials, though price fluctuations have occurred in the
past.
Retech. Retech purchased copper, brass, aluminum and
plastic which are all readily available through numerous vendors.
Employees
Hydel. Hydel currently employs 60 persons, including 14 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.
Retech. Retech currently has no employees. In prior years
the work force ranged from 150 to 20 persons, including
administrative and sales positions. The hourly paid employees
were represented by a local of the International Brotherhood of
Electrical Works (A.F.L.-C.I.O.).
5
<PAGE>
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.
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 105 full-time employees, including
43 clerical, engineering and administrative employees and
approximately 62 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.
6
<PAGE>
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 operated a manufacturers representative company which
generated sales commission derived from unaffiliated
manufacturers. This business was sold to its employees.
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 22 persons, including 2
company officers and 12 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. Retech 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.
7
<PAGE>
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.
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 210 full-time employees, including 15 clerical
and administrative employees and approximately 195 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.
8
<PAGE>
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.
Customers. Fridcorp sells its injection mold products,
primarily plastic bases for boat seats, to boat seat
manufacturers and directly to boat manufacturers. 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 19 persons on a full-time
basis, of which 5 work in the Forming division, 10 persons are in
the 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.
9
<PAGE>
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. The Company has
written off its investment in TMI (ABI).
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.
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. In addition,
Hydel 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 and is currently sublet.
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.
10
<PAGE>
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).
Retech had occupied an industrial building in Canton, Ohio
(leased) which was assumed by the purchaser of Test Switch
operations. The Paris, Texas facility (owned) was vacated as
result of the sale of the meter socket division in April 1995.
This facility, consists of a vacant industrial building
containing approximately 80,000 square feet of space, including
approximately 3,000 square feet of office space. The facility is
currently for sale or lease.
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 creditor
currently has a deficiency of approximately $1,500,000; however
there are 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 29, 1996.
(b) Not applicable.
(c) Not applicable.
11
<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, 1993, 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.
Fiscal year ended July 31, 1996:
High Low
First Quarter 2-7/8 2-1/4
Second Quarter 3-5/32 2-3/4
Third Quarter 3 2-1/2
Fourth Quarter 2 1
Fiscal year ended July 31, 1995:
High Low
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
No dividend has been paid on the Common Stock by the Company
and payment of dividends in the foreseeable future is not
anticipated. Cumulative and unpaid dividends of $39,353 as of
July 31, 1996 must be paid on preferred stock before any
dividends can be paid on Common Stock.
As of July 31, 1996 there were 490 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.
12
<PAGE>
Item 6. Selected Financial Data.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<S> <C> <C> <C> <C> <C>
(In dollars, except shares outstanding)
Fiscal Years Ended July 31,
1996 1995 1994 1993 1992
Revenues $33,967,952 $41,363,628 $46,448,998 $42,822,400 $27,898,721
Gross Profit 7,632,575 10,448,022 9,957,441 12,742,943 6,673,944
Selling, G&A Expense 8,849,955 10,082,034 10,887,521 10,348,156 6,139,014
Other Income (Expense) (3,815,171) 429,693 (1,518,022) (989,448) 185,719
Earnings (Loss) from
Continuing Operations (5,032,551) 850,577 (2,106,377) 1,234,138 649,150
Net Earnings (loss) (5,032,551) 850,577 (6,106,377) 981,189 404,030
Net Earnings (loss)
per Share (.66) .11 (.80) .13 .05
Weighted Average
Number of Shares
Outstanding 7,635,624 7,615,474 7,634,432 7,353,489 6,920,223
BALANCE SHEET DATA:
As of July 31,
1996 1995 1994 1993 1992
Total Assets $23,089,605 $28,233,733 $30,359,318 $36,334,255 $26,315,227
Long-Term Obligations 5,555,954 6,379,001 6,014,513 6,372,631 1,961,608
Shareholders' Equity 6,720,930 10,427,861 9,289,393 15,301,380 14,526,111
</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
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.
13
<PAGE>
Results of Operations
The discussion below relates to the Company's operations
during the fiscal years ended July 31, 1996, 1995 and 1994.
Summary. The Company reported net earnings (loss) from
continuing operations of $(5,326,751), $850,577 and $(2,106,377)
and net earnings (loss) of $(5,326,751), $850,577 and
$(6,106,377) for fiscal years 1996, 1995 and 1994, respectively.
The 1996 losses are primarily related to the following events:
(i) a default on obligations owed the Company by the purchaser of
the U.S. meter socket division of approximately $1,800,000; (ii)
obsolescence on certain inventories of approximately $600,000;
(iii) write-off of the remaining Trans Metals, Inc. assets of
approximately $391,000; (iv) and investment losses of
approximately $1,000,000. Also see discussion of individual
segments for items which adversely affected those operations
during fiscal 1996. 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
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. Earnings (loss) per
common share were $(.70), $.11 and $(.80) in fiscal 1996, 1995
and 1994, respectively.
For the Years Ended July 31,
1996 1995
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $(7,395,676) (17.88) $(5,085,370) (10.95)
Operating Income (1,752,144) (122.24) 1,296,068 139.35
Earnings (Loss) from
continuing operations
before income taxes (5,828,232) (732.48) 3,243,783 132.50
Net Earnings Per Share (.77) (700.00) .91 113.75
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:
For the Years Ended July 31,
1996 1995
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Electric $(8,592,048) (116.18) $(3,271,111) (64.32)
Defense electronics 436,373 5.90 (797,146) (15.68)
Gas (208,385) (2.82) (276,360) (5.43)
Metal fabrication 1,062,404 14.37 (849,864) (16.71)
Plastics (94,020) (1.27) 109,111 2.14
$(7,395,676) 100.00 $(5,085,370) 100.00
14
<PAGE>
For the Years Ended July 31,
1996 1995
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Income (Loss):
Electric $ (335,186) (19.13) $ 1,422,573 89.34
Defense electronics (184,152) (10.51) (23,874) (1.50)
Gas (722,211) (41.22) (132,850) (8.34)
Metal fabrication (584,529) (33.36) 418,357 26.28
Plastics 73,934 4.22 (92,027) (5.78)
(1,752,144) 100.00 1,592,179 100.00
General Corporate 168,776 (296,111)
Other Income (Expense) (4,244,864) 1,947,715
Earnings from Continuing
Operations Before Income
Taxes $(5,828,232) $ 3,243,783
Electric revenues declined by $8,592,048 during fiscal 1996
to $7,575,126 the result of the sales of the meter socket
business in April 1995 and the test switch business in October
1995 for the U.S. operations and the sale of the heating business
in the Canadian operations in January 1995. The 1995 revenues
decreased by $(3,271,111) or decreases in the Canadian operations
of $(2,278,154) and U.S. operations of $(992,957). Operating
income for 1996 decreased by $(335,186) the net effect of
increased operating income of $965,015 for the Canadian
operations and a decrease of $(1,300,201) in U.S. operations, the
result of the aforementioned sales during fiscal 1996 and 1995.
Operating income for 1995 increased for Retech 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 Retech.
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.
Gross profit margins were 24.51%, 22.59% and 14.47% for
fiscal 1996, 1995 and 1994, with selling, general and
administrative expenses as a percentage of sales for the same
period of 20.22%, 18.51% and 18.40%, 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 and
another 1.92% in fiscal 1996. Selling, general and
administrative expenses have increased as a percentage of sales
due to lower sales from sold operations and carrying cost
associated with the physical plant building which was not sold
with the meter socket business. This property is currently
listed for sale.
15
<PAGE>
Defense electronics sales increased by $436,373 to
$7,013,706 during fiscal 1996 after declining by $(797,146) due
to cutbacks in defense spending and the older defense programs
completing production. The current years increase is due to new
customers and the F22 tactical fighter program increasing greater
than decreases in older programs slowly terminating. 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 1996, 1995 and 1994
increased by $(184,152) and $(23,874) to $(279,348), primarily
the result of obsolescence reserves against certain inventory
which was acquired in the original acquisition from Texas
Instruments.
Gross margins for fiscal 1996, 1995 and 1994 were 33.19%,
42.78% and 42.03%. Current margins reflect the additional
reserves charged against cost of sales and lower margins normally
associated with new programs. Selling, general and
administrative expenses were 37.17% in 1996, 44.22% in 1995 and
43.00% in 1994 as a percentage of sales with fiscal 1996
reflecting cost cutting and reductions in overhead expenses.
Gas revenues decreased by $(208,385) and $(276,360) or
(6.63%) and (8.08%) in fiscal 1996 and 1995, respectively. 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 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. Odorization remained stable in 1994 but as
previously mentioned declined in 1996 and 1995. Operating income
(loss) was $(646,568), $75,643 and $208,493 for fiscal 1996, 1995
and 1994, respectively. The 1996 loss resulted from inventory
obsolescence of approximately $385,000 and declining revenues
with staffing levels anticipating higher demand for the Company's
Recor product which did not materialize. The consolidations and
mergers currently taking place in the utility industry and the
warmer than average winters have also contributed to the lower
product demand.
Metal fabrication revenues were $15,168,121, $14,105,717 and
$14,955,581 for fiscal 1996, 1995 and 1994, respectively. In
spite of the revenue increase of $1,062,404, operating profits
declined by $(584,529) to just $234,116. Overhead and
operational problems at the painting facility contributed
significantly to the reduced operating profits. This situation
has now been corrected. Further, during the spring and summer
revenues were from contracts with generally lower margins as the
principal customers were holding orders awaiting the implications
of the recently passed telecommunications legislation. While
revenues declined by $(849,864) during fiscal 1995, operating
profits increased by $418,357 to $818,645 or a 104.53% increase.
During fiscal 1995 we were reasonably successful in turning down
some business with lower margin sales thereby increasing our
operating profits. Operating profits were $234,116, $818,645 and
$400,288 for fiscal years 1996, 1995 and 1994, 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 declined by $(94,020) during fiscal 1996,
however, operating profits increased by $73,934 to a positive
$48,451. Revenues increased slightly by $109,111 and $111,650 or
8.66% and 9.72% in 1995 and 1994, respectively. Operating
profits after having improved to $66,544 in 1994, declined to a
loss of $(25,483) in 1995. Both the increase and decline in
operating profits were directly related to manufacturing problems
occurring during fiscal 1995 which required replacement and
additional maintenance on key injection molding equipment.
16
<PAGE>
Expense relationship to the various changes in revenues and
divestment effecting cost of sales and selling, general and
administrative expenses are as follows. Cost of sales as a
percentage of revenues amounted to 77.53%, 74.74% and 78.56% for
the years ended July 31, 1996, 1995 and 1994, respectively. The
1996 margins were impacted by inventory obsolescence and 1994
margins were impacted by poor Canadian and lower Defense margins.
Selling, general and administrative expenses as a percentage of
revenues were 23.41%, 21.79% and 21.78% for the years ended July
31, 1996, 1995 and 1994, respectively. Fiscal 1996 increases in
selling, general and administrative expenses were the net result
of a reduction in the Defense segment offset by increases in all
other segments as discussed above.
Discontinued operations of ABI and the subsequent
transaction with TMI, resulted in earnings decreasing by
$(4,000,000) in fiscal 1994.
Liquidity and Capital Resources
Liquidity. Cash flow from operating activities amounted to
$(145,001), $(709,772) and $502,785 for fiscal years 1996, 1995
and 1994, respectively. Operating cash flow has been
supplemented by cash made available from the proceeds on the sale
of the various operating divisions. The Company is presently in
the process of refinancing certain of it obligations to provide
needed liquidity and to improve upon its current payment history.
Current assets of the Company totaled $11,697,173 at July
31, 1996, down from current assets of $15,331,633 at July 31,
1995. Current liabilities decreased from fiscal 1995 to fiscal
1996 by $(614,150), resulting in a decrease in working capital
(current assets less current liabilities) to $884,452 at July 31,
1996, from $3,904,762, a decrease of (77.35%). This decrease was
the result of the default on amounts owed on the sale of the
meter socket business, inventory obsolescence, and investment and
advances made to certain affiliates. The Company believes it
will generate cash or raise funds sufficient to meet its working
capital requirements and debt obligations.
Capital Resources. Hydel has a working capital line-of-
credit with a Canadian bank in the amount of $2,036,720. The
Canadian credit facility is secured by receivables, inventories
and equipment of Hydel. Hydel is currently in the process of
refinancing its term and revolving debt whereby it expects to
incur long-term financing from the Canadian Development Bank and
reduce its reliance on its short-term revolving line of credit by
approximately $500,000.
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 $412,275 in term debt
and $2,299,357 in revolving debt at July 31, 1996. 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 one division in fiscal 1996 and two
divisions in fiscal 1995 receiving approximately $2,068,583 and
$3,494,593, respectively in cash proceeds which were used to pay
current obligations, 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.
17
<PAGE>
Capital Expenditures
The Company purchased equipment consisting of normal asset
acquisitions and replacement of approximately $344,447 and
$622,122 during fiscal 1996 and 1995, respectively. 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.
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 on its common
stock 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.
Cumulative dividends on the Series A, 7% Convertible Preferred
Stock, have not been paid and amounted to $39,353 as of July 31,
1996. Further, additional dividends of $15,879 were due on
September 30, 1996
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 Auditors' Report of
Electric & Gas Technology, Inc. and Subsidiaries for July 31,
1996, 1995, and 1994 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.
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
(a) During fiscal year ended July 31, 1996, the following
persons served as directors of Registrant:
Shares
Beneficially
Director Owned (%) of
Name and Age Position Since Outstanding
S. Mort Zimmerman (69) Chairman of the Board, 1985 850,740 9.84%
President and Director
Daniel A. Zimmerman (35) Sr. Vice President 1989 370,131 4.28%
and Director
Edmund W. Bailey (54) Vice President, Chief 1994 52,221 0.60%
Financial Officer and
Director
Fred M. Updegraff (62) Vice President, 1987 76,073 0.88%
Treasurer and Director
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
19
<PAGE>
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, 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. 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, CPA: 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.
20
<PAGE>
(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 Society of Petroleum Engineers, the Society of Plastics
Engineers and the International Association of Energy Economists.
Item 11. Executive Compensation
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Awards Payouts
Annual Compensation Other Restricted Number of Shares Long Term
Annual Stock Covered By Incentive Plan All Other
Name and Principal Position Year Salary Bonus Compensation Awards Option Grant Payout Compensation
S. Mort Zimmerman 1996 $219,400(a) $14,166(b) $ - - 232,000 - -
Chairman of the 1995 110,000 $ - $ - - 232,000 - $642(c)
Board & President
1994 185,000 $ - $ - - 200,000 - $642(c)
</TABLE>
(a) Includes accrued and unpaid compensation of $75,000 for fiscal year
1996 and 1994, respectively.
(b) Issued 11,333 shares of Common Stock valued at $1.25 per share.
(c) Company match of 401 (K) employee contributions.
21
<PAGE>
1996 Stock Option Grants
The following table sets forth stock options granted in
fiscal 1996 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 options granted during fiscal 1996.
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, 1996 and the aggregate gains that would have been
realized had these options been exercised on July 31, 1996, even
though these options were not exercised, and the unexercisable
options would not have been exercised, on July 31, 1996.
Number of Shares Value of Unexercised
Covered by Unexercised In-The- Money
Options on 7/31/96 Options as of 7/31/96
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, 1996 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.
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%) per cent of its
Common Stock at July 31, 1996.
Name and Address Amount and Nature of Percent of
Beneficial Owner Class
S. Mort Zimmerman 850,740 (1) 9.84%
13636 Neutron Road
Dallas, Texas 75244-4410
22
<PAGE>
(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, 1996:
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
S. Mort Zimmerman 850,740 (1) 9.84%
Chairman of the
Board and President
Daniel A. Zimmerman(5) 370,131 (2) 4.28%
Sr. Vice President
and Director
Edmund W. Bailey 52,221 (3) .60%
Vice President &
Chief Financial Officer
Fred M. Updegraff 76,073 (4) .88%
Vice President
Treasurer & Director
All Officers &
Directors, as a
Group 1,363,276 15.77%
(1) Includes (i) 232,000 shares subject to options owned by Mr.
S. Mort Zimmerman; (ii) 82,388 shares of the 823,878 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.
23
<PAGE>
Item 13. Certain Relationships and Related Transactions
THE FOLLOWING IS A SUMMARY OF ADVANCES FROM/TO AFFILIATED
COMPANIES AT JULY 31, 1996.
1996 1995
Refineries Consolidated Technology, Inc. $ 415,000 $ -
Cooper Manufacturing Corporation 1,191,869 -
VSTI - 150,000
Others (58,561) 452,681
$1,548,308 $602,681
The Company for several years has been owed approximately
$530,000 due from Comtec, a dormant affiliate. During 1996, it
was determined that $235,000 of this amount was actually paid for
the benefit of the Company and was written-off in 1996 in other
expenses. It has been determined that Comtec does not have the
capability to liquidate the remaining debt and the remaining
receivable was offset against accrued salaries of the officer who
had guaranteed the receivable. The Company has advanced through
the pledging of its certificates of deposit with a bank,
corresponding to direct bank loans and direct advances to
Refineries Consolidated Technology, Inc. and Cooper Manufacturing
Corporation ("Cooper") approximately $706,869. The Company has
also acquired a secured note receivable from Cooper in exchange
for 90,000 shares of its $10.00 par value Preferred Stock to an
unaffiliated company who previously owned Cooper. 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.
24
<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, 1996
and July 31, 1995.
(iii) Consolidated Statements of Operations for the
three years ended July 31, 1996.
(iv) Consolidated Statements of Changes in
Stockholders' Equity for the three years ended
July 31, 1996.
(v) Consolidated Statements of Cash Flows for the
three years ended July 31, 1996.
(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 and 3.2 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.
25
<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).
10.34 "Asset Purchase Agreement" dated as
of October 31,1995 by and between
Test Switch Technology, Inc.,
Electric & Gas Technology, Inc. and
The Durham Co.
(b) Reports on form 8-K
None
26
<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 November 12, 1996
S. Mort Zimmerman
/s/ Daniel A. Zimmerman Senior Vice President
Daniel A. Zimmerman and Director November 12, 1996
/s/ Edmund W. Bailey Vice President, Chief Financial
Edmund W. Bailey Officer and Director November 12, 1996
/s/ Fred M. Updegraff Vice President, Treasurer
Fred M. Updegraff and Director November 12, 1996
/s/ Marie W. Pazol Secretary November 12, 1996
Marie W. Pazol
27
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC.
AND SUBSIDIARIES
JULY 31, 1996 AND 1995
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
28
<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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended July 31, 1996, in conformity with
generally accepted accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
October 9, 1996 (Except as to Note 7, which is
as of November 12, 1996)
29
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS 1996 1995
Cash and cash equivalents $ 879,110 $ 1,044,851
Accounts receivable trade, less allowance for doubtful
receivables of $39,798 in 1996 and $184,317 in 1995 4,334,153 5,112,853
Note receivable - 684,031
Inventories 6,317,992 8,317,588
Prepaid expenses 165,918 172,310
Total current assets 11,697,173 15,331,633
PROPERTY, PLANT AND EQUIPMENT, net 8,720,454 9,944,103
OTHER ASSETS
Discontinued operations - 484,842
Other assets 2,671,978 2,473,155
Total other assets 2,671,978 2,957,997
TOTAL ASSETS $23,089,605 $28,233,733
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,525,668 $ 5,116,457
Accounts payable 3,733,576 3,609,596
Accrued liabilities 1,355,441 1,485,334
Current maturities of long-term obligations 1,198,036 1,215,484
Total current liabilities 10,812,721 11,426,871
LONG-TERM OBLIGATIONS
Long-term obligations, less current maturities 4,850,308 5,944,202
Other 705,646 434,799
Total long-term obligations 5,555,954 6,379,001
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 5,000,000 shares
authorized, 90,000 issued and outstanding 900,000 -
Common stock, $.01 par value, 30,000,000 shares authorized,
issued 8,250,416 and 7,905,416 in 1996 and 1995,
respectively 82,504 79,054
Additional paid-in capital 10,201,334 9,823,534
Retained earnings (Deficit) (2,941,282) 2,091,269
Pension liability adjustment (214,639) (265,302)
Cumulative translation adjustment (430,870) (424,577)
7,597,047 11,303,978
Less treasury stock, 274,792 shares in 1996 and 1995,
at cost (876,117) (876,117)
Total stockholders' equity 6,720,930 10,427,861
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,089,605 $28,233,733
</TABLE>
See Accompanying notes.
30
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Sales $33,967,952 $41,363,628 $46,448,998
Cost of goods sold 26,335,377 30,915,606 36,491,557
Gross profit 7,632,575 10,448,022 9,957,441
Selling, general and administrative expenses 8,849,955 10,082,034 10,887,521
Operating profit (loss) (1,217,380) 365,988 (930,080)
Other income and (expenses)
Interest, net (1,495,590) (1,090,677) (1,042,380)
Other (Note 2):
Gain on sale of operating divisions 577,336 1,094,743 -
Default on purchase obligation (1,813,838) - -
Investment losses (1,130,590) - (700,000)
Commission adjustment - 286,106 -
Other 47,511 139,521 224,358
(3,815,171) 429,693 (1,518,022)
Earning (loss) from continuing operations
before income tax (5,032,551) 795,681 (2,448,102)
Provision (credit) for income taxes - (54,896) (341,725)
Earnings (loss) from continuing operations (5,032,551) 850,577 (2,106,377)
Discontinued operations (Note 2):
Loss on disposal of metal extraction segment - - (4,000,000)
NET EARNINGS (LOSS) (5,032,551) 850,577 (6,106,377)
Dividends on Preferred Stock (39,353) - -
Net earnings or loss applicable to Common Stock $(5,071,904) $ 850,577 $(6,106,377)
Earnings (loss) per common share:
Primary:
Continuing operations $(0.66) $ 0.11 $(0.28)
Discontinued operations - - (0.52)
Net earnings $(0.66) $ 0.11 $(0.80)
Fully diluted (1)
(1) Conversion of Preferred Stock is antidulitive.
Weighted average number of common
shares outstanding 7,635,624 7,615,474 7,634,432
</TABLE>
See accompanying notes.
31
<PAGE>
<TABLE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended July 31, 1996, 1995 and 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retained Pension
Preferred Common Paid-in (Deficit) liability Translation Treasury
Stock Stock Capital Earnings adjustment adjustments Stock Total
Balance at July 31, 1993 $ - $77,864 $10,003,000 $ 7,347,069 $(424,965) $(305,955) $(1,395,633) $15,301,380
Net loss for the year - - - (6,106,377) - - - (6,106,377)
Pension liability adjustment - - - - (48,858) - - (48,858)
Cumulative translation
adjustments - - - - - (154,892) - (154,892)
Treasury stock cancelled - (1,560) (472,156) - - - 473,716 -
Purchase of treasury stock - - - - - - (17,500) (17,500)
Exercise of options - 800 112,040 - - - - 112,840
Investment in Techstar
Industries, Inc. - 1,950 200,850 - - - - 202,800
Balance at July 31, 1994 - 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 adjustmen - - - - 208,521 - - 208,521
Cumulative translation
adjustments - - - - - 36,270 - 36,270
Treasury stock transferred - - (20,200) - - - 80,800 60,600
Purchase of treasury stock - - - - - - (17,500) (17,500)
Balance at July 31, 1995 - 79,054 9,823,534 2,091,269 (265,302) (424,577) (876,117) 10,427,861
Net earnings for the year - - - (5,032,551) - - - (5,032,551)
Pension liability adjustment - - - - 50,663 - - 50,663
Cumulative translation
adjustments - - - - - (6,293) - (6,293)
Preferred Stock issued 900,000 - - - - - - 900,000
Bonus stock issued - 1,450 179,800 - - - - 181,250
Stock issued for cash - 2,000 198,000 - - - - 200,000
Balance at July 31, 1996 $900,000 $82,504 $10,201,334 $(2,941,282) $(214,639) $(430,870) $ (876,117) $6,720,930
</TABLE>
See accompanying notes.
32
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $(5,032,551) $ 850,577 $(6,106,377)
Adjustments to reconcile net earnings ( loss)
to net cash provided by operating activities:
Discontinued operations - - 4,000,000
Depreciation of property, plant
and equipment 1,102,068 1,138,406 1,145,626
Issuance of stock for services 181,250 - -
Deferred income tax - (75,345) (206,463)
Amortization of goodwill and patents 6,684 6,892 26,850
Treasury stock transferred for expenses - 60,600 -
Gain on sale of operating divisions (577,336) (1,094,743) (156,749)
Deferred income 61,066 - (20,470)
Losses on investments 2,797,948 - -
Changes in assets and liabilities:
Accounts receivable 310,584 1,428,979 (1,842,751)
Inventories 655,082 (454,767) 2,604,561
Prepaid expenses 6,392 50,505 (50,041)
Other assets 510,975 (749,107) 884,533
Accounts payable 143,980 (1,130,536) 86,433
Accrued liabilities (129,893) (741,233) 137,633
Net cash provided by (used in) operating activities 36,249 (709,772) 502,785
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 2,068,583 3,494,593 209,010
Purchase of property, plant and equipment (344,447) (622,122) (1,009,577)
Proceeds on note receivable 264,167 - -
Investments in affiliates (681,869) - -
Acquisition of paint facility - (400,000) -
Net cash provided by (used in) investing activities 1,306,434 2,472,471 (800,567)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 38,976 3,763,021 921,125
Issuance of common stock 200,000 - 112,840
Payments on long-term obligations (1,150,318) (3,640,352) (2,662,578)
Purchase of treasury stock - (17,500) (17,500)
Increase (decrease) in notes payable (590,789) (1,488,985) 610,265
Net cash provided by (used in) financing activities (1,502,131) (1,383,816) (1,035,848)
Effect of exchange rate changes on cash (6,293) 27,723 (268,200)
NET INCREASE (DECREASE) IN CASH (165,741) 406,606 (1,601,830)
Cash - beginning of year 1,044,851 638,245 2,240,075
Cash - end of year $ 879,110 $1,044,851 $ 638,245
</TABLE>
See accompanying notes.
33
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
1996 1995 1994
Cash paid during the year for:
Interest $1,520,776 $ 1,268,542 $1,139,243
Income tax $5,771 $24,969 $42,000
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During the year ended July 31, 1996, the following noncash
transactions occurred:
The Company issued 90,000 shares of Series A, $10.00 par value,
7% Convertible Preferred Stock ($900,000) in partial exchange for a
$1,000,000 Note Receivable from Cooper Manufacturing Corporation.
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.
See accompanying notes.
34
<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 Retech, Inc. ("Retech") [formerly 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 outstanding capital stock of Hydel
Engineering Limited ("Hydel Engineering") for cash and notes
payable of approximately $719,000 ($850,000 Cdn.). Hydel
Engineering was merged into Hydel effective August 1, 1995. 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 Retech, which
currently owns 80% of ABI and the Company owns 100% of Logic,
Reynolds, Fridcorp, Hydel and SMI, and, through such subsidiaries,
operates in five distinct business segments: (1) the manufacture
and sale of electric meter enclosures and pole-line hardware for
the electric utility industry and the general public (Hydel and
Retech); (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 and Test
Switch divisions during fiscal 1996 and 1995. These operations
were part of the electric segment.
The Company has incurred net losses of approximately $10.3
million during the last three years and has used $3.9 million in
financing activities during that period, offset by approximately
$5.7 million in proceeds from the sale of property, plant and
equipment. As a result, the Company has experienced difficulty in
meeting certain of its debt obligations. In order to alleviate
this situation, management has plans for optional debt sources,
plans to consider the disposition of certain assets and has reduced
expenditures and increased sales in portions of its operations
during the first quarter of fiscal 1997. Management believes it
will be successful in these plans.
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.
35
<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.
Reclassification:
Certain reclassification have been made to the 1995 and 1994
consolidated financial statements to conform to the 1996
presentation.
Use of Estimates:
The Company uses estimates and assumptions in preparing
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities and the reported revenues and
expenses. Actual results may well vary from the estimates that are
used.
36
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
DISPOSITIONS AND ACQUISITIONS
The Company sold the Test Switch division on October 31, 1995
for cash of approximately $2,100,000. The gain on the sale was
approximately $580,000 and is included in other income. 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 was 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 was included in other income for fiscal
1995. The purchaser has defaulted on the note, as well as other
obligations to buy certain remaining inventories; accordingly, the
entire amount as been fully reserved (see Note 15). 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.
The following are the sales, cost of goods sold and selling,
general and administrative expenses included in the years ended
July 31,:
1996 1995 1994
Sales:
Test Switch $573,000 $1,906,000 $1,700,000
U.S. Meter Socket $ - $5,179,000 $6,378,000
Heating $ - $2,262,000 $4,492,000
Cost of goods sold:
Test Switch $487,000 $942,000 $1,013,000
U.S. Meter Socket $ - $4,241,000 $5,562,000
Heating $ - $1,543,000 $3,138,000
Selling, general and administrative:
Test Switch $229,000 $296,000 $381,000
U.S. Meter Socket $ - $589,000 $642,000
Heating $ - $82,000 $208,000
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.
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.
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.
The Company was unsuccessful in any further sales of any remaining
ABI assets and, accordingly, wrote-off the remaining balance of its
investment in Trans Metals, Inc. of approximately, $391,000 in
fiscal 1996.
37
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INVENTORIES
Inventories consisted of the following at July 31,:
1996 1995
Raw materials $2,781,867 $4,015,142
Work-in-process 1,274,832 1,906,392
Finished goods 2,261,293 2,396,054
$6,317,992 $8,317,588
4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following
at July 31,:
1996 1995
Land $ 633,096 $ 633,406
Buildings and improvements 5,771,193 5,649,578
Machinery and equipment 9,672,035 10,301,141
Furniture, fixtures & equipment 489,437 649,240
16,565,761 17,233,365
Less accumulated depreciation (7,845,307) (7,289,262)
$8,720,454 $9,944,103
5
OTHER ASSETS
Other assets consisted of the following at July 31,:
1996 1995
Investments and advances
(Notes 10 and 13) $1,606,869 $ -
Note receivable 285,000 660,761
Investment in equity securities 216,026 391,857
Intangible pension asset 170,723 197,243
Deferred debt issue costs 260,816 283,653
Goodwill, net 127,633 134,317
Other receivables - 150,000
Due from (to) affiliates (Note 13) (58,561) 602,681
Deposits and other assets 38,254 27,425
Land held for resale 19,674 19,674
Research and development equipment 5,544 5,544
$2,671,978 $2,473,155
38
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES PAYABLE
Notes payable consisted of the following at July 31,:
1996 1995
Note payable, CIT (a) $2,299,357 $2,339,580
Note payable, bank (b) 450,000 650,000
Note payable, bank (c) 1,776,311 1,922,975
Note payable, bank (d) - 203,902
$4,525,668 $5,116,457
(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 11.5% at July
31, 1996 and 1995, respectively). The revolving credit borrowing
base is based on eligible accounts receivable and inventory, as
defined (See note 7).
(b) Note payable, bank, consists of a $450,000 and $650,000
promissory note as of July 31, 1996 and 1994, respectively, due
November 30, 1996. Interest due monthly at 1.73% above Bank One
certificate of deposit rate (7.5% at July 31, 1996). The note is
secured by a $200,000 and $250,000 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 $2,036,720, payable on demand; bearing
interest at the bank's prime rate plus 1.25%; secured by trade
receivables and inventories of Hydel.
(d) Various notes payable due on demand.
Information relating to short-term borrowing is as
follows: 1996 1995
Balance at end of year $4,525,668 $5,116,457
Maximum borrowing $5,691,826 $6,225,406
Average balance $4,963,633 $5,730,108
Average effective interest rate 11.4% 10.9%
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.
39
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at July 31,:
<TABLE>
<S> <C> <C>
1996 1995
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 11.5% at July 31, 1996
and 1995). 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. $ 412,275 $ 583,683
Notes payable to financing corporations, due in monthly
installments of approximately $57,000 in 1996 and $57,000
in 1995 including interest at rates from 7.5% to 11.5%,
through 2000, collateralized by equipment. 1,826,850 2,253,726
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. 976,676 988,703
Note payable to a bank, interest at the effective base
lending rate of the bank plus 1 1/2% (11.75% at July 31,
1996); due in monthly installments of $3,053 plus interest
through June 2000, collateralized by land and building of
the Company. 256,941 290,523
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
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. 1,946,697 1,983,077
Note payable to a bank, bearing interest at 1 1/4% over the
Canadian prime rate, due in monthly installments of $6,111
principal and interest with final balance due October 31,
1997. 90,936 165,023
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. 48,423 88,008
</TABLE>
40
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
7
LONG-TERM OBLIGATIONS (Continued)
1996 1995
Various other installment notes and capitalized lease
obligations. $ 489,546 $ 701,441
6,048,344 7,159,686
Less current maturities (1,198,036) (1,215,484)
$4,850,308 $5,944,202
</TABLE>
The prime rate was 8.75% and 8.75% at July 31, 1996 and 1995,
respectively.
As of July 31, 1996, the Company was not in compliance with
the payment terms of its notes payable to financing corporations
and the mortgage note payable (SBA loan). However, these loans
were brought current as of November 11, 1996 and accordingly, the
loans continue to be classified in accordance with their original
terms.
The aggregate annual principal payments are as follows:
Year Ending
July 31,
1997 $1,198,036
1998 904,246
1999 707,904
2000 444,123
2001 137,852
Thereafter 2,656,183
8
ACCRUED LIABILITIES
Accrued liabilities consisted of the following at July 31:
1996 1995
Payroll $ 436,996 $ 619,512
Commissions 486,619 335,574
Pension plan (81,590) 2,584
Vacation pay 154,469 164,468
Taxes 191,197 191,674
Interest 2,910 4,144
Miscellaneous 164,840 167,378
$1,355,441 $1,485,334
41
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
COMMITMENTS AND CONTINGENCIES
Total rent expense for the years ended July 31, 1996, 1995 and
1994, was $463,902, $675,104 and $756,882, 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.
See Note 10 regarding the Company's guarantee of the value of
its Preferred Stock to Allied Products Corporation.
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.
Fair value of Financial Instruments:
The estimated fair value amounts have been determined by the
Company, using available market information and appropriate
valuation methodologies. The fair value of financial instruments
classified as current assets or liabilities including cash and cash
equivalents, receivables and accounts payable approximate carrying
value due to the short maturity of the instruments. The fair value
of short-term and long-term debt approximate carrying value based
on their effective interest rates compared to current market rates.
42
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY
On December 15, 1995, the Company closed on a Note Purchase
Agreement with Allied Products Corporation ("Allied"), thereby
obtaining Allied's right, title and interest in and to a certain
Promissory Note and all security existing thereunder and
obligations of Cooper Manufacturing Corporation ("Cooper") under
this Note and the Facility Agreement formerly executed by Cooper
and its shareholders in exchange for $100,000 in cash and newly
issued 90,000 shares of Series A, $10.00 par value, 7% Convertible
Preferred stock of the Company. The promissory note was due on
December 31, 1995 and demand for payment was made on Cooper and its
guarantors. The preferred stock is convertible into common stock
of the Company at the ratio of two shares of common stock for each
share of preferred stock. Each holder of record of the shares of
preferred stock is entitled to one vote per share equal to the
voting rights of the common shareholders. The Company has agreed
to make whole any deficiency upon conversion and subsequent sale
after December 31, 1997 of the Company's common stock for less than
$900,000. The Company's common stock is trading at less than $1.00
per share which if sold at that price would require 900,000 shares
to be sold to retire the obligation to Allied. The Preferred
shares are redeemable in cash plus accrued dividends at any time as
the result of an underwriting as defined therein. Cumulative
dividends as of July 31, 1996 amounted to $35,003 with additional
dividends accruing of $15,879 on September 30, 1996.
The individuals whose stock was pledged and who personally
guaranteed the Allied Note, petitioned the court on behalf of
Cooper to file for protection under the U.S. Bankruptcy laws in a
Houston, Texas court. A hearing was held on January 17, 1996 and
reconvened on January 19, 1996 in which the court deferred any
decision pending settlement negotiations between the parties. The
Company believes the filing was improper as those individuals who
petitioned the court as debtors in possession did not have standing
for such petition. Although the outcome of any bankruptcy
proceeding cannot be determined, the Company believes it has the
only secured creditor position and first rights to the assets of
Cooper. Further, the Company and its affiliate believe they will
recover their investment and advances to Cooper. The Company had a
Letter of Intent to acquire Cooper which has expired and was
determined by the Company not to be pursued. Approximately,
$1,200,000 is currently due from Cooper and is included in other
assets in the accompanying balance sheet.
The Company issued on August 3, 1995, 45,000 shares of its
$.01 par value common stock (restricted) valued at $1.25 per share
to certain of its key management personnel and 100,000 shares
valued at $1.25 per share plus $1,500 in cash to an affiliate of
the Chairman of the Board and President as a fee for providing
continuing collateral securing the Company's $450,000 note payable
to a bank. On October 26, 1995, the Company issued 200,000 shares
of its $.01 par value common stock (restricted) valued at $1.00 per
share for cash to the same affiliate. Proceeds were used to repay
a portion of the Bank One Texas note payable.
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.
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.
43
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS
Retech 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. Retech's policy is to fund
pension expenses accrued.
Pension expense for the years ended July 31,:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Service cost $ - $ - $ -
Interest cost 130,347 127,781 129,662
Actual return on assets held for the plan (107,462) (83,194) 11,800
Net amortization of prior service cost,
transition liability and net gain 43,540 53,872 (45,840)
Pension expense $ 66,425 $ 98,459 $ 95,622
</TABLE>
The following sets forth the funded status of the plans and
the amounts shown in the accompanying consolidated balance sheets
at July 31,:
1996 1995
Pension benefit obligations
Vested $1,684,683 $1,653,170
Non-vested 16,995 28,842
Projected benefit obligation 1,701,678 1,682,012
Fair value of assets held in plan 1,410,122 1,234,131
Unfunded excess of projected benefit
obligation over plan assets $ 291,556 $ 447,881
Unrecognized net transition obligation $ 60,592 $ 72,711
Unrecognized prior service costs 110,131 124,532
Unrecognized net loss 214,639 265,302
Pension (asset) liability recognized (93,806) (14,664)
Accrued pension liability $ 291,556 $ 447,881
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 $385,362 and $462,545, intangible assets of $170,723
and $197,243 and a stockholders' equity reduction of $214,639 and
$265,302 as of July 31, 1996 and 1995, respectively.
Retech 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.
44
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS (Continued)
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 8.5% at
July 31, 1996 and 1995, 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, 1996, 1995
and 1994 were $56,472, $80,845 and $84,001, 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,:
1996 1995 1994
Options outstanding at
beginning of year 394,999 394,999 465,000
Granted - - 9,999
Exercised - - (80,000)
Options outstanding at end of year 394,999 394,999 394,999
Options exercisable at end of year 333,000 333,000 -
Exercise price per share $2.50 to $2.50 to $2.50 to
$4.68 $4.68 $4.68
45
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
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>
<S> <C> <C> <C>
1996 1995 1994
Expected provision (benefit)
for federal income taxes $(1,711,000) $270,532 $(832,300)
Canadian income tax (benefit) - (54,896) -
Utilization of tax loss carryforward (61,000) (270,532) -
Difference in Canadian rates - - (54,400)
Unavailable loss carrybacks 1,772,000 - 544,975
Income taxes (benefit) $ - $(54,896) $(341,725)
</TABLE>
The Company files a consolidated tax return with its U.S.
subsidiaries.
As of July 31, 1996, the Company has available approximately
$5,400,000 in net operating loss carryforwards for tax purposes
which expire, if not utilized, in 2008 to 2010. The Company also
has available approximately $850,000 in capital loss carryforwards.
Income tax expense (benefit) (all attributable to income from
continuing operations) consisted of the following:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Current $ - $ 20,449 $(135,262)
Deferred - (75,345) (206,463)
$ - $(54,896) $(341,725)
</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>
<S> <C> <C>
1996 1995
Depreciation - U. S. $ 283,000 $ 86,020
Accrued liabilities and deferred income (110,200) (109,378)
Provision for loss on discontinued operations (886,052) (886,052)
Operating and capital loss carryforwards (2,035,900) (57,929)
Deferred tax asset valuation allowance 2,749,152 967,339
$ - $ -
</TABLE>
46
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
RELATED PARTY TRANSACTIONS
The following is a summary of advances from/to
affiliated companies at July 31,:
1996 1995
Refineries Consolidated Technology, Inc. $ 415,000 $ -
Cooper Manufacturing Corporation 1,191,869 -
VSTI - 150,000
Others (58,561) 452,681
$1,548,308 $602,681
The Company for several years has been owed approximately
$530,000 due from Comtec, a dormant affiliate. During 1996, it was
determined that $235,000 of this amount was actually paid for the
benefit of the Company and was written-off in 1996 in other
expenses. It has been determined that Comtec does not have the
capability to liquidate the remaining debt and the remaining
receivable was offset against accrued salaries of the officer who
had guaranteed the receivable. The Company has advanced through
the pledging of its certificates of deposit with a bank,
corresponding to direct bank loans and direct advances to
Refineries Consolidated Technology, Inc. and Cooper Manufacturing
Corporation ("Cooper") approximately $706,869. The Company has
also acquired a secured note receivable from Cooper in exchange for
90,000 shares of its $10.00 par value Preferred Stock to an
unaffiliated company who previously owned Cooper. 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.
14
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>
<S> <C> <C> <C>
1996 1995 1994
Sales to unaffiliated customers:
Electric $ 7,575,126 $16,167,174 $19,438,285
Defense electronics 7,013,706 6,577,333 7,374,479
Gas 2,935,326 3,143,711 3,420,071
Metal fabrication 15,168,121 14,105,717 14,955,581
Plastics 1,275,673 1,369,693 1,260,582
$33,967,952 $41,363,628 $46,448,998
</TABLE>
47
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
14
SEGMENT INFORMATION (Continued)
1996 1995 1994
Operating income (loss):
Electric $ 324,602 $ 659,788 $ (762,785)
Defense electronics (279,348) (95,196) (71,322)
Gas (646,568) 75,643 208,493
Metal fabrication 234,116 818,645 400,288
Plastics 48,451 (25,483) 66,544
(318,747) 1,433,397 (158,782)
General corporate expenses (898,633) (1,067,409) (771,298)
Other income (expense), net (3,815,171) 429,693 (1,518,022)
Earnings (loss) from continuing
operations before income taxes $(5,032,551) $ 795,681 $(2,448,102)
Identifiable assets:
Electric $ 4,648,198 $ 8,596,181 $12,857,150
Defense electronics 3,581,838 3,974,844 3,523,317
Gas 2,198,034 2,493,657 2,275,869
Metal fabrication 9,301,349 9,877,149 9,299,649
Plastics 665,493 788,769 805,919
20,394,912 25,730,600 28,761,904
General corporate assets 2,694,693 2,503,133 1,597,414
Total assets $23,089,605 $28,233,733 $30,359,318
Capital expenditures:
Electric $ 30,432 $ 54,594 $ 157,458
Defense electronics 63,243 250,672 170,150
Gas 63,900 176,724 161,224
Metal fabrication 164,303 344,274 1,988,215
Plastics 19,614 53,756 12,041
General corporate 2,955 - 2,122
$ 344,447 $ 880,020 $ 2,491,210
Depreciation and amortization:
Electric $ 150,007 $ 200,693 $ 305,641
Defense electronics 296,767 294,239 280,281
Gas 188,745 162,622 132,346
Metal fabrication 435,914 409,478 371,885
Plastics 21,621 62,568 67,373
General corporate 15,698 15,698 14,950
$1,108,752 $1,145,298 $ 1,172,476
</TABLE>
48
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION (Continued)
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.
Individual customers who exceeded 10% of consolidated revenues
accounted for $7,975,000, $5,490,000 and $6,950,000 in sales for
the year ended July 31, 1996, 1995 and 1994, respectively.
Geographic information
Financial data by geographic area for the years ended July
31,:
1996
Operating
(loss) Identifiable
Sales Profit Assets
United States $26,965,367 $ (684,510) $16,442,747
Canada 7,002,585 365,763 3,952,165
Total $33,967,952 $ (318,747) $20,394,912
1995
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
15
FOURTH QUARTER RESULTS
During the fourth quarter of fiscal 1996 and 1994, the Company
recorded the following adjustments which are unusual and non-
recurring in nature. For fiscal 1996; (i) As result of a default
by the purchaser of the Retech meter socket operation, the Company
fully reserved all amounts owed from the purchaser of approximately
$1,800,000; (ii) obsolete and slow moving inventory write-offs in
the Gas and Defense segments amounted to approximately $600,000;
(iii) the remaining assets of Trans Metals investment were written-
off totaling approximately $391,000; (iv) and investment losses of
approximately $1,000,000. A book to physical inventory adjustment
at Hydel for fiscal 1994 amounted to a decrease of approximately
$1,100,000. 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, $400,000.
49
<PAGE>
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<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 879,110
<SECURITIES> 0
<RECEIVABLES> 4,373,951
<ALLOWANCES> 39,798
<INVENTORY> 6,317,992
<CURRENT-ASSETS> 11,697,173
<PP&E> 16,565,761
<DEPRECIATION> 7,845,307
<TOTAL-ASSETS> 23,089,605
<CURRENT-LIABILITIES> 10,812,721
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900,000
<COMMON> 82,504
<OTHER-SE> 5,738,426
<TOTAL-LIABILITY-AND-EQUITY> 23,089,605
<SALES> 33,967,952
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<CGS> 26,335,377
<TOTAL-COSTS> 35,185,332
<OTHER-EXPENSES> 1,813,838
<LOSS-PROVISION> 1,130,590
<INTEREST-EXPENSE> 1,495,590
<INCOME-PRETAX> (5,032,551)
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