UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended: January 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________to________________
____________________________________________
Commission File:# 0-14754
ELECTRIC & GAS TECHNOLOGY, INC.
(Exact Name of Registrant as specified in its 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 Offices) (Zip Code)
(214) 934-8797
(Registrant's telephone number, including area code)
____________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
The number of shares outstanding of each of the Issuer's Classes
of Common Stock, as of the close of the period covered by this
report:
Common - $0.01 Par Value - 8,250,416 shares at March 9, 1996.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Form 10-Q
For the Quarter Ended January 31, 1996
Page
Part I - Financial Information
1. Condensed Consolidated Financial Statements:
(a) Condensed Consolidated Balance Sheets as
of January 31, 1996 and July 31, 1995 3
(b) Condensed Consolidated Statements of
Operations for the three and six months
ended January 31, 1996 and 1995 4
(c) Condensed Consolidated Statements of
Cash Flows for the six months ended
January 31, 1996 and 1995 5-6
(d) Notes to Condensed Consolidated
Financial Statements 7-11
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Part II - Other Information
Item 1 - Legal Proceedings 17
Item 6 - Exhibits and Reports on Form 8-K 18
Signature (pursuant to General Instruction E) 19
All other items called for by the instructions are
omitted as they are either inapplicable, not required,
or the information is included in the Condensed
Financial Statements or Notes thereto.
2
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<TABLE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 1996 and July 31, 1995
ASSETS
<S> <C> <C>
January 31, July 31,
1996 1995
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 751,676 $ 1,044,851
Accounts receivable, net 4,586,168 5,112,853
Inventories 8,508,906 8,317,588
Note receivable 487,606 684,031
Prepaid expenses 167,579 172,310
Total current assets 14,501,935 15,331,633
PROPERTY, PLANT AND EQUIPMENT, net 9,084,893 9,944,103
OTHER ASSETS
Discontinued operations 497,332 484,842
Other assets 4,249,984 2,473,155
Total other assets 4,747,316 2,957,997
TOTAL ASSETS $28,334,144 $28,233,733
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,555,459 $ 5,116,457
Accounts payable 4,395,988 3,609,596
Accrued liabilities 1,070,580 1,485,334
Current maturities of long-term obligations 1,203,554 1,215,484
Total current liabilities 11,225,581 11,426,871
LONG-TERM OBLIGATIONS
Long-term obligations, less current maturities 5,766,052 6,379,001
STOCKHOLDERS' EQUITY
Preferred Stock, $10.00 par value, 5,000,000
authorized, Series A, 90,000 issued 900,000 -
Common stock, $.01 par value, 30,000,000 shares
authorized and issued 8,250,416 and 7,905,416,
respectively 82,504 79,054
Additional paid-in capital 10,201,334 9,823,534
Retained earnings 1,729,924 2,091,269
Pension liability adjustment (265,302) (265,302)
Cumulative translation adjustment (429,832) (424,577)
12,218,628 11,303,978
Less treasury stock, 274,792 shares, at cost (876,117) (876,117)
Total stockholders' equity 11,342,511 10,427,861
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,334,144 $28,233,733
See accompanying notes.
3
</TABLE>
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<TABLE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended January 31, 1996 and 1995
(Unaudited)
Three months ended Six months ended
January 31, January 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $8,475,943 $10,534,145 $18,090,452 $22,617,950
Cost of goods sold 6,542,118 8,256,593 13,886,724 17,010,110
Gross profit 1,933,825 2,277,552 4,203,728 5,607,840
Selling, general and
administrative expenses 2,226,444 2,500,417 4,384,007 5,115,280
Operating profit (loss) (292,619) (222,865) (180,279) 492,560
Other income and (expenses)
Interest, net (387,340) (281,823) (743,181) (633,935)
Other, net (4,208) 637,699 562,112 660,385
(391,548) 355,876 (181,069) 26,450
Earning (loss) before income
taxes (684,167) 133,011 (361,348) 519,010
Provision (credit) for
income taxes - (31,976) - (40,011)
NET EARNINGS (LOSS) $ (684,167) $ 164,987 $ (361,348) $ 559,021
Net Earnings (loss) per
common share: $(0.09) $ 0.02 $(0.05) $ 0.07
Weighted average number of
common shares outstanding 7,975,624 7,610,424 7,875,624 7,610,424
See accompanying notes.
4
</TABLE>
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<TABLE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended January 31, 1996 and 1995
(Unaudited)
Six months ended
January 31,
1996 1995
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (Loss) $ (361,348) $ 559,021
Adjustments to reconcile net earnings ( loss)
to net cash provided by operating activities:
Depreciation and amortization 578,583 566,190
Gain on sale of assets (580,576) (614,579)
Issuance of common stock 181,250 -
Changes in assets and liabilities:
Accounts receivable 53,067 944,817
Inventories (826,611) (56,342)
Prepaid expenses 4,731 139,533
Other assets (319,319) (778,847)
Accounts payable 783,106 (880,727)
Accrued liabilities (414,754) (563,886)
Net cash provided by (used in) operating activities (901,871) (684,820)
Cash flows from investing activities:
Proceeds from sale of assets 2,068,583 1,688,963
Proceeds from note receivable 196,425 -
Advances to affiliates (570,000) -
Purchase of property, plant and equipment (98,469) (527,212)
Net cash provided by (used in) investing activities 1,596,539 1,161,751
Cash flows from financing activities:
Purchase of treasury stock - (17,500)
Increase (decrease) in notes payable and
long-term obligations (1,187,843) (504,946)
Proceeds from issuance of common stock 200,000 -
Net cash provided by (used in) financing activities (987,843) (522,446)
NET INCREASE (DECREASE) IN CASH (293,175) (45,515)
Cash - beginning of period 1,044,851 638,245
Cash - end of period $ 751,676 $ 592,730
See accompanying notes.
5
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<TABLE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six months ended January 31, 1996 and 1995
(Unaudited)
Six months ended
January 31,
1996 1995
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for Interest $ 743,181 $ 633,935
The Company issued 90,000 shares of its $10.00 par value
preferred stock in exchange for an assignment of a $900,000 note
receivable from an affiliated.
</TABLE>
See accompanying notes.
6
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996
(Unaudited)
NOTE A - GENERAL
Electric & Gas Technology, Inc., (the "Company") was organized
under the laws of the State of Texas on March 18, 1985, to serve
as a holding company for operating subsidiary corporations. The
Company presently is the owner of 100% of Retech, Inc.(formerly
Test Switch Technology; formerly Superior Technology, Inc.),
which currently owns 80% of American Brass, Inc. and 100% of
Hydel Enterprises, Inc., which currently owns 100% of Hydel
Engineering Limited (Hydel Engineering was merged into Hydel
Enterprises effective August 1, 1995); and the Company owns 100%
of Logic Design Metals, Inc., Precision Techniques, Inc.,
Reynolds Equipment Company, Fridcorp Plastics, Inc. and Superior
Magnetics, Inc.; and, through such subsidiaries, operates in five
distinct business segments: (1) the manufacture and sale of
electrical switching devices, electric meter enclosures and pole-
line hardware for the electric utility industry and the general
public (Retech and Hydel Enterprises); (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 Precision); and (5) the manufacture of
vacuum-form and injection-mold products (Fridcorp). The heating,
U.S. meter socket and test switch divisions (all part of the
electric segment) were sold December 30, 1994, April 30, 1995 and
October 31, 1995, respectively. American Brass, Inc. is a
discontinued operation.
The accompanying condensed financial statements have been
prepared in accordance with the regulations of the Securities and
Exchange Commission (SEC) for inclusion in the Company's
Quarterly Report on Form 10-Q. They are subject to year-end
audit adjustments; however, they reflect all adjustments of a
normal recurring nature which are, in the opinion of Management,
necessary for a fair statement of the results of operations for
the interim periods.
The statements were prepared using generally accepted
accounting principles. As permitted by the SEC, the statements
depart from generally accepted accounting disclosure principles
in that certain data is combined, condensed or summarized that
would otherwise be reported separately and certain disclosures of
the type that were made in the Notes to Financial Statements for
the year ended July 31, 1995 have been omitted, even though they
are necessary for a fair presentation of the financial position
at January 31, 1996 and 1995 and the results of operations and
cash flows for the periods then ended.
7
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1996
(Unaudited)
NOTE B - INVENTORIES
Inventories are comprised as follows:
January 31, 1996 July 31, 1995
Raw Materials $3,883,111 $4,015,142
Work in process 2,137,872 1,906,392
Finished Goods 2,487,923 2,396,054
$8,508,906 $8,317,588
NOTE C - COMMON STOCK AND EARNINGS PER COMMON SHARE
Earnings per common share is based on the average weighted
shares outstanding during the periods reported on.
NOTE D - SALE OF ASSETS
The Company sold the Test Switch division on October 31, 1995
for cash of approximately $2,100,000. The cash was received on
November 1, 1995, accordingly the proceeds were reflected as an
account receivable as of October 31, 1995, the date the
transaction was closed. 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 Test Switch
Technology, Inc. On December 30, 1994, the Company sold
inventory, machinery and equipment and the business operations of
the heating division of its Canadian subsidiary, Hydel
Enterprises, Inc. for cash. The following are the sales, cost of
goods sold and selling, general and administrative expenses
included in the three and six months ended January 31, 1996 and
1995, respectively:
Three months Six months
1996 1995 1996 1995
Sales:
Test Switch $ - $526,000 $577,000 $1,049,000
U.S. Meter Socket $ - $1,617,000 $ - $3,678,000
Heating $ - $811,000 $ - $2,268,000
Cost of goods sold:
Test Switch $ - $310,000 $338,000 $585,000
U.S. Meter Socket $ - $1,465,000 $ - $3,213,000
Heating $ - $549,000 $ - $1,516,000
Selling, general and administrative:
Test Switch $ - $64,000 $76,000 $126,000
U.S. Meter Socket $ - $209,000 $ - $405,000
Heating $ - $71,000 $ - $168,000
8
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1996
(Unaudited)
NOTE E - PREFERRED AND COMMON STOCK ISSUANCE
On December 15, 1995, the Company closed on the 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
obligation's of Cooper Manufacturing Corporation ("Cooper")
under this Note and the Facility Agreement formerly executed by
Cooper and its shareholders in exchange for $100,0000 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 individuals who's 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
believes they will recover their investment and advances to
Cooper and secure ownership of Cooper for the future. 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, 65,000 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 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
plus $1,500 in cash. 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.
9
<PAGE>
NOTE F - INDUSTRY SEGMENT DATA:
<TABLE>
The Company's business is primarily comprised of five industry segments: i. electrical
components and enclosures (Retech and Hydel Enterprises); ii. defense electronics (SMI);
iii. natural gas measurement and recording devices and odorization (Reynolds); iv.
customized metal fabrication (Logic and Precision); and v. injection molding and
thermoforming plastic components (Fridcorp) as set forth below. Operating profits
represent total sales less cost of sales and general and administrative expenses.
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended January 31, 1996
Defense Metal General
Electric Electronics Gas Fabrication Plastics Corporate Consolidated
Sales $1,754,536 $1,800,260 $856,183 $3,769,593 $295,371 $ - $ 8,475,943
Cost of goods sold 1,387,563 1,248,716 488,930 3,185,364 231,545 - 6,542,118
Selling, gen. & adm. 364,891 693,539 375,222 474,810 67,013 250,969 2,226,444
Operating profit(loss) 2,082 (141,995) (7,969) 109,419 (3,187) (250,969) (292,619)
Interest, net (22,480) (93,826) (21,937) (137,434) (3,322) (108,341) (387,340)
Other income(expense) (4,260) - 52 - - - (4,208)
Net earnings (loss)
before income taxes $ (24,658) $(235,821) $(29,854) $ (28,015) $ (6,509) $(359,310) $ (684,167)
Assets:
Receivables $769,198 $760,478 $452,545 $2,470,492 $145,650 $(12,195) $ 4,586,168
Inventory $2,775,862 $2,203,705 $1,169,082 $2,286,401 $73,856 $ - $ 8,508,906
Total assets $6,350,072 $4,134,918 $2,517,139 $10,146,021 $749,463 $4,436,531 $28,334,144
Depreciation $42,097 $72,564 $52,272 $108,328 $6,895 $3,924 $286,080
Additions PP&E $ - $40,597 $6,417 $3,837 $274 $ - $51,125
10
</TABLE>
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NOTE E - INDUSTRY SEGMENT DATA, Continued:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended January 31, 1996
Defense Metal General
Electric Electronics Gas Fabrication Plastics Corporate Consolidated
Sales $4,322,772 $3,532,613 $1,498,727 $8,100,239 $636,101 $ - $18,090,452
Cost of goods sold 3,301,702 2,261,819 886,535 6,930,968 505,700 - 13,886,724
Selling, gen. & adm. 786,029 1,299,840 717,031 975,592 141,835 463,680 4,384,007
Operating profit(loss) 235,041 (29,046) (104,839) 193,679 (11,434) (463,680) (180,279)
Interest, net (100,173) (162,308) (41,309) (275,829) (6,500) (157,062) (743,181)
Other income(expense) 562,019 - 93 - - - 562,112
Net earnings (loss)
before income taxes $ 696,887 $ (191,354) $ (146,055) $ (82,150) $(17,934) $(620,742) $ (361,348)
Depreciation $90,372 $145,129 $104,376 $216,799 $14,058 $7,849 $578,583
Additions PP&E $ - $40,597 $9,718 $32,670 $15,484 $ - $98,469
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company, through its subsidiaries, operates within five
separate industries. These are: (i)the manufacture and sale of
electrical switching devices, electric heaters and metal
enclosures for use in the electric utility industry, (ii)the
manufacture and sale of defense electronics, (iii)the manufacture
of natural gas measurement and gas odorization products, (iv)the
manufacture and sale of precision, customized metal enclosures
for electronic equipment; and (v)the manufacture and sale of
vacuum-form and injection-mold plastic products. The Company's
former metal extraction segment has been treated as a
discontinued operation.
Results of Operations
Summary. The Company reported net (loss) earnings of
$(684,167) and $(361,348) for the three and six months ended
January 31, 1996 compared to $164,987 and $559,021 for the three
and six months ended January 31, 1995, respectively. Operating
income decreased by $(69,754) and $(672,839) for the three and
six months periods, when compared to the same prior periods. The
revenue declines for the three and six months periods are
attributable primarily to the revenues lost due to the sale of
business in the electric segment. The three and six months
decline in net earnings is primarily related to poor performance
in the metal fabrication segment and significantly higher
interest cost. Overall gross margins improved or declined by
1.19% and (1.56%) to 22.82% and 23.24%, respectively for the
three and six month periods.
Increases(decreases) for the six and three months period ended
January 31, 1996, as compared with the similar period of 1995,
for key operating data were as follows:
Three Months Ended Six Months Ended
January 31, 1996 January 31,1996
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $(2,058,202) (19.54) $(4,527,498) (20.02)
Operating Income (69,754) (31.30) (672,839) (136.60)
Earnings (Loss) before
income taxes (817,178) (614.37) (880,358) (169.62)
Net Earnings Per Share (.11) (550.00) (.12) (171.43)
12
<PAGE>
The following table represents the changes
[increase/(decrease)] in operating revenues, operating income and
earnings before income taxes by the respective industry segments
when compared to the previous period:
Three Months Ended Six Months Ended
January 31, 1996 January 31,1996
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Electric $(2,649,455) (128.73) $(5,767,276) (127.38)
Defense electronics 292,467 14.21 234,538 5.18
Gas (39,157) (1.90) (64,527) (1.43)
Metal fabrication 351,629 17.08 1,092,813 24.14
Plastics (13,686) (.66) (23,046) (.51)
$(2,058,202) 100.00 $(4,527,498) 100.00
Operating Income (Loss):
Electric $42,702 38.20 $(30,273) (4.70)
Defense electronics 93,399 83.54 109,750 17.04
Gas (64,061) (57.30) (126,417) (19.63)
Metal fabrication (222,624) (199.14) (625,914) (97.20)
Plastics 38,791 34.70 28,909 4.49
(111,793) 100.00 (643,945) 100.00
General Corporate 42,039 (28,894)
Other Income (Expense) (747,424) (207,519)
Earnings Before Income
Taxes $(817,178) $(880,358)
13
<PAGE>
Electric revenues have been materially affected by the sale
of the Canadian Heating division and the U.S. Meter Socket and
Test Switch divisions. This segment now consist of only the
Canadian electric utility business which is profitable. However,
the first quarter of fiscal 1996 would include three months of
Test Switch revenues. Remaining U.S. assets consist of a vacant
manufacturing facility currently on the market for sale or lease
and a receivable for a portion of the selling price for the Meter
Socket business. Gross margins for the three and six months
improved by 2.48% and 3.10% to 20.92% and 23.62%, respectively.
Selling, general and administrative expenses as a percentage of
sales, which is currently at 18.18% of revenue, will continue to
increase due to carrying cost of the vacant facility with no
offsetting revenues.
Defense electronics revenues for the quarter ended January
31, 1996 amounted to $1,800,260 with operating losses of
$141,995. This compares with revenues of $1,507,793 and
operating losses of $235,394 for the quarter ended January 31,
1995. Revenues for the six months ended January 31, 1996
amounted to $3,532,613 with operating losses of $29,046. This
compares with revenues of $3,298,075 and operating losses of
$138,796 for the six months ended January 31, 1995. Gross
margins declined for the current six month period by 6.59% to
35.97%, reflecting the more competitive nature of current defense
work. Selling, general and administrative expenses as a
percentage revenues declined by 9.98% to 36.80%. The revenue
increases were somewhat nullified by declining gross margins,
however, cost cutting in the selling, general and administrative
expenses have achieved a near break-even performance for the six
months ended January 31, 1996 or a $109,750 improvement. With
the declining defense market this segment continues to seek
additional market opportunities.
Gas revenues declined by $39,157 and $64,527 for the three
and six months ended January 31, 1996. Operating income declined
by $64,061 and $126,417 for the three and six months ended
January 31, 1996, resulting in operating losses of $7,969 and
$104,839, respectively. This decline in operating income was the
result of poorer margins of 42.89% and 40.85% and increases in
selling, general and administrative expenses of 3.73% to 43.82%
and 4.05% to 47.84% of revenues, respectively. The declining
gross margins were the result of changes in product mix, between
odorization systems and lower margin chart drives. Selling,
general and administrative expenses increased substantially due
to additions to technical staff and salary increases based on
higher expected revenues which have not yet materialized. The
warmer than usual winter 1995 conditions have also had an
unfavorable effect on revenues do to declining gas company
purchases.
Metal fabrication revenues increased by $351,629 and
$1,092,813 for the three and six months ended January 31, 1996,
respectively. In spite of the revenue gains, gross margins were
substantially less and selling, general and administrative
expense grew resulting in a decline in operating profits of
$222,624 and $625,914 for the three and six months ended January
31, 1996, respectively. Operating profits for the six months
ended January 31, 1996 were $193,679 which after interest cost of
$275,829 resulted in a net loss of $82,150. This segment usually
a consistent contributor to operating profits, reflects strong
competition and pricing pressure from its large customers. A
through review in currently underway to reduce costs and expenses
to reflect this ever increasing competitive market.
14
<PAGE>
Plastics revenues decreased by $13,686 and $23,046 for the
three and six months ended January 31, 1996, respectively. With
revenues remaining relatively unchanged, operating profits
improved by $38,791 and $28,909 for the three and six months
periods ended January 31, 1996. Operating performance improved
essentially with better margins on products sold. Earlier
periods suffered due to equipment problems which have been
repaired.
With the exception of expense relationships discussed above
in the specific segment discussion, such other relationships
remain consistent. Operating profits decreased by 2.53%, the
effect of lower margins, 1.55%, discussed above and selling,
general and administrative expense, .98%, for the six months
ended January 31, 1996. Net earning were further affected by
increased interest cost.
Liquidity and Capital Resources
Liquidity. Current assets of the Company totaled
$14,501,935 at January 31, 1996, down from current assets of
$15,331,633 at July 31, 1995, or a decrease of $829,698,
primarily reflecting the sale of test switch division and
advances to affiliates included in other assets. Current
liabilities decreased by $201,290, resulting in decrease in
working capital (current assets less current liabilities) to
$3,276,354 at January 31, 1996, from $3,904,762 at July 31, 1995.
The Company believes that its operations will generate cash
sufficient to meet its working capital requirements and debt
obligations.
The sale of the test switch division resulted in cash
proceeds of approximately $2,068,583 on November 1, 1995 which
was used to repay certain secured debt and provide additional
working capital. Proceeds from the note receivable from the sale
of the meter socket division commenced in September, and are due
in equal monthly installments over a twenty-four month period.
Hydel Enterprises has a working capital line-of-credit with
a Canadian bank in the amount of $2,800,000 express in Canadian
dollars. The Canadian credit facility is secured by the
receivables, inventories and equipment of Hydel Enterprises.
Hydel Enterprises has cured its technical default under certain
of its loan covenants and is now in compliance with such
agreements.
The Company continues to borrow under its CIT Group
Credit/Finance, Inc. revolving and term loan facility. Borrowing
under the revolving portion is based on eligible accounts
receivable and inventory. The outstanding revolving loan balance
was $2,453,093 and the term loan balance was $510,659, at January
31, 1996.
15
<PAGE>
On December 15, 1995, the Company closed on the 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
obligation's of Cooper Manufacturing Corporation ("Cooper")
under this Note and the Facility Agreement formerly executed by
Cooper and its shareholders in exchange for $100,0000 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 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, 65,000 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 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
plus $1,500 in cash. 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.
Substantially all of the Company's assets, including
certificates of deposit are pledged as collateral for the
Company's long-term and short-term indebtedness.
Capital Expenditures
For Fiscal 1996, the Company (and its subsidiaries) does not
anticipate any significant capital expenditures, other than in
the ordinary course of replacing worn-out or obsolete machinery
and equipment utilized by its subsidiaries.
Dividend Policy
No cash dividends have been declared 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 it cash flow to
invest in its businesses.
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 affecting the
Company's overall operations is the general state of the economy
and principally the home construction sector.
16
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
American Brass, Inc. (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 secured creditor currently is owed approximately
$1,450,000; however, there are remaining assets which could be
sufficient enough to satisfy its claim. Superior Technology,
Inc. (Superior) is the guarantor of this debt to the secured
creditor. Accordingly, if there were insufficient assets to
satisfy its claim, the Company could be liable for this
deficiency. Effective March 23, 1995, the United States District
Court for the Northern District of Georgia will enter a summary
judgement in the amount of approximately $1,449,000 in favor of
the secured lender against Superior Technology, Inc., a wholly-
owned subsidiary of the Company and which is now being appealed.
In addition, ABI is suing the lender and others for interfering
with the Environmental Protection Agency agreement made by ABI
relating to its inventory of "Ball Mill Residue" and claiming
damages in excess of $2,000,000 which could offset said
judgement. This summary judgement is not reflected on the books
of the Company. The Company believes that a settlement can be
achieved with the secured lender for an amount less than the
judgement. Further, that there are assets available which if
sold could reduce the exposure of the guarantor, Superior(now
Retech, Inc.). We are currently unable to reasonable estimate
the effect of the judgement on the Company.
Pursuant to previous disclosure, the Company has had ongoing
discussions with the Alabama Department of Environmental
Management ("ADEM") regarding the ABI plant site located near
Headland, Alabama. The Company together with an unaffiliated
agricultural company have proposed a clean-up program for the
site. Such proposal involves the processing and sale of the Ball
Mill Residue and clean-up of the other environmental problems
under a self-funding program. To accomplish such a program would
require certain parties including the secured creditor, the
Headland Industrial Development Foundation and the Bond Holders
and their Bank Trustee to reach an agreement or compromise with
regard to any program. In the event such agreements would not be
forthcoming, ADEM will turn the site over to the U.S.
Environmental Protection Agency as a potential Super Fund Site.
The Company's exposure to the cost of any clean-up, if any, is
not currently determinable.
The Company and its subsidiaries are involved in various
routine litigation incident to its business operations.
Management does not believe that any of such litigation will have
a material adverse effect on the consolidated financial position
of the Company.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) Reports on Form 8-K.
Current Report on Form 8-K dated January 26, 1996
(Item 2: with respect to Acquisition or
Disposition of Assets, regarding issuance of
90,000 shares of 7% convertible preferred stock in
exchange for a secured note receivable owed by a
previously proposed acquisition candidate, to
secure the Company's interest.)
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
/s/ Edmund W. Bailey
Edmund W. Bailey
Vice President and
Chief Financial Officer
Dated: March 15, 1996
19
<PAGE>
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