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: April 30, 1997
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)
(972) 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 May 16, 1997.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Form 10-Q
For the Quarter Ended April 30, 1997
Page
Part I - Financial Information
1. Condensed Consolidated Financial Statements:
(a) Condensed Consolidated Balance Sheets as
of April 30, 1997 and July 31, 1996 3
(b) Condensed Consolidated Statements of
Operations for the three and nine months
ended April 30, 1997 and 1996 4
(c) Condensed Consolidated Statements of
Cash Flows for the nine months ended
April 30, 1997 and 1996 5-6
(d) Notes to Condensed Consolidated
Financial Statements 7-12
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-18
Part II - Other Information
Item 1 - Legal Proceedings 19
Item 4 - Submission of matters to a vote of security
holders 20
Item 6 - Exhibits and Reports on Form 8-K 20
Signature (pursuant to General Instruction E) 21
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
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 1997 and July 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
April 30, July 31,
1997 1996
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 76,56 $ 679,110
Certificate of deposit, Pledged 200,000 200,000
Accounts receivable, net 5,102,684 4,334,153
Inventories 6,515,783 6,317,992
Prepaid expenses 219,796 165,918
Total current assets 12,114,823 11,697,173
PROPERTY, PLANT AND EQUIPMENT, net 8,276,411 8,720,454
OTHER ASSETS
Other assets 2,808,683 2,671,978
TOTAL ASSETS $23,199,917 $23,089,605
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,118,991 $ 4,525,668
Accounts payable 3,721,084 3,733,576
Accrued liabilities 1,586,591 1,355,441
Current maturities of long-term
obligations 1,200,713 1,198,036
Total current liabilities 10,627,379 10,812,721
LONG-TERM OBLIGATIONS
Long-term obligations, less current
maturities 5,250,701 5,555,954
STOCKHOLDERS' EQUITY
Preferred Stock, $10.00 par value,
5,000,000 authorized, 90,000 issued
and outstanding 900,000 900,000
Common stock, $.01 par value, 30,000,000
shares authorized and issued 8,250,416 82,504 82,504
Additional paid-in capital 10,201,334 10,201,334
Retained earnings (Deficit) (2,324,573) (2,941,282)
Pension liability adjustment (214,639) (214,639)
Cumulative translation adjustment (446,672) (430,870)
8,197,954 7,597,047
Less treasury stock, 274,792 shares, at
cost (876,117) (876,117)
Total stockholders' equity 7,321,837 6,720,930
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,199,917 $23,089,605
</TABLE>
See accompanying notes.
3
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
April 30, April 30,
1997 1996 1997 1996
Sales $8,867,435 $7,981,150 $26,793,463 $26,071,602
Cost of goods sold 6,206,512 5,665,300 18,821,566 19,552,024
Gross profit 2,660,923 2,315,850 7,971,897 6,519,578
Selling, general and
administrative
expenses 2,172,596 2,137,227 6,473,283 6,521,234
Operating profit (loss) 488,327 178,623 1,498,614 (1,656)
Other income and (expenses)
Interest, net (312,338) (350,895) (955,062) (1,094,076)
Other, net 34,429 (13,735) 73,158 548,377
(277,909) (364,630) (881,904) (545,699)
NET EARNINGS (LOSS) 210,418 (186,007) 616,710 (547,355)
Accrued dividend on preferred
stock 15,362 15,534 47,121 23,647
Net earnings(loss) applicable
to common stock $ 195,056 $ (201,541) $ 569,589 $ (571,002)
Earnings(loss) per share
Primary $.02 $(.03) $.07 $(.07)
Fully diluted $.02 $(.03) .06 $(.07)
Weighted average number of
common shares
outstanding 8,119,124 7,975,624 8,119,124 7,908,957
Fully diluted 9,490,553 7,975,624 9,490,553 7,908,957
</TABLE>
Conversion of preferred shares are anti-dilutive in fiscal
1996.
See accompanying notes.
4
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<S> <C> <C>
Nine months ended
April 30,
1997 1996
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (Loss) $ 616,710 $ (547,355)
Adjustments to reconcile net earnings ( loss)
to net cash provided by operating activities:
Depreciation and amortization 768,542 867,961
Gain on sale of assets - (580,576)
Issuance of common stock - 181,250
Changes in assets and liabilities:
Accounts receivable (768,531) 278,642
Inventories (197,791) (536,160)
Prepaid expenses (53,878) (18,631)
Other assets (136,705) (200,039)
Accounts payable (101,408) (91,925)
Accrued liabilities 231,150 (318,637)
Net cash provided by (used in) operating activities 358,089 (965,470)
Cash flows from investing activities:
Proceeds from sale of assets - 2,068,583
Proceeds from note receivable - 188,135
Advances to affiliates - (676,869)
Purchase of property, plant and equipment (324,499) (107,832)
Net cash provided by (used in) investing activities (324,499) 1,472,017
Cash flows from financing activities:
Increase (decrease) in notes payable and
long-term obligations (636,140) (1,500,609)
Proceeds from issuance of common stock - 200,000
Net cash provided by (used in) financing activities (636,140) (1,300,609)
NET INCREASE (DECREASE) IN CASH (602,550) (794,062)
Cash and cash equivalents - beginning of period 679,110 844,851
Cash and cash equivalents - end of period $ 76,560 $ 50,789
</TABLE>
See accompanying notes.
5
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine months ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<S> <C> <C>
Nine months ended
April 30,
1997 1996
Supplemental disclosures of cash flow information:
Cash paid during the year for Interest $974,176 $1,136,216
The Company in Fiscal 1996 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 affiliate.
</TABLE>
See accompanying notes.
6
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
(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, 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); (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 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, 1996 have been omitted, even though they
are necessary for a fair presentation of the financial position
at April 30, 1997 and 1996 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)
April 30, 1997
(Unaudited)
NOTE B - INVENTORIES
Inventories are comprised as follows:
April 30, 1997 July 31, 1996
Raw Materials $2,645,079 $2,781,867
Work in process 1,489,237 1,274,832
Finished Goods 2,381,467 2,261,293
$6,515,783 $6,317,992
NOTE C - COMMON AND PREFERRED STOCK AND EARNINGS PER COMMON SHARE
Earnings per common share is based on the average weighted
shares outstanding during the periods reported on. Fully diluted
shares assume conversion of the 90,000 of $10 par value preferred
stock into approximately 1,371,400 shares of common stock using
an approximate market value of $.66 per share (See the following
paragraph regarding any ultimate conversion).
The Company issued on April 6, 1997 305,000 options under its
qualified Incentive Stock Option Plan to certain key employees.
There were 180,000 options to purchase shares at $.55 per share
and 125,000 options to purchase shares at $.50 per share of the
Company's $.01 par value common stock.
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 $100,0000 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 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 at April 30th was trading at approximately $.66 per
share which if sold at that price would require approximately
1,371,400 shares to be sold to retire the obligation to Allied.
The Company is of the opinion that the consideration paid for the
Allied note in the form of ELGT preferred stock will require a
major adjustment as to such issuance due to Cooper's bankruptcy
filing regarding the Promissory Note purchased from Allied. Any
final conversion to the Company's common stock is uncertain.
Accumulated and unpaid dividends on the preferred stock, the
ultimate payment of which is uncertain, amounted to approximately
$86,500 at April 30, 1997.
8
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1997
(Unaudited)
NOTE C - COMMON AND PREFERRED STOCK AND EARNINGS PER COMMON
SHARE(Continued)
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. This
amount could be less if the adjustment on the preferred stock
issued to Allied is accomplished. The debtor-in-possession is
nearing completion of its final plan of reorganization which is
expected to keep the Company from incurring any material loss.
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 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.
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 are 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.
The following are sales, cost of goods sold and selling,
general and administrative expenses for the nine months ended
April 30,:
1997 1996
Sales $ - $572,000
Cost of goods sold $ - $338,000
Selling, general and administrative $ - $76,000
9
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1997
(Unaudited)
NOTE E - CONTINGENCIES
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 is owed approximately $1,450,000;
however, there are remaining assets which could be sufficient
enough to satisfy its claim. Superior Technology, Inc.
(Superior) was 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 entered 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.
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,
there are assets available which if sold could reduce the
exposure of the guarantor, Superior(now Retech, Inc.). We are
currently unable to reasonably estimate the effect of the
judgement on the Company, if any, and its exposure is deemed
remote.
The Company has had prior 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 had proposed a clean-up
program for the site. Such proposal involved 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 and is deemed
remote.
10
<PAGE>
NOTE F - INDUSTRY SEGMENT DATA:
<TABLE>
The Company's business is primarily comprised of five industry segments: i. electrical
components and enclosures (Hydel); ii. defense electronics (SMI); iii. natural gas
measurement and recording devices and odorization (Reynolds); iv. customized metal
fabrication (Logic); 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.
Three Months Ended April 30, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Defense Metal General
Electric Electronics Gas Fabrication Plastics Corporate Consolidated
Sales $1,831,259 $1,353,708 $736,515 $4,645,190 $300,763 $ - $ 8,867,435
Cost of goods sold 1,384,185 866,290 404,122 3,338,422 213,493 - 6,206,512
Selling, gen. & adm. 379,772 677,194 348,051 459,069 82,380 226,130 2,172,596
Operating profit(loss) 67,302 (189,776) (15,658) 847,699 4,890 (226,130) 488,327
Interest, net (35,330) (85,762) (12,752) (111,037) (2,507) (64,950) (312,338)
Other income(expense) - 9,688 24,741 - - - 34,429
Net earnings (loss)
before income taxes $ 31,972 $(265,850) $(3,669) $ 736,662 $ 2,383 $(291,080) $ 210,418
Assets:
Receivables $1,207,270 $370,943 $277,130 $3,158,456 $144,224 $4,705 $5,162,728
Inventory $2,078,126 $1,588,426 $688,412 $2,061,845 $98,974 $ - $6,515,783
Total assets $4,744,969 $3,083,278 $2,031,671 $10,141,752 $645,171 $2,553,076 $23,199,917
Depreciation $35,672 $67,926 $40,591 $103,593 $5,788 $2,456 $256,026
Additions PP&E $(20,327) $42,293 $1,671 $41,105 $425 $3,399 $68,566
</TABLE>
11
<PAGE>
NOTE E - INDUSTRY SEGMENT DATA, Continued:
<TABLE>
Nine Months Ended April 30, 1997
Defense Metal General
Electric Electronics Gas Fabrication Plastics Corporate Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $5,396,824 $4,795,956 $2,582,030 $13,141,828 $876,825 $ - $26,793,463
Cost of goods sold 4,126,799 2,954,925 1,442,015 9,653,509 644,318 - 18,821,566
Selling, gen. & adm. 1,186,288 2,081,319 1,017,799 1,348,618 215,536 623,723 6,473,283
Operating profit(loss) 83,737 (240,288) 122,216 2,139,701 16,971 (623,723) 1,498,614
Interest, net (106,005) (251,463) (46,854) (349,994) (8,288) ( 192,458) (955,062)
Other income(expense) (3,447) 49,519 27,086 - - - 73,158
Net earnings (loss)
before income taxes $ (25,715) $ (442,232) $ 102,448 $1,789,707 $ 8,683 $(816,181) $ 616,710
Depreciation $110,122 $195,779 $121,439 $313,214 $17,332 $10,656 $768,542
Additions PP&E $39,875 $173,617 $33,673 $68,410 $5,525 $3,399 $324,499
</TABLE>
12
<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 meter enclosures and pole-line hardware for the
electric utility industry, (ii)the design and manufacture and
sale of defense electronics components, (iii)the manufacture and
sale of natural gas measurement, metering and gas odorization
equipment, (iv)the manufacture and sale of precision metal
enclosures for telecommunication and computer equipment; and
(v)the manufacture and sale of vacuum-form and injection-mold
plastic products.
Results of Operations
Summary. The Company reported net earnings of $210,418 and
$616,710 for the three and nine months ended April 30, 1997
compared to net losses of $(186,007) and $(547,355) for the three
and nine months ended April 30, 1996, respectively. Operating
income increased by $316,984 and $1,441,463 to $714,457 and
$2,122,337, respectively for the three and nine months ended
April 30, 1997, the result of improved margins and reduced
expenses. During the first quarter of fiscal 1996 a gain of
approximately $580,000 was recorded from the sale of the test
switch division and is included in other income. After giving
effect to the operation sold, revenues increased by approximately
$1,300,000. Gross margins improved from 29.02% to 30.01% and
25.01% to 29.75% for the three and nine month periods,
respectively. Selling, general and administrative expenses as a
relationship to revenues at the segment level improved slightly
to 21.83% for the nine months ended April 30, 1997 an improvement
of only .56%. Interest cost decreased by $139,014 due mainly to
less borrowing over the nine month period in 1996, the result of
the aforementioned sale and lower borrowing.
Increases(decreases) for the nine and three months period
ended April 30, 1997, as compared with the similar period of
1996, for key operating data were as follows:
Three Months Ended Nine Months Ended
April 30, 1997 April 30,1997
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $886,285 11.10 $721,861 2.77
Operating Income 309,704 173.38 1,500,270 90,596.01
Earnings (Loss) before
income taxes 396,425 213.12 1,164,065 212.67
Net Earnings Per Share .05 166.67 .14 200.00
13
<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 Nine Months Ended
April 30, 1997 April 30,1997
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Electric $496,425 56.01 $(260,782) (36.13)
Defense electronics (449,317) (50.70) (539,682) (74.76)
Gas 51,559 5.82 398,347 55.18
Metal fabrication 819,666 92.48 1,216,065 168.46
Plastics (32,048) (3.61) (92,087) (12.75)
$886,285 100.00 $ 721,861 100.00
Operating Income (Loss):
Electric $ 30,716 9.69 $(187,890) (13.03)
Defense electronics (274,970) (86.75) (296,436) (20.56)
Gas 175,329 55.31 418,042 29.00
Metal fabrication 410,515 129.51 1,508,837 104.67
Plastics (24,606) (7.76) (1,090) (.08)
316,984 100.00 1,441,463 100.00
General Corporate (7,280) 58,807
Other Income (Expense) 86,721 (336,205)
Earnings Before Income
Taxes $396,425 $1,164,065
14
<PAGE>
Electric revenues in the aggregate were down for the nine
months ended April 30, 1997 by $260,782. After giving effect to
revenue losses for the division sold of $572,541, revenues
increased by $311,759. Revenues were up by $496,425 or 37.19%
for the three months ended April 30, 1997. Gross margins for the
nine months changed little to 23.53% from 24.28%. Operating
profits were slightly above break-even hindered by the carrying
cost of the Paris, Texas facility which is currently for sale.
We have recently received several serious inquiries regarding the
sale of this facility. The electric segment now consists of only
the Canadian meter socket and pole line hardware product lines
selling almost entirely in the Canadian markets. This unit
reflected an operating profit of $67,302 and $253,149 for the
three and nine months ended April 30, 1997 compared to $66,188
and $229,439 for the prior periods with revenue increases of
$496,425 and $311,759, respectively. Revenue increases are
attributable to a stronger Canadian economy and improved customer
delivery schedules.
Defense electronics revenues for the quarter ended April 30,
1997 amounted to $1,353,708 with operating loss of $(189,776).
This compares with revenues of $1,803,025 and operating profit of
$85,194 for the quarter ended April 30, 1996. Nine month figures
were revenues of $4,795,956 with an operating loss of $(240,288)
for 1997 compared to revenues of $5,335,638 with an operating
profit of $56,148 for 1996. Gross margins decreased as a
percentage of revenues by .79% to 38.39% for the nine months
ended April 30, 1997. With these lower revenues selling, general
and administrative expenses increased as a percentage thereof by
6.85% to 43.40%. At the end of the second quarter, the defense
segment had a reduction-in-force (RIF) of approximately 25
employees. The RIF in short run with its added expenses will
adversely effect earnings. With the declining defense market
this segment is actively seeking to expand its customer base.
Texas Instruments Incorporated (TI) continues to be our largest
customer. TI recently announced the sale of their defense
business to Raytheon. Certain orders, although not cancelled,
have been pushed out adversely affecting near term revenues. We
are currently unable to assess what effect, if any, this sale
could have on future operations.
Gas revenues increased by $51,559 and $398,347 for the three
and nine months ended April 30, 1997. Operating income increased
by $175,329 and $418,042 for the three and nine months ended
April 30, 1997, resulting in operating (loss) profit of $(15,658)
and $122,216, respectively. Revenues increased in both the RECOR
and Odorization product lines. These revenue increases were also
accomplished with improved margins of 45.13% and 44.15%, an
increase of 19.67% and 8.13%, respectively and fewer dollars
spent on selling, general and administrative expenses. The
warmer than customary winter season could adversely effect future
performance. A new version of the RECOR product was recently
introduced. This new version targets a larger market and is sold
at a significantly reduced price. In the short-term, this
product has slowed sales in the other RECOR product line and will
require Beta testing by our customers before its sales potential
can be fully realized. This segment is seeking to broaden its
market in export sales.
15
<PAGE>
Metal fabrication revenues increased for the third quarter
of fiscal 1997 to $4,645,190. Gross margins increased by 3.09%
to 28.13% for the three months ended April 30, 1997. Nine months
revenues amounted to $13,141,828 or an 10.20% increase over the
previous period in fiscal 1996. Gross margins also increased by
8.71% to 26.54%. Selling, general and administrative expenses
decreased by 2.29% to 10.26% of revenues, resulting in operating
profits of 16.28% or $2,139,701 for the nine months ended April
30, 1997. These significant gains are attributable to increased
orders in the telecommunication sector and better margins on
other fabricated products. We also made dramatic improvements in
efficiencies and reduced cost in the painting operations, as well
as reducing cost overall.
Plastics revenues decreased by $32,048 and $92,087 for the
three and nine months ended April 30, 1997. Operating profits
amounted to $16,971 for the nine months ended April 30, 1997, a
change of only $(1,090). With the declining revenues the ability
to further reduce expenses becomes more difficult and adversely
effects operating profits. This segment is attempting to develop
new products to booster its sales and earnings. Its market's
remains very competitive.
With the exception of expense relationships discussed above
in the specific segment discussion, such other relationships
remain consistent. Operating profits increased by 3.08% and
5.31% for the three and nine months ended April 30, 1997, the
effect of more realistic margins, 30.01% and 29.75%,
respectively, discussed above; and improved selling, general and
administrative expense for the three and nine months ended April
30, 1997.
Other. The Company's 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. 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
approximately $.66 per share which if sold at that price would
require approximately 1,371,400 shares to be sold to convert the
preferred shares. These shares were issued to obtain control of
Cooper Manufacturing Corporation(Cooper). Final conversion to
the Company's common stock is uncertain. Accumulated and unpaid
dividends on the preferred stock amounted to approximately
$86,500 at April 30, 1997. Cooper filed for protection under the
U.S. Bankruptcy laws. The outcome of any bankruptcy proceeding
cannot be determined, however, 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. Approximately,
$1,200,000 is currently due from Cooper and is included in other
assets in the accompanying balance sheet. The debtor-in-
possession is nearing completion of it final plan of
reorganization which is expected to keep the Company from
incurring any material loss.
16
<PAGE>
Liquidity and Capital Resources
Liquidity. Current assets of the Company totaled
$12,114,823 at April 30, 1997, up from current assets of
$11,697,173 at July 31, 1996, or a increase of $417,650. Current
liabilities decreased by $(185,342), resulting in an increase in
working capital (current assets less current liabilities) to
$1,487,444 at April 30, 1997 from $884,452 at July 31, 1996. 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.
Hydel has a new working capital line-of-credit with its
Canadian bank in the amount of approximately $1,600,000
($2,150,000 Cdn.) through January 1998. The Canadian credit
facility is secured by receivables and inventories. Hydel
refinanced its term debt with the Business Development Bank of
Canada for $750,000 Cdn. Proceeds were used to reduce revolving
and creditor debts.
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, approximately $2,700,000, and the term loan balance was,
approximately $280,000, at April 30, 1997. The CIT loan
agreement is currently being revised to provide additional funds
to the Company. The term loan is being reloaded to 80% of the
eligible collateral value and the advance rate for eligible
receivables and inventory has also been increased. The Company
anticipates an increase of approximately $1,000,000 in potential
additional borrowing base.
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. (Also see Note C to the Condensed
Consolidated Financial Statements.)
17
<PAGE>
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 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.
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 1997, 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. Cumulative dividends on the Series A,
7% Convertible Preferred Stock, have not been paid and amounted
to approximately $86,500 as of April 30, 1997.
Other Business Matters
Accounting for Stock-Based Compensation. The Company has a
qualified stock option plan. There are presently no other plans
nor consideration for any other stock-based compensation plans;
therefore, FASB No. 123 is expected to have no material impact on
the Company's financial position or results of operations.
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.
18
<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 is owed approximately $1,450,000;
however, there are remaining assets which could be sufficient
enough to satisfy its claim. Superior Technology, Inc.
(Superior) was 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 entered 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.
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,
there are assets available which if sold could reduce the
exposure of the guarantor, Superior(now Retech, Inc.). We are
currently unable to reasonably estimate the effect of the
judgement on the Company, if any, and its exposure is deemed
remote.
Pursuant to previous disclosure, the Company has had prior
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 had proposed a clean-up program for the
site. Such proposal involved 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 and is deemed remote.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual stockholders meeting on April 4,
1997. The following individuals were elected as directors until
the Company's next annual meeting:
S. Mort Zimmerman
Daniel A. Zimmerman
Edmund W. Bailey
Fred M. Updegraff
James J. Ling
Dick T. Bobbitt
Jackson & Rhodes P.C. appointment as auditors was ratified
with 6,485,255 affirmative votes and 44,904 against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) Reports on Form 8-K.
None
20
<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: June 2, 1997
21
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