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, 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 March 6, 1997.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Form 10-Q
For the Quarter Ended January 31, 1997
Page
Part I - Financial Information
1. Condensed Consolidated Financial Statements:
(a) Condensed Consolidated Balance Sheets as
of January 31, 1997 and July 31, 1996 3
(b) Condensed Consolidated Statements of
Operations for the three and six months
ended January 31, 1997 and 1996 4
(c) Condensed Consolidated Statements of
Cash Flows for the six months ended
January 31, 1997 and 1996 5
(d) Notes to Condensed Consolidated
Financial Statements 6-11
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
Part II - Other Information
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 19
Signature (pursuant to General Instruction E) 20
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
January 31, 1997 and July 31, 1996
ASSETS
January 31, July 31,
1997 1996
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 151,584 $ 679,110
Certificate of deposit, Pledged 200,000 200,000
Accounts receivable, net 4,249,076 4,334,153
Inventories 6,572,811 6,317,992
Prepaid expenses 213,088 165,918
Total current assets 11,386,559 11,697,173
PROPERTY, PLANT AND EQUIPMENT, net 8,463,872 8,720,454
OTHER ASSETS
Other assets 2,859,884 2,671,978
TOTAL ASSETS $22,710,315 $23,089,605
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,090,486 $ 4,525,668
Accounts payable 3,279,587 3,733,576
Accrued liabilities 1,502,754 1,355,441
Current maturities of long-term
obligations 1,192,222 1,198,036
Total current liabilities 10,065,049 10,812,721
LONG-TERM OBLIGATIONS
Long-term obligations, less current
maturities 5,501,021 5,555,954
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 5,000,000
shares 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) (2,534,989) (2,941,282)
Pension liability adjustment (214,639) (214,639)
Cumulative translation adjustment (413,848) (430,870)
8,020,362 7,597,047
Less treasury stock, 274,792 shares,
at cost (876,117) (876,117)
Total stockholders' equity 7,144,245 6,720,930
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,710,315 $23,089,605
See accompanying notes.
3
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended January 31, 1997 and 1996
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
January 31, January 31,
1997 1996 1997 1996
Sales $8,779,315 $8,475,943 $17,926,028 $18,090,452
Cost of goods sold 6,303,257 6,542,118 12,615,054 13,886,724
Gross profit 2,476,058 1,933,825 5,310,974 4,203,728
Selling, general and
administrative expenses 2,310,390 2,226,444 4,300,687 4,384,007
Operating profit (loss) 165,668 (292,619) 1,010,287 (180,279)
Other income and (expenses)
Interest, net (316,842) (387,340) (642,724) (743,181)
Other, net 23,933 (4,208) 38,729 562,112
(292,909) (391,548) (603,995) (181,069)
Earning (loss) before income
taxes (127,241) (684,167) 406,292 (361,348)
Provision (credit) for
income taxes - - - -
NET EARNINGS (LOSS) (127,241) (684,167) 406,292 (361,348)
Accrued dividend on
preferred stock 15,879 - 31,759 -
Net earnings (loss)applicable
to common stock $ (143,120) $ (684,167) $ 374,533 $ (361,348)
Earnings (loss) per share:
Primary $(0.02) $(0.09) $ 0.05 $(0.05)
Fully diluted $(0.02) $(0.09) $ 0.04 $(0.05)
Weighted average number of
common shares outstanding 7,975,624 7,975,624 7,975,624 7,875,624
Fully diluted 7,975,624 7,975,624 9,347,053 7,875,624
</TABLE>
See accompanying notes.
4
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended January 31, 1997 and 1996
(Unaudited)
<TABLE>
<S> <C> <C>
Six months ended
January 31,
1997 1996
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $ 406,292 $ (361,348)
Adjustments to reconcile net earnings ( loss)
to net cash provided by operating activities:
Depreciation and amortization 512,516 578,583
Gain on sale of assets - (580,576)
Issuance of common stock - 181,250
Changes in assets and liabilities:
Accounts receivable 85,077 53,067
Inventories (254,819) (826,611)
Prepaid expenses (47,170) 4,731
Other assets 17,704 (319,319)
Accounts payable (485,267) 783,106
Accrued liabilities 147,313 (414,754)
Net cash provided by (used in) operating activities 381,646 (901,871)
Cash flows from investing activities:
Proceeds from sale of assets - 2,068,583
Proceeds from note receivable - 196,425
Advance to affiliates - (570,000)
Purchase of property, plant and equipment (255,934) (98,469)
Net cash provided by (used in) investing activities (255,934) 1,596,539
Cash flows from financing activities:
Increase (decrease) in notes payable and
long-term obligations (447,628) (1,187,843)
Advance to affiliate (205,610) -
Proceeds from issuance of common stock - 200,000
Net cash provided by (used in) financing activities (653,238) (987,843)
NET INCREASE (DECREASE) IN CASH (527,526) (293,175)
Cash and cash equivalents - beginning of period 679,110 1,044,851
Cash and cash equivalents - end of period $ 151,584 $ 751,676
Supplemental disclosures of cash flow information:
Cash paid during the year for Interest $ 642,724 $ 743,181
</TABLE>
See accompanying notes.
5
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 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 January 31, 1997 and 1996 and the results of operations and
cash flows for the periods then ended.
6
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1997
(Unaudited)
NOTE B - INVENTORIES
Inventories are comprised as follows:
January 31, 1997 July 31, 1996
Raw Materials $2,518,037 $2,781,867
Work in process 1,363,130 1,274,832
Finished Goods 2,691,644 2,261,293
$6,572,811 $6,317,992
NOTE C - COMMON AND PREFERRED STOCK AND EARNINGS PER 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).
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 is 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 will
require a major adjustment 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 amounted
to approximately $71,000 at January 31, 1997.
7
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1997
(Unaudited)
NOTE C - COMMON AND PREFERRED STOCK AND EARNINGS PER
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. 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.
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 six months ended
January 31,:
1997 1996
Sales $ - $572,000
Cost of goods sold $ - $338,000
Selling, general and administrative $ - $76,000
8
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 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.
9
<PAGE>
NOTE F - INDUSTRY SEGMENT DATA:
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 January 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Defense Metal General
Electric Electronics Gas Fabrication Plastics Corporate Consolidated
Sales $1,687,106 $1,591,687 $938,311 $4,306,211 $256,000 $ - $ 8,779,315
Cost of goods sold 1,244,494 1,044,586 523,754 3,292,160 198,263 - 6,303,257
Selling, gen. & adm. 420,155 757,292 339,368 481,234 68,641 243,700 2,310,390
Operating profit(loss) 22,457 (210,191) 75,189 532,817 (10,904) (243,700) 165,668
Interest, net (32,281) (81,127) (15,581) (122,940) (3,039) (61,874) (316,842)
Other income(expense) - 30,099 (6,166) - - - 23,933
Net earnings (loss)
before income taxes $ (9,824) $ (261,219) $ 53,442 $ 409,877 $(13,943) $(305,574) $ (127,241)
Assets:
Receivables $913,324 $573,150 $317,783 $2,388,607 $138,705 $ (12,695) $ 4,318,874
Inventory $2,236,279 $1,620,843 $687,949 $1,938,371 $ 89,369 $ - $ 6,572,811
Total assets $4,662,382 $3,121,943 $2,022,178 $9,452,310 $629,126 $2,822,376 $22,710,315
Depreciation $37,520 $63,927 $42,178 $104,810 $5,782 $4,101 $258,318
Additions PP&E $10,589 $122,509 $8,342 $ - $ - $ - $141,440
</TABLE>
10
<PAGE>
NOTE F - INDUSTRY SEGMENT DATA(Continued):
Six Months Ended January 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Defense Metal General
Electric Electronics Gas Fabrication Plastics Corporate Consolidated
Sales $3,565,565 $3,442,248 $1,845,515 $8,496,638 $576,062 $ - $17,926,028
Cost of goods sold 2,742,614 2,088,635 1,037,893 6,315,087 430,825 - 12,615,054
Selling, gen. & adm. 806,516 1,404,125 669,748 889,549 133,156 397,593 4,300,687
Operating profit(loss) 16,435 (50,512) 137,874 1,292,002 12,081 (397,593) 1,010,287
Interest, net (70,675) (165,701) (34,102) (238,957) (5,781) (127,508) (642,724)
Other income(expense) (3,447) 39,831 2,345 - - - 38,729
Net earnings (loss)
before income taxes $ (57,687) $ (176,382) $ 106,117 $1,053,045 $ 6,300 $(525,101) $ 406,292
Depreciation $74,450 $127,853 $80,848 $209,621 $11,544 $8,200 $512,516
Additions PP&E $60,202 $131,325 $32,002 $27,305 $5,100 $ - $255,934
</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 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 (loss) earnings of
$(127,241) and $406,292 for the three and six months ended
January 31, 1997 compared to $(684,167) and $(361,348) for the
three and six months ended January 31, 1996, respectively.
Operating income increased by $451,018 and $1,124,479 to $409,368
and $1,407,880, respectively for the three and six months ended
January 31, 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 slightly by
approximately $400,000. Gross margins improved from 22.82% to
28.20% and 23.24% to 29.63% for the three and six month periods,
respectively. Selling, general and administrative expenses as a
relationship to revenues at the segment level improved slightly
to 21.77% for the six months ended January 31, 1997 an
improvement of only .10%. Interest cost decreased by $100,457
due mainly to less borrowing over the six month period in 1996,
the result of the aforementioned sale and lower borrowing.
Increases(decreases) for the three and six months period ended
January 31, 1997, as compared with the similar period of 1996,
for key operating data were as follows:
<TABLE>
Three Months Ended Six Months Ended
January 31,1997 January 31, 1997
<S> <C> <C> <C> <C>
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $303,372 3.46 $ (164,424) (.92)
Operating Income 451,018 1,082.88 1,124,479 396.78
Earnings before income taxes 556,926 81.40 767,640 212.44
Net Earnings Per Share .07 77.78 .10 200.00
</TABLE>
12
<PAGE>
The following table represents the changes
[increase/(decrease)] in operating revenues, operating income and
net earnings before income taxes by the respective industry
segments when compared to the previous period:
<TABLE>
Three Months Ended Six Months Ended
January 31,1997 January 31, 1997
Increase Increase
(Decrease) Percent (Decrease) Percent
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $ (67,430) (22.23) $(757,207)(460.52)
Defense electronics (208,573) (68.75) (90,365) (54.96)
Gas 82,128 27.07 346,788 210.91
Metal fabrication 536,618 176.89 396,399 241.08
Plastics (39,371) (12.98) (60,039) (36.51)
$303,372 100.00 $(164,424) 100.00
Operating Income (Loss):
Electric $ 20,375 4.52 $ (218,606) (19.44)
Defense electronics (68,196) (15.12) (21,466) (1.91)
Gas 83,158 18.44 242,713 21.59
Metal fabrication 423,398 93.87 1,098,323 97.67
Plastics (7,717) (1.71) 23,515 2.09
451,018 100.00 1,124,479 100.00
General Corporate 7,269 66,087
Other Income (Expense) 98,639 (422,926)
Earnings before Income
Taxes $556,926 $ 767,640
</TABLE>
11
<PAGE>
Electric revenues in the aggregate were down for the six
months ended January 31, 1997 by $757,207. After giving effect
to revenue losses for the division sold of $572,541, revenues
decreased by only $184,666. Revenues were only slightly down by
$67,430 or 4% for the three months ended January 31, 1997. Gross
margins for the six months changed little to 23.08% from 23.62%.
Operating profits approximated break-even due to the carrying
cost of the Paris, Texas facility which is currently for sale.
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 operation continues to
show profits since management changes were made over a year ago.
This unit reflected an operating profit of $56,290 and $127,444
for the three and six months ended January 31, 1997 down by
$26,327 and $35,807 in spite of the revenue decline of $67,260
and $184,666, respectively. Revenues were hindered by production
problems due to the temporary loss of a shear. The machinery has
since been repaired and is now in full service.
Defense electronics revenues for the quarter ended January
31, 1997 amounted to $1,591,687 with operating loss of
$(210,191). This compares with revenues of $1,800,260 and
operating loss of $(141,995) for the quarter ended January 31,
1996. Six month figures were revenues of $3,442,248 with an
operating loss of $(50,512) for 1997 compared to revenues of
$3,532,613 with an operating loss of $(29,046) for 1996. Gross
margins increased as a percentage of revenues by 3.35% to 39.32%
for the six months ended January 31, 1997. However, these
margins were lost with selling, general and administrative
expenses increasing by 4.0% to 40.79%. Gross margin improvements
have been attributable to improved production efficiencies with
less scrap. 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 improvement expected during the
third and fourth quarters. 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. We are currently unable to assess what
effect, if any, this sale could have on our operations.
Gas revenues increased by $82,128 and $346,788 for the three
and six months ended January 31, 1997. Operating income
increased by $83,158 and $242,713 for the three and six months
ended January 31, 1997, resulting in operating profit of $75,189
and $137,874, respectively. Revenues increased in both the RECOR
and Odorization product lines. These revenue increases were also
accomplished with improved margins of 44.18% and 43.76%, an
increase of 1.29% and 2.91%, respectively and fewer dollars spent
on selling, general and administrative expenses. The warmer than
customary winter season could adversely effect future
performance. This segment is seeking to broaden its market in
export sales.
14
<PAGE>
Metal fabrication revenues increased for the second quarter
of fiscal 1997 to $4,306,211. Gross margins increased by 8.05%
to 23.55% for the three months ended January 31, 1997. Six
months revenues amounted to $8,496,638 or an 4.67% increase over
the previous period in fiscal 1996. Gross margins also increased
by 11.24% to 25.68%. Selling, general and administrative
expenses decreased by 1.57% to 10.47% of revenues, resulting in
operating profits of 15.21% or $1,292,002 for the six months
ended January 31, 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 $39,371 and $60,039 for the
three and six months ended January 31, 1997. With revenues
remaining relatively unchanged, operating profits increased by
$23,515 for the six months ended January 31, 1997. The increases
in operating profits were due to improved margins of .94% and
4.71% to 22.55% and 25.21% for the three and six months,
respectively and a slight decline in selling, general and
administrative expenses. 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 5.15% and
6.29% for the three and six months ended January 31, 1997, the
effect of more realistic margins, 28.20% and 29.63%,
respectively, discussed above; and improved selling, general and
administrative expense, .23% and .10%, for the three and six
months ended January 31, 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
$71,000 at January 31, 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.
15
<PAGE>
Liquidity and Capital Resources
Liquidity. Current assets of the Company totaled
$11,386,559 at January 31, 1997, down from current assets of
$11,697,173 at July 31, 1996, or a decrease of $310,614. Current
liabilities decreased by $747,672, resulting in an increase in
working capital (current assets less current liabilities) to
$1,321,510 at January 31, 1997, from $884,452 at July 31, 1996.
This improvement in working capital was related to the improved
financial performance and the refinancing of the Canadian
operations. The Company believes that its operations will
generate cash sufficient to meet its working capital requirements
and debt obligations.
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 $2,391,742 and the term loan balance was $325,722 at January
31, 1997.
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 $71,000 as of January 31, 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.
16
<PAGE>
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.
17
<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.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) Reports on Form 8-K.
NONE
19
<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 13, 1997
20
<PAGE>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 351,584
<SECURITIES> 0
<RECEIVABLES> 4,318,874
<ALLOWANCES> 69,798
<INVENTORY> 6,572,811
<CURRENT-ASSETS> 11,386,559
<PP&E> 16,830,072
<DEPRECIATION> 8,366,200
<TOTAL-ASSETS> 22,710,315
<CURRENT-LIABILITIES> 10,065,049
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900,000
<COMMON> 82,504
<OTHER-SE> 6,161,741
<TOTAL-LIABILITY-AND-EQUITY> 22,710,315
<SALES> 17,926,028
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<OTHER-EXPENSES> (38,729)
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<INCOME-PRETAX> 406,292
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