UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1998
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 Number 014754
ELECTRIC & GAS TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Charter)
Texas 75-2059193
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
13636 Neutron Road, Dallas, Texas 75244-4410
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number: (972) 934-8797
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by check mark whether Registrant has (i) filed all
reports required by Section 13 or 15(d)of the Securities Exchange
Act of 1934 during the preceding twelve months, and (ii) been
subject to such filings requirements for the past ninety (90)
days. Yes X No.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
At October 12, 1998, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was
approximately $4,327,000. At such date there were 8,198,224
shares of the registrant's Common stock outstanding.
<PAGE>
PART I
Item 1. Business
General
Electric & Gas Technology, Inc.("the Company"or "ELGT") was
organized under the laws of the State of Texas on March 18, 1985,
to serve as a holding company for operating subsidiary
corporations. In April, 1985, the Company (i) acquired from
Commercial Technology, Inc. ("COMTEC"), an affiliated company,
all of the stock of Reynolds Equipment Company ("Reynolds") for
stock of the Company and (ii) acquired from a subsidiary of
COMTEC all of the stock of Retech, Inc. ("Retech") [formerly
Test Switch Technology, Inc.("Test Switch"), formerly Superior
Technology, Inc. ("Superior")] for stock of the Company. In
1988, the Company acquired 85% (and subsequently 100%) of the
stock of Data Automation Company, Inc. ("DAC") from Video Science
Technology, Inc., formerly an affiliate of COMTEC and of the
Company; DAC owned 100% of Domac Plastics, Inc. ("Domac") and
Logic Design Metals, Inc. ("Logic"). Domac was subsequently
sold. During 1992 Logic merged into DAC, its parent, and DAC
changed its name to Logic Design Metals, Inc. and is referred to
herein as "Logic". In June 1986 Superior acquired from Petro
Imperial Corp. (A subsidiary of COMTEC) its ownership in American
Brass, Inc. ("ABI"). Fridcorp Plastics, Inc. ("Fridcorp") was
acquired by the Company in January, 1992, in exchange for 162,000
shares of Company Common Stock. Hydel Enterprises, Inc.
("Hydel") [formerly Stelpro Limited ("Stelpro")] was acquired by
the Company in April, 1992, in exchange for 166,474 shares of
Company Common Stock and $1,100,000 (Cdn. funds)(April 30, 1992,
exchange rate: .8370). On August 1, 1992, Hydel acquired all of
the outstanding capital stock of Hydel Engineering Limited
("Hydel Engineering") for cash and notes payable of approximately
$719,000 ($850,000 Cdn.). Hydel Engineering was merged into
Hydel effective August 1, 1995. The number of shares of Company
Common Stock issued in the acquisitions of Fridcorp and Hydel
was, in each case, determined through arms-length negotiations.
Superior Magnetics, Inc. ("SMI") was formed by the Company to
acquire the operating assets of the business operations of
Denison Magnetics of Texas Instruments Incorporated on November
30, 1992 for cash and deferred payments of approximately
$2,900,000. The Company incorporated Atmospheric and Magnetics
Technology, Inc. ("AMT") on June 10, 1996 under the laws of the
State of Texas. AMT which remain dormant during most of Fiscal
1997 was formed to undertake the Company's venture into the water
industry.
The Company presently is the owner of 100% of Reynolds and Hydel
and owns 91.5% of AMT and, through such subsidiaries, operates in
three distinct business segments: (1) production of atmospheric
water, filtration and enhanced water products (AMT); (2) the
manufacture and sale of natural gas measurement, metering and
odorization equipment (Reynolds); and (3) the manufacture and
sale of electric meter enclosures and pole-line hardware for the
electric utility industry and the general public (Hydel).
Effective October 1, 1997, the Company agreed to sell its defense
electronics business segment and on December 31, 1997 it sold its
plastics segment. Both such operations have been treated as
discontinued operations. Effective July 31, 1997, the Company
discontinued the operations of its metal fabrication segment
which previously was engaged in the manufacture and sale of
precision metal enclosures for telecommunication and computer
equipment (Logic). The Company sold its Canadian heating
division and its U.S. meter socket and Test Switch divisions
during fiscal 1996 and 1995. These operations were part of the
electric segment. The Company's Headquarters is located at 13636
Neutron Road, Dallas, Texas 75244. Its telephone number is
(972) 934-8797 and its facsimile number is (972) 991-3265.
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Financial Information by Segment
The following table depicts revenues, operating income
(loss) from continuing operations and identifiable assets of the
Company by segment, for the fiscal years ended July 31,:
Year Ended Year Ended Year Ended
July 31, 1998 July 31, 1997 July 31, 1996
Revenue
Water $ 52,576 $ 75,234 $ -
Gas 2,739,035 3,135,249 2,935,326
Electric 8,151,963 7,744,912 7,575,126
Operating Income (Loss):
Water $ (427,596) $ (212,742) $ -
Gas 115,435 40,784 (646,568)
Electric 292,535 161,043 324,602
Identifiable Assets:
Water $ 832,428 $ 954,690 $ -
Gas 2,012,325 1,882,753 2,198,034
Electric 4,541,187 4,828,751 4,648,198
Corporate 13,819,588 15,352,939 5,793,104
Geographic information
Financial data by geographic area for the fiscal year ended July
31, 1998 are as follows:
Operating
(loss) Identifiable
Sales Income Assets
United States $ 2,791,611 $(521,268) $3,636,634
Canada 8,151,963 501,642 3,749,306
Total $10,943,574 $ (19,626) $7,385,940
Water (AMT)
History
Atmospheric & Magnetics Technology, Inc. (AMT) was incorporated
June 10, 1997 under the laws of the State of Texas. AMT was
created by the Company to exploit the opportunities in the Water
Industry. AMT has just recently begun to do so.
Products
AMT owns patented technology that extracts water from the
atmosphere, turning it into clean drinking water, known as the
"Watermaker," "Wet Air" and "Infinite Fountain of Water."
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Industry, Customers and Competition
Industry. AMT operates in an industry that supplies potable
drinking water equipment to all segments of commercial,
industrial and consumer markets. This equipment is used to
extract water from the atmosphere, filter water, purify water,
store water and both chill or heat water. AMT estimates that the
industry develops sales of several billion dollars. This
industry estimate is expected to grow significantly every year as
potable drinking water continues to become more scarce worldwide.
Customers. AMT's potential customers will include commercial
sales (Hotels, Professionals, Schools, Clinics, etc.), industrial
sales (Mining, Offshore Oil Drilling, Manufacturing, etc.) and
consumers sales (Health Food Stores, Health Clubs, General Food
Channels, etc.) domestically and internationally.
Competition. AMT's atmospheric technology is leading edge with
no significant direct competition. However, the indirect
filtration and bottled water alternative potable drinking water
sources are well developed worldwide. The atmospheric water
niche is yet to be clearly defined at this time, but "point of
use" applications are plentiful.
Marketing
Emphasis on marketing will concentrate its efforts on the
"Watermaker" products upon completion of further testing and
design modifications.
Employees
As of July 31, 1998 this segment had no employees and has been
conducting its preliminary work through the use of consultants.
Administrative services have been provided by the Company.
Gas (Reynolds)
History
Reynolds Equipment Company ("Reynolds") was incorporated March
31, 1967 under laws of the State of Texas. In 1982, all of the
stock of Reynolds was acquired by COMTEC, an affiliate of the
Company. Subsequently, the stock of Reynolds was sold to Test
Switch in exchange for common stock of the Company and later
transferred direct ownership to the Company. Reynolds maintains
its principal offices at 410 Kirby Street, Garland, Texas 75042.
Products
Reynolds manufactures equipment used in the natural gas industry.
Its principal products known as "RECOR" are electronic pressure,
temperature and volumetric instrumentation and accessories
peripheral to gas measurement. Reynolds continues to produce its
traditional line of mechanical instrumentation including
pressure, temperature and volumetric recording and indicating
devices. In addition, Reynolds provides engineering and
equipment used to accomplish the odorization of natural gas.
Industry, Customers and Competition
Industry. Reynolds operates in the industry which supplies
equipment to the natural gas industry. This equipment is used to
measure, control and monitor the flow of natural gas in
pipelines. Reynolds estimates that its industry develops annuals
sales of approximately $100,000,000. Odorization of natural gas
is important and Reynolds is a recognized provider to the
industry with its expertise and service.
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Customers. Reynolds sells to natural gas utilities, pipeline
and production companies domestically and worldwide. Products
are marketed through commissioned manufacturers representatives,
resale distributors and contract engineering firms.
Competition. Reynolds operates in a competitive industry that is
not dominated by one or a few large companies. It is a major
factor in the sale of chart drives. Its principal competitors
are Mercury Instruments, Inc., American Meter Company, Equimeter
Incorporated, YZ Industries and others.
Employees
Reynolds employs approximately 22 persons, including 1 company
officers and 6 administrative clerical personnel. None of the
employees is represented by a labor union or other labor
association, and relations with its employees are considered
excellent. Reynolds has never experienced nor anticipates a
strike or other work stoppage.
Electric (Hydel and Retech)
History
Hydel. Hydel (formerly Stelpro) was incorporated in 1977 under
the laws of the Province of Ontario, Canada, and has operated as
a manufacturer of electrical equipment for use in the electric
utility industry since its inception. In 1982, Hydel purchased a
baseboard heater manufacturing business from Westinghouse.
Stelpro changed its name to Hydel in January 1995 upon the sale
of its heating manufacturing business. Hydel Engineering which
was merged into Hydel effective August 1, 1995, was incorporated
in November 1969 under the Laws of the province of Ontario,
Canada, and as in the case of Hydel operated as a manufacturer of
electric equipment for use in the electric utility industry since
its inception. Hydel operates primarily within Canadian markets,
though some sales of electric heaters were made in the
Northeastern United States. Hydel maintains its executive office
at 49 Howden Road, Scarborough, Ontario M1R 3C9 and a
manufacturing facility at 566 Ridge Road, Welland, Ontario L3B
5R4.
Retech. Retech (formerly Test Switch, formerly Superior) was
incorporated in Texas in May, 1984. It purchased the assets of
Superior Switchboard & Devices, Inc., an Ohio corporation
("SSDI"), in 1984. SSDI was an old-line manufacturer of
electrical testing equipment, organized in 1920 by a group of
electrical utility employees. In about 1929, electric utility
companies began using meters on the outside of residences to
measure electricity consumption, creating a need for metal
enclosures to protect the meters. SSDI undertook the manufacture
of such enclosures, and (in 1943) was acquired by a national
company and operated as a division. In 1980, this division was
sold to the officers and employees of the division in a leveraged
buy-out. The business was not successfully operated under its
then current management, and the organizers of Retech arranged
for the purchase of the assets of SSDI by Retech in 1984.
Effective April 30, 1995, Superior changed its name to Test
Switch upon the sale of its meter socket division which was
located in the Paris, Texas plant and effective, October 31, 1995
Test Switch changed it name to Retech upon the sale of its
remaining operating division in Canton, Ohio. Retech a non-
operating entity maintains its office at 13636 Neutron Road,
Dallas, Texas 75244-4410.
Products
Hydel. Hydel operated two industrial facilities located within
metropolitan Toronto, Ontario until January 1995 when one
operation was sold. The business which was sold, manufactured
and assembled a line of proprietary electric heating products,
including baseboard heaters and fan-driven heaters. Hydel
Engineering which was merged and operations consolidate with
Hydel, operated out of two industrial facilities: Scarborough,
which was shared with Hydel, and Welland. The Welland facility
continues to be used primarily to manufacture the pole line
hardware with assembly and finished goods storage in the
Scarborough plant. The "Murray Jansen" line is produced at the
Scarborough plant. The Scarborough plant manufactures a full
line of proprietary metal cabinets and other metal enclosures,
5
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electric meter sockets and industrial safety switches. All of
Hydel's products have been approved by the Canadian Standards
Association which is the Canadian equivalent of U. L.
Retech. Retech operated two industrial facilities, one in
Canton, Ohio, the other in Paris, Texas during most of fiscal
1995 and only its Canton facility during the first quarter of
fiscal 1996. The Canton, Ohio, facility produced a line of
proprietary products approved by Underwriters' Laboratory
("U.L."), an independent testing organization; a line of test
switches. The Paris, Texas, facility produced a full line of
metal cabinets, transformer boxes, meter pedestals and other
metal enclosures for the electric utility industry, marketed
under various trade names. Products included a combination of
test switches and phasing transformers marketed under the trade
name "Reactiformer" and a voltage surge and transient suppressor,
which protects against overloads, marketed under the trade name
"Linegard". In addition, to U.L. approval of Retech's products,
they were also approved by the National Electrical Manufacturers
Association for residential and industrial usage.
Industry, Customers and Competition
Industry-Hydel. Hydel operates within the electric equipment
supply industry and manufacturing equipment for use in the
electric utility industry. Hydel competes primarily within
Canadian markets.
Industry-Retech. Retech until October 1995, operated in an
industry consisting of suppliers of equipment and accessories to
the public utility industry. The customers for Retech's products
were spread nationwide.
Customers-Hydel. Hydel sells its electric utility supply
products to utilities and others in Canada. Hydel sold its
electric heaters to distributors throughout Canada, as well as in
parts of the Northeastern United States.
Customers-Retech. Retech sold its products to major electric
utilities across the nation.
Competition-Hydel. Hydel faces extreme Canadian competition for
sales of its electric utility supply products primarily from two
electric utility supply manufacturers, Thomas & Betes and
Commander. Pole line hardware's main competitors are
Slater/Tridem, Joslyn and A.B. Chance.
Competition-Retech. Retech faced competition from numerous
competitors. There was no single dominant competitor in the
industry. Retech's chief competitors were Milbank Manufacturing
Co., Inc., Meter Devices, Inc. and States Electric, Inc.
Marketing
Hydel. Hydel employs a general sales manager who is responsible
for coordinating company-wide sales, as well as directing sales
in the Province of Ontario. Hydel utilizes independent
manufacturers representatives to promote sales in the remainder
of Canada.
Retech. Retech employed a general sales manager, one outside
salesman and twelve sales representatives to market its products
throughout the United States.
Raw Materials
Hydel. Hydel uses sheet aluminum and sheet steel of various
gauges in its manufacturing processes and two vendors to
galvanize their pole line hardware products. Bar materials are
purchased directly from mills. Hydel purchases products directly
from the mills or distributors. There are adequate sources of
such materials, though price fluctuations have occurred in the
past.
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Retech. Retech purchased copper, brass, aluminum and plastic
which are all readily available through numerous vendors.
Employees
Hydel. Hydel currently employs 53 persons, including 12 in
administrative and sales positions. None of the employees is
represented by a labor union or other labor organization. Hydel
enjoys good relations with its employees and has never
experienced a strike or work stoppage. The jobs encompassed in
Hydel's manufacturing operations do not require highly skilled
workers, except in a few positions.
Retech. Retech currently has no employees. In prior years the
work force ranged from 150 to 20 persons, including
administrative and sales positions. The hourly paid employees
were represented by a local of the International Brotherhood of
Electrical Works (A.F.L.-C.I.O.).
Discontinued operations-Defense electronics (SMI), Plastics
(Fridcorp), Metal fabrication (LOGIC) and Metal extraction (ABI)
Superior Magnetics, Inc. ("SMI") was formed by the Company to
acquire the operating assets of the business operations of
Denison Magnetics of Texas Instruments Incorporated on November
30, 1992 for cash and deferred payments of approximately
$2,900,000. SMI manufactured and sold defense electronic
components. Effective October 1, 1997, the Company signed a
letter of intent to sell the business to SMI's president,
accordingly the defense electronics segment has been treated as a
discontinued operation.
Fridcorp Plastics, Inc. ("Fridcorp") was acquired by the Company
in January, 1992, in exchange for 162,000 shares of Company
Common Stock. Fridcorp manufactured vacuum-form and injection-
molded products. Effective December 31, 1997, the Company sold
Fridcorp and accordingly, the former plastics segment has been
treated as a discontinued operation.
Logic Design Metals, Inc. ("Logic") was incorporated in Texas on
March 16, 1977 and became part of the Company in 1988. Logic
manufactured customized, precision-formed metal enclosures for
the telecommunications and computer industries. Effective July
31, 1997, the Company sold Logic and accordingly, the former
metal fabrication segment has been treated as a discontinued
operation.
American Brass, Inc. ("ABI") was incorporated in the State of
Alabama in 1978. Until December 16, 1992, ABI operated a brass
and bronze ingot smelter in Headland, Alabama. Principal raw
materials for this operation consisted of various forms of scrap
metal materials containing high copper and other base materials
utilized in the production process. This process produces
"Slag", which is refuse or dross separated from the brass and
bronze in the smelting process. Inasmuch as the slag contains
trace elements of lead, it is an environmentally hazardous
substance in view of the Environmental Protection Agency (EPA).
ABI processed its slag through a ball mill which reduces the slag
to a powdered saleable product used in fertilizer. The ABI site
was located on approximately 134 acres including a number of
special purpose buildings all under a long-term lease with the
Headland Industrial Development Foundation. ABI defaulted under
this lease obligation. This operation is treated as a
discontinued operation. The Company on January 29, 1993 entered
into an agreement with an unaffiliated corporation, Trans Metals,
Inc. (TMI), to restart the smelting operation. Such agreement
assigned ABI's leasehold interest together with 150,000 shares of
the Company's common stock to TMI in exchange for 850,000 shares
of $5.00 par value preferred stock, a $950,000 4% note payable
due January 25, 1995 and $25,000 in cash.
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Based on current economic conditions in the scrap, cooper and
brass markets and the estimated operating margins needed, a
restart of the facility under these conditions with similar
manufacturing processes would require an estimated $5,000,000
investment with anticipated marginal returns. TMI has been
unsuccessful to-date in re-starting, seeking joint venture
partners or selling the Alabama operation. The Company wrote off
its investment in TMI (ABI).
ITEM 2. Properties
The Company maintains executive offices at 13636 Neutron Road,
Dallas, Texas 75244-4410 in a 7,800 sq. ft. one story building
(owned in fee) and is fully adequate to serve its needs.
Hydel leases one industrial building in metropolitan Toronto,
Ontario. The Scarborough facility is leased until March 2002 and
contains approximately 67,000 square feet, including
approximately 7,000 square feet of office space. In addition,
Hydel owns a 22,000 square foot manufacturing and office space on
approximately 7 acres of land located in Welland, Ontario. Such
facility provides 20,000 square feet of manufacturing and 2,000
square feet of office space.
Reynolds carries on its manufacturing and sales activities in a
building owned by it situated on 40,000 square feet of land in
Garland, Texas. The plant is a one story, concrete building
containing approximately 15,500 square feet of floor space, which
includes approximately 2,000 feet of office space.
Retech had occupied an industrial building in Canton, Ohio
(leased) which was assumed by the purchaser of Test Switch
operations. The Paris, Texas facility (owned) was vacated as
result of the sale of the meter socket division in April 1995.
This facility, consists of a vacant industrial building
containing approximately 80,000 square feet of space, including
approximately 3,000 square feet of office space. The Company
currently has a pending sale for the land and building.
Item 3. Legal Proceedings.
Ammon & Rizos Co., Inc. Vs. Metal Products, Inc.-Cause No.; 97-
06860-C; District Court Dallas County, Texas. The former
manufacturers representative of Logic, Ammon & Rizos Co, has
filed a suit against the Company, the Company's chairman of the
board, Logic, and New Logic Design Metals, Inc. ("New Logic")(the
purchaser of the assets) for unpaid fees, assumed by New Logic
and a previous adjustment in prior fees plus prospective fee from
New Logic's sales. The case has yet to go to trial. Management
believes there will be no material effect on the Company.
Allied Products Corp., a Delaware Corporation Vs. Electric & Gas
Technology, Inc., a Texas Corporation; Cause No. 97C5256: United
States District of Northern District of Illinois. Allied
Products Co has sued the Company under the Preferred Stock issued
by the Company in connection with its investment in Cooper
Manufacturing Corporation ("Cooper") and the rights pertaining
thereto. The suit was filed in the Eastern District of Illinois
(Chicago). The Company filed a counter suit alleging security
violations (10b5) demanding return of its Preferred Stock. In
addition, the Company has been advised by the Cooper's debtor-in-
possession that it has filed a suit claiming preference and other
violations by Allied. The ultimate resolution of this case will
depend in part upon the outcome of the Cooper bankruptcy case.
The bankruptcy court confirmed the debtor's Plan of
Reorganization on November 21, 1997. Management does not believe
that this suit will have any further material effect on the
Company.
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Item 4. Submission of Matters to a Vote of Security Holders.
(a) Annual meeting of stockholders, April 3, 1998.
(b) Not applicable.
(c) Not applicable.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters:
(a) Principal Market
The Common Stock of the Registrant is traded in the Over-the-
Counter Market and quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) under the
symbol ELGT.
(b) Stock Prices and Dividend Information
The following table sets forth the range of "Bid" and "Ask"
prices, by quarters, since July 31, 1995, as compiled by NASDAQ
and representing prices between dealers which does not include
retail markups or commissions, thus, such prices may not
represent actual transactions.
Fiscal year ended July 31, 1998:
High Low
First Quarter 1-9/16 1-3/8
Second Quarter 1-7/8 1-13/16
Third Quarter 2-15/16 2-3/4
Fourth Quarter 2-1/16 1-27/32
Fiscal year ended July 31, 1997:
High Low
First Quarter 1-5/16 11/16
Second Quarter 3/4 1/2
Third Quarter 15/16 15/32
Fourth Quarter 2-1/8 1-9/16
Fiscal year ended July 31, 1996:
High Low
First Quarter 2-7/8 2-1/4
Second Quarter 3-5/32 2-3/4
Third Quarter 3 2-1/2
Fourth Quarter 2 1
No dividend has been paid on the Common Stock by the Company and
payment of dividends in the foreseeable future is not
anticipated. Cumulative and unpaid dividends of 165,353 as of
July 31, 1998 must be paid on preferred stock before any
dividends can be paid on Common Stock.
As of July 31, 1998 there were 475 holders of record of the
Common Stock of the Company, exclusive of beneficial ownership
through brokerage firm nominee name.
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UNITS OF COMMON STOCK AND WARRANTS
The Company has issued warrants to an investment banking firm to
purchase 150,000 and 300,000 shares of common stock at $2.00 and
$2.30 per share, respectively. The warrants are protected
against dilution and expire July 31, 2001 and September 15, 2001,
respectively. The warrants contain piggyback registration rights
and the agreement allows the warrants holders to request
registration of the warrants, if unregistered, between January 1,
1999 and July 31, 2002. The Company has not recorded any expense
relating to the warrants since the exercise price exceeded the
market price at the date of issuance. These warrants were issued
as part of the consideration for investment banking services.
The agreement between the Company and the investment banking firm
was cancelled and the Company expects a significant portion of
the warrants to be returned and cancelled.
In connection with the Company's financing agreement with The CIT
Group/Credit Finance, Inc. in 1994, the Company issued warrants
to purchase 25,000 shares of common stock of the Company at $4.25
per share. Such warrants are exercisable in whole or part on or
before November 24, 1998 and have piggy-back rights with respect
to any shares to be registered by the Company.
Item 6. Selected Financial Data.
STATEMENT OF OPERATIONS DATA:
(In dollars, except shares outstanding)
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Years Ended July 31,
1998 1997 1996 1995 1994
Revenues $10,943,574 $10,955,395 $10,510,452 $19,310,885 $22,858,356
Gross Profit 2,887,106 3,174,790 2,630,595 5,086,751 4,392,565
Selling, G&A Expense 4,824,406 4,846,232 3,851,194 5,418,729 5,718,155
Other Income (Expense) 2,461,356 (1,936,111) (2,757,472) 918,994 (338,242)
Earnings (Loss) from
Continuing Operations 363,701 (3,394,181) (3,978,071) 641,912 1,322,107
Net Earnings (loss) 429,185 9,362,399 (5,032,551) 850,577 (6,106,377)
Net Earnings (loss)
per Share 0.05 1.15 (0.67) 0.11 (0.80)
Weighted Average
Number of Shares
Outstanding 7,909,957 8,085,624 7,635,624 7,615,474 7,634,432
For additional information with respect to reclassification for
discontinued operations and acquisitions and dispositions see
note 2 to the consolidated financial statements.
BALANCE SHEET DATA:
As of July 31,
1998 1997 1996 1995 1994
Total Assets $21,205,528 $23,019,133 $12,911,463 $17,551,669 $19,110,349
Long-Term Obligations 1,627,650 2,356,140 1,871,151 1,894,214 1,809,191
Shareholders' Equity 16,137,380 16,041,119 6,720,930 10,427,861 9,289,363
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Background
The Company, through its subsidiaries, operates within three
separate industries. These are (i) production of atmospheric
water, filtration and enhanced water products; (ii) the
manufacture of natural gas measurement equipment and gas
odorization products; and (iii) the manufacture and sale of metal
enclosures and other electrical equipment for use in the electric
utility industry.
Results of Operations
The discussion below relates to the Company's operations during
the fiscal years ended July 31, 1998, 1997 and 1996.
Summary. The Company reported net earnings (loss) from
continuing operations of $363,701, $(3,394,181) and $(3,978,071)
and net earnings (loss) of $429,185, $9,362,399 and $(5,032,551)
for fiscal years 1998, 1997 and 1996, respectively. The 1997
substantial increase in net income was attributable to improved
earnings in the discontinued metal fabrication segment of
$1,627,730 and the gain of $12,646,939 on the sale of this
segment. Losses from continuing operations were from the
electric segment performing less profitable than during 1996.
Also, corporate expenses have increased due to legal and other
cost associated with the Company's investments and venture into
the water business. The Company's investments in Refinery
Consolidated Technology, Inc. and Cooper Manufacturing
Corporation were also reserved at July 31, 1997. The 1996 losses
are primarily related to the following events: (i) a default on
obligations owed the Company by the purchaser of the U.S. meter
socket division of approximately $1,800,000; (ii) obsolescence on
certain inventories of approximately $600,000; (iii) write-off of
the remaining Trans Metals, Inc. assets of approximately
$391,000; (iv) and investment losses of approximately $1,000,000.
Also, see discussion of individual segments for items which
adversely affected those operations during fiscal 1997 and 1996.
<TABLE>
For the Years Ended July 31,
1998 1997
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
<S> <C> <C> <C> <C>
Operating Revenues $ (11,821) (.11) $444,943 4.23
Operating Income (8,711) (79.81) 311,051 96.61
Earnings (Loss) from
continuing operations
before income taxes 4,131,609 114.53 370,518 9.31
Net Earnings Per Share (1.10) (95.65) 1.82 271.64
</TABLE>
11
<PAGE>
The following table represents the changes [increase/(decrease)]
in operating revenues, operating income and earnings from
continuing operations before income taxes by the respective
industry segments when compared to the previous period:
<TABLE>
For the Years Ended July 31,
<S> <C> <C> <C> <C>
1998 1997
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Water $ (22,658) (191.68) $ 75,234 16.91
Gas (396,214) (3,351.78) 199,923 44.93
Electric 407,051 3,443.46 169,786 38.16
$ (11,821) 100.00 $444,943 100.00
Operating Income (Loss):
Water $ (214,854) (2,466.47) $ (212,742) (68.40)
Gas 74,651 856.97 687,352 220.98
Electric 131,492 1,509.49 (163,559) (52.58)
(8,711) 100.00 311,051 100.00
General Corporate (257,147) (761,894)
Other Income (Expense) 4,397,467 821,361
Earnings from Continuing
Operations Before Income
Taxes $4,131,609 $ 370,518
</TABLE>
Water revenues amounted to $52,576 and $75,234 in 1998 and 1997,
respectively which were essentially sales of a few demonstrators
of this segment's "Watermaker" product. Expenses were $480,172
and $287,976 in 1998 and 1997, respectively, included development
of a business plan, testing and development of a new watermaker
model and marketing expenses. During fiscal 1998 considerable
efforts were expended in investigating possible acquisition
targets in water related businesses. The Company has not found a
qualified acquisition candidate.
Gas revenues increased (decreased) by $$(396,214), $199,923 and
$(208,385) or (12.64%), 6.81% and (6.63%) in fiscal 1998, 1997
and 1996, respectively. During fiscal 1997, this segment
developed the next generation of their "Recor" product line.
Operating income (loss) was $115,435, $40,784 and $(646,568) for
fiscal 1998, 1997 and 1996, respectively. The 1996 loss resulted
from inventory obsolescence of approximately $385,000 and
declining revenues with staffing levels anticipating higher
demand for the Company's Recor product which did not materialize.
Electric revenues increased slightly by $407,051 during 1998. In
1997 the increase of $169,786 was the result of an increase in
Canada of $742,327 offset by the U.S. sales decline of $572,541
which was the loss of the first quarter sales of the sold Test
Switch business. Revenues declined by $8,592,048 during fiscal
1996 to $7,575,126 the result of the sales of the meter socket
business in April 1995 and the test switch business in October
1995 for the U.S. operations and the sale of the heating business
in the Canadian operations in January 1995. Operating income
increased by $131,492 for fiscal 1998 due to improved sales and
cost controls while cost to maintain the vacant Paris, Texas
facility remained unchanged. Operating income for 1997 decreased
by $(163,559), the effect of continuing cost associated with the
U.S. plant located in Paris, Texas while Canadian operations
performed similar to the prior year. There is a sale pending on
the Paris property. Operating income for 1996 decreased by
12
<PAGE>
$(335,186) the net effect of increased operating income of
$965,015 for the Canadian operations and a decrease of
$(1,300,201) in U.S. operations, the result of the aforementioned
business sales during fiscal 1996 and 1995.
Gross profit margins were 20.58%, 24.34% and 24.51% for fiscal
1998, 1997 and 1996, with selling, general and administrative
expenses as a percentage of sales for the same period of 16.99%,
22.26% and 20.22%, respectively.
Expense relationships to the various changes in revenues
effecting cost of sales and selling, general and administrative
expenses are as follows. Cost of sales as a percentage of
revenues amounted to 73.62%, 71.02% and 74.97% for the years
ended July 31, 1998, 1997 and 1996, respectively. Selling,
general and administrative expenses as a percentage of revenues
were 26.56%, 29.08% and 28.09% for the years ended July 31, 1998,
1997 and 1996, respectively.
Liquidity and Capital Resources
Liquidity. Cash flow used by operating activities amounted to
$(2,957,927), $(1,398,042) and $(1,275,717) for fiscal years
1998, 1997 and 1996, respectively. Operating cash flow has been
supplemented by cash made available from the proceeds on the sale
of the various segments and operating divisions.
Current assets of the Company totaled $12,483,093 at July 31,
1998, down from current assets of $19,312,966 at July 31, 1997.
Current liabilities decreased from fiscal 1997 to fiscal 1998 by
$(1,145,031), resulting in a decrease in working capital (current
assets less current liabilities) to $9,089,254 at July 31, 1998,
from $14,774,096, a decrease of (38.48%). This decrease was the
result of investments in long-term assets. The Company believes
it has sufficient cash to meet its working capital requirements
and debt obligations.
Capital Resources. Hydel has a working capital line-of-credit
with a Canadian bank in the amount of $1,450,000. The Canadian
credit facility is secured by receivables and inventories of
Hydel.
In November 1993 the Company began a five-year financing
arrangement with the CIT Group Credit/Finance, Inc. (CIT). Their
original total commitment to the Company amounted to $7,000,000
of term and revolving credit at 2.75% above prime. The agreement
was modified and extended to $3,500,000 and November 1999,
respectively. The maximum amount to be borrowed is determined
based upon eligible collateral, including equipment, receivables
and inventory and has been reduced due to the operations sold.
Borrowing under this financing amounted to $74,569 in term debt
and $303,800 in revolving debt at July 31, 1998.
The Company sold one segment in fiscal 1998 and 1997 and one
division in fiscal 1996 and two divisions in fiscal 1995
receiving approximately $760,000, $20,828,385, $2,068,583 and
$3,492,093, respectively in cash proceeds which were used to pay
current obligations, reduce debt and provide additional working
capital.
Capital Expenditures
The Company purchased equipment consisting of normal asset
acquisitions and replacement of $79,157, $106,124 and $109,049
during fiscal 1998, 1997 and 1996, respectively. The Company
does not anticipate any other significant capital expenditures,
other than in the ordinary course of replacing worn-out or
obsolete machinery and equipment utilized by its subsidiaries.
The Company may, from time to time, purchase such machinery and
equipment provided such assets serve as additional collateral for
outstanding loans to the Company (and its subsidiaries).
13
<PAGE>
Dividend Policy
No cash dividends have been declared on common stock by the
Company's Board of Directors since the Company's inception. The
Company does not contemplate paying cash dividends on its common
stock in the foreseeable future since it intends to utilize its
cash flow to service debt, for working capital and capital
additions, and to finance expansion of its operations.
Cumulative dividends on the Series A, 7% Convertible Preferred
Stock, have not been paid and amounted to $165,353 as of July 31,
1998. Further, additional dividends of $15,879 were due on
September 30, 1998
Other Business Matters
Year 2000. The Company currently believes that it does not
have any significant exposure to uncertainties nor material
anticipated costs with regard to Year 2000 issues. The Company
has significantly reduced its operating subsidiaries over the
last two years minimizing certain risks. Current systems and any
anticipated upgrades are 2000 compliant.
Reporting Comprehensive Income. Statement of Financial
Accounting Standards No. 130 establishes standards for reporting
and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by
owners and distributions to owners. The company will be required
to show its pension liability adjustments and foreign currency
translation adjustments in comprehensive income.
Accounting for Post-Retirement Benefits. The Company
provides no post-retirement benefits; therefore, FASB No. 106
will have no impact on the Company's financial position or result
of operations.
Inflation. The Company does not expect the current effects
of inflation to have any effect on its operations in the
foreseeable future. The largest single impact effecting the
Company's overall operations is the general state of the economy
and principally the home construction sector.
Information regarding and factors affecting forward looking
statements. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or
performances and underlying assumption and other statements which
are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The Company's
expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis,
including without limitations, management's examination of
historical operating trends, data contained in the Company's
records and other data available from third parties, but there
can be no assurance that management's expectations, beliefs or
projections will result, or be achieved, or accomplished.
Item 8. Financial Statements and Supplementary Data.
Information required by this item appears in the
Consolidated Financial Statements and Auditors' Report of
Electric & Gas Technology, Inc. and Subsidiaries for July 31,
1998, 1997, and 1996 as listed under Item 14.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There have been no disagreements on accounting and financial
disclosure.
14
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
(a) During fiscal year ended July 31, 1998, the following
persons served as directors of Registrant:
<TABLE>
<S> <C> <C> <C>
Shares
Beneficially
Director Owned (%) of
Name and Age Position Since Outstanding
S. Mort Zimmerman (71) Chairman of the Board, 1985 833,545 9.70%
President and Director
Daniel A. Zimmerman (37) Sr. Vice President 1989 397,381 4.63%
and Director
Edmund W. Bailey (56) Vice President, Chief 1994 79,471 0.93%
Financial Officer and
Director
Fred M. Updegraff (64) Vice President, 1987 99,574 1.16%
Treasurer and Director
Dick T. Bobbitt (73) Director 1997 -
James J. Ling (75) Director 1997 -
</TABLE>
S. Mort Zimmerman and Daniel A. Zimmerman are father and son.
(b) Executive Officers:
The Executive Officers of Registrant are:
See (a) above.
Marie W. Pazol, Secretary
BACKGROUND
S. Mort Zimmerman: Mr. Zimmerman is Chairman of the Board,
President and Chief Executive Officer of the Company since its
formation in March 1985.
After attending Georgia Institute of Technology and Oglethorpe,
Mr. Zimmerman graduated in 1958 with a Bachelor of Science in
Electrical Engineering from Pacific International University. He
established the first electronics subsidiary for the predecessor
corporation of LTV Corporation which was formed to market a low
cost television camera invented by Zimmerman and for which he was
awarded a United States Patent in 1958. Prior to 1963 he
participated in the engineering and installation of 18 television
stations.
15
<PAGE>
In 1965 Mr. Zimmerman formed the first "one-bank holding company"
of its kind in the United States and which later served as a
model from which many bank holding companies were formed. He
served as Chairman of the Board of four individual banking
institutions, three of which were located in Florida (Springs
National of Tampa, Metropolitan of Miami and Mercantile National
of Miami Beach) and New York City (Underwriters Trust). After
obtaining a public underwriting these banks were sold to others.
In 1967 Intercontinental Industries, Inc. was organized and Mr.
Zimmerman served as its Chairman and Chief Executive Officer.
This diversified holding company was primarily engaged in the
operations of Intercontinental Manufacturing Company, a weapons
manufacturer that was later sold. Through his research and
development in the field of video X-ray and imaging, Mr.
Zimmerman caused the organization of Video Science Technology,
Inc. in 1981 to exploit the inventions for which he was awarded
two U. S. Patents. Patents awarded include: Television Camera-
Video Amplifier and Blanking Circuits-1958, Electronic
Thermometer-1963, Video-X-Ray Imaging System and Method-1977,
Video System and Method for Presentation and Reproduction of X-
Ray Film Images-1977, Electromagnetic Radio Frequency Excited
Explosion Proof Lighting Method and System-1986, and Laser
Display of an Electronically Generated Image Signal-1987.
Recently, Mr. Zimmerman participated as a co-inventor on new
Electronic Refrigeration technology to which patents are pending.
Daniel A. Zimmerman: Mr. Zimmerman was elected Senior Vice
President in 1991 and was re-elected as a Director of the Company
in 1990 (Mr. Zimmerman served as a director from March, 1985 to
January, 1988). Mr. Zimmerman is presently serving as President
and Director of Reynolds. He received his Liberal Arts Degree
from Austin College in Sherman, Texas in May, 1982.
Edmund W. Bailey, CPA: Mr. Bailey has served as Vice President
and Chief Financial Officer of the Company since March, 1992. He
was elected a member of the Board of Directors May 1994. From
January 1989 to March, 1992, Mr. Bailey was a shareholder in the
public accounting firm of Jackson & Rhodes P.C., Dallas, Texas.
From August, 1987 to December, 1988, Mr. Bailey served as Vice
President and Chief Financial Officer of Southern Foods Group,
Inc., an independent milk producer. From May, 1986 to July,
1987, he was with the public accounting firm of Pannell Kerr
Foster, Dallas, Texas. Prior experience included 16 years in
public accounting with Fox & Company and Arthur Young & Company
(now Ernst & Young). Mr. Bailey earned a B.S. degrees in
Business from Monmouth College, West Long Branch, New Jersey, and
an M.B.A. degree from Southern Methodist University, Dallas,
Texas. Mr. Bailey is licensed in the State of Texas as a
Certified Public Accountant.
Fred M. Updegraff: Mr. Updegraff has served as Vice President
and Treasurer of the Company since 1985. He was elected
Treasurer and a member of the Board of Directors in May, 1987.
Mr. Updegraff is also Vice President, Controller and Director
of DOL Resources which files reports under Section 13 of the
Securities Act of 1934. From 1976 to 1981, he was Vice
President of a manufacturing company engaged in the manufacture
of brass valves for the plumbing industry. Mr. Updegraff
graduated from Emporia State University with Bachelor Degrees in
Business Administration and Education.
Dick T. Bobbitt: Mr. Bobbitt has been president of VEC
Technology, Inc. (VEC) since August 1991. VEC is a consulting
firm involved in research and development of new products. Mr.
Bobbitt was one of the founders of American Technological
University and served as Chairman of the Board from 1973 to 1979.
Prior years were spent with RCA Corporation and Random House
Publishing Co.
James J. Ling: Mr. Ling is co-founder, chairman and chief
executive officer of Empiric Energy, Inc. since November 1992.
Mr. Ling founded Ling Electronics in 1955 and through a series of
mergers and acquisitions which includes, Temco Aircraft
Corporation, Chance-Vought, The Wilson Company, Braniff Airlines,
Jones & Laughlin and National Car Rental, guided the conglomerate
Ling-Temco-Vought (LTV) to a position among the largest companies
in the Nation with annual sales of $3.2 billion. Mr. Ling
resigned in 1971. Since 1985, Mr. Ling has been President of
Hill Investors, Inc., a company organized to hold oil and gas
investments and which also offers business consulting services.
16
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
Other Restricted Number of Shares Long Term
Annual Stock Covered By Incentive Plan All Other
Name and Principal
Position Year Salary Bonus Compensation Awards Option Grants Payout Compensation
S. Mort Zimmerman 1998 $241,600(a) $30,000(b) $ - - 212,000 - -
Daniel A. Zimmerman 1998 $101,500 $20,000(b) $ - - 31,667 - $11,495(d)
Edmund W. Bailey 1998 $ 97,975 $20,000(b) $ - - 36,666 - 1,260(c)
S. Mort Zimmerman 1997 $239,760 $333,400(b) $ - - 212,000 - -
Daniel A. Zimmerman 1997 $ 97,596 $59,802(b) $ - - 31,667 - $19,629(d)
Edmund W. Bailey 1997 $108,000 $59,802(b) $ - - 36,666 - 2,160(C)
S. Mort Zimmerman 1996 $219,400 $14,166(b) $ - - 232,000 - -
</TABLE>
S. Mort Zimmerman-President and Chairman of the Board.
Daniel A. Zimmerman-Senior Vice President.
Edmund W. Bailey-Vice President and Chief Financial Officer.
(a) A portion of the payments were made to an affiliate of S. Mort Zimmerman
and includes accrued and unpaid compensation of $75,000 for fiscal year
1998, 1997 and 1996, respectively.
(b) Includes cash and bonus shares of Common Stock valued at $1.00, $1.69
and $1.25 per share in 1998, 1997 and 1996, respectively.
(c) Company match of 401 (K) employee contributions.
(d) Company match of 401 (K) employee contributions and expense allowances.
1998 Stock Option Grants
NONE
Aggregate Option Exercises and Year-end Option Values
Set forth below are the number of shares covered by exercisable
and unexercisable options held on July 31, 1998 and the aggregate
gains that would have been realized had these options been
exercised on July 31, 1998, even though these options were not
exercised, and the unexercisable options could not have been
exercised, on July 31, 1998.
<TABLE>
<S> <C> <C> <C> <C>
Number of Shares Value of Unexercised
Covered by Unexercised In-The-Money
Options on 7/31/98 Options as of 7/31/98
Name Exercisable Unexercisable Exercisable(a) Unexercisable
S. Mort Zimmerman 32,000 (a) 180,000 -0- $210,600
Daniel A. Zimmerman 6,667 (a) 25,000 -0- $30,500
Edmund W. Bailey 6,666 (a) 30,000 -0- $36,600
</TABLE>
(a) Market value of shares covered by in-the-money options on
July 31, 1998 less option exercise price. Options are in-the-
money if the market value of the shares covered thereby is
greater than the option exercise price.
17
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) The following tables sets forth the number of shares
of Common Stock of holders of the Company known to the Company to
be the beneficial owner of more than five (5%) per cent of its
Common Stock at July 31, 1998.
Name and Address Amount and Nature of Percent of
Beneficial Owner Class
S. Mort Zimmerman 833,545 (1) 9.70%
13636 Neutron Road
Dallas, Texas 75244-4410
(b) The following table sets forth the number of shares of
Common Stock of Registrant owned by all directors and officers as
a group as of July 31, 1998:
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
S. Mort Zimmerman 833,545 (1) 9.70%
Chairman of the
Board and President
Daniel A. Zimmerman(5) 397,381 (2) 4.63%
Sr. Vice President
and Director
Edmund W. Bailey 79,471 (3) .93%
Vice President &
Chief Financial Officer
Fred M. Updegraff 99,574 (4) 1.16%
Vice President
Treasurer & Director
All Officers &
Directors, as a
Group 1,468,082 17.09%
(1)Includes (i) 212,000 shares subject to options owned by Mr. S.
Mort Zimmerman; (ii) 82,888 shares of the 828,878 shares owned
beneficially and of record by Trans-Exchange Corporation, in
which Mr. S. Mort Zimmerman has a 10% beneficial interest; and
(iii) 31,429 shares owned by Glauber Management Company, a firm
42% owned by Mr. S. Mort Zimmerman and in which he effectively
controls the voting of the company's stock owned by such firm.
Mr. S. Mort Zimmerman disclaims any beneficial interest in the
shares owned by his wife's estate and their adult children.
(2)Includes 31,667 shares subject to options owned by Mr.
Zimmerman.
(3)Includes 36,666 shares subject to options owned by Mr. Bailey.
(4)Includes 31,666 shares subject to options owned by Mr.
Updegraff.
(5)S. Mort Zimmerman and Daniel A. Zimmerman are father and son.
18
<PAGE>
Item 13. Certain Relationships and Related Transactions
THE FOLLOWING IS A SUMMARY OF ADVANCES FROM/TO AFFILIATED
COMPANIES AT JULY 31, 1998.
1998 1997
Refineries Consolidated Technology, Inc. $269,400 $ -
Cooper Manufacturing Corporation 632,314 350,000
Others 16,063 (369,824)
$917,777 $(19,824)
The Company for several years had been owed approximately
$530,000 due from Comtec, a dormant affiliate. During 1996, it
was determined that $235,000 of this amount was actually paid for
the benefit of the Company and was written-off in 1996 in other
expenses. It has been determined that Comtec does not have the
capability to liquidate the remaining debt and the remaining
receivable was offset against accrued salaries of the officer who
had guaranteed the receivable. The Company has advanced through
the pledging of its certificates of deposit with a bank,
corresponding to direct bank loans and direct advances to
Refineries Consolidated Technology, Inc. ("RCT") and Cooper
Manufacturing Corporation ("Cooper") approximately $1,297,000.
The Company also acquired a secured note receivable from Cooper
in exchange for 90,000 shares of its $10.00 par value Preferred
Stock to an unaffiliated company who previously owned Cooper.
During 1997 the Company provided a reserve for the entire
receivable from RCT ($723,000) and also provided a reserve of
$867,000 against the Cooper investment. The remaining $350,000
in 1997 investment in Cooper represented the estimated amount of
recovery the Company expected to receive from Cooper's Plan filed
in the bankruptcy court. The Bankruptcy Court approved the
debtor's plan of reorganization in the Cooper bankruptcy on
December 5, 1997. In accordance with such plan, the Company
received cash of $700,000, notes receivable totaling $220,000, a
2.5% royalty agreement on new rigs sold and 1,000,000 shares of
Cabec Energy Corp. The investment in Cooper was adjusted to the
value of the consideration received.
During 1997 the Company repurchased the equipment from the
affiliated company for its original price
sold and subsequently sold the equipment to an unaffiliated
company incurring a loss of $180,000.
During the year ended July 31, 1998, the Company issued 200,000
shares of common stock from its treasury to affiliated entities
for shares of common stock in two other affiliated entities.
These shares were valued at $336,000, the market price of the
Company's common stock at the time less a 30% discount for the
restriction on the shares. This value approximated the value of
the shares received from the affiliates.
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) Documents filed as part of this Report
1. Financial Statements
Consolidated Financial Statements of Electric & Gas
Technology, Inc. and Subsidiaries:
(i) Report of Independent Certified Public
Accountants
(ii) Consolidated Balance Sheets July 31, 1998
and July 31, 1997.
(iii) Consolidated Statements of Operations for the
three years ended July 31, 1998.
(iv) Consolidated Statements of Changes in
Stockholders' Equity for the three years ended
July 31, 1998.
(v) Consolidated Statements of Cash Flows for the
three years ended July 31, 1998.
(vi) Notes to Consolidated Financial Statements
2. Financial Statement Schedules Required by Item 8
of Form 10-K and paragraph (d) of Item 14
None
3. Exhibits
3.1 Articles of Incorporation of Registration (filed as
Exhibit 3.1 and 3.2 to Registration Statement form S-18
- Registrant No. 33-2147FW of Registrant and
Incorporation herein by reference.
3.2 By-laws of Registrant (filed as Exhibit 3.3
Registration Statement on Form S-18 - Registrant No.
33-2147FW - of Registrant and incorporated herein by
reference.
4.1 Specimen Copy of Common Stock Certificate (filed as
Exhibit 1.1 to Registration Statement under the
Securities Exchange Act on Form 8-A and incorporated
herein by reference).
4.1 Warrant Agreement and Text of Warrant (filed Exhibit
4.1 to Amendment No. 1 to Registration Statement on
Form S-18, Registration #33-2147FW, of Registrant
incorporated herein by reference.
20
<PAGE>
10.1 Agreement and Plan of Acquisition between Petro
Imperial Corp. and Superior Technology, Inc. dated
June 30, 1986 for the acquisition of 80% of American
Brass, Inc. (filed as Exhibit 1 to Registrant's Form 8-
K Report dated July 9, 1986, Commission File No. 0-
14754 and incorporate herein by reference).
10.2 Acquisition Agreement dated July 29, 1988 and Amendment
thereto dated November 15, 1988, (filed as Exhibit 1 to
Form 8-K Report, as amended on Form 8 filed August 9,
1988 and incorporated herein by reference).
10.32 U. S. Small Business Administration
authorization and loan agreement dated
August 3, 1994 between Independence Funding
Company Ltd. and Electric & Gas Technology,
Inc., Reynolds Equipment Company, Superior
Technology, Inc. and Fridcorp Plastics, Inc.
and Note for $1,000,000 (filed as exhibit
10.32 to Form 10-K, filed October 27, 1994
and incorporated herein by reference).
10.33 Asset Purchase Agreement dated as of April
18, 1995 by and between Superior Technology,
Inc. and American Circuit Breaker
Corporation (filed as exhibit 10.32 to Form
10-Q, filed June 12, 1995 and incorporated
herein by reference).
10.34 "Asset Purchase Agreement" dated as of
October 31,1995 by and between Test Switch
Technology, Inc., Electric & Gas Technology,
Inc. and The Durham Co.
10.37 Assets Purchase Agreement among New Logic Design
Metals, Inc. of Chatham Enterprises Inc., of Chatham
Technologies, Inc., Logic Design Metals, Inc. and
Precision Techniques, Inc. and Electric & Gas
Technology, Inc. Dated July 15, 1997.
(b) Reports on form 8-K
Current Report-Form 8-K filed August 27, 1997: Item 2.-
Acquisition or Disposition of Assets. Sale of the assets of
wholly owned subsidiary Logic Design Metals, Inc.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
By: /s/ Edmund W. Bailey
Edmund W. Bailey, Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of Registrant and in the capacity and on the
date set-forth following their name:
Signature Capacity Date
/s/ S. Mort Zimmerman Chairman and President October 22, 1998
S. Mort Zimmerman
/s/ Daniel A. Zimmerman Senior Vice President
Daniel A. Zimmerman and Director October 22, 1998
/s/ Edmund W. Bailey Vice President, Chief
Edmund W. Bailey Financial Officer and
Director October 22, 1998
/s/ Fred M. Updegraff Vice President,
Fred M. Updegraff Treasurer and Director October 22, 1998
/s/ Marie W. Pazol Secretary October 22, 1998
Marie W. Pazol
22
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC.
AND SUBSIDIARIES
JULY 31, 1998 AND 1997
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 24
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 25
CONSOLIDATED STATEMENTS OF OPERATIONS 26-27
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY 28
CONSOLIDATED STATEMENTS OF CASH FLOWS 29-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31-46
23
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Electric & Gas Technology, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Electric & Gas Technology, Inc. and Subsidiaries as of July 31,
1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
Except as discussed in the following paragraph, we conducted our
audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
We were unable to obtain sufficient competent evidential matter
supporting the collectibility of the Company's note receivable
from African Telecommunications, Inc. ("AfriTel")(See Note 5),
stated at $2,375,500 at July 31, 1998; nor were we able to
satisfy ourselves as to the carrying value of the note receivable
by other auditing procedures.
In our opinion, except for the effect of such adjustments, if
any, as might have been determined to be necessary had we been
able to obtain sufficient competent evidential matter regarding
the collectibility of the note receivable from AfriTel, the
financial statements referred to above present fairly, in all
material respects, the consolidated financial position of
Electric & Gas Technology, Inc. and Subsidiaries as of July 31,
1998 and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended July 31, 1998, in conformity with generally accepted
accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
October 9, 1998
24
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS 1998 1997
Cash and cash equivalents $ 542,086 $14,503,417
Certificates of Deposit 4,000,000 -
Investments, market 2,938,964 -
Accounts receivable trade, less allowance for doubtful
receivables of $9,617 in 1998 and $18,798 in 1997 1,702,866 1,648,286
Inventories 3,199,398 3,067,865
Prepaid expenses 99,779 93,398
Total current assets 12,483,093 19,312,966
PROPERTY, PLANT AND EQUIPMENT, net 1,902,811 2,086,746
OTHER ASSETS
Discontinued operations 790,365 475,622
Other assets 6,029,259 1,143,799
Total other assets 6,819,624 1,619,421
TOTAL ASSETS $21,205,528 $23,019,133
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,762,482 $ 1,463,554
Accounts payable 1,171,703 1,456,647
Accrued liabilities 145,352 1,110,077
Federal income taxes 197,611 323,705
Current maturities of long-term obligations 116,691 184,887
Total current liabilities 3,393,839 4,538,870
LONG-TERM OBLIGATIONS
Long-term obligations, less current maturities 918,892 1,631,281
Other 708,758 724,859
Total long-term obligations 1,627,650 2,356,140
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST IN SUBSIDIARY 46,659 83,004
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,
issued 8,198,224 and 8,275,444 in 1998 and 1997,
respectively 81,982 82,504
Additional paid-in capital 9,260,866 10,099,338
Retained earnings 6,850,302 6,421,117
Pension liability adjustment (424,221) (329,805)
Cumulative translation adjustment (531,549) (432,274)
16,137,380 16,740,880
Less treasury stock, 219,792 shares in 1997, at cost - (699,761)
Total stockholders' equity 16,137,380 16,041,119
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,205,528 $23,019,133
</TABLE>
See accompanying notes.
25
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Sales $10,943,574 $10,955,395 $10,510,452
Cost of goods sold 8,056,468 7,780,605 7,879,857
Gross profit 2,887,106 3,174,790 2,630,595
Selling, general and administrative expenses 4,824,406 4,846,232 3,851,194
Operating loss (1,937,300) (1,671,442) (1,220,599)
Other income and (expenses)
Interest, net 286,960 (301,343) (358,578)
Other:
Gain on sale of operating divisions - - 577,336
Default on purchase obligation - - (1,813,838)
Investment gain (loss) 1,992,648 (1,590,755) (1,130,590)
Minority interest in subsidiary 36,346 18,063 -
Other 145,402 (62,076) (31,802)
2,461,356 (1,936,111) (2,757,472)
Earning (loss) from continuing operations
before income tax 524,056 (3,607,553) (3,978,071)
Provision (credit) for income taxes 160,355 (213,372) -
Earnings (loss) from continuing operations 363,701 (3,394,181) (3,978,071)
Discontinued operations:
Earnings (loss) from discontinued operations,
net of $121,070 in tax credits for 1998 (235,019) 109,641 (1,054,480)
Gain on disposal of business segments, net of
$154,804 and $323,705 in tax 300,503 12,646,939 -
65,484 12,756,580 (1,054,480)
NET EARNINGS (LOSS) 429,185 9,362,399 (5,032,551)
Dividends on Preferred Stock (63,000) (63,000) (39,353)
Net earnings or loss applicable to Common Stock $ 366,185 $9,299,399 $(5,071,904)
</TABLE>
See accompanying notes.
26
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Earnings (loss) available per common share:
Continuing operations $0.04 $(0.43) $(0.53)
Discontinued operations 0.01 1.58 (0.14)
Net earnings $0.05 $ 1.15 $(0.67)
Earnings (loss) available per common share - assuming dilution:
Continuing operations $0.04 $(0.39) $(0.50)
Discontinued operations 0.01 1.46 (0.14)
Net earnings $0.05 $ 1.07 $(0.64)
</TABLE>
See accompanying notes.
26
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended July 31, 1998, 1997 and 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retained Pension
Preferred Common Paid-in (Deficit) liability Translation Treasury
Stock Stock Capital Earnings adjustment adjustments Stock Total
Balance at July 31, 1995 $ - $79,054 $9,823,534 $2,091,269 $(265,302) $(424,577) $(876,117) $10,427,861
Net loss for the year - - - (5,032,551) - - - (5,032,551)
Pension liability adjustment - - - - 50,663 - - 50,663
Cumulative translation adjustments - - - - - (6,293) - (6,293)
Preferred Stock issued 900,000 - - - - - - 900,000
Bonus stock issued - 1,450 179,800 - - - - 181,250
Stock issued for cash - 2,000 198,000 - - - - 200,000
Balance at July 31, 1996 900,000 82,504 10,201,334 (2,941,282) (214,639) (430,870) (876,117) 6,720,930
Net earnings for the year - - - 9,362,399 - - - 9,362,399
Pension liability adjustment - - - - (115,166) - - (115,166)
Cumulative translation adjustments - - - - - (1,404) - (1,404)
Treasury stock issued for bonuses - - (101,996) - - - 176,356 74,360
Balance at July 31, 1997 900,000 82,504 10,099,338 6,421,117 (329,805) (432,274) (699,761) 16,041,119
Net earnings for the year - - - 429,185 - - - 429,185
Pension liability adjustment - - - - (94,416) - - (94,416)
Cumulative translation adjustments - - - - - (99,275) - (99,275)
Purchase of treasury stock - - - - - - (811,173) (811,173)
Cancellation of treasury stock - (522) (838,472) - - - 838,994 -
Treasury stock issued for services - - - - - - 338,500 338,500
Treasury stock issued forinvestments - - - - - - 333,440 333,440
Balance at July 31, 1998 $900,000 $81,982 $9,260,866 $6,850,302 $(424,221) $(531,549) $ - $16,137,380
</TABLE>
See accompanying notes.
28
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $ 429,185 $9,362,399 $(5,032,551)
Adjustments to reconcile net earnings ( loss)
to net cash provided by operating activities:
Discontinued operations 235,019 (109,641) 1,054,480
Depreciation of property, plant
and equipment 235,098 302,822 354,447
Issuance of stock for services 338,500 74,360 181,250
Minority interest in subsidiary (36,345) 83,004 -
Amortization of goodwill and patents 6,684 6,684 6,684
Gain on sale of business segment (300,503) (12,646,939) -
Gain on sale of assets (95,943) - -
Gain on sale of operating divisions - - (577,336)
Deferred income (112,303) (33,879) 61,066
Gains/Losses on investments (1,992,648) 1,590,755 2,797,948
Changes in assets and liabilities:
Accounts receivable (185,890) (324,772) 244,352
Inventories (131,533) 268,841 (286,825)
Prepaid expenses (6,381) (232,169) 56,231
Other assets (3,509) (1,033,212) 711,193
Accounts payable (212,805) 188,526 (538,264)
Accrued liabilities (964,725) 781,474 (308,392)
Federal income taxes (159,828) 323,705 -
Net cash used in operating activities (2,957,927) (1,398,042) (1,275,717)
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment - 36,288 2,068,583
Purchase of property, plant and equipment (79,157) (106,124) (98,786)
Proceeds on note receivable - - 253,904
Investments in affiliates (479,000) - (681,869)
Investments (9,796,464) - -
Proceeds on sale of business segment 951,295 20,828,385 -
Net cash provided by (used in) investing activities (9,403,326) 20,758,549 1,541,832
Cash flows from financing activities:
Proceeds from issuance of long-term obligations - 953,975 21,645
Issuance of common stock - - 200,000
Payments on long-term obligations (1,016,552) (5,825,522) (295,847)
Purchase of treasury stock (811,173) - -
Increase (decrease) in notes payable 298,928 (650,332) (331,813)
Net cash used in financing activities (1,528,797) (5,521,879) (406,015)
</TABLE>
See accompanying notes.
29
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Effect of exchange rate changes on cash (71,281) (4,783) (6,293)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (13,961,331) 13,833,845 (146,193)
Cash and cash equivalents - beginning of year 14,503,417 669,572 815,765
Cash and cash equivalents - end of year $ 542,086 $14,503,417 $ 669,572
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $344,701 $330,149 $409,857
Income tax $344,704 $ - $ 5,771
Supplemental schedule of noncash investing and financing activities:
During the year ended July 31, 1996, the following noncash transactions occurred:
The Company issued 90,000 shares of Series A, $10.00 par value, 7%
Convertible Preferred Stock ($900,000) in partial exchange for a $1,000,000 Note
Receivable from Cooper Manufacturing Corporation.
</TABLE>
See accompanying notes.
30
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying consolidated
financial statements follows.
Organization:
Electric & Gas Technology, Inc.("the Company"or "ELGT") was
organized under the laws of the State of Texas on March 18, 1985,
to serve as a holding company for operating subsidiary
corporations. In April, 1985, the Company (i) acquired from
Commercial Technology, Inc. ("COMTEC"), an affiliated company, all
of the stock of Reynolds Equipment Company ("Reynolds") for stock
of the Company and (ii) acquired from a subsidiary of COMTEC all of
the stock of Retech, Inc. ("Retech") [formerly Test Switch
Technology, Inc.("Test Switch"), formerly Superior Technology, Inc.
("Superior")] for stock of the Company. In 1988, the Company
acquired 85% (and subsequently 100%) of the stock of Data
Automation Company, Inc. ("DAC") from Video Science Technology,
Inc., formerly an affiliate of COMTEC and of the Company; DAC owned
100% of Domac Plastics, Inc. ("Domac") and Logic Design Metals,
Inc. ("Logic"). Domac was subsequently sold. During 1992 Logic
merged into DAC, its parent, and DAC changed its name to Logic
Design Metals, Inc. and is referred to herein as "Logic". In June
1986 Superior acquired from Petro Imperial Corp. (A subsidiary of
COMTEC) its ownership in American Brass, Inc. ("ABI"). Fridcorp
Plastics, Inc. ("Fridcorp") was acquired by the Company in January,
1992, in exchange for 162,000 shares of Company Common Stock.
Hydel Enterprises, Inc. ("Hydel") [formerly Stelpro Limited
("Stelpro")] was acquired by the Company in April, 1992, in
exchange for 166,474 shares of Company Common Stock and $1,100,000
(Cdn. funds)(April 30, 1992, exchange rate: .8370). On August 1,
1992, Hydel acquired all of the outstanding capital stock of Hydel
Engineering Limited ("Hydel Engineering") for cash and notes
payable of approximately $719,000 ($850,000 Cdn.). Hydel
Engineering was merged into Hydel effective August 1, 1995. The
number of shares of Company Common Stock issued in the acquisitions
of Fridcorp and Hydel was, in each case, determined through arms-
length negotiations. Superior Magnetics, Inc. ("SMI") was formed
by the Company to acquire the operating assets of the business
operations of Denison Magnetics of Texas Instruments Incorporated
on November 30, 1992 for cash and deferred payments of
approximately $2,900,000. The Company incorporated Atmospheric and
Magnetics Technology, Inc. ("AMT") on June 10, 1996 under the laws
of the State of Texas. AMT which remained dormant during most of
Fiscal 1997 was formed to undertake the Company's venture into the
water industry.
The Company presently is the owner of 100% of Reynolds and Hydel
and owns 91.5% of AMT and, through such subsidiaries, operates in
three distinct business segments: (1) production of atmospheric
water, filtration and enhanced water products (AMT); (2) the
manufacture and sale of natural gas measurement, metering and
odorization equipment (Reynolds); and (3) the manufacture and sale
of electric meter enclosures and pole-line hardware for the
electric utility industry and the general public (Hydel).
Effective October 1, 1997, the Company agreed to sell its defense
electronics business segment and on December 31, 1997 it sold its
plastics segment. Both such operations have been treated as
discontinued operations. Effective July 31, 1997, the Company
discontinued the operations of its metal fabrication segment which
previously was engaged in the manufacture and sale of precision
metal enclosures for telecommunication and computer equipment
(Logic). 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.
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
31
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SUMMARY OF ACCOUNTING POLICIES (Continued)
Inventories:
Inventories of raw materials, work-in-process and finished goods
are stated at the lower of cost or market as determined by the
first-in, first-out method.
Depreciation and Amortization:
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over
the lives of the respective leases or the service lives of the
improvements whichever is shorter. Leased property under capital
leases is amortized over the lives of the respective leases or over
the service lives of the assets for those leases which
substantially transfer ownership. The straight-line method of
depreciation is followed for newly acquired assets and straight-
line and accelerated methods have been used for older assets for
financial reporting purposes, accelerated methods are used for tax
purposes.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
computed based on the following useful lives:
Years
Machinery and equipment 3 -15
Buildings and improvements 4 -33
Furniture, fixtures and equipment 3 -10
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments with an original maturity of
three months or less to be cash equivalents.
Earnings Per Share:
Earnings per common share are computed by dividing net earnings by
the weighted average number of shares of common stock and common
stock equivalents outstanding during each period.
Reclassification:
Certain reclassifications have been made to the 1997 and 1996
consolidated financial statements to conform to the 1998
presentation.
Use of Estimates:
The Company uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, disclosure of contingent assets
and liabilities and the reported revenues and expenses. Actual
results may well vary from the estimates that are used.
Income taxes:
Deferred income taxes result from the temporary differences between
the financial statement and income tax basis of assets and
liabilities and are figured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse.
32
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
DISPOSITIONS AND ACQUISITIONS
The Company discontinued its defense electronics business segment
(SMI) effective October 1, 1997 as result of an agreement to sell
this business segment to the president of SMI. Effective December
31, 1997, the Company sold its plastics segment (Fridcorp) for cash
of approximately $760,000 with a corresponding gain of
approximately $210,000. The Company sold its metal fabrication
segment effective July 31, 1997 (Logic and Precision). Proceeds
from the sale amounted to approximately $20,850,000 with a
corresponding gain of approximately $12,650,000. Accordingly, the
financial statements have been reclassified to reflect these
segments as a discontinued operations. Sales, cost of goods sold,
selling, general and administrative expense and other were as
follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Sales $1,104,411 $23,988,789 $23,457,500
Cost of goods sold 946,193 17,749,856 18,455,520
Selling, general and administrative 440,418 5,134,280 4,998,761
Other 347,684 11,651,927 (1,057,699)
Discontinued operations $ 65,484 $12,756,580 $(1,054,480)
</TABLE>
The Company sold the Test Switch division on October 31, 1995 for
cash of approximately $2,100,000. The gain on the sale was
approximately $580,000 and is included in other income. Sales,
cost of goods sold and selling, general and administrative expenses
for the Test Switch division were $573,000, $487,000 and $229,000,
respectively for the year ended July 31, 1996.
3
INVENTORIES
Inventories consisted of the following at July 31,:
1998 1997
Raw materials $1,076,237 $1,209,547
Work-in-process 443,566 312,226
Finished goods 1,679,595 1,546,092
$3,199,398 $3,067,865
4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at
July 31,:
1998 1997
Land $ 234,688 $ 237,993
Buildings and improvements 2,346,380 2,348,306
Machinery and equipment 1,533,954 1,602,537
Furniture, fixtures & equipment 260,262 240,076
4,375,284 4,428,912
Less accumulated depreciation (2,472,473) (2,342,166)
$1,902,811 $2,086,746
33
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
OTHER ASSETS
Other assets consisted of the following at July 31,:
1998 1997
Investment in AfriTel (a) $2,357,500 $ -
Investment in Pioneer (b) 1,125,000 -
Investments and advances (Notes 10 and 13) 642,314 350,000
Notes receivable 650,266 231,400
Investment in equity securities 536,240 216,026
Intangible pension asset 129,802 144,203
Deferred debt issue costs 23,008 41,718
Goodwill, net 114,265 120,949
Patents 174,177 174,177
Due from (to) affiliates (Note 13) 16,063 (369,824)
Deposits and other assets 27,578 2,104
Land held for resale 19,674 19,674
Deferred tax asset 213,372 213,372
$6,029,259 $1,143,799
(a) During the year ended July 31, 1998, the Company entered into
an agreement to acquire 100% of the outstanding common stock of
African Telecommunications, Inc. ("AfriTel"), subject to approval
of the Company's stockholders. In connection with the agreement,
the Company has loaned AfriTel $2,357,500 as of July 31, 1998. In
the event that the AfriTel acquisition is not completed, the note
is due on November 30, 1999, including interest at 8%. AfriTel
holds communications licenses in the Democratic Republic of Congo
("DRC") and Ghana. AfriTel was proceeding with installation of a
digital wireless local loop telephone system in the DRC when that
country became involved in a civil war. The Company, AfriTel and
the supplier of communications equipment are currently negotiating
to determine the structure of an ongoing operation for AfriTel in
the future.
(b) In June 1997, litigation was commenced by the Company regarding
certain transactions related to a loan from American Circuit
Breaker Corporation arising out of its previous sale of the meter
socket division of Retech. On December 12, 1997, the litigation
was dismissed as result of an agreement between the parties whereby
the Company received a 20% interest in Pioneer Power Corporation
("Pioneer"). The Company and the settling parties agreed that the
value of the 20% interest was worth $1,125,000. Pioneer owns 100%
of Pioneer Transformers Ltd. ("Pioneer Ltd."), a Canadian company
which manufacture and sells transformers. As of December 31, 1997,
Pioneer Ltd.'s audited financial information reflected total assets
of approximately $6,000,000 with corresponding revenues for the
year then ended of approximately $16,300,000 in Canadian dollars.
Unaudited revenues for the eight months ended August 31, 1998
amounted to approximately $13,100,000 with net income of
approximately $700,000 in Canadian dollars. As part of the
agreement, the Company will spin-off approximately 80% of its 20%
interest in Pioneer to its shareholders. The Company is currently
working with Pioneer to prepare and file the necessary disclosure
statement and registration form to effect the spin-off.
6
NOTES PAYABLE
Notes payable consisted of the following at July 31,:
1998 1997
Note payable, CIT (a) $ 303,800 $ 281,197
Note payable, bank (b) 892,755 1,046,027
Note payable, bank (c) 381,251 -
Note payable, bank (d) 184,676 -
34
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES PAYABLE (Continued)
Note payable, bank - 136,330
$1,762,482 $1,463,554
(a) Part of a $3,500,000 Revolving credit and term facility with
The CIT Group Credit/Finance, Inc. (CIT) due November 1999.
Interest due monthly at 2.75% above prime. The revolving credit
borrowing base is based on eligible accounts receivable and
inventory, as defined (See note 7).
(b) Note payable, bank, consists of a line of credit with a maximum
loan amount of $1,450,000, payable on demand; bearing interest at
the bank's prime rate plus 1.25%; secured by trade receivables and
inventories.
(c) Note payable, bank, under a $500,000 line of credit at 7%
matures August 1999 and is secured by a $1,000,000 certificate of
deposit.
(d) Note payable, bank, interest at 7.62% matures October 1998,
secured by a $1,000,000 certificate of deposit.
Information relating to short-term borrowing is as
follows: 1998 1997
Balance at end of year $1,762,482 $1,463,554
Maximum borrowing $1,478,640 $2,254,548
Average balance $1,329,486 $1,779,706
Average effective interest rate 10.8% 10.8%
Maximum borrowing are the maximum amount of aggregate short-term
borrowing outstanding at any month end during the year.
The average short-term borrowing were computed by dividing the
aggregate borrowing for the year by the number of days the
borrowing were outstanding during the year. The weighted average
rate was computed by dividing the average borrowing into total
interest on short-term borrowing.
7
LONG-TERM OBLIGATIONS
<TABLE>
<S> <C> <C>
Long-term obligations consist of the following at July 31,:
1998 1997
Term loan payable to The CIT Group Credit/Finance, Inc. (CIT)
under a $3,500,000 credit facility (See note 6), due in monthly
installments of $1,430, plus interest at prime plus 2.75%.
The term portion is secured by machinery and equipment of U.S.
subsidiaries, however, substantially all assets of U.S.
subsidiaries are pledged under the total facility as collateral. $ 74,569 $ 85,200
Mortgage note payable due in monthly payments of principal and
interest at 2.75% above prime from October 10, 1994 over twenty
years. Guaranteed by the Small Business Administration. 545,214 961,306
Note payable to a bank, interest at the effective base lending
rate of the bank plus 1 1/2% (11.75% at July 31, 1996); due in
monthly installments of $3,053 plus interest through June 2000,
collateralized by land and building of the Company. - 217,252
</TABLE>
35
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<S> <C> <C>
Note payable to a bank, bearing interest at 8.75%, in monthly
principal installments of $7,300 until March 1998, $8,000 until
March 1999 and $8,750 until August 2002, secured by machinery
and equipment and land and building 383,554 510,682
Various other installment notes and capitalized lease
obligations. 32,246 41,728
1,035,583 1,816,168
Less current maturities (116,691) (184,887)
$ 918,892 $1,631,281
</TABLE>
The prime rate was 8.50% and 8.25% at July 31, 1998 and 1997,
respectively.
The Company is contingently liable as guarantor on approximately
$600,000 of its discontinued defense electronics segment's debt to
CIT, which is not included in the accompanying consolidated balance
sheet.
The aggregate annual principal payments are as follows:
<TABLE>
<S> <C>
Year Ending
July 31,
1999 $116,691
2000 152,900
2001 144,981
2002 133,339
2003 37,286
Thereafter 450,386
</TABLE>
8
ACCRUED LIABILITIES
Accrued liabilities consisted of the following at July 31:
1998 1997
Payroll $ 85,535 $ 935,974
Commissions 15,715 16,308
Pension plan (77,943) (127,943)
Vacation pay 27,280 46,738
Taxes 74,635 125,928
Miscellaneous 20,130 113,072
$145,352 $1,110,077
36
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
COMMITMENTS AND CONTINGENCIES
Total rent expense for the years ended July 31, 1998, 1997 and
1996, was $138,000, $113,000 and $99,000, respectively, consisting
primarily of minimum rentals.
Litigation:
The former manufacturers representative of Logic, Ammon & Rizos Co,
has filed a suit against the Company, the Company's chairman of the
board, Logic, and New Logic Design Metals, Inc. ("New Logic")(the
purchaser of the assets) for unpaid fees, assumed by New Logic and
a previous adjustment in prior fees plus prospective fees from New
Logic's sales. The case has yet to go to trial; management
believes there will be no material effect on the Company.
Allied Products Co has sued the Company under the Preferred Stock
issued by the Company in connection with its investment in Cooper
Manufacturing Corporation ("Cooper") and the rights pertaining
thereto. The suit was filed in the Eastern District of Illinois
(Chicago). The ultimate resolution of this case will depend in
part upon the outcome of the Cooper bankruptcy case. The
bankruptcy court confirmed the debtor's Plan of Reorganization on
November 21, 1997. Management does not believe that this suit will
have any further material effect on the Company.
American Brass, Inc. (ABI) discontinued its operation in January
1993 and was involved in several lawsuits arising principally out
of secured and unsecured creditors' claims against ABI. Under most
of these cases the courts have awarded judgements against ABI for
the amounts owed such creditors plus costs. Although ABI has not
declared bankruptcy, there are insufficient assets to satisfy any
of the unsecured creditor claims. The principal secured creditor
currently has a deficiency of approximately $1,500,000; however
there are remaining assets which could be sufficient enough to
satisfy their claims. Superior Technology, Inc. had guaranteed
this secured creditor. Accordingly, if there were insufficient
assets to satisfy this claim, the Company could be liable for this
deficiency. Management does not believe that the Company will
ultimately have any material liability with respect to this
guarantee.
Other:
Reynolds has no insurance against risk of loss that may result from
product liability. Management considers such potential losses as
remote; accordingly, no provision has been made in the consolidated
financial statements for any claims or possible claims that may
arise.
See Note 10 regarding the Company's guarantee of the value of its
Preferred Stock to Allied Products Corporation.
Concentration of Credit Risk:
The Company invests its cash and certificates of deposit primarily
in deposits with major banks. Certain deposits are in excess of
federally insured limits. The Company has not incurred losses
related to its cash.
The Company sells a broad range of products to the electric and gas
utility industries. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers
comprising the Company's customer base. Ongoing credit evaluations
of customers' financial condition are performed and, generally, no
collateral is required. The Company maintains reserves for
potential credit losses and such losses have not exceeded
management's expectations.
37
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
COMMITMENTS AND CONTINGENCIES (Continued)
Fair value of Financial Instruments:
The estimated fair value amounts have been determined by the
Company, using available market information and appropriate
valuation methodologies. The fair value of financial instruments
classified as current assets or liabilities including cash and cash
equivalents, certificates of deposit, investments, receivables and
accounts payable approximate carrying value due to the short
maturity of the instruments. The fair value of short-term and
long-term debt approximate carrying value based on their effective
interest rates compared to current market rates.
10
STOCKHOLDERS' EQUITY
On December 15, 1995, the Company closed on a Note Purchase
Agreement with Allied Products Corporation ("Allied"), thereby
obtaining Allied's right, title and interest in and to a certain
Promissory Note and all security existing thereunder and
obligations of Cooper Manufacturing Corporation ("Cooper") under
this Note and the Facility Agreement formerly executed by Cooper
and its shareholders in exchange for $100,000 in cash and newly
issued 90,000 shares of Series A, $10.00 par value, 7% Convertible
Preferred stock of the Company. The promissory note was due on
December 31, 1995 and demand for payment was made on Cooper and its
guarantors. The preferred stock is convertible into common stock
of the Company at the ratio of two shares of common stock for each
share of preferred stock. Each holder of record of the shares of
preferred stock is entitled to one vote per share equal to the
voting rights of the common shareholders. The Company has agreed
to make whole any deficiency upon conversion and subsequent sale
after December 31, 1997 of the Company's common stock for less than
$900,000. The Company's common stock trades at less than $2.00 per
share which if sold at that price would require 450,000 shares to
be sold to retire the obligation to Allied. The Preferred shares
are redeemable in cash plus accrued dividends at any time as the
result of an underwriting as defined therein. Cumulative dividends
as of July 31, 1998 amounted to $165,353 with additional dividends
accruing of $15,879 on September 30, 1998.
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 a portion of 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. The remaining
$350,000 in 1997 investment in Cooper represented the estimated
amount of recovery the Company expected to receive from Cooper's
Plan filed in the bankruptcy court. The Bankruptcy Court approved
the debtor's plan of reorganization in the Cooper bankruptcy on
December 5, 1997. In accordance with such plan, the Company
received cash of $700,000, notes receivable totaling $220,000, a
2.5% royalty agreement on new rigs sold and 1,000,000 shares of
Cabec Energy Corp. The investment in Cooper was adjusted to the
value of the consideration received.
The Company issued on August 3, 1995, 45,000 shares of its $.01 par
value common stock (restricted) valued at $1.25 per share to
certain of its key management personnel and 100,000 shares valued
at $1.25 per share plus $1,500 in cash to an affiliate of the
Chairman of the Board and President as a fee for providing
continuing collateral securing the Company's $450,000 note payable
to a bank. On October 26, 1995, the Company issued 200,000 shares
of its $.01 par value common stock (restricted) valued at $1.00 per
share for cash to the same affiliate. Proceeds were used to repay
a portion of the Bank One Texas note payable.
38
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY (Continued)
During fiscal 1996, the Company transferred 55,000 shares of its
treasury stock with a basis of $3.19 per share to key management
employees as additional consideration. The market value of the
common stock was $1.35 per share, accordingly, $74,360 was recorded
as an expense and $101,996 reduced additional paid-in capital.
In connection with a financial consulting agreement entered into on
July 28, 1997, the Company has issued warrants to an investment
banking firm to purchase 150,000 and 300,000 shares of the common
stock at $2.00 and $2.30 per share, respectively. The warrants are
protected against dilution and expire July 31, 2001 and September
15, 2001, respectively. The warrants contain piggyback
registration rights and the agreement allows the warrants holders
to request registration of the warrants, if unregistered, between
January 1, 1999 and July 31, 2002. The Company has not recorded
any expense relating to the warrants since the exercise price
exceeded the market price at the date of issuance. These warrants
were issued as part of the consideration for investment banking
services. The agreement between the Company and the investment
banking firm was cancelled and the Company expects a significant
portion of the warrants to be returned and cancelled.
In connection with the Company's financing agreement with The CIT
Group/Credit Finance, Inc. in 1994, the Company issued warrants to
purchase 25,000 shares of common stock of the Company at $4.25 per
share. Such warrants are exercisable in whole or part on or before
November 24, 1998 and have piggy-back rights with respect to any
shares to be registered by the Company.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Numerator
Net income (loss)from continuing
operations $363,701 $(3,394,181) $(3,978,071)
Preferred stock dividends (63,000) (63,000) (39,353)
Numerator for basic earnings per share
Net income (loss) available to common
stockholders continuing operations 300,701 (3,457,181) (4,017,424)
Discontinued operations 65,484 12,756,580 (1,054,480)
Net income (loss) available to
common stockholders $ 366,185 $ 9,299,399 $(5,071,904)
Effect of dilutive securities
Preferred stock dividends $ 63,000 $ 63,000 $ 39,353
</TABLE>
39
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY (Continued)
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Numerator for diluted earnings per share
Net income (loss) available to common
stockholders after assumed conversion
continuing operations $363,701 $(3,394,181) $(3,978,071)
Discontinued operations 65,484 12,756,580 (1,054,480)
Net income (loss) available to
common stockholders $429,185 $ 9,362,399 $(5,032,551)
Denominator
Denominator for basic earnings per share
weighted-average shares 7,909,957 8,085,624 7,635,624
Effect of dilutive securities:
Options 212,700 134,157 -
Preferred stock 489,130 523,256 270,619
701,830 657,413 270,619
Denominator for dilutive earnings per share
assumed conversion 8,611,787 8,743,037 7,906,243
</TABLE>
11
BENEFIT PLANS
Retech sponsored a defined benefit pension plan that covered all of
its hourly employees. The plan calls for benefits to be paid to
eligible employees at retirement based upon years of service and
compensation rates near retirement. Retech's policy is to fund
pension expenses accrued.
Pension expense for the years ended July 31,:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Service cost $ - $ - $ -
Interest cost 69,073 135,845 130,347
Actual return on assets held for the plan (46,703) (202,965) (107,462)
Net amortization of prior service cost,
transition liability and net gain 62,874 115,511 43,540
Pension expense $85,244 $ 48,391 $ 66,425
</TABLE>
40
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS Continued)
The following sets forth the funded status of the plan and the
amounts shown in the accompanying consolidated balance sheets at
July 31,:
1998 1997
Pension benefit obligations
Vested $992,767 $799,093
Non-vested - 14,143
Projected benefit obligation 992,767 813,236
Fair value of assets held in plan 555,438 479,652
Unfunded excess of projected benefit
obligation over plan assets $437,329 $333,584
Unrecognized net transition obligation $ 48,473 $ 48,473
Unrecognized prior service costs 81,329 95,730
Unrecognized net loss 424,221 329,805
Pension (asset) liability recognized (116,694) (140,424)
Accrued pension liability $437,329 $333,584
The Company purchased approximately $1,161,000 in annuities for all
those individuals who were currently receiving retirement benefits
during 1997.
The Company has recognized a minimum pension liability for the
under-funded plan. The minimum liability is equal to the excess of
the projected benefit obligation over plan assets. A corresponding
amount is recognized as either an intangible asset or reduction of
stockholders' equity. The Company recorded additional liabilities
of $554,023 and $474,008, intangible assets of $129,802 and
$144,203 and a stockholders' equity reduction of $424,221 and
$329,805 as of July 31, 1998 and 1997, respectively.
Retech will terminate the plan upon funding its pension
liability. The plan assets consist of common equities and
government securities administered by the trust department of
United Bank, Canton, Ohio.
The assumed long-term rate of investment return and the interest
rate for obligations used in determining the actuarial present
value of accumulated plan benefits was 8.5% and 8.25% at July 31,
1998 and 1997, respectively.
The Company has established a defined contribution (401-K) plan
covering substantially all U. S. employees. Charges to operations
for this plan for the years ended July 31, 1998, 1997 and 1996 were
$6,619, $5,398 and $5,311, respectively.
The Company has an Incentive Stock Option Plan. The option price
must be at least 100% of the fair market value of the common stock
at the time options are granted. If the person to whom the option
is granted is more than a 10% shareholder of the Company, the
option price must be at least 110% of the fair market value of the
stock at the time options are granted. No employee may be granted
options in any calendar year greater than a value of $100,000, plus
certain carry-over allowances from the previous years, as defined
in the Plan. Each option becomes exercisable only after two years
continued employment following the date the option is granted. The
Plan provides for 400,000 shares of common stock.
41
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS (Continued)
Following is a summary of options under the plan as of and for the
years ended July 31,:
1998 1997 1996
Options outstanding at beginning of year 352,000 394,999 394,999
Granted - 290,000 -
Terminated - (332,999) -
Exercised - - -
Options outstanding at end of year 352,000 352,000 394,999
Options exercisable at end of year 62,000 62,000 333,000
Exercise price per share $.50 to $.50 to $2.50 to
$2.75 $2.75 $4.68
The Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation ." SFAS 123 defines a
fair value based method of accounting for an employee stock option
or similar equity instrument. Under the fair value based method,
compensation cost is measured at the grant date based on the value
of the award. However, an entity may continue to measure
compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date or other measurement
date over the amount an employee must pay to acquire the stock.
The Company has elected to retain the accounting in Opinion 25,
accordingly there were no expenses for the year ended July 31,
1997.
Pro forma disclosure for the fiscal year ended July 31, 1997 are as
follows:
Pro forma net income $9,190,148
Pro forma net income per share $1.09
Pro forma net income attributable to common shareholders $9,227,148
Pro forma net income per share $1.09
The fair value of the award was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted
average assumptions for 1997: risk-free interest rate of 5.64%;
volatility factor of 82%; and an expected life of the award of two
years. The weighted average fair value of stock options for the
year ended July 31, 1997 was $.25.
42
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
INCOME TAXES
Following is a reconciliation between reported income taxes
and the amount computed by applying the statutory federal
income tax rates to earnings (loss) before income taxes for the
periods ended July 31,:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Expected provision (benefit) for federal income taxes $189,000 $3,220,000 $(1,711,000)
Expected provision for state income taxes 22,000 474,000 -
Utilization of tax loss carryforward - (3,583,667) (61,000)
Unavailable loss carrybacks - - 1,772,000
Other (16,911) - -
Income taxes $194,089 $ 110,333 $ -
</TABLE>
The Company files a consolidated tax return with its U.S.
subsidiaries.
Income tax expense (benefit) is reported as follows for the years
ended July 31,:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Income from continuing operations $160,355 $(213,372) $ -
Earnings from discontinued operations (121,070) - -
Gain on sale of discontinued operations 154,804 323,705 -
$194,089 $ 110,333 $ -
Income tax expense (benefit) consisted of the following:
Current $194,089 $ 323,705 $ -
Deferred - (213,372) -
$194,089 $ 110,333 $ -
</TABLE>
Deferred tax expense (credit) and deferred tax liabilities in all
years (all Canadian) result principally from differences in
depreciation for tax and financial statement purposes.
43
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
INCOME TAXES (Continued)
The components of the net deferred tax (assets) liability included
in the balance sheet are as follows at July 31,:
1998 1997
Depreciation - U. S. $ 68,640 $ 68,640
Provision for losses (282,012) (282,012)
$(213,372) $(213,372)
13
RELATED PARTY TRANSACTIONS
The following is a summary of advances from/to affiliated
companies at July 31,:
1998 1997
Refineries Consolidated Technology, Inc. $269,400 $ -
Cooper Manufacturing Corporation 642,314 350,000
Others 16,063 (369,824)
$927,777 $(19,824)
The Company for several years had been owed approximately $530,000
due from Comtec, a dormant affiliate. During 1996, it was
determined that $235,000 of this amount was actually paid for the
benefit of the Company and was written-off in 1996 in other
expenses. It has been determined that Comtec does not have the
capability to liquidate the remaining debt and the remaining
receivable was offset against accrued salaries of the officer who
had guaranteed the receivable. The Company has advanced through
the pledging of its certificates of deposit with a bank,
corresponding to direct bank loans and direct advances to
Refineries Consolidated Technology, Inc. ("RCT") and Cooper
Manufacturing Corporation ("Cooper") approximately $1,297,000. The
Company has also acquired a secured note receivable from Cooper in
exchange for 90,000 shares of its $10.00 par value Preferred Stock
to an unaffiliated company who previously owned Cooper. During
1997 the Company provided a reserve for the entire receivable from
RCT ($723,000) and also provided a reserve of $867,000 against the
Cooper investment. The remaining $350,000 in 1997 investment in
Cooper represented the estimated amount of recovery the Company
expected to receive from Cooper's Plan filed in the bankruptcy
court. The Bankruptcy Court approved the debtor's plan of
reorganization in the Cooper bankruptcy on December 5, 1997. In
accordance with such plan, the Company received cash of $700,000,
notes receivable totaling $220,000, a 2.5% royalty agreement on new
rigs sold and 1,000,000 shares of Cabec Energy Corp. The
investment in Cooper was adjusted to the value of the consideration
received.
During the year ended July 31, 1998, the Company issued 200,000
shares of common stock from its treasury to affiliated entities for
shares of common stock in two other affiliated entities. These
shares were valued at $336,000, the market price of the Company's
common stock at the time less a 30% discount for the restriction on
the shares. This value approximated the value of the shares
received from the affiliates.
During 1994 the Company purchased equipment with a cost of
approximately $47,000 and subsequently sold the equipment to an
affiliated company for $200,000. A gain of approximately $153,000
was included in other income in 1994. During 1997 the Company
repurchased the equipment from the affiliated company for its
original price sold and subsequently sold the equipment to an
unaffiliated company incurring a loss of $180,000.
44
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION
Industrial Segments
The Company operates principally in three industries: Water, gas
and electric. Operations in the water industry involve the
production of atmospheric water, filtration and enhanced water
products. Operations in the gas industry involve the development,
manufacture, and sale of gas meters and measurement equipment.
Operations in the electric industry involve the manufacture and
sale of meter sockets and other electrical equipment. The
Company's former segments defense electronics, plastics and metal
fabrication have been treated as a discontinued operations.
Following is a summary of segment information for the years ended
July 31,:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Sales to unaffiliated customers:
Water $ 52,576 $ 75,234 $ -
Gas 2,739,035 3,135,249 2,935,326
Electric 8,151,963 7,744,912 7,575,126
$10,943,574 $10,955,395 $10,510,452
Operating income (loss):
Water $ (427,596) $ (212,742) $ -
Gas 115,435 40,784 (646,568)
Electric 292,535 161,043 324,602
(19,626) (10,915) (321,966)
General corporate expenses (1,917,674) (1,660,527) (898,633)
Other income (expense), net 2,461,356 (1,936,111) (2,757,472)
Earnings (loss) from continuing operations
before income taxes $ 524,056 $(3,607,553) $(3,978,071)
Identifiable assets:
Water $ 832,428 $ 954,690 $ -
Gas 2,012,325 1,882,753 2,198,034
Electric 4,541,187 4,828,751 4,648,198
7,385,940 7,666,194 6,846,232
General corporate assets 13,819,588 15,352,939 5,793,104
Total assets $21,205,528 $23,019,133 $12,639,336
Capital expenditures:
Water $ 12,991 $ 7,670 $ -
Gas 10,257 28,960 63,900
Electric 54,531 66,095 31,931
General corporate 1,378 3,399 2,955
$ 79,157 $ 106,124 $ 98,786
</TABLE>
45
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION (Continued)
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Depreciation and amortization:
Water $ 5,157 $ 2,131 $ -
Gas 55,899 155,346 188,745
Electric 161,670 133,054 150,007
General corporate 12,372 12,291 15,695
$ 235,098 $ 302,822 $ 354,447
</TABLE>
Operating income represents sales less operating expenses for each
segment and excludes income and expenses of a general corporate
nature. Identifiable assets by segment are those assets that are
used in the Company's operations within that industry but exclude
investments in other industry segments. General corporate assets
consist principally of corporate cash, receivables from affiliates
and the corporate headquarters building.
Individual customers who exceeded 10% of consolidated revenues
accounted for $1,666,000 and $1,240,000 in sales for the year ended
July 31, 1998 and 1997, respectively.
Geographic information
Financial data by geographic area for the years ended July 31,:
1998
Operating
(loss) Identifiable
Sales Income Assets
United States $ 2,791,611 $(521,268) $3,636,634
Canada 8,151,963 501,642 3,749,306
Total $10,943,574 $ (19,626) $7,385,940
1997
United States $ 3,210,483 $(368,344) $3,714,029
Canada 7,744,912 357,429 3,952,165
Total $10,955,395 $ (10,915) $7,666,194
15
FOURTH QUARTER RESULTS
During the fourth quarter of fiscal 1997 and 1996, the Company
recorded the following adjustments which are unusual and non-
recurring in nature: For fiscal 1997; (i) provided a reserve of
$867,000 against the Company's investment in Cooper (See Note 13);
(ii) provided a reserve of $723,000 against the Company's
receivable from RCT (See Note 13); and (iii) provided a reserve of
$457,800 against inventory obsolescence at SMI. For fiscal 1996;
(i) As result of a default by the purchaser of the Retech meter
socket operation, the Company fully reserved all amounts owed from
the purchaser of approximately $1,800,000; (ii) obsolete and slow
moving inventory write-offs in the Gas and Defense segments
amounted to approximately $600,000; (iii) the remaining assets of
Trans Metals investment were written-off totaling approximately
$391,000; (iv) and investment losses of approximately $1,000,000.
46
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 542,086
<SECURITIES> 6,938,964
<RECEIVABLES> 1,712,483
<ALLOWANCES> 9,617
<INVENTORY> 3,199,398
<CURRENT-ASSETS> 12,483,093
<PP&E> 4,375,284
<DEPRECIATION> 2,472,473
<TOTAL-ASSETS> 21,205,528
<CURRENT-LIABILITIES> 3,393,839
<BONDS> 0
0
900,000
<COMMON> 81,982
<OTHER-SE> 15,155,398
<TOTAL-LIABILITY-AND-EQUITY> 21,205,528
<SALES> 10,943,574
<TOTAL-REVENUES> 10,943,574
<CGS> 8,056,468
<TOTAL-COSTS> 12,880,874
<OTHER-EXPENSES> (2,461,356)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344,701
<INCOME-PRETAX> 524,056
<INCOME-TAX> 160,355
<INCOME-CONTINUING> 363,701
<DISCONTINUED> 65,484
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 429,185
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 14,503,417
<SECURITIES> 0
<RECEIVABLES> 1,667,084
<ALLOWANCES> 18,798
<INVENTORY> 3,067,865
<CURRENT-ASSETS> 19,312,966
<PP&E> 4,428,912
<DEPRECIATION> 2,342,166
<TOTAL-ASSETS> 23,019,133
<CURRENT-LIABILITIES> 4,538,870
<BONDS> 0
0
900,000
<COMMON> 82,504
<OTHER-SE> 15,058,615
<TOTAL-LIABILITY-AND-EQUITY> 23,019,133
<SALES> 10,955,395
<TOTAL-REVENUES> 10,955,395
<CGS> 7,780,605
<TOTAL-COSTS> 12,626,837
<OTHER-EXPENSES> 1,936,111
<LOSS-PROVISION> 1,590,755
<INTEREST-EXPENSE> 330,149
<INCOME-PRETAX> (3,607,553)
<INCOME-TAX> (213,372)
<INCOME-CONTINUING> (3,394,181)
<DISCONTINUED> 12,756,580
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,362,399
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 669,572
<SECURITIES> 0
<RECEIVABLES> 1,497,268
<ALLOWANCES> 13,909
<INVENTORY> 3,336,706
<CURRENT-ASSETS> 5,489,279
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0
900,000
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<EPS-PRIMARY> (.67)
<EPS-DILUTED> (.64)
</TABLE>
