UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended: April 30, 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:# 0-14754
ELECTRIC & GAS TECHNOLOGY, INC.
(Exact Name of Registrant as specified in its Charter)
TEXAS 75-2059193
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13636 Neutron Road, Dallas, Texas 75244-4410
(Address of Principal Executive Offices) (Zip Code)
(972) 934-8797
(Registrant's telephone number, including area code)
____________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
The number of shares outstanding of each of the Issuer's Classes
of Common Stock, as of the close of the period covered by this
report:
Common - $0.01 Par Value - 7,972,224 shares at June 1, 1998.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Form 10-Q
For the Quarter Ended April 30, 1998
Page
Part I - Financial Information
1. Condensed Consolidated Financial Statements:
(a)Condensed Consolidated Balance Sheets as
of April 30, 1998 and July 31, 1997 3
(b)Condensed Consolidated Statements of
Operations for the three and nine months
ended April 30, 1998 and 1997 4-5
(c)Condensed Consolidated Statements of
Cash Flows for the nine months ended
April 30, 1998 and 1997 6
(d)Notes to Condensed Consolidated
Financial Statements 7-13
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
Part II - Other Information
Item 1 - Legal Proceedings 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signature (pursuant to General Instruction E) 19
All other items called for by the instructions are
omitted as they are either inapplicable, not required,
or the information is included in the Condensed
Financial Statements or Notes thereto.
2
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 1998 and July 31, 1997
ASSETS
April 30, July 31,
1998 1997
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 253,345 $14,503,417
Investments, market 9,521,350 -
Accounts receivable, net 1,487,816 1,648,286
Inventories 3,317,595 3,067,865
Prepaid expenses 88,351 93,398
Total current assets 14,668,457 19,312,966
PROPERTY, PLANT AND EQUIPMENT, net 1,898,915 2,086,744
OTHER ASSETS 3,582,879 1,619,419
TOTAL ASSETS $20,150,251 $23,019,129
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,366,533 $ 1,463,554
Accounts payable 1,219,481 1,780,352
Accrued liabilities 170,342 1,110,075
Current maturities oflong-term obligations 148,888 183,231
Total current liabilities 2,905,244 4,537,212
LONG-TERM OBLIGATIONS
Long-term obligations, less current
maturities 1,752,689 2,357,794
MINORITY INTEREST IN SUBSIDIARY 54,907 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 and issued 7,972,224 in 1998 and
8,250,416 in 1997 79,722 82,504
Additional paid-in capital 9,184,446 10,099,338
Retained earnings 6,073,212 6,421,117
Pension liability adjustment (329,805) (329,805)
Cumulative translation adjustment (470,164) (432,274)
15,437,411 16,740,880
Less treasury stock, 219,792 in 1997 shares,
at cost - (699,761)
Total stockholders' equity 15,437,411 16,041,119
TOTALLIABILITIES AND STOCKHOLDERS' EQUITY $20,150,251 $23,019,129
See accompanying notes.
3
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended April 30, 1998 and 1997
(Unaudited)
Three months ended Nine months ended
April 30, April 30,
1998 1997 1998 1997
Sales $2,664,930 $2,567,774 $8,144,806 $7,978,854
Cost of goods sold 1,896,017 1,788,307 6,162,648 5,568,814
Gross profit 768,913 779,467 1,982,158 2,410,040
Selling, general and
administrative expenses 1,265,636 953,953 3,539,978 2,827,810
Operating profit (loss) (496,723) (174,486) (1,557,820) (417,770)
Other income and (expenses)
Interest, net 96,729 (113,032) 154,602 (345,318)
Minority interest 7,837 - 28,097 -
Investment gain (6,146) - 1,335,752 -
Other, net 5,602 24,741 47,553 23,639
104,022 (88,291) 1,566,004 (321,679)
Earnings (loss) from continuing
operations (392,701) (262,777) 8,184 (739,449)
Earnings (Loss) from discontinued
operations of:
Plastics segment - 2,382 (32,472) 8,683
Defense segment - (265,850) (323,617) (442,231)
Metal fabrication segment - 736,663 - 1,789,707
- 473,195 (356,089) 1,356,159
NET EARNINGS (LOSS) (392,701) 210,418 (347,905) 616,710
Dividend on preferred stock 15,362 15,362 47,121 47,121
Net earnings (loss) applicable
to common stock $(408,063) $ 195,056 $(395,026) $ 569,589
See accompanying notes.
4
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Three and Nine Months Ended April 30, 1998 and 1997
(Unaudited)
Three months ended Nine months ended
April 30, April 30,
1998 1997 1998 1997
Earnings (loss) available per Common share:
Continuing operations $(0.05) $(0.04) $(0.00) $(0.10)
Discontinued operations - 0.06 (0.05) 0.17
Net income $(0.05) $ 0.02 $(0.05) $ 0.07
Earnings (loss) available per Common share - assuming dilution:
Continuing operations $(0.05) $(0.03) $ 0.00 $(0.08)
Discontinued operations - 0.05 (0.04) 0.15
Net income $(0.05) $ 0.02 $(0.04) $ 0.07
See accompanying notes.
5
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1998 and 1997
(Unaudited)
Nine months ended
April 30,
1998 1997
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $ (347,905) $ 616,710
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Discontinued operations (356,089) (1,356,159)
Depreciation and amortization 233,971 247,230
Minority interest (28,097) -
Gain on investments (1,355,752) -
Changes in assets and liabilities:
Accounts receivable 160,470 (1,591)
Inventories (249,730) (216,186)
Prepaid expenses 5,047 17,437
Other assets 988,867 667,215
Accounts payable (522,257) 86,108
Accrued liabilities (939,733) 3,302
Net cash provided by (used in) operating
activities (2,411,208) 64,066
Cash flows from investing activities:
Investments (10,528,776) -
Purchase of treasury stock (811,173) -
Treasury stock issued 593,260 -
Purchase of property, plant and equipment (41,129) (76,946)
Net cash provided by (used in) investing
activities (10,787,818) (76,946)
Cash flows from financing activities:
Increase (decrease) in notes payable and
long-term obligations (812,973) (234,293)
Due to/from affiliate (238,073) (140,628)
Net cash provided by (used in) financing
activities (1,051,046) (374,921)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (14,250,072) (387,801)
Cash and cash equivalents-beginning of
period 14,503,417 458,359
Cash and cash equivalents-end of period $ 253,345 $ 70,558
Supplemental disclosures of cash flow information:
Cash paid during the year for Interest $ 262,249 $345,318
Federal income taxes paid $ 352,524 $ -
See accompanying notes.
6
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998
(Unaudited)
NOTE A - 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. The Company presently is the owner of 100% of
Retech, which currently owns 80% of ABI and the Company owns
91.5% of AMT and 100% of Reynolds and Hydel, 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 December 31, 1997, October 1,
1997 and July 31, 1997, the Company discontinued the operations
of its plastics, defense and metal fabrication segments,
respectively which previously were engaged in the manufacture of
vacuum-form and injection-mold products (Fridcorp), design and
manufacture of defense electronic components (SMI) and the
manufacture and sale of precision metal enclosures for
telecommunication and computer equipment (Logic), respectively.
The Company sold its Canadian heating division and its U.S. meter
socket and Test Switch divisions during fiscal 1996 and 1995.
These operations were part of the electric segment.
The accompanying condensed financial statements have been
prepared in accordance with the regulations of the Securities and
Exchange Commission (SEC) for inclusion in the Company's
Quarterly Report on Form 10-Q. They are subject to year-end
audit adjustments; however, they reflect all adjustments of a
normal recurring nature which are, in the opinion of Management,
necessary for a fair statement of the results of operations for
the interim periods.
The statements were prepared using generally accepted accounting
principles. As permitted by the SEC, the statements depart from
generally accepted accounting disclosure principles in that
certain data is combined, condensed or summarized that would
otherwise be reported separately and certain disclosures of the
type that were made in the Notes to Financial Statements for the
year ended July 31, 1997 have been omitted, even though they are
necessary for a fair presentation of the financial position at
April 30, 1998 and 1997 and the results of operations and cash
flows for the periods then ended.
7
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1998
(Unaudited)
NOTE B - INVENTORIES
Inventories are comprised as follows:
April 30, 1998 July 31, 1997
Raw Materials $1,173,063 $1,209,548
Work in process 300,924 312,226
Finished Goods 1,843,608 1,546,091
$3,317,595 $3,067,865
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE
On December 15, 1995, the Company closed on a Note Purchase
Agreement with Allied Products Corporation ("Allied"), thereby
obtaining Allied's right, title and interest in and to a certain
Promissory Note and all security existing thereunder and
obligations of Cooper Manufacturing Corporation ("Cooper") under
this Note and the Facility Agreement formerly executed by Cooper
and its shareholders in exchange for $100,0000 in cash and newly
issued, 90,000 shares of, Series A, $10.00 par value, 7%
Convertible Preferred stock of the Company. The promissory note
was due on December 31, 1995 and demand for payment was made on
Cooper and its guarantors. The preferred stock is convertible
into common stock of the Company at the ratio of two shares of
common stock for each share of preferred stock. Each holder of
record of the shares of preferred stock is entitled to one vote
per share equal to the voting rights of the common shareholders.
Under the agreement the Company is to make whole any deficiency
upon conversion and subsequent sale after December 31, 1997 of
the Company's common stock for less than $900,000. The Company's
common stock is trading at approximately $2.88 per share which if
sold at that price would require approximately 312,500 shares to
be sold to retire the obligation to Allied. The Company is of
the opinion that the consideration paid for the Allied note will
require a major adjustment due to Cooper's bankruptcy filing
regarding the Promissory Note purchased from Allied. Allied has
sued the Company under the Preferred Stock issued by the Company
in connection with its investment in Cooper and the rights
pertaining thereto. The suit was filed in the Eastern District
of Illinois (Chicago) and currently, all activity is directed at
discovery. The Company has filed a counter suit alleging
security violations (10b5) demanding return of its Preferred
Stock. In addition, the Company has been advised by the Cooper
debtor-in-possession that it has litigation pending claiming
preference and other violations by Allied. The ultimate
resolution of the Company's case will depend in part upon the
outcome of the Cooper bankruptcy case. Any final conversion to
the Company's common stock is uncertain. Accumulated and unpaid
dividends on the preferred stock amounted to approximately
$149,474 at April 30, 1998.
8
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1998
(Unaudited)
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE(Continued)
The individuals whose stock was pledged and who personally
guaranteed the Allied Note, petitioned the court on behalf of
Cooper to file for protection under the U.S. Bankruptcy laws in a
Houston, Texas court. Effective July 31, 1997, the Company
reduced its investment in Cooper to $350,000, the amount
anticipated to be recovered under the bankruptcy. On November
21, 1997, the bankruptcy court confirmed the debtor's Plan (Cabec
Energy Corp.) which provided the Company with $700,000 in cash,
notes totaling $220,000, a royalty of 3% of new rigs sold and
1,000,000 shares of Cabec Energy Corp. common stock. Based on
the consideration received under the confirmed Plan, the Company
adjusted its investment in Cooper to approximately $1,200,000.
In 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
per Share". Statement 128 replaced the previously reported
primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings
per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for
all periods have been presented, and when necessary, restated to
conform to the Statement 128 requirements.
The following table sets forth the computation of basic and
diluted earnings per share:
Three months ended Nine months ended
1998 1997 1998 1997
Numerator
Net income (loss)from
continuing operations $(392,701) $(262,777) $ 8,184 $(739,449)
Preferred stock dividends (15,362) (15,362) (47,121) (47,121)
Numerator for basic earnings per share
Net income (loss) available to
common stockholders
continuing operations (408,063) (278,139) (38,937) (786,570)
Discontinued operations - 473,195 (356,089) 1,356,159
Net income (loss) available to
common stockholders $(408,063) $ 195,056 $(395,026) $ 569,589
9
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1998
(Unaudited)
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE(Continued)
Three months ended Nine months ended
<TABLE>
<S> <C> <C> <C> <C>
1998 1997 1998 1997
Effect of dilutive securities
Preferred stock dividends $ 15,362 $ 15,362 $ 47,121 $ 47,121
Numerator for diluted earnings per share
Net income (loss) available to
common stockholders after
assumed conversion continuing
operations $(392,701) $(262,777) $ 8,184 $ (739,449)
Discontinued operations - 473,195 (356,089) 1,356,159
Net income (loss) available to
common stockholders $(392,701) $ 210,418 $(347,905) $ 616,710
Demoninator
Demoninator for basic earnings per share
weighted-average shares 7,738,891 7,975,624 7,911,44 7,975,624
Effect of dilutive securities:
Options 211,466 - 211,466 -
Preferred stock 312,500 1,371,000 312,500 1,371,000
523,966 1,371,000 523,966 1,371,000
Demoninator for dilutive earnings per share
assumed conversion 8,262,857 9,346,624 8,435,412 9,346,624
</TABLE>
Options to purchase shares ranging in price from $2.00 to $4.25
for 127,000 shares and shares ranging in price from $2.50 to
$4.68 for 333,000 shares were outstanding during 1998 and 1997,
respectively but were not included in the computation of dilutive
earnings per share because the options' exercise price was
greater that the average market price of the common shares and,
therefore, the effect would be antidilutive.
10
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1998
(Unaudited)
NOTE D - DISPOSITIONS
The Company sold its plastics (Fridcorp), defense (SMI) and metal
fabrication (Logic and Precision) segments effective December 31,
1997, October 1, 1997 and July 31, 1997, respectively and
accordingly, the financial statements have been reclassified to
reflect these segments as discontinued operations. The Company
sold the operating assets of Fridcorp Plastics, Inc. for cash of
$760,000 which resulted in a gain of approximately $210,000. The
Company has sold SMI to its current management and received cash
of $50,000, a note for $950,000 and a contingent payment based on
a future royalty. Such note and deferred gain are grouped in
other assets at April 30, 1998 and any gain will be recognized as
cash is received. Proceeds from the sale of the metal
fabrication segment amounted to approximately $20,850,000 with a
corresponding gain of approximately $12,650,000 and was recorded
effective July 31, 1997. Sales, cost of goods sold, selling,
general and administrative expense and other for three and nine
months ended April 30, 1998 and 1997 were as follows:
Three months Nine months
1998 1997 1998 1997
Sales $ - $6,299,661 $1,104,411 $18,814,609
Cost of goodssold - 4,418,205 946,193 13,252,752
Selling, general and
administrative - 1,218,643 440,418 3,645,473
Other - 189,618 73,889 560,225
Discontinued operations$ - $ 473,195 $ (356,089) $ 1,356,159
NOTE E - PENDING TRANSACTION
The Company has a "letter-of-intent" to acquire 100% of Cosmos
Telecommunications, Inc.(Cosmos) which has an agreement to
acquire 100% of Gateway Worldwide Telecommunications, Inc.
(Gateway). Gateway is a privately owned telecommunication
company operating throughout Central America, the Caribbean and a
portion of South America. If consummated, this transactions
would result in a change of control of the Company requiring
approval of the Company's stockholders. Prior to completion of
any transaction with Cosmos, the Company intends to spin-off in
the form of a dividend, the "Electric" and "Gas" business
segments, certain other investment assets and cash of
approximately $2.0 million.
11
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1998
(Unaudited)
NOTE F - INDUSTRY SEGMENT DATA:
The Company's business is primarily comprised of three industry
segments: i. water (AMT); ii. natural gas measurement and
recording devices and odorization (Reynolds); and iii. electrical
components and enclosures (Hydel) as set forth below. Operating
profits represent total sales less cost of sales and general and
administrative expenses.
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Months Ended April 30, 1998
General
Water Gas Electric Corporate Consolidated
Sales $ 471 $ 634,540 $2,029,919 $ - $ 2,664,930
Cost of goods sold 11,326 262,257 1,622,434 - 1,896,017
Selling, gen. & adm. 81,336 325,729 350,997 507,574 1,265,636
Operating profit(loss) (92,191) 46,554 56,488 (507,574) (496,723)
Interest, net - (7,131) (39,299) 143,159 96,729
Other income(expense) - 675 - 6,618 7,293
Net earnings (loss) from
continuing operations $(92,191) $ 40,098 $ 17,189 $ (357,797) $ (392,701)
Assets:
Receivables $ 659 $ 275,029 $1,202,128 $ 10,000 $1,487,816
Inventory $442,391 $ 904,168 $1,971,036 $ - $3,317,595
Total assets $856,672 $1,846,850 $4,638,543 $12,808,186 $20,150,251
Depreciation $1,651 $37,250 $31,579 $3,646 $74,126
Additions PP&E $ 563 $ 3,197 $34,514 $ - $38,274
</TABLE>
12
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1998
(Unaudited)
NOTE F - INDUSTRY SEGMENT DATA(Continued):
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine Months Ended April 30, 1998
General
Water Gas Electric Corporate Consolidated
Sales $ 52,576 $1,843,399 $6,248,831 $ - $8,144,806
Cost of goods sold 117,856 1,074,288 4,970,504 - 6,162,648
Selling, gen. & adm. 265,272 986,712 1,049,746 1,238,248 3,539,978
Operating profit(loss) (330,552) (217,601) 228,581 (1,238,248) (1,557,820)
Interest, net - (34,966) (91,362) 280,930 154,602
Other income(expense) - 43,914 - 1,367,488 1,411,402
Net earnings (loss) from
continuing operations $(330,552) $(208,653) $ 137,219 $ 410,170 $ 8,184
Depreciation $3,715 $121,773 $97,544 $10,939 $233,971
Additions PP&E $10,150 $10,421 $19,180 $1,378 $41,129
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
Summary. The Company reported net earnings (loss) from
continuing operations and net earnings (loss) of $8,184 and
$(347,905) and $(392,701) and $(392,701) for the nine and three
months ended April 30, 1998, respectively. This compared to
$(739,449) and $616,710 and $(262,777) and $210,418 for the nine
and three months ended April 30, 1997, respectively. Operating
income decreased by $(525,525) and $(40,793) for the nine and
three month periods, the result of operating expenses of $383,128
with negligible revenue in the water segment and higher cost of
goods sold. The electric segment reported improved revenues and
operating profits over the nine month period. The first quarter
of fiscal 1998 was benefited by the favorable treatment under the
debtor's confirmed Plan for Cooper Manufacturing Corporation in
bankruptcy. Gross margins declined from 30.21% to 24.34% for the
nine months ended April 30, 1998. Also, selling, general and
administrative expenses as a relationship to revenues at the
segment level increased from 27.62% to 28.26% of revenues. Net
interest income was reported both for the nine and three months
ended April 30, 1998 due to earnings on short-term investments
and decreased borrowing.
Increases(decreases) for the three and nine months period ended
April 30, 1998, as compared with the similar period of 1997, for
key operating data were as follows:
Three Months Ended Nine Months Ended
April 30, 1998 April 30,1998
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $97,156 3.65 $165,952 2.04
Operating Income (40,793) (78.99) (525,525) (255.17)
Earnings (loss) from continuing
operations (137,761) (52.43) 719,536 97.31
Net Earnings Per Share (.07) (350.00) (.12) (171.43)
14
<PAGE>
The following table represents the changes [increase/(decrease)]
in operating revenues, operating income and net earnings before
income taxes by the respective industry segments when compared to
the previous period:
Three Months Ended Nine Months Ended
April 30, 1998 April 30,1998
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Water $ 471 .48 $ 52,576 31.68
Gas (101,975) (104.96) (738,631) (445.09)
Electric 198,660 204.48 852,007 513.41
$ 97,156 100.00 $ 165,952 100.00
Operating Income (Loss):
Water $ (92,191) (226.00) $(330,552) (62.90)
Gas 62,212 152.51 (339,817) (64.66)
Electric (10,814) (26.51) 144,844 27.56
(40,793) 100.00 (525,525) 100.00
General Corporate (281,444) (614,525)
Other Income (Expense) 184,476 1,859,586
Earnings from continuing
operations $(137,761) $ 719,536
Water revenues amounted to $52,576 for the nine months ended
April 30, 1998 which were essentially sales of a few
demonstrators of this segments "Watermaker" product occurring
during the first quarter. No revenues were recorded during the
second quarter and only $471 during the third quarter. Expenses
were $383,128 and $92,662 for the nine and three months ended
April 30, 1998, respectively. With the exception of cost
associated with the first quarter revenues, expenses mainly
consisted of further development costs, including a business plan
and marketing expenses. While the Company has been working on
this project for sometime, only recently has any meaningful
activity taken place. Meaningful revenues are not projected for
several months.
15
<PAGE>
Gas revenues decreased by $(738,631) and $(101,975) for the nine
and three months ended April 30, 1998. Operating income
decreased by $(339,817) and increased by $62,212 for the nine and
three months ended April 30, 1998, resulting in operating (loss)
profit of $(217,601) and $46,554, respectively. Selling, general
and administrative expenses remained high at 53.53% of revenues
when compared to 39,42% for the prior nine month period.
Staffing levels remained high due to a development contract for a
new BTU meter.
Electric revenues increased for the nine and three months ended
April 30, 1998 by $852,007 and $198,660. Operating profits
increased (decreased) by $144,844 and $(10,814) for the nine and
three months ended April 30, 1998, respectively, due to the
carrying cost of the Paris, Texas facility and improved
performance in the Canadian operation. Second quarter revenues
were helped by winter storms affecting eastern Canada, requiring
major replacement of damaged transmission lines. Third quarter
costs were higher due to some manufacturing equipment breakdowns.
The electric segment now consist of only the Canadian meter
socket and pole line hardware product lines selling almost
entirely in the Canadian markets. The vacant Texas facility is
under a contract of sale and is expected to close shortly.
With the exception of expense relationships discussed above in
the specific segment discussion, such other relationships remain
consistent. Operating profits decreased by 6.50% and 1.60% for
the nine and three months ended April 30, 1998, respectively, the
effect of reduced margins, discussed above.
Liquidity and Capital Resources
Liquidity. Current assets of the Company totaled $14,668,457 at
April 30, 1998, down from current assets of $19,312,966 at July
31, 1997, or a decrease of $(4,644,509). Current liabilities
decreased by $(1,631,968), resulting in a decrease in working
capital (current assets less current liabilities) to $11,763,213
at April 30, 1998, from $14,775,754 at July 31, 1997. The
Company believes that it has and will generate sufficient cash to
meet its working capital requirements and debt obligations.
Hydel has a working capital line-of-credit with a Canadian bank
in the amount of approximately $1,500,000. The Canadian credit
facility is secured by receivables, inventories and equipment of
Hydel.
The Company continues to borrow under its CIT Group
Credit/Finance, Inc. revolving and term loan facility. Borrowing
under the revolving portion is based on eligible accounts
receivable and inventory. The outstanding revolving loan balance
was $213,513 and the term loan balance was $78,098 at April 30,
1998.
16
<PAGE>
Capital Expenditures
For Fiscal 1998, the Company (and its subsidiaries) does not
anticipate any significant capital expenditures, other than in
the ordinary course of replacing worn-out or obsolete machinery
and equipment utilized by its subsidiaries.
Dividend Policy
No cash dividends have been declared by the Company's Board of
Directors since the Company's inception. The Company does not
contemplate paying cash dividends on its common stock in the
foreseeable future since it intends to utilize it cash flow to
invest in its businesses. Cumulative dividends on the Series A,
7% Convertible Preferred Stock, have not been paid and amounted
to $149,474 as of April 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.
Accounting for Post-Retirement Benefits. The Company provides no
post-retirement benefits; therefore, FASB No. 106 will have no
impact on the Company's financial position or result of
operations.
Inflation. The Company does not expect the current effects of
inflation to have any effect on its operations in the foreseeable
future. The largest single impact affecting the Company's
overall operations is the general state of the economy and
principally new home construction.
17
<PAGE>
PART II
ITEM 1. 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 is in early stages of discovery;
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) and currently, all activity is directed at discovery.
The Company has filed a counter suit alleging security violations
(10b5) demanding return of its Preferred Stock. In addition, the
Company has been advised by the Cooper debtor-in-possession that
it has litigation pending 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual stockholders meeting on April 3,
1998. The following individuals were elected as directors until
the Company's next annual meeting:
S. Mort Zimmerman
Daniel A. Zimmerman
Edmund W. Bailey
Fred M. Updegraff
James J. Ling
Dick T. Bobbitt
Jackson & Rhodes P.C. appointment as auditors was ratified with
6,480,605 affirmative votes and 90,617 against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)NONE
(b)Reports on Form 8-K.
NONE
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
/s/ Edmund W. Bailey
Edmund W. Bailey
Vice President and
Chief Financial Officer
Dated: June 5, 1998
19
<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> APR-30-1998
<CASH> 9,774,595
<SECURITIES> 0
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<ALLOWANCES> 5,341
<INVENTORY> 3,317,595
<CURRENT-ASSETS> 14,668,457
<PP&E> 4,446,226
<DEPRECIATION> 2,547,311
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<CURRENT-LIABILITIES> 2,905,244
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900,000
<COMMON> 79,722
<OTHER-SE> 14,457,689
<TOTAL-LIABILITY-AND-EQUITY> 20,150,251
<SALES> 8,144,806
<TOTAL-REVENUES> 8,144,806
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<TOTAL-COSTS> 9,702,626
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