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, 1999
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 18, 1999, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was
approximately $3,050,421. At such date there were 8,343,417
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 and Logic were
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". Fridcorp Plastics, Inc.
("Fridcorp") was acquired by the Company in January, 1992, in
exchange for 162,000 shares of Company Common Stock. Fridcorp
was subsequently sold December 1997. 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 made a decision to sell
its defense electronics business segment and such operations has
been treated as discontinued operation. Effective July 31,
1997, the Company sold and discontinued the operations of its
metal fabrication segment which previously was engaged
2
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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.
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,:
Revenue
Year Ended Year Ended Year Ended
July 31, 1999 July 31, 1998 July 31,1997
Water $ 2,000 $ 52,576 $ 75,234
Gas 2,917,327 2,739,035 3,135,249
Electric 8,397,007 8,151,963 7,744,912
Operating Income (Loss):
Water $ (631,977) $ (427,596) $ (212,742)
Gas (228,308) 115,435 40,784
Electric 236,133 292,535 161,043
Identifiable Assets:
Water $ 283,480 $ 832,428 $ 954,690
Gas 1,884,695 2,012,325 1,882,753
Electric 4,302,129 4,541,187 4,828,751
Corporate 7,001,986 13,819,588 15,352,939
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Geographic information
Financial data by geographic area for the fiscal year ended July
31, 1999 are as follows:
Operating
(loss) Identifiable
Sales Income Assets
United States $ 2,919,327 $(991,675) $2,685,103
Canada 8,397,007 367,523 3,785,201
Total $11,316,334 $(624,152)$ 6,470,304
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.
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."
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 competes with similar
products and 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.
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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, 1999 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 Retech
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.
Reynolds is currently under a contract with Niagara Mohawk Power
to develop an affordable accurate BTU gas measuring device. The
proto-type meter is being field tested.
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.
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.
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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 29 persons, including 1 company
officers and 5 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 and dormant entity maintains its office at 13636
Neutron Road, Dallas, Texas 75244-4410.
7
<PAGE>
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,
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 Paris, Texas, facility which was not sold when
the business was sold during fiscal 1995 is currently under a
contract of sale and is expected to close during fiscal 2000.
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.
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.
Competition-Hydel. Hydel faces 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.
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.
7
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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.
Employees
Hydel. Hydel currently employs 55 persons, including 15 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.
Discontinued operations-Defense electronics (SMI), Plastics
(Fridcorp) and Metal fabrication (LOGIC)
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 made a
determination to sell the business, 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. Frdicorp 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.
8
<PAGE>
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's Paris, Texas facility 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 is scheduled for trial on November
16, 1999. Management believes there will be no material effect
on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Annual meeting of stockholders, April 9, 1999.
(b) Not applicable.
(c) Not applicable.
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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, 1996, 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, 1999:
High Low
First Quarter 1-1/32 11/16
Second Quarter 1-3/4 1-1/8
Third Quarter 1-3/4 13/16
Fourth Quarter 2-1/16 1-5/32
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
No dividend has been paid on the Common Stock by the Company and
payment of dividends in the foreseeable future is not
anticipated.
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As of July 31, 1999 there were 468 holders of record of the
Common Stock of the Company, exclusive of beneficial ownership
through brokerage firm nominee name.
Item 6. Selected Financial Data.
STATEMENT OF OPERATIONS DATA:
(In dollars, except shares outstanding)
Fiscal Years Ended July 31,
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Revenues $11,316,334 $10,943,574 $10,955,395 $10,510,452 $19,310,885
Gross Profit 1,935,750 2,887,106 3,174,790 2,630,595 5,086,751
Selling, G&A Expense 3,826,446 4,824,406 4,846,232 3,851,194 5,418,729
Other Income(Expense) (2,968,994) 2,461,356 (1,936,111) (2,757,472) 918,994
Earnings (Loss) from
Continuing Operations (4,803,436) 363,701 (3,394,181) (3,978,071) 641,912
Net Earnings(loss) (6,353,436) 429,185 9,362,399 (5,032,551) 850,577
Net Earnings (loss)
per Share (0.79) 0.05 1.15 ( 0.66) 0.11
Weighted Average
Number of Shares
Outstanding 8,148,432 7,909,957 8,085,624 7,635,624 7,615,474
</TABLE>
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,
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Total Assets $13,472,290 $21,205,528 $23,019,133 $12,911,463 $17,551,669
Long-Term Obligations 1,210,254 1,627,650 2,356,140 1,871,151 1,894,214
Shareholders' Equity 8,771,594 16,137,380 16,041,119 6,720,930 10,427,861
</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, 1999, 1998 and 1997.
Summary. The Company reported net earnings (loss) from
continuing operations of $(4,803,436), $363,701 and $(3,394,181)
and net earnings (loss) of $(6,353,436), $429,185 and $9,362,399
for fiscal years 1999, 1998 and 1997, respectively. The
substantial increase in net loss during fiscal 1999 was primarily
the result of fully reserving the Company's investment in
Afritel, writing off the remaining receivable from Refinery
Consolidated Technology, Inc. and inventory and patents write
offs in the water segment. The Company's discontinued defense
segment was adjusted downward by $1,550,000 reflecting the net
realizable value upon an anticipated sale. 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. Corporate
expenses decreased due to a decline in legal fees associated with
the Cooper Manufacturing bankruptcy and bonuses paid in fiscal
1998. The Company's investments in Refinery Consolidated
Technology, Inc. and Cooper Manufacturing Corporation were also
reserved at July 31, 1997.
<TABLE>
<S> <C> <C> <C> <C>
For the Years Ended July 31,
1999 1998
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $ 372,760 3.41 $(11,821) (.11)
Operating Income (604,526) (3,080.23) (8,711) (79.81)
Earnings (Loss) from
continuing operations
before income taxes (5,383,746) (1,027.32) 4,131,609 114.53
Net Earnings Per Share (0.84) (1,680.65) (1.10) (95.65)
</TABLE>
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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>
<S> <C> <C> <C> <C>
For the Years Ended July 31,
1999 1998
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Water $ (50,576) (13.57) $ (22,658) ( 191.68)
Gas 178,292 47.83 (396,214) (3,351.78)
Electric 245,044 65.74 407,051 3,443.46
$ 372,760 100.00 $ (11,821) 100.00
Operating Income (Loss):
Water $ (204,381) 33.81 $ (214,854) (2,466.46)
Gas (343,743) 56.86 74,651 856.97
Electric (56,402) 9.33 131,492 1,509.49
(604,526) 100.00 (8,711) 100.00
General Corporate 651,130 (257,147)
Other Income (Expense) (5,430,350) 4,397,467
Earnings from Continuing
Operations Before Income
Taxes $(5,383,746) $4,131,609
</TABLE>
Water revenues amounted to $2,000, $52,576 and $75,234 in 1999,
1998 and 1997, respectively which were essentially sales of a few
demonstrators of this segment's "Watermaker" product. Expenses
were $633,977, $480,172 and $287,976 in 1999, 1998 and 1997,
respectively, included development of a business plan, testing
and development of a new watermaker model and marketing expenses.
During fiscal 1999 inventory of the original model watermaker and
related parts were fully reserved and expired patents were
written off. During fiscal 1998 considerable efforts were
expended in investigating possible acquisition targets in water
related businesses. The Company did not find a qualified
acquisition nor joint venture partner candidate, but continues to
seek interested parties in further development and marketing of
the products.
Gas revenues increased (decreased) by $178,292, $(396,214) and
$199,923 or 6.51%, (12.64%) and 6.81% in fiscal 1999, 1998 and 1997,
respectively. During fiscal 1997, this segment developed the next
generation of their "Recor" product line. Operating income (loss)
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was $(228,308), $115,435 and $40,784 for fiscal 1999, 1998 and
1997, respectively. The 1999 loss resulted from inventory
adjustments, product development expenses and higher staffing
levels related to the Mohawk Niagara BTU meter development.
Electric revenues increased slightly by $245,044, $407,051 and
$169,786 during 1999, 1998 and 1997, respectively. The 1997
increase of $169,786 was the result of an increase in Canadian
revenues 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. Operating income increased (decreased) by
$(56,402), $131,492 and $163,559 for fiscal 1999, 1998 and 1997,
respectively. The decrease in the 1999 operating profits were
the result of additional charge to adjust the carrying value of
the idle Paris, Texas facility which continues to have a sale
pending and some inventory obsolescents in Canada.
Gross profit margins were 18.26%, 20.58% and 24.34% for fiscal
1999, 1998 and 1997, with selling, general and administrative
expenses as a percentage of sales for the same period of 15.45%,
16.99% and 22.26%, respectively. The decline in 1999 margins
result from the aforementioned adjustments.
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 82.89%, 73.62% and 71.02% for the years
ended July 31, 1999, 1998 and 1997, respectively. Selling,
general and administrative expenses as a percentage of revenues
were 22.62%, 26.56% and 29.08% for the years ended July 31, 1999,
1998 and 1997, respectively. The lower selling, general and
administrative expenses were primarily the result of a reduction
in the water segment's marketing expenses.
Liquidity and Capital Resources
Liquidity. Cash flow used by operating activities amounted to
$(755,771), $(2,957,927) and $(1,398,042) for fiscal years 1999,
1998 and 1997, 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 $8,046,651 at July 31,
1999, down from current assets of $12,483,093 at July 31, 1998.
Current liabilities increased from fiscal 1998 to fiscal 1999 by
$96,603, resulting in a decrease in working capital (current
assets less current liabilities) to $4,556,209 at July 31, 1999,
from $9,089,254, a decrease of (49.87%). 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 issecured by receivables andinventories of Hydel.
14
<PAGE>
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 2001,
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 $57,406 in term debt
and $264,023 in revolving debt at July 31, 1999.
The Company sold one segment in fiscal 1998 and 1997 receiving
approximately $760,000 and $20,828,385, respectively in cash.
Proceeds 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 $169,155, $79,157 and $106,124
during fiscal 1999, 1998 and 1997, 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).
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 $228,353 as of July 31,
1999. Further, additional dividends of $10,528 were due on
September 30, 1999
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.
15
<PAGE>
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,
1999, 1998, and 1997 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.
16
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
(a) During fiscal year ended July 31, 1999, 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 (72) Chairman of the Board, 1985 915,973 10.88%
President and Director
Daniel A. Zimmerman (38) Sr. Vice President 1989 390,714 4.64%
and Director
Edmund W. Bailey (57) Vice President, Chief 1994 72,805 0.86%
Financial Officer and
Director
Fred M. Updegraff (65) Vice President, 1987 92,907 1.10%
Treasurer and Director
Dick T. Bobbitt (74) Director 1997 - -
James J. Ling (76) 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
17
<PAGE>
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.
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.
18
<PAGE>
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.
19
<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 Grant Payout Compensation
S. Mort Zimmerman 1999 $238,400(a) $ - $ - - 4,207 - -
Daniel A Zimmerman 1999 $112,346 $ - $ - - 25,000 - $ 7,547(d)
Edmund W.Bailey 1999 $120,000 $ - $ - - 30,000 - $ 1,200(c)
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 - $ 2,160(c)
S. Mort Zimmerman 1997 $239,760(a) $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)
</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 and 1997, respectively.
(b) Includes cash and bonus shares of Common Stock valued at $1.00
and $1.69 per share in 1998 and 1997, respectively.
(c) Company match of 401 (K) employee contributions.
(d) Company match of 401 (K) employee contributions and expense allowances.
1999 Stock Option Grants
NONE
20
<PAGE>
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, 1999 and the aggregate
gains that would have been realized had these options been
exercised on July 31, 1999, even though these options were not
exercised, and the unexercisable options could not have been
exercised, on July 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Number of Shares Value of Unexercised
Covered by Unexercised In-The-Money
Options on 7/31/99 Options as of 7/31/99
Name Exercisable Unexercisable Exercisable(A) Unexercisable
S. Mort Zimmerman 4,207 -0- $ 2,945 -0-
Daniel A. Zimmerman 25,000 -0- $18,750 -0-
Edmund W. Bailey 30,000 -0- $22,500 -0-
</TABLE>
(a) Market value of shares covered by in-the-money options on
July 31, 1999 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.
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, 1999.
Name and Address Amount and Nature of Percent of
Beneficial Owner Class
S. Mort Zimmerman 915,973 (1) 10.88%
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, 1999:
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
S. Mort Zimmerman 915,973 (1) 10.88%
Chairman of the
Board and President
Daniel A. Zimmerman(4) 390,714 (2) 4.64%
Sr. Vice President
and Director
21
<PAGE>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
Edmund W. Bailey 72,805 (3) .86%
Vice President &
Chief Financial Officer
Fred M. Updegraff 92,907 1.10%
Vice President
Treasurer & Director
All Officers &
Directors, as a
Group 1,525,727 18.12%
(1)Includes (i) 4,207 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 25,000 shares subject to options owned by Mr.
Zimmerman.
(3)Includes 30,000 shares subject to options owned by Mr. Bailey.
(4)S. Mort Zimmerman and Daniel A. Zimmerman are father and son.
Item 13. Certain Relationships and Related Transactions
THE FOLLOWING IS A SUMMARY OF ADVANCES FROM/TO AFFILIATED
COMPANIES AT JULY 31, 1999.
1999 1998
Refineries Consolidated Technology, Inc. $ - $269,400
Cooper Manufacturing Corporation - 632,314
Others 58,003 16,063
$58,003 $917,777
22
<PAGE>
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. Cooper is
no longer an affiliate of the Company. RCT has ceased operations
and the balance due from RCT was written off during fiscal 1999.
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.
23
<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) Reports of Independent Certified Public
Accountants
(ii) Consolidated Balance Sheets July 31, 1999
and July 31, 1998.
(iii) Consolidated Statements of Operations for the
three years ended July 31, 1999.
(iv) Consolidated Statements of Changes in
Stockholders' Equity for the three years ended
July 31, 1999.
(v) Consolidated Statements of Cash Flows for the
three years ended July 31, 1999.
(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.
24
<PAGE>
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.
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. (filed as exhibit
10.34 to Form 10-Q. filed December 6, 1995
and incorporated herein by reference).
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. (filed
as exhibit 10.37 to Form 8-K, filed August
27, 1997 and incorporated herein by
reference).
26
<PAGE>
(b) Reports on form 8-K
Current Report-Form 8-K filed May 5, 1998: Item 5.-
Other events. Resolution of Allied Products Corp,, a
Delaware Corporation Vs. Electric & Gas Technology,
Inc., a Texas Corporation, Cause No. 97C5256.
26
<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 28, 1999
S. Mort Zimmerman
/s/ Daniel A. Zimmerman Senior Vice President
Daniel A. Zimmermanand Director October 28, 1999
/s/ Edmund W. Bailey Vice President, Chief
Edmund W. Bailey Fincanial Officer and
Director October 28, 1999
/s/ Fred M. Updegraff Vice President, Treasurer
Fred M. Updegraffand Director October 28, 1999
/s/ Marie W. Pazol Secretary October 28, 1999
Marie W. Pazol
27
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC.
AND SUBSIDIARIES
JULY 31, 1999 AND 1998
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 29
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 30-31
CONSOLIDATED STATEMENTS OF OPERATIONS 32-33
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY 34-35
CONSOLIDATED STATEMENTS OF CASH FLOWS 36-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38-61
28
<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,
1999 and 1998, 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, 1999. 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.
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.
In our opinion, 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended July 31, 1999, in conformity with
generally accepted accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
October 8, 1999
29
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS
CURRENT ASSETS 1999 1998
Cash and cash equivalents $ 378,340 $ 542,086
Certificates of Deposit 2,810,842 4,000,000
Investments, market 519,646 2,938,964
Accounts receivable trade, less allowance
for doubtful receivables of $14,048 in
1999 and $9,617 in 1998 1,606,637 1,702,866
Inventories 2,669,280 3,199,398
Prepaid expenses 61,906 99,779
Total current assets 8,046,651 12,483,093
PROPERTY, PLANT AND EQUIPMENT, net
Property, plant and equipment 4,427,019 4,375,284
Less accumulated depreciation (2,629,656) (2,472,473)
Total property, plant and equipment 1,797,363 1,902,811
OTHER ASSETS
Investment in Pioneer 1,250,000 1,125,000
Investment in Dresser 1,000,000 -
Investment in i3Dx.com 500,000 -
Investment in Afritel - 2,357,500
Investment in equity securities 210,772 536,240
Discontinued operations 13,439 790,365
Notes receivable 349,148 650,266
Goodwill 107,581 114,265
Other 97,336 1,245,988
Total other 3,628,276 6,819,624
TOTAL ASSETS $13,472,290 $21,205,528
See accompanying notes.
30
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES 1999 1998
Notes payable $ 1,731,202 $ 1,762,482
Accounts payable 1,302,169 1,171,703
Accrued liabilities 276,060 145,352
Federal income taxes 27,885 197,611
Current maturities of long-term obligations 153,126 116,691
Total current liabilities 3,490,442 3,393,839
LONG-TERM OBLIGATIONS
Long-term obligations, less current
maturities 833,149 918,892
Other 377,105 708,758
Total long-term obligations 1,210,254 1,627,650
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST IN SUBSIDIARY - 46,659
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 8,343,417 and
8,198,224 in 1999 and 1998, respectively 83,434 81,982
Additional paid-in capital 9,258,795 9,260,866
Retained earnings (Deficit) 496,866 6,850,302
Pension liability adjustment (237,825) (424,221)
Cumulative translation adjustment (529,676) (531,549)
9,971,594 16,137,380
Reserve for preferred stock redemption (1,200,000) -
Total stockholders' equity 8,771,594 16,137,380
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,472,290 $21,205,528
See accompanying notes.
30
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Sales $11,316,334 $10,943,574 $10,955,395
Cost of goods sold 9,380,584 8,056,468 7,780,605
Gross profit 1,935,750 2,887,106 3,174,790
Selling, general and administrative expenses 3,826,446 4,824,406 4,846,232
Operating loss (1,890,696) (1,937,300) (1,671,442)
Other income and (expenses)
Interest, net 193,942 286,960 (301,343)
Other (Note 2):
Investment gain (loss) (3,201,471) 1,992,648 (1,590,755)
Minority interest in subsidiary 46,659 36,346 18,063
Other (8,124) 145,402 (62,076)
(2,968,994) 2,461,356 (1,936,111)
Earning (loss) from continuing operations
before income tax (4,859,690) 524,056 (3,607,553)
Provision (credit) for income taxes (56,254) 160,355 (213,372)
Earnings (loss) from continuing operations (4,803,436) 363,701 (3,394,181)
Discontinued operations (Note 2):
Earnings (loss) from discontinued operations,
net of $121,070 in tax credits for 1998 - (235,019) 109,641
Gain (loss) on disposal of business segments,
net of taxes of $154,804 in 1998 and
$323,705 in 1997 (1,550,000) 300,503 12,646,939
NET EARNINGS (LOSS) (6,353,436) 429,185 9,362,399
Dividends on Preferred Stock (63,000) (63,000) (63,000)
Net earnings or loss applicable to Common
Stock $(6,416,436) $ 366,185 $ 9,299,399
</TABLE>
See accompanying notes.
32
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Earnings (loss) available per common share:
Continuing operations $(0.60) $0.04 $(0.43)
Discontinued operations (0.19) 0.01 1.58
Net earnings $(0.79) $0.05 $ 1.15
Earnings (loss) available per common share - assuming dilution:
Continuing operations $(0.60) $0.04 $(0.39)
Discontinued operations (0.19) 0.01 1.46
Net earnings $(0.79) $0.05 $ 1.07
</TABLE>
See accompanying notes.
33
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C>
Retained
Preferred Common Paid-in (deficit)
stock stock capital earnings
Balance at July 31, 1996 $900,000 $82,504 $10,201,334 $(2,941,282)
Net earnings for the year - - - 9,362,399
Pension liability adjustment - - - -
Currency translation adjustments - - - -
Comprehensive income (loss) - - - -
Treasury stock issued for bonuses - - (101,996) -
Balance at July 31, 1997 900,000 82,504 10,099,338 6,421,117
Net earnings for the year - - - 429,185
Pension liability adjustment - - - -
Currency translation adjustments - - - -
Comprehensive income (loss) - - - -
Purchase of treasury stock - - - -
Cancellation of treasury stock - (522) (838,472) -
Treasury stock issued for services - - - -
Treasury stock issued for investments - - - -
Balance at July 31, 1998 900,000 81,982 9,260,866 6,850,302
Net loss for the year - - - (6,353,436)
Pension liability adjustment - - - -
Currency translation adjustments - - - -
Comprehensive income (loss) - - - -
Purchase of treasury stock - - - -
Cancellation of treasury stock - (676) (113,779) -
Exercise stock options - 2,128 111,708 -
Reserve for redemption - - - -
Balance at July 31, 1999 $900,000 $83,434 $ 9,258,795 $ 496,866
</TABLE>
See accompanying notes
34
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated Reserve
Pension other redemption
liability Translation comprehensive preferred Treasury
adjustment adjustment income stock stock Total
Balance at July 31, 1996 $(214,639) $(430,870) $(645,509) $ - $(876,117) $ 6,720,930
Net earnings for the year - - - - - 9,362,399
Pension liability adjustment (115,166) - (115,166) - - (155,166)
Currency translation adjustments - (1,404) (1,404) - - (1,404)
Comprehensive income (loss) - - - - - 9,205,829
Treasury stock issued for bonus - - - - 176,356 74,360
Balance July 31, 1997 (329,805) (432,274) (762,079) - (699,761) 16,041,119
Net earnings for the year - - - - - 429,185
Pension Liability adjustment (94,416) - (94,416) - - (94,416)
Currency translation adjustments - (99,275) (99,275) - - (99,275)
Comprehensive income (loss) - - - - - 235,494
Purchase of treasury stock - - - - (811,173) (811,173)
Cancellation of treasury stock - - - - 838,994 -
Treasury stock issued for services - - - - 338,500 338,500
Treasury stock issued for investments - - - - 333,440 333,440
Balance July 31, 1998 (424,221) (531,549) (955,770) - - 16,137,380
Net loss for the year - - - - - (6,353,436)
Pension liability adjustment 186,396 - 186,396 - - 186,396
Currency translation adjustments - 1,873 1,873 - - 1,873
Comprehensive income (loss) - - - - - (6,165,167)
Purchase of treasury stock - - - - (114,455) (114,455)
Cancellation of treasury stock - - - - 114,455 -
Exercise stock options - - - - - 113,836
Reserve for redemption - - - (1,200,000) - (1,200,000)
Balance July 31, 1999 $(237,825) $(529,676) $(767,501) $(1,200,000) $ - $ 8,771,594
</TABLE>
See accompanying notes
35
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $(6,353,436) $ 429,185 $ 9,362,399
Adjustments to reconcile net earnings(loss)
to net cash provided by operating
activities:
Discontinued operations 1,550,000 235,019 (109,641)
Depreciation of property, plant
and equipment 279,065 235,098 302,822
Issuance of stock for services - 338,500 74,360
Minority interest in subsidiary (46,659) (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) -
Deferred income (82,390) (112,303) (33,879)
Gains/Losses on investments 3,414,843 (1,992,648) 1,590,755
Changes in assets and liabilities:
Accounts receivable 96,229 (185,890) (324,772)
Inventories 530,118 (131,533) 268,841
Prepaid expenses 37,873 (6,381) (232,169)
Other assets (279,553) (3,509) (1,033,212)
Accounts payable 132,931 (212,805) 188,526
Accrued liabilities 128,243 (964,725) 781,474
Federal income taxes (169,719) (159,828) 323,705
Net cash used in operating activities (755,771) (2,957,927) (1,398,042)
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment - - 36,288
Purchase of property, plant and equipment (169,155) (79,157) (106,124)
Investments in affiliates - (479,000) -
Investments 4,669,318 (2,857,500) -
Certificate of deposits (3,810,842) (6,938,964) -
Proceeds on sale of business segment - 951,295 20,828,385
Net cash provided by (used in) investing
activities 689,321 (9,403,326) 20,758,549
</TABLE>
See accompanying notes.
36
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended July 31,
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Cash flows from financing activities:
Proceeds from issuance of long-term
obligations $ - $ - $ 953,975
Issuance of common stock 100,336 - -
Payments on long-term obligations (49,307) (1,016,552) (5,825,522)
Purchase of treasury stock (114,455) (811,173) -
Increase (decrease) in notes payable (31,280) 298,928 (650,332)
Net cash used in financing activities (94,706) (1,528,797) (5,521,879)
Effect of exchange rate changes on cash (2,590) (71,281) (4,783)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (163,746) (13,961,331) 13,833,845
Cash and cash equivalents - beginning of year 542,086 14,503,417 669,572
Cash and cash equivalents - end of year $ 378,340 $ 542,086 $14,503,417
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $351,141 $344,701 $330,149
Income tax $ - $344,704 $ -
</TABLE>
See accompanying notes.
37
<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 and Logic were
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". Fridcorp Plastics, Inc.
("Fridcorp") was acquired by the Company in January, 1992, in
exchange for 162,000 shares of Company Common Stock. Fridcorp
was subsequently sold December 1997. 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.
38
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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.
39
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 reclassification have been made to the 1997 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 excepted to
reverse.
40
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
DISPOSITIONS
The Company discontinued its defense electronics business segment
(SMI) effective October 1, 1997 as result of a decision to sell
this business segment. The original agreement to sell SMI would
have resulted in a small gain. However, the Company was unable
to close this sale and subsequently, the Company has negotiated
with other parties to sell SMI. The Company has recorded a loss
of $1,550,000 during the year ended July 31, 1999 to recognize
the subsequent reduction in the value 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:
1999 1998 1997
Sales $ - $1,104,411 $23,988,789
Cost of goods sold - 946,193 17,749,856
Selling, general and
administrative - 440,418 5,134,280
Other (1,550,000) 347,684 11,651,927
Discontinued operations $(1,550,000) $ 65,484 $12,756,580
3
INVENTORIES
Inventories consisted of the following at July 31,:
1999 1998
Raw materials $1,118,659 $1,076,237
Work-in-process 370,982 443,566
Finished goods 1,179,639 1,679,595
$2,669,280 $3,199,398
41
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at
July 31,:
1999 1998
Land $ 234,822 $ 234,688
Buildings and improvements 2,267,145 2,346,380
Machinery and equipment 1,592,857 1,533,954
Furniture, fixtures & equipment 332,195 260,262
4,427,019 4,375,284
Less accumulated depreciation (2,629,656) (2,472,473)
$1,797,363 $1,902,811
5
OTHER ASSETS
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 $1,250,000.
Pioneer owns 100% of Pioneer Transformers Ltd. ("Pioneer Ltd."),
a Canadian company which manufacture and sells transformers. As
of December 31, 1998, 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, 1999 amounted to
approximately $18,500,000 with net income of approximately
$1,100,000 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. Pioneer
recently acquired a company in California. Because of this
acquisition, the spin-off will be delayed until the audited
December 31, 1999 financial statements are completed and the
registration statement can be amended.
42
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
OTHER ASSETS (CONTINUED)
During the year ended July 31, 1999, the Company entered into an
agreement with Dresser Engineers and Constructors, Inc.
("Dresser") to exchange shares. Dresser will deliver 3,000,000
shares of newly issued common shares and 2,000,000 warrants to
acquire Dresser shares at $3.00 to the Company in exchange for
750,000 shares of the Company common stock. In addition, the
Company has loaned Dresser $1,000,000 as of July 31, 1999, of
which $150,000 has been paid back subsequently. The Company
intends to distribute a portion of the Dresser shares to its
shareholders. The shares have not been exchanged yet since the
agreement requires that the Company common shares must be trading
at least at $1.50 per share at the date of exchange and Dresser
is obligated to complete their external audits. A portion of the
Note to Dresser is guaranteed by Dresser's principal shareholder.
During the year ended July 31, 1999, the Company invested in i3-
Dx.com, Inc. ("i3-Dx.com"), a privately held company which is in
the development stage. i3-Dx.com is a high-tech company which
utilizes the internet for the development and distribution of its
products. i3-Dx.com's technology is based on three-dimensional
photographic lenticular imaging and is suitable for any
application which may benefit from increased visualization, such
as medical imaging, advertising and marketing. The Company owns
approximately 11% of i3-Dx.com (4.5 million shares) and has
warrants to purchase another 2.5 million shares. The Company
intends to distribute a portion of the shares to its
shareholders.
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 $1,977,000 as of July 31, 1999.
In the event that the AfriTel acquisition is not completed, the
note is due on November 30, 1999, including interest at 8%.
AfriTel, through Afritel (SPRL), 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. Lacking sufficient resources, Afritel agreed to
sell 60% of Afritel (SPRL) to Shaz Investment Ltd. ("Shaz").
Shaz currently operates a telecommunication system through
Telecel (SPRL) Congo in the DRC. Under the terms of the
agreement, Shaz is to provide the capital and expertise to
execute Afritel's business plan. As result of the uncertainty of
the recoverability of its loan to Afritel, the Company has fully
reserved its investment during the year ended July 31, 1999,
amounting to $1,977,000.
43
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES PAYABLE
Notes payable consisted of the following at July 31,:
1999 1998
Note payable, CIT (a) $ 264,023 $ 303,800
Note payable, bank (b) 902,904 892,755
Note payable, bank (c) 380,733 381,251
Note payable, bank (d) 183,542 184,676
$1,731,202 $1,762,482
(a) Part of a $4,500,000 Revolving credit and term facility with
The CIT Group Credit/Finance, Inc. (CIT) due November 2001.
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 1.00%; 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:
1999 1998
Balance at end of year $1,731,202 $1,762,482
Maximum borrowing $1,849,704 $1,857,929
Average balance $1,727,886 $1,755,914
Average effective interest rate 8.3% 9.9%
44
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES PAYABLE (CONTINUED)
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
Long-term obligations consist of the following at July
31,:
<TABLE>
<S> <C> <C>
1999 1998
Term loan payable to The CIT Group Credit/Finance, Inc.
(CIT) under a $4,500,000 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. $ 57,406 $ 74,569
Mortgage note payable due in monthly payments of
principle and interest at 2.75% above prime from
October 10, 1994 over twenty years. Guaranteed by
the Small Business Administration. 534,616 545,214
Note payable to a bank, bearing interest at 8.75%,
in monthly principal installments of $8,750 until
August 2002, secured by machinery and equipment and
land and building 294,772 383,554
</TABLE>
45
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<S> <C> <C>
1999 1998
Various other installment notes and capitalized lease
obligations. 99,481 32,246
986,275 1,035,583
Less current maturities (153,126) (116,691)
$ 833,149 $ 918,892
</TABLE>
The prime rate was 8.75% and 8.50% at July 31, 1999 and 1998,
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:
Year Ending
July 31,
2000 $153,126
2001 182,249
2002 147,638
2003 43,257
2004 21,276
Thereafter 438,729
46
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
ACCRUED LIABILITIES
Accrued liabilities consisted of the following at July
31:
1999 1998
Payroll $103,917 $ 85,535
Commissions 25,560 15,715
Pension plan (17,943) (77,943)
Vacation pay 28,066 27,280
Taxes 75,555 74,635
Interest 51,210 -
Miscellaneous 9,695 20,130
$276,060 $145,352
9
COMMITMENTS AND CONTINGENCIES
Total rent expense for the years ended July 31, 1999, 1998 and
1997, was $126,000, $138,000 and $113,000, 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.
47
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
COMMITMENTS AND CONTINGENCIES (CONTINUED)
Allied Products Co had 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 Cooper bankruptcy court confirmed the debtor's
Plan of Reorganization on November 21, 1997. The Illinois' court
awarded Allied a summary judgement and dismissed the Company's
counterclaim on November 3, 1998, however, the issue of damages
was not addressed by the court at that time. On January 28, 1999,
the court awarded a judgement in favor of Allied and against the
Company in the amount of approximately $1,100,000. The pending
lawsuit between Allied and the Company has now been settled and
dismissed. The settlement required the repurchase by the Company
of the 90,000 shares of preferred stock for $1.1 million which
would satisfy a judgement by the Court requiring such a purchase.
An affiliate acquired said 90,000 shares and the judgement. The
transaction was completed by the affiliate with $1.2 million of
collateral supplied by the Company. The affiliate is pursuing
the sale of the preferred stock, which if unsuccessful, the
Company will repurchase the preferred stock and retire same.
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.
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.
48
<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, 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 $1.50 per share which if sold at
that price would require 600,000 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. Accumulated and unpaid
dividends to preferred stock amounted to approximately $228,000
at July 31, 1999.
49
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY (CONTINUED)
An Illinois's court awarded a judgement on January 28, 1999 in
favor of Allied and against the Company in the amount of
approximately $1,100,000. The pending lawsuit between Allied and
the Company has now been settled and dismissed. The settlement
required the repurchase by the Company of the 90,000 shares of
preferred stock for $1.1 million which would satisfy a judgement
by the Court requiring such a purchase. An affiliate acquired
said 90,000 shares and the judgement. The transaction was
completed by the affiliate with $1.2 million of collateral
supplied by the Company. The affiliate is pursuing the sale of
the preferred stock, which if unsuccessful, the Company will
repurchase the preferred stock and retire same.
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. 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.
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 warrants were returned and cancelled.
50
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Numerator
Net income (loss)from continuing
operations $(4,803,436) $363,701 $(3,394,181)
Preferred stock dividends (63,000) (63,000) (63,000)
Numerator for basic earnings per share
Net income (loss) available to common
stockholders continuing operations (4,866,436) 300,701 (3,457,181)
Discontinued operations (1,550,000) 65,484 12,756,580
Net income (loss) available to
common stockholders $(6,416,436) $ 366,185 $ 9,299,399
Effect of dilutive securities
Preferred stock dividends $ 63,000 $ 63,000 $ 63,000
Numerator for diluted earnings per share
Net income (loss) available to common
stockholders after assumed conversion
continuing operations $(4,803,436) $363,701 $(3,394,181)
Discontinued operations (1,550,000) 65,484 12,756,580
Net income (loss) available to
common stockholders $(6,353,436) $429,185 $ 9,362,399
</TABLE>
51
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Denominator
Denominator for basic earnings per share
weighted-average shares 8,148,432 7,909,957 8,085,624
Effect of dilutive securities:
Options - 212,700 134,157
Preferred stock - 489,130 523,256
- 701,830 657,413
Denominator for dilutive earnings per share
assumed conversion 8,148,432 8,611,787 8,743,037
</TABLE>
Assumed conversion of preferred stock and exercise of options in
1999 are antidilutive.
11
BENEFIT PLANS
Retech sponsored a defined benefit pension plans that covered all
of its hourly employees. The plan called 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>
1999 1998 1997
Service cost $ - $ - $ -
Interest cost 69,073 64,523 135,845
Actual return on assets held for the
plan (46,703) (39,557) (202,965)
Net amortization of prior service cost,
transition liability and net gain 62,874 38,323 115,511
Pension expense $85,244 $63,289 $ 48,391
</TABLE>
52
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS (CONTINUED)
The following sets forth the funded status of the plans and the
amounts shown in the accompanying consolidated balance sheets at
July 31,:
1999 1998
Pension benefit obligations
Vested $908,163 $992,767
Non-vested - -
Projected benefit obligation 908,163 992,767
Fair value of assets held in plan 634,858 555,438
Unfunded excess of projected benefit
obligation over plan assets $273,305 $437,329
Unrecognized net transition obligation $ - $ 48,473
Unrecognized prior service costs 66,928 81,329
Unrecognized net loss 237,825 424,221
Pension (asset) liability recognized (31,448) (116,694)
Accrued pension liability $273,305 $437,329
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 plans. 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 $304,753 and $554,023, intangible
assets of $66,928 and $129,802 and a stockholders' equity
reduction of $237,825 and $424,221 as of July 31, 1999 and 1998,
respectively.
Retech will terminate these plans 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.
53
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS (CONTINUED)
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 7.0% at July 31,
1999 and 8.5% and 8% at July 31, 1998, 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, 1999, 1998
and 1997 were $6,301, $6,619 and $5,398, 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.
Following is a summary of options under the plan as of and for
the years ended July 31,:
1999 1998 1997
Options outstanding at beginning
of year 352,000 352,000 394,999
Granted - - 290,000
Terminated (62,000) - (332,999)
Exercised (212,793) - -
Options outstanding at end of year 77,207 352,000 352,000
Options exercisable at end of year 77,207 62,000 62,000
Exercise price per share $.50 to $.50 to $.50 to
$.55 $2.75 $2.75
54
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS (CONTINUED)
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.
55
<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>
1999 1998 1997
Expected provision (benefit) for
federal income taxes $(2,180,000) $189,000 $3,220,000
Expected provision for state income
taxes (256,000) 22,000 474,000
Utilization of tax loss carryforward - - (3,583,667)
Unavailable loss carrybacks 2,379,746 - -
Other - (16,911) -
Income taxes (benefit) $ (56,254) $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>
1999 1998 1997
Income from continuing operations $(56,254) $160,355 $(213,372)
Earnings from discontinued operations - (121,070) -
Gain on sale of discontinued
operations - 154,804 323,705
$(56,254) $194,089 $110,333
Income tax expense (benefit) consisted of the following:
Current $(269,626) $194,089 $323,705
Deferred 213,372 - (213,372)
$ (56,254) $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.
56
<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,:
1999 1998
Net operating loss carryfoward $ (913,000) $ -
Depreciation - U. S. 80,000 68,640
Provision for losses (1,195,000) (282,012)
Valuation allowance 2,028,000 -
$ - $(213,372)
The Company has provided a valuation allowance against its
deferred tax asset as it has determined that it is more likely
than not the temporary differences will not be utilized for tax
purposes.
13
RELATED PARTY TRANSACTIONS
The following is a summary of advances from/to affiliated
companies at July 31,:
1999 1998
Refineries Consolidated Technology, Inc. $ - $269,400
Cooper Manufacturing Corporation - 632,314
Others 58,003 16,063
$58,003 $917,777
57
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
RELATED PARTY TRANSACTIONS (CONTINUED)
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 of $723,000 against its receivable from RCT 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. Cooper is
no longer an affiliate of the Company. RCT has ceased operations
and the balance due from RCT, amounting to $480,000 was written
off during fiscal 1999.
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.
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.
58
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION (CONTINUED)
Following is a summary of segment information for the years ended
July 31,:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Sales to unaffiliated customers:
Water $ 2,000 $ 52,576 $ 75,234
Gas 2,917,327 2,739,035 3,135,249
Electric 8,397,007 8,151,963 7,744,912
$11,316,334 $10,943,574 $10,955,395
Operating income (loss):
Water $ (631,977) $ (427,596) $ (212,742)
Gas (228,308) 115,435 40,784
Electric 236,133 292,35 161,043
(624,152) (19,626) (10,915)
General corporate expenses (1,266,544) (1,917,674) (1,660,527)
Other income (expense), net (2,968,994) 2,461,356 (1,936,111)
Earnings (loss) from continuing
operations before income
taxes $(4,859,690) $ 524,056 $(3,607,553)
Identifiable assets:
Water $ 283,480 $ 832,428 $ 954,690
Gas 1,884,695 2,012,325 1,882,753
Electric 4,302,129 4,541,187 4,828,751
6,470,304 7,385,940 7,666,194
General corporate assets 7,001,986 13,819,588 15,352,939
Total assets $13,472,290 $21,205,528 $23,019,133
</TABLE>
59
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION (CONTINUED)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Capital expenditures:
Water $ - $12,991 $ 7,670
Gas 113,343 10,257 28,960
Electric 55,812 54,531 66,095
General corporate - 1,378 3,399
$169,155 $79,157 $106,124
Depreciation and amortization:
Water $ 6,825 $ 5,157 $ 2,131
Gas 58,380 55,899 155,346
Electric 201,488 161,670 133,054
General corporate 12,372 12,372 12,291
$279,065 $235,098 $302,822
</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, investments 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,:
1999
Operating
(loss) Identifiable
Sales Income Assets
United States $ 2,919,327 $(991,675) $2,685,103
Canada 8,397,007 367,523 3,785,201
Total $11,316,334 $(624,152) $6,470,304
60
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION (CONTINUED)
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
15
FOURTH QUARTER RESULTS
During the fourth quarter of fiscal 1999 and 1997, the Company
recorded the following adjustments which are unusual and non-
recurring in nature: For fiscal 1999; (i) provided a reserve
against various Company investments, including Aftritel, Cooper
and RCT, in the amount of $3,515,000; (ii) provided for a loss of
$1,550,000 to recognize a reduction in the value of SMI (Note 2).
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.
61
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 378,340
<SECURITIES> 3,330,488
<RECEIVABLES> 1,620,685
<ALLOWANCES> 14,048
<INVENTORY> 2,669,280
<CURRENT-ASSETS> 8,046,651
<PP&E> 4,427,019
<DEPRECIATION> 2,629,656
<TOTAL-ASSETS> 13,472,290
<CURRENT-LIABILITIES> 3,490,442
<BONDS> 0
0
900,000
<COMMON> 83,434
<OTHER-SE> 7,788,160
<TOTAL-LIABILITY-AND-EQUITY> 13,472,290
<SALES> 11,316,334
<TOTAL-REVENUES> 11,316,334
<CGS> 9,380,584
<TOTAL-COSTS> 13,207,030
<OTHER-EXPENSES> 2,968,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556,412
<INCOME-PRETAX> (4,859,690)
<INCOME-TAX> (56,254)
<INCOME-CONTINUING> (4,803,436)
<DISCONTINUED> (1,550,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,353,436)
<EPS-BASIC> (.79)
<EPS-DILUTED> (.79)
</TABLE>
