UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended: April 30, 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:# 0-14754
ELECTRIC & GAS TECHNOLOGY, INC.
(Exact Name of Registrant as specified in its Charter)
TEXAS 75-2059193
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13636 Neutron Road, Dallas, Texas 75244-4410
(Address of Principal Executive Offices) (Zip Code)
(972) 934-8797
(Registrant's telephone number, including area code)
____________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
The number of shares outstanding of each of the Issuer's Classes
of Common Stock, as of the close of the period covered by this
report:
Common - $0.01 Par Value - 8,157,624 shares at June 7, 1998.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Form 10-Q
For the Quarter Ended April 30, 1999
Page
Part I - Financial Information
1. Condensed Consolidated Financial Statements:
(a) Condensed Consolidated Balance Sheets as
of April 30, 1999 and July 31, 1998 3
(b) Condensed Consolidated Statements of
Operations for the three and nine months
ended April 30, 1999 and 1998 4-5
(c) Condensed Consolidated Statements of
Changes in Stockholders' Equity for the
nine months ended April 30, 1999 6
(c) Condensed Consolidated Statements of
Cash Flows for the nine months ended
April 30, 1999 and 1998 7
(d) Notes to Condensed Consolidated
Financial Statements 8-14
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
Part II - Other Information
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of Security
Holders 19
Item 6 - Exhibits and Reports on Form 8-K 20
Signature (pursuant to General Instruction E) 20
All other items called for by the instructions are
omitted as they are either inapplicable, not required,
or the information is included in the Condensed
Financial Statements or Notes thereto.
2
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 1999 and July 31, 1998
ASSETS
April 30, July 31,
1999 1998
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 141,845 $ 542,086
Certificates of deposit 4,352,423 4,000,000
Investments, market 1,225,623 2,938,964
Accounts receivable, net 1,527,325 1,702,866
Inventories 3,721,619 3,199,398
Prepaid expenses 164,736 99,779
Total current assets 11,133,571 12,483,093
PROPERTY, PLANT AND EQUIPMENT, net 1,948,126 1,902,811
OTHER ASSETS 6,583,230 6,819,624
TOTAL ASSETS $19,664,927 $21,205,528
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,821,861 $ 1,762,482
Accounts payable 1,158,914 1,369,314
Accrued liabilities 320,592 145,352
Current maturities of long-term
obligations 159,085 116,691
Total current liabilities 3,460,452 3,393,839
LONG-TERM OBLIGATIONS
Long-term obligations, less current
maturities 1,503,213 1,627,650
MINORITY INTEREST IN SUBSIDIARY 41,005 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 and issued 8,157,624
in 1999 and 8,198,224 in 1998 81,576 81,982
Additional paid-in capital 9,196,816 9,260,866
Retained earnings 6,637,681 6,850,302
Pension liability adjustment (424,221) (424,221)
Cumulative translation adjustment (481,595) (531,549)
15,910,257 16,137,380
Treasury stock, 27,000 shares, at cost (50,000) -
Reserve for preferred stock redemption (1,200,000) -
Total stockholders' equity 14,660,257 16,137,380
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,664,927 $21,205,528
See accompanying notes.
3
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended April 30, 1999 and 1998
(Unaudited)
Three months ended Nine months ended
April 30, April 30,
1999 1998 1999 1998
Sales $2,816,160 $2,664,930 $8,376,618 $8,144,806
Cost of goods sold 2,033,148 1,896,017 6,055,396 6,162,648
Gross profit 783,012 768,913 2,321,222 1,982,158
Selling, general and
administrative expenses 954,263 1,265,636 2,922,186 3,539,978
Operating profit (loss) (171,251) 496,723) (600,964)(1,557,820)
Other income and (expenses)
Interest, net 89,416 96,729 196,079 154,602
Minority interest 1,079 7,837 5,654 28,097
Investment gain 182,045 (6,146) 182,045 1,335,752
Other, net (43,634) 5,602 4,565 47,553
228,906 104,022 388,343 1,566,004
Earnings (loss) from continuing
operations 57,655 (392,701) (212,621) 8,184
Earnings (Loss) from discontinued
operations of:
Plastics segment - - - (32,472)
Defense segment - - - (323,617)
- - - (356,089)
NET EARNINGS (LOSS) 57,655 (392,701) (212,621) (347,905)
Dividend on preferred stock 15,362 15,362 47,121 47,121
Net earnings (loss) applicable
to common stock $ 42,293 $ (408,063) $(259,742) $(395,026)
See accompanying notes.
4
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Three and Nine Months Ended April 30, 1999 and 1998
(Unaudited)
Three months ended Nine months ended
April 30, April 30,
1999 1998 1999 1998
Earnings (loss) available per Common share:
Continuing operations $0.01 $(0.05) $(0.03) $(0.00)
Discontinued operations - - - (0.05)
Net income $0.01 $(0.05) $(0.03) $(0.05)
Earnings (loss) available per Common share - assuming dilution:
Continuing operations $0.01 $(0.05) $(0.02) $ 0.00
Discontinued operations - - - (0.04)
Net income $0.01 $(0.05) $(0.02) $(0.04)
See accompanying notes.
5
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended April 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Unaudited)
Accumulated Reserve
Other Redemption
Preferred Common Paid-in Retained Comprehensive Treasury Preferred
Stock Stock Capital Earnings Income Stock Stock Total
Balance at July 31, 1998 $900,000 $81,982 $9,260,866 $6,850,302 $(955,770) $ - $ - $16,137,380
Net loss (212,621) (212,621)
Currency translation adjustments 49,954 49,954
Comprehensive income (loss) (162,667)
Reserve for redemption (1,200,000) (1,200,000)
Purchase of treasury stock (114,456) (114,456)
Cancellation of treasury stock (406) (64,050) 64,456
Balance at April 30, 1999 $900,000 $81,576 $9,196,816 $6,637,681 $(905,816) $ (50,000) $(1,200,000) $14,660,257
</TABLE>
See accompanying notes.
6
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1999 and 1998(Unaudited)
<TABLE>
<S> <C> <C>
Nine months ended
April 30,
1999 1998
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $ (212,621) $ (347,905)
Adjustments to reconcile net earnings ( loss)
to net cash used by operating activities:
Discontinued operations - (356,089)
Depreciation and amortization 144,524 233,971
Minority interest (5,654) (28,097)
Gain on investments (182,045) (1,355,752)
Changes in assets and liabilities:
Accounts receivable 175,541 160,470
Inventories (522,221) (249,730)
Prepaid expenses (64,957) 5,047
Other assets 386,210 988,867
Accounts payable (292,722) (522,257)
Accrued liabilities 175,240 (939,733)
Net cash provided by (used in) operating activities (398,705) (2,411,208)
Cash flows from investing activities:
Investments 1,360,918 (10,528,776)
Purchase and retirement of treasury stock (114,456) (811,173)
Treasury stock issued - 593,260
Reserve for redemption of preferred stock (1,200,000) -
Purchase of property, plant and equipment (184,826) (41,129)
Net cash provided by (used in) investing activities (138,364) (10,787,818)
Cash flows from financing activities:
Increase (decrease) in notes payable and
long-term obligations 59,658 (812,973)
Due to/from affiliate 77,170 (238,073)
Net cash provided by (used in) financing activities 136,828 (1,051,046)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (400,241) (14,250,072)
Cash and cash equivalents - beginning of period 542,086 14,503,417
Cash and cash equivalents - end of period $ 141,845 $ 253,345
Supplemental disclosures of cash flow information:
Cash paid during the year for Interest $ 426,105 $ 262,249
Federal income taxes paid $ - $ 352,524
</TABLE>
See accompanying notes.
7
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
NOTE A - GENERAL
Electric & Gas Technology, Inc.("the Company"or "ELGT") was organized
under the laws of the State of Texas on March 18, 1985, to serve as a
holding company for operating subsidiary corporations. The Company
presently is the owner of 100% of Reynolds and Hydel and owns 91.5% of AMT
and, through such subsidiaries, operates in three distinct business
segments: (1) production of atmospheric water, filtration and enhanced
water products (AMT); (2) the manufacture and sale of natural gas
measurement, metering and odorization equipment (Reynolds); and (3) the
manufacture and sale of electric meter enclosures and pole-line hardware
for the electric utility industry and the general public (Hydel).
Effective October 1, 1997, the Company agreed to sell its defense
electronics business segment and on December 31, 1997 it sold its plastics
segment. Both such operations have been treated as discontinued
operations. Effective July 31, 1997, the Company discontinued the
operations of its metal fabrication segment which previously was engaged in
the manufacture and sale of precision metal enclosures for
telecommunication and computer equipment (Logic). The Company sold its
Canadian heating division and its U.S. meter socket and Test Switch
divisions during fiscal 1996 and 1995. These operations were part of the
electric segment.
The accompanying condensed financial statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission
(SEC) for inclusion in the Company's Quarterly Report on Form 10-Q. They
are subject to year-end audit adjustments; however, they reflect all
adjustments of a normal recurring nature which are, in the opinion of
Management, necessary for a fair statement of the results of operations for
the interim periods.
The statements were prepared using generally accepted accounting
principles. As permitted by the SEC, the statements depart from generally
accepted accounting disclosure principles in that certain data is combined,
condensed or summarized that would otherwise be reported separately and
certain disclosures of the type that were made in the Notes to Financial
Statements for the year ended July 31, 1998 have been omitted, even though
they are necessary for a fair presentation of the financial position at
April 30, 1999 and 1998 and the results of operations and cash flows for
the periods then ended.
NOTE B - INVENTORIES
Inventories are comprised as follows:
April 30, 1999 July 31, 1998
Raw Materials $1,269,651 $1,076,237
Work in process 531,356 443,566
Finished Goods 1,920,612 1,679,595
$3,721,619 $3,199,398
8
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1999
(Unaudited)
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE
On December 15, 1995, the Company closed on a Note Purchase Agreement
with Allied Products Corporation ("Allied"), thereby obtaining Allied's
right, title and interest in and to a certain Promissory Note and all
security existing thereunder and obligations of Cooper Manufacturing
Corporation ("Cooper") under this Note and the Facility Agreement formerly
executed by Cooper and its shareholders in exchange for $100,000 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 $212,474 at April 30, 1999.
The 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 pursing
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.
9
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1999
(Unaudited)
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE(Continued)
In 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Statement
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Dilute earnings per share is
very similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods have been presented, and
when necessary, restated to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
1999 1998 1999 1998
Numerator
Net income (loss) from continuing
operations $57,655 $(392,701) $(212,621) $ 8,184
Preferred stock dividends (15,362) (15,362) (47,121) (47,121)
Numerator for basic earnings per share
Net income (loss) available to
common stockholders continuing
operations 42,293 (408,063) (259,742) (38,937)
Discontinued operations - - - (356,089)
Net income (loss) available to
common stockholders $42,293 $(408,063) $(259,742) $(395,026)
Effect of dilutive securities
Preferred stock dividends $15,362 $ 15,362 $ 47,121 $ 47,121
</TABLE>
10
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1999
(Unaudited)
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
1999 1998 1999 1998
Numerator for diluted earnings per share
Net income (loss) available to
common stockholders after
assumed conversion continuing
operations $57,655 $(392,701) $(212,621) $ 8,184
Discontinued operations - - - (356,089)
Net income (loss) available to
common stockholders $57,655 $(392,701) $(212,621) $(347,905)
Demoninator
Demoninator for basic earnings per share
Weighted-average shares 8,130,624 7,738,891 8,153,035 7,911,446
Effect of dilutive securities:
Options 200,732 211,466 200,732 211,466
Preferred stock 600,000 312,500 600,000 312,500
800,732 523,966 800,732 523,966
Demoninator for dilutive earnings per share
assumed conversion 8 ,931,356 8,262,857 8,953,767 8,435,412
</TABLE>
Options to purchase shares ranging in price from $2.00 to $4.25 for
127,000 shares and shares ranging in price from $2.50 to $4.68 for 333,000
shares were outstanding during 1999 and 1998, respectively but were not
included in the computation of dilutive earnings per share because the
options' exercise price was greater that the average market price of the
common shares and, therefore, the effect would be antidilutive.
11
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1999
(Unaudited)
NOTE D - DISPOSITIONS
The Company discontinued its defense electronics business segment (SMI)
effective October 1, 1997 as result of an intent to sell this business
segment to the president of SMI. Effective December 31, 1997, the Company
sold its plastics segment (Fridcorp) for cash of approximately $760,000
with a corresponding gain of approximately $210,000. 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:
Nine months
1999 1998
Sales $ - $1,104,411
Cost of goods sold - 946,193
Selling, general and administrative - 440,418
Other - 73,889
Discontinued operations $ - $ (356,089)
NOTE E - ACCUMULATED OTHER COMPREHENSIVE INCOME:
The components of other comprehensive income are as follows:
Currency Pension
Translations Liability
Adjustments Adjustments Total
Balance at July 31, 1998 $(531,549) $(424,221) $(955,770)
Currency translation adjustments 49,954 - 49,954
Balance April 30, 1999 $(481,595) $(424,221) $(905,816)
The earnings associated with the Company's investment in its foreign
subsidiary are considered to be permanently invested and no provision for
U.S. federal income taxes on these earnings or translation adjustments has
been provided.
12
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1999
(Unaudited)
NOTE F - INDUSTRY SEGMENT DATA:
The Company's business is primarily comprised of three industry
segments: i. water (AMT); ii. natural gas measurement and recording devices
and odorization (Reynolds); and iii. electrical components and enclosures
(Hydel) as set forth below. Operating profits represent total sales less
cost of sales and general and administrative expenses.
Three Months Ended April 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
General
Water Gas Electric Corporate Consolidated
Sales $ 2,000 $ 813,375 $2,000,785 $ - $2,816,160
Cost of goods sold 11,672 402,803 1,618,673 - 2,033,148
Selling, gen. & adm. 3,020 335,319 322,363 293,561 954,263
Operating profit(loss) (12,692) 75,253 59,749 (293,561) (171,251)
Interest, net - (15,471) (23,851) 128,738 89,416
Other income(expense) - 44,212 - 95,278 139,490
Net earnings (loss) from
continuing operations $(12,692) $ 103,994 $ 35,898 $(69,545) $ 57,655
Assets:
Receivables $ 659 $ 417,590 $1,030,239 $ 78,837 $1,527,325
Inventory $423,834 $1,141,325 $2,156,460 $ - $3,721,619
Total assets $833,896 $2,339,957 $4,622,831 $11,868,243 $19,664,927
Depreciation $1,721 $12,663 $30,836 $2,577 $47,797
Additions PP&E $ - $93,627 $32,275 $ - $125,902
</TABLE>
13
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 1999
(Unaudited)
NOTE F - INDUSTRY SEGMENT DATA(Continued):
Nine Months Ended April 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
General
Water Gas Electric Corporate Consolidated
Sales $ 2,000 $2,307,634 $6,066,984 $ - $8,376,618
Cost of goods sold 40,788 1,159,935 4,854,673 - 6,055,396
Selling, gen. & adm. 27,729 919,478 968,707 1,006,272 2,922,186
Operating profit(loss) (66,517) 228,221 243,604 (1,006,272) (600,964)
Interest, net - (38,499) (75,001) 309,579 196,079
Other income(expense) - 86,955 - 105,309 192,264
Net earnings (loss) from
continuing operations $(66,517) $ 276,677 $ 168,603 $(591,384) $ (212,621)
Depreciation $5,165 $41,329 $89,585 $8,445 $144,524
Additions PP&E $ - $114,673 $75,167 $ - $189,840
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company, through its subsidiaries, operates within three separate
industries. These are (i) production of atmospheric water, filtration and
enhanced water products; (ii) the manufacture of natural gas measurement
equipment and gas odorization products; and (iii) the manufacture and sale
of metal enclosures and other electrical equipment for use in the electric
utility industry.
Results of Operations
Summary. The Company reported net earnings (loss) from continuing
operations and net earnings (loss) of $57,655 and $(212,621) for the nine
and three months ended April 30, 1999, respectively. This compared to
$8,184 and $(347,905) and $(392,701) and $(392,701) for the nine and three
months ended April 30, 1998, respectively. Operating income increased by
$724,880 and $111,459 for the nine and three month periods, the result of
increases in revenue and operating profits in the gas segment and
substantially reduced spending in the water segment. The electric segment
reported slightly reduced revenues, however, operating profits increased
slightly due to reduced costs over the nine month period. The first
quarter of fiscal 1998 was benefited by the favorable treatment under the
debtor's confirmed Plan for Cooper Manufacturing Corporation in bankruptcy.
Gross margins increased from 24.34% to 27.71% for the nine months ended
April 30, 1999. Also, selling, general and administrative expenses as a
relationship to revenues at the segment level decreased from 28.26% to
22.87% of revenues. Net interest income was reported both for the nine and
three months ended April 30, 1999 due to earnings on short-term investments
and decreased borrowing.
Increases(decreases) for the three and nine months period ended April
30, 1999, as compared with the similar period of 1998, for key operating
data were as follows:
Three Months Ended Nine Months Ended
April 30, 1999 April 30,1999
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $151,230 5.67 $231,812 2.85
Operating Income 111,459 1,027.18 724,880 226.83
Earnings (loss) from continuing
operations 457,114 114.13 198,362 996.14
Net Earnings Per Share .06 120.00 .02 40.00
15
<PAGE>
The following table represents the changes [increase/(decrease)] in
operating revenues, operating income and net earnings before income taxes
by the respective industry segments when compared to the previous period:
Three Months Ended Nine Months Ended
April 30, 1999 April 30,1999
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Water $ 1,529 1.01 $ (50,576) (21.82)
Gas 178,835 118.25 464,235 200.26
Electric (29,134) (19.26) (181,847) (78.44)
$ 151,230 100.00 $ 231,812 100.00
Operating Income (Loss):
Water $ 79,499 71.33 $ 264,035 36.43
Gas 28,699 25.75 445,822 61.50
Electric 3,261 2.92 15,023 2.07
111,459 100.00 724,880 100.00
General Corporate 214,013 231,976
Other Income (Expense) 131,642 (1,155,218)
Earnings from continuing
operations $457,114 $ (198,362)
Water revenues amounted to only $2,000 for the nine months ended April
30, 1999. Revenues for the nine months ended April 30, 1998 were $52,576
which were essentially sales of a few demonstrators of this segments
"Watermaker" product occurring during the first quarter of fiscal 1998.
Expenses were $68,517 and $14,692 for the nine and three months ended April
30, 1999, respectively. Expenses were $383,128 and $92,662 for the nine
and three months ended April 30, 1998, respectively. With the exception of
cost associated with the first quarter revenues during fiscal 1998,
expenses mainly consisted of further development costs, including a
business plan and marketing expenses. There is no immediate forecast of
when meaningful revenues will occur.
16
<PAGE>
Gas revenues increased by $464,235 and $178,835 for the nine and three
months ended April 30, 1999. Operating income increased by $445,822 and
$28,699 for the nine and three months ended April 30, 1999, resulting in
operating profits of $228,221 and $75,253, respectively. Selling, general
and administrative expenses returned to 39.85% of revenues when compared to
53.53% for the prior nine month period. Staffing levels remained high due
to a development contract for a new BTU meter.
Electric revenues decreased slightly for the nine and three months
ended April 30, 1999 by $(181,847) and $(29,134). Operating profits
increased by $15,023 and $3,261 for the nine and three months ended April
30, 1999, respectively, due to the reduced carrying cost of the Paris,
Texas facility and improved performance in the Canadian operation. Second
quarter fiscal 1998 revenues were helped by winter storms affecting eastern
Canada, requiring major replacement of damaged transmission lines. Third
quarter fiscal 1998 costs were higher due to some manufacturing equipment
breakdowns. The electric segment consists of only the Canadian meter
socket and pole line hardware product lines selling almost entirely in the
Canadian markets. The vacant Texas facility is under a contract of sale
and is expected to close shortly.
With the exception of expense relationships discussed above in the
specific segment discussion, such other relationships remain consistent.
Operating profits increased by 8.76% and 3.94% for the nine and three
months ended April 30, 1999, respectively, the effect of improved margins
and reduced selling, general and administrative costs, discussed above.
Liquidity and Capital Resources
Liquidity. Current assets of the Company totaled $11,133,571 at April
30, 1999, down from current assets of $12,483,093 at July 31, 1998, or a
decrease of $(1,349,522). Current liabilities increased by $(66,613),
resulting in a decrease in working capital (current assets less current
liabilities) to $7,673,119 at April 30, 1999, from $9,089,254 at July 31,
1998. The Company provided a $1,200,000 reserve for possible redemption of
its preferred stock accounting for most of the change in working capital.
The Company believes that it has and will generate sufficient cash to meet
its working capital requirements and debt obligations.
Hydel has a working capital line-of-credit with a Canadian bank in the
amount of approximately $1,500,000. The Canadian credit facility is
secured by receivables, inventories and equipment of Hydel.
The Company continues to borrow under its CIT Group Credit/Finance,
Inc. revolving and term loan facility. Borrowing under the revolving
portion is based on eligible accounts receivable and inventory. The
outstanding revolving loan balance was $271,070 and the term loan balance
was $61,697 at April 30, 1999.
17
<PAGE>
Capital Expenditures
For Fiscal 1999, the Company (and its subsidiaries) does not anticipate
any significant capital expenditures, other than in the ordinary course of
replacing worn-out or obsolete machinery and equipment utilized by its
subsidiaries.
Dividend Policy
No cash dividends have been declared by the Company's Board of
Directors since the Company's inception. The Company does not contemplate
paying cash dividends on its common stock in the foreseeable future since
it intends to utilize it cash flow to invest in its businesses. Cumulative
dividends on the Series A, 7% Convertible Preferred Stock, have not been
paid and amounted to $212,474 as of April 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.
Inflation. The Company does not expect the current effects of
inflation to have any effect on its operations in the foreseeable future.
The largest single impact affecting the Company's overall operations is the
general state of the economy and principally new home construction.
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.
18
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Ammon & Rizos Co., Inc. Vs. Metal Products, Inc.-Cause No.; 97-06860-
C; District Court Dallas County, Texas. The former manufacturers
representative of Logic, Ammon & Rizos Co, has filed a suit against the
Company, the Company's chairman of the board, Logic, and New Logic Design
Metals, Inc. ("New Logic")(the purchaser of the assets) for unpaid fees,
assumed by New Logic and a previous adjustment in prior fees plus
prospective fees from New Logic's sales. New Logic paid the assumed fees
of $748,590 on February 15, 1999. There remains the Plaintiff's claims for
additional fees owed on sales made subsequent to the sale of assets to New
Logic. The case is scheduled for trial in August 1999. Management
believes there will be no material effect on the Company.
Allied Products Corp., a Delaware Corporation Vs. Electric & Gas
Technology, Inc., a Texas Corporation; Cause No. 97C5256: United States
District of Northern District of Illinois. Allied Products Co 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 Company filed a counter suit alleging security
violations (10b5) demanding return of its Preferred Stock. In addition,
the Company has been advised by the Cooper's debtor-in-possession that it
has filed a suit claiming preference and other violations by Allied. The
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 pursing
the sale of the preferred stock, which if unsuccessful the Company will
repurchase the preferred stock and retire same.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual stockholders meeting on April 9, 1999. The
following individuals were elected as directors until the Company's next
annual meeting:
S. Mort Zimmerman Daniel A. Zimmerman
Edmund W. Bailey Fred M. Updegraff
James J. Ling Dick T. Bobbitt
Jackson & Rhodes P.C. appointment as auditors was ratified with
7,910,279 affirmative votes and 228,027 against.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) Reports on Form 8-K.
Item 5, Other Events, May 5, 1999 - The
lawsuit between Allied Products Corp. and the
Company was settled and dismissed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
/s/ Edmund W. Bailey
Edmund W. Bailey
Vice President and
Chief Financial Officer
Dated: June 11, 1999
20
<PAGE>
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<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> APR-30-1999
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