UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended: January 31, 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 - 8,130,624 shares at March 6, 1999.
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Form 10-Q
For the Quarter Ended January 31, 1999
Page
Part I - Financial Information
1. Condensed Consolidated Financial Statements:
(a)Condensed Consolidated Balance Sheets as
of January 31, 1999 and July 31, 1998 3
(b)Condensed Consolidated Statements of
Operations for the three and six months
ended January 31, 1999 and 1998 4-5
(c)Condensed Consolidated Statements of
Changes in Stockholders' Equity for
six months ended January 31, 1999 6
(c)Condensed Consolidated Statements of
Cash Flows for the six months ended
January 31, 1999 and 1998 7
(d)Notes to Condensed Consolidated
Financial Statements 8-13
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
Part II - Other Information
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signature (pursuant to General Instruction E) 19
All other items called for by the instructions are
omitted as they are either inapplicable, not required,
or the information is included in the Condensed
Financial Statements or Notes thereto.
2
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 1999 and July 31, 1998
ASSETS
January 31, July 31,
1999 1998
CURRENT ASSETS(Unaudited)
Cash and cash equivalents $ 273,728 $ 542,086
Certificates of deposit 4,351,066 4,000,000
Investments 2,681,342 2,938,964
Accounts receivable, net 1,419,904 1,702,866
Inventories 3,498,005 3,199,398
Prepaid expenses 123,810 99,779
Total current assets 12,347,855 12,483,093
PROPERTY, PLANT AND EQUIPMENT, net 1,873,363 1,902,811
OTHER ASSETS 6,337,849 6,819,624
TOTAL ASSETS $20,559,067 $21,205,528
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,580,297 $ 1,762,482
Accounts payable 1,304,823 1,369,314
Accrued liabilities 225,330 145,352
Current maturities of long-term obligations 128,259 116,691
Total current liabilities 3,238,709 3,393,839
LONG-TERM OBLIGATIONS
Long-term obligations, less current maturities 1,523,023 1,627,650
MINORITY INTEREST IN SUBSIDIARY 42,083 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 and in 1999
8,198,224 in 1998 81,576 81,982
Additional paid-in capital 9,196,816 9,260,866
Retained earnings6,580,026 6,850,302
Accumulated other comprehensive income (953,166) (955,770)
15,805,252 16,137,380
Less treasury stock, 27,000 shares, at cost (50,000) -
Total stockholders' equity 1 5,755,252 16,137,380
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,559,067 $21,205,528
See accompanying notes.
3
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
January 31, January 31,
1999 1998 1999 1998
Sales $2,696,458 $2,703,094 $5,560,458 $5,479,876
Cost of goods sold 1,991,264 2,147,511 4,022,248 4,266,631
Gross profit 705,194 555,583 1,538,210 1,213,245
Selling, general and
administrative expenses 1,011,863 1,158,336 1,967,923 2,274,342
Operating profit (loss) (306,669) (602,753) (429,713) (1,061,097)
Other income and (expenses)
Interest, net 58,770 99,070 106,663 57,873
Minority interest 1,696 10,317 4,576 20,260
Investment gain - 435,440 - 1,341,898
Other, net 31,644 20,868 48,198 41,951
92,110 565,695 159,437 1,461,982
Earnings (loss) from continuing
operations (214,559) (37,058) (270,276) 400,885
Earnings (Loss) from discontinued
operations of:
Plastics segment - (40,905) - (32,472)
Defense segment - - - (323,617)
- (40,905) - (356,089)
NET EARNINGS (LOSS) (214,559) (77,963) (270,276) 44,796
Dividend on preferred stock 15,879 15,879 31,759 31,759
Net earnings (loss) applicable
to common stock $ (230,438) $ (93,842) $ (302,035) $ 13,037
</TABLE>
See accompanying notes.
4
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Three and Six Months Ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
January 31, January 31,
1999 1998 1999 1998
Earnings (loss) available per Common share:
Continuing operations $(0.03) $(0.01) $(0.04) $ 0.05
Discontinued operations $ - $ 0.00 $ - $(0.05)
Net income $(0.03) $(0.01) $(0.04) $ 0.00
Earnings (loss) available per Common share - assuming dilution:
Continuing operations $(0.02) $ 0.00 $(0.03) $ 0.05
Discontinued operations $ - $(0.01) $ - $(0.04)
Net income $(0.02) $(0.01) $(0.03) $ 0.01
</TABLE>
See accompanying notes.
5
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six months ended January 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(Unaudited)
Accumulated
Retained Other
Preferred Common Paid-in (Deficit) Comprehensive Treasury
Stock Stock Capital Earnings Income Stock Total
Balance at July 31, 1998 $900,000 $81,982 $9,260,866 $6,850,302 $(955,770) $ - $16,137,380
Net loss (270,276) (270,276)
Currency translation adjustments 2,604 2,604
Comprehensive income (loss) (267,672)
Purchase of treasury stock (114,456) (114,456)
Cancellation of treasury stock (406) (64,050) 64,456
Balance at January 31, 1999 $900,000 $81,576 $9,196,816 $6,580,026 $(953,166) $(50,000) $15,755,252
</TABLE>
See accompanying notes.
6
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<S> <C> <C>
Six months ended
January 31,
1999 1998
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $ (270,276) $ 44,796
Adjustments to reconcile net earnings ( loss)
to net cash provided by operating activities:
Discontinued operations - (356,089)
Depreciation and amortization 96,727 159,845
Minority interest (4,576) (20,260)
Gain on investments - (1,341,898)
Changes in assets and liabilities:
Accounts receivable 282,962 124,477
Inventories (298,607) 35,470
Prepaid expenses (24,031) 13,478
Other assets 415,984 851,855
Accounts payable (105,555) (171,503)
Accrued liabilities 79,978 (1,007,343)
Net cash provided by (used in) operating activities 172,606 (1,667,172)
Cash flows from investing activities:
Investments (93,444) (10,037,591)
Purchase and retirement of treasury stock (114,456) (456,605)
Purchase of property, plant and equipment (63,937) (2,855)
Net cash provided by (used in) investing activities (271,837) (10,497,051)
Cash flows from financing activities:
Increase (decrease) in notes payable and
long-term obligations (231,576) (875,171)
Due to/from affiliate 62,449 (337,958)
Net cash provided by (used in) financing activities (169,127) (1,213,129)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (268,358) (13,377,352)
Cash and cash equivalents - beginning of period 542,086 14,503,417
Cash and cash equivalents - end of period $ 273,728 $ 1,126,065
Supplemental disclosures of cash flow information:
Cash paid during the year for Interest $ 255,480 $ 188,454
</TABLE>
See accompanying notes.
7
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 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
January 31, 1999 and 1998 and the results of operations and cash flows for
the periods then ended.
NOTE B - INVENTORIES
Inventories are comprised as follows:
January 31, 1999 July 31, 1998
Raw Materials $1,197,328 $1,076,237
Work in process 532,486 443,566
Finished Goods 1,768,191 1,679,595
$3,498,005 $3,199,398
8
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 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 $2.00
per share which if sold at that price would require 450,000 shares to be
sold to retire the obligation to Allied. The Preferred shares are
redeemable in cash plus accrued dividends at any time as the result of an
underwriting as defined therein. Accumulated and unpaid dividends to
preferred stock amounted to approximately $197,112 at January 31, 1999.
Allied has received a judgement, with the court not permitting a trial on
its merits, in the amount of approximately $1,100,000 requiring redemption
and payment of accumulated dividends on the Company's preferred stock. The
Company has the option to appeal the ruling and is considering doing so
based on alleged securities violations and bankruptcy fraud. The Company
is seeking a third party which might be interested in acquiring the
preferred stock from Allied in exchange for the judgement with the
intention of holding the preferred shares as an investment. If a third
party does not acquire the preferred shares, the Company will retire the
preferred (also see "Legal Proceedings").
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 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.
9
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1999
(Unaudited)
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE(Continued)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
1999 1998 1999 1998
Numerator
Net income (loss)from continuing
operations $(214,559) $(37,058) $(270,276) $400,885
Preferred stock dividends (15,879) (15,879) (31,759) (31,759)
Numerator for basic earnings per share
Net income (loss) available to
common stockholders continuing
operations (230,438) (52,937) (302,035) 369,126
Discontinued operations - (40,905) - (356,089)
Net income (loss) available to
common stockholders $(230,438) $(93,842) $(302,035) $ 13,037
Effect of dilutive securities
Preferred stock dividends $ 15,879 $ 15,879 $ 31,759 $ 31,759
Numerator for diluted earnings per share
Net income (loss) available to
common stockholders after
assumed conversion continuing
operations $(214,559) $(37,058) $(270,276) $ 400,885
Discontinued operations - (40,905) - (356,089)
Net income (loss) available to
common stockholders $(214,559) $(77,963) $(270,276) $ 44,796
</TABLE>
10
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1999
(Unaudited)
NOTE C - PREFERRED STOCK AND EARNINGS PER SHARE(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
1999 1998 1999 1998
Denominator
Denominator for basic earnings per share
weighted-average shares 8,148,624 7,808,224 8,164,241 7,808,224
Effect of dilutive securities:
Options 290,000 290,000 290,000 290,000
Preferred stock 552,000 514,000 552,000 514,000
842,000 804,000 842,000 804,000
Denominator for dilutive earnings per share
assumed conversion 8,990,624 8,612,224 9,006,241 8,612,224
</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, 1998 and 1997, respectively but were not
included in the computation of dilutive earnings per share because the
options' exercise price was greater that the average market price of the
common shares and, therefore, the effect would be antidilutive.
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:
Three months Six months
1999 1998 1999 1998
Sales $ - $185,517 $ - $1,104,411
Cost of goods sold - 187,983 - 946,193
Selling, general and administrative - 31,986 - 440,418
Other - 6,453 - 73,889
Discontinued operations $ - $(40,905) $ - $ (356,089)
11
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1999
(Unaudited)
NOTE E - 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 January 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
General
Water Gas Electric Corporate Consolidated
Sales $ - $ 740,290 $1,956,168 $ - $2,696,458
Cost of goods sold 10,007 427,562 1,553,695 - 1,991,264
Selling, gen. & adm. 7,919 263,272 323,265 417,407 1,011,863
Operating profit(loss) (17,926) 49,456 79,208 (417,407) (306,669)
Interest, net - (18,685) (24,993) 94,448 58,770
Other income(expense) - 25,920 - 7,420 33,340
Net earnings (loss) from
continuing operations $ (17,926) $ 64,691 $ 54,215 $(315,539) $ (214,559)
Assets:
Receivables $ 659 $ 300,351 $1,040,057 $ 78,837 $1,419,904
Inventory $ 423,835 $1,065,411 $2,008,759 $ - $3,498,005
Total assets $ 835,587 $2,083,859 $4,318,541 $13,321,080 $20,559,067
Depreciation $ 1,722 $ 14,333 $ 29,505 $ 2,578 $ 48,138
Additions PP&E $ - $ 20,099 $ 24,050 $ - $ 44,149
</TABLE>
12
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 1999
(Unaudited)
NOTE E - INDUSTRY SEGMENT DATA(Continued):
Six Months Ended January 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
General
Water Gas Electric Corporate Consolidated
Sales $ - $1,494,259 $4,066,199 $ - $5,560,458
Cost of goods sold 29,116 757,132 3,236,000 - 4,022,248
Selling, gen. & adm. 24,709 584,159 646,344 712,711 1,967,923
Operating profit(loss) (53,825) 152,968 183,855 (712,711) (429,713)
Interest, net - (23,028) (51,150) 180,841 106,663
Other income(expense) - 42,743 - 10,031 52,774
Net earnings (loss) from
continuing operations $(53,825) $ 172,683 $ 132,705 $(521,839) $ (270,276)
Depreciation $3,444 $28,666 $58,749 $5,868 $96,727
Additions PP&E $ - $21,046 $42,892 $ - $63,938
</TABLE>
NOTE F - 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 2,604 - 2,604
Balance January 31, 1999 $(528,945) $(424,221) $(953,166)
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.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company, through its subsidiaries, operates within three separate
industries. These are (i) production of atmospheric water, filtration and
enhanced water products; (ii) the manufacture of natural gas measurement
equipment and gas odorization products; and (iii) the manufacture and sale
of metal enclosures and other electrical equipment for use in the electric
utility industry.
Results of Operations
Summary. The Company reported net earnings (loss) from continuing
operations and net earnings (loss) of $(270,276) and $(214,559) for the six
and three months ended January 31, 1999, respectively. This compared to
$400,885 and $44,796 and $(37,058) and $(77,963) for the six and three
months ended January 31, 1998, respectively. Operating income increased by
$613,421 and $319,029 for the six and three month periods, the result of
significantly improved performance in the gas segment in both revenues,
improved margins and reduced selling, general and administrative expenses.
Expenses were also reduced in the water segment. The electric segment
reported slightly reduced revenues and operating profits for both periods.
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 22.14% to 27.66%. Selling,
general and administrative expenses as a relationship to revenues at the
segment level decreased from 28.17% to 22.57% of revenues. Net interest
income was reported both for the six and three months ended January 31,
1999 and 1998 due to earnings on short-term investments and decreased
borrowing.
Increases(decreases) for the three and six months period ended January 31,
1999, as compared with the similar period of 1998, for key operating data
were as follows:
Three Months Ended Six Months Ended
January 31, 1999 January 31,1999
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $ (6,636) (.25) $ 80,582 1.45
Operating Income 319,029 153.17 613,421 185.65
Earnings (loss) from continuing
operations (168,880) (356.47) 655,476 172.21
Net Earnings Per Share (.02) (200.00) (.04) -
14
<PAGE>
The following table represents the changes [increase/(decrease)] in
operating revenues, operating income and net earnings before income taxes
by the respective industry segments when compared to the previous period:
Three Months Ended Six Months Ended
January 31, 1999 January 31,1999
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Water $ - - $ (52,105) (64.66)
Gas 139,082 2,095.87 285,400 354.17
Electric (145,718) (2,195.87) (152,713) (189.51)
$ (6,636) 100.00 $ 80,582 100.00
Operating Income (Loss):
Water $ 119,234 37.37 $ 184,536 30.08
Gas 230,046 72.11 417,123 68.00
Electric (30,251) (9.48) 11,762 1.92
319,029 100.00 613,421 100.00
General Corporate (22,945) 17,963
Other Income (Expense) (464,964) (1,286,860)
Earnings from continuing
operations $(168,880) $ (655,476)
Water revenues for the six months ended January 31, 1998 amounted to
$52,105 which were sales of a few demonstrators of this segments
"Watermaker" product occurring during the first quarter. No revenues were
recorded during fiscal 1999. Expenses were $53,825 and $17,926 for the six
and three months ended January 31, 1999, respectively. This compares to
expenses of $290,466 and $137,160 for the six and three months ended
January 31, 1998, respectively. With the exception of cost associated with
the first quarter revenues, expenses mainly consisted of further
development costs, including a business plan and marketing expenses. While
the Company has been working on this project for sometime, only recently
has any meaningful activity taken place. There is no immediate forecast of
when meaningful revenues can occur.
Gas revenues increased by $285,400 and $139,082 for the six and three
months ended January 31, 1999. Operating income increased by $417,123 and
$230,046 for the six and three months ended January 31, 1999, resulting in
operating profit of $152,968 and $49,456, respectively. Selling, general
and administrative expenses decreased by $(76,824).
15
<PAGE>
Electric revenues decreased for the six and three months ended January 31,
1999 by $(152,713) and $(145,718). Operating profits decreased by
$(11,762) and $(30,251) for the six and three months ended January 31,
1999, respectively. Second quarter revenues in fiscal 1998 were helped by
winter storms affecting eastern Canada, requiring major replacement of
damaged transmission lines which did not occur during the same quarter of
fiscal 1999. The electric segment now consist of only the Canadian meter
socket and pole line hardware product lines selling almost entirely in the
Canadian markets.
With the exception of expense relationships discussed above in the specific
segment discussion, such other relationships remain consistent. Operating
profits increased by 11.12% and 11.81% for the six and three months ended
January 31, 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 $12,347,855 at January
31, 1999, down from current assets of $12,483,093 at July 31, 1998, or a
decrease of $(135,238). Current liabilities decreased by $(155,130),
resulting in a increase in working capital (current assets less current
liabilities) to $9,109,146 at January 31, 1999, from $9,089,254 at July 31,
1998. 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 $2,200,000 and additional equipment line of
$650,000 in Canadian dollars. 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 $174,402 and the term loan balance was $65,987
at January 31, 1999.
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 $197,112 as of January 31, 1999 (also see "Legal
Proceedings").
16
<PAGE>
The Company intends to complete the spin-off of Pioneer Power, Inc.
("Pioneer") in the form of a dividend of approximately 1,600,000 shares or
80% of its current ownership of Pioneer during the third quarter of fiscal
1999. Pioneer is in the final stages of completing their Form 10-SB filing
with the Securities & Exchange Commission and once completed and declared
effective, a record date will be set for the holders of record of ELGT
common.
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.
17
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Ammon & Rizos Co., Inc. Vs. Metal Products, Inc.-Cause No.; 97-06860-C;
District Court Dallas County, Texas. The former manufacturers
representative of Logic, Ammon & Rizos Co, has filed a suit against the
Company, the Company's chairman of the board, Logic, and New Logic Design
Metals, Inc. ("New Logic")(the purchaser of the assets) for unpaid fees,
assumed by New Logic and a previous adjustment in prior fees plus
prospective 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 March 23, 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 has sued the
Company under the Preferred Stock issued by the Company in connection with
its investment in Cooper Manufacturing Corporation ("Cooper") and the
rights pertaining thereto. The suit was filed in the Eastern District of
Illinois (Chicago). The Company filed a counter suit alleging security
violations (10b5) demanding return of its Preferred Stock. In addition,
the Company has been advised by the Cooper's debtor-in-possession that it
has filed a suit claiming preference and other violations by Allied. The
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 Company would
receive its 90,000 shares of Class A $10.00 par value preferred stock in
satisfaction of the judgement. The Company may appeal this decision.
Also, the Company is seeking a third party which might be interested in
acquiring the preferred stock from Allied in exchange for the judgement
with the intention of holding the preferred shares as an investment. If a
third party does not acquire the preferred shares, the Company will retire
the preferred. The Debtor's estate continues to pursue its claims against
Allied. A successful claims by the estate against Allied would benefit the
Company as it is the largest creditor of the estate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)NONE
(b)Reports on Form 8-K.
NONE
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
/s/ Edmund W. Bailey
Edmund W. Bailey
Vice President and
Chief Financial Officer
Dated: March 12, 1999
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 273,728
<SECURITIES> 7,032,408
<RECEIVABLES> 1,431,825
<ALLOWANCES> 11,921
<INVENTORY> 3,498,005
<CURRENT-ASSETS> 12,347,855
<PP&E> 4,400,614
<DEPRECIATION> 2,527,251
<TOTAL-ASSETS> 20,559,067
<CURRENT-LIABILITIES> 3,238,709
<BONDS> 0
0
900,000
<COMMON> 81,576
<OTHER-SE> 14,773,676
<TOTAL-LIABILITY-AND-EQUITY> 20,559,067
<SALES> 5,560,458
<TOTAL-REVENUES> 5,560,458
<CGS> 4,022,248
<TOTAL-COSTS> 5,990,171
<OTHER-EXPENSES> (159,437)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 300,011
<INCOME-PRETAX> (270,276)
<INCOME-TAX> 0
<INCOME-CONTINUING> (270,276)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (270,276)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.03)
</TABLE>
