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, 2000
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 10, 2000, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was
approximately $2,705,850. 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 in the
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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
75244-4410. 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, 2000 July 31, 1999 July 31,1998
Water $ 4,241 $ 2,000 $ 52,576
Gas 2,510,286 2,917,327 2,739,035
Electric 8,761,677 8,397,007 8,151,963
Operating Income (Loss):
Water $ (73,128) $ (631,977) $ (427,596)
Gas (112,366) (228,308) 115,435
Electric 225,339 236,133 292,535
Identifiable Assets:
Water $ 300,079 $ 283,480 $ 832,428
Gas 1,732,599 1,884,695 2,012,325
Electric 4,229,757 4,302,129 4,541,187
Corporate 6,578,681 7,001,986 13,819,588
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Geographic information
Financial data by geographic area for the fiscal year ended July
31, 2000 are as follows:
Operating
(loss) Identifiable
Sales Income Assets
United States $ 2,514,527 $(351,948) $2,479,788
Canada 8,761,677 391,793 3,782,647
Total $11,276,204 $ 39,845 $6,262,435
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, 2000 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,
in-house sales, 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 30 persons, including 1 company
officer and 6 administrative clerical personnel. None of the
employees is represented by a labor union or other labor
association, and relations with its employees are considered
excellent. Reynolds has never experienced nor anticipates a
strike or other work stoppage.
Electric (Hydel)
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.
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.
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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.
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.
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) and Plastics
(Fridcorp)
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.
7
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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.
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.
Item 3. Legal Proceedings.
Unites States of America, Plaintiff Vs Commercial Technology,
Inc., et.al.,Defendant in the United States District Court,
Northern District of Texas. Case number 3-99-CV-2668-X.
Plaintiff brought an action to collect on a defective judgement
to force the sale of an office building which was acquired from
the defendant by ELGT in 1987. The court has ruled that the
transaction the Government relied upon to enforce the judgement
was not a debt and was therefore not entitled to relief under the
Act; and that they are not entitled to a judicial sale of the
property. The Government's only further action is under the
Texas Fraudulent Conveyance Statutes for which there is no
evidence to support such findings. Management believes ELGT has
no significant exposure under this action and will vigorously
defend its position.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Annual meeting of stockholders, March 10, 2000.
(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, 1997, 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, 2000:
High Low
First Quarter 31/32 7/8
Second Quarter 1-1/32 25/32
Third Quarter 1-1/32 31/32
Fourth Quarter 15/16 25/32
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
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, 2000 there were 444 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)
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Years Ended July 31,
2000 1999 1998 1997 1996
Revenues $11,276,204 $11,316,334 $10,943,574 $10,955,395 $10,510,452
Gross Profit 2,458,026 1,935,750 2,887,106 3,174,790 2,630,595
Selling, G&A Expense 3,344,336 3,826,446 4,824,406 4,846,232 3,851,194
Other Income(Expense) 894,624 (2,968,994) 2,461,356 (1,936,111) (2,757,472)
Earnings (Loss) from
Continuing Operations 8,314 (4,803,436) 363,701 (3,394,181) (3,978,071)
Net Earnings (loss) 166,262 (6,353,436) 429,185 9,362,399 (5,032,551)
Net Earnings (loss)
per Share 0.02 (0.79) 0.05 1.15 (0.66)
Weighted Average
Number of Shares
Outstanding 8,380,918 8,148,432 7,909,957 8,085,624 7,635,624
</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>
2000 1999 1998 1997 1996
Total Assets $12,841,116 $13,472,290 $21,205,528 $23,019,133 $12,911,463
Long-Term Obligations 833,500 1,210,254 1,627,650 2,356,140 1,871,151
Shareholders' Equity 9,189,685 8,771,594 16,137,380 16,041,119 6,720,930
</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, 2000, 1999 and 1998.
Summary. The Company reported net earnings (loss) from
continuing operations of $166,262, $(4,803,436) and $363,701 and
net earnings (loss) of $166,262, $(6,353,436) and $429,185 for
fiscal years 2000, 1999 and 1998, 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. Corporate expenses decreased due to a decline in legal
fees associated with the Cooper Manufacturing bankruptcy and
bonuses paid in fiscal 1998.
For the Years Ended July 31,
2000 1999
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
Operating Revenues $ (40,130) (.35) $372,760 3.41
Operating Income 663,997 106.38 (604,526) (3,080.23)
Earnings (Loss) from
continuing operations
before income taxes 4,868,004 100.17 (5,383,746) (1,027.32)
Net Earnings Per Share 0.81 102.53 (0.84) (1,680.65)
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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:
For the Years Ended July 31,
2000 1999
Increase Increase
(Decrease) Percent (Decrease) Percent
Operating Revenues:
Water $ 2,241 5.58 $ (50,576) (13.57)
Gas (407,041) (1,014.30) 178,292 47.83
Electric 364,670 908.72 245,044 65.74
$ (40,130) 100.00 $ 372,760 100.00
Operating Income (Loss):
Water $ 558,849 84.16 $(204,381) 33.81
Gas 115,942 17.46 (343,743) 58.86
Electric (10,794) (1.62) (56,402) 9.33
663,997 100.00 (604,526) 100.00
General Corporate 340,389 651,130
Other Income (Expense) 3,863,618 (5,430,350)
Earnings from Continuing
Operations Before Income
Taxes $4,868,004 $(5,383,746)
Water revenues amounted to $4,241, $2,000 and $52,576 in 2000,
1999 and 1998, respectively which were essentially sales of a few
demonstrators of this segment's "Watermaker" product. Expenses
were $77,369, $633,977 and $480,172 in 2000, 1999 and 1998,
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 has not found 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 $(407,041), $178,292 and
$(396,214) or (13.95)%, 6.51% and (12.64)% in fiscal 2000, 1999
and 1998, respectively. Operating income (loss) was $(112,366),
$(228,308) and $115,435 for fiscal 2000, 1999 and 1998,
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respectively. Declining sales from competitive pricing during
fiscal 2000 resulted in lower margins to cover administrative and
engineering costs. 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 $364,670, $245,044 and
$407,051 during 2000, 1999 and 1998, respectively. Operating
income (decreased) increased by $(10,994), $(56,402) and $131,492
for fiscal 2000, 1999 and 1998, respectively. The operating
profits and margins are materially affected by the U.S. former
employees of Retech's pension plan costs which amounted to
approximately $130,000 during fiscal 2000. 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
was sold on June 30, 2000 and some inventory obsolescent in
Canada.
Gross profit margins were 17.50%, 18.26% and 20.58% for fiscal
2000, 1999 and 1998, with selling, general and administrative
expenses as a percentage of sales for the same period of 14.93%,
15.45% and 16.99%, 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 78.20%, 82.89% and 73.62% for the years
ended July 31, 2000, 1999 and 1998, respectively. Selling,
general and administrative expenses as a percentage of revenues
were 21.44%, 22.62% and 26.56% for the years ended July 31, 2000,
1999 and 1998, respectively. The lower selling, general and
administrative expenses were primarily the result of a reduction
in the water segment's marketing expenses and reduced corporate
overhead.
Liquidity and Capital Resources
Liquidity. Cash flow used by operating activities amounted to
$(701,810), $(755,771) and $(2,957,927) for fiscal years 2000,
1999 and 1998, 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 $7,285,867 at July 31,
2000, down from current assets of $8,173,317 at July 31, 1999.
Current liabilities decreased from fiscal 1999 to fiscal 2000 by
$(672,511), resulting in a decrease in working capital (current
assets less current liabilities) to $4,467,936 at July 31, 2000,
from $4,682,875, a decrease of (4.59%). 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 $1,400,000. The Canadian
credit facility is secured by receivables and inventories of
Hydel.
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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 $40,244 in term debt
and $303,938 in revolving debt at July 31, 2000.
The Company sold one segment in fiscal 1998 receiving
approximately $760,000 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 $120,185, $169,155 and $79,157
during fiscal 2000, 1999 and 1998, 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, amounted to $228,353 as of July 31, 1999. The stock was
retired effective July 31, 2000 at par plus $209,476 which was
applied as a dividend to retained earnings.
Other Business Matters
Accounting for Post-Retirement Benefits. The Company provides no
post-retirement benefits; therefore, FASB No. 106 will have no
impact on the Company's financial position or result of
operations.
Inflation. The Company does not expect the current effects of
inflation to have any effect on its operations in the foreseeable
future. The largest single impact effecting the Company's
overall operations is the general state of the economy and
principally the home construction sector.
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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,
2000, 1999, and 1998 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.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
(a) During fiscal year ended July 31, 2000, the following
persons served as directors of Registrant:
Shares
Beneficiall
Director Owned (%) of
Name and Age Position Since Outstanding
S. Mort Zimmerman (73) Chairman of the Board, 1985 915,973 10.88%
President and Director
Daniel A. Zimmerman (39) Sr. Vice President 1989 390,714 4.64%
and Director
Edmund W. Bailey (58) Vice President, Chief 1994 72,805 0.86%
Financial Officer and
Director
Fred M. Updegraff (66) Vice President, 1987 92,907 1.10%
Treasurer and Director
Dick T. Bobbitt (75) Director 1997 - -
James J. Ling (77) Director 1997 - -
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
16
<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.
17
<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.
18
<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 2000 $252,000(a) $ - $ - - 4,207 - -
Daniel A Zimmerman 2000 $128,154 $ - $ - - 25,000 - $11,116(d)
Edmund W. Bailey 2000 $120,000 $ - $ - - 30,000 - $ 1,200(c)
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 $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)
</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 2000 and 1998, respectively.
(b) Includes bonus shares of Common Stock valued at $1.00.
(c) Company match of 401 (K) employee contributions.
(d) Company match of 401 (K) employee contributions and expense allowances.
1999 Stock Option Grants
NONE
19
<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, 2000 and the aggregate
gains that would have been realized had these options been
exercised on July 31, 2000, even though these options were not
exercised, and the unexercisable options could not have been
exercised, on July 31, 2000.
Number of Shares Value of Unexercised
Covered by Unexercised In-The-Money
Options on 7/31/00 Options as of 7/31/99
Name Exercisable Unexercisable Exercisable(a) Unexercisable
S. Mort Zimmerman 4,207 -0- $ 1,632 -0-
Daniel A. Zimmerman 25,000 -0- $10,950 -0-
Edmund W. Bailey 30,000 -0- $13,140 -0-
(a) Market value of shares covered by in-the-money options on
July 31, 2000 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, 2000.
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, 2000:
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
20
<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 1,505,609 17.88%
(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, 2000.
2000 1999
Interfederal Capital, Inc. $296,653 $49,120
Others 3,669 8,883
$300,322 $58,003
21
<PAGE>
The Company had advanced funds 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"). RCT 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.
22
<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, 2000
and July 31, 1999.
(iii) Consolidated Statements of Operations for the
three years ended July 31, 2000.
(iv) Consolidated Statements of Changes in
Stockholders' Equity for the three years ended
July 31, 2000.
(v) Consolidated Statements of Cash Flows for the
three years ended July 31, 2000.
(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.
23
<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).
24
<PAGE>
(b) Reports on form 8-K
None
25
<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 26, 2000
S. Mort Zimmerman
/s/ Daniel A. Zimmerman Senior Vice President
Daniel A. Zimmermanand Director October 26, 2000
/s/ Edmund W. Bailey Vice President, Chief Financial
Edmund W. Bailey Officer and Director October 26, 2000
/s/ Fred M. Updegraff Vice President, Treasurer
Fred M. Updegraff and Director October 26, 2000
/s/ Marie W. Pazol Secretary October 26, 2000
Marie W. Pazol
26
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC.
AND SUBSIDIARIES
JULY 31, 2000 AND 1999
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 28
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 29-30
CONSOLIDATED STATEMENTS OF OPERATIONS 31-32
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY 33-34
CONSOLIDATED STATEMENTS OF CASH FLOWS 35-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37-59
27
<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,
2000 and 1999, 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, 2000. 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, 2000 and 1999, 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 23, 2000
28
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS
CURRENT ASSETS 2000 1999
Cash and cash equivalents $ 450,267 $ 378,340
Certificates of Deposit, restricted
$862,000 in 2000 and $1,808,000 in
1999 1,963,886 3,263,758
Investments, market 397,225 193,396
Accounts receivable trade, less
allowance for doubtful receivables
of $20,321 in 2000 and $14,048 in 1999 1,926,013 1,606,637
Inventories 2,453,047 2,669,280
Prepaid expenses 95,429 61,906
Total current assets 7,285,867 8,173,317
PROPERTY, PLANT AND EQUIPMENT, net
Property, plant and equipment 3,318,696 4,427,019
Less accumulated depreciation (2,015,455) (2,629,656)
Total property, plant and equipment 1,303,241 1,797,363
OTHER ASSETS
Investment in Pioneer Power Corporation 1,250,000 1,250,000
Investment in Dresser Engineers and
Contractors 1,046,800 1,000,000
Investment in i3Dx.com 500,000 500,000
Investment in equity securities 84,106 84,106
Discontinued operations - 13,439
Notes receivable 896,184 349,148
Goodwill 100,897 107,581
Other 374,021 197,336
Total other 4,252,008 3,501,610
TOTAL ASSETS $12,841,116 $13,472,290
See accompanying notes.
29
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES 2000 1999
Notes payable $ 1,496,081 $ 1,731,202
Accounts payable 987,478 1,302,169
Accrued liabilities 169,269 276,060
Federal income taxes - 27,885
Current maturities of long-term obligations 165,103 153,126
Total current liabilities 2,817,931 3,490,442
LONG-TERM OBLIGATIONS
Long-term obligations, less current
maturities 695,070 833,149
Other 138,430 377,105
Total long-term obligations 833,500 1,210,254
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 5,000,000
shares authorized, 90,000 issued and
outstanding on 1999 - 900,000
Common stock, $.01 par value, 30,000,000
shares authorized, issued 8,343,417 83,434 83,434
Additional paid-in capital 9,258,795 9,258,795
Retained earnings 453,652 496,866
Pension liability adjustment (84,085) (237,825)
Cumulative translation adjustment (512,748) (529,676)
9,199,048 9,971,594
Treasury stock, at cost 8,500 shares (9,363) -
Reserve for preferred stock redemption - (1,200,000)
Total stockholders' equity 9,189,685 8,771,594
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,841,116 $13,472,290
See accompanying notes.
30
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31,
2000 1999 1998
Sales $11,276,204 $11,316,334 $10,943,574
Cost of goods sold 8,818,178 9,380,584 8,056,468
Gross profit 2,458,026 1,935,750 2,887,106
Selling, general and administrative expenses 3,344,336 3,826,446 4,824,406
Operating loss (886,310) (1,890,696) (1,937,300)
Other income and (expenses)
Interest, net 100,304 193,942 286,860
Other (Note 2):
Investment gain (loss) 794,320 (3,201,471) 1,992,648
Minority interest in subsidiary - 46,659 36,346
Other - (8,124) 145,402
894,624 (2,968,994) 2,461,356
Earning (loss) from continuing operations
before income tax 8,314 (4,859,690) 524,056
Provision (credit) for income taxes (157,948) (56,254) 160,355
Earnings (loss) from continuing operations 166,262 (4,803,436) 363,701
Discontinued operations (Note 2):
Earnings (loss) from discontinued operations,
net of $121,070 in tax credits for 1998 - - (235,019)
Gain (loss) on disposal of business segments,
net of taxes of $154,804 in 1998 - (1,550,000) 300,503
NET EARNINGS (LOSS) 166,262 (6,353,436) 429,185
Dividends on Preferred Stock - (63,000) (63,000)
Net earnings or loss applicable to Common
Stock $ 166,262 $(6,416,436)$ 366,185
See accompanying notes.
31
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Years ended July 31,
2000 1999 1998
Earnings (loss) available per common share:
Continuing operations $0.02 $(0.60) $0.04
Discontinued operations - (0.19) 0.01
Net earnings $0.02 $(0.79) $0.05
Earnings (loss) available per common share - assuming dilution:
Continuing operations $0.02 $(0.60) $0.04
Discontinued operations - (0.19) 0.01
Net earnings $0.02 $(0.79) $0.05
See accompanying notes.
32
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended July 31, 2000, 1999 and 1998
Preferred Common Paid-in Retained
stock stock capital earnings
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
Net income for the year - - - 166,262
Pension liability adjustment - - - -
Currency translation adjustments - - - -
Comprehensive income (loss) - - - -
Purchase of treasury stock - - - -
Redemption of preferred stock (900,000) - - (209,476)
Balance at July 31, 2000 $ - $83,434 $9,258,795 $ 453,652
See accompanying notes
34
<PAGE>
<TABLE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
Years ended July 31, 2000, 1999 and 1998
<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, 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
Net income for the year - - - - - 166,262
Pension liability adjustment 153,740 - 153,740 - - 153,740
Currency translation adjustments - 16,928 16,928 - - 16.928
Comprehensive income (loss) - - - - - 336,930
Purchase of treasury stock - - - - (9,363) (9,363)
Redemption of preferred stock - - - 1,200,000 - 90,524
Balance at July 31, 2000 $ (84,085) $(512,748) $(596,833) $ - $ (9,363) $ 9,189,685
</TABLE>
See accompanying notes
34
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
2000 1999 1998
Increase (decrease) in cash:
Cash flows from operating activities:
Net earnings (loss) $ 166,262 $(6,353,436) $ 429,185
Adjustments to reconcile net earnings(loss)
to net cash provided by operating
activities:
Discontinued operations - 1,550,000 235,019
Depreciation of property, plant
and equipment 197,055 279,065 235,098
Issuance of stock for services - - 338,500
Minority interest in subsidiary - (46,659) (36,345)
Amortization of goodwill and patents 6,684 6,684 6,684
Gain on sale of business segment - - (300,503)
Gain on sale of assets (58,598) - (95,943)
Deferred income (70,559) (82,390) (112,303)
Gains/Losses on investments (665,507) 3,414,843 (1,992,648)
Changes in assets and liabilities:
Accounts receivable (319,376) 96,229 (185,890)
Inventories 216,233 530,118 (131,533)
Prepaid expenses (33,523) 37,873 (6,381)
Other assets 55,272 (279,553) (3,509)
Accounts payable (314,691) 132,931 (212,805)
Accrued liabilities (83,066) 128,243 (964,725)
Federal income taxes (27,862) (169,719) (159,828)
Net cash used in operating activities (931,676) (755,771) (2,957,927)
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment - - -
Purchase of property, plant and
equipment (120,185) (169,155) (79,157)
Investments in affiliates (242,319) - (479,000)
Investments 414,878 4,669,318 (2,857,500)
Certificate of deposits 1,299,872 (3,810,842) (6,938,964)
Proceeds on sale of business segment - - 951,295
Net cash provided by (used in) investing
activities 1,352,246 689,321 (9,403,326)
See accompanying notes.
35
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended July 31,
2000 1999 1998
Cash flows from financing activities:
Issuance of common stock $ - $ 100,336 $ -
Payments on long-term obligations (112,227) (49,307) (1,016,552)
Purchase of treasury stock (9,363) (114,455) (811,173)
Increase (decrease) in notes payable (235,121) (31,208) 298,928
Net cash used in financing activities (356,711) (94,706) (1,528,797)
Effect of exchange rate changes on cash 8,068 (2,590) (71,281)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 71,927 (163,746)(13,961,331)
Cash and cash equivalents-beginning of year 378,340 542,086 14,503,417
Cash and cash equivalents - end of year $ 450,267 $ 378,340 $ 542,086
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 476,649 $ 351,141 $ 344,701
Income tax $ - $ - $344,704
See accompanying notes.
36
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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.
37
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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.
38
<OAGE>
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 1999 consolidated
financial statements to conform to the 2000 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.
39
<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. 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 of discontinued
operations were as follows:
1999 1998
Sales $ - $1,104,411
Cost of goods sold - 946,193
Selling, general and administrative - 440,418
Other (1,550,000) 347,684
Discontinued operations $(1,550,000) $ 65,484
3
INVENTORIES
Inventories consisted of the following at July 31,:
2000 1999
Raw materials $ 945,411 $1,118,659
Work-in-process 320,926 370,982
Finished goods 1,186,710 1,179,639
$2,453,047 $2,669,280
40
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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,:
2000 1999
Land $ 179,677 $ 234,822
Buildings and improvements 1,115,219 2,267,145
Machinery and equipment 1,679,566 1,592,857
Furniture, fixtures & equipment 344,234 332,195
3,318,696 4,427,019
Less accumulated depreciation (2,015,455) (2,629,656)
$ 1,303,241 $ 1,797,363
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 and
Conte Glacz Industries, Inc., ("CGI") which manufactures
electrical control and power distribution equipment. As of
December 31, 1999, Pioneer Ltd.'s and CGI's audited financial
information reflected total assets of approximately $15,500,000
with corresponding revenues for the year then ended of
approximately $36,800,000. As part of the agreement the Company
intends to 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.
41
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
OTHER ASSETS (CONTINUED)
The Company has loaned Dresser Engineers and Contractors, Inc.
("Dresser") $1,046,800 as of July 31, 2000. The Company expects
this loan together with interest to be repaid in full during
fiscal 2001. A portion of the note to Dresser is guaranteed by
Dresser's principal shareholder and is collateralized by
approximately 1,500,000 shares of a public company's common stock
which is currently trading around $2.50 per share.
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 was not completed, the
note was 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. Afritel SPRL began operation during
fiscal 2000 in the DRC. It is anticipated that Shaz will seek to
acquire the remaining 40% of Afritel SPRL in currently does not
own, although there can be no assurance such a transaction will
proceed. In the event of a transaction, the Company would expect
to receive shares in a public company which could be sold to
recover some or all its previous investment in Afritel.
42
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A note in the amount of $417,074 is due from Superior Magnetics,
Inc. in monthly installments of $5,110 which includes interest at
6.5%, through December 1, 2004 when the then remaining principal
and interest is due. A note in the amount of $447,110 is due
from the purchaser of Retech's Paris, Texas dormant manufacturing
facility. The note provides for monthly payments of $2,981
interest only for twelve months and then forty-eight successive
monthly payments of $4,272, which includes principal and
interest. The balance is due August 1, 2005. The maker of the
note may prepay the note at any time during the first year and
receive a $70,000 reduction in the principal. The note bears
interest at 8%.
6
NOTES PAYABLE
Notes payable consisted of the following at July 31,:
2000 1999
Note payable, CIT (a) $ 303,939 $ 264,023
Note payable, bank (b) 1,008,600 902,904
Note payable, bank (c) - 380,733
Note payable, bank (d) 183,542 183,542
$1,496,081 $1,731,202
(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 $1,400,000, 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%, secured by a $355,000
certificate of deposit.
43
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES PAYABLE (CONTINUED)
Information relating to short-term borrowing is as
follows:
2000 1999
Balance at end of year $1,496,081 $1,731,202
Maximum borrowing $1,782,394 $1,849,704
Average balance $1,384,813 $1,727,886
Average effective interest rate 9.8% 8.3%
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,:
2000 1999
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. $ 40,244 $ 57,406
44
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
LONG-TERM OBLIGATIONS (CONTINUED)
2000 1999
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. 519,832 534,616
Note payable to a bank, bearing interest at
8.75%,in monthly principal installments of
$8,100 until August 2002, secured by
machinery and equipment and land and
building 201,720 294,772
Various other installment notes and
capitalized lease obligations. 98,377 99,481
860,173 986,275
Less current maturities (165,103) (153,126)
$ 695,070 $ 833,149
The prime rate was 9.5% and 8.75% at July 31, 2000 and 1999,
respectively.
The aggregate annual principal payments are as follows:
Year Ending
July 31,
2001 $165,103
2002 159,465
2003 37,160
2005 47,683
2005 23,679
Thereafter 427,083
45
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
ACCRUED LIABILITIES
Accrued liabilities consisted of the following at July
31:
2000 1999
Payroll $ 69,063 $103,917
Commissions 29,648 25,560
Pension plan - (17,943)
Vacation pay 28,937 28,066
Taxes 7,894 75,555
Interest 30,365 51,210
Miscellaneous 3,362 9,695
$169,269 $276,060
9
COMMITMENTS AND CONTINGENCIES
Total rent expense for the years ended July 31, 2000, 1999 and
1998, was $119,000, $126,000 and $138,000, respectively,
consisting primarily of minimum rentals.
Litigation:
Ammon & Rizos Co., Inc. the former manufacturers representative
of Logic Design Metals, Inc. ("Logic"), 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. This case was settled by all parties on November 17, 1999
with a payment of $500,000 to the plaintiff of which the Company
contributed $200,000 to the settlement. The balance of $300,000
was paid by New Logic. The Company had previously sold (1997)
its metal fabrication business to New Logic.
46
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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 pursued the
sale of the preferred stock to a third party and on July 31,
2000, the Company retired the preferred stock.
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.
47
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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 was 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 was entitled to one vote
per share equal to the voting rights of the common shareholders.
The Company had 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.
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 lawsuit between Allied and the
Company was 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 pursued the sale of the preferred stock
to a third party, and on July 31, 2000, the Company retired the
preferred stock.
48
<PAGE>
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY (CONTINUED)
The individuals whose stock was pledged and who personally
guaranteed the Allied Note, petitioned the court on behalf of
Cooper to file for protection under the U.S. Bankruptcy laws in a
Houston, Texas court. 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. As of July 31, 2000, all amounts owed or
due the Company have been settled and paid.
The following table sets forth the computation of basic and
diluted earnings per share:
2000 1999 1998
Numerator
Net income (loss)from continuing
operations $166,262 $(4,803,436) $363,701
Preferred stock dividends - (63,000) (63,000)
Numerator for basic earnings per share
Net income (loss) available to common
stockholders continuing operations 166,262 (4,866,436) 300,701
Discontinued operations - (1,550,000) 65,484
Net income (loss) available to
common stockholders $166,262 $(6,416,436) $366,185
Effect of dilutive securities
Preferred stock dividends $ - $ 63,000 $ 63,000
49
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
STOCKHOLDERS' EQUITY (CONTINUED)
2000 1999 1998
Numerator for diluted earnings per share
Net income (loss) available to common
stockholders after assumed conversion
continuing operations $166,262 $(4,803,436) $363,701
Discontinued operations - (1,550,000) 65,484
Net income (loss) available to
common stockholders $166,262 $(6,353,436) $429,185
Denominator
Denominator for basic earnings per share
weighted-average shares 8,339,792 8,148,432 7,909,957
Effect of dilutive securities:
Options 41,126 - 212,700
Preferred stock - - 489,130
41,126 - 701,830
Denominator for dilutive earnings per share
assumed conversion 8,380,918 8,148,432 8,611,787
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.
50
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS (CONTINUED)
Pension expense for the years ended July 31,:
2000 1999 1998
Service cost $ - $ - $ -
Interest cost 68,170 69,073 64,523
Actual return on assets held for the plan 52,605) (46,703) (39,557)
Net amortization of prior service cost,
transition liability and net gain 23,446 62,874 38,323
Pension expense $39,011 $85,244 $63,289
The following sets forth the funded status of the plans and the
amounts shown in the accompanying consolidated balance sheets at
July 31,:
2000 1999
Pension benefit obligations
Vested $881,095 $908,163
Non-vested - -
Projected benefit obligation 881,095 908,163
Fair value of assets held in plan 840,043 634,858
Unfunded excess of projected benefit obligation
over plan assets $ 41,052 $273,305
Unrecognized net transition obligation $ - $ -
Unrecognized prior service costs 52,529 66,928
Unrecognized net loss 84,085 237,825
Pension (asset) liability recognized (95,562) (31,448)
Accrued pension liability $ 41,052 $273,305
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
BENEFIT PLANS (CONTINUED)
The following is a summary of the changes in the fair value of
Plan assets for each year:
2000 1999
Fair value of Plan asset at July 31, $634,858 $555,438
Actual return on Plan assets 170,892 154,840
Company contributions 103,125 -
Benefits paid (68,832) (75,420)
Fair value of Plan assets at July 31, $840,043 $634,858
The following is a summary of the components of net benefit cost
for each year:
2000 1999
Interest cost $ 68,170 $ 69,073
Expected return on Plan assets (52,605) (46,703)
Amortization of transition obligation - 48,473
Amortization of prior service cost 14,399 14,401
Amortization losses/gains 9,047 -
Net periodic benefit cost $ 39,011 $ 85,244
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 $136,614 and $304,753, intangible
assets of $52,529 and $66,928 and a stockholders' equity
reduction of $84,085 and $237,825 as of July 31, 2000 and 1999,
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.
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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% and 7.75 at July 31,
2000 and 8.5% and 7.0% at July 31, 1999, 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, 2000, 1999
and 1998 were $5,787, $6,301 and $6,619, 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,:
2000 1999 1998
Options outstanding at beginning of year 77,207 352,000 352,000
Granted - - -
Terminated - (62,000) -
Exercised - (212,793) -
Options outstanding at end of year 77,207 77,207 352,000
Options exercisable at end of year 77,207 77,207 62,000
Exercise price per share $.50 to $.50 to $.50 to
$.55 $.55 $2.75
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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,:
2000 1999 1998
Expected provision (benefit) for federal
income taxes $ 2,800 $(2,180,000) $189,000
Expected provision for state income taxes - (256,000) 22,000
Refund prior years tax (157,948) - -
Unavailable loss carrybacks - 2,379,746 -
Other (2,800) - (16,911)
Income taxes (benefit) $(157,948) $ (56,254) $194,089
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,:
2000 1999 1998
Income from continuing operations $(157,948) $ (56,254) $160,355
Earnings from discontinued operations - - (121,070)
Gain on sale of discontinued operations - - 154,804
$(157,948) $ (56,254) $194,089
Income tax expense (benefit) consisted of the following:
Current $(157,948) $ (269,626) $194,089
Deferred - 213,372 -
$(157,948) $ (56,254) $194,089
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.
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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,:
2000 1999
Net operating loss carryfoward $(1,165,000) $ (913,000)
Depreciation - U. S. 85,000 80,000
Provision for losses (1,195,000) (1,195,000)
Valuation allowance 2,275,000 2,028,000
$ - $ -
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,:
2000 1999
Interfederal Capital, Inc. $296,953 $49,120
Others 3,669 8,883
$300,322 $58,003
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ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
RELATED PARTY TRANSACTIONS (CONTINUED)
The Company had advanced funds 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"). RCT 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.
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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,:
2000 1999 1998
Sales to unaffiliated customers:
Water $ 4,241 $ 2,000 $ 52,576
Gas 2,510,286 2,917,327 5,739,035
Electric 8,761,677 8,397,007 8,151,963
$11,276,204 $11,316,334 $10,943,574
Operating income (loss):
Water $ (73,128)$ (631,977)$ (427,596)
Gas (112,366) (228,308) 115,435
Electric 225,339 236,133 292,535
39,845 (624,152) (19,626)
General corporate expenses (926,155) (1,266,544) (1,917,674)
Other income (expense), net 894,624 (2,968,994) 2,461,356
Earnings (loss) from continuing
operations before income taxes $ 8,314 $(4,859,690)$ 524,056
Identifiable assets:
Water $ 300,079 $ 283,480 $ 832,428
Gas 1,732,599 1,884,695 2,012,325
Electric 4,229,757 4,302,129 4,541,187
6,262,435 6,470,304 7,385,940
General corporate assets 6,578,681 7,001,986 13,819,588
Total assets $12,841,116 $13,472,290 $21,205,528
57
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION (CONTINUED)
2000 1999 1998
Capital expenditures:
Water $ - $ - $ 12,991
Gas 65,148 113,343 10,257
Electric 49,355 55,812 54,531
General corporate 5,682 - 1,378
$120,185 $169,155 $ 79,157
Depreciation and amortization:
Water $ 4,757 $ 6,825 $ 5,157
Gas 68,829 58,380 55,899
Electric 110,766 201,488 161,670
General corporate 12,372 12,372 12,372
$197,055 $279,065 $235,098
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 $1,547,000, $1,360,000 and $1,666,000 in sales for
the year ended July 31, 2000, 1999 and 1998, respectively.
Geographic information
Financial data by geographic area for the years ended July 31,:
2000
Operating
(loss) Identifiable
Sales Income Assets
United States $ 2,514,527 $(351,948) $2,479,788
Canada 8,761,677 391,793 3,782,647
Total $11,276,204 $ 39,845 $6,262,435
58
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
SEGMENT INFORMATION (CONTINUED)
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
15
FOURTH QUARTER RESULTS
During the fourth quarter of fiscal 1999, the Company recorded
the following adjustments which are unusual and non-recurring in
nature: (i) provided a reserve against various Company
investments, including Afritel, 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).
59
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