-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GuL+BR0fpLn+wavo5Nygj6yApGGWEix5Yf2GgY9idiEK5yUGg27VA5Rn1CXm4v6n 9uuc9oyYiSJ+rRiN6bgoJg== 0001010549-05-000187.txt : 20050322 0001010549-05-000187.hdr.sgml : 20050322 20050322171937 ACCESSION NUMBER: 0001010549-05-000187 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050131 FILED AS OF DATE: 20050322 DATE AS OF CHANGE: 20050322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRIC & GAS TECHNOLOGY INC CENTRAL INDEX KEY: 0000785819 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 752059193 STATE OF INCORPORATION: TX FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14754 FILM NUMBER: 05697384 BUSINESS ADDRESS: STREET 1: 13636 NEUTRON RD CITY: DALLAS STATE: TX ZIP: 75244 BUSINESS PHONE: 2149348797 MAIL ADDRESS: STREET 1: 13636 NEUTRON ROAD CITY: DALLAS STATE: TX ZIP: 75244-4410 10QSB 1 elgt10qsb013105.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: January 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________to________________ Commission File:# 0-14754 ELECTRIC & GAS TECHNOLOGY, INC. (Exact Name of Registrant as specified in its Charter) TEXAS 75-2059193 (State or other Jurisdiction of I R S. Employer incorporation or organization) Identification No.) 3233 West Kingsley Road, Garland, Texas 75041 (Address of Principal Executive Offices) (Zip Code) (972) 840-3223 (Issuer's telephone number) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-2 of the Exchange Act). Yes [_] No [X] The number of shares outstanding of each of the Issuer's Classes of Common Stock, as of January 31, 2005: Common - $0.01 Par Value - 6,997,034 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Index to Form 10-QSB For the Quarter Ended January 31, 2005 Part I - Financial Information Page Item 1. Condensed Consolidated Financial Statements: (a) Condensed Consolidated Balance Sheets at January 31, 2005 (unaudited) and July 31, 2004 3 (b) Condensed Consolidated Statements of Operations for the three and six months ended January 31, 2005 (unaudited) and January 31, 2004 (unaudited) 4 (c) Condensed Consolidated Statement of Changes in Stockholders' Deficit for the six months ended January 31, 2005 (unaudited) 5 (d) Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2005 (unaudited) and 2004 (unaudited) 6-7 (e) Notes to Condensed Consolidated Financial Statements (unaudited) 8-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 Item 3. Controls and Procedures 17-18 Part II - Other Information Item 1. Legal Proceedings 19 Item 6. Exhibits and Reports on Form 8-K 20 Signature (Pursuant to General Instruction E) 20 All other items called for by the instructions are omitted as they are either not applicable, not required, or the information is included in the Condensed Financial Statements or Notes thereto.
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) January 31, 2005 July 31, 2004 ---------------- ---------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 354,689 $ 37,139 Accounts receivable, net 1,029,552 1,069,163 Inventories 1,242,538 1,066,706 Prepaid expenses 50,419 38,092 Receivable from sale of discontinued operations -- 3,731,209 ---------------- ---------------- Total current assets 2,677,198 5,942,309 ---------------- ---------------- PROPERTY, PLANT AND EQUIPMENT, net 1,705,890 1,343,123 ---------------- ---------------- OTHER ASSETS Certificates of deposit, pledged 173,907 501,016 Assets held for sale 759,155 752,865 Due from affiliates - net 238,407 271,654 Other 108,088 72,282 ---------------- ---------------- Total other 1,279,557 1,597,817 ---------------- ---------------- TOTAL ASSETS $ 5,662,645 $ 8,883,249 ================ ================ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Notes payable $ 1,288,653 $ 1,486,698 Accounts payable 1,104,155 1,288,192 Accrued liabilities 135,900 660,897 Current maturities of long-term obligations 209,113 298,172 Current portion of minimum pension liability 409,555 373,555 Current liabilities of discontinued operations 11,035 2,517,356 ---------------- ---------------- Total current liabilities 3,158,411 6,624,870 ---------------- ---------------- LONG-TERM OBLIGATIONS Long-term obligations, less current maturities 1,476,572 1,417,236 Minimum pension liability 1,025,834 1,037,134 ---------------- ---------------- Total long-term obligations 2,502,406 2,454,370 ---------------- ---------------- Minority interest in subsidiary 52,892 -- ---------------- ---------------- STOCKHOLDERS' DEFICIT Preferred stock, $10 par value, 5,000,000 shares authorized, none issued Common stock, $.01 par value, 30,000,000 shares authorized, 7,062,034 issued, and 6,997,034 outstanding 70,620 70,620 Additional paid-in capital 9,611,301 9,611,301 Accumulated deficit (8,245,660) (8,390,587) Pension liability adjustment (1,410,689) (1,410,689) ---------------- ---------------- Stockholders' equity (deficit) before treasury stock 25,572 (119,355) Treasury stock, 65,000 shares at cost (76,636) (76,636) ---------------- ---------------- Total stockholders' deficit (51,064) (195,991) ---------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 5,662,645 $ 8,883,249 ================ ================
See accompanying notes to the condensed consolidated financial statements. 3
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended Six months ended January 31, January 31, -------------------------------------------------------- 2005 2004 2005 2004 -------------------------------------------------------- Sales $ 2,463,714 $ 1,345,545 $ 4,610,915 $ 2,978,006 Cost of goods sold 1,724,367 1,099,235 3,219,124 2,309,866 -------------------------------------------------------- Gross profit 739,347 246,310 1,391,791 668,140 Selling, general and administrative expenses 558,123 649,946 1,106,095 1,351,415 -------------------------------------------------------- Income (loss) from operations 181,224 (403,636) 285,696 (683,275) -------------------------------------------------------- Other income (expense) Interest, net (41,752) (36,688) (104,539) (67,436) Investment gain (loss) -- 51,138 -- 143,045 Loss of civil action (49,000) -- (49,000) -- Other, net 14,624 11,952 26,290 20,875 -------------------------------------------------------- Total other income (expense) (76,128) 26,402 (127,249) 96,484 -------------------------------------------------------- Income (loss) from continuing operations before minority interest 105,096 (377,234) 158,447 (586,791) Minority interest in subsidiary (14,715) -- (52,892) -- -------------------------------------------------------- Income (loss) from continuing operations 90,381 (377,234) 105,555 (586,791) Discontinued operations, net of tax -- 31,156 39,372 114,133 -------------------------------------------------------- Net income (loss) $ 90,381 $ (346,078) $ 144,927 $ (472,658) ======================================================== Income (loss) available per Common share: Income (loss) from continued operations $ 0.01 $ (0.05) $ 0.02 $ (0.09) Income from discontinued operations -- 0.00 0.00 0.02 -------------------------------------------------------- Net income (loss) $ 0.01 $ (0.05) $ 0.02 $ (0.07) -------------------------------------------------------- Weighted average common shares outstanding 6,997,034 6,887,734 6,997,034 6,852,020 ========================================================
See accompanying notes to condensed consolidated financial statements. 4
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT For the six months ended January 31, 2005 (Unaudited) Common Accumulated Stock Other Shares Common Paid-in Accumulated Comprehensive Treasury Issued Stock Capital Deficit Loss Stock Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at July 31, 2004 7,062,034 $ 70,620 $ 9,611,301 $(8,390,587) $(1,410,689) $ (76,636) $ (195,991) Net income -- -- -- 144,927 -- -- 144,927 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at January 31, 2005 7,062,034 $ 70,620 $ 9,611,301 $(8,245,660) $(1,410,689) $ (76,636) $ (51,064) =========== =========== =========== =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 5
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended January 31, 2005 2004 ------------ ------------ Cash flows from operating activities: Net income (loss) $ 144,927 $ (472,658) Discontinued operations, net of tax (39,372) (114,133) ------------ ------------ Income (loss) from continuing operations 105,555 (586,791) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 130,724 137,371 Gain on sale of assets -- (19,873) Gains on investments -- (123,172) Loss of lawsuit 49,000 -- Changes in assets and liabilities: Accounts receivable 39,611 (1,757) Inventories (175,832) (182,041) Prepaid expenses (12,327) (24,066) Other assets (35,806) 29,547 Accounts payable (184,037) 255,490 Accrued liabilities (573,997) 66,543 Accrued pension plan 24,700 -- ------------ ------------ Net cash used in operating activities (632,409) (448,749) ------------ ------------ Cash flows from investing activities: Proceeds from sales or maturities of investments -- 395,335 Purchase of property, plant and equipment (493,491) (89,169) Investments in affiliates 33,247 (90,513) Idle facility (6,290) -- Certificates of deposits 327,109 18,000 ------------ ------------ Net cash provided by investing activities (139,425) 233,653 ------------ ------------ Cash flows from financing activities: Payments on long-term obligations (29,723) (126,373) Net change in notes payable and long-term debt (198,045) 95,509 Minority interest in subsidiary 52,892 -- ------------ ------------ Net cash used in financing activities (174,876) (30,864) ------------ ------------ Net cash provided by discontinued operations 1,264,260 274,178 ------------ ------------ Net increase (decrease) in cash and cash equivalents 317,550 28,217 Cash and cash equivalents - beginning of period 37,139 46,352 ------------ ------------ Cash and cash equivalents - end of period $ 354,689 $ 74,569 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 111,242 $ 125,506 ------------ ------------ Taxes paid in discontinued operations during the period $ -- $ 46,285 ------------ ------------
See accompanying notes to condensed consolidated financial statements. 6 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) During the six months ended January 31, 2005, the Company received the cash payment for the sale of the assets of Hydel Enterprises, Inc. for $3,731,209 U.S. From these proceeds, the company paid vendors, employees and other expenses related to the Hydel operation and sale of $2,506,321, leaving a net of $1,224,888. These funds have been used to reduce notes payable, accounts payable and accrued liabilities of the Company's continuing operations. Non-cash activities: During the six months ended January 31, 2005, the Company recognized the settlement of litigation with UCSY by conveyance of $25,000 in cash and 150,000 shares of the Company's restricted stock valued at $0.16 per share. The settlement also includes transference of the 91.5% ownership of Atmospheric Water Technology with no assets or liabilities, other than expired patents and other intangible assets. See accompanying notes to condensed consolidated financial statements. 7 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE A - Business and basis of presentation Business Electric & Gas Technology, Inc.("the Company" or "ELGT") was organized as a corporation under the laws of the State of Texas on March 18, 1985, to serve as a holding company for operating subsidiary corporations. The Company continued in this manner until 2004, at which time the decision was made for the corporate entity to become more actively involved in the management of subsidiary operations. The ultimate objective of this change is a more coordinated use of management expertise, technical resources and operating capabilities that support a strategy of long term growth in shareholder value. Near the end of fiscal 2004, the Company relocated all its operations, including corporate staff, into a single 144,000 square foot facility, which it already occupied. In addition to achieving improvements in communications and utilization of resources, this also allowed the Company to proceed with the sale of two commercial properties. The Company presently is the owner of 100% of Reynolds Equipment, Inc (Reynolds), and 80% of Logic Metals Technology Inc (LMT).. Through these subsidiaries, the Company operates in two distinct business segments: (1) Utility Products, and (2) Contract Manufacturing. In the Utility Products sector, Reynolds designs, manufactures and markets products for natural gas measurement, metering and odorization primarily for municipalities and publicly owned utility companies. Materials consist of proprietary circuit designs utilizing industry standard components, industry standard probes, and hardware. The manufacture of the circuit boards utilized in these designs is readily available through a large number of local, low cost circuit board assembly operations. All other items are available through multiple vendor sources. The products are primarily marketed directly by the Company and through manufacturers' representatives. In the Contract Manufacturing sector, LMT provides precision sheet metal fabrication and assembly for a diverse customer base, including telecom and networking cabinetry, electrical controls, and other functional and aesthetic sheet metal applications. The Company uses some manufacturers' representatives, but has primarily grown the revenue from existing customers. Raw material generally consists of standard sheet metal and general purpose fittings and connectors available from general hardware and steel distributors. One major customer represented over 50% of the revenue for LMT for the year ended July 31, 2004. LMT has several new marketing initiatives in place to expand its customer base during the current fiscal year and believes that these efforts will reduce its dependency on any one customer or industry. The Company has employed a strategy to merge operational functions wherever possible with the short term objective of operating a single manufacturing group serving both internal (Reynolds) and external (Contract Manufacturing) customers through a common organization. The Company has concluded that the active pursuit of sales of the Watermaker(TM) products in its Atmospheric Water Technology (AWT) subsidiary, where it holds a 91.5% ownership, has not provided acceptable recurring revenue, and has diverted the attention of management as well as other resources. Therefore, in the first quarter of this fiscal year the Company ceased actively pursuing the sale of Watermaker(TM) products, and in the second quarter concluded the disposal of this asset as described in Non-cash activities above. 8 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Interim Financial Statements The accompanying condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission ("SEC") for inclusion in the Company's quarterly report on Form 10-QSB. The accompanying financial statements reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods. The statements were prepared using accounting principles generally accepted in the United States of America. As permitted by the SEC, the statements depart from generally accepted accounting disclosure principles in that certain data is combined, condensed or summarized that would otherwise be reported separately. Certain disclosures of the type that were made in the Notes to Financial Statements for the year ended July 31, 2004 have been omitted, even though they are necessary for a fair presentation of the financial position at January 31, 2005 and the results of operations and cash flows for the periods then ended. NOTE B - DISCONTINUED OPERATIONS On July 30, 2004, the Company consummated the sale of assets of its wholly owned subsidiary located in Canada, Hydel Enterprises, Inc. The sale included current assets and plant, property and equipment. The proceeds were transferred to the Company on August 5, 2004, and the liabilities were paid. In accordance with APB Opinion No. 30, as amended by SFAS No. 144, the assets and liabilities of Hydel have been disclosed separately in the balance sheets as assets and liabilities of discontinued operations. As the result of a lawsuit by UCSY, the Company has agreed to transfer its 91.5% ownership of AWT, Inc and its associated intellectual property to UCSY, with no physical assets or liabilities. In accordance with APB Opinion No. 30, as amended by SFAS No. 144, the assets and liabilities of AWT have been disclosed separately in the balance sheets as assets and liabilities of discontinued operations. NOTE C - INVENTORIES Inventories are comprised as follows: January 31, 2005 July 31, 2004 ---------------- ---------------- Raw materials $ 675,046 $ 576,080 Work in process 178,574 128,259 Finished goods 388,918 362,367 ---------------- ---------------- Total inventory $ 1,242,538 $ 1,066,706 ================ ================ Inventories, consisting 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. The Company reviews inventory usage by line item at least annually, and accents material as potentially slow moving when usage for the 9 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES prior 12 months is less than the current "on-hand" quantity. In subsequent review, alternative and substitute uses are identified, and the slow moving quantity is adjusted. The carrying value of excess inventory is adjusted for financial reporting purposes. Obsolete inventory is associated with obsolete products, no longer supported by the Company. Obsolete inventory is identified when a product is determined to be obsolete, and will no longer be supported by the Company. Customers are notified of final opportunity to purchase the product and spares, and the inventory is subsequently destroyed and/or sold as scrap. NOTE D- NOTES PAYABLE AND LONG-TERM OBLIGATIONS The Company has utilized Certificates of Deposit, which were being used as collateral for notes payable, to terminate those notes in the amount of $331,558. During the six months ended January 31, 2005, the Company repaid a Bridge loan in the amount of $200,000. The Company has refinanced a revolving credit agreement collateralized by accounts receivable and inventory with a major regional bank. The new line has a lending cap of $1,750,000 as compared to the previous cap of $850,000. NOTE E - IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS HELD FOR SALE The Company reviews for impairment, long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair market value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell, at the date management commits to a plan of disposal and are classified as assets held for sale. During the fourth quarter of fiscal 2004, the Company actively began marketing for sale, the corporate facility, located in Dallas, Texas and the Reynolds' facility, located in Garland, Texas, in an effort to consolidate operations and reduce costs. In addition, the Company also included in assets held for sale, an idle facility located in Paris, Texas. Although none of these properties have been sold to date, there has been significant interest in each of them. Currently the corporate facility in Dallas, Texas has been fully leased and a portion of the idle facility in Paris, Texas has been leased, both to un-affiliated tenants. The total carrying value of the assets held for sale as of January 31, 2005 is the net book value of $752,865 and is included in long-term assets. Based on appraisals and independent comparative sales reports, the Company believes that the fair market value for these assets exceeds $1.4 million. 10 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES The following is the carrying value of assets held for sale and the corresponding liabilities at January 31, 2005: Carrying Current Long-term Total value liabilities liabilities Liabilities ----------- ----------- ----------- ----------- Corporate building $ 227,423 $ 459,936 $ -- $ 459,936 Garland building 84,622 15,492 348,327 363,819 Paris building 447,110 17,174 285,442 302,616 ----------- ----------- ----------- ----------- Total $ 759,155 $ 492,602 $ 633,769 $ 1,126,371 =========== =========== =========== =========== NOTE F - CONTINGENCIES The sale of the Company's former subsidiary Superior Switchboard and Devices Inc. (Superior) was completed in 1996. Consideration received from this sale included a note receivable of approximately $1,250,000. The surviving business of Superior, renamed Retech, Inc., continued to own an 80,000 square foot manufacturing facility in Paris, Texas and continued to be responsible for the frozen Defined Benefit Pension Plan for Bargaining Employees (the "Plan") 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. The maker defaulted on the $1.25 million note. The Company sued for collection and subsequently entered into a Settlement Agreement. Again the maker failed to perform under this Agreement and has caused the Company to pursue further recourse. Legal proceedings are ongoing. Failure to collect on the note has in part impaired the Company's ability to meet minimum funding requirements as a portion of the proceeds would have been used by the Company to support the Plan. The entire note was written off by the Company during FY 2002 and no portion of it was ever booked as an asset of the Plan. The Plan began experiencing deficiencies when its asset values were diminished by poor stock market conditions. Poor financial performance of the Company over consecutive years also contributed to the condition of the Plan. Since, 2001, the Company has struggled to keep the Plan in line with minimum funding requirements. As the result of Retech's non-liquid status, it has been unable to currently fund the annual pension liability. The Company has recognized a minimum pension liability for the under-funded plan. 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 Plan's pension liability as of July 31, 2004, the date of the last actuarial valuation, was $1,177,342, intangible assets were $9,326 and a stockholders' equity reduction of $1,168,016. The Company has accrued $36,000 for the current year, through the quarter ended January 31, 2005. Current management recognizes the condition of the Plan and is working with the IRS to enter into a Closing Agreement that brings the plan into acceptable funding status. An important element to the Agreement is an in-kind contribution of a stock and bond portfolio owned by an affiliate and other tangible assets to include the real estate owned by the Company in Paris, Texas. 11
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES The Company is committed to restoring the plan to full compliance. This is a stepwise process, currently focused on the Closing Agreement and meeting minimum funding requirement. Once this step is completed the Company will address any other matters of compliance related to the Plan. The inability to resolve these matters in a satisfactory manner could have a severely negative impact on the Company's performance and future. The Closing Agreement and the aforementioned in-kind contributions and related transactions are expected to be finalized on or before April 15, 2005 and reported in final detail in future filings. NOTE G - INDUSTRY SEGMENT DATA The Company's current business is primarily comprised of two industry segments: (i) In the Utility Products segment, Reynolds designs, manufactures and markets products for natural gas measurement, metering and odorization primarily for municipalities and publicly owned utility companies. and (ii) In the Contract Manufacturing segment, LMT provides precision sheet metal fabrication and assembly for a diverse customer base, including telecom and networking cabinetry, electrical controls, and other functional and aesthetic sheet metal applications. 3 months 6 months January 31, January 31, 2005 2004 2005 2004 ----------- ----------- ----------- ----------- Operating revenues Utility Products 462,748 397,014 1,056,610 1,009,115 Contract Manufacturing 2,000,966 948,531 3,554,305 1,968,891 Total sales $ 2,463,714 $ 1,345,545 $ 4,610,915 $ 2,978,006 =========== =========== =========== =========== Operating income (loss) Utility Products (68,687) (161,063) (43,252) (120,909) Contract Manufacturing 202,214 (20,310) 457,984 (61,310) ----------- ----------- ----------- ----------- Income (loss) from operations 133,527 (181,373) 414,732 (182,219) General corporate expenses 47,697 (222,263) (129,036) (501,056) Minority interest in subsidiary (14,715) -- (52,892) -- Other income (expense) (76,128) 26,402 (127,249) 96,484 ----------- ----------- ----------- ----------- Income (loss) from continuing operations 90,381 (377,234) 105,555 (586,791) ----------- ----------- ----------- ----------- Discontinued operations, net of tax -- (31,156) (39,372) (114,133) ----------- ----------- ----------- ----------- Net income (loss) $ 90,381 $ (346,078) $ 144,927 $ (472,658) =========== =========== =========== ===========
12
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE H - RELATED PARTY TRANSACTIONS The following is a summary of advances to and from affiliated companies included in other assets at January 31, 2005 and July 31, 2004: January 31, 2005 July 31, 2004 ---------------- ---------------- Interfederal Capital, Inc. $ 241,273 $ 258,609 IFC Industries, a subsidiary of Interfederal Capital, Inc. 43,589 43,589 M&M Trans Exchange 364,689 364,989 Comtec, Inc. 18,018 18,014 ---------------- ---------------- Total receivable from affiliates 667,566 685,201 ---------------- ---------------- Glauber Management (52,620) (57,348) S. Mort Zimmerman (333,699) (333,699) Daniel A. Zimmerman (42,840) (22,500) ---------------- ---------------- Total due to affiliates (429,159) (413,547) ---------------- ---------------- $ 238,407 $ 271,654 ================ ================
Interfederal Capital, Inc. (Interfederal), a Texas corporation, is managed under a voting trust by S. Mort Zimmerman and ownership is held by his wife and four (4) children. The Company leased facilities owned by Interfederal at a rate of $30,000 per month. Interfederal, S. Mort Zimmerman individually and/or Daniel A. Zimmerman individually have guaranteed the Company's lines of credit, real estate and equipment loan that were obtained during the year ended July 31, 2003. Interfederal Capital Industries, Inc. ("IFC") a Texas corporation and a subsidiary of Interfederal, has net balances due to the Company of $43,589 at January 31, 2005 and July 31, 2004. M&M TransExchange, Inc. ("M&M"), a Texas corporation, wholly owned by S. Mort Zimmerman has balances due to the Company of $364,989 at January 31, 2005 and July 31, 2004. The payable to S. Mort Zimmerman of $333,699 at January 31, 2005 and July 31, 2004 is the accrued but unpaid balance due for compensation. Comtec, Inc., a Texas corporation and a subsidiary of Interfederal, has a balance due of $18,018 and $18,014 at January 31, 2005 and July 31, 2004, respectively. Glauber Management, Inc. ("Glauber") is wholly owned by S. Mort Zimmerman. The Company has net payable to Glauber of $52,620 and $57,348 at January 31, 2005 and July 31, 2004, respectively. S. Mort Zimmerman, Interfederal Capital, Inc., IFC Industries, M&M Trans Exchange, Comtec, Inc. and Glauber Management have agreed to collectively reconcile and consolidate their balances for the 13 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE H - RELATED PARTY TRANSACTIONS (continued) purpose of legal offset with the Company prior to the end of the current fiscal year ended July 31, 2005. The Company has pledged a certificate of deposit in the amount of $100,000 for a loan in the name of DOL Resources, Inc., a publicly held corporation in which Electric & Gas Technology, Inc. owns a 19.9% equity interest. The note is currently being serviced, and the company believes DOL has sufficient revenue to continue servicing the debt. The carrying value on the balance sheet for DOL is $1. NOTE I - REVENUE RECOGNITION POLICIES The Company recognizes revenue when title passes to its customers upon shipment of its products for final delivery. The Company ships goods and performs services, only after receiving purchase orders from customers, or authorization to charge a credit card and the credit card is validated. Revenue for shipments to customers delivered by company truck are recognized when a signed receiving document is returned to the plant. Shipments made by common carrier and by freight forwarders are FOB manufacturing plant, and the customer is charged for shipping expense. The revenue is recognized when the carrier has signed for possession of the goods. The Company does not utilize stocking distributors, and ships to "end use" customers. No right of return exists in regard to stocking levels or lack of requirement. Defective products can be exchanged or repaired at the Company's discretion. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company, through its subsidiaries, operates within two separate industry segments. These are (i) The Utility Products sector, in which Reynolds designs, manufactures and markets products for natural gas measurement, metering and odorization primarily for municipalities and publicly owned utility companies; and (ii) The Contract Manufacturing sector, in which LMT provides precision sheet metal fabrication and assembly for a diverse customer base, including telecom and networking cabinetry, electrical controls, and other functional and aesthetic sheet metal applications. The Company has employed a strategy to merge operational functions wherever possible with the short term objective of operating a single manufacturing group serving both internal (Reynolds) and external (Contract Manufacturing) customers through a common organization. Results of operations Summary. The Company reported revenues of $2,463,714 and $4,610,915 for the three months and six months ended January 31, 2005, respectively. This compares to revenues of $1,345,545 and $2,978,006 for the same periods in 2004. These gains in revenue are primarily attributed to increased sales activity and improvement in market conditions, especially in the Metal Fabrication segment. 14
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES The Company reported income from operations of $181,224 and $285,696 for the three months and six months ended January 31, 2005, respectively. This compares to losses of $(403,636) and $(683,275) for the same periods in 2004. These improvements are due primarily to the increase in sales, consolidation of manufacturing facilities and improvement in operating efficiencies. Gross margins for the Company increased from 18.31% and 22.44% for the three months and six months ended January 31, 2004, respectively, to 30.01% and 30.18% for the three months and six months ended January 31, 2005, respectively. Gross margins improved as the result of significantly increasing sales while maintaining or reducing fixed and semi-fixed costs in the manufacturing area as the result of consolidation of facilities and functions from 3 buildings into 1 building and combination of functions across operating segments. Selling, general and administrative expenses as a percent of revenues decreased from 48.30% and 45.38% for the three months and six months ended January 31, 2004, respectively, to 22.65% and 23.99% for the three months and six months ended January 31, 2005, respectively. This results primarily from the Company being able to enjoy an increase in sales while maintaining or reducing costs through consolidation of facilities and functions. The following table represents the changes [increase/(decrease)] in operating revenues, operating income (loss) and income (loss) from continuing operations by the respective industry segments when compared to the previous period: Three months ended Six months ended January 31, 2005 January 31, 2005 -------------------------- -------------------------- Increase/ Increase/ (Decrease) Percent (Decrease) Percent ----------- ----------- ----------- ----------- Operating revenues: Utility Products $ 65,734 16.56% $ 47,495 4.71% Contract Manufacturing 1,052,435 110.95% 1,585,414 80.52% ----------- ----------- ----------- ----------- Total sales $ 1,118,169 83.10% $ 1,632,909 54.83% =========== =========== =========== =========== Income (loss) from continuing operations: Utility Products $ 92,376 NA $ 77,657 NA Contract Manufacturing 222,524 NA 519,294 NA ----------- ----------- ----------- ----------- Total segment operating income (loss) 314,900 NA 596,951 NA General corporate expenses 269,960 NA 372,020 NA Minority interest in subsidiary (14,715) NA (52,892) NA Other income (expense) (102,530) NA (223,733) NA ----------- ---------- ----------- ----------- Income (loss) from continuing operations $ 467,615 NA $ 692,346 NA =========== =========== =========== ===========
15 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Utility Products - This segment reported increases in revenue of $65,734 with operating income improving by $92,376 for the three month period ending January 31, 2005. These increases were due primarily to increased sales activity and improvements in operating efficiencies resulting from a consolidation of facilities and support functions across operating segments. Contract Manufacturing - In this segment, revenues increased $1,052,435 while operating profit increased by $222,524 for the quarter ended January 31, 2005. These increases were due primarily to increased sales activity, an improvement in the market environment and improvements in operating efficiencies resulting from a consolidation of facilities and support functions across operating segments. Corporate overhead expenses decreased by $269,960 and $372,020 relative to the corresponding three and six month periods respectively in the prior year. This reduction resulted primarily from a reduction in staff, negotiation of reduction in previously invoiced professional services, and a consolidation of facilities and functions. Other expenses increased by $102,530 and $223,733 for the three months and six months ended January 31, 2005 (respectively) relative to the same period in the prior year. These net increases are due primarily to an increase in the current 3 month period of $49,000 resulting form the loss in a civil action described herein, and an increase of $37,103 in interest expense for the current 6 month period, as compared to a $143,045 gain on sale of stock that occurred in the same period for 2004. Liquidity and Capital Resources Liquidity. Current assets of the Company total $2,677,198 at January 31, 2005, down from current assets of $5,942,309 at July 31, 2004, or a decrease of $3,265,111. Current liabilities decreased by $3,466,459, reducing the working capital deficiency (current assets less current liabilities) to $481,213 at January 31, 2005 as compared to $682,561 at July 31, 2004. This is primarily the result of collecting on the sale of Hydel assets (see below), paying off accounts payable under favorable terms and increases in accounts receivable in a profitable environment. The Company believes that it has and can generate sufficient cash to meet its working capital requirements. The Company has recently completed the movement of its revolving notes secured by accounts receivable and inventory, with a total cap of $850,000 to a facility to service the increased sales and receivables, with a cap of $1,750,000, which the Company believes will be sufficient for near term requirements. The Company was able to raise additional cash immediately following the close of its fiscal year ending July 31, 2004 by the sale of assets of its wholly owned Canadian subsidiary Hydel Enterprises, Inc. While the Company has incurred losses over the past years, the Company has, in the past, demonstrated the ability to raise capital in order to support the strategic goals to continue to grow revenue and improve profitability. The Company may seek a private placement of its public equity. Management believes that, if required, it can attract investment capital of up to $2,000,000 based 16 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES on the Company's business strategy. The amount of equity the Company would offer would depend in part on share/conversion price, discount or premium on current market share price and dilution prospects. While management believes that, if needed, the Company could obtain the above funding, there is no assurance that this would occur. Failure to do so could slow the growth of the Company. As more fully described in Note F of the Condensed Financial Statements, the Company could be liable for substantial penalties for Retech, Inc.'s pension plan. Such penalties would have a material adverse affect on the Company's liquidity. Capital Expenditures For fiscal 2005, the Company anticipates capital expenditures in the metal fabrication area as additional capacity is required to meet customer requirements. The most recent purchase was a laser cutting machine, which was received on December 10, 2004. The Company anticipates purchasing additional machinery for the Contract Manufacturing area during this fiscal year in the amount of approximately $100,000. Other expenditures for capital equipment will be for the ordinary replacement of worn or obsolete machinery and equipment utilized by its subsidiaries. Dividend Policy The Company's Board of Directors has declared no cash dividends since the Company's inception. The Company does not contemplate paying cash dividends on its common stock in the foreseeable future since it intends to utilize it cash flow to invest in its businesses. Other Business Matters Inflation. The Company does not expect inflation to have an adverse effect on its operations in the foreseeable future. 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 3. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. 17 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES The Company's principal executive and financial officers have conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 as of a date (the "Evaluation Date") the end of the period. Based upon that evaluation, the Company's principal executive and financial officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective in ensuring that all material information relating to the Company required to be filed in this quarterly report has been made known to them in a timely manner. (b) Changes in internal controls. There have been no significant changes made in the Company's internal controls or in other factors that has or will likely materially affect internal controls over financial reporting. 18 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Electric & Gas Technology, Inc., Retech, Inc. and Hydel Enterprises, Inc. (Plaintiffs) vs. Nathan Mazurek, American Circuit Breaker Corp. and Provident Group, Inc. (Defendants) Plaintiffs allege the non-payment of a note to Retech, Inc. and unpaid accounts receivable to Hydel Enterprises, Inc. A settlement agreement was reached but the defendant did not perform. The matter is now in Delaware court where the enforceability of the settlement agreement will be decided. Electric & Gas Technology, Inc., Atmospheric Water Technology, Inc. vs Universal Communications Systems, Inc. The Company has reached a settlement in two lawsuits and counterclaims with Universal Communications Systems, Inc. (UCSY). In the period ended January 31, 2005, the Company recognized the settlement of the litigation with UCSY for $25,000 in cash and 150,000 shares of restricted stock of the Company, valued at $0.16 per share. The settlement also includes transference of the 91.5% ownership of Atmospheric Water Technology, with no assets or liabilities, other than expired patents and other intangible assets. The Company withdrew as interpleader in a water segment patent infringement case in California after settlement hearings proved unsuccessful. During the year ended July 31, 2004, the Company lost its appeal on the SBA lawsuit pertaining to a real estate transaction dating back to 1987, resulting in a judgment against the Company of $462,379. ELGT encourages all interested parties to use public access sources such as PACER (http://pacer.psc.uscourts.gov/) to confirm facts related to these and any legal proceeding. 19 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 31.1 - Certification of President and Chief Executive Officer of Electric & Gas Technology, Inc. and Subsidiaries required by Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 - Certification of Chief Financial Officer of Electric & Gas Technology, Inc. and Subsidiaries required by Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 -- Certification of President and Chief Executive Officer of Electric & Gas Technology, Inc. and Subsidiaries pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63. Exhibit 32.2 -- Certification of Chief Financial Officer of Electric & Gas Technology, Inc. and Subsidiaries pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63. (b) Reports on Form 8-K. On August 11, 2004 the Company filed a Form 8-K disclosing that on July 30, 2004, Electric & Gas Technology, Inc. (the "Registrant" or the "Company") entered into a "closing in escrow" to sell the assets, goodwill and trade-name of Hydel Enterprise, Inc. ("Hydel") a wholly owned Canadian subsidiary to Circa Metals Inc., a wholly owned subsidiary of Circa Enterprises Inc. which is headquartered in Calgary, Alberta, Canada for cash. On August 6, 2004, the transaction was consummated. The purchase price was approximately US$3,900,000, with a 60 day adjustment period. Hydel was included as a discontinued operation in the Form 10Q filed for the period ended April 30, 2004. Neither Circa nor any of its officers or directors are affiliated with the Company. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ELECTRIC & GAS TECHNOLOGY, INC. /s/ Daniel A. Zimmerman - ------------------------ Daniel A. Zimmerman President and Chief Executive Officer Dated: March 22, 2005 20 EX-31.1 2 elgt10qsbex311013105.txt SECTION 302 CERTIFICATION OF CEO ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Exhibit 31.1 I, Daniel A. Zimmerman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Electric & Gas Technology, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a- 14 and 15d- 14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: March 22, 2005 By /s/ Daniel A. Zimmerman ------------------------- Daniel A. Zimmerman President and Chief Executive Officer EX-31.2 3 elgt10qsbex312013105.txt SECTION 302 CERTIFICATION OF CFO ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Exhibit 31.2 I, George M. Johnston, certify that: 1. 1 have reviewed this quarterly report on Form 10-Q of Electric & Gas Technology, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a- 14 and 15d- 14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: March 22, 2005 By /s/ George M. Johnston ----------------------- George M. Johnston Vice President & Chief Financial Officer EX-32.1 4 elgt10qsbex321013105.txt SECTION 906 CERTIFICATION OF CEO ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 In connection with the Quarterly Report of Electric & Gas Technology, Inc. (the "Company") on Form 10-Q for the period ending January 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel A. Zimmerman, President and Chairman of the Board of the Company, certify, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirement of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Dated: March 22, 2005 By /s/ Daniel A. Zimmerman ------------------------- Daniel A. Zimmerman President and Chief Executive Officer EX-32.2 5 elgt10qsbex322013105.txt SECTION 906 CERTIFICATION OF CFO ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 In connection with the Quarterly Report of Electric & Gas Technology, Inc. (the "Company") on Form 10-QSB for the period ending January 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, George M. Johnston, Vice-President and Chief Financial Officer of the Company, certify, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirement of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Dated: March 22, 2005 By /s/ George M. Johnston ----------------------- George M. Johnston Vice President & Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----