-----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, QU/szs2z/GtAYrkDUbTzBdLoKJ6JvX7fZuAsaNKC6XJ8rxkXcYZI/HJzZnSwVn0O Z0r4tyJK2ZwfDhLF0Gt0Jw== 0001010549-07-000362.txt : 20070430 0001010549-07-000362.hdr.sgml : 20070430 20070430154912 ACCESSION NUMBER: 0001010549-07-000362 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070131 FILED AS OF DATE: 20070430 DATE AS OF CHANGE: 20070430 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14754 FILM NUMBER: 07800233 BUSINESS ADDRESS: STREET 1: 3233 W. KINGSLEY CITY: GARLAND STATE: TX ZIP: 75041 BUSINESS PHONE: 972-840-3223 MAIL ADDRESS: STREET 1: 3233 W. KINGSLEY CITY: GARLAND STATE: TX ZIP: 75041 10QSB/A 1 egt10qsb013107.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, 2007 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, 2007: Common - $0.01 Par Value - 8,599,461 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Index to Form 10-QSB For the Quarter Ended January 31, 2007 Part I - Financial Information The accompanying condensed consolidated financial statements have not been reviewed by our auditors. Item 1. Condensed Consolidated Financial Statements: Page (a) Condensed Consolidated Balance Sheets at January 31, 2007 (unaudited) and July 31, 2006 3 (b) Condensed Consolidated Statements of Income for the three and six months ended January 31, 2007 (unaudited) and January 31, 2006 (unaudited) 4 (c) Condensed Consolidated Statement of Changes in Stockholders' Deficit for the six months ended January 31, 2007 (unaudited) 5 (d) Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2007 (unaudited) and January 31, 2006 (unaudited) 6 (e) Notes to Condensed Consolidated Financial Statements (unaudited) 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 Item 3. Controls and Procedures 18 Part II - Other Information Item 1. Legal Proceedings 19 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 21 Signature (Pursuant to General Instruction E) 21 Certifications 22-25 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. 2
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) January 31, 2007 July 31, 2006 ---------------- ------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,934 $ 536,723 Accounts receivable, net 984,978 1,774,113 Inventories 2,131,010 2,197,959 Prepaid expenses 49,952 111,958 Other assets - current 23,894 - ------------- ------------ Total current assets 3,191,768 4,620,753 ------------- ------------ PROPERTY, PLANT AND EQUIPMENT, net 4,674,104 5,122,453 ------------- ------------ OTHER ASSETS Certificates of deposit, pledged 100,000 100,000 Assets held for sale 349,149 344,831 Other assets 302,886 152,449 ------------- ------------ Total other 752,035 597,280 ------------- ------------ TOTAL ASSETS $ 8,617,907 $ 10,340,486 ============= ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Notes payable $ 860,898 $ 1,473,533 Accounts payable 1,627,354 2,293,119 Accrued liabilities 735,072 674,400 Note payable to affiliate 411,432 493,595 Payable to officers 67,100 - Current maturities of long-term obligations 311,054 324,003 Current portion of minimum pension liability 288,499 288,499 Liabilities of discontinued operations 71,608 71,608 ------------- ----------- Total current liabilities 4,373,017 5,618,757 ------------- ----------- LONG-TERM OBLIGATIONS Long-term obligations, less current maturities 4,271,391 4,411,430 Minimum pension liability 925,043 898,043 ------------- ----------- Total long-term obligations 5,196,434 5,309,473 ------------- ----------- STOCKHOLDERS' DEFICIT Preferred stock, $10 par value, 5,000,000 shares authorized, none issued Common stock, $.01 par value, 30,000,000 shares authorized, issued 8,599,461 and 8,242,461 shares respectively 85,995 82,425 Additional paid-in capital 10,365,959 10,242,469 Accumulated deficit (10,243,956) (9,753,096) Accumulated comprehensive losses (1,159,542) (1,159,542) -------------- ------------ Total stockholders' deficit (951,544) (587,744) -------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 8,617,907 $10,340,486 ============== ============
See accompanying notes to the condensed consolidated financial statements. 3
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended Six months ended January 31, January 31, -------------------------------------------------------------------- 2007 2006 2007 2006 ------------ ------------ ------------ ------------ Sales $ 1,887,292 $ 2,780,294 $ 4,016,096 $ 4,701,407 Cost of goods sold 1,504,546 1,584,940 3,111,058 3,189,663 -------------------------------------------------------------------- Gross profit 382,746 1,195,354 905,038 1,511,744 Selling, general and administrative expenses 536,845 887,489 1,225,579 1,506,389 -------------------------------------------------------------------- Income from operations (154,099) 307,865 (320,541) 5,355 -------------------------------------------------------------------- Other income (expense) Interest (81,051) (71,246) (180,304) (133,313) Settlement of civil action - - - 170,000 Other income (expense), net 3,025 (1,970) (10,430) (2,352) -------------------------------------------------------------------- Total other income (expense) (78,026) (73,216) (169,874) 34,335 -------------------------------------------------------------------- Net income(loss) from continuing operations before minority interest (232,125 ) 234,649 (490,415) 39,690 Minority interest in subsidiary - (16,512) - (13,306) -------------------------------------------------------------------- Net income(loss) $ (232,125) $ 218,137 $ (490,415) $ 26,384 ==================================================================== Basic earnings per common share: Net income(loss) $ (0.03) $ 0.03 $ (0.06) $ ==================================================================== Weighted average common shares outstanding 8,599,461 7,399,588 8,420,961 7,399,588 ==================================================================== See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the six months ended January 31, 2007 (Unaudited) Common Accumulated Stock Other Shares Common Paid-in Accumulated Comprehensive Issued stock Capital Deficit Losses Total --------- --------- ---------- ----------- ------------- ------------ Balance at July 31, 2006 8,242,461 $ 82,425 $10,242,469 $ (9,753,096) $(1,159,542) $ (587,744) Stock issued for cash 357,000 3,570 210,630 - - 214,200 Net loss - - - (490,415) - (490,415) --------- -------- ----------- ------------- ------------ ------------ Balance at January 31, 2007 8,599,461 $ 85,995 $10,453,099 $(10,243,956) $(1,159,542) $ (951,544) ========= ======== =========== ============= ============ ============
See accompanying notes to condensed consolidated financial statements. 4
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended January 31, Cash flows from operating activities: 2007 2006 --------------- --------------- Net income $ (490,415) $ 26,384 Discontinued operations, net of tax - - --------------- --------------- Net income(loss) from continuing operations (490,415) 26,384 Adjustments to reconcile net income to net cash used in operating activities: Depreciation of property, plant and equipment 234,705 175,678 Common stock issued for interest on notes - 18,275 Common stock issued for services - 131,750 Changes in operating assets and liabilities: Accounts receivable 789,135 (864,190) Inventories 66,949 (1,573,151) Prepaid expenses 38,112 (45,475) Other assets (150,437) (88,153) Accounts payable (452,566) 1,124,821 Customer deposits - 434,004 Accrued liabilities 34,272 157,523 Accrued pension plan 27,000 26,000 --------------- --------------- Net cash used in operating activities 96,755 (476,534) --------------- --------------- Cash flows from investing activities: Purchase of equipment - (130,404) Investments in affiliates (82,163) 43,708 Certificates of deposits - 1,970 --------------- --------------- Net cash used in investing activities (82,163) (84,726) --------------- --------------- Cash flows from financing activities: Proceeds for issuance of common stock and warrants 126,460 225,000 Proceeds from officer 67,100 (20,135) Payments on long-term obligations (152,988) (22,382) Net change on notes payable (612,635) 265,729 Minority interest in subsidiary - 13,306 --------------- --------------- Net cash provided by (used in) financing activities (572,063) 461,518 --------------- --------------- Net cash provided by discontinued operations - - --------------- --------------- Net increase (decrease) in cash and cash equivalents (534,789) (99,742) Cash and cash equivalents - beginning of period 536,723 200,455 --------------- --------------- Cash and cash equivalents - end of period $ 1,934 $ 354,689 =============== =============== Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 180,304 $ 149,816 --------------- ---------------
See accompanying notes to condensed consolidated financial statements. 5 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE A - BUSINESS AND BASIS OF PRESENTATION 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 facility containing 144,000 square feet, which it already occupied. In addition to achieving improvements in communications and utilization of resources, this also allowed the Company to proceed with the listing of two commercial properties. The Company presently is the owner of 100% of Reynolds Equipment, Inc. (Reynolds) and Logic Metals Technology, Inc. (LMT). Through these subsidiaries, the Company operates in two distinct business segments: (1) Utilities Products and (2) Contract Manufacturing. Reynolds, operating in the Utilities Products segment, 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 boards utilizing industry standard components, industry standard probes and hardware. The manufacturability of the boards is readily available through a large number of local low cost circuit board assembly operations. All other items are available through multiple vending sources. The products are primarily marketed directly by the Company and, to a lesser degree, through some manufacturers' representatives. LMT, operating in the Contract Manufacturing sector, 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 manufacturer's 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. Currently, the Company has two customers that represented over 39% and 16% of its total revenue for the six months ended January 31, 2007. 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 owned proprietary products and external customers through a common organization. Consolidation of the organizations has been completed and migration of the manufacturing systems into one common system is an ongoing effort. 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 6 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE A - BUSINESS AND BASIS OF PRESENTATION (continued) 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. NOTE B - INVENTORIES Inventories are comprised as follows: January 31, 2007 July 31, 2006 ---------------- ------------- Raw materials $ 740,343 $ 939,848 Work in process 202,403 220,717 Finished goods 1,378,264 1,197,394 -------------- -------------- Allowance for obsolescence (190,000) (160,000) -------------- -------------- Total inventory $ 2,131,010 $ 2,197,959 ============== ============== 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 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 identified when a product will no longer be produced or 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. 7
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES On September 20, 2006, the Company entered into an agreement to borrow $125,000 bearing interest at 12%, maturing on March 20, 2007 from an individual third party accredited investor. NOTE C - 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. The Company is holding for sale the former Reynolds occupied and owned building 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. The building has a remaining mortgage of $322,389 with a local bank. The Company has replacement value insurance on the building. As the building is being held for sale, it is not being depreciated. However, prior depreciation for federal income tax and financial reporting was previously over a 40 year period on the straight line method. The total carrying value of the assets held for sale as of January 31, 2007 is the net book value of $344,831 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 $400,000. As of March 22, 2007, the Company has a contract for the sale of the building located at 410 South Kirby Street, in Garland, Texas. The offered price is $447,000, and the Company expects expenses to be approximately $77,000. This contract is cancelable, and the buyer may not perform, or may not be able to secure financing to complete the transaction. The following is the carrying value of assets held for sale and the corresponding liabilities at January 31, 2007. Carrying Current Long-term Total value liabilities liabilities Liabilities -------- ----------- ----------- ----------- Paris building $ 324,234 $ 22,761 $ 236,558 $ 259,319 Garland building 20,597 9,861 316,441 326,302 ------------ ----------- ------------- ------------ Total $ 344,831 $ 32,622 $ 552,999 $ 585,621 ============ =========== ============= ============
NOTE D - 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. 8 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE D - CONTINGENCIES (continued) 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. During the three months ended October 31, 2005 the Company recorded and subsequently received $170,000 in settlement. Failure to collect on the note previously had, 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 and a steady decline in interest rates. 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, 2006, the date of the last actuarial valuation, was $898,043, resulting in a stockholders' equity reduction of $1,159,542. Current management recognized the condition of the Plan and worked with the IRS to enter into a Closing Agreement executed April 15, 2005 that brought the plan into acceptable funding status. An important element to the Agreement was the transfer of equity of $125,000 in the Paris, TX building and 20 acres to the Plan as a contribution. The transfer of equity into the Plan had no material affect on the financial position of ELGT. The Company is committed to restoring the plan to full compliance. This is a stepwise process, focused first on the Closing Agreement and meeting current minimum funding requirement. Now that this step has been completed the Company will address other matters of compliance related to the Plan. Whereas the Company believes that it will be able to resolve these matters in a satisfactory manner, failure to do so could have a negative impact on the Company's future performance. 9
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE E - INDUSTRY SEGMENT DATA The Company's current business is primarily comprised of two industry segments: (i) The Utilities Products segment, where 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 segment, where 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. Three months ended Six months ended January 31, January 31, 2007 2006 2007 2006 ------------- ------------- ------------- ------------- Operating revenues: Utility Products $ 243,974 $ 513,146 $ 716,997 $ 1,031,973 Contract Manufacturing 1,644,464 2,267,188 3,300,245 3,669,534 ------------- ------------- ------------- ------------- Total sales $ 1,888,438 $ 2,780,294 $ 4,017,242 $ 4,701,407 ============= ============= ============= ============= Operating income (loss): Utility Products $ (111,297) $ (152,687) $ (113,970) $ (170,942) Contract Manufacturing 356,428 838,439 403,463 696,689 ------------- ------------- ------------- ------------- Income from operations 245,131 685,752 289,493 525,747 General corporate expenses (345,235) (377,887) (556,039) (520,392) Minority interest in subsidiary - (16,512) - (13,306) Total other income (expense) (232,125) (73,216) (223,869) 34,335 ------------- ------------- ------------- ------------- Net income $ (232,125) $ 218,137 $ (490,415) $ 26,384 ============= ============= ============= =============
NOTE F - RELATED PARTY TRANSACTIONS The following is a summary of advances to and from affiliated companies included in other assets at January 31, 2007 and July 31, 2006: January 31, 2007 July 31, 2006 ---------------- ------------- Net Due To Affiliates - Interfederal Capital, Inc. $ 411,432 $ 493,595 ========== ========== Net Payable to Officers $ 67,100 - ========== ========== 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. 10 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE F - RELATED PARTY TRANSACTIONS (continued) The following is a summary of advances to and from affiliated companies included in other assets at October 31, 2006 and July 31, 2006: October 31, 2006 July 31, 2006 ---------------- ------------- Net Due To Affiliates - Interfederal Capital, Inc. $ 411,432 $ 493,595 ========== ========== Net Payable to Officers $ 67,100 $ - ========== ========== 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. Interfederal has loaned the Company $493,595 as of July 31, 2006. Interfederal, S. Mort Zimmerman individually and/or Daniel A. Zimmerman individually have guaranteed the Company's lines of credit, real estate and equipment loans that were obtained during the years ended July 31, 2003, 2005 and 2006. The Company has a payable of $67,100 that is due to Daniel A. Zimmerman as of January 31, 2007 which was used to fund various payables of the Company. 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 by Glauber Management, an affiliate of DOL, and the Company believes that Glauber has sufficient resources to continue servicing the debt. The carrying value on the balance sheet for DOL is $1 at January 31, 2007 and July 31, 2006. NOTE G - 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 is 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. 11 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTE H - SUBSEQUENT EVENTS None. NOTE I - INCOME TAXES The Company accounts for corporate income taxes in accordance with SFAS No. 109 - - Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, future tax benefits, such as those from net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as set forth below in the period that includes the enactment date. The Company does not have any other significant deferred tax assets or liabilities. The net operating loss carry-forwards are available to offset future taxable income of the Company. These net operating losses expire from 2015 through 2018. 12 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Company, through its subsidiaries, operates within two industries. These are (i) the Utilities Products segment, in which the Company designs, manufactures and markets products for natural gas measurement, metering and odorization and (ii) the Contract Manufacturing segment, in which the Company provides metals fabrication and assembly for a diverse customer base, including telecom and networking cabinetry, electrical controls, and other functional and aesthetic fabricated 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 owned proprietary products and external customers through a common organization. Results of operations Summary. The Company reported revenues of $1,888,438 and $4,017,242 for the three and six months ended January 31, 2007, respectively. This compares to revenues of $2,780,334 and $4,701,507 for the same periods in 2006. The decrease in revenue is primarily attributed to an decrease in customer demand in both segments of the business. Total other expense of $132,021 and $223,869 for the three and six months ended January 31, 2007, respectively, was reported by the Company. This compares to the total other income (expense) of ($73,216) and $34,335 for the same periods in 2006. The significant increase in the six months ended January 31, 2007 is due primarily to a gain on a one time settlement of a civil action during the first quarter of 2006. The Company reported a net loss from continuing operations of $232,125 and $490,415 for the three and six months ended January 31, 2007, respectively. This compares to a net income from continuing operations of $218,137 and $26,384 for the same periods in 2006. The decreases in income from continuing operations is due primarily to a decrease in revenues during the period. Gross margins for the Company decreased from 42.99% and 32.16% for the three and six months ended January 31, 2006, respectively, to 20.28% and 22.59% for the three and six months ended January 31, 2007, respectively. Gross margins decreased as the result of receiving orders with lower gross margin. 13
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Selling, general and administrative expenses as a percent of revenues decreased from 31.92% and 32.04% for the three and six months ended January 31, 2006, respectively to 28.45% and 30.49% for the three and six months ended January 31, 2007, respectively. The change for the six months is a result of an decrease in expenses due to the issuance of stock to employees in 2006, while none was issued in 2007. 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, 2007 January 31, 2007 Increase/ Percent Increase/ Percent (Decrease) (Decrease) --------------- --------------- --------------- --------------- Operating revenue: Utility Products $ (269,172) (52.46%) $ (314,976) (30.52%) Contract Manufacturing (622,724) (27.47%) (369,289) (10.06%) --------------- --------------- --------------- --------------- Total sales $ (891,896) (32.08%) $ (684,265) (14.55%) =============== =============== =============== =============== Operating income (loss): Utility Products $ 41,390 27.11% $ 56,972 (33.33%) Contract Manufacturing (482,011) (57.49%) (293,226) (42.06%) --------------- --------------- --------------- --------------- Income from operations (440,621) (64.25%) (236,254) (44.94%) General corporate expenses 32,652 8.64% (35,647) 6.85% Minority interest in subsidiary 16,512 - 13,306 - Other income, net (58,805) 80.32% (258,204) (752.01%) --------------- --------------- --------------- --------------- Net income (loss) $ (450,262) (206.41%) $ (516,799) (1,958.76%) =============== =============== =============== ===============
Utilities Products - This segment reported a decrease in revenue of $269,172 and $314,976 with operating income being reduced by $41 and ($127,690) for the three and six months ending January 31, 2006, respectively. The increase in revenue for the three months ended was the result of an increase in customer demand concentrated in the three months ended January 31, 2006. The decrease in operating profit is primarily due to increased engineering activities to develop new products. 14 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Contract Manufacturing - In this segment, revenues decreased $622,724 and $369,289 while operating loss increased by $482,011 and $293,226 for the three and six months ended January 31, 2007, respectively. The decreases in revenue were due primarily to the reduction in revenue from the $2.5 million contract awarded to this segment in 2006, of which, $0.8 million in revenues was recognized during the three months ended January 31, 2006. This segment has begun an initiative to enhance its sales effectiveness and broaden its range of services offered. It is exploring opportunities to develop or acquire proprietary products. Current facilities and capital equipment base will support substantial increases in business. Corporate overhead expenses increased(decreased) by ($32,652) and $35,647 for the three and six months ended January 31, 2007 (respectively), relative to the corresponding three and six month periods respectively in the prior year. These changes reflect the reduction in staff, offset by the cost of the building and contract manufacturing management costs in the corporate entity. Other income decreased by $58,805 and $258,204 for the three and six months ended January 31, 2007 (respectively), relative to the same periods in the prior year. The net decrease is due primarily to a gain on investment the Company recorded during the six months ended January 31, 2006 which was a one time opportunity. Liquidity and Capital Resources The Company's current assets are $3,191,768 at January 31, 2007, as compared to $4,620,753 at July 31, 2006, which is an decrease of $1,428,985. Current liabilities decreased from July 31, 2006 to January 31, 2007 by $1,245,740, contributing to a decrease in working capital (current assets less current liabilities) to ($1,181,249) at January 31, 2007 as compared to ($998,004) at July 31, 2006. This is primarily the result of increases in losses. The Company may seek additional private placement of its public equity. Management believes that, if required, it can attract investment capital of up to $2,000,000 based 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. 15 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES Capital Expenditures For fiscal 2007, the Company anticipates no significant capital expenditures. 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. 16 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES ITEM 3. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. 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. 17 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS None. 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. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 18 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 January 12, 2006, the Company filed a form 8-K disclosing that is had sold and issued three hundred seventy-five thousand (375,000) shares of Common Stock at a price of $0.60 per share and a Warrant for the purchase of one million one hundred twenty-five thousand (1,125,000) shares of Common Stock to Vision Opportunity Master Fund, Ltd. 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 23, 2007 19 EX-31.1 2 egtex311013107.txt Exhibit 31.1 CERTIFICATIONS 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"); 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; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 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 23, 2007 By /s/ Daniel A. Zimmerman Daniel A. Zimmerman President and Chief Executive Officer EX-31.2 3 egtex312013107.txt Exhibit 31.2 I, George M. Johnston, 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"); 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; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 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 23, 2007 By /s/ George M. Johnston George M. Johnston Vice President & Chief Financial Officer EX-32.1 4 egt10qsbex321013107.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION1350, 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, 2006, as filed withthe 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 Section906 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 theSecurities and Exchange Commission or its staff upon request. Dated: March 23, 2007 By /s/ Daniel A. Zimmerman Daniel A. Zimmerman President and Chief Executive Officer EX-32.2 5 egt10qsbex322013107.txt Exhibit32.2 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, 2006, 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 23, 2007 By /s/ George M. Johnston George M. Johnston Vice President & Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----