|
ELECTRIC & GAS TECHNOLOGY INC - 10KSB - 20041115 - MANAGEMENTS_DISCUSSION
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Important Factors Regarding Forward-Looking Statements
When used in this discussion, the words "believes," anticipates," "intends to,"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. These risks and
uncertainties, many of which are not within the Company's control, include, but
are not limited to, the uncertainty and timing of the successful development of
the Company's new products, the risks associated with reliance on a few key
customers; the Company's ability to attract and retain personnel with the
necessary management and technical skills, the timing and completion of
significant orders; the timing and level of market acceptance of customers'
products for which the Company supplies components; performance of the Company's
vendors; the ability of the Company to control costs associated with performance
under fixed price contracts; and the continued availability to the Company of
essential supplies, materials and services. Readers are cautioned not to place
undue reliance on these forward looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the result
of any revision to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Critical Accounting Policies
Management's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to revenue recognition, accounts
receivable and allowance for doubtful accounts, deferred tax assets, property
and equipment, investments, accrued expenses, contingencies and litigation. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from these sources.
Actual results may differ from these estimates under different assumptions or
conditions. We have identified the policies below as critical to the Company's
business operations and the understanding of the Company's results of
operations. For a detailed discussion on the application of these and other
accounting policies, see Note 2 in the notes to Consolidated Financial
Statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Accounts Receivable
11
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
The Company performs periodic credit evaluations of its customers' financial
condition and extends credit to virtually all of its customers on an
uncollateralized basis. Credit losses to date have been insignificant and within
management's expectations. The Company provides an allowance for doubtful
accounts that is based upon a review of outstanding receivables, historical
collection information, and existing economic conditions. Normal accounts
receivable are due 30 days after the issuance of the invoice. Receivables past
due more than 120 days are considered delinquent. Delinquent receivables are
written off based on individual credit evaluation and specific circumstances of
the customer. As of July 31, 2004, management has recorded an allowance for bad
debts of $20,094. In the event of complete non-performance by the Company's
customers, the maximum exposure to the Company is the outstanding accounts
receivable balance at the date of non-performance.
Inventories
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.
Revenue and Expense Recognition
The Company recognizes revenue when title passes to its customers upon shipment
of its products for final delivery. Expenses are recognized in the period in
which incurred.
Impairment of Long-Lived Assets
The Company periodically evaluates the net realizable value of long-lived
assets, including property, equipment and investments, relying on a number of
factors, including operating results, business plans, economic projections and
anticipated future cash flows. Impairment is assessed by evaluating the
estimated undiscounted cash flows over the asset's remaining life. If estimated
cash flows are insufficient to recover the investment, an impairment loss is
recognized.
Fiscal year 2004 Results of Operations
Background
The Company, through its subsidiaries, operates within three separate
industries. These are (i) the Utilities Products sector, in which the Company
designs, manufactures and markets products for natural gas measurement, metering
and odorization, (ii) the Contract Manufacturing sector, 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, and (iii) Water Production, in which
the Company has developed a line of products that extract water from the
atmosphere, and filter and purify it for drinking purposes.
Results of Operations
The discussion below relates to the Company's operations during the fiscal years
ended July 31, 2004 and 2003.
12
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
Summary. The Company reported net losses of $(2,990,641), and $(1,230,224) for
fiscal years 2004, and 2003, respectively. During fiscal 2004, the Company
increased its operating loss by $1,760,417 as the result of write off of
investments in Orasee Corporation, loss of the lawsuit with the U.S. Small
Business Administration, write-down of slow moving inventory and significantly
reduced sales during the third and fourth quarters for Reynolds.
For the years ended July 31,
----------------------------
2004 2003
---- ----
Increase Percent Increase Percent
(Decrease) Change Decrease) Change
---------- ------- --------- -------
Operating revenues $ 1,137,815 21.47% $(1,567,999) (13.93)
Operating income (loss) 1,131,757 124.24% (210,375) (27.62)
Earnings (loss) from
continuing operations 1,028,685 40.88% (454,168) (22.31)
Net Earnings (loss) Per Share 0.24 126.32% (0.06) (17.65)
The following table represents the changes [increase/(decrease)] in operating
revenues, operating income and earnings from continuing operations before income
taxes by the respective industry segments when compared to the previous period:
For the years ended July 31,
----------------------------
2004 2003
---- ----
Increase Increase
(Decrease) Percent (Decrease) Percent
------------ ------- ----------- -------
Operating revenues:
Water Production $ (394,124) (83.07%) $ 455,747 2,439.11%)
Utilities (794,030) (30.38%) (115,454) (4.23%)
Contract Manufacturing 2,325,969 105.23% 2,210,334 --
Total operating revenues $ 1,137,815 21.48) $ 2,550,627 92.84%
Operating income (loss):
Water Production $ (306,364) (6.95%) $ 246,254 115.37%)
Utilities (590,496) (7.13%) 115,027 404.54%
Contract Manufacturing 626,500 12.16% (280,787) --
Total operating (loss) (270,360) (547.75%) 80,494 (43.51%)
General corporate (861,397) 10,973
Other (expense) 103,072 (243,793)
Earnings from continuing
operations before income tax $(1,028,685) $ (152,326)
|
13
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
Utilities revenues decreased by $794,030, and $115,454 in fiscal 2004 and 2003,
respectively, while operating income was ($404,080) and $143,461 for fiscal 2004
and 2003, respectively. The drop in revenue in 2004 was so severe, the Company
was unable to maintain gross profit margins and trim support costs to maintain
operating profitability. The Company closely monitored staffing levels and
decreased salaries to try to compensate for the drop in revenue.
Contract Manufacturing revenues increased by $2,325,969 in fiscal 2004 over
those in 2003, due primarily to the resurgence of the telecom business and the
deployment of the new GSM technology. Operating income increased by $626,500 for
the same period. The segment began operations in 2003 with revenue of
$2,210,334. The Company has launched a new sales and marketing initiative and is
focusing on minimizing the exposure to the telecom industry fluctuations.
Water Production revenues increased (decreased) by ($394,124) and $455,747 in
fiscal 2004 and 2003, respectively, while operating income increased (decreased)
by ($306,364) and $246,254 in fiscal 2004 and 2003, respectively. This is due
primarily to the withdrawal of active marketing effort for this product line.
Gross profit margins were 23.79%, and 30.68% for fiscal 2004 and 2003, with
selling, general and administrative expenses as a percentage of sales for the
same period of 55.53% and 47.88% for fiscal 2004 and 2003, respectively.
Liquidity and Capital Resources
Liquidity. Cash flow used by operating activities amounted to $(599,199) and
$(348,925) for fiscal years 2004 and 2003, respectively. Operating cash flow has
been supplemented by cash made available from the proceeds on the sale of the
various segments and operating divisions.
Current assets of the Company totaled $5,942,309 at July 31, 2004, a decrease of
$341,147, or 5.43% of the balance at July 31, 2003. Current liabilities
increased from fiscal 2003 to fiscal 2004 by $2,040,284, resulting in a decrease
in working capital (current assets less current liabilities) to ($682,561) at
July 31, 2004, from $474,543, a decrease of (243.84%). This decrease is
primarily attributable to the acquisition of Logic Metals and the result of
utilization of cash and short-term investments in operations. The Company
believes it has sufficient cash to meet its working capital requirements and
debt obligations. Additionally, the liabilities increased due to the loss of the
lawsuit by the SBA, which increased liabilities by $500,000, the pension plan
increased by $100,000 and classifying all debt of discontinued operation (Hydel)
as current.
In order to meet the Company's cash requirements without suffering significant
shareholder dilution, the decision was made during fiscal 2004 to sell
substantially all of the assets of the Company's Canadian subsidiary, Hydel.
This transaction was completed with the proceeds from the sale being
approximately $3,700,000 (USD). These proceeds significantly improved the
Company's balance sheet and allowed it to, among other things, reduce debt and
trade payables, enter into a much more attractive banking facility with an
operating line better suited to its needs, and obtain the necessary equipment
leasing to support its expansion goals. All together these actions place the
Company in a much better position to achieve its goals of revenue and
profitability growth.
14
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
ELGT has recently entered into an asset based credit facility which provides for
a working line of up to $1,750,000, pending closing. Management believes that
this is sufficient to support the Company's current growth requirements.
However, management believes that carefully chosen acquisitions could
significantly accelerate its growth plans, and that the actions taken in fiscal
2004 have better positioned it to attract target companies as well as investment
capital that may be needed to support those plans. There can, of course, be no
assurances that the Company will be successful in raising additional investment
or working capital, if needed, and failure to do so would slow its growth.
Capital Expenditures
The Company purchased equipment consisting of normal asset acquisitions and
replacements totaling $137,288 and $750,457 during fiscal 2004 and 2003,
respectively. Software developed by Reynolds Equipment for resale in the utility
market passed Beta test and was capitalized for expenses incurred subsequent to
proof of technological feasibility, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, Par 5. A Finn-Power turret press for its
fabrication segment for approximately $400,000 was purchased in fiscal 2003 and
additional costs of placing purchased equipment in service of $197,000. The
Company anticipates additional capital expenditures for the furtherance of
capability for the newly acquired Logic Metals, including a laser cutting
machine, powder coating capability and additional punch capacity. Otherwise,
expenditures should be in the ordinary course of replacing worn-out or obsolete
machinery and equipment utilized by its subsidiaries. The Company may, from time
to time, purchase such machinery and equipment provided such assets serve as
additional collateral for outstanding loans to The Company (and its
subsidiaries).
Dividend Policy
No cash dividends have been declared on common stock by the Company's Board of
Directors since the Company's inception. The Company does not contemplate paying
cash dividends on its common stock in the foreseeable future since it intends to
utilize its cash flow to service debt, for working capital and capital
additions, and to finance expansion of its operations.
Other Business Matters
Accounting for Post-Retirement Benefits: The Company provides no post-retirement
benefits for current employees; therefore, FASB No. 106 will have no impact on
the Company's financial position or result of operations. The pension benefits
reflected in the financial statements of the Company are in regard to employees
of a discontinued operation.
Inflation: The Company does not expect the current effects of inflation to have
any effect on its operations in the foreseeable future. The largest single
impact effecting the Company's overall operations is the general state of the
economy and principally the home construction sector.
15
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
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
Item 7. Financial Statements and Supplementary Data.
Information required by this item appears in the Consolidated Financial
Statements and Report of Independent Certified Public Accountants of Electric &
Gas Technology, Inc. and Subsidiaries for July 31, 2004 and 2003 as listed under
Item 14.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On July 25, 2004, the Company dismissed Lightfoot Guest Moore & Co., PC ("LGM")
as its certifying accountants in order to engage a firm with a broader SEC
practice.
The Registrant's Audit Committee has approved this action.
The audit reports of LGM on the Registrant's financial statements for the year
ended July 31, 2003 did not contain any adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the Registrant's most recent fiscal year through July 25, 2004, there
were no disagreements with LGM on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of LGM, would have caused LGM
to make reference thereto in connection with its reports on the financial
statements for such time.
The Registrant delivered a copy of its Form 8-K report to LGM on July 26, 2004.
Concurrently therewith, the Registrant requested that LGM furnish it with a
letter addressed to the Securities and Exchange Commission (the "SEC") stating
whether LGM agrees with the above statements and, if not, stating the respects
in which LGM does not agree.
On July 26, 2004, the Registrant engaged Turner, Stone & Company, ("Turner
Stone") as its new independent accountant. The Registrant's Audit Committee has
approved this action.
During the Registrant's most recent fiscal year through July 26, 2004, the
Registrant did not consult with Turner Stone regarding either (1) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Registrant's financial statements, and neither a written report was provided
to the Registrant or oral advice was provided that Turner Stone concluded was an
important factor considered by the Registrant in reaching a decision as to the
accounting, auditing, or financial reporting issue; or (2) any matter that was
either the subject of a disagreement, as defined in Item 304(a)(1)(iv)of
Regulation S-B, or a reportable event pursuant to Item 304(a)(1)(v) of
Regulation S-B.
Item 8A. Controls and procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Securities Exchange Act
of 1934 reports are recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive
17
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure. Based upon the foregoing, our chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures are effective in connection with the filing of this Annual Report on
Form 10-KSB for the year ended July 31, 2004.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any significant deficiencies or material weaknesses of
internal controls that would require corrective action.
Item 8B. Other Information.
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act.
(a) During fiscal year ended July 31, 2004, the following persons served as
directors of Registrant:
Shares
Director Beneficially (%) of
Name and Age Position Since Owned Outstanding
------------ -------- ----- ----- -----------
S. Mort Zimmerman (77) Chairman of the Board, and 1985 928,825 13.37%
Director
Daniel A. Zimmerman (43) President and Director 1989 294,286 4.24%
George M. Johnston (59) Vice President, Chief 2002 40,000 --
Financial Officer and
Director
Fred M. Updegraff (70) Director 1987 79,683 1.15%
James J. Ling (81) Director 1997 -- --
|
S. Mort Zimmerman and Daniel A. Zimmerman are father and son.
(b) Executive Officers:
The Executive Officers of Registrant are:
See (a) above.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
registrant's officers and directors, and persons who own more than 10% of a
registered class of the registrant's equity securities, to file reports of
ownership and changes in ownership of equity securities of the Registrant with
the Securities and Exchange Commission. Officers, directors and greater-than 10%
shareholders are required by the Securities and Exchange Commission regulation
to furnish the registrant with copies of all Section 16(a) forms that they file.
18
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the registrant during its most recent fiscal year, all Section 16(a) forms were
timely filed, except as follows:
none
The Company does not have an employment contract with any executive officers.
Any obligation to provide any compensation to any executive officer in the event
of his resignation, retirement or termination, or a change in control of the
Company, or a change in any Named Executive Officers' responsibilities following
a change in control would be negotiated at the time of the event.
The Company may in the future create retirement, pension, profit sharing and
medical reimbursement plans covering our Executive Officers and Directors.
The Company does not have a compensation committee. Decisions concerning the
compensation of our executive officers are made by the Board of Directors. The
Board during fiscal 2004 participated in the Board's deliberations concerning
executive officer compensation during the fiscal year ended July 31, 2004.
The company has made no Long Term Compensation payouts (LTIP or other)
George M. Johnston, Secretary
BACKGROUND
S. Mort Zimmerman: Mr. Zimmerman is Chairman of the Board, since its formation
in March 1985. After attending Georgia Institute of Technology and Oglethorpe,
Mr. Zimmerman graduated in 1958 with a Bachelor of Science in Electrical
Engineering from Pacific International University. He established the first
electronics subsidiary for the predecessor corporation of LTV Corporation which
was formed to market a low cost television camera invented by Zimmerman and for
which he was awarded a United States Patent in 1958. Prior to 1963 he
participated in the engineering and installation of 18 television stations.
In 1965 Mr. Zimmerman formed the first "one-bank holding company" of its kind in
the United States and which later served as a model from which many bank holding
companies were formed. He served as Chairman of the Board of four individual
banking institutions, three of which were located in Florida (Springs National
of Tampa, Metropolitan of Miami and Mercantile National of Miami Beach) and New
York City (Underwriters Trust). After obtaining a public underwriting these
banks were sold to others. In 1967 Intercontinental Industries, Inc. was
organized and Mr. Zimmerman served as its Chairman and Chief Executive Officer.
This diversified holding company was primarily engaged in the operations of
Intercontinental Manufacturing Company, a weapons manufacturer that was later
sold. Through his research and development in the field of video X-ray and
imaging, Mr. Zimmerman caused the organization of Video Science Technology, Inc.
in 1981 to exploit the inventions for which he was awarded two U. S. Patents.
Patents awarded include: Television Camera-Video Amplifier and Blanking
Circuits-1958, Electronic Thermometer-1963, Video-X-Ray Imaging System and
Method-1977, Video System and Method for Presentation and Reproduction of X-Ray
Film Images-1977, Electromagnetic Radio Frequency Excited Explosion Proof
Lighting Method and System-1986, and Laser Display of an Electronically
Generated Image Signal-1987. Recently, Mr. Zimmerman participated as a
co-inventor on new Electronic Refrigeration technology to which patents are
pending.
19
Daniel A. Zimmerman: Mr. Zimmerman, President since 2003, was elected Senior
Vice President in 1991 and was re-elected as a Director of the Company in 1990
(Mr. Zimmerman served as a director from March, 1985 to January, 1988). Mr.
Zimmerman is presently serving as President and Director of Reynolds and Logic.
He received his Liberal Arts Degree from Austin College in Sherman, Texas in
May, 1982.
George M. Johnston, CPA: Mr. Johnston has served as Vice President and Chief
Financial Officer of the Company since May 1, 2002. He was elected a member of
the Board of Directors May 2002. From January 1995 to May 2002, Mr. Johnston was
an individual practicing public accountant in San Angelo, Texas. From October
1989 to January 1995, Mr. Johnston was Controller and CFO for a privately held
mail sorting equipment manufacturer in Dallas, Texas. Other experience includes
Controller of Canmax corporation, a public company engaged in the design of
convenience store software, various controller positions for and Mostek
Corporation and, CFO of Hamilton Standard Digital Systems, subsidiaries of
United Technologies. Mr. Johnston earned a B.B.A. degree in Accounting from
Texas Tech University, Lubbock, Texas, and has completed 24 of 32 hours toward
an M.S. in Accounting at University of North Texas.
Fred M. Updegraff: Mr. Updegraff has served as Vice President and Treasurer of
the Company from 1985 to January 2004. He was elected Treasurer and a member of
the Board of Directors in May 1987. Mr. Updegraff is Vice President, Controller
and Director of DOL Resources which files reports under Section 13 of the
Securities Act of 1934. From 1976 to 1981, he was Vice President of a
manufacturing company engaged in the manufacture of brass valves for the
plumbing industry. Mr. Updegraff graduated from Emporia State University with
Bachelor Degrees in Business Administration and Education.
James J. Ling: Mr. Ling is co-founder, chairman and chief executive officer of
Empiric Energy, Inc. since November 1992. Mr. Ling founded Ling Electronics in
1955 and through a series of mergers and acquisitions which includes, Temco
Aircraft Corporation, Chance-Vought, The Wilson Company, Braniff Airlines, Jones
& Laughlin and National Car Rental, guided the conglomerate Ling-Temco-Vought
(LTV) to a position among the largest companies in the Nation with annual sales
of $3.2 billion. Mr. Ling resigned in 1971. Since 1985, Mr. Ling has been
President of Hill Investors, Inc., a company organized to hold oil and gas
investments and which also offers business consulting services.
20
Item 10. Executive Compensation
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
------------------- ------ -------
Other Restricted Number of Long Term
Shares
Name or principal Annual Stock Covered By Incentive All Other
----------------- Plan
Position Year Salary Bonus Compensation Awards Option Grant Payout Compensation
-------- ---- ------ ----- ------------ ------ ------------ ------ ------------
S. Mort Zimmerman 2004 $ 75,000 $-- $-- $-- $-- $-- $5,100 (b)
Daniel A. Zimmerman 2004 108,000 -- -- -- -- -- $9,112 (c)
S. Mort Zimmerman 2003 193,760 (a) -- -- -- -- -- $5,100 (b)
Daniel A Zimmerman 2003 120,000 -- -- -- -- -- $9,112 (c)
S. Mort Zimmerman 2002 193,760 (a) -- -- -- -- -- $5,100 (b)
Daniel A Zimmerman 2002 132,593 -- -- -- -- -- $9,112 (c)
|
S. Mort Zimmerman-Chairman of the Board. Daniel A. Zimmerman-President and Chief
Executive Officer. George M. Johnston-Vice President and Chief Financial
Officer.
(a) A portion of the payments were made to an affiliate, Interfederal Capital,
Inc., as a management fee and includes accrued and unpaid compensation of
$75,000 for fiscal year 2004, 2003 and 2002, respectively.
(b) Expense allowances.
(c) Company match of 401 (K) employee contributions and expense allowances.
(d) Company match of 401 (K) employee contributions.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
(a) The following tables sets forth the number of shares of Common Stock of
holders of the Company known to the Company to be the beneficial owner of more
than five (5%) percent of its Common Stock at July 31, 2004.
Amount and Nature of Percent of
Name and Address Beneficial Owner Class
---------------- ---------------- -------
S. Mort Zimmerman 928,825 (1) 13.37%
13636 Neutron Road
Dallas, Texas 75244-4410
|
21
(b) The following table sets forth the number of shares of Common Stock of
Registrant owned by all directors and officers as a group as of July 31, 2004:
Name of Beneficial Owner Amount and Nature of Percent of
Beneficial Ownership Class
S. Mort Zimmerman 928,825 (1) 13.37%
Chairman of the Board
Daniel A. Zimmerman 294,286 (2) 4.24%
President and Director
George M. Johnston 40,000 1.15%
Vice President Finance and Director
All Officers and Directors, as a Group 1,330,357 19.15%
|
(1) Includes (i) 111,351 shares of the 1,113,507 shares owned beneficially
and of record by Trans-Exchange Corporation, in which S. Mort
Zimmerman has a 10% beneficial interest; and (ii) 23,572 shares owned
by Glauber Management Company, a firm 42% owned by S. Mort Zimmerman
and in which he effectively controls the voting of the Company's stock
owned by such firm. S. Mort Zimmerman disclaims any beneficial
interest in the shares owned by his wife's estate and their adult
children.
(2) S. Mort Zimmerman and Daniel A. Zimmerman are father and son.
Item 12. Certain Relationships and Related Transactions
The following is a summary of advances to and from affiliated companies at JULY
31,:
2004 2003
---------------- ---------------
Interfederal Capital, Inc. $ 258,609 $ 328,673
IFC Industries 43,589 14,774
M&M Trans Exchange 364,989 375,118
Comtec, Inc. 18,014 62,389
Glauber Management (57,348) (60,600)
Petroleum Dynamic (4,222) (4,222)
S. Mort Zimmerman (333,699) (289,949)
Daniel A. Zimmerman (22,500) -
---------------- ---------------
$ 271,654 $ 426,183
================ ===============
|
22
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as part of this Report
1. Financial Statements
Consolidated Financial Statements of Electric & Gas Technology, Inc.
and Subsidiaries:
(i) Reports of Independent Certified Public Accountants
(ii) Consolidated Balance Sheets at July 31, 2004.
(iii)Consolidated Statements of Operations for the two years ended
July 31, 2004 and 2003.
(iv) Consolidated Statements of Changes in Stockholders' Equity for
the two years ended July 31, 2004 and 2003.
(v) Consolidated Statements of Cash Flows for the two years ended
July 31, 2004 and 2003.
(vi) Notes to Consolidated Financial Statements
2. Financial Statement Schedules Required by Item 8 of Form 10-KSB and
paragraph (d) of Item 14
None
3. Exhibits
3.1 Articles of Incorporation of Registrant (filed as Exhibit 3.1 and 3.2
to Registration Statement form S-18 - registrant No. 33-2147FW of
Registrant and Incorporation herein by reference.
3.2 By-laws of Registrant (filed as Exhibit 3.3 Registration Statement on
Form S-18 - Registrant No. 33-2147FW - of Registrant and incorporated
herein by reference.
4.1 Specimen copy of Common Stock Certificate (filed as Exhibit 1.1 to
Registration Statement under the Securities Exchange Act on Form 8-A
and incorporated herein by reference).
4.1 Warrant Agreement and Text of Warrant (filed Exhibit 4.1 to Amendment
No. 1 to Registration Statement on Form S-18, Registration #33-2147FW,
of Registrant incorporated herein by reference.
10.1 Agreement and Plan of Acquisition between Petro Imperial Corp. and
Superior Technology, Inc. dated June 30, 1986 for the acquisition of
80% of American Brass, Inc. (filed as Exhibit 1 to Registrant's Form
8-K Report dated July 9, 1986, Commission File No. 0-14754 and
incorporate herein by reference).
10.2 Acquisition Agreement dated July 29, 1988 and Amendment thereto dated
November 15, 1988, (filed as Exhibit 1 to Form 8-K Report, as amended
on Form 8 filed August 9, 1988 and incorporated herein by reference).
23
10.32U.S. Small Business Administration authorization and loan agreement
dated August 3, 1994 between Independence Funding Company Ltd. and
Electric & Gas Technology, Inc., Reynolds Equipment Company, Superior
Technology, Inc. and Fridcorp Plastics, Inc. and Note for $1,000,000
(filed as exhibit 10.32 to Form 10-K, filed October 27, 1994 and
incorporated herein by reference).
10.33Asset Purchase Agreement dated as of April 18, 1995 by and between
Superior Technology, Inc. and American Circuit Breaker Corporation
(filed as exhibit 10.32 to Form 10-Q, filed June 12, 1995 and
incorporated herein by reference).
10.34"Asset Purchase Agreement" dated as of October 31,1995 by and between
Test Switch Technology, Inc., Electric & Gas Technology, Inc. and The
Durham Co. (filed as exhibit 10.34 to Form 10-Q. filed December 6,
1995 and incorporated herein by reference).
10.37Assets Purchase Agreement among New Logic Design Metals, Inc. of
Chatham Enterprises Inc., of Chatham Technologies, Inc., Logic Design
Metals, Inc. and Precision Techniques, Inc. and Electric & Gas
Technology, Inc. Dated July 15, 1997. (filed as exhibit 10.37 to Form
8-K, filed August 27, 1997 and incorporated herein by reference).
(b) Reports on form 8-K
Current report-Form 8-K filed July 25, 2004: Item 4. Change in
Registrant's Certifying Accountant.
Item 14. Principal Accountant Fees and Services.
The following discloses accounting fees and services that were billed.
2004 2003
------- -------
LightfootGuestMoore - audit fees $84,172 $ --
WhitleyPenn - audit fees 5,000 51,658
------- -------
Total $89,172 $51,658
======= =======
|
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
By: /s/ George M. Johnston
----------------------
George M. Johnston, Vice President
and Chief Financial Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacity and on the date set-forth following their name:
Signature Capacity Date
--------- -------- ----
/s/ S. Mort Zimmerman Chairman November 15, 2004
------------------------
S. Mort Zimmerman
/s/ Daniel A. Zimmerman President November 15, 2004
------------------------ and Director
Daniel A. Zimmerman
/s/ George M. Johnston Vice President, Secretary November 15, 2004
------------------------ Chief Financial Officer
George M. Johnston And Director
/s/ Fred M. Updegraff Director November 15, 2004
------------------------
Fred M. Updegraff
/s/ James J. Ling Director November 15, 2004
------------------------
James J. Ling
|
25
ELECTRIC & GAS TECHNOLOGY, INC.
AND SUBSIDIARIES
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2-3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET AT JULY 31, 2004 F-4-5
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JULY 31, 2004 AND 2003 F-6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JULY 31, 2004 AND 2003 F-7-8
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JULY 31, 2004 AND 2003 F-9-11
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-12-30
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Electric & Gas Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Electric &
Gas Technology, Inc. and Subsidiaries as of July 31, 2004, and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Electric & Gas
Technology, Inc. and Subsidiaries at July 31, 2004, and the consolidated results
of their operations and their cash flows for the year ended July 31, 2004, in
conformity with United States generally accepted accounting principles.
Turner Stone & Co.
Certified Public Accountants
Dallas, Texas
November 15, 2004
F-2
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Electric & Gas Technology, Inc. and Subsidiaries
We have audited the consolidated balance sheet of Electric & Gas Technology,
Inc. and Subsidiaries as of July 31, 2003, and the accompanying related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year ended July 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Electric & Gas
Technology, Inc. and Subsidiaries as of July 31, 2003, and the consolidated
results of their operations and their cash flows for the year ended July 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
Lightfoot Guest Moore & Co., P.C.
Certified Public Accountants
Dallas, Texas
November 12, 2003
F-3
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 37,139
Accounts receivable trade, less allowance of $20,094 1,069,163
Inventories 1,066,706
Prepaid expenses 38,092
Receivable from sale of discontinued operations 3,731,209
----------
Total current assets 5,942,309
----------
PROPERTY, PLANT AND EQUIPMENT, net
Property, plant and equipment 2,358,240
Less accumulated depreciation (1,015,117)
----------
Net property, plant and equipment 1,343,123
----------
OTHER ASSETS
Certificates of deposit, pledged 501,016
Assets held for sale 752,865
Due from affiliates - net 271,654
Other 72,282
----------
Total other 1,597,817
----------
TOTAL ASSETS $ 8,883,249
==========
|
See accompanying notes
F-4
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
July 31, 2004
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 1,486,698
Accounts payable 1,288,192
Accrued liabilities 660,897
Current maturities of long-term obligations 298,172
Current portion of minimum pension liability 373,555
Liabilities of discontinued operations 2,517,356
---------
Total current liabilities 6,624,870
LONG-TERM OBLIGATIONS
Long-term obligations, less current maturities 1,417,236
Minimum pension liability 1,037,134
---------
Total long-term obligations 2,454,370
---------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIT
Preferred stock, $10 par value, 5,000,000 shares
Authorized --
Common stock, $.01 par value, 30,000,000 shares
authorized, issued 7,062,034 shares 70,620
Additional paid-in capital 9,611,301
Accumulated deficit (8,390,587)
Pension liability adjustment (1,410,689)
----------
Stockholders' deficit before treasury stock (119,355)
Treasury stock, at cost 65,000 shares (76,636)
-------
Total stockholders' deficit (195,991)
--------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 8,883,249
===========
|
F-5
See accompanying notes
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31,
--------------------------
2004 2003
Sales $ 6,435,815 $ 5,298,000
Cost of goods sold 4,904,611 3,672,316
----------- -----------
Gross profit 1,531,204 1,625,684
Selling, general and administrative expenses 3,573,837 2,536,560
----------- -----------
Operating loss (2,042,633) (910,876)
----------- -----------
Other income and (expenses)
Interest, net (157,418) (117,270)
Other:
Investment gain (loss) 143,193 (475,408)
Loss of civil action (462,740) --
Other 3,323 15,964
----------- -----------
Total other expenses (473,642) (576,714)
Loss from continuing operations (2,516,275) (1,487,590)
Discontinued operations:
Income from discontinued operations, net of income tax
expense of
$48,304 and $65,129 194,429 257,366
Loss on sale of discontinued
operations, net of income tax benefit of $52,029 (668,795) --
-----------
Gain (loss) from discontinued operations (474,366) 257,366
----------- -----------
NET LOSS $(2,990,641) $(1,230,224)
=========== ===========
Income(loss) available per common share:
Loss from continued operations $ (0.37) $ (0.22)
----------- -----------
Gain (loss) from discontinued operations (0.07) 0.03
----------- -----------
Net loss $ (0.44) $ (0.19)
----------- -----------
Weighted average common shares outstanding 6,968,359 6,632,267
----------- -----------
|
F-6
See accompanying notes
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Years ended July 31, 2004, and 2003
Preferred Common Common Paid-in Accumulated
Stock Shares Stock capital Deficit
--------- ----------- --------- ----------- -----------
Balance at July 31, 2002 $ -- 7,452,034 $ 64,719 9,362,601 $(4,169,722)
Net loss for the year -- -- -- -- (1,230,224)
Pension liability adjustment -- -- -- -- --
Currency translation adjustments -- -- -- -- --
Comprehensive income (loss) -- -- -- -- --
Stock issued for acquisition -- 400,000 4,000 169,400 --
Stock issued for services -- 75,000 750 40,200 --
--------- ----------- --------- ----------- -----------
Balance at July 31, 2003 -- 7,947,034 69,469 9,572,201 (5,399,946)
Net loss for the year -- -- -- -- (2,990,641)
Pension liability adjustment -- -- -- -- --
Currency translation adjustments -- -- -- -- --
Comprehensive income (loss) -- -- -- -- --
Purchase of treasury stock -- -- -- -- --
Stock issued for acquisition -- -- --
Stock issued for services -- 115,000 1,151 39,100 --
----------- ----------- ----------- -----------
Balance at July 31, 2004 $ -- 7,062,034 $ -- $ 9,611,301 $(8,390,587)
========= =========== ========= =========== ===========
|
F-7
See accompanying notes
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
Years ended July 31, 2004 and 2003
Comprehensive Income
--------------------
Pension Total
liability Translation Comprehensive Treasury
adjustment adjustment Income Stock Total
----------- ----------- ---------- ------- -----------
Balance July 31, 2002 $(1,073,446) $ (605,046) (1,678,492) (145,019) $ 3,434,087
Net loss for the year -- -- -- -- (1,230,224)
Pension liability adjustment (94,570) -- (94,570) -- (94,570)
Currency translation adjustment -- 185,241 185,241 -- 185,241
Comprehensive income (loss) -- -- -- --
Stock issued for acquisition -- -- -- -- 173,400
Stock issued for services -- -- -- -- 40,950
Balance July 31, 2003 (1,168,016) (419,805) (1,587,821) (145,019) 2,508,884
----------- ----------- ---------- ------- -----------
Net loss for the year -- -- -- -- (2,990,641)
Pension liability adjustment (242,673) -- (242,673) -- (242,673)
Reclassification adjustment for
discontinued operations -- 419,805 419,805 -- 419,805
Comprehensive income (loss) -- -- -- -- (2,813,509)
Stock issued for acquisition -- -- -- -- --
Treasury stock contributed
to pension plan 68,383 68,383
Stock issued for services -- -- -- -- 40,251
----------- ----------- ---------- ------- -----------
Balance at July 31, 2004 $(1,410,689) $ -- (1,410,689) (76,636) $ (195,991)
=========== =========== ========== ======= ===========
|
F-8
See accompanying notes.
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
2004 2003
----------- -----------
Cash flows from operating activities:
Net loss $(2,990,641) $(1,230,224)
(Gain) loss on discontinued operations 474,366 (257,366)
----------- -----------
Loss from continuing operations (2,516,275) (1,487,590)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation of property, plant and equipment 290,355 158,152
Stock issued for services 40,251 40,950
(Gains)/Losses on investments (143,193) 475,408
Loss on lawsuit 459,936 --
Loss on disposal of assets 25,708 --
Write-down on investment in Orasee 447,019 --
Changes in operating assets and liabilities:
Accounts receivable (106,466) (195,648)
Inventories (83,057) 104,524
Prepaid expenses 3,563 (6,401)
Other assets (29,488) 112,486
Accounts payable 555,291 462,386
Accrued liabilities 457,237 (19,401)
Income taxes -- 6,209
----------- -----------
Net cash used in operating activities (599,119) (348,925)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (137,288) (750,457)
Pension Plan 130,227 --
Cash in acquired subsidiary -- 38,548
Investments in affiliates 154,529 (98,705)
Investments 400,589 71,408
Certificate of deposits 100,734 228,731
----------- -----------
Net cash provided by (used in) investing activities 648,791 (510,475)
----------- -----------
Cash flows from financing activities:
Proceeds on long-term obligations -- 604,000
Payments on long-term obligations (291,306) (163,848)
Increase in notes payable 219,620 308,126
----------- -----------
Net cash provided by (used in) financing activities (71,686) 748,278
----------- -----------
|
F-9
See accompanying notes.
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended July 31,
2004 2003
--------- ---------
Net cash provided by discontinued operations $ 18,223 $ 115,863
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,791) 4,741
Cash and cash equivalents-beginning of year 40,930 36,189
--------- ---------
Cash and cash equivalents - end of year $ 37,139 $ 40,930
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 175,128 $ 215,785
========= =========
|
Non-cash transactions:
In 2003, the Company issued 400,000 shares of common stock valued at $173,400 in
exchange for 80% of the common stock outstanding of LMT. The assets received and
the liabilities assumed are as follows: See Note 14.
Assets acquired:
Cash $ 38,548
Accounts receivable 446,513
Inventories 318,866
Equipment 709,649
----------
Total assets 1,513,576
----------
Liabilities assumed:
Notes payable 250,000
Accounts payable 420,979
Accrued expenses 86,517
Long-term debt 570,834
Minority interest 11,846
----------
Total liabilities assumed 1,340,176
----------
Net investment $ 173,400
==========
|
During the year ended July 31, 2004, the Company obtained title to the Rentech
stock which was the collateral for the receivable from Dresser. The Rentech
stock was classified as marketable securities for the quarter ended October 31,
2003 and a portion was subsequently sold and the remainder, with a fair market
value of $78,178, was transferred to an affiliate, Interfederal Capital, Inc.
The receivable from Dresser was classified as other assets for the year ended
July 31, 2003.
F-10
See accompanying notes.
Treasury stock with a cost of $75,250 was transferred to the pension plan during
the year ended July 31, 2004. The cost basis approximated the fair market value
at the time of the transfer.
Capacitive Deionization Technology (CDT) stock, with a market value of $56,965,
was transferred to the Retech employees pension plan during the year ended July
31, 2004.
During the year ended July 31, 2004, the Company's corporate office building and
the Reynolds' office/manufacturing building along with the related land and
improvements for both facilities were reclassified as assets held for sale at
its net book value of $305,755.
F-11
See accompanying notes.
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Organization and operations
Electric & Gas Technology, Inc.("the Company" or "ELGT") was organized under the
laws of the State of Texas on March 18, 1985, to serve as a holding company for
operating subsidiary corporations. The Company 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 with the
objective being a more synergistic use of technical resources and operating
capabilities. 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 three commercial property locations.
The history of the Company's progression, including acquisition and divestiture
activities is as follows:
In 1985, the Company (i) acquired from Commercial Technology, Inc. "COMTEC"), an
affiliated company, all of the stock of Reynolds Equipment Company ("Reynolds")
for stock of the Company and (ii) acquired from a subsidiary of COMTEC all of
the stock of Retech, Inc. ("Retech") [formerly Test Switch Technology,
Inc.("Test Switch"), formerly Superior Technology, Inc. ("Superior")] for stock
of the Company.
In 1988, the Company acquired 85% (and subsequently 100%) of the stock of Data
Automation Company, Inc. ("DAC") from Video Science Technology, Inc., formerly
an affiliate of COMTEC and of the Company. DAC owned 100% of Domac Plastics,
Inc. ("Domac") and Logic Design Metals, Inc. ("Logic"). Domac and Logic were
subsequently sold. During 1992 Logic merged into DAC, its parent, and DAC
changed its name to Logic Design Metals, Inc. and is referred to herein as
"Logic".
In 1992, Fridcorp Plastics, Inc. ("Fridcorp") was acquired for stock of the
Company. Fridcorp was subsequently sold in December 1997.
In 1992, Hydel Enterprises, Inc. ("Hydel") [formerly Stelpro Limited
("Stelpro")] was acquired for cash and stock of the Company. In 1995, Hydel
acquired all of the outstanding capital stock of Hydel Engineering Limited
("Hydel Engineering") for cash and notes payable. In July 2004, substantially
all of the assets of Hydel were sold for cash.
In 1992, Superior Magnetics, Inc. ("SMI") was formed by the Company to acquire
the operating assets of the business operations of Denison Magnetics of Texas
Instruments Incorporated, which was purchased for cash and deferred payments.
In 1996, the Company incorporated Atmospheric Water Technology, Inc. (Formerly
Atmospheric and Magnetics Technology, Inc.) ("AWT") to undertake the Company's
venture into the water industry.
In January of 2003, the Company acquired the assets of Garland Manufacturing
Company and changed the name to Logic Metals Technology, Inc. ("LMT").
F-12
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business (continued)
The Company presently is the owner of 100% of Reynolds, 80% of LMT, and 91.5% of
AWT. Through its subsidiaries, the Company operates in three distinct business
segments: (1) Utilities Products, (2) Contract Manufacturing and (3) Water
Production. In the Utilities sector, the Company designs, manufactures and
markets products for natural gas measurement, metering and odorization. In the
Contract Manufacturing sector, the Company provides metals fabrication and
assembly for a diverse customer base, including telecom and networking
cabinetry, electrical controls, and other functional and aesthetic sheet metal
applications. In Water Production, the Company has developed a line of products
that extract water from the atmosphere, and filter and purify it for drinking
purposes. However, the Company is not actively pursuing the sale of the
Watermaker(TM) products, but rather is seeking a proactive partner to assume the
responsibilities of marketing and production. The Company's Headquarters are
located at 3233 W. Kingsley Road, Garland, Texas, 75041. Its telephone number is
(972) 870-3223 and its facsimile number is (972)271-8925.
In order to meet the Company's cash requirements without suffering significant
shareholder dilution, the decision was made during fiscal 2004 to sell
substantially all of the assets of the Company's Canadian subsidiary, Hydel.
This transaction was completed with the proceeds from the sale being
approximately $4,000,000 (USD). These proceeds significantly improved the
Company's balance sheet and allowed it to, among other things, reduce debt and
trade payables, enter into a much more attractive banking facility with an
operating line better suited to its needs, and obtain the necessary equipment
leasing to support its expansion goals. All together these actions place the
Company in a much better position to achieve its goals of revenue and
profitability growth.
ELGT has recently entered into an asset based credit facility which provides for
a working line of up to $1,750,000. Management believes that this is sufficient
to support the Company's current growth requirements. However, management
believes that carefully chosen acquisitions could significantly accelerate its
growth plans, and that the actions taken in fiscal 2004 have better positioned
it to attract target companies as well as investment capital that may be needed
to support those plans. There can, of course, be no assurances that the Company
will be successful in raising additional investment or working capital, if
needed, and failure to do so would slow its growth.
2. Accounting Policies
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Basis of Accounting
The accounts are maintained and the consolidated financial statements have been
prepared using the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
F-13
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Accounting policies (continued)
Reclassifications
Certain reclassifications have been made to the 2003 consolidated financial
statements to conform to the 2004 presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
revenues and expenses. Actual results may well vary from the estimates that are
used.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers any
short-term cash investments with an original maturity of three months or less to
be a cash equivalent.
Accounts Receivable
The Company performs periodic credit evaluations of its customers' financial
condition and extends credit to virtually all of its customers on an
uncollateralized basis. Credit losses to date have been insignificant and within
management's expectations. The Company provides an allowance for doubtful
accounts that is based upon a review of outstanding receivables, historical
collection information, and existing economic conditions. Normal accounts
receivable are due 30 days after the issuance of the invoice. Receivables past
due more than 120 days are considered delinquent. Delinquent receivables are
written off based on individual credit evaluation and specific circumstances of
the customer. As of July 31, 2004, management has recorded an allowance for bad
debts of $20,094. In the event of complete non-performance by the Company's
customers, the maximum exposure to the Company is the outstanding accounts
receivable balance at the date of non-performance.
Inventories
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.
Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated service lives.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements whichever is shorter. Leased property
under capital leases is amortized over the lives of the respective leases or
over the service lives of the assets for those leases which substantially
transfer ownership. The straight-line method of depreciation is followed for
newly acquired assets and straight-line and accelerated methods have been used
for older assets for financial reporting purposes, accelerated methods are used
for tax purposes.
F-14
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Accounting policies (continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed based
on the following useful lives:
Years
-----
Machinery and equipment 3 -15
Buildings and improvements 4 -33
Furniture, fixtures and equipment 3 -10
|
Research and Development Costs
In accordance with Statements of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed, all costs incurred to establish the technological feasibility are
research and development costs. In accordance with this provision, the Company
has expensed approximately $217,000 of research and development related expenses
from inception through February 2003. The costs that were expensed related to
the creation a working model from the white paper created by the engineer,
mainly related to the labor of the technicians and programmers, with a small
portion being related to various computer components. The Company reached
technological feasibility in February 2003 and a working model was the product's
first independent usage. Costs incurred subsequent to February 2003 aggregating
$65,842 and $132,000 for the year ended July 31, 2004, and 2003, respectively,
for such software development have been capitalized and will be amortized over a
5 year period.
Income Taxes
Deferred income taxes are determined using the liability method in accordance
with SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. 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 in income in the period that includes the
enactment date. In addition, a valuation allowance is established to reduce any
deferred tax asset for which it is determined that it is more likely than not
that some portion of the deferred tax asset will not be realized.
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net loss available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share reflects the potential
dilution that could occur if accounts or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company. For the years
ended July 31, 2004 and 2003, dilutive earnings (loss) per common share is not
presented since there exist no dilutive common stock equivalents.
Stock-Based Compensation
F-15
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Accounting policies (continued)
Stock-based compensation is determined in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. Under the fair value based method,
compensation cost is measured at the grant date based on the value of the award.
However, SFAS No. 123 also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by the Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. Entities electing to
remain with the accounting in APB Opinion No. 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting had been applied. The Company has elected to measure
compensation cost for options issued to employees under APB Opinion No. 25.
Options issued to non-employees are measured in accordance with SFAS No. 123.
Revenue and Expense Recognition
The Company recognizes revenue when title passes to its customers upon shipment
of its products for final delivery. Expenses are recognized in the period in
which incurred.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with SFAS No. 52, Foreign Currency Translation, foreign denominated monetary
assets and liabilities are translated to their United States dollar equivalents
using foreign exchange rates which prevailed at the balance sheet date. Revenue
and expenses are translated at average rates of exchange during the year.
Related translation adjustments are reported as a separate component of
shareholders' equity, whereas gains or losses resulting from foreign currency
transactions are included in results of operations. During the year ended July
31, 2004, the Company sold its foreign subsidiary. The foreign currency
translation adjustment was recognized as part of the loss on sale of
discontinued operations.
Comprehensive Income
The Company reports comprehensive income in accordance with the provisions of
SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards
for the reporting and presentation of comprehensive income and its components in
a full set of financial statements. Comprehensive loss consists of an
accumulated net loss comprised of foreign currency translation adjustments and
pension liability adjustment and is presented in the accompanying consolidated
statement of changes in stockholders' equity. SFAS No. 130 requires only
additional disclosures in the financial statements; it does not affect the
Company's financial position or results of operations.
Impairment of Long-Lived Assets
F-16
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Accounting policies (continued)
The Company periodically evaluates the net realizable value of long-lived
assets, including property, equipment and investments, relying on a number of
factors, including operating results, business plans, economic projections and
anticipated future cash flows. Impairment is assessed by evaluating the
estimated undiscounted cash flows over the asset's remaining life. If estimated
cash flows are insufficient to recover the investment, an impairment loss is
recognized.
Product Warranties
The Company offers a two and four year warranty for certain utility products.
The specific terms and conditions of those warranties vary depending upon the
product sold. The Company provides a basic limited warranty, including parts and
labor, for those products for two or four years. The Company's warranty expense
has been minimal.
Shipping and Handling Costs
In accordance with the Emerging Issue Task Force ("EITF") issue 00-10,
"Accounting for Shipping and Handling Fees and Costs", the Company includes
shipping and handling fees billed to customers as a credit (offset) to shipping
costs in operating expenses and shipping and handling costs associated with
outbound freight in operating expenses in the accompanying consolidated
statements of operations. The shipping and handling costs associated with
outbound freight in operating expenses were approximately $32,000 and $37,000
for the fiscal years ended July 31, 2004 and 2003 respectively.
Affiliates
The Company is affiliated with various entities (together, the "Affiliates").
The Affiliates are primarily owned by the Company's Chairman, S. Mort Zimmerman,
and his family. See Note 12 for discussion of related-party transaction with the
Affiliates.
3. Inventories
Inventories consisted of the following at July 31, 2004:
Raw materials $ 576,080
Work-in-process 128,259
Finished goods 362,367
----------
$1,066,706
==========
|
F-17
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 Property, Plant and Equipment
Buildings and improvements $ 139,278
Machinery and equipment 1,644,155
Furniture, fixtures & equipment 574,807
-----------
2,358,240
Less accumulated depreciation (1,015,117)
-----------
Net plant, property and equipment $ 1,343,123
===========
5. Notes Payable
|
Notes payable consisted of the following at July 31, 2004.
Note payable bank - Reynolds (a) $ 376,761
Note payable bank - LMT (b) 450,000
Note payable, ELGT (c) 459,937
Note Payable, individual, ELGT (d) 200,000
$1,486,698
(a) Note payable, bank Reynolds consists of a line of credit with a maximum loan
amount of $400,000, payable on demand; bearing interest at the bank's prime rate
plus 2.00%; secured by trade receivables and inventories, and guaranteed by Dan
Zimmerman, an officer of the Company.
(b) Note payable, bank LMT consists of a line of credit with a maximum loan
amount of $450,000, payable on demand; bearing interest at the bank's prime rate
plus 2.00%; secured by trade receivables and inventories, guaranteed by the
president of LMT, S. Mort Zimmerman, an officer of the Company and by
Interfederal Capital, Inc., an affiliate.
(c) A note payable to a bank as the result of the loss of a lawsuit. The note
matures in July of 2005, and consists of interest only payments with an annual
rate of 7.00%. (d) A note payable to an individual bearing interest at an annual
rate of 24.00% due upon funding of the sale of Hydel.
Information relating to short-term borrowing is as follows:
Balance at end of year $1,486,698
Maximum borrowing $1,509,936
Average balance $1,041,882
Average effective interest rate 5.7%
|
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Notes Payable (continued)
Maximum borrowings are the maximum amount of aggregate short-term borrowing
outstanding at any month end during the year. The average short-term borrowings
were computed by dividing the aggregate borrowing for the year by the number of
days the borrowings were outstanding during the year. The weighted average rate
was computed by dividing the average borrowing into total interest on short-term
borrowing.
6. Long-term Obligations
Long-term obligations consist of the following at July 31, 2004:
Mortgage note payable due in monthly payments of principal
and interest at 2.75% above prime from October 10, 1994 over
twenty years. Guaranteed by the Small Business
Administration. (a) $312,291
Note payable to a bank bearing interest at 5.2%, due in
monthly principal and interest installments of $9,118 until
November 4, 2007, secured by a certificate of deposit.
Subsequent to July 31, 2004, the certificate of deposit was
converted to cash and the proceeds were used to pay this
note payable balance in full. (a) 334,853
Note payable to a bank, bearing interest at 5.44%, due in
monthly installments of $5,854 until March 5, 2006, secured
by certain equipment. Guaranteed by an officer of ELGT and
an officer of LMT and Interfederal Capital, Inc. an
affiliate. (c) 282,867
Note payable to bank bearing interest at an effective rate
of 5.5%, principal and interest are due in monthly
installments of $10,357 until July 2007, secured by certain
equipment. Face amount of loan is $322,493 (c) 344,154
Note payable (unsecured) to an individual, imputed interest
at an effective rate of 5.5%, principal and interest are due
in monthly installments of $1,000 until January 2010. (c) 56,842
Mortgage payable to a bank bearing interest at 6.27%,
principal and interest are due in monthly installments of
$3,186 until February 2018, secured by the building.
Guaranteed by Dan Zimmerman, an officer of the Company. (b) 372,124
F-19
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term Obligations (continued)
Various other installment notes and
capitalized lease obligations 12,277
-----------
Total amount of obligations 1,715,408
Less current maturities (298,172)
-----------
$ 1,417,236
===========
|
The prime rate was 4.25% at July 31, 2004.
The aggregate annual principal payments are as follows:
Year Ending July 31,
2005 $ 298,172
2006 507,609
2007 278,291
2008 92,517
2009 59,445
Thereafter 479,374
----------
Total $1,715,408
==========
(a) ELGT
(b) Reynolds
|
(c) LMT
7. Accrued Liabilities
Accrued liabilities consisted of the following at July 31, 2004.
Payroll $307,270
Vacation pay 57,329
Taxes 51,417
Interest 17,800
Miscellaneous 227,081
-------
Total accrued liabilities $660,897
========
|
F-20
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments and Contingencies
During the year ended July 31, 2004, the Company entered into an agreement to
lease a building owned by an affiliate at a rate of $30,000 per month on a month
to month basis. The rent due was calculated retroactively from January 1, 2003
through July 31, 2004. Rent expense for the years ended July 31, 2004 and 2003
was $481,600 and $126,000 respectively.
See note 12.
Litigation
Other
Reynolds has no insurance against risk of loss that may result from product
liability. Management considers such potential losses as remote; accordingly, no
provision has been made in the consolidated financial statements for any claims
or possible claims that may arise.
Concentration of Credit Risk
The Company invests its cash and certificates of deposit primarily in deposits
with major banks. Certain deposits are in excess of federally insured limits.
The Company has not incurred losses related to its cash.
The Company sells a broad range of products to the electric and gas utility
industries, and performs contract manufacturing for electronics and
communications companies in the form of sheet metal forming and assembly.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base. As of
July 31, 2004, approximately 49%and 17% of the accounts receivable balance is
due from two customers. Ongoing credit evaluations of customers' financial
condition are performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses have not exceeded
management's expectations.
Fair Value of Financial Instruments:
The estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies. The fair
value of financial instruments classified as current assets or liabilities
including cash and cash equivalents, receivables and accounts payable
approximate carrying value due to the short maturity of the instruments. The
fair value of short-term and long-term debt approximate carrying value based on
their effective interest rates compared to current market rates.
F-21
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Significant Customers
During the years ended July 31, 2004 and 2003, the Company had two significant
customers. The following table sets forth the sales generated by customers who
accounted for more than 10% of the Company's sales:
---------------------------------------------------------------------
2004 2003
---- ----
---------------------------------------------------------------------
Customer A 41% 21%
---------------------------------------------------------------------
Customer B 14% *
---------------------------------------------------------------------
|
* Less than 10%
10. Benefit Plans
Retech sponsored a defined benefit pension 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.
Retech's policy is to fund pension expenses accrued.
Pension expense for the years ended July 31,:
2004 2003
--------- ---------
Interest cost $ 75,509 $ 73,323
Actual return on assets held for the plan 74,534 (12,702)
Distribution to an affiliate -- 100,000
Net amortization of prior service cost,
transition liability and net gain 9,328 14,401
--------- ---------
Pension expense $ 159,371 $ 175,022
========= =========
|
The following sets forth the funded status of the plan and the amounts shown in
the accompanying consolidated balance sheet at July 31, 2004:
Pension benefit obligations:
Vested $ 1,277,619
Non-vested --
-----------
Projected benefit obligation 1,277,619
Fair value of assets held in plan 266,095
-----------
Unfunded excess of projected benefit obligation
over plan assets $ 1,011,524
Unrecognized net transition obligation $ --
Unrecognized prior service costs --
Unrecognized net loss 1,410,689
Pension (asset) liability recognized (399,165)
-----------
Accrued pension liability $ 1,011,524
===========
F-22
|
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Benefit Plans (continued)
The following is a summary of the changes in the fair value of Plan assets for
the year ended July 31, 2004:
Fair value of Plan asset at beginning of year $ 293,712
Actual return on Plan assets (74,536)
Distribution to an affiliate --
Company contributions 100,652
Benefits paid (53,733)
---------
Fair value of Plan assets at end of year $ 266,095
=========
|
The following is a summary of the components of net benefit cost for each year:
2004 2003
--------- ---------
Interest cost $ 75,509 $ 73,323
Expected return on Plan assets (29,467) (32,274)
Amortization of prior service cost 9,326 14,401
Amortization losses/gains 50,807 43,095
--------- ---------
Net periodic benefit cost $ 106,175 $ 98,545
========= =========
|
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 Company recorded
liabilities of $1,410,689 and $1,177,342, intangible assets of $0 and $9,326 and
a stockholders' equity reduction of $1,410,689 and $1,168,016 as of July 31,
2004 and 2003, respectively. The Company must make its minimum required
contribution of $218,359 to the plan no later than April 30, 2005.
During the fiscal year ending July 31, 2003, Interfederal Capital borrowed
$100,000 from the Retech pension plan. The Company has not recorded the loan,
nor has the plan assets included such loan.
Retech will terminate this plan upon funding its pension liability. The plan
assets consist of common stock equities and government securities administered
by the trust department of Comerica Bank, Dallas, Texas.
The assumed long-term rate of investment return and the interest rate for
obligations used in determining the actuarial present value of accumulated plan
benefits was 8.0% and 6.0% at July 31, 2004 and 8.0% and 6.50% at July 31, 2003,
respectively.
The Company has discontinued contributions to the defined contribution (401-k)
plan.
F-23
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Benefit Plans (continued)
The estimated benefits expected to be paid in each of the next five fiscal years
are as follows:
--------------------- -----------------------
2005 $ 51,000
--------------------- -----------------------
2006 56,000
--------------------- -----------------------
2007 63,000
--------------------- -----------------------
2008 73,000
--------------------- -----------------------
2009 88,000
--------------------- -----------------------
|
The Company has an Incentive Stock Option Plan. The option price must be at
least 100% of the fair market value of the common stock at the time options are
granted. If the person to whom the option is granted is more than a 10%
shareholder of the Company, the option price must be at least 110% of the fair
market value of the stock at the time options are granted. No employee may be
granted options in any calendar year greater than a value of $100,000, plus
certain carry-over allowances from the previous years, as defined in the Plan.
Each option becomes exercisable only after two years continued employment
following the date the option is granted. The Plan provides for 400,000 shares
of common stock.
There are currently no options outstanding.
F-24
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Income Taxes
Following is a reconciliation between reported income taxes and the amount
computed by applying the statutory federal income tax rates to earnings (loss)
before income taxes for the periods ended July 31,:
2004 2003
--------- ---------
Expected provision (benefit) for federal income taxes $(754,000) $(248,000)
Prior years taxes (Refund) -- --
Unavailable loss carrybacks 754,000 248,000
--------- ---------
Income taxes (benefit) $ -- $ --
========= =========
|
The Company files a consolidated tax return with its U.S. subsidiaries. The
Company has a net operating loss carry-forward of approximately $6,700,000,
which will expire from 2015 to 2018.
The components of the net deferred tax (assets) liability included in the
consolidated balance sheet are as follows at July 31, 2004:
Net operating loss carryforward $(2,600,000)
Depreciation 188,000
Provision for losses (1,150,000)
Valuation allowance 3,562,000
-----------
$ --
===========
|
The Company has provided a valuation allowance against its deferred tax asset as
it has determined that it is more likely than not the temporary differences will
not be utilized for tax purposes.
12. Related Party Transactions
The following is a summary of advances to and from affiliated companies at July
31,:
Interfederal Capital, Inc. $ 258,609
IFC Industries 43,589
M&M Trans Exchange 364,989
Comtec, Inc. 18,014
---------
Total receivable from affiliates 685,201
Glauber Management (57,348)
S. Mort Zimmerman (333,699)
Daniel A. Zimmerman (22,500)
---------
Total due to affiliates (413,547)
---------
Total $ 271,654
=========
|
F-25
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Related Party Transactions (continued)
Interfederal Capital, Inc. (Interfederal), a Texas corporation, is owned by S.
Mort Zimmerman and his four (4) children. The Company paid Interfederal $0, and
$82,800 in management fees for the years ended July 31, 2004 and 2003,
respectively. The fees were included in S. Mort Zimmerman's annual compensation.
The Company leased facilities owned by Interfederal at a rate of $30,000 per
month, calculated retroactively. Marketable securities with a fair market value
of $56,965 were sold to Interfederal. Accumulated borrowings for the year ended
July 31, 2004 was $258,609.
Interfederal has guaranteed LMT's line of credit 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 for
the year ended July 31, 2004.
Electric & Gas Technology, Inc. occupies a facility owned by Interfederal
Capital on a month-to-month basis and paid rent of $481,600 and $126,000 for the
years ended July 31, 2004 and 2003, respectively. The Company has an agreement,
subject to certain conditions, to purchase the building currently occupied by
LMT and AWT at an estimated cost of $3.2 million from Interfederal Capital.
M&M TransExchange, Inc. ("M&M"), a Texas corporation, wholly owned by S. Mort
Zimmerman has balances due to the Company of $364,989 for the year ended July
31, 2004.
The payable to S. Mort Zimmerman of $333,699 for the year ended 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 $18,014 for the year ended July 31, 2004.
Glauber Management, Inc. ("Glauber") is wholly owned by S. Mort Zimmerman. The
Company has net payable to Glauber of $57,348 at the year ended July 31, 2004.
The Company has pledged a certificate of deposit in the amount of $100,000 for a
loan in the name of DOL, Inc., a publicly held corporation in which Electric &
Gas Technology, Inc. owns a one-third equity interest.
F-26
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Segment Information
The Company operates principally in three industries: Utilities, Contract
Manufacturing and Water Production. Operations in the Utilities industry involve
the development, manufacture, and sale of gas meters, gas measurement equipment
and other equipment for the utility industry. The Contract Manufacturing segment
provides contract metal fabrication and assembly for a variety of industries,
but with a focus on the telecom and utilities industries. Operations in the
Water Production industry involve equipment to extract, filtrate and enhance
water from the atmosphere.
Following is a summary of segment information for the years ended July 31,:
2004 2003
----------- -----------
Sales to unaffiliated customers:
Water Production $ 80,307 $ 474,431
Utilities 1,819,205 2,613,235
Contract Manufacturing 4,536,303 2,210,334
----------- -----------
$ 6,435,815 $ 5,298,000
Operating income (loss):
Water Production $ (273,395) $ 32,799
Utilities (404,080) 143,461
Contract Manufacturing 357,753 (280,787)
----------- -----------
(319,722) (104,527)
General corporate expenses (1,722,911) (806,349)
Other income (expense), net (473,642) (576,714)
----------- -----------
Loss from continuing operations (2,516,275) (1,487,590)
Discontinued operations (474,366) 257,366
----------- -----------
$(2,990,641) $(1,230,224)
=========== ===========
Identifiable assets:
Water Production $ 2,863
Utilities 1,847,608
Contract Manufacturing 2,533,267
-----------
Total Segment assets 4,383,738
General corporate assets 768,302
-----------
Total assets of Continuing operations 5,152,040
Assets of discontinued operations 3,731,209
-----------
$ 8,883,249
===========
Capital expenditures:
Water Production $ -- $ 950
Utilities 69,678 150,036
Contract Manufacturing 62,625 599,471
General corporate 4,985 --
----------- -----------
$ 137,288 $ 750,457
=========== ===========
Depreciation and amortization:
Water Production $ 351 $ 351
Utilities 79,546 41,450
Contract Manufacturing 194,207 94,300
General corporate 16,251 22,051
----------- -----------
$ 290,355 $ 158,152
=========== ===========
|
F-27
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Segment Information (continued)
Operating income (loss) represents sales less operating expenses for each
segment and excludes income and expenses of a general corporate nature.
Identifiable assets by segment are those assets that are used in the Company's
operations within that industry but exclude investments in other industry
segments. General corporate assets consist principally of corporate cash,
receivables from affiliates, investments and furniture and fixtures within the
corporate offices.
14. Acquisition
On January 1, 2003, the Company acquired 80% of the shares in LMT in exchange
for 400,000 shares of the Company's common stock. The common stock was valued at
$.43 per share, which was 60% of the average trading price for the month of
December 2002. LMT is involved in metal fabrication. The financial results of
LMT are included in the Contract Manufacturing segment. The acquisition was
recorded under the purchase method, whereby LMT's net assets were recorded at
estimated fair value and its operations have been reflected in the statements of
operations since that date. The allocation of purchase price is as follows:
Assets:
Cash $ 38,548
Accounts receivable 446,513
Inventories 318,866
Equipment 709,649
----------
Total assets $1,513,576
Liabilities:
Notes payable $ 250,000
Accounts payable 420,979
Accrued expenses 86,517
Long-term debt 570,834
Minority interest 11,846
----------
Net investment $ 173,400
==========
|
F-28
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Discontinued operations
During the third quarter of fiscal 2004, the Company committed to pursue the
disposition of the Canadian subsidiary, Hydel, within a one year timeframe. On
July 30, 2004, the Company sold the assets of Hydel for $3,731,209. The sale of
this subsidiary is accounted for as discontinued operations, in accordance with
FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
and, accordingly, amounts in the consolidated financial statements for all
periods shown, reflect discontinued operations accounting. Revenue from
discontinued operations was $8.4 million and $8.3 million for the years ended
July 31, 2004 and 2003, respectively. Income (loss) from discontinued
operations, net of taxes was ($474,366) and $257,366 for the years ended July
31, 2004 and 2003, respectively. For fiscal 2004, the loss from discontinued
operations includes a $668,795 charge to reduce the carrying value of these
assets and liabilities to their estimated fair market value, less costs to sell.
Fair value is determined by using quoted market prices, when available, or other
accepted valuation techniques. Any corporate expenses previously allocated to
the discontinued operations have been absorbed by the remaining continuing
operations, resulting in a restatement of operating income for the Contract
Manufacturing, Utilities and Water Production segments.
On July 30, 2004, the assets of these discontinued operations consisting
primarily of inventory, machinery and equipment were sold for $3,731,209. The
proceeds were received by the Company in August 2004 and September 2004. As of
July 31, 2004, the net assets of these discontinued operations was $1,213,853.
16. 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.
The total carrying value of the assets held for sale as of July 31, 2004 is
$752,865 and is included in long-term assets.
The following is the carrying value of assets held for sale and the
corresponding liabilities at July 31, 2004:
Carrying Current Long-term Total
value liabilities liabilities Liabilities
---------- ---------- ---------- ----------
Corporate
building $ 221,133 $ 459,936 $ -- $ 459,936
Garland
building 84,622 14,954 357,171 372,125
Paris
building 447,110 21,468 290,823 312,291
---------- ---------- ---------- ----------
Total $ 752,865 $ 496,358 $ 647,994 $1,144,352
========== ========== ========== ==========
|
F-29
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Fourth Quarter Results
During the fourth quarter of 2004, the Company closed the sale of essentially
all of the assets of Hydel Enterprise, Inc for a total cash price of $3,731,209,
which was paid in August and September of 2004. Hydel was the Canadian
subsidiary manufacturing electrical meter boxes, pole line equipment and pressed
metal products.
F-30
Exhibit 31.1
CERTIFICATIONS
I, S. Mort Zimmerman, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Electric & Gas
Technologies, Inc.;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) 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 (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 15, 2004 /s/ S. Mort Zimmerman
-----------------------------------
S. Mort Zimmerman
Chairman of the Board and President
|
CERTIFICATION, VICE PRESIDENT & CFO
Exhibit 31.2
CERTIFICATIONS
I, George M. Johnston, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of Electric & Gas
Technologies, Inc.;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) 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 (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 15, 2004 /s/George M. Johnston
------------------------------------------
George M. Johnston
Vice President & Chief Financial Officer;
Principal Financial and Accounting Officer
|
CERTIFICATION, CHAIRMAN OF THE BOARD & PRESIDENT
Exhibit 32.1
ELECTRIC & GAS TECHNOLOGY, INC.
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
We, S. Mort Zimmerman, Chief Executive Officer and George M. Johnston, Chief
Financial Officer of Electric & Gas Technology, Inc. (the "Company"), certify,
pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Annual Report on Form 10-KSB of the Company for the year ended July 31,
2004 (The "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
DATE: November 15, 2004
/s/ S. MORT ZIMMERMAN
-----------------------------------------------
S.Mort Zimmerman, Chairman of the Board, and
Chief Executive Officer
/s/ GEORGE M. JOHNSTON
-----------------------------------------------
George M. Johnston, Vice President Finance,
Chief Financial Officer Treasurer and Secretary
|
|
|
Next Section
Previous Section