-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GpjSkmZWco6CSLbP37ABjk9t4kApnnlBIz0TDILxv0NIsR7/3jYv6tF0TCkh3Mei YcUJF4qComjeF+aeOF0LvQ== 0000785819-99-000009.txt : 19991101 0000785819-99-000009.hdr.sgml : 19991101 ACCESSION NUMBER: 0000785819-99-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19991029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRIC & GAS TECHNOLOGY INC CENTRAL INDEX KEY: 0000785819 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 752059193 STATE OF INCORPORATION: TX FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14754 FILM NUMBER: 99736822 BUSINESS ADDRESS: STREET 1: 13636 NEUTRON RD CITY: DALLAS STATE: TX ZIP: 75244 BUSINESS PHONE: 2149348797 MAIL ADDRESS: STREET 1: 13636 NEUTRON ROAD CITY: DALLAS STATE: TX ZIP: 75244-4410 10-K 1 UNITED STATES SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 014754 ELECTRIC & GAS TECHNOLOGY, INC. (Exact Name of Registrant as Specified in Charter) Texas 75-2059193 State or Other Jurisdiction of I.R.S. Employer Incorporation or Organization Identification No. 13636 Neutron Road, Dallas, Texas 75244-4410 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number: (972) 934-8797 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered None None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $0.01 Par Value (Title of Class) Indicate by check mark whether Registrant has (i) filed all reports required by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding twelve months, and (ii) been subject to such filings requirements for the past ninety (90) days. Yes X No. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) At October 18, 1999, the aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was approximately $3,050,421. At such date there were 8,343,417 shares of the registrant's Common stock outstanding. PART I Item 1. Business General Electric & Gas Technology, Inc.("the Company"or "ELGT") was organized under the laws of the State of Texas on March 18, 1985, to serve as a holding company for operating subsidiary corporations. In April, 1985, the Company (i) acquired from Commercial Technology, Inc. ("COMTEC"), an affiliated company, all of the stock of Reynolds Equipment Company ("Reynolds") for stock of the Company and (ii) acquired from a subsidiary of COMTEC all of the stock of Retech, Inc. ("Retech") [formerly Test Switch Technology, Inc.("Test Switch"), formerly Superior Technology, Inc. ("Superior")] for stock of the Company. In 1988, the Company acquired 85% (and subsequently 100%) of the stock of Data Automation Company, Inc. ("DAC") from Video Science Technology, Inc., formerly an affiliate of COMTEC and of the Company; DAC owned 100% of Domac Plastics, Inc. ("Domac") and Logic Design Metals, Inc. ("Logic"). Domac and Logic were subsequently sold. During 1992 Logic merged into DAC, its parent, and DAC changed its name to Logic Design Metals, Inc. and is referred to herein as "Logic". Fridcorp Plastics, Inc. ("Fridcorp") was acquired by the Company in January, 1992, in exchange for 162,000 shares of Company Common Stock. Fridcorp was subsequently sold December 1997. Hydel Enterprises, Inc. ("Hydel") [formerly Stelpro Limited ("Stelpro")] was acquired by the Company in April, 1992, in exchange for 166,474 shares of Company Common Stock and $1,100,000 (Cdn. funds)(April 30, 1992, exchange rate: .8370). On August 1, 1992, Hydel acquired all of the outstanding capital stock of Hydel Engineering Limited ("Hydel Engineering") for cash and notes payable of approximately $719,000 ($850,000 Cdn.). Hydel Engineering was merged into Hydel effective August 1, 1995. The number of shares of Company Common Stock issued in the acquisitions of Fridcorp and Hydel was, in each case, determined through arms-length negotiations. Superior Magnetics, Inc. ("SMI") was formed by the Company to acquire the operating assets of the business operations of Denison Magnetics of Texas Instruments Incorporated on November 30, 1992 for cash and deferred payments of approximately $2,900,000. The Company incorporated Atmospheric and Magnetics Technology, Inc. ("AMT") on June 10, 1996 under the laws of the State of Texas. AMT which remain dormant during most of Fiscal 1997 was formed to undertake the Company's venture into the water industry. The Company presently is the owner of 100% of Reynolds and Hydel and owns 91.5% of AMT and, through such subsidiaries, operates in three distinct business segments: (1) production of atmospheric water, filtration and enhanced water products (AMT); (2) the manufacture and sale of natural gas measurement, metering and odorization equipment (Reynolds); and (3) the manufacture and sale of electric meter enclosures and pole-line hardware for the electric utility industry and the general public (Hydel). Effective October 1, 1997, the Company made a decision to sell its defense electronics business segment and such operations has been treated as discontinued operation. Effective July 31, 1997, the Company sold and discontinued the operations of its metal fabrication segment which previously was engaged 2 in the manufacture and sale of precision metal enclosures for telecommunication and computer equipment (Logic). The Company sold its Canadian heating division and its U.S. meter socket and Test Switch divisions during fiscal 1996 and 1995. These operations were part of the electric segment. The Company's Headquarters is located at 13636 Neutron Road, Dallas, Texas 75244. Its telephone number is (972) 934-8797 and its facsimile number is (972) 991-3265. Financial Information by Segment The following table depicts revenues, operating income (loss) from continuing operations and identifiable assets of the Company by segment, for the fiscal years ended July 31,: Revenue Year Ended Year Ended Year Ended July 31, 1999 July 31, 1998 July 31,1997 Water $ 2,000 $ 52,576 $ 75,234 Gas 2,917,327 2,739,035 3,135,249 Electric 8,397,007 8,151,963 7,744,912 Operating Income (Loss): Water $ (631,977) $ (427,596) $ (212,742) Gas (228,308) 115,435 40,784 Electric 236,133 292,535 161,043 Identifiable Assets: Water $ 283,480 $ 832,428 $ 954,690 Gas 1,884,695 2,012,325 1,882,753 Electric 4,302,129 4,541,187 4,828,751 Corporate 7,001,986 13,819,588 15,352,939 3 Geographic information Financial data by geographic area for the fiscal year ended July 31, 1999 are as follows: Operating (loss) Identifiable Sales Income Assets United States $ 2,919,327 $(991,675) $2,685,103 Canada 8,397,007 367,523 3,785,201 Total $11,316,334 $(624,152)$ 6,470,304 Water (AMT) History Atmospheric & Magnetics Technology, Inc. (AMT) was incorporated June 10, 1997 under the laws of the State of Texas. AMT was created by the Company to exploit the opportunities in the Water Industry. Products AMT owns patented technology that extracts water from the atmosphere, turning it into clean drinking water, known as the "Watermaker," "Wet Air" and "Infinite Fountain of Water." Industry, Customers and Competition Industry. AMT operates in an industry that supplies potable drinking water equipment to all segments of commercial, industrial and consumer markets. This equipment is used to extract water from the atmosphere, filter water, purify water, store water and both chill or heat water. AMT estimates that the industry develops sales of several billion dollars. This industry estimate is expected to grow significantly every year as potable drinking water continues to become more scarce worldwide. Customers. AMT's potential customers will include commercial sales (Hotels, Professionals, Schools, Clinics, etc.), industrial sales (Mining, Offshore Oil Drilling, Manufacturing, etc.) and consumers sales (Health Food Stores, Health Clubs, General Food Channels, etc.) domestically and internationally. Competition. AMT's atmospheric technology competes with similar products and the indirect filtration and bottled water alternative potable drinking water sources are well developed worldwide. The atmospheric water niche is yet to be clearly defined at this time, but "point of use" applications are plentiful. 4 Marketing Emphasis on marketing will concentrate its efforts on the "Watermaker" products upon completion of further testing and design modifications. Employees As of July 31, 1999 this segment had no employees and has been conducting its preliminary work through the use of consultants. Administrative services have been provided by the Company. Gas (Reynolds) History Reynolds Equipment Company ("Reynolds") was incorporated March 31, 1967 under laws of the State of Texas. In 1982, all of the stock of Reynolds was acquired by COMTEC, an affiliate of the Company. Subsequently, the stock of Reynolds was sold to Retech in exchange for common stock of the Company and later transferred direct ownership to the Company. Reynolds maintains its principal offices at 410 Kirby Street, Garland, Texas 75042. Products Reynolds manufactures equipment used in the natural gas industry. Its principal products known as "RECOR" are electronic pressure, temperature and volumetric instrumentation and accessories peripheral to gas measurement. Reynolds continues to produce its traditional line of mechanical instrumentation including pressure, temperature and volumetric recording and indicating devices. In addition, Reynolds provides engineering and equipment used to accomplish the odorization of natural gas. Reynolds is currently under a contract with Niagara Mohawk Power to develop an affordable accurate BTU gas measuring device. The proto-type meter is being field tested. Industry, Customers and Competition Industry. Reynolds operates in the industry which supplies equipment to the natural gas industry. This equipment is used to measure, control and monitor the flow of natural gas in pipelines. Reynolds estimates that its industry develops annuals sales of approximately $100,000,000. Odorization of natural gas is important and Reynolds is a recognized provider to the industry with its expertise and service. Customers. Reynolds sells to natural gas utilities, pipeline and production companies domestically and worldwide. Products are marketed through commissioned manufacturers representatives, resale distributors and contract engineering firms. 5 Competition. Reynolds operates in a competitive industry that is not dominated by one or a few large companies. It is a major factor in the sale of chart drives. Its principal competitors are Mercury Instruments, Inc., American Meter Company, Equimeter Incorporated, YZ Industries and others. Employees Reynolds employs approximately 29 persons, including 1 company officers and 5 administrative clerical personnel. None of the employees is represented by a labor union or other labor association, and relations with its employees are considered excellent. Reynolds has never experienced nor anticipates a strike or other work stoppage. Electric (Hydel and Retech) History Hydel. Hydel (formerly Stelpro) was incorporated in 1977 under the laws of the Province of Ontario, Canada, and has operated as a manufacturer of electrical equipment for use in the electric utility industry since its inception. In 1982, Hydel purchased a baseboard heater manufacturing business from Westinghouse. Stelpro changed its name to Hydel in January 1995 upon the sale of its heating manufacturing business. Hydel Engineering which was merged into Hydel effective August 1, 1995, was incorporated in November 1969 under the Laws of the Province of Ontario, Canada, and as in the case of Hydel operated as a manufacturer of electric equipment for use in the electric utility industry since its inception. Hydel operates primarily within Canadian markets, though some sales of electric heaters were made in the Northeastern United States. Hydel maintains its executive office at 49 Howden Road, Scarborough, Ontario M1R 3C9 and a manufacturing facility at 566 Ridge Road, Welland, Ontario L3B 5R4. Retech. Retech (formerly Test Switch, formerly Superior) was incorporated in Texas in May, 1984. It purchased the assets of Superior Switchboard & Devices, Inc., an Ohio corporation ("SSDI"), in 1984. SSDI was an old-line manufacturer of electrical testing equipment, organized in 1920 by a group of electrical utility employees. In about 1929, electric utility companies began using meters on the outside of residences to measure electricity consumption, creating a need for metal enclosures to protect the meters. SSDI undertook the manufacture of such enclosures, and (in 1943) was acquired by a national company and operated as a division. In 1980, this division was sold to the officers and employees of the division in a leveraged buy-out. The business was not successfully operated under its then current management, and the organizers of Retech arranged for the purchase of the assets of SSDI by Retech in 1984. Effective April 30, 1995, Superior changed its name to Test Switch upon the sale of its meter socket division which was located in the Paris, Texas plant and effective, October 31, 1995 Test Switch changed it name to Retech upon the sale of its remaining operating division in Canton, Ohio. Retech a non- operating and dormant entity maintains its office at 13636 Neutron Road, Dallas, Texas 75244-4410. 7 Products Hydel. Hydel operated two industrial facilities located within metropolitan Toronto, Ontario until January 1995 when one operation was sold. The business which was sold, manufactured and assembled a line of proprietary electric heating products, including baseboard heaters and fan-driven heaters. Hydel Engineering which was merged and operations consolidate with Hydel, operated out of two industrial facilities: Scarborough, which was shared with Hydel, and Welland. The Welland facility continues to be used primarily to manufacture the pole line hardware with assembly and finished goods storage in the Scarborough plant. The "Murray Jansen" line is produced at the Scarborough plant. The Scarborough plant manufactures a full line of proprietary metal cabinets and other metal enclosures, electric meter sockets and industrial safety switches. All of Hydel's products have been approved by the Canadian Standards Association which is the Canadian equivalent of U. L. Retech. Retech operated two industrial facilities, one in Canton, Ohio, the other in Paris, Texas during most of fiscal 1995 and only its Canton facility during the first quarter of fiscal 1996. The Paris, Texas, facility which was not sold when the business was sold during fiscal 1995 is currently under a contract of sale and is expected to close during fiscal 2000. Industry, Customers and Competition Industry-Hydel. Hydel operates within the electric equipment supply industry and manufacturing equipment for use in the electric utility industry. Hydel competes primarily within Canadian markets. Customers-Hydel. Hydel sells its electric utility supply products to utilities and others in Canada. Hydel sold its electric heaters to distributors throughout Canada, as well as in parts of the Northeastern United States. Competition-Hydel. Hydel faces competition for sales of its electric utility supply products primarily from two electric utility supply manufacturers, Thomas & Betes and Commander. Pole line hardware's main competitors are Slater/Tridem, Joslyn and A.B. Chance. Marketing Hydel. Hydel employs a general sales manager who is responsible for coordinating company-wide sales, as well as directing sales in the Province of Ontario. Hydel utilizes independent manufacturers representatives to promote sales in the remainder of Canada. 7 Raw Materials Hydel. Hydel uses sheet aluminum and sheet steel of various gauges in its manufacturing processes and two vendors to galvanize their pole line hardware products. Bar materials are purchased directly from mills. Hydel purchases products directly from the mills or distributors. There are adequate sources of such materials, though price fluctuations have occurred in the past. Employees Hydel. Hydel currently employs 55 persons, including 15 in administrative and sales positions. None of the employees is represented by a labor union or other labor organization. Hydel enjoys good relations with its employees and has never experienced a strike or work stoppage. The jobs encompassed in Hydel's manufacturing operations do not require highly skilled workers, except in a few positions. Discontinued operations-Defense electronics (SMI), Plastics (Fridcorp) and Metal fabrication (LOGIC) Superior Magnetics, Inc. ("SMI") was formed by the Company to acquire the operating assets of the business operations of Denison Magnetics of Texas Instruments Incorporated on November 30, 1992 for cash and deferred payments of approximately $2,900,000. SMI manufactured and sold defense electronic components. Effective October 1, 1997, the Company made a determination to sell the business, accordingly the defense electronics segment has been treated as a discontinued operation. Fridcorp Plastics, Inc. ("Fridcorp") was acquired by the Company in January, 1992, in exchange for 162,000 shares of Company Common Stock. Frdicorp manufactured vacuum-form and injection- molded products. Effective December 31, 1997, the Company sold Fridcorp and accordingly, the former plastics segment has been treated as a discontinued operation. Logic Design Metals, Inc. ("Logic") was incorporated in Texas on March 16, 1977 and became part of the Company in 1988. Logic manufactured customized, precision-formed metal enclosures for the telecommunications and computer industries. Effective July 31, 1997, the Company sold Logic and accordingly, the former metal fabrication segment has been treated as a discontinued operation. 8 ITEM 2. Properties The Company maintains executive offices at 13636 Neutron Road, Dallas, Texas 75244-4410 in a 7,800 sq. ft. one story building (owned in fee) and is fully adequate to serve its needs. Hydel leases one industrial building in metropolitan Toronto, Ontario. The Scarborough facility is leased until March 2002 and contains approximately 67,000 square feet, including approximately 7,000 square feet of office space. In addition, Hydel owns a 22,000 square foot manufacturing and office space on approximately 7 acres of land located in Welland, Ontario. Such facility provides 20,000 square feet of manufacturing and 2,000 square feet of office space. Reynolds carries on its manufacturing and sales activities in a building owned by it situated on 40,000 square feet of land in Garland, Texas. The plant is a one story, concrete building containing approximately 15,500 square feet of floor space, which includes approximately 2,000 feet of office space. Retech's Paris, Texas facility was vacated as result of the sale of the meter socket division in April 1995. This facility, consists of a vacant industrial building containing approximately 80,000 square feet of space, including approximately 3,000 square feet of office space. The Company currently has a pending sale for the land and building. Item 3. Legal Proceedings. Ammon & Rizos Co., Inc. Vs. Metal Products, Inc.-Cause No.; 97- 06860-C; District Court Dallas County, Texas. The former manufacturers representative of Logic, Ammon & Rizos Co, has filed a suit against the Company, the Company's chairman of the board, Logic, and New Logic Design Metals, Inc. ("New Logic")(the purchaser of the assets) for unpaid fees, assumed by New Logic and a previous adjustment in prior fees plus prospective fee from New Logic's sales. The case is scheduled for trial on November 16, 1999. Management believes there will be no material effect on the Company. Item 4. Submission of Matters to a Vote of Security Holders. (a) Annual meeting of stockholders, April 9, 1999. (b) Not applicable. (c) Not applicable. 9 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters: (a) Principal Market The Common Stock of the Registrant is traded in the Over-the- Counter Market and quoted on the National Association of Securities Dealers Automated Quotation System (NASDAQ) under the symbol ELGT. (b) Stock Prices and Dividend Information The following table sets forth the range of "Bid" and "Ask" prices, by quarters, since July 31, 1996, as compiled by NASDAQ and representing prices between dealers which does not include retail markups or commissions, thus, such prices may not represent actual transactions. Fiscal year ended July 31, 1999: High Low First Quarter 1-1/32 11/16 Second Quarter 1-3/4 1-1/8 Third Quarter 1-3/4 13/16 Fourth Quarter 2-1/16 1-5/32 Fiscal year ended July 31, 1998: High Low First Quarter 1-9/16 1-3/8 Second Quarter 1-7/8 1-13/16 Third Quarter 2-15/16 2-3/4 Fourth Quarter 2-1/16 1-27/32 Fiscal year ended July 31, 1997: High Low First Quarter 1-5/16 11/16 Second Quarter 3/4 1/2 Third Quarter 15/16 15/32 Fourth Quarter 2-1/8 1-9/16 No dividend has been paid on the Common Stock by the Company and payment of dividends in the foreseeable future is not anticipated. 10 As of July 31, 1999 there were 468 holders of record of the Common Stock of the Company, exclusive of beneficial ownership through brokerage firm nominee name. Item 6. Selected Financial Data. STATEMENT OF OPERATIONS DATA: (In dollars, except shares outstanding) Fiscal Years Ended July 31, 1999 1998 1997 1996 1995 Revenues $11,316,334 $10,943,574 $10,955,395 $10,510,452 $19,310,885 Gross Profit 1,935,750 2,887,106 3,174,790 2,630,595 5,086,751 Selling, G&A Expense 3,826,446 4,824,406 4,846,232 3,851,194 5,418,729 Other Income(Expense) (2,968,994) 2,461,356 (1,936,111) (2,757,472) 918,994 Earnings (Loss) from Continuing Operations (4,803,436) 363,701 (3,394,181) (3,978,071) 641,912 Net Earnings(loss) (6,353,436) 429,185 9,362,399 (5,032,551) 850,577 Net Earnings (loss) per Share (0.79) 0.05 1.15 ( 0.66) 0.11 Weighted Average Number of Shares Outstanding 8,148,432 7,909,957 8,085,624 7,635,624 7,615,474
For additional information with respect to reclassification for discontinued operations and acquisitions and dispositions see note 2 to the consolidated financial statements. BALANCE SHEET DATA: As of July 31, 1999 1998 1997 1996 1995 Total Assets $13,472,290 $21,205,528 $23,019,133 $12,911,463 $17,551,669 Long-Term Obligations 1,210,254 1,627,650 2,356,140 1,871,151 1,894,214 Shareholders' Equity 8,771,594 16,137,380 16,041,119 6,720,930 10,427,861
11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Background The Company, through its subsidiaries, operates within three separate industries. These are (i) production of atmospheric water, filtration and enhanced water products; (ii) the manufacture of natural gas measurement equipment and gas odorization products; and (iii) the manufacture and sale of metal enclosures and other electrical equipment for use in the electric utility industry. Results of Operations The discussion below relates to the Company's operations during the fiscal years ended July 31, 1999, 1998 and 1997. Summary. The Company reported net earnings (loss) from continuing operations of $(4,803,436), $363,701 and $(3,394,181) and net earnings (loss) of $(6,353,436), $429,185 and $9,362,399 for fiscal years 1999, 1998 and 1997, respectively. The substantial increase in net loss during fiscal 1999 was primarily the result of fully reserving the Company's investment in Afritel, writing off the remaining receivable from Refinery Consolidated Technology, Inc. and inventory and patents write offs in the water segment. The Company's discontinued defense segment was adjusted downward by $1,550,000 reflecting the net realizable value upon an anticipated sale. The 1997 substantial increase in net income was attributable to improved earnings in the discontinued metal fabrication segment of $1,627,730 and the gain of $12,646,939 on the sale of this segment. Losses from continuing operations were from the electric segment. Corporate expenses decreased due to a decline in legal fees associated with the Cooper Manufacturing bankruptcy and bonuses paid in fiscal 1998. The Company's investments in Refinery Consolidated Technology, Inc. and Cooper Manufacturing Corporation were also reserved at July 31, 1997. For the Years Ended July 31, 1999 1998 Increase Percent Increase Percent (Decrease) Change (Decrease) Change Operating Revenues $ 372,760 3.41 $(11,821) (.11) Operating Income (604,526) (3,080.23) (8,711) (79.81) Earnings (Loss) from continuing operations before income taxes (5,383,746) (1,027.32) 4,131,609 114.53 Net Earnings Per Share (0.84) (1,680.65) (1.10) (95.65)
12 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, 1999 1998 Increase Increase (Decrease) Percent (Decrease) Percent Operating Revenues: Water $ (50,576) (13.57) $ (22,658) ( 191.68) Gas 178,292 47.83 (396,214) (3,351.78) Electric 245,044 65.74 407,051 3,443.46 $ 372,760 100.00 $ (11,821) 100.00 Operating Income (Loss): Water $ (204,381) 33.81 $ (214,854) (2,466.46) Gas (343,743) 56.86 74,651 856.97 Electric (56,402) 9.33 131,492 1,509.49 (604,526) 100.00 (8,711) 100.00 General Corporate 651,130 (257,147) Other Income (Expense) (5,430,350) 4,397,467 Earnings from Continuing Operations Before Income Taxes $(5,383,746) $4,131,609
Water revenues amounted to $2,000, $52,576 and $75,234 in 1999, 1998 and 1997, respectively which were essentially sales of a few demonstrators of this segment's "Watermaker" product. Expenses were $633,977, $480,172 and $287,976 in 1999, 1998 and 1997, respectively, included development of a business plan, testing and development of a new watermaker model and marketing expenses. During fiscal 1999 inventory of the original model watermaker and related parts were fully reserved and expired patents were written off. During fiscal 1998 considerable efforts were expended in investigating possible acquisition targets in water related businesses. The Company did not find a qualified acquisition nor joint venture partner candidate, but continues to seek interested parties in further development and marketing of the products. Gas revenues increased (decreased) by $178,292, $(396,214) and $199,923 or 6.51%, (12.64%) and 6.81% in fiscal 1999, 1998 and 1997, respectively. During fiscal 1997, this segment developed the next generation of their "Recor" product line. Operating income (loss) 13 was $(228,308), $115,435 and $40,784 for fiscal 1999, 1998 and 1997, respectively. The 1999 loss resulted from inventory adjustments, product development expenses and higher staffing levels related to the Mohawk Niagara BTU meter development. Electric revenues increased slightly by $245,044, $407,051 and $169,786 during 1999, 1998 and 1997, respectively. The 1997 increase of $169,786 was the result of an increase in Canadian revenues of $742,327 offset by the U.S. sales decline of $572,541 which was the loss of the first quarter sales of the sold Test Switch business. Operating income increased (decreased) by $(56,402), $131,492 and $163,559 for fiscal 1999, 1998 and 1997, respectively. The decrease in the 1999 operating profits were the result of additional charge to adjust the carrying value of the idle Paris, Texas facility which continues to have a sale pending and some inventory obsolescents in Canada. Gross profit margins were 18.26%, 20.58% and 24.34% for fiscal 1999, 1998 and 1997, with selling, general and administrative expenses as a percentage of sales for the same period of 15.45%, 16.99% and 22.26%, respectively. The decline in 1999 margins result from the aforementioned adjustments. Expense relationships to the various changes in revenues effecting cost of sales and selling, general and administrative expenses are as follows. Cost of sales as a percentage of revenues amounted to 82.89%, 73.62% and 71.02% for the years ended July 31, 1999, 1998 and 1997, respectively. Selling, general and administrative expenses as a percentage of revenues were 22.62%, 26.56% and 29.08% for the years ended July 31, 1999, 1998 and 1997, respectively. The lower selling, general and administrative expenses were primarily the result of a reduction in the water segment's marketing expenses. Liquidity and Capital Resources Liquidity. Cash flow used by operating activities amounted to $(755,771), $(2,957,927) and $(1,398,042) for fiscal years 1999, 1998 and 1997, 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 $8,046,651 at July 31, 1999, down from current assets of $12,483,093 at July 31, 1998. Current liabilities increased from fiscal 1998 to fiscal 1999 by $96,603, resulting in a decrease in working capital (current assets less current liabilities) to $4,556,209 at July 31, 1999, from $9,089,254, a decrease of (49.87%). This decrease was the result of investments in long-term assets. The Company believes it has sufficient cash to meet its working capital requirements and debt obligations. Capital Resources. Hydel has a working capital line-of-credit with a Canadian bank in the amount of $1,450,000. The Canadian credit facility issecured by receivables andinventories of Hydel. 14 In November 1993 the Company began a five-year financing arrangement with the CIT Group Credit/Finance, Inc. (CIT). Their original total commitment to the Company amounted to $7,000,000 of term and revolving credit at 2.75% above prime. The agreement was modified and extended to $3,500,000 and November 2001, respectively. The maximum amount to be borrowed is determined based upon eligible collateral, including equipment, receivables and inventory and has been reduced due to the operations sold. Borrowing under this financing amounted to $57,406 in term debt and $264,023 in revolving debt at July 31, 1999. The Company sold one segment in fiscal 1998 and 1997 receiving approximately $760,000 and $20,828,385, respectively in cash. Proceeds were used to pay current obligations, reduce debt and provide additional working capital. Capital Expenditures The Company purchased equipment consisting of normal asset acquisitions and replacement of $169,155, $79,157 and $106,124 during fiscal 1999, 1998 and 1997, respectively. The Company does not anticipate any other significant capital expenditures, other than in the ordinary course of replacing worn-out or obsolete machinery and equipment utilized by its subsidiaries. The Company may, from time to time, purchase such machinery and equipment provided such assets serve as additional collateral for outstanding loans to the Company (and its subsidiaries). Dividend Policy No cash dividends have been declared on common stock by the Company's Board of Directors since the Company's inception. The Company does not contemplate paying cash dividends on its common stock in the foreseeable future since it intends to utilize its cash flow to service debt, for working capital and capital additions, and to finance expansion of its operations. Cumulative dividends on the Series A, 7% Convertible Preferred Stock, have not been paid and amounted to $228,353 as of July 31, 1999. Further, additional dividends of $10,528 were due on September 30, 1999 Other Business Matters Year 2000. The Company currently believes that it does not have any significant exposure to uncertainties nor material anticipated costs with regard to Year 2000 issues. The Company has significantly reduced its operating subsidiaries over the last two years minimizing certain risks. Current systems and any anticipated upgrades are 2000 compliant. Accounting for Post-Retirement Benefits. The Company provides no post-retirement benefits; therefore, FASB No. 106 will have no impact on the Company's financial position or result of operations. 15 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. Information regarding and factors affecting forward looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performances and underlying assumption and other statements which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitations, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result, or be achieved, or accomplished. Item 8. Financial Statements and Supplementary Data. Information required by this item appears in the Consolidated Financial Statements and Auditors' Report of Electric & Gas Technology, Inc. and Subsidiaries for July 31, 1999, 1998, and 1997 as listed under Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have been no disagreements on accounting and financial disclosure. 16 PART III Item 10. Directors and Executive Officers of Registrant (a) During fiscal year ended July 31, 1999, the following persons served as directors of Registrant: Shares Beneficially Director Owned (%) of Name and Age Position Since Outstanding S. Mort Zimmerman (72) Chairman of the Board, 1985 915,973 10.88% President and Director Daniel A. Zimmerman (38) Sr. Vice President 1989 390,714 4.64% and Director Edmund W. Bailey (57) Vice President, Chief 1994 72,805 0.86% Financial Officer and Director Fred M. Updegraff (65) Vice President, 1987 92,907 1.10% Treasurer and Director Dick T. Bobbitt (74) Director 1997 - - James J. Ling (76) Director 1997 - -
S. Mort Zimmerman and Daniel A. Zimmerman are father and son. (b) Executive Officers: The Executive Officers of Registrant are: See (a) above. Marie W. Pazol, Secretary 17 BACKGROUND S. Mort Zimmerman: Mr. Zimmerman is Chairman of the Board, President and Chief Executive Officer of the Company since its formation in March 1985. After attending Georgia Institute of Technology and Oglethorpe, Mr. Zimmerman graduated in 1958 with a Bachelor of Science in Electrical Engineering from Pacific International University. He established the first electronics subsidiary for the predecessor corporation of LTV Corporation which was formed to market a low cost television camera invented by Zimmerman and for which he was awarded a United States Patent in 1958. Prior to 1963 he participated in the engineering and installation of 18 television stations. In 1965 Mr. Zimmerman formed the first "one-bank holding company" of its kind in the United States and which later served as a model from which many bank holding companies were formed. He served as Chairman of the Board of four individual banking institutions, three of which were located in Florida (Springs National of Tampa, Metropolitan of Miami and Mercantile National of Miami Beach) and New York City (Underwriters Trust). After obtaining a public underwriting these banks were sold to others. In 1967 Intercontinental Industries, Inc. was organized and Mr. Zimmerman served as its Chairman and Chief Executive Officer. This diversified holding company was primarily engaged in the operations of Intercontinental Manufacturing Company, a weapons manufacturer that was later sold. Through his research and development in the field of video X-ray and imaging, Mr. Zimmerman caused the organization of Video Science Technology, Inc. in 1981 to exploit the inventions for which he was awarded two U. S. Patents. Patents awarded include: Television Camera- Video Amplifier and Blanking Circuits-1958, Electronic Thermometer-1963, Video-X-Ray Imaging System and Method-1977, Video System and Method for Presentation and Reproduction of X- Ray Film Images-1977, Electromagnetic Radio Frequency Excited Explosion Proof Lighting Method and System-1986, and Laser Display of an Electronically Generated Image Signal-1987. Recently, Mr. Zimmerman participated as a co-inventor on new Electronic Refrigeration technology to which patents are pending. Daniel A. Zimmerman: Mr. Zimmerman was elected Senior Vice President in 1991 and was re-elected as a Director of the Company in 1990 (Mr. Zimmerman served as a director from March, 1985 to January, 1988). Mr. Zimmerman is presently serving as President and Director of Reynolds. He received his Liberal Arts Degree from Austin College in Sherman, Texas in May, 1982. Edmund W. Bailey, CPA: Mr. Bailey has served as Vice President and Chief Financial Officer of the Company since March, 1992. He was elected a member of the Board of Directors May 1994. From January 1989 to March, 1992, Mr. Bailey was a shareholder in the public accounting firm of Jackson & Rhodes P.C., Dallas, Texas. From August, 1987 to December, 1988, Mr. Bailey served as Vice President and Chief Financial Officer of Southern Foods Group, Inc., an independent milk producer. From May, 1986 to July, 1987, he was with the public accounting firm of Pannell Kerr Foster, Dallas, Texas. Prior experience included 16 years in public accounting with Fox & Company and Arthur Young & Company (now Ernst & Young). Mr. Bailey earned a B.S. degrees in Business from Monmouth College, West Long Branch, New Jersey, and an M.B.A. degree from Southern Methodist University, Dallas, Texas. Mr. Bailey is licensed in the State of Texas as a Certified Public Accountant. 18 Fred M. Updegraff: Mr. Updegraff has served as Vice President and Treasurer of the Company since 1985. He was elected Treasurer and a member of the Board of Directors in May, 1987. Mr. Updegraff is also Vice President, Controller and Director of DOL Resources which files reports under Section 13 of the Securities Act of 1934. From 1976 to 1981, he was Vice President of a manufacturing company engaged in the manufacture of brass valves for the plumbing industry. Mr. Updegraff graduated from Emporia State University with Bachelor Degrees in Business Administration and Education. Dick T. Bobbitt: Mr. Bobbitt has been president of VEC Technology, Inc. (VEC) since August 1991. VEC is a consulting firm involved in research and development of new products. Mr. Bobbitt was one of the founders of American Technological University and served as Chairman of the Board from 1973 to 1979. Prior years were spent with RCA Corporation and Random House Publishing Co. James J. Ling: Mr. Ling is co-founder, chairman and chief executive officer of Empiric Energy, Inc. since November 1992. Mr. Ling founded Ling Electronics in 1955 and through a series of mergers and acquisitions which includes, Temco Aircraft Corporation, Chance-Vought, The Wilson Company, Braniff Airlines, Jones & Laughlin and National Car Rental, guided the conglomerate Ling-Temco-Vought (LTV) to a position among the largest companies in the Nation with annual sales of $3.2 billion. Mr. Ling resigned in 1971. Since 1985, Mr. Ling has been President of Hill Investors, Inc., a company organized to hold oil and gas investments and which also offers business consulting services. 19 Item 11. Executive Compensation Summary Compensation Table Long Term Compensation Annual Compensation Awards Payouts Other Restricted Number of Shares Long Term Annual Stock Covered By Incentive Plan All Other Name and Principal Position Year Salary Bonus Compensation Awards Option Grant Payout Compensation S. Mort Zimmerman 1999 $238,400(a) $ - $ - - 4,207 - - Daniel A Zimmerman 1999 $112,346 $ - $ - - 25,000 - $ 7,547(d) Edmund W.Bailey 1999 $120,000 $ - $ - - 30,000 - $ 1,200(c) S. Mort Zimmerman 1998 $241,600(a) $30,000(b) $ - - 212,000 - - Daniel A Zimmerman 1998 $101,500 $20,000(b) $ - - 31,667 - $11,495(d) Edmund W. Bailey 1998 $ 97,975 $20,000(b) $ - - 36,666 - $ 2,160(c) S. Mort Zimmerman 1997 $239,760(a) $333,400(b) $ - - 212,000 - - Daniel A. Zimmerman 1997 $ 97,596 $ 59,802(b) $ - - 31,667 - $19,629(d) Edmund W. Bailey 1997 $108,000 $ 59,802(b) $ - - 36,666 - $ 2,160(c)
S. Mort Zimmerman-President and Chairman of the Board. Daniel A. Zimmerman-Senior Vice President. Edmund W. Bailey-Vice President and Chief Financial Officer. (a) A portion of the payments were made to an affiliate of S. Mort Zimmerman and includes accrued and unpaid compensation of $75,000 for fiscal year 1998 and 1997, respectively. (b) Includes cash and bonus shares of Common Stock valued at $1.00 and $1.69 per share in 1998 and 1997, respectively. (c) Company match of 401 (K) employee contributions. (d) Company match of 401 (K) employee contributions and expense allowances. 1999 Stock Option Grants NONE 20 Aggregate Option Exercises and Year-end Option Values Set forth below are the number of shares covered by exercisable and unexercisable options held on July 31, 1999 and the aggregate gains that would have been realized had these options been exercised on July 31, 1999, even though these options were not exercised, and the unexercisable options could not have been exercised, on July 31, 1999. Number of Shares Value of Unexercised Covered by Unexercised In-The-Money Options on 7/31/99 Options as of 7/31/99 Name Exercisable Unexercisable Exercisable(A) Unexercisable S. Mort Zimmerman 4,207 -0- $ 2,945 -0- Daniel A. Zimmerman 25,000 -0- $18,750 -0- Edmund W. Bailey 30,000 -0- $22,500 -0-
(a) Market value of shares covered by in-the-money options on July 31, 1999 less option exercise price. Options are in-the- money if the market value of the shares covered thereby is greater than the option exercise price. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) The following tables sets forth the number of shares of Common Stock of holders of the Company known to the Company to be the beneficial owner of more than five (5%) per cent of its Common Stock at July 31, 1999. Name and Address Amount and Nature of Percent of Beneficial Owner Class S. Mort Zimmerman 915,973 (1) 10.88% 13636 Neutron Road Dallas, Texas 75244-4410 (b) The following table sets forth the number of shares of Common Stock of Registrant owned by all directors and officers as a group as of July 31, 1999: Name of Amount and Nature of Percent of Beneficial Owner Beneficial Ownership Class S. Mort Zimmerman 915,973 (1) 10.88% Chairman of the Board and President Daniel A. Zimmerman(4) 390,714 (2) 4.64% Sr. Vice President and Director 21 Name of Amount and Nature of Percent of Beneficial Owner Beneficial Ownership Class Edmund W. Bailey 72,805 (3) .86% Vice President & Chief Financial Officer Fred M. Updegraff 92,907 1.10% Vice President Treasurer & Director All Officers & Directors, as a Group 1,525,727 18.12% (1)Includes (i) 4,207 shares subject to options owned by Mr. S. Mort Zimmerman; (ii) 82,888 shares of the 828,878 shares owned beneficially and of record by Trans-Exchange Corporation, in which Mr. S. Mort Zimmerman has a 10% beneficial interest; and (iii) 31,429 shares owned by Glauber Management Company, a firm 42% owned by Mr. S. Mort Zimmerman and in which he effectively controls the voting of the company's stock owned by such firm. Mr. S. Mort Zimmerman disclaims any beneficial interest in the shares owned by his wife's estate and their adult children. (2)Includes 25,000 shares subject to options owned by Mr. Zimmerman. (3)Includes 30,000 shares subject to options owned by Mr. Bailey. (4)S. Mort Zimmerman and Daniel A. Zimmerman are father and son. Item 13. Certain Relationships and Related Transactions THE FOLLOWING IS A SUMMARY OF ADVANCES FROM/TO AFFILIATED COMPANIES AT JULY 31, 1999. 1999 1998 Refineries Consolidated Technology, Inc. $ - $269,400 Cooper Manufacturing Corporation - 632,314 Others 58,003 16,063 $58,003 $917,777 22 The Company has advanced through the pledging of its certificates of deposit with a bank, corresponding to direct bank loans and direct advances to Refineries Consolidated Technology, Inc. ("RCT") and Cooper Manufacturing Corporation ("Cooper") approximately $1,297,000. The Company also acquired a secured note receivable from Cooper in exchange for 90,000 shares of its $10.00 par value Preferred Stock to an unaffiliated company who previously owned Cooper. During 1997 the Company provided a reserve for the entire receivable from RCT ($723,000) and also provided a reserve of $867,000 against the Cooper investment. The remaining $350,000 in 1997 investment in Cooper represented the estimated amount of recovery the Company expected to receive from Cooper's Plan filed in the bankruptcy court. The Bankruptcy Court approved the debtor's plan of reorganization in the Cooper bankruptcy on December 5, 1997. In accordance with such plan, the Company received cash of $700,000, notes receivable totaling $220,000, a 2.5% royalty agreement on new rigs sold and 1,000,000 shares of Cabec Energy Corp. The investment in Cooper was adjusted to the value of the consideration received. Cooper is no longer an affiliate of the Company. RCT has ceased operations and the balance due from RCT was written off during fiscal 1999. During the year ended July 31, 1998, the Company issued 200,000 shares of common stock from its treasury to affiliated entities for shares of common stock in two other affiliated entities. These shares were valued at $336,000, the market price of the Company's common stock at the time less a 30% discount for the restriction on the shares. This value approximated the value of the shares received from the affiliates. 23 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents filed as part of this Report 1. Financial Statements Consolidated Financial Statements of Electric & Gas Technology, Inc. and Subsidiaries: (i) Reports of Independent Certified Public Accountants (ii) Consolidated Balance Sheets July 31, 1999 and July 31, 1998. (iii) Consolidated Statements of Operations for the three years ended July 31, 1999. (iv) Consolidated Statements of Changes in Stockholders' Equity for the three years ended July 31, 1999. (v) Consolidated Statements of Cash Flows for the three years ended July 31, 1999. (vi) Notes to Consolidated Financial Statements 2. Financial Statement Schedules Required by Item 8 of Form 10-K and paragraph (d) of Item 14 None 3. Exhibits 3.1 Articles of Incorporation of Registration (filed as Exhibit 3.1 and 3.2 to Registration Statement form S-18 - Registrant No. 33-2147FW of Registrant and Incorporation herein by reference. 3.2 By-laws of Registrant (filed as Exhibit 3.3 Registration Statement on Form S-18 - Registrant No. 33-2147FW - of Registrant and incorporated herein by reference. 24 4.1 Specimen Copy of Common Stock Certificate (filed as Exhibit 1.1 to Registration Statement under the Securities Exchange Act on Form 8-A and incorporated herein by reference). 4.1 Warrant Agreement and Text of Warrant (filed Exhibit 4.1 to Amendment No. 1 to Registration Statement on Form S-18, Registration #33-2147FW, of Registrant incorporated herein by reference. 10.1 Agreement and Plan of Acquisition between Petro Imperial Corp. and Superior Technology, Inc. dated June 30, 1986 for the acquisition of 80% of American Brass, Inc. (filed as Exhibit 1 to Registrant's Form 8- K Report dated July 9, 1986, Commission File No. 0- 14754 and incorporate herein by reference). 10.2 Acquisition Agreement dated July 29, 1988 and Amendment thereto dated November 15, 1988, (filed as Exhibit 1 to Form 8-K Report, as amended on Form 8 filed August 9, 1988 and incorporated herein by reference). 10.32 U. S. Small Business Administration authorization and loan agreement dated August 3, 1994 between Independence Funding Company Ltd. and Electric & Gas Technology, Inc., Reynolds Equipment Company, Superior Technology, Inc. and Fridcorp Plastics, Inc. and Note for $1,000,000 (filed as exhibit 10.32 to Form 10-K, filed October 27, 1994 and incorporated herein by reference). 10.33 Asset Purchase Agreement dated as of April 18, 1995 by and between Superior Technology, Inc. and American Circuit Breaker Corporation (filed as exhibit 10.32 to Form 10-Q, filed June 12, 1995 and incorporated herein by reference). 10.34 "Asset Purchase Agreement" dated as of October 31,1995 by and between Test Switch Technology, Inc., Electric & Gas Technology, Inc. and The Durham Co. (filed as exhibit 10.34 to Form 10-Q. filed December 6, 1995 and incorporated herein by reference). 10.37 Assets Purchase Agreement among New Logic Design Metals, Inc. of Chatham Enterprises Inc., of Chatham Technologies, Inc., Logic Design Metals, Inc. and Precision Techniques, Inc. and Electric & Gas Technology, Inc. Dated July 15, 1997. (filed as exhibit 10.37 to Form 8-K, filed August 27, 1997 and incorporated herein by reference). 26 (b) Reports on form 8-K Current Report-Form 8-K filed May 5, 1998: Item 5.- Other events. Resolution of Allied Products Corp,, a Delaware Corporation Vs. Electric & Gas Technology, Inc., a Texas Corporation, Cause No. 97C5256. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELECTRIC & GAS TECHNOLOGY, INC. By: /s/ Edmund W. Bailey Edmund W. Bailey, Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacity and on the date set-forth following their name: Signature Capacity Date /s/ S. Mort Zimmerman Chairman and President October 28, 1999 S. Mort Zimmerman /s/ Daniel A. Zimmerman Senior Vice President Daniel A. Zimmermanand Director October 28, 1999 /s/ Edmund W. Bailey Vice President, Chief Edmund W. Bailey Fincanial Officer and Director October 28, 1999 /s/ Fred M. Updegraff Vice President, Treasurer Fred M. Updegraffand Director October 28, 1999 /s/ Marie W. Pazol Secretary October 28, 1999 Marie W. Pazol 27 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES JULY 31, 1999 AND 1998 Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 29 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 30-31 CONSOLIDATED STATEMENTS OF OPERATIONS 32-33 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 34-35 CONSOLIDATED STATEMENTS OF CASH FLOWS 36-37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38-61 28 Report of Independent Certified Public Accountants Board of Directors and Stockholders Electric & Gas Technology, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Electric & Gas Technology, Inc. and Subsidiaries as of July 31, 1999 and 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended July 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Electric & Gas Technology, Inc. and Subsidiaries as of July 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 1999, in conformity with generally accepted accounting principles. Jackson & Rhodes P.C. Dallas, Texas October 8, 1999 29 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS July 31, ASSETS CURRENT ASSETS 1999 1998 Cash and cash equivalents $ 378,340 $ 542,086 Certificates of Deposit 2,810,842 4,000,000 Investments, market 519,646 2,938,964 Accounts receivable trade, less allowance for doubtful receivables of $14,048 in 1999 and $9,617 in 1998 1,606,637 1,702,866 Inventories 2,669,280 3,199,398 Prepaid expenses 61,906 99,779 Total current assets 8,046,651 12,483,093 PROPERTY, PLANT AND EQUIPMENT, net Property, plant and equipment 4,427,019 4,375,284 Less accumulated depreciation (2,629,656) (2,472,473) Total property, plant and equipment 1,797,363 1,902,811 OTHER ASSETS Investment in Pioneer 1,250,000 1,125,000 Investment in Dresser 1,000,000 - Investment in i3Dx.com 500,000 - Investment in Afritel - 2,357,500 Investment in equity securities 210,772 536,240 Discontinued operations 13,439 790,365 Notes receivable 349,148 650,266 Goodwill 107,581 114,265 Other 97,336 1,245,988 Total other 3,628,276 6,819,624 TOTAL ASSETS $13,472,290 $21,205,528 See accompanying notes. 30 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) July 31, LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES 1999 1998 Notes payable $ 1,731,202 $ 1,762,482 Accounts payable 1,302,169 1,171,703 Accrued liabilities 276,060 145,352 Federal income taxes 27,885 197,611 Current maturities of long-term obligations 153,126 116,691 Total current liabilities 3,490,442 3,393,839 LONG-TERM OBLIGATIONS Long-term obligations, less current maturities 833,149 918,892 Other 377,105 708,758 Total long-term obligations 1,210,254 1,627,650 COMMITMENTS AND CONTINGENCIES - - MINORITY INTEREST IN SUBSIDIARY - 46,659 STOCKHOLDERS' EQUITY Preferred stock, $10 par value, 5,000,000 shares authorized, 90,000 issued and outstanding 900,000 900,000 Common stock, $.01 par value, 30,000,000 shares authorized, issued 8,343,417 and 8,198,224 in 1999 and 1998, respectively 83,434 81,982 Additional paid-in capital 9,258,795 9,260,866 Retained earnings (Deficit) 496,866 6,850,302 Pension liability adjustment (237,825) (424,221) Cumulative translation adjustment (529,676) (531,549) 9,971,594 16,137,380 Reserve for preferred stock redemption (1,200,000) - Total stockholders' equity 8,771,594 16,137,380 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,472,290 $21,205,528 See accompanying notes. 30 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended July 31, 1999 1998 1997 Sales $11,316,334 $10,943,574 $10,955,395 Cost of goods sold 9,380,584 8,056,468 7,780,605 Gross profit 1,935,750 2,887,106 3,174,790 Selling, general and administrative expenses 3,826,446 4,824,406 4,846,232 Operating loss (1,890,696) (1,937,300) (1,671,442) Other income and (expenses) Interest, net 193,942 286,960 (301,343) Other (Note 2): Investment gain (loss) (3,201,471) 1,992,648 (1,590,755) Minority interest in subsidiary 46,659 36,346 18,063 Other (8,124) 145,402 (62,076) (2,968,994) 2,461,356 (1,936,111) Earning (loss) from continuing operations before income tax (4,859,690) 524,056 (3,607,553) Provision (credit) for income taxes (56,254) 160,355 (213,372) Earnings (loss) from continuing operations (4,803,436) 363,701 (3,394,181) Discontinued operations (Note 2): Earnings (loss) from discontinued operations, net of $121,070 in tax credits for 1998 - (235,019) 109,641 Gain (loss) on disposal of business segments, net of taxes of $154,804 in 1998 and $323,705 in 1997 (1,550,000) 300,503 12,646,939 NET EARNINGS (LOSS) (6,353,436) 429,185 9,362,399 Dividends on Preferred Stock (63,000) (63,000) (63,000) Net earnings or loss applicable to Common Stock $(6,416,436) $ 366,185 $ 9,299,399
See accompanying notes. 32 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) Years ended July 31, 1999 1998 1997 Earnings (loss) available per common share: Continuing operations $(0.60) $0.04 $(0.43) Discontinued operations (0.19) 0.01 1.58 Net earnings $(0.79) $0.05 $ 1.15 Earnings (loss) available per common share - assuming dilution: Continuing operations $(0.60) $0.04 $(0.39) Discontinued operations (0.19) 0.01 1.46 Net earnings $(0.79) $0.05 $ 1.07
See accompanying notes. 33 ELECTRIC & GAS TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years ended July 31, 1999, 1998 and 1997 Retained Preferred Common Paid-in (deficit) stock stock capital earnings Balance at July 31, 1996 $900,000 $82,504 $10,201,334 $(2,941,282) Net earnings for the year - - - 9,362,399 Pension liability adjustment - - - - Currency translation adjustments - - - - Comprehensive income (loss) - - - - Treasury stock issued for bonuses - - (101,996) - Balance at July 31, 1997 900,000 82,504 10,099,338 6,421,117 Net earnings for the year - - - 429,185 Pension liability adjustment - - - - Currency translation adjustments - - - - Comprehensive income (loss) - - - - Purchase of treasury stock - - - - Cancellation of treasury stock - (522) (838,472) - Treasury stock issued for services - - - - Treasury stock issued for investments - - - - Balance at July 31, 1998 900,000 81,982 9,260,866 6,850,302 Net loss for the year - - - (6,353,436) Pension liability adjustment - - - - Currency translation adjustments - - - - Comprehensive income (loss) - - - - Purchase of treasury stock - - - - Cancellation of treasury stock - (676) (113,779) - Exercise stock options - 2,128 111,708 - Reserve for redemption - - - - Balance at July 31, 1999 $900,000 $83,434 $ 9,258,795 $ 496,866
See accompanying notes 34 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) Years ended July 31, 1999, 1998 and 1997 Accumulated Reserve Pension other redemption liability Translation comprehensive preferred Treasury adjustment adjustment income stock stock Total Balance at July 31, 1996 $(214,639) $(430,870) $(645,509) $ - $(876,117) $ 6,720,930 Net earnings for the year - - - - - 9,362,399 Pension liability adjustment (115,166) - (115,166) - - (155,166) Currency translation adjustments - (1,404) (1,404) - - (1,404) Comprehensive income (loss) - - - - - 9,205,829 Treasury stock issued for bonus - - - - 176,356 74,360 Balance July 31, 1997 (329,805) (432,274) (762,079) - (699,761) 16,041,119 Net earnings for the year - - - - - 429,185 Pension Liability adjustment (94,416) - (94,416) - - (94,416) Currency translation adjustments - (99,275) (99,275) - - (99,275) Comprehensive income (loss) - - - - - 235,494 Purchase of treasury stock - - - - (811,173) (811,173) Cancellation of treasury stock - - - - 838,994 - Treasury stock issued for services - - - - 338,500 338,500 Treasury stock issued for investments - - - - 333,440 333,440 Balance July 31, 1998 (424,221) (531,549) (955,770) - - 16,137,380 Net loss for the year - - - - - (6,353,436) Pension liability adjustment 186,396 - 186,396 - - 186,396 Currency translation adjustments - 1,873 1,873 - - 1,873 Comprehensive income (loss) - - - - - (6,165,167) Purchase of treasury stock - - - - (114,455) (114,455) Cancellation of treasury stock - - - - 114,455 - Exercise stock options - - - - - 113,836 Reserve for redemption - - - (1,200,000) - (1,200,000) Balance July 31, 1999 $(237,825) $(529,676) $(767,501) $(1,200,000) $ - $ 8,771,594
See accompanying notes 35 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended July 31, 1999 1998 1997 Increase (decrease) in cash: Cash flows from operating activities: Net earnings (loss) $(6,353,436) $ 429,185 $ 9,362,399 Adjustments to reconcile net earnings(loss) to net cash provided by operating activities: Discontinued operations 1,550,000 235,019 (109,641) Depreciation of property, plant and equipment 279,065 235,098 302,822 Issuance of stock for services - 338,500 74,360 Minority interest in subsidiary (46,659) (36,345) 83,004 Amortization of goodwill and patents 6,684 6,684 6,684 Gain on sale of business segment - (300,503) (12,646,939) Gain on sale of assets - (95,943) - Deferred income (82,390) (112,303) (33,879) Gains/Losses on investments 3,414,843 (1,992,648) 1,590,755 Changes in assets and liabilities: Accounts receivable 96,229 (185,890) (324,772) Inventories 530,118 (131,533) 268,841 Prepaid expenses 37,873 (6,381) (232,169) Other assets (279,553) (3,509) (1,033,212) Accounts payable 132,931 (212,805) 188,526 Accrued liabilities 128,243 (964,725) 781,474 Federal income taxes (169,719) (159,828) 323,705 Net cash used in operating activities (755,771) (2,957,927) (1,398,042) Cash flows from investing activities: Proceeds from sale of property, plant and equipment - - 36,288 Purchase of property, plant and equipment (169,155) (79,157) (106,124) Investments in affiliates - (479,000) - Investments 4,669,318 (2,857,500) - Certificate of deposits (3,810,842) (6,938,964) - Proceeds on sale of business segment - 951,295 20,828,385 Net cash provided by (used in) investing activities 689,321 (9,403,326) 20,758,549
See accompanying notes. 36 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years ended July 31, 1999 1998 1997 Cash flows from financing activities: Proceeds from issuance of long-term obligations $ - $ - $ 953,975 Issuance of common stock 100,336 - - Payments on long-term obligations (49,307) (1,016,552) (5,825,522) Purchase of treasury stock (114,455) (811,173) - Increase (decrease) in notes payable (31,280) 298,928 (650,332) Net cash used in financing activities (94,706) (1,528,797) (5,521,879) Effect of exchange rate changes on cash (2,590) (71,281) (4,783) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (163,746) (13,961,331) 13,833,845 Cash and cash equivalents - beginning of year 542,086 14,503,417 669,572 Cash and cash equivalents - end of year $ 378,340 $ 542,086 $14,503,417 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $351,141 $344,701 $330,149 Income tax $ - $344,704 $ -
See accompanying notes. 37 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows. Organization: Electric & Gas Technology, Inc.("the Company"or "ELGT") was organized under the laws of the State of Texas on March 18, 1985, to serve as a holding company for operating subsidiary corporations. In April, 1985, the Company (i) acquired from Commercial Technology, Inc. ("COMTEC"), an affiliated company, all of the stock of Reynolds Equipment Company ("Reynolds") for stock of the Company and (ii) acquired from a subsidiary of COMTEC all of the stock of Retech, Inc. ("Retech") [formerly Test Switch Technology, Inc.("Test Switch"), formerly Superior Technology, Inc. ("Superior")] for stock of the Company. In 1988, the Company acquired 85% (and subsequently 100%) of the stock of Data Automation Company, Inc. ("DAC") from Video Science Technology, Inc., formerly an affiliate of COMTEC and of the Company; DAC owned 100% of Domac Plastics, Inc. ("Domac") and Logic Design Metals, Inc. ("Logic"). Domac and Logic were subsequently sold. During 1992 Logic merged into DAC, its parent, and DAC changed its name to Logic Design Metals, Inc. and is referred to herein as "Logic". Fridcorp Plastics, Inc. ("Fridcorp") was acquired by the Company in January, 1992, in exchange for 162,000 shares of Company Common Stock. Fridcorp was subsequently sold December 1997. Hydel Enterprises, Inc. ("Hydel") [formerly Stelpro Limited ("Stelpro")] was acquired by the Company in April, 1992, in exchange for 166,474 shares of Company Common Stock and $1,100,000 (Cdn. funds)(April 30, 1992, exchange rate: .8370). On August 1, 1992, Hydel acquired all of the outstanding capital stock of Hydel Engineering Limited ("Hydel Engineering") for cash and notes payable of approximately $719,000 ($850,000 Cdn.). Hydel Engineering was merged into Hydel effective August 1, 1995. The number of shares of Company Common Stock issued in the acquisitions of Fridcorp and Hydel was, in each case, determined through arms-length negotiations. Superior Magnetics, Inc. ("SMI") was formed by the Company to acquire the operating assets of the business operations of Denison Magnetics of Texas Instruments Incorporated on November 30, 1992 for cash and deferred payments of approximately $2,900,000. The Company incorporated Atmospheric and Magnetics Technology, Inc. ("AMT") on June 10, 1996 under the laws of the State of Texas. AMT which remained dormant during most of Fiscal 1997 was formed to undertake the Company's venture into the water industry. 38 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF ACCOUNTING POLICIES (CONTINUED) The Company presently is the owner of 100% of Reynolds and Hydel and owns 91.5% of AMT and, through such subsidiaries, operates in three distinct business segments: (1) production of atmospheric water, filtration and enhanced water products (AMT); (2) the manufacture and sale of natural gas measurement, metering and odorization equipment (Reynolds); and (3) the manufacture and sale of electric meter enclosures and pole-line hardware for the electric utility industry and the general public (Hydel). Effective October 1, 1997, the Company agreed to sell its defense electronics business segment and on December 31, 1997 it sold its plastics segment. Both such operations have been treated as discontinued operations. Effective July 31, 1997, the Company discontinued the operations of its metal fabrication segment which previously was engaged in the manufacture and sale of precision metal enclosures for telecommunication and computer equipment (Logic). The Company sold its Canadian heating division and its U.S. meter socket and Test Switch divisions during fiscal 1996 and 1995. These operations were part of the electric segment. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories: Inventories of raw materials, work-in-process and finished goods are stated at the lower of cost or market as determined by the first-in, first-out method. Depreciation and Amortization: Depreciation and amortization are provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements whichever is shorter. Leased property under capital leases is amortized over the lives of the respective leases or over the service lives of the assets for those leases which substantially transfer ownership. The straight-line method of depreciation is followed for newly acquired assets and straight-line and accelerated methods have been used for older assets for financial reporting purposes, accelerated methods are used for tax purposes. 39 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF ACCOUNTING POLICIES (CONTINUED) Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation is computed based on the following useful lives: Years Machinery and equipment 3 -15 Buildings and improvements 4 -33 Furniture, fixtures and equipment 3 -10 Cash Equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Earnings Per Share: Earnings per common share are computed by dividing net earnings by the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Reclassification: Certain reclassification have been made to the 1997 consolidated financial statements to conform to the 1998 presentation. Use of Estimates: The Company uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results may well vary from the estimates that are used. Income taxes: Deferred income taxes result from the temporary differences between the financial statement and income tax basis of assets and liabilities and are figured using the enacted tax rates and laws that will be in effect when the differences are excepted to reverse. 40 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 DISPOSITIONS The Company discontinued its defense electronics business segment (SMI) effective October 1, 1997 as result of a decision to sell this business segment. The original agreement to sell SMI would have resulted in a small gain. However, the Company was unable to close this sale and subsequently, the Company has negotiated with other parties to sell SMI. The Company has recorded a loss of $1,550,000 during the year ended July 31, 1999 to recognize the subsequent reduction in the value of SMI. Effective December 31, 1997, the Company sold its plastics segment (Fridcorp) for cash of approximately $760,000 with a corresponding gain of approximately $210,000. The Company sold its metal fabrication segment effective July 31, 1997 (Logic and Precision). Proceeds from the sale amounted to approximately $20,850,000 with a corresponding gain of approximately $12,650,000. Accordingly, the financial statements have been reclassified to reflect these segments as a discontinued operations. Sales, cost of goods sold, selling, general and administrative expense and other were as follows: 1999 1998 1997 Sales $ - $1,104,411 $23,988,789 Cost of goods sold - 946,193 17,749,856 Selling, general and administrative - 440,418 5,134,280 Other (1,550,000) 347,684 11,651,927 Discontinued operations $(1,550,000) $ 65,484 $12,756,580 3 INVENTORIES Inventories consisted of the following at July 31,: 1999 1998 Raw materials $1,118,659 $1,076,237 Work-in-process 370,982 443,566 Finished goods 1,179,639 1,679,595 $2,669,280 $3,199,398 41 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at July 31,: 1999 1998 Land $ 234,822 $ 234,688 Buildings and improvements 2,267,145 2,346,380 Machinery and equipment 1,592,857 1,533,954 Furniture, fixtures & equipment 332,195 260,262 4,427,019 4,375,284 Less accumulated depreciation (2,629,656) (2,472,473) $1,797,363 $1,902,811 5 OTHER ASSETS In June 1997, litigation was commenced by the Company regarding certain transactions related to a loan from American Circuit Breaker Corporation arising out of its previous sale of the meter socket division of Retech. On December 12, 1997, the litigation was dismissed as result of an agreement between the parties whereby the Company received a 20% interest in Pioneer Power Corporation ("Pioneer"). The Company and the settling parties agreed that the value of the 20% interest was worth $1,250,000. Pioneer owns 100% of Pioneer Transformers Ltd. ("Pioneer Ltd."), a Canadian company which manufacture and sells transformers. As of December 31, 1998, Pioneer Ltd.'s audited financial information reflected total assets of approximately $6,000,000 with corresponding revenues for the year then ended of approximately $16,300,000 in Canadian dollars. Unaudited revenues for the eight months ended August 31, 1999 amounted to approximately $18,500,000 with net income of approximately $1,100,000 in Canadian dollars. As part of the agreement the Company will spin-off approximately 80% of its 20% interest in Pioneer to its shareholders. The Company is currently working with Pioneer to prepare and file the necessary disclosure statement and registration form to effect the spin-off. Pioneer recently acquired a company in California. Because of this acquisition, the spin-off will be delayed until the audited December 31, 1999 financial statements are completed and the registration statement can be amended. 42 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 OTHER ASSETS (CONTINUED) During the year ended July 31, 1999, the Company entered into an agreement with Dresser Engineers and Constructors, Inc. ("Dresser") to exchange shares. Dresser will deliver 3,000,000 shares of newly issued common shares and 2,000,000 warrants to acquire Dresser shares at $3.00 to the Company in exchange for 750,000 shares of the Company common stock. In addition, the Company has loaned Dresser $1,000,000 as of July 31, 1999, of which $150,000 has been paid back subsequently. The Company intends to distribute a portion of the Dresser shares to its shareholders. The shares have not been exchanged yet since the agreement requires that the Company common shares must be trading at least at $1.50 per share at the date of exchange and Dresser is obligated to complete their external audits. A portion of the Note to Dresser is guaranteed by Dresser's principal shareholder. During the year ended July 31, 1999, the Company invested in i3- Dx.com, Inc. ("i3-Dx.com"), a privately held company which is in the development stage. i3-Dx.com is a high-tech company which utilizes the internet for the development and distribution of its products. i3-Dx.com's technology is based on three-dimensional photographic lenticular imaging and is suitable for any application which may benefit from increased visualization, such as medical imaging, advertising and marketing. The Company owns approximately 11% of i3-Dx.com (4.5 million shares) and has warrants to purchase another 2.5 million shares. The Company intends to distribute a portion of the shares to its shareholders. During the year ended July 31, 1998, the Company entered into an agreement to acquire 100% of the outstanding common stock of African Telecommunications, Inc. ("AfriTel"), subject to approval of the Company's stockholders. In connection with the agreement, the Company has loaned AfriTel $1,977,000 as of July 31, 1999. In the event that the AfriTel acquisition is not completed, the note is due on November 30, 1999, including interest at 8%. AfriTel, through Afritel (SPRL), holds communications licenses in the Democratic Republic of Congo ("DRC") and Ghana. AfriTel was proceeding with installation of a digital wireless local loop telephone system in the DRC when that country became involved in a civil war. Lacking sufficient resources, Afritel agreed to sell 60% of Afritel (SPRL) to Shaz Investment Ltd. ("Shaz"). Shaz currently operates a telecommunication system through Telecel (SPRL) Congo in the DRC. Under the terms of the agreement, Shaz is to provide the capital and expertise to execute Afritel's business plan. As result of the uncertainty of the recoverability of its loan to Afritel, the Company has fully reserved its investment during the year ended July 31, 1999, amounting to $1,977,000. 43 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 NOTES PAYABLE Notes payable consisted of the following at July 31,: 1999 1998 Note payable, CIT (a) $ 264,023 $ 303,800 Note payable, bank (b) 902,904 892,755 Note payable, bank (c) 380,733 381,251 Note payable, bank (d) 183,542 184,676 $1,731,202 $1,762,482 (a) Part of a $4,500,000 Revolving credit and term facility with The CIT Group Credit/Finance, Inc. (CIT) due November 2001. Interest due monthly at 2.75% above prime. The revolving credit borrowing base is based on eligible accounts receivable and inventory, as defined (See note 7). (b) Note payable, bank, consists of a line of credit with a maximum loan amount of $1,450,000, payable on demand; bearing interest at the bank's prime rate plus 1.00%; secured by trade receivables and inventories. (c) Note payable, bank, under a $500,000 line of credit at 7% matures August 1999 and is secured by a $1,000,000 certificate of deposit. (d) Note payable, bank, interest at 7.62% matures October 1998, secured by a $1,000,000 certificate of deposit. Information relating to short-term borrowing is as follows: 1999 1998 Balance at end of year $1,731,202 $1,762,482 Maximum borrowing $1,849,704 $1,857,929 Average balance $1,727,886 $1,755,914 Average effective interest rate 8.3% 9.9% 44 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 NOTES PAYABLE (CONTINUED) Maximum borrowing are the maximum amount of aggregate short-term borrowing outstanding at any month end during the year. The average short-term borrowing were computed by dividing the aggregate borrowing for the year by the number of days the borrowing were outstanding during the year. The weighted average rate was computed by dividing the average borrowing into total interest on short-term borrowing. 7 LONG-TERM OBLIGATIONS Long-term obligations consist of the following at July 31,: 1999 1998 Term loan payable to The CIT Group Credit/Finance, Inc. (CIT) under a $4,500,000 credit facility (See note 6), due in monthly installments of $1,430, plus interest at prime plus 2.75%. The term portion is secured by machinery and equipment of U.S. subsidiaries, however, substantially all assets of U.S. subsidiaries are pledged under the total facility as collateral. $ 57,406 $ 74,569 Mortgage note payable due in monthly payments of principle and interest at 2.75% above prime from October 10, 1994 over twenty years. Guaranteed by the Small Business Administration. 534,616 545,214 Note payable to a bank, bearing interest at 8.75%, in monthly principal installments of $8,750 until August 2002, secured by machinery and equipment and land and building 294,772 383,554
45 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 LONG-TERM OBLIGATIONS (CONTINUED) 1999 1998 Various other installment notes and capitalized lease obligations. 99,481 32,246 986,275 1,035,583 Less current maturities (153,126) (116,691) $ 833,149 $ 918,892
The prime rate was 8.75% and 8.50% at July 31, 1999 and 1998, respectively. The Company is contingently liable as guarantor on approximately $600,000 of its discontinued defense electronics segment's debt to CIT, which is not included in the accompanying consolidated balance sheet. The aggregate annual principal payments are as follows: Year Ending July 31, 2000 $153,126 2001 182,249 2002 147,638 2003 43,257 2004 21,276 Thereafter 438,729 46 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 ACCRUED LIABILITIES Accrued liabilities consisted of the following at July 31: 1999 1998 Payroll $103,917 $ 85,535 Commissions 25,560 15,715 Pension plan (17,943) (77,943) Vacation pay 28,066 27,280 Taxes 75,555 74,635 Interest 51,210 - Miscellaneous 9,695 20,130 $276,060 $145,352 9 COMMITMENTS AND CONTINGENCIES Total rent expense for the years ended July 31, 1999, 1998 and 1997, was $126,000, $138,000 and $113,000, respectively, consisting primarily of minimum rentals. Litigation: The former manufacturers representative of Logic, Ammon & Rizos Co, has filed a suit against the Company, the Company's chairman of the board, Logic, and New Logic Design Metals, Inc. ("New Logic")(the purchaser of the assets) for unpaid fees, assumed by New Logic and a previous adjustment in prior fees plus prospective fees from New Logic's sales. The case has yet to go to trial; management believes there will be no material effect on the Company. 47 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9 COMMITMENTS AND CONTINGENCIES (CONTINUED) Allied Products Co had sued the Company under the Preferred Stock issued by the Company in connection with its investment in Cooper Manufacturing Corporation ("Cooper") and the rights pertaining thereto. The suit was filed in the Eastern District of Illinois (Chicago). The Cooper bankruptcy court confirmed the debtor's Plan of Reorganization on November 21, 1997. The Illinois' court awarded Allied a summary judgement and dismissed the Company's counterclaim on November 3, 1998, however, the issue of damages was not addressed by the court at that time. On January 28, 1999, the court awarded a judgement in favor of Allied and against the Company in the amount of approximately $1,100,000. The pending lawsuit between Allied and the Company has now been settled and dismissed. The settlement required the repurchase by the Company of the 90,000 shares of preferred stock for $1.1 million which would satisfy a judgement by the Court requiring such a purchase. An affiliate acquired said 90,000 shares and the judgement. The transaction was completed by the affiliate with $1.2 million of collateral supplied by the Company. The affiliate is pursuing the sale of the preferred stock, which if unsuccessful, the Company will repurchase the preferred stock and retire same. Other: Reynolds has no insurance against risk of loss that may result from product liability. Management considers such potential losses as remote; accordingly, no provision has been made in the consolidated financial statements for any claims or possible claims that may arise. Concentration of Credit Risk: The Company invests its cash and certificates of deposit primarily in deposits with major banks. Certain deposits are in excess of federally insured limits. The Company has not incurred losses related to its cash. The Company sells a broad range of products to the electric and gas utility industries. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed and, generally, no collateral is required. The Company maintains reserves for potential credit losses and such losses have not exceeded management's expectations. 48 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9 COMMITMENTS AND CONTINGENCIES (CONTINUED) Fair value of Financial Instruments: The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents, receivables and accounts payable approximate carrying value due to the short maturity of the instruments. The fair value of short-term and long-term debt approximate carrying value based on their effective interest rates compared to current market rates. 10 STOCKHOLDERS' EQUITY On December 15, 1995, the Company closed on a Note Purchase Agreement with Allied Products Corporation ("Allied"), thereby obtaining Allied's right, title and interest in and to a certain Promissory Note and all security existing thereunder and obligations of Cooper Manufacturing Corporation ("Cooper") under this Note and the Facility Agreement formerly executed by Cooper and its shareholders in exchange for $100,000 in cash and newly issued 90,000 shares of Series A, $10.00 par value, 7% Convertible Preferred stock of the Company. The promissory note was due on December 31, 1995 and demand for payment was made on Cooper and its guarantors. The preferred stock is convertible into common stock of the Company at the ratio of two shares of common stock for each share of preferred stock. Each holder of record of the shares of preferred stock is entitled to one vote per share equal to the voting rights of the common shareholders. The Company has agreed to make whole any deficiency upon conversion and subsequent sale after December 31, 1997 of the Company's common stock for less than $900,000. The Company's common stock trades at less than $1.50 per share which if sold at that price would require 600,000 shares to be sold to retire the obligation to Allied. The Preferred shares are redeemable in cash plus accrued dividends at any time as the result of an underwriting as defined therein. Accumulated and unpaid dividends to preferred stock amounted to approximately $228,000 at July 31, 1999. 49 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10 STOCKHOLDERS' EQUITY (CONTINUED) An Illinois's court awarded a judgement on January 28, 1999 in favor of Allied and against the Company in the amount of approximately $1,100,000. The pending lawsuit between Allied and the Company has now been settled and dismissed. The settlement required the repurchase by the Company of the 90,000 shares of preferred stock for $1.1 million which would satisfy a judgement by the Court requiring such a purchase. An affiliate acquired said 90,000 shares and the judgement. The transaction was completed by the affiliate with $1.2 million of collateral supplied by the Company. The affiliate is pursuing the sale of the preferred stock, which if unsuccessful, the Company will repurchase the preferred stock and retire same. The individuals whose stock was pledged and who personally guaranteed the Allied Note, petitioned the court on behalf of Cooper to file for protection under the U.S. Bankruptcy laws in a Houston, Texas court. The Bankruptcy Court approved the debtor's plan of reorganization in the Cooper bankruptcy on December 5, 1997. In accordance with such plan, the Company received cash of $700,000, notes receivable totaling $220,000, a 2.5% royalty agreement on new rigs sold and 1,000,000 shares of Cabec Energy Corp. The investment in Cooper was adjusted to the value of the consideration received. In connection with a financial consulting agreement entered into on July 28, 1997, the Company has issued warrants to an investment banking firm to purchase 150,000 and 300,000 shares of the common stock at $2.00 and $2.30 per share, respectively. The warrants are protected against dilution and expire July 31, 2001 and September 15, 2001, respectively. The warrants contain piggyback registration rights and the agreement allows the warrants holders to request registration of the warrants, if unregistered, between January 1, 1999 and July 31, 2002. The Company has not recorded any expense relating to the warrants since the exercise price exceeded the market price at the date of issuance. These warrants were issued as part of the consideration for investment banking services. The agreement between the Company and the investment banking firm was cancelled and the warrants were returned and cancelled. 50 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10 STOCKHOLDERS' EQUITY (CONTINUED) The following table sets forth the computation of basic and diluted earnings per share: 1999 1998 1997 Numerator Net income (loss)from continuing operations $(4,803,436) $363,701 $(3,394,181) Preferred stock dividends (63,000) (63,000) (63,000) Numerator for basic earnings per share Net income (loss) available to common stockholders continuing operations (4,866,436) 300,701 (3,457,181) Discontinued operations (1,550,000) 65,484 12,756,580 Net income (loss) available to common stockholders $(6,416,436) $ 366,185 $ 9,299,399 Effect of dilutive securities Preferred stock dividends $ 63,000 $ 63,000 $ 63,000 Numerator for diluted earnings per share Net income (loss) available to common stockholders after assumed conversion continuing operations $(4,803,436) $363,701 $(3,394,181) Discontinued operations (1,550,000) 65,484 12,756,580 Net income (loss) available to common stockholders $(6,353,436) $429,185 $ 9,362,399
51 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10 STOCKHOLDERS' EQUITY (CONTINUED) 1999 1998 1997 Denominator Denominator for basic earnings per share weighted-average shares 8,148,432 7,909,957 8,085,624 Effect of dilutive securities: Options - 212,700 134,157 Preferred stock - 489,130 523,256 - 701,830 657,413 Denominator for dilutive earnings per share assumed conversion 8,148,432 8,611,787 8,743,037
Assumed conversion of preferred stock and exercise of options in 1999 are antidilutive. 11 BENEFIT PLANS Retech sponsored a defined benefit pension plans that covered all of its hourly employees. The plan called for benefits to be paid to eligible employees at retirement based upon years of service and compensation rates near retirement. Retech's policy is to fund pension expenses accrued. Pension expense for the years ended July 31,: 1999 1998 1997 Service cost $ - $ - $ - Interest cost 69,073 64,523 135,845 Actual return on assets held for the plan (46,703) (39,557) (202,965) Net amortization of prior service cost, transition liability and net gain 62,874 38,323 115,511 Pension expense $85,244 $63,289 $ 48,391
52 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11 BENEFIT PLANS (CONTINUED) The following sets forth the funded status of the plans and the amounts shown in the accompanying consolidated balance sheets at July 31,: 1999 1998 Pension benefit obligations Vested $908,163 $992,767 Non-vested - - Projected benefit obligation 908,163 992,767 Fair value of assets held in plan 634,858 555,438 Unfunded excess of projected benefit obligation over plan assets $273,305 $437,329 Unrecognized net transition obligation $ - $ 48,473 Unrecognized prior service costs 66,928 81,329 Unrecognized net loss 237,825 424,221 Pension (asset) liability recognized (31,448) (116,694) Accrued pension liability $273,305 $437,329 The Company purchased approximately $1,161,000 in annuities for all those individuals who were currently receiving retirement benefits during 1997. The Company has recognized a minimum pension liability for the under-funded plans. The minimum liability is equal to the excess of the projected benefit obligation over plan assets. A corresponding amount is recognized as either an intangible asset or reduction of stockholders' equity. The Company recorded additional liabilities of $304,753 and $554,023, intangible assets of $66,928 and $129,802 and a stockholders' equity reduction of $237,825 and $424,221 as of July 31, 1999 and 1998, respectively. Retech will terminate these plans upon funding its pension liability. The plan assets consist of common equities and government securities administered by the trust department of United Bank, Canton, Ohio. 53 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11 BENEFIT PLANS (CONTINUED) The assumed long-term rate of investment return and the interest rate for obligations used in determining the actuarial present value of accumulated plan benefits was 8.5% and 7.0% at July 31, 1999 and 8.5% and 8% at July 31, 1998, respectively. The Company has established a defined contribution (401-K) plan covering substantially all U. S. employees. Charges to operations for this plan for the years ended July 31, 1999, 1998 and 1997 were $6,301, $6,619 and $5,398, respectively. The Company has an Incentive Stock Option Plan. The option price must be at least 100% of the fair market value of the common stock at the time options are granted. If the person to whom the option is granted is more than a 10% shareholder of the Company, the option price must be at least 110% of the fair market value of the stock at the time options are granted. No employee may be granted options in any calendar year greater than a value of $100,000, plus certain carry-over allowances from the previous years, as defined in the Plan. Each option becomes exercisable only after two years continued employment following the date the option is granted. The Plan provides for 400,000 shares of common stock. Following is a summary of options under the plan as of and for the years ended July 31,: 1999 1998 1997 Options outstanding at beginning of year 352,000 352,000 394,999 Granted - - 290,000 Terminated (62,000) - (332,999) Exercised (212,793) - - Options outstanding at end of year 77,207 352,000 352,000 Options exercisable at end of year 77,207 62,000 62,000 Exercise price per share $.50 to $.50 to $.50 to $.55 $2.75 $2.75 54 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11 BENEFIT PLANS (CONTINUED) The Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation ." SFAS 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award. However, an entity may continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by 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 the grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company has elected to retain the accounting in Opinion 25, accordingly there were no expenses for the year ended July 31, 1997. Pro forma disclosure for the fiscal year ended July 31, 1997 are as follows: Pro forma net income $9,190,148 Pro forma net income per share $1.09 Pro forma net income attributable to common shareholders $9,227,148 Pro forma net income per share $1.09 The fair value of the award was estimated at the grant date using a Black-Scholes option pricing model with the following weighted average assumptions for 1997: risk-free interest rate of 5.64%; volatility factor of 82%; and an expected life of the award of two years. The weighted average fair value of stock options for the year ended July 31, 1997 was $.25. 55 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12 INCOME TAXES Following is a reconciliation between reported income taxes and the amount computed by applying the statutory federal income tax rates to earnings (loss) before income taxes for the periods ended July 31,: 1999 1998 1997 Expected provision (benefit) for federal income taxes $(2,180,000) $189,000 $3,220,000 Expected provision for state income taxes (256,000) 22,000 474,000 Utilization of tax loss carryforward - - (3,583,667) Unavailable loss carrybacks 2,379,746 - - Other - (16,911) - Income taxes (benefit) $ (56,254) $194,089 $ 110,333
The Company files a consolidated tax return with its U.S. subsidiaries. Income tax expense (benefit) is reported as follows for the years ended July 31,: 1999 1998 1997 Income from continuing operations $(56,254) $160,355 $(213,372) Earnings from discontinued operations - (121,070) - Gain on sale of discontinued operations - 154,804 323,705 $(56,254) $194,089 $110,333 Income tax expense (benefit) consisted of the following: Current $(269,626) $194,089 $323,705 Deferred 213,372 - (213,372) $ (56,254) $194,089 $110,333
Deferred tax expense (credit) and deferred tax liabilities in all years (all Canadian) result principally from differences in depreciation for tax and financial statement purposes. 56 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12 INCOME TAXES (CONTINUED) The components of the net deferred tax (assets) liability included in the balance sheet are as follows at July 31,: 1999 1998 Net operating loss carryfoward $ (913,000) $ - Depreciation - U. S. 80,000 68,640 Provision for losses (1,195,000) (282,012) Valuation allowance 2,028,000 - $ - $(213,372) The Company has provided a valuation allowance against its deferred tax asset as it has determined that it is more likely than not the temporary differences will not be utilized for tax purposes. 13 RELATED PARTY TRANSACTIONS The following is a summary of advances from/to affiliated companies at July 31,: 1999 1998 Refineries Consolidated Technology, Inc. $ - $269,400 Cooper Manufacturing Corporation - 632,314 Others 58,003 16,063 $58,003 $917,777 57 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13 RELATED PARTY TRANSACTIONS (CONTINUED) The Company has advanced through the pledging of its certificates of deposit with a bank, corresponding to direct bank loans and direct advances to Refineries Consolidated Technology, Inc. ("RCT") and Cooper Manufacturing Corporation ("Cooper") approximately $1,297,000. The Company also acquired a secured note receivable from Cooper in exchange for 90,000 shares of its $10.00 par value Preferred Stock to an unaffiliated company who previously owned Cooper. During 1997 the Company provided a reserve of $723,000 against its receivable from RCT and also provided a reserve of $867,000 against the Cooper investment. The remaining $350,000 in 1997 investment in Cooper represented the estimated amount of recovery the Company expected to receive from Cooper's Plan filed in the bankruptcy court. The Bankruptcy Court approved the debtor's plan of reorganization in the Cooper bankruptcy on December 5, 1997. In accordance with such plan, the Company received cash of $700,000, notes receivable totaling $220,000, a 2.5% royalty agreement on new rigs sold and 1,000,000 shares of Cabec Energy Corp. The investment in Cooper was adjusted to the value of the consideration received. Cooper is no longer an affiliate of the Company. RCT has ceased operations and the balance due from RCT, amounting to $480,000 was written off during fiscal 1999. During the year ended July 31, 1998, the Company issued 200,000 shares of common stock from its treasury to affiliated entities for shares of common stock in two other affiliated entities. These shares were valued at $336,000, the market price of the Company's common stock at the time less a 30% discount for the restriction on the shares. This value approximated the value of the shares received from the affiliates. 14 SEGMENT INFORMATION Industrial Segments The Company operates principally in three industries: Water, gas and electric. Operations in the water industry involve the production of atmospheric water, filtration and enhanced water products. Operations in the gas industry involve the development, manufacture, and sale of gas meters and measurement equipment. Operations in the electric industry involve the manufacture and sale of meter sockets and other electrical equipment. The Company's former segments defense electronics, plastics and metal fabrication have been treated as a discontinued operations. 58 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 SEGMENT INFORMATION (CONTINUED) Following is a summary of segment information for the years ended July 31,: 1999 1998 1997 Sales to unaffiliated customers: Water $ 2,000 $ 52,576 $ 75,234 Gas 2,917,327 2,739,035 3,135,249 Electric 8,397,007 8,151,963 7,744,912 $11,316,334 $10,943,574 $10,955,395 Operating income (loss): Water $ (631,977) $ (427,596) $ (212,742) Gas (228,308) 115,435 40,784 Electric 236,133 292,35 161,043 (624,152) (19,626) (10,915) General corporate expenses (1,266,544) (1,917,674) (1,660,527) Other income (expense), net (2,968,994) 2,461,356 (1,936,111) Earnings (loss) from continuing operations before income taxes $(4,859,690) $ 524,056 $(3,607,553) Identifiable assets: Water $ 283,480 $ 832,428 $ 954,690 Gas 1,884,695 2,012,325 1,882,753 Electric 4,302,129 4,541,187 4,828,751 6,470,304 7,385,940 7,666,194 General corporate assets 7,001,986 13,819,588 15,352,939 Total assets $13,472,290 $21,205,528 $23,019,133
59 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 SEGMENT INFORMATION (CONTINUED) 1999 1998 1997 Capital expenditures: Water $ - $12,991 $ 7,670 Gas 113,343 10,257 28,960 Electric 55,812 54,531 66,095 General corporate - 1,378 3,399 $169,155 $79,157 $106,124 Depreciation and amortization: Water $ 6,825 $ 5,157 $ 2,131 Gas 58,380 55,899 155,346 Electric 201,488 161,670 133,054 General corporate 12,372 12,372 12,291 $279,065 $235,098 $302,822
Operating income represents sales less operating expenses for each segment and excludes income and expenses of a general corporate nature. Identifiable assets by segment are those assets that are used in the Company's operations within that industry but exclude investments in other industry segments. General corporate assets consist principally of corporate cash, receivables from affiliates, investments and the corporate headquarters building. Individual customers who exceeded 10% of consolidated revenues accounted for $1,666,000 and $1,240,000 in sales for the year ended July 31, 1998 and 1997, respectively. Geographic information Financial data by geographic area for the years ended July 31,: 1999 Operating (loss) Identifiable Sales Income Assets United States $ 2,919,327 $(991,675) $2,685,103 Canada 8,397,007 367,523 3,785,201 Total $11,316,334 $(624,152) $6,470,304 60 ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 SEGMENT INFORMATION (CONTINUED) 1998 Operating (loss) Identifiable Sales Income Assets United States $ 2,791,611 $(521,268) $3,636,634 Canada 8,151,963 501,642 3,749,306 Total $10,943,574 $ (19,626) $7,385,940 15 FOURTH QUARTER RESULTS During the fourth quarter of fiscal 1999 and 1997, the Company recorded the following adjustments which are unusual and non- recurring in nature: For fiscal 1999; (i) provided a reserve against various Company investments, including Aftritel, Cooper and RCT, in the amount of $3,515,000; (ii) provided for a loss of $1,550,000 to recognize a reduction in the value of SMI (Note 2). For fiscal 1997; (i) provided a reserve of $867,000 against the Company's investment in Cooper (See Note 13); (ii) provided a reserve of $723,000 against the Company's receivable from RCT (See Note 13); and (iii) provided a reserve of $457,800 against inventory obsolescence at SMI. 61
EX-27 2
5 12-MOS JUL-31-1999 JUL-31-1999 378,340 3,330,488 1,620,685 14,048 2,669,280 8,046,651 4,427,019 2,629,656 13,472,290 3,490,442 0 0 900,000 83,434 7,788,160 13,472,290 11,316,334 11,316,334 9,380,584 13,207,030 2,968,994 0 556,412 (4,859,690) (56,254) (4,803,436) (1,550,000) 0 0 (6,353,436) (.79) (.79)
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