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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended: April 30, 2003
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to________________
Commission File:# 0-14754
---------
ELECTRIC & GAS TECHNOLOGY, INC.
-------------------------------
(Exact Name of Registrant as specified in its Charter)
TEXAS 75-2059193
(State or other Jurisdiction of I R S. Employer
incorporation or organization) Identification No.)
13636 Neutron Road, Dallas, Texas 75244-4410
(Address of Principal Executive Offices) (Zip Code)
(972) 934-8797
(Registrant's telephone number, including area code)
----------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
The number of shares outstanding of each of the Issuer's Classes of Common
Stock, as of the close of the period covered by this report:
Common - $0.01 Par Value - 6,946,934 shares at June 12, 2003.
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Form 10-Q
For the Quarter Ended April 30, 2003
Page
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements:
(a) Condensed Consolidated Balance Sheets as
of April 30, 2003 (unaudited) and July 31, 2002 3
(b) Condensed Consolidated Statements of Operations for
the three and nine months ended April 30, 2003 (unaudited)
and 2002 (unaudited) 4
(c) Condensed Consolidated Statement of Changes in
Stockholders' Equity for the nine months ended
April 30, 2003 (unaudited) 5
(d) Condensed Consolidated Statements of Cash Flows
for the Nine months ended April 30, 2003 (unaudited)
and 2002 (unaudited) 6
(e) Notes to Condensed Consolidated Financial Statements
(unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Controls and procedures 16
Part II - Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature (pursuant to General Instruction E) 18
All other items called for by the instructions are omitted as they
are either inapplicable, not required, or the information is
included in the Condensed Financial Statements or Notes thereto.
2
ELETRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2003 and July 31, 2002
April 30, 2003 July 31, 2002
-------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,461 $ 54,615
Investments, at market 92,933 127,500
Accounts receivable, net 2,054,469 1,377,531
Inventories 3,010,633 2,240,673
Prepaid expenses 36,887 74,781
-------------- --------------
Total current assets 5,222,383 3,875,100
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, net 2,725,683 1,600,422
-------------- --------------
OTHER ASSETS 2,567,689 2,443,677
-------------- --------------
TOTAL ASSETS $ 10,515,755 $ 7,919,199
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,087,392 $ 995,602
Accounts payable 1,778,273 1,121,994
Accrued liabilities 576,881 240,408
Current maturities of long-term obligations 92,160 91,087
-------------- --------------
Total current liabilities 4,534,706 2,449,091
-------------- --------------
LONG-TERM OBLIGATIONS
Long-term obligations 2,681,456 2,036,022
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, issued 6,946,934 and 6,471,934 69,469 64,719
Additional paid-in capital 9,599,501 9,362,601
Accumulated deficit (4,602,153) (4,169,723)
Minimum pension liability (1,073,446) (1,073,446)
Cumulative translation adjustment (548,759) (605,046)
-------------- --------------
3,444,612 3,579,105
Treasury stock, 123,000 shares at cost (145,019) (145,019)
-------------- --------------
Total stockholders' equity 3,299,593 3,434,086
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,515,755 $ 7,919,199
============== ==============
See accompanying notes
3
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended April 30, 2003 and 2002
(Unaudited)
Three months ended Nine months ended
April 30, April 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Sales $ 3,669,753 $ 2,341,243 $ 9,294,766 $ 6,916,830
Cost of goods sold 2,711,973 1,674,403 6,714,152 5,071,582
----------- ----------- ----------- -----------
Gross profit 957,780 666,840 2,580,614 1,845,248
Selling, general and administrative
Expenses 1,034,517 749,885 2,854,253 2,465,119
----------- ----------- ----------- -----------
Operating loss (76,737) (83,045) (273,639) (619,871)
----------- ----------- ----------- -----------
Other income (expense):
Interest, net (44,062) (37,814) (116,404) (126,789)
Investment gain (loss) (34,567) (111,028) (34,567) 19,449
Other, net (1,620) 16,272 9,157 18,786
----------- ----------- ----------- -----------
Total other income (expense) (80,249) (132,570) (141,814) (88,554)
----------- ----------- ----------- -----------
Loss before income taxes (156,986) (215,615) (415,453) (708,425)
Income taxes (567) 20 (16,977) (10,497)
----------- ----------- ----------- -----------
Net loss $ (157,553) $ (215,595) $ (432,430) $ (718,922)
=========== =========== =========== ===========
Net loss available per common share: $ (0.02) $ (0.03) $ (0.07) $ (0.12)
=========== =========== =========== ===========
Weighted average common shares
Outstanding 6,823,934 6,223,601 6,550,323 6,182,267
=========== =========== =========== ===========
See accompanying notes.
4
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended April 30, 2003
(Unaudited)
Accumulated
Other
Common Paid-in Accumulated Comprehensive Treasury
Stock Capital Deficit Loss Stock Total
----------- ----------- ----------- ----------- ----------- -----------
Balance at July 31, 2002 $ 64,719 $ 9,362,601 $(4,169,723) $(1,678,492) $ (145,019) $ 3,434,086
Net loss (432,430) (432,430)
Currency translation adjustments 56,287 56,287
-----------
Comprehensive loss (376,143)
Stock issued for purchase of Logic Metals
Tech 4,000 169,400 173,400
Stock issued to officers 750 67,500 68,250
----------- ----------- ----------- ----------- ----------- -----------
Balance at April 30, 2003 $ 69,469 $ 9,599,501 $(4,602,153) $(1,622,205) $ (145,019) $ 3,299,593
=========== =========== =========== =========== =========== ===========
See accompanying notes.
5
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended April 30, 2003 and 2002 (Unaudited)
Nine Months Ended April 30,
2003 2002
Cash flows from operating activities:
Net loss $(432,430) $(718,922)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 168,811 163,113
Change in market value of investments 34,567 (19,449)
Common stock issued for services 68,250 --
Changes in assets and liabilities:
Accounts receivable (237,865) 398,613
Inventories (462,634) (171,349)
Prepaid expenses 40,951 15,658
Other assets (114,782) 643
Accounts payable 307,909 (34,098)
Accrued liabilities 290,988 45,451
--------- ---------
Net cash used in operating activities (335,235) (320,340)
--------- ---------
Cash flows from investing activities:
Net cash acquired in acquisition of Logic Metals Technology, 147,038 --
Inc
Proceeds from sales or maturities of investments -- 176,845
Purchase of treasury stock -- (676)
Purchase of property, plant and equipment (611,166) (133,680)
--------- ---------
Net cash provided by (used in) investing activities (464,128) 42,489
--------- ---------
Cash flows from financing activities:
Increase (decrease) in notes payable and
long-term debt 727,550 (276,989)
Common stock issued -- 54,611
Due to/from affiliate -- 13,348
--------- ---------
Net cash provided by (used in) financing activities 727,550 (209,030)
--------- ---------
Effect of exchange rate changes on cash 44,659 --
Net decrease in cash and cash equivalents (27,154) (486,881)
Cash and cash equivalents - beginning of period 54,615 557,999
--------- ---------
Cash and cash equivalents - end of period $ 27,461 $ 71,118
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 154,784 $ 204,834
========= =========
Non-cash activities:
The company acquired Logic Metals Technology, Inc. through the issuance
of 400,000 shares of common stock valued at $173,400, plus the assumption of
notes on equipment of $447,894.
See accompanying notes.
6
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
NOTE A - 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. The Company presently is the
owner of 100% of Reynolds and Hydel, owns 91.5% of AWT, and 80% of Logic Metals
and, through such subsidiaries, operates in three distinct business segments:
(1) production of atmospheric water, filtration and enhanced water products; (2)
manufacture and sale of products for the Utilities sector, consisting of natural
gas measurement, metering and odorization equipment, and electric meter
enclosures and pole-line hardware for the electric utility industry and the
general public, and (3) sheet metal fabrication for a diverse customer base,
including telecom and networking cabinetry, elevator controls, and other sheet
metal applications.
The accompanying condensed consolidated financial statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission ("SEC") for inclusion in the Company's Quarterly Report on Form 10-Q.
The accompanying financial statements reflect all adjustments of a normal
recurring nature, which are, in the opinion of management, necessary for a fair
statement of the results of operations for the interim periods.
The statements were prepared using accounting principles generally
accepted in the United States. As permitted by the SEC, the statements depart
from generally accepted accounting disclosure principles in that certain data is
combined, condensed or summarized that would otherwise be reported separately
and certain disclosures of the type that were made in the Notes to Financial
Statements for the year ended July 31, 2002 have been omitted, even though they
are necessary for a fair presentation of the financial position at April 30,
2003 and 2002 and the results of operations and cash flows for the periods then
ended.
NOTE B - ACQUISITION
On January 6, 2003, the Company acquired the personnel, and 80% of the
outstanding stock of privately held Logic Metals Technology, Inc. ("LMT"),
located in the Garland, Texas. LMT specializes in the fabrication of components
from sheet metal and assembly of those components into cabinets to house
electronic components and systems. The company builds products based on
specifications provided by other companies. Customers of LMT have historically
been in the telecom business, with requirements for metal cabinets to house
electronic switches and other components, but newer and proposed customers are
7
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 2003
(Unaudited)
in a variety of businesses, including elevator control systems, traffic signal
systems, and gaming machines. The aggregate cost of the acquisition was the
issuance of 400,000 shares of common stock valued at $173,400. The fair market
value of the Company's common stock was based on the closing price as of January
6, 2003, when the terms of the acquisition were agreed to by the parties to the
transaction. Results of operations of LMT are included in the results of the
Company from the date of the acquisition.
NOTE C - INVENTORIES
Inventories are comprised as follows:
April 30, 2003 July 31, 2002
-------------- --------------
Raw materials $ 1,144,351 $ 942,187
Work in process 532,718 385,443
Finished goods 1,333,564 913,043
-------------- --------------
$ 3,010,633 $ 2,240,673
============== ==============
NOTE D - ACCUMULATED OTHER COMPREHENSIVE LOSS:
The components of accumulated other comprehensive loss are as follows:
Cumulative Minimum
Translation Pension
Adjustment Liability Total
----------- ----------- -----------
Balance at July 31, 2002 $ (605,046) $(1,073,446) $(1,678,492)
Currency translation adjustments 56,287 -- 56,287
----------- ----------- -----------
Balance at April 30, 2003 $ (548,759) $(1,073,446) $(1,622,205)
=========== =========== ===========
The earnings associated with the Company's investment in its foreign
subsidiary are considered to be permanently invested and no provision for U.S.
federal income taxes on these earnings or translation adjustments has been
provided.
8
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 2003
(Unaudited)
NOTE E - CONTINGENCIES:
The Company's former U.S. electric operations were sold in 1996 and
1995. The sale of the meter socket division of Retech, Inc. ("Retech") included
a note receivable of approximately $1,250,000 and the continuing ownership of an
80,000 square foot manufacturing facility in Paris, Texas. Under the sale,
Retech would continue to be responsible for the frozen Defined Benefit Pension
Plan for Bargaining Employees (the "Plan"). The Company sued for collection of
the note receivable and subsequently entered into an agreement for the exchange
of a 20% interest in Pioneer Power, an affiliate of the note maker. Further, the
Company was to distribute 80% of its 20% interest to its shareholders in
accordance with the court approved agreement. The maker failed to perform under
this Agreement and has caused the Company to again pursue legal recourse against
the maker and their affiliates. Legal proceedings are just underway and
currently issues dealing with proper court jurisdiction are pending.
The Company had a contract for the sale of the Paris facility pending
the buyer's ability to finance the purchase. The buyer did not perform.
As the result of Retech's non-liquid status, it has been unable to
currently fund the annual pension liability. The Plan's pension liability as of
July 31, 2002, the date of the last actuarial valuation, was approximately
$580,000 and is reflected in Stockholders' Equity at April 30, 2003. In February
2002, the Company contributed approximately $350,000 in public equity securities
to the Pension Trust. The Company is liable for excise taxes on the funding
deficiency of approximately $44,000. Further, the IRS could impose 100%
penalties on the funding deficiency. A waiver of such penalties has been
requested. All beneficiaries eligible to receive benefits are currently
receiving such benefits from the Plan's Trust. Should the IRS impose the full
amount of the penalties it would have a material adverse effect on the Company's
liquidity.
9
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 30, 2003
(Unaudited)
NOTE F - INDUSTRY SEGMENT DATA:
The Company's business is primarily comprised of three industry segments:
(i) production of atmospheric water, filtration and enhanced water products;
(ii) the manufacture and sale of products serving the utilities industry,
specifically, natural gas measurement equipment and gas odorization products,
and metal enclosures and other hardware for use in the electric utility
industry, and (iii) fabrication of cabinets and piece parts from sheet metal for
diversified end customers as set forth below.
For Three Months Ended For Nine Months Ended
-------------------------- --------------------------
April 30 April 30 April 30 April 30
2003 2002 2003 2002
----------- ----------- ----------- -----------
Business Segment Sales
Water $ 199,001 $ -- $ 354,162 $ --
Utilities 2,674,423 2,341,243 7,658,554 6,916,830
Fabrication 796,329 -- 1,282,050 --
============= ============= ============ ============
Total sales $ 3,669,753 $ 2,341,243 $ 9,294,766 $ 6,916,830
Business Segment Net Profit (Loss)
Water $ 58,454 $ (36,426) $ 97,221 $ (101,491)
Utilities 100,709 151,382 301,792 156,367
Fabrication (41,584) -- 3,084 --
Corporate activities (194,316) (198,001) (675,736) (674,747)
Interest on loans/other income
(expense) net (80,249) (132,570) (141,814) (88,554)
----------- ----------- ----------- -----------
Income (loss) before income taxes $ (156,986) $ (215,615) $ (415,453) $ (708,425)
10
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 and sale of products serving the
Utilities industry, specifically, natural gas measurement equipment and gas
odorization products, and metal enclosures and other hardware for use in the
electric utility industry, and (iii) fabrication of cabinets and piece parts
from sheet metal for diversified end customers.
Results of Operations
Summary. The Company reported net losses of $(432,430) and $(157,553)
for the nine and three months ended April 30, 2003, respectively. This compared
to $(718,922) and $(215,595) for the nine and three months ended April 30, 2002,
respectively. Operating loss decreased by $346,232 and $6,308 for the nine and
three month periods, respectively, primarily as a result of increases in revenue
and operating profits in the Water and Utility segments as well as the
acquisition of Logic Metals Technology, Inc. The Utility segment reported an
increase in revenue of $741,724 and $333,180 with income before income taxes
improving by $145,425 and declining by $50,673 for the nine and three month
periods, respectively. The water segment reported increased revenues of $354,162
and $199,001, with income before income taxes increasing $198,712 and $94,880
for the nine and three month periods, repectively. Revenue was recognized for
the metal fabrication business for the first time in January of 2003. Revenue
for the metal fabrication business was $1,282,050 and $796,329 for the nine and
three month periods, respectively. Gross margins increased from 26.68% to 27.76%
for the nine months ended April 30, 2003. Also, selling, general and
administrative expenses as a percent of revenues at the segment level decreased
from 35.64% to 30.71% of revenue for the nine month periods, respectively. Other
income (expense) decreased $53,260 for the nine month period ended April 30,
2003 compared to 2002 primarily as a result of a decrease in investment market
values.
11
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Results of Operations (continued)
Increases (decreases) for the three and nine months periods ended April
30, 2003, as compared with the similar period of 2002, for key operating data
were as follows:
Three Months Ended Nine Months Ended
April 30, 2003 April 30, 2003
------------------------- -------------------------
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
----------- ----------- ----------- -----------
Sales $ 1,328,510 56.74 $ 2,377,936 34.38
Operating loss (6,308) (7.60) (346,232) 55.86
Loss before income taxes (58,629) (27.19) (292,972) (41.36)
Net loss available per common share (.01) (33.33) (.05) (41.67)
The following table represents the changes [increase/(decrease)] in
operating revenues, operating income and net earnings before income taxes by the
respective industry segments when compared to the previous period:
Three Months Ended Nine Months Ended
April 30, 2003 April 30, 2003
------------------------- -------------------------
Increase Percent Increase Percent
(Decrease) Change (Decrease) Change
----------- ----------- ----------- -----------
Operating Revenues:
Water $ 199,001 N/A $ 354,162 N/A
Utility 333,180 14.23 741,724 10.72
Fabrication 796,329 N/A 1,282,050 N/A
----------- ----------- ----------- -----------
$ 1,328,510 56.74 $ 2,377,936 34.38
Operating Income (Loss):
Water $ 94,880 260.47 $ 198,712 195.79
Utility (50,673) (33.47) 145,425 93.00
Fabrication (41,584) N/A 3,084 N/A
----------- ----------- ----------- -----------
2,623 2.28 347,221 632.74
General Corporate 3,685 1.86 (989) 0.15
Other Income (Expense) 52,321 39.47 (53,260) (60.14)
----------- -----------
Income (loss) before income taxes $ 58,629 27.19 $ 292,972 41.36
=========== ===========
12
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Results of Operations (continued)
Water revenues amounted to $354,162 for the nine months ended April 30,
2003 primarily reflecting the first payment for granting of an exclusive market
niche to Lockheed Martin and payment of $150,001 received from Lockheed Martin
for the first unit. Expenses were $256,941 and $140,547 for the nine and three
months ended April 30, 2003, respectively. Expenses were $101,491 and $36,426
for the nine and three months ended April 30, 2002, respectively. The Company
has identified distributors/agents for India, UAE and Sri Lanka, in addition to
Lockheed Martin.
Utility revenues increased by $741,724 and $333,180 for the nine and
three months ended April 30, 2003 Operating income increased by $145,425 and
decreased by $50,673 for the nine and three months ended April 30, 2003
resulting in operating profits of $301,792 and $100,709,respectively. Selling,
general and administrative expenses decreased to 23.94% of revenues when
compared to 24.89% for the corresponding nine month period in the prior year.
This segment was adversely affected by the events of September 11, 2001 and the
overall economy. Business is showing signs of improvement, and the sector has
introduced new products for the digital recording of multiple pressure points,
to begin replacing the paper graph recorders.
Fabrication began manufacturing for the electric and gas industry
starting January 1, 2003 with revenues to date of $485,722. Revenue was
$1,282,050 and $796,329 for the nine months and three months ended April 30,
2003, respectively. Logic Metals is a sheet metal fabrication company with
customers in the telecom and elevators industries, and has established a
strategic alliance with Mecanova OY of Finland to provide international
solutions.
With the exception of expense relationships discussed above in the
specific segment discussion, such other relationships remain consistent.
Corporate overhead expenses remain relatively consistent with prior period
amounts. Operating profits generated by the Company's business segments are
beginning to approach the level required to cover selling, general and
administrative expenses. The Company believes there is a worldwide need for safe
reliable drinking water and the market can be exploited with its products.
Further, the Company has had to expend approximately $200,000 in vigorously
defending its ownership of its general corporate offices in litigation with the
SBA, which currently remains unresolved at June 12, 2003. (Also see Part II,
Item 1. Legal Proceedings)
13
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
Liquidity. Current assets of the Company total $5,222,383 at April 30,
2003, up from current assets of $3,875,100 at July 31, 2002, or an increase of
$1,347,283. Current liabilities increased by $2,085,615, resulting in a decrease
in working capital (current assets less current liabilities) of $687,677 at
April 30, 2003, from $1,426,009 at July 31, 2002. The Company believes that it
has and can generate sufficient cash to meet its working capital requirements.
Hydel has a working capital line-of-credit with a Canadian bank in the
amount of approximately $1,500,000. The Canadian credit facility is secured by
receivables, inventories and equipment of Hydel.
Reynolds has established a working capital line of credit of
approximately $400,000 with a national bank in the Dallas, Texas area. The line
is secured by accounts receivable and inventory of Reynolds. Reynolds has also
received a mortgage loan in connection with refinancing of the building it
occupies for $397,000.
Logic has received funding from a national bank in the Dallas, Texas
area of $450,000 on a revolving line of credit secured by accounts receivable
and inventory.
As more fully described in Note E of the Condensed Financial
Statements, the Company could be liable for substantial penalties for Retech,
Inc.'s pension plan. Such penalties would have a material adverse affect on the
Company's liquidity.
Capital Expenditures
For fiscal 2003, the Company anticipates capital expenditures in the
metal fabrication area as additional capacity is required to meet customer
requirements. Otherwise, expenditures for capital equipment will be for the
ordinary replacement of worn-out or obsolete machinery and equipment utilized by
its subsidiaries.
Dividend Policy
The Company's Board of Directors has declared no cash dividends since
the Company's inception. The Company does not contemplate paying cash dividends
on its common stock in the foreseeable future since it intends to utilize it
cash flow to invest in its businesses.
14
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Other Business Matters
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 affecting the Company's overall operations is the general state of
the economy and principally new home construction.
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.
15
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The President has conducted an evaluation of the effectiveness of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934 as of a date (the "Evaluation Date") within 90 days prior
to the filing date of this report. Based upon that evaluation, the President
concluded that, as of the Evaluation Date, the Company's disclosure controls and
procedures were effective in ensuring that all material information relating the
Company required to be filed in this quarterly report has been made known to him
in a timely manner.
(b) Changes in internal controls.
There have been no significant changes made in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the Evaluation Date.
16
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Unites States of America (Plaintiff) vs. Commercial Technology, Inc.,
et.al (Defendant) in the United States District Court, Northern District of
Texas, case number 3-99-CV-2668-X. Plaintiff brought an action to collect on a
defective judgment to force the sale of an office building, which was acquired
from the defendant by the Company in 1987. The court has ruled that the
transaction the Government relied upon to enforce the judgment was not a debt
and was therefore not entitled to relief under the Act; and that they are not
entitled to a judicial sale of the property. The Government's only further
action was under the Texas Fraudulent Conveyance. A jury trial was held between
March 26 and April 6, 2001. The court granted a motion as to the Company and
dismissed all claims. However, a unanimous verdict was returned in favor of the
Plaintiff on April 6, 2001 finding that Commercial Technology, Inc. ("Comtec")
transferred a piece of real property to the Company in violation of the Texas
Uniform Fraudulent Transfer Act ("Act"). Commercial Technology, Inc. and the
Company filed on April 27, 2001 a renewed motion for judgment as a matter of
law, or, alternatively, for a new trial. Such motion will show that the real
property is not an asset under the Act, the Company's Hypothecation Agreement
operates as a deed and therefore the Company acquired equitable title and/or is
entitled to subrogation. The Company's appeal is currently on hold pending
Comtec's filing of a Chapter 11 bankruptcy proceeding on July 3, 2001. CIT Group
Credit Finance, Inc. ("CIT") holds what bankruptcy counsel believes is a secured
lien on the building as a result of their loans to the Company. The Company has
offered to purchase the building with the bulk of the proceeds going to satisfy
the CIT obligation. The Company will vigorously defend its position.
Electric & Gas Technology, Inc., Retech, Inc. and Hydel Enterprises,
Inc. (Plaintiffs) vs. Nathan Mazurek, American Circuit Breaker Corp. and
Provident Group, Inc. (Defendants) - Civil Action N. 3:01-CV-2756-G. Plaintiffs
filed suit in the 160th District Court in Dallas, County. The case has been
removed to United States District Court for the Northern District of Texas,
Dallas Division. Plaintiffs allege the non-payment of a note to Retech, Inc. of
approximately $1,150,000, unpaid accounts receivable to Hydel Enterprises, Inc.
of approximately $975,000 (Canadian Dollars), plus added sums in penalties,
damages and attorneys fees. Plaintiffs have also filed a motion to stay other
pending litigation in Delaware involving the related parties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) Reports on Form 8-K.
17
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELECTRIC & GAS TECHNOLOGY, INC.
/s/ S Mort Zimmerman
--------------------
S Mort Zimmerman
Chairman and
Chief Executive Officer
Dated: June 23, 2003
18
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, S. Mort Zimmerman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Electric & Gas
Technology, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the consolidated financial statements, and
other financial information included in this quarterly report, fairly present in
all material respects the consolidated financial condition, results of
operations and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a- 14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
19
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 23, 2003
/s/ S. Mort Zimmerman
- ----------------------
S. Mort Zimmerman
President and Chairman of the Board
I, George M. Johnston, certify that:
1. 1 have reviewed this quarterly report on Form 10-Q of Electric & Gas
Technology, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the consolidated financial statements, and
other financial information included in this quarterly report, fairly present in
all material respects the consolidated financial condition, results of
operations and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a- 14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
20
ELECTRIC & GAS TECHNOLOGY, INC. AND SUBSIDIARIES
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 23, 2003
/s/ George M. Johnston
- ----------------------
George M. Johnston
Vice President &
Chief Financial Officer
21