GENCOR INDUSTRIES INC - Annual Report: 2003 (Form 10-K)

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15[d] OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2003

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15[d] OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-3821

GENCOR INDUSTRIES, INC.

Incorporated in the		I.R.S. Employer Identification
State of Delaware		No. 59-0933147

5201 North Orange Blossom Trail

Orlando, Florida 32810

Registrant’s Telephone Number, Including Area Code:

(407) 290-6000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock ($.10 Par Value)

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 Exchange 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 filing requirements for the past 90 days. x Yes ¨ 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. x Yes ¨ No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). ¨ Yes x No

The aggregate market value of the common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the most recently completed second fiscal quarter was $6,877,762.

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practicable date: 6,884,070 shares of Common Stock ($.10 par value) and 1,798,398 shares of Class B Stock ($.10 par value) as of December 19, 2003.

List hereunder the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated.

Portions of the definitive Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

PART I

ITEM 1. BUSINESS

General

Gencor Industries, Inc. and its subsidiaries (the “Company”) is a leading manufacturer of heavy machinery used in the production of highway construction materials, synthetic fuels, and environmental control equipment. The Company’s products are manufactured in two facilities in the United States and one facility located in the United Kingdom. The Company’s products are sold through a combination of Company sales representatives and independent dealers and agents located throughout the world.

The Company designs and manufactures machinery and related equipment used primarily for the production of asphalt and highway construction materials. The Company’s principal core products include asphalt plants, combustion systems and fluid heat transfer systems. Gencor Industries, Inc.’s technical and design capabilities, environmentally friendly process technology and wide range of products have enabled it to become a leading producer of equipment worldwide. The Company believes it has the largest installed base of asphalt production plants in the United States.

Because the Company’s products are sold primarily to the highway construction industry, the business is seasonal in nature. The majority of orders for the Company’s products are received between November and February, with a significant volume of shipments occurring prior to May. The principal factors driving demand for the Company’s products are the level of government funding for domestic highway construction and repair, infrastructure development in emerging economies, the need for spare parts and a trend towards larger plants resulting from asphalt contractor and plant consolidation. On June 9, 1998, the Transportation Equity Act for the 21st Century (“TEA-21”) was signed into law. TEA-21 significantly increased authorized funding levels for highway construction and rehabilitation to $167 billion over the five- year period, beginning October 1, 1998 through September 30, 2003. During 2003, Congress passed a five month extension of the spending bill. The Company expects a new bill to be passed in 2004.

History

In 1968, the foundation of the Company was formed by the merger of Mechtron Corporation with General Combustion, Inc. and Genco Manufacturing, Inc. The new entity reincorporated in Delaware in 1969 and adopted the name Mechtron International Corporation in 1970. In 1985, the Company began a series of acquisitions into related fields starting with the Beverley Group Ltd. in the United Kingdom. Hy-Way Heat Company, Inc. and the Bituma Group were acquired in 1986. In 1987, the Company changed its name to Gencor Industries, Inc. and acquired the Davis Line Inc. (Hetherington and Berner) and its subsidiaries in 1988.

In 1996, the Company acquired Process Equipment Division of Ingersoll-Rand Company (PED). The acquisition and expansion into the food processing machinery industry provided the Company new opportunities in niche markets, which manufacture equipment to process food products such as pelletized animal feeds, sugar and edible oils. Included in this “CPM” group were a number of foreign subsidiaries.

Effective July 1, 1997, the Company acquired Gumaco and certain other South American companies with substantial manufacturing capacity in Brazil. These companies produced heavy machinery for the production and processing of fruit juices.

Effective October 1, 1997, the Company acquired ACP Holdings P.L.C. (“ACP”). The ACP acquisition expanded the Company’s construction equipment product line to include the manufacturer of portable batch asphalt plants. This product line is more suitable for international markets since capacity and production needs are different in foreign markets than the United States. The product line is marketed to numerous international markets including China, Thailand, Malaysia, Southern Europe, Africa, the Middle East and the Mediterranean. Following the acquisition ACP Holdings P.L.C. was renamed Gencor ACP, Ltd. (“ACP”).

In June 2001, ACP was reorganized under the direction of a receiver. The assets and business were sold to Gencor Industries Limited, another wholly-owned subsidiary of the Company. The name of the subsidiary was changed to Gencor International Limited (“Gencor International”). In 2003, Gencor International was placed into administration and the assets were sold to Gencor International Limited, a British Virgin Island corporation and subsidiary of the Company. The operations were consolidated into the U.S. operations.

In January 1998, the Company finalized agreements with Carbontronics, LLC (“CLLC”) pursuant to which the Company sold, manufactured, and installed four synthetic fuel production plants. These plants were sold by CLLC to a limited partnership (“LP”), Carbontronics Synfuel Investors, LLC, which is now the owner of the plants. The Company was paid in full for these plants in 1998. In addition to payment for the plants, the Company received a partnership interest of 45% in CLLC. Also, the Company subsequently received a 25% partnership position in the General Partner (“GP”) of the LP and in Carbontronics II, LLC (“C2LLC”). The remaining interests in the GP, CLLC, and C2LLC are owned by other, unrelated entities. An administrative member of the GP, not the Company, is responsible for administration of the day-to-day affairs of the GP and LP. The Company is entitled to appoint only one of the three members of the GP Management Committee and has 1/3 of the voting rights thereof. As a part of the partnership positions in CLLC, C2LLC, and the GP, the Company has the potential for income subject to the performance of the partnership. Future benefits realizable by the Company on the synthetic fuel production plants depend on whether the production from these plants will continue to qualify for tax credits under Section 29 of the Internal Revenue Code and the ability to economically produce and successfully market synthetic fuel produced by the plants.

On August 8, 2003, Gencor Industries, Inc. (“Gencor”) was notified by its investee General Partner that the income tax returns for its synthetic fuel producing partnership are being audited. As previously reported in the most recent Form 10-Q, the Limited Partners may declare a “Tax Event” and suspend further distributions indefinitely. Gencor was informed that the Limited Partners have declared a “Tax Event” and therefore future distributions had ceased.

On December 12, 2003, Gencor was notified by the General Partner that the IRS had issued rulings dated December 10, 2003 to the producing partnership concluding that, if the partnership adheres to the specified production methods and chemistry, the partnership will be entitled to the section 29 credit for the production of qualified fuel that is sold to unrelated persons.

Although the IRS now advises that it is satisfied with the chemical testing procedures, it is proceeding with a general IRS audit. Therefore the previously imposed Tax Event continues and the Limited Partners are not allowing revenue to be distributed to Gencor until satisfactory conclusion of the audit. The Company records the income as the distributions are received and does not project or forecast amounts, if any, or timing of future distributions.

As of September 1999, the Company was in default of the terms and conditions of its Senior Secured Credit Facility and Industrial Revenue Bond Indenture. In November 1999, the Senior Secured Lenders accelerated their demand for payment in full. During April 2000, certain of the Company’s lenders filed an Involuntary Petition under Chapter 11 of U.S. Bankruptcy Code. On September 13, 2000 (the “Petition Date”), the Company and certain of its subsidiaries (“the Debtors”) filed voluntary petitions commencing cases under Chapter 11 of the U.S. Bankruptcy Code. The Company and certain of its subsidiaries began operating its businesses as debtors-in-possession under Chapter 11 of the U.S. Bankruptcy Code.

On April 13, 2001, the Debtors filed the Amended Plan of Reorganization of Gencor Industries, Inc. (the “Amended Plan”), dated April 9, 2001 with the Bankruptcy Court providing essentially for 100% payment of all secured and unsecured creditors and no dilution or diminution to the equity holders. The Amended Plan was confirmed on July 11, 2001, and became effective on December 31, 2001.

Pursuant to the Amended Plan, the sale of CPM’s domestic and foreign operations was to be consummated. The sale was consummated on May 29, 2001, for $52 million. In September 2001, CPM’s subsidiary Silver-Weibull A.B. was placed in receivership and subsequently sold in November 2001. The Company included the operating

results of CPM and Silver-Weibull in discontinued operations. The net proceeds from the sales were used to reduce the outstanding balance of the Senior Secured Lenders.

Under the Amended Plan, all of the Company’s debts were to be satisfied in full. On December 31, 2001, the Senior Secured Lenders and the Company entered into an Amended and Restated Senior Secured Credit Agreement, which specified that the remaining claims of the Senior Secured Lenders were to be paid over a four-year period with the remaining balance due in September 2005.

On August 1, 2003, the Company entered into a Revolving Credit and Security Agreement with PNC Bank, N.A. The Agreement established a three year revolving $20 million credit facility. The facility provides for advances based on accounts receivable, inventory and real estate. The facility includes a $2 million limit on letters of credit. At September 30, 2003, the Company had $.3 million of letters of credit outstanding. The interest rate at September 30, 2003, is at prime (4.00%) and subject to change based upon the Fixed Charge Coverage Ratio. The Company is required to maintain a Fixed Charge Coverage Ratio of 1.1:1. There are no required repayments as long as there are no defaults and there is adequate eligible collateral. Substantially, all of Company’s assets are pledged as security under the Agreement. The borrowings from the Company’s previous Secured Lenders were paid in full with cash and proceeds from this new Revolving Credit and Security Agreement.

The duration of the current economic slowdown and the extent to which it will continue to impact the overall U.S. economy and the Company’s operations remains uncertain. However, the Company’s management continues to believe in the underlying strength and resiliency of the nation’s economy and remains optimistic about the Company’s long-term prospects.

Products

Asphalt Plants. The Company manufactures and produces hot-mix asphalt plants used in the production of asphalt paving materials. The Company also manufactures related asphalt plant equipment including hot mix storage silos, fabric filtration systems, cold feed bins and all other plant components. H&B (Hetherington and Berner) built the first asphalt batch plant in 1894 and is the world’s oldest asphalt plant line. Bituma, formerly known as Boeing Construction Company, developed the continuous process for asphalt production, which has been adopted as the United States industry’s standard technology, as well as patented the counterflow technology, several adaptations of which have become the new standard, which recaptures and burns emissions and vapors, resulting in a cleaner and more efficient process. The Company manufactures a very comprehensive range of fully mobile batch plants, as well as mobile shredders and trommel screens.

Combustion Systems and Industrial Incinerators. The Company manufactures combustion systems, which are large burners that can transform most solid, liquid or gaseous fuels into usable energy, or burn multiple fuels, alternately or simultaneously. Through its subsidiary General Combustion, the Company has been a significant source of combustion systems for the asphalt and aggregate drying industries since the 1950’s. The Company also manufactures soil decontamination machinery, as well as combustion systems for rotary dryers, kilns, fume and liquid incinerators, boilers and tank heaters. The Company believes maintenance and fuel costs are lower for its burners because of their superior design.

Fluid Heat Transfer Systems. The Company’s General Combustion subsidiaries in the USA and U.K. manufacture the Hy-Way heat and Beverley lines of thermal fluid heat transfer systems and specialty storage tanks for a wide array of industry uses. Thermal fluid heat transfer systems are similar to boilers, but use a high temperature oil instead of water. Thermal fluid heaters have been replacing steam pressure boilers as the best method of heat transfer for storage, heating and pumping viscous materials (i.e., asphalt, chemicals, heavy oils, etc.) in many industrial and petrochemical applications worldwide. The Company believes the high efficiency design of its thermal fluid heaters can outperform competitive units in many types of process applications. Heaters are available for vertical, horizontal and underground tanks in steel, stainless steel, and other materials designed to meet large or small specific job requirements.

Product Engineering and Development

The Company is engaged in product engineering and development efforts to expand its product lines and to further develop more energy efficient and environmentally compatible systems.

Significant developments include the use of cost effective, non-fossil fuels, biomass (bagasse, municipal solid waste, sludge and wood waste), refuse-derived fuel, coal and coal mixtures, the economical recycling of old asphalt and new designs of environmentally compatible asphalt plants. Product engineering and development activities are directed toward more efficient methods of producing asphalt and lower cost fluid heat transfer systems. In addition, efforts are also focused on developing combustion systems that operate at higher temperatures and offer a higher level of environmental compatibility.

Sources of Supply and Manufacturing

Substantially all products sold by the Company and its subsidiaries are manufactured or assembled by the Company, except for procured raw materials and hardware. The Company purchases a large quantity of steel, raw materials and hardware used to manufacture its products from hundreds of suppliers and is not dependent on any single supplier. Periodically, the Company reviews the cost effectiveness of internal manufacturing versus outsourcing its product lines to independent third parties and currently believes it has the internal capability to produce the highest quality product at the lowest cost. This, however, may change from time to time.

Seasonality

The Company is concentrated in the asphalt-related business and subject to a seasonal slow-down during the third and fourth quarters of the calendar year. Traditionally, the Company’s customers do not purchase new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and repair work. This slow-down often results in lower reported sales and earnings and/or losses during the first and fourth quarters of the Company’s fiscal year.

Competition

The markets for the Company’s products are highly competitive. Within a given product line, the industry remains fairly concentrated, with typically a small number of companies competing for the majority of a product line’s industry sales. The principal competitive factors include technology and overall product design, dependability and reliability of performance, brand recognition, pricing and after-the-sale customer support. Management believes its ability to compete depends upon its continual efforts to improve product performance and dependability, competitively price its products, and provide the best customer support and service in the industry.

Sales and Marketing

The Company’s products and services have been marketed internationally through a combination of Company-employed sales representatives and independent dealers and agents. Each of the Company’s business groups has been responsible for marketing its products and services with support from the corporate sales and marketing department.

Sales Backlog

The Company’s manufacturing processes allow for a relatively short turnaround from the order date to shipment date of usually less than ninety (90) days. Therefore, the size of the Company’s backlog should not be viewed as an indicator of the Company’s annualized revenues or future financial results. The Company’s backlog was approximately $12 million and $13 million as of December 18, 2003 and 2002, respectively.

Licenses, Patents and Trademarks

The Company holds numerous patents covering technology and applications related to various products, equipment and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in various foreign countries. In general, the Company depends upon technological capabilities, manufacturing quality control and application know-how, rather than patents or other proprietary rights in the conduct of its business. The Company believes the expiration of any one of these patents, or a group of related patents, would not have a material adverse effect on the overall operations of the Company.

Government Regulations

The Company believes its design and manufacturing processes meet all industry and governmental agency standards that may apply to its entire line of products, including all domestic and foreign environmental, structural, electrical and safety codes. The Company’s products are designed and manufactured to comply with Environmental Protection Agency regulations. Certain state and local regulatory authorities have strong environmental impact regulations. While the Company believes that such regulations have helped, rather than restricted its marketing efforts and sales results, there is no assurance that changes to federal, state, local, or foreign laws and regulations will not have a material adverse effect on the Company’s products and earnings in the future.

Environmental Matters

The Company is subject to various federal, state, local and foreign laws and regulations relating to the protection of the environment. The Company believes it is in material compliance with all applicable environmental laws and regulations. The Company does not expect any material impact on future operating costs as a result of compliance with currently enacted environmental regulations.

The Company also regularly conducts an environmental assessment consistent with recognized standards of due diligence on properties and businesses which it acquires. To date, these assessments have not identified contamination resulting from acquired properties that would be reasonably likely to result in a material adverse effect on the Company’s business, results of operations, or financial condition.

Employees

As of September 30, 2003, the Company employed a total of 317 employees; there were 302 employees in the domestic U.S. operations and 15 employees in the U.K. operations. The Company has collective bargaining agreements covering production and maintenance employees at its Marquette, Iowa facilities. The remaining domestic employees are not represented by a labor union or collective bargaining agreement. The Company believes that its relationship with its employees is good.

Executive Officers of the Registrant

The executive officers of the Company at September 30, 2003 were:

NAME		POSITION

E.J. Elliott		Chairman of the Board and President
John E. Elliott		Executive Vice President
Scott W. Runkel		Chief Financial Officer and Treasurer
Marc G. Elliott		President, Construction Equipment Group
David F. Brashears		Senior Vice President, Technology
Jeanne Lyons		Secretary

Mr. E.J. Elliott has served as Chairman of the Board since 1973 and President since 1969. Mr. Elliott has over 46 years experience in the design, manufacture and operation of construction machinery and asphalt manufacturing

plants. Since the early 1960’s, Mr. Elliott owned and served as Chairman and President of General Combustion, Inc. and Genco Manufacturing Corporation which became the foundation for Gencor.

Mr. John Elliott was elected a Director of the Company in 1985. In 1986, he was elected a Vice President and promoted to Executive Vice president in 1989. He has been with the Company since 1982.

Mr. Marc Elliott was promoted to President of the Construction Equipment Group in August 1999. He had previously been Vice President, Marketing, since July 1993. He has served in various marketing positions since joining the Company in 1988.

Mr. Scott Runkel was named Chief Financial Officer and Treasurer, in August 2000. He was a partner with the accounting firm of Ernst & Young and then a financial advisor prior to joining the Company.

Mr. David Brashears was named Senior Vice President, Technology, in July 1993. He had previously been Vice President, Engineering, since he joined the Company in 1978.

Ms. Jeanne Lyons joined the Company in 1995 as Administrative Assistant to the Chairman, and was elected Secretary of the Company in 1996.

ITEM 2. PROPERTIES

The following table lists the properties owned or leased by the Company as of September 30, 2003:

Location	Owned Acreage	Square Footage	Principal Function

Billingshurst, West Sussex England (1 )	1.2	5,000	Offices
Leicester, England (1 )	6.0	97,000	Offices and manufacturing
Marquette, Iowa (1 )	72.0	137,000	Offices and manufacturing
Orlando, Florida (1)	27.0	171,000	Corporate offices and manufacturing

(1)	These properties are owned and pledged as security under the Company’s credit agreement.

As of September 30, 2003, the Company still owns offices and manufacturing facility in Araraquara, Brazil. This facility is approximately 295,000 square feet of space on 29.2 acres. This facility is part of the discontinued operations. The Leicester, England facility is included in Assets held for sale as of September 30, 2003.

ITEM 3. LEGAL PROCEEDINGS

The Company has various litigation and claims pending as of the date of this Form 10-K which have occurred in the ordinary course of business, and which may be covered in whole or in part by insurance. Management has reviewed all litigation matters arising in the ordinary course of business and, upon advice of counsel, has made provisions, not deemed material, for any estimable losses and expenses of litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company’s stock is traded over the counter on the Pink Sheets. Following are the high and low per share closing bid prices for our common stock for the periods indicated:

	BID PRICES
	HIGH	LOW
2003

First Quarter	1.85	0.93
Second Quarter	1.85	1.04
Third Quarter	3.25	1.15
Fourth Quarter	3.45	2.15

2002

First Quarter	3.65	2.08
Second Quarter	4.25	2.68
Third Quarter	4.35	2.20
Fourth Quarter	2.97	1.51

As of November 13, 2003, there were 410 holders of Common Stock of record and 8 holders of Class B Stock of record.

Dividend Policy

The Company has not paid any dividends during the last two fiscal years and there is no intention to pay cash dividends in the foreseeable future.

EQUITY COMPENSATION PLAN

In the following table is information about our common stock that may be issued upon exercise of options, warrants and rights under all of our existing equity compensation plans and arrangements as of September 30, 2003, including the 1997 Stock Option Plan and the 1992 Stock Option Plan.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in second column)
Equity compensation plans approved by security holders	1,526,000	1.95	1,476,000
Equity compensation plans not approved by security holders	—	—	—

Total	1,526,000	1.95	1,476,000

ITEM 6. SELECTED FINANCIAL DATA

	Years Ended September 30
	2003			2002		2001			2000			1999
	(in thousands, except per share data)

Net revenue from continuing operations	$	55,898		$	67,485	$	71,134		$	96,808		$	101,399
Operating income (loss) from continuing operations	$	(1,173	)	$	2,059	$	(3,870	)	$	3,848		$	(15,113	)
Income (loss) from continuing operations	$	7,260		$	1,829	$	(4,248	)	$	1,268		$	(12,544	)
Discontinued operations: (1)
Operating income (loss)	$	—		$	241	$	5,695		$	(476	)	$	(11,322	)
Gain on sale of businesses	$	—		$	—	$	3,835		$	—		$	—
Extraordinary item—debt extinguishment	$	—		$	—	$	3,641		$	—		$	—

Net income (loss)	$	7,260		$	2,070	$	8,923		$	792		$	(23,866	)

Per share data:
Basic:
Income (loss) from continuing operations	$	0.84		$	0.21	$	(0.49	)	$	0.14		$	(1.45	)
Discontinued operations: (1)
Operating income (loss)	$	—		$	0.03	$	0.66		$	(0.05	)	$	(1.30	)
Gain on sale of businesses	$	—		$	—	$	0.44		$	—		$	—
Extraordinary item—debt extinguishment	$	—		$	—	$	0.42		$	—		$	—

Net income (loss)	$	0.84		$	0.24	$	1.03		$	0.09		$	(2.75	)

Diluted:
Income (loss) from continuing operations	$	0.82		$	0.20	$	(0.49	)	$	0.14		$	(1.45	)
Discontinued operations: (1)
Operating income (loss)	$	—		$	0.03	$	0.66		$	(0.05	)	$	(1.30	)
Gain on sale of businesses	$	—		$	—	$	0.44		$	—		$	—
Extraordinary item—debt extinguishment	$	—		$	—	$	0.42		$	—		$	—

Net income (loss)	$	0.82		$	0.23	$	1.03		$	0.09		$	(2.75	)

Cash dividends declared per common share	$	—		$	—	$	—		$	—		$	0.030

Selected balance sheet data:
	September 30,
	2003		2002		2001		2000			1999
Current assets	$	19,331	$	41,767	$	47,956	$	85,869		$	93,424
Current liabilities	$	16,518	$	29,243	$	29,671	$	140,672		$	149,737
Total assets	$	40,634	$	62,184	$	69,587	$	139,946		$	151,947
Long-term debt, less current maturities	$	5,321	$	24,337	$	34,333	$	—		$	—
Shareholders’ equity (deficit)	$	12,609	$	5,295	$	2,274	$	(7,423	)	$	(4,275	)

(1)	The operating results of the food processing equipment manufacturing businesses (CPM) are reflected as discontinued operations.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

“Forward-Looking” Information

This Form 10-K contains certain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which represent the Company’s expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company’s products and future financing plans. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, whether or not the Company receives income from its investees, and demand for the Company’s products.

Results of Operations

Year ended September 30, 2003 compared with the year ended September 30, 2002

Net sales for the years ended September 30, 2003, and 2002, were $55.9 million and $67.5 million, respectively. Domestic sales during this period for 2003 and 2002, were $43.1 million and $41.2 million, respectively. The decline related to reduced foreign sales primarily due to the stalling of Asian sales in the spring due to the SARS epidemic and lower order intake. Increased competition resulted in fewer orders as the Company consolidated a portion of its UK operation in the US to better control costs and margins.

Gross margins as a percent of net sales were 24.1% in 2003 and 24.5% of sales for 2002. Foreign margins were only 14% and therefore a portion of the UK operations was consolidated into the US operation. Domestic margins were negatively affected by $1.5 million increase in the LIFO reserve.

Product engineering and development costs remained constant during 2003. Selling and administrative expenses increased $414 (3%) during 2003. Restructuring costs, which consist of legal and professional fees relating to the reorganization in 2002 were $302 for fiscal 2002.

Operating income (loss) was ($1,173) in 2003 versus $2059 in 2002. This was a result of foreign operating losses of $2.8 million and $1.5 million of increases in the domestic LIFO inventory reserves.

Interest expense during 2003 is less than 2002 due to reduced borrowings and lower interest rate. The debt was refinanced on August 1, 2003 with interest at the prime rate.

Income from investees includes cash distributions of $13,428 received during the first three fiscal quarters of 2003. There were distributions of $1,526 in fiscal 2002. Future benefits realizable by the Company on the synthetic fuel production plants depend on whether the production from these plants will continue to qualify for tax credits under Section 29 of the Internal Revenue Code and the ability to economically produce and successfully market synthetic fuel produced by the plants.

Income taxes were 34% of pre-tax income for 2003. Net income for 2003 was $7,260 from continuing operations, while 2002 included $1,829 from continuing operations and $241 from discontinued operations.

Year ended September 30, 2002 compared with the year ended September 30, 2001

Net sales for the years ended September 30, 2002, and 2001, were $67.5 million and $71.1 million, respectively. Domestic sales during this period for 2002, and 2001, were $41.2 million and $53.1 million, respectively. The decline in domestic sales is primarily due to the stalling of our industry attributable to the September 11 events and the prevailing national economic conditions. Asphalt plant orders at the Company’s U.K. operations increased $8.3 million from the previous year, which partially offset the decline in domestic sales.

Gross margins as a percent of net sales were consistent at 25% of sales for both years. There had been a higher mix of foreign versus domestic sales in 2002 versus 2001. In addition, domestic margins declined 1.2% from the

prior year due to a higher mix of component sales as opposed to complete plant sales. Gross margins on foreign sales increased 7.2% from the prior year due to lower production costs as a result of the restructuring early in fiscal 2002.

Product engineering and development costs declined $650 (28%) in 2002. Selling and administrative expenses decreased $1,820 (13%) during 2002. The improvements reflect cost reductions and containment measures initiated by the Company during the first quarter of 2002.

Restructuring costs, which consist of legal and professional fees relating to the reorganization were $302 during fiscal 2002 compared to $5,072 for fiscal 2001.

Operating Income was $2,059 in 2002 versus a loss of ($3,870) in 2001. This improved performance was a result of the restructuring and cost containment measures, and lower legal and professional fees related to the restructuring.

Interest expense during 2002, primarily reflects interest incurred under the Amended and Restated Senior Secured Credit Agreement since the Company emerged from Chapter 11 at the end of the first quarter.

Income from investees includes cash distributions of $465 and $1,061 received during the first and second quarter of 2002, respectively. There were distributions of only $215 in fiscal 2001.

Net income for 2002 included $1,829 from continuing operations and only $241 from discontinued operations, while 2001 included $5.7 million from discontinued operations, plus a net gain on sale of the food processing segment of $3.8 million, and an extraordinary item-debt extinguishment of $3,641.

Liquidity and Capital Resources

On August 1, 2003, the Company entered into a Revolving Credit and Security Agreement with PNC Bank, N.A. The Agreement established a three year revolving $20 million credit facility. The facility provides for advances based on accounts receivable, inventory and real estate. The facility includes a $2 million limit on letters of credit. At September 30, 2003, the Company had $.3 million of letters of credit outstanding. The interest rate at September 30, 2003, is at prime (4.00%) and subject to change based upon the Fixed Charge Coverage Ratio. The Company is required to maintain a Fixed Charge Coverage Ratio of 1.1:1. There are no required repayments as long as there are no defaults and there is adequate eligible collateral. Substantially, all of Company’s assets are pledged as security under the Agreement. The borrowings under the previous credit agreements were paid in full with cash and proceeds from this new Revolving Credit and Security Agreement.

INTERIM FINANCIAL INFORMATION (UNAUDITED)

	In thousands, except per share amounts Quarters ended
	December 31			March 31		June 30		September 30
2003:
Net sales	$	13,274		$	20,916	$	14,134	$	7,573
Production costs	$	10,424		$	15,558	$	9,609	$	6,861
Product engineering and development	$	410		$	463	$	436	$	405
Selling, general and administrative	$	3,111		$	3,261	$	3,998	$	2,535
Income (loss) from operations	$	(671	)	$	1,634	$	91	$	(2,227	)
Net income (loss)	$	1,571		$	3,676	$	2,288	$	(275	)
Basic earnings per share:
Net income (loss)	$	0.18		$	0.42	$	0.26	$	(0.04	)
Diluted earnings per share:
Net income (loss)	$	0.18		$	0.42	$	0.25	$	(0.04	)

2002:
Net sales	$	10,872		$	22,433	$	17,853	$	16,327
Production costs	$	8,860		$	16,160	$	13,159	$	12,753
Product engineering and development	$	421		$	429	$	450	$	401
Selling, general and administrative	$	3,033		$	3,234	$	3,286	$	2,938
Restructuring costs	$	302		$	—	$	—	$	—
Income (loss) from continuing operations	$	(1,286	)	$	2,070	$	569	$	476
Discontinued operations:
Operating income (loss)	$	161		$	6	$	5	$	69
Net income (loss)	$	(1,125	)	$	2,076	$	574	$	545
Basic earnings per share:
Income (loss) from continuing operations	$	(0.15	)	$	0.24	$	0.07	$	0.05
Operating income from discontinued operations	$	0.02		$	—	$	—	$	0.01
Net income (loss)	$	(0.13	)	$	0.24	$	0.07	$	0.06
Diluted earnings per share:
Income (loss) from continuing operations	$	(0.15	)	$	0.22	$	0.06	$	0.05
Operating income from discontinued operations	$	0.02		$	—	$	—	$	0.01
Net income (loss)	$	(0.13	)	$	0.22	$	0.06	$	0.06

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company operates manufacturing facilities and sales offices principally located in the United States and the United Kingdom. The Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations, and market risk related to changes in interest rates and foreign currency exchange rates. The Company’s principal currency exposure against the U.S. dollar is the British pound. Periodically, the Company will use derivative financial instruments consisting primarily of interest rate hedge agreements to manage exposures to interest rate changes. The Company’s objective in managing its exposure to changes in interest rates on its variable rate debt is to limit their impact on earnings and cash flow and reduce its overall borrowing costs.

At September 30, 2003, the Company had approximately $5.3 million of debt outstanding. Under the Revolving Credit and Security Agreement, substantially all of the Company’s borrowings will bear interest at variable rates based upon the prime rate. The Company performed a sensitivity analysis assuming a hypothetical 10% adverse movement in the interest rates on the debt outstanding at the end of 2003. Such a movement in interest rates would cause the Company to recognize additional interest expense of approximately $21,000 along with a corresponding decrease in cash flows.

The above sensitivity analysis for interest rate risk excludes accounts receivable, accounts payable and accrued liabilities because of the short-term maturity of such instruments. The analysis does not consider the effect on other variables such as changes in sales volumes or management’s actions with respect to levels of capital expenditures, future acquisitions or planned divestures, all of which could be significantly influenced by changes in interest rates and cause the results to differ significantly from those indicated by the sensitivity analysis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

An index to the consolidated financial statements of the Company and its subsidiaries is set forth following Part IV hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Our principal executive officer and principal financial officer have conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on their evaluation, our principal executive officer and principal accounting officer concluded that our disclosure controls and procedures are effective.

(b) There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information regarding the Company’s Directors required by this Item 10 is incorporated herein by reference to the Company’s definitive 2003 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated herein by reference to the Company’s definitive 2003 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is incorporated herein by reference to the Company’s definitive 2003 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is incorporated herein by references to the Company’s definitive 2003 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The aggregate fees billed by Moore Stephens, Lovelace, P.A. for the last two fiscal years audit of the annual financial statements and review of financial statements included in the Company’s Form 10-Qs was $134,000 in 2003 and $158,000 in 2002.

Tax Fees

The aggregate fees billed by Moore Stephens, Lovelace, P.A. for the last two fiscal years for preparation of income tax returns was $ 28,000 in 2003 and $41,000 in 2002.

All Other Fees

The aggregate fees billed by Moore Stephens, Lovelace, P.A. for the last two fiscal years for other services was $ -0- in 2003 and $ 6,000 in 2002 for other accounting assistance.

All Fees for Moore Stephens, Lovelace, P.A. were approved in advance by the audit committee or full board of directors.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)	A listing of financial statements and financial statement schedules filed as part of this report and which financial statements and schedules are incorporated into this report by reference, is set forth in the “Index to Financial Statements” following Part IV hereof.

(b)	Reports on Form 8-K:

July 23, 2003 Item 7. Press Release dated July 22, 2003, and Item 9. Regulation FD Disclosure

August 8, 2003 Item 5. Security Agreement dated August 1, 2003, and Item 7. Security Agreement as an exhibit.

August 15, 2003 Item 5. Income tax audit of investee.

(c)	Exhibit Index

EXHIBIT NUMBER	DESCRIPTION	FILED HEREWITH

2.1	Second Amended Plan of Reorganization of Gencor Industries, Inc., As Modified Dated: July 8, 2001, incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended September 30, 2000.

2.2	Asset Purchase Agreement Re: CPM, incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended September 30, 2000.

2.3	First Amendment to Asset Purchase Agreement, incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended September 30, 2000.

3.1	Restated Certificate of Incorporation of Company, incorporated by reference to Exhibit 3.1 to Registration No. 33-627

3.2	Composite of Bylaws of Company, incorporated by reference to Exhibit 3.2 to Registration No. 33-627

3.3	Certificate of Amendment, changing name of Mechtron International Corporation to Gencor Industries, Inc. and adding a “twelfth” article regarding director liability limitation, incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1987.

4.1	Form of Common Stock certificate, incorporated by reference to Exhibit 4.1 to Registration No. 33-627.

EXHIBIT NUMBER	DESCRIPTION	FILED HEREWITH

4.2	Loan Agreement between the Orange County Industrial Development Authority and the Company dated as of December 1, 1984, incorporated by reference to Exhibit 4.2 to Registration No. 33-627.

4.3	Specimen copy of Promissory Note dated December 1, 1984, from the Company to the Orange County Industrial Development Authority in the principal sum of $5 million, incorporated by reference to Exhibit 4.3 to Registration No. 33-627

4.4	Mortgage Deed and Security Agreement dated as of December 1, 1984, from the Company to the Orange County Industrial Development Authority, incorporated by reference to Exhibit 4.4 to Registration No. 33-627.

4.5	Trust Indenture between Orange County Industrial Development Authority and Barnett Banks Trust Company dated as of December 1, 1984, incorporated by reference to Exhibit 4.5 to Registration No. 33-627.

4.6	Guaranty Agreement between General Combustion Corporation, Mechtron International DISC Corporation, Control Delta Corporation, Thermotech Systems Corporation of Florida, General Combustion Limited, and the Orange County Industrial Development Authority dated as of December 1, 1984, incorporated by reference to Exhibit 4.6 to Registration No. 33-627.

4.27	$95 million Senior Secured Credit Agreement, by and among Gencor, the Lenders and Credit Lyonnais, New York Bank as Agent to the Lenders and the Issuing Bank with respect to the Letters of Credit, incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.28	Borrower Security Agreement, dated as of December 10, 1996, made by Registrant in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.5 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.29	Borrower Copyright Security Agreement, dated as of December 10, 1996, made by Registrant in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.6 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.30	Borrower Pledge Agreement, dated as of December 10, 1996, made by Registrant in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.7 to the Company’s Report on Form 8-K filed on December 26, 1996.

EXHIBIT NUMBER	DESCRIPTION	FILED HEREWITH

4.31	California Pellet Mill Company Security Agreement, dated as of December 10, 1996, made by California Pellet Mill Company in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.8 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.32	California Pellet Mill Company Pledge Agreement, dated as of December 10, 1996, made by California Pellet Mill Company in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.9 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.33	General Combustion Corporation Security Agreement, dated as of December 10, 1996, made by General Combustion Corporation in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.10 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.34	Equipment Services Group, Inc. Security Agreement, dated as of December 10, 1996, made by Equipment Services Group, Inc. in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.11 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.35	Thermotech Systems Corporation Security Agreement, dated as of December 10, 1996, made by Thermotech Systems Corporation in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.12 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.36	Bituma-Stor, Inc. Security Agreement, dated as of December 10, 1996, made by Bituma-Stor, Inc. in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.13 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.37	Bituma Corporation Security Agreement, dated as of December 10, 1996, made by Bituma Corporation in favor of Credit Lyonnais New York Branch, as Agent, incorporated by reference to Exhibit 10.13 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.38	Mortgage made by Gencor, Industries, Inc. in favor of Credit Lyonnais New York Branch, as Agent, for certain real property located in Orlando, Florida, incorporated by reference to Exhibit 10.15 to the Company’s Report on Form 8-K filed on December 26, 1996.

EXHIBIT NUMBER	DESCRIPTION	FILED HEREWITH

4.39	Mortgage made by General Combustion Corporation in favor of Credit Lyonnais New York Branch, as Agent, for certain real property located in Youngstown, Ohio, incorporated by reference to Exhibit 10.16 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.40	Mortgage made by Gencor Industries, Inc. in favor of Credit Lyonnais New York Branch, as Agent, for certain real property located in Marquette, Iowa, incorporated by reference to Exhibit 10.17 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.41	Mortgage made by California Pellet Mill Company in favor of Credit Lyonnais New York Branch, as Agent, for certain real property located in Waterloo, Iowa, incorporated by reference to Exhibit 10.18 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.42	Mortgage made by California Pellet Mill Company in favor of Credit Lyonnais New York Branch, as Agent, for certain real property located in Crawfordsville, Indiana, incorporated by reference to Exhibit 10.19 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.43	Tranche A Term Note, incorporated by reference to Exhibit 10.20 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.44	Tranche B Term Note, incorporated by reference to Exhibit 10.21 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.45	Revolving Credit Notes, incorporated by reference to Exhibit 10.22 to the Company’s Report on Form 8-K filed on December 26, 1996.

4.46	Tranche C Term Notes, incorporated by reference to Exhibit 10.23 to the Company’s Report on Form 8-K, filed on October 27, 1997.

4.47	Amended and Restated Senior Secured Credit Agreement, incorporated by reference to the Company’s report on Form 10-K filed on December 26, 2002.

4.48	Security Agreement dated August 1, 2003, incorporated by reference to the Company’s report on Form 8-K filed on August 8, 2003.

10.5	Form of Agreement for Nonqualified Stock Options granted in 1986, incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1986.

EXHIBIT NUMBER	DESCRIPTION	FILED HEREWITH

10.6	1992 Stock Option Plan and Form of Agreement, incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.

10.11	1997 Stock Option Plan incorporated by reference to Exhibit A to the Company’s Proxy Statement on 14A, filed March 3, 1997.

16.0	Letter re: change in certifying accountants dated May 8, 2001, incorporated by reference to Item 4 of the Company’s Report on Form 8-K filed on May 9, 2001.

16.1	Letter re: change in certifying accountants dated December 22, 1999, incorporated by reference to Exhibit 16.1 to the Company’s Report on Form 8-K filed on December 27, 1999.

21.0	Subsidiaries of the Registrant	X

23.1	Independent Auditors’ Consent	X

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X

32	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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.

Dated: December 23, 2003		GENCOR INDUSTRIES, INC.
		(Registrant)

		/s/ E.J. Elliott
		E.J. Elliott
		President and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. The signatures of Directors constitute a majority of Directors.

/s/ E.J. Elliott		/s/ Scott W. Runkel
E.J. Elliott		Scott W. Runkel
President and Chairman of the Board		Chief Financial Officer

/s/ John E. Elliott		/s/ Randolph Fields
John E. Elliott		Randolph Fields
Executive Vice President		Director

EXHIBITS FILED HEREWITH

Exhibit No.		Description

21		Subsidiaries of the Registrant

23.1		Independent Auditor’s Consent

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

GENCOR INDUSTRIES, INC.

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

		Page
Report of Independent Certified Public Accountants		F-2
Consolidated Balance Sheets as of September 30, 2003 and 2002		F-3
Consolidated Statements of Income for the years ended September 30, 2003, 2002 and 2001		F-4
Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended September 30, 2003, 2002 and 2001		F-5
Consolidated Statements of Cash Flows for the years ended September 30, 2003, 2002 and 2001		F-6
Notes to Consolidated Financial Statements		F-7
Financial Statement Schedule:
Schedule II. Valuation and Qualifying Accounts		F-19

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors

Gencor Industries, Inc.

Orlando, Florida

We have audited the accompanying consolidated balance sheets of Gencor Industries, Inc. and subsidiaries as of September 30, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity (deficit) and cash flows for the years ended September 30, 2003, 2002 and 2001. Our audits also included the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We did not audit the financial statements of certain wholly-owned subsidiaries, whose statements reflect total assets constituting 5% and 6% of consolidated assets as of September 30, 2003 and 2002, and total revenues constituting 5%, 5% and 4% of consolidated revenues for the years ended September 30, 2003, 2002 and 2001, respectively. Those statements were audited by other auditors whose reports have been furnished to us and, our opinion, insofar as it relates to the amounts included those subsidiaries, is based solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the audit reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gencor Industries, Inc. and subsidiaries as of September 30, 2003 and 2002, and the results of their operations and their cash flows for the years ended September 30, 2003, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Moore Stephens Lovelace, P.A.

Certified Public Accountants

Orlando, Florida

November 24, 2003

F-2

Consolidated Balance Sheets

(In thousands, except per share data)

	September 30,
	2003			2002
ASSETS
Current assets:
Cash and cash equivalents	$	734		$	12,305
Accounts receivable, less allowance for doubtful accounts of $2,428 ($1,234 in 2002)		3,012			8,179
Other receivables		332			333
Inventories, net		12,560			19,012
Deferred income taxes		1,066			—
Prepaid expenses		1,627			1,938

Total current assets		19,331			41,767
Property and equipment, net		11,585			15,693
Assets held for sale		5,672			—
Goodwill, net of accumulated amortization		—			364
Other assets		4,046			4,360

Total assets	$	40,634		$	62,184

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	—		$	196
Current portion of long-term debt		—			6,068
Accounts payable		3,448			9,000
Customer deposits		1,106			498
Income and other taxes payable		3,639			3,534
Accrued expenses		8,325			9,947

Total current liabilities		16,518			29,243
Long-term debt		5,321			24,337
Deferred income taxes		2,877			—
Other liabilities		3,309			3,309

Total liabilities		28,025			56,889

Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $.10 per share; authorized 300,000 shares; none issued		—			—
Common stock, par value $.10 per share; 15,000,000 shares authorized; 6, 971, 470 shares issued		697			697
Class B stock, par value $.10 per share; 6,000,000 shares authorized: 1, 890, 398 shares issued		189			189
Capital in excess of par value		11,343			11,343
Retained earnings		8,143			883
Accumulated other comprehensive loss		(5,964	)		(6,018	)
Subscription receivable from officer		(95	)		(95	)
Common stock in treasury, 179,400 shares at cost		(1,704	)		(1,704	)

Total shareholders’ equity		12,609			5,295

	$	40,634		$	62,184

See accompanying notes to consolidated financial statements.

F-3

Consolidated Statements of Income

(In thousands, except per share data)

	For the Years Ended September 30,
	2003			2002			2001
Net revenue	$	55,898		$	67,485		$	71,134

Costs and expenses:
Production costs		42,452			50,932			53,270
Product engineering and development		1,714			1,701			2,351
Selling, general and administrative		12,905			12,491			14,311
Restructuring costs		—			302			5,072

		57,071			65,426			75,004

Operating income (loss)		(1,173	)		2,059			(3,870	)

Other income (expense):
Interest income		120			159			306
Interest expense		(1,366	)		(2,290	)		(782	)
Income from investees		13,428			1,526			215
Miscellaneous		(64	)		336			(117	)

		12,118			(269	)		(378	)

Income (loss) from continuing operations before income taxes, discontinued operations and extraordinary items		10,945			1,790			(4,248	)
Income taxes (benefit)		3,685			(39	)		—

Income (loss) from continuing operations		7,260			1,829			(4,248	)
Discontinued operations
Operating income (loss) (net of income tax expense of $0 in 2002, and $1,816 in 2001)		—			241			5,695
Gain on sale of businesses, net of income taxes of $1,222		—			—			3,835

Income before extraordinary item		7,260			2,070			5,282
Extraordinary item—debt extinguishment, net of income taxes of $1,161		—			—			3,641

Net income	$	7,260		$	2,070		$	8,923

Basic earnings (loss) per common share:
Income (loss) from continuing operations	$	0.84		$	0.21		$	(0.49	)
Discontinued operations		—			0.03			0.66
Gain on sale of businesses		—			—			0.44
Extraordinary item—debt extinguishment		—			—			0.42

Net income	$	0.84		$	0.24		$	1.03

Diluted earnings (loss) per common share:
Income (loss) from continuing operations	$	0.82		$	0.20		$	(0.49	)
Discontinued operations		—			0.03			0.66
Gain on sale of businesses		—			—			0.44
Extraordinary item—debt extinguishment		—			—			0.42

Net income	$	0.82		$	0.23		$	1.03

See accompanying notes to consolidated financial statements.

F-4

GENCOR INDUSTRIES, INC.

Consolidated Statements of Shareholders’ Equity (Deficit)

(In thousands)

For the Years Ended September 30, 2003, 2002 and 2001

	Common Stock			Class B Stock			Capital in Excess of Par Value		Retained Earnings (Accumulated Deficit)			Comprehensive Income (Loss)		Accumulated Other Comprehensive Income (Loss)			Subscription Receivable From Officer			Treasury Stock				Total Shareholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount		Capital in Excess of Par Value		Retained Earnings (Accumulated Deficit)			Comprehensive Income (Loss)		Accumulated Other Comprehensive Income (Loss)			Subscription Receivable From Officer			Shares	Cost			Total Shareholders’ Equity (Deficit)
September 30, 2000	6,972		697	1,890		189		11,343		(10,110	)				(7,743	)		(95	)	179		(1,704	)		(7,423	)
Net income	—		—	—		—		—		8,923		$	8,923		—			—		—		—			8,923
Translation adj.	—		—	—		—		—		—			774		774			—		—		—			774

Comprehensive income												$	9,697

September 30, 2001	6,972		697	1,890		189		11,343		(1,187	)				(6,969	)		(95	)	179		(1,704	)		2,274
Net income	—		—	—		—		—		2,070		$	2,070		—			—		—		—			2,070
Translation adj.	—		—	—		—		—		—			951		951			—		—		—			951

Comprehensive income												$	3,021

September 30, 2002	6,972	$	697	1,890	$	189	$	11,343	$	883				$	(6,018	)	$	(95	)	179	$	(1,704	)	$	5,295

Net income	—		—	—		—		—		7,260		$	7,260		—			—		—		—			7,260
Translation adj.	—		—	—		—		—		—			54		54			—		—		—			54

Comprehensive income												$	7,314

September 30, 2003	6,972	$	697	1,890	$	189	$	11,343	$	8,143				$	(5,964	)	$	(95	)	179	$	(1,704	)	$	12,609

See accompanying notes to consolidated financial statements.

F-5

GENCOR INDUSTRIES, INC.

Consolidated Statements of Cash Flows

In Thousands

	For the Years Ended September 30,
	2003			2002			2001
Cash flows from operations:
Net income	$	7,260		$	2,070		$	8,923
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization		1,371			1,378			4,021
Deferred income taxes		1,811			—			—
Gain on sale of assets		—			(421	)		(13	)
Income from investees		(13,428	)		(1,526	)		(215	)
Provision for allowance for doubtful accounts		1,463			214			1,124
Gain on sale of businesses		—			—			(5,057	)
Loss on restructuring of assets		—			—			1,758
Extraordinary item—debt extinguishment		—			—			(4,802	)
Other non-cash items		(724	)		(430	)		—
Change in assets and liabilities—net of businesses sold:
Accounts receivable		2,197			(235	)		3,291
Other receivables		—			(102	)		1,430
Inventories		4,288			3,262			457
Prepaid expenses		(48	)		51			(722	)
Other assets		183			(157	)		(1,679	)
Accounts payable		(3,175	)		(1,431	)		2,815
Customer deposits		608			159			(1,330	)
Income and other taxes payable		105			82			2,746
Accrued expenses		(1,706	)		(2,130	)		(868	)
Other liabilities		—			—			(438	)

Total adjustments		(7,055	)		(1,286	)		2,518

Cash provided by operations		205			784			11,441

Cash flows from (used for) investing activities:
Net proceeds from sale of business unit		—			—			48,778
Distributions from unconsolidated investees		13,428			1,526			215
Capital expenditures		(174	)		(304	)		(88	)
Proceeds from sale of property and equipment		—			673			4,090

Cash from (used for) investing activities		13,254			1,895			52,995

Cash flows used for financing activities:
Net reduction in notes payable		—			—			(615	)
Repayment of debt		(30,405	)		(4,797	)		(67,616	)
Borrowings		5,321			—			—

Cash used for financing activities		(25,084	)		(4,797	)		(68,231	)

Effect of exchange rate changes on cash		54			265			(18	)

Net increase (decrease) in cash		(11,571	)		(1,853	)		(3,813	)
Cash and cash equivalents at:
Beginning of year		12,305			14,158			17,971

End of year	$	734		$	12,305		$	14,158

See accompanying notes to consolidated financial statements.

F-6

GENCOR INDUSTRIES, INC.

Notes to Consolidated Financial Statements

All amounts in thousands, except per share amounts

NOTE 1—NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Gencor Industries, Inc. and its subsidiaries (collectively the “Company”) is a diversified heavy machinery manufacturer for the production of highway construction materials, synthetic fuels and environmental control machinery and equipment.

These consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net Income (Loss) Per Share

The financial statements include “basic” and “diluted” per share information. Basic and diluted per share information is calculated by dividing income (loss) from continuing operations, income (loss) from discontinued operations, extraordinary items and net income (loss) by the weighted average number of shares outstanding. Diluted per share information is the same as basic in 2001 because the impact of potential common stock equivalents on the loss from continuing operations per share is anti-dilutive.

The following presents the calculation of the basic and diluted income (loss) per share from continuing operations for the years ended September 30, 2003, 2002 and 2001:

	2003					2002					2001
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount		Loss		Shares	Per Share Amount
Basic EPS	$	7,260	8,682,468	$	0.84	$	1,829	8,682,468	$	0.21	$	4,248	8,682,468	$	(0.49	)

Diluted EPS	$	7,260	8,831,634	$	0.82	$	1,829	9,072,468	$	0.20	$	4,248	8,682,468	$	(0.49	)

Approximately 1.6 million options to purchase common stock have not been included as common stock equivalents in the fiscal 2001 per share calculations since the effect would not be dilutive or would be anti-dilutive.

Cash Equivalents

Cash equivalents, which consist of short-term certificates of deposit and deposits in money market accounts with original maturities of three months or less, are carried at cost, which approximates their market value.

F-7

NOTE 1—NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and notes payable to banks approximate fair value because of the short-term nature of these items. The carrying amount of substantially all of the Company’s long-term debt approximates fair value due to the variable nature of the interest rates on the debt.

Foreign Currency Translation

Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the applicable rate of exchange in effect at the end of the fiscal year. Revenue and expense accounts are translated at the average rate of exchange during the period and equity accounts are translated at the rate in effect when the transactions giving rise to the balances took place. Gains and losses resulting from translation are included in “Accumulated Other Comprehensive Income (Loss).” Gains and losses resulting from foreign currency transactions are included in income.

Risk Management

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash accounts in various domestic and foreign financial institutions. Domestic funds are swept daily into interest-bearing overnight repurchase agreements invested in U.S. government securities. The Company’s customers are not concentrated in any specific geographic region, but are concentrated in the road and highway construction industry. The Company extends limited credit to its customers based upon their creditworthiness and generally requires a significant up-front deposit before beginning construction and full payment subject to hold-back provisions, prior to shipment on asphalt plant orders. The Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.

Inventories

Inventories are stated at the lower of cost or market. The Company uses the last-in, first-out (LIFO) method of determining cost for substantially all inventories in the United States. All other inventories are accounted for using the first-in, first-out (FIFO) method.

Used equipment, acquired by the Company by trade in from customers acquiring new equipment, is valued at estimated net realizable value at the time of trade in.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and equipment, including depreciation on assets acquired under capital leases, is computed using straight-line and accelerated methods over the estimated useful lives of the related assets.

Assets held for sale is comprised of property and equipment in the UK and is valued at the lower of carrying value or fair value less cost to sell. Other assets include property, machinery and equipment primarily within the discontinued operations segment of $3,482, $3,659 and $3,699 as of September 30, 2003, 2002 and 2001, respectively. The assets are stated at lower of depreciated cost or fair value less cost to sell and are no longer depreciated.

F-8

NOTE 1—NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Depreciation of property and equipment, including depreciation on assets acquired under capital leases, is computed using straight-line and accelerated methods over the estimated useful lives of the related assets as follows:

		Years
Land improvements		5
Buildings and improvements		6-40
Equipment		2-10

Impairments

If the carrying value of an asset, including associated intangibles and goodwill, exceeds the sum of estimated undiscounted future cash flows, an impairment loss is recognized for the difference between estimated fair value and carrying value.

Investment in Unconsolidated Investees

As of September 30, 2003, 2002 and 2001, the Company owns a 45% interest in Carbontronics LLC and a 25% interest in Carbontronics Fuels LLC and Carbontronics II LLC. These interests were obtained as part of contracts to build four synthetic fuel production plants during 1998. The Company has no basis in these equity investments or requirement to provide future funding. Any income arising from these investments is dependent upon tax credits (adjusted for operating losses at the fuel plants) being generated as a result of synthetic fuel production, which will be recorded as received. The Company received distributions of $ 13,428, $1,526 and $215, during 2003, 2002 and 2001 respectively.

Revenues

Revenues from contracts for the design and manufacture of certain custom equipment are recognized under the percentage-of-completion method. Revenues from all other sales are recorded as the products are shipped or service is performed.

The percentage-of-completion method of accounting for long term contracts recognizes revenue in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract. All selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The estimated costs of product warranties are charged to production costs as revenue is recognized.

Shipping and Handling Costs

Shipping and handling costs are included in production costs in the statements of income.

F-9

NOTE 1—NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Restructuring costs

Restructuring costs include legal, professional fees and redundancy costs relating to the reorganization of the Company and a wholly-owned subsidiary.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return. The foreign subsidiaries provide income taxes based on the tax regulations of the countries in which they operate. Undistributed earnings of the Company’s foreign subsidiaries are intended to be indefinitely reinvested. No deferred taxes have been provided on these earnings.

Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets

Accounting for Stock-Based Compensation

The Company measures compensation expense for employee and director stock options as the aggregate difference between the market price of the common stock and exercise prices of the options on the date that both the number of shares the grantee is entitled to receive and the purchase price are known.

Comprehensive Income (Loss)

Other Comprehensive Income (Loss) consists of net income (loss) and includes all other changes in shareholders’ equity (deficit) except those resulting from investments by owners and distributions to them. For all years presented, the Company’s comprehensive income (loss), which encompasses net income (loss) and foreign currency translation adjustments, is separately displayed in the consolidated statement of shareholders’ equity (deficit).

Reporting Segments

Information concerning principal geographic areas for the continuing operations is as follows:

	2003				2002				2001
	Revenues		Long-Term Assets		Revenues		Long-Term Assets		Revenues		Long-Term Assets
United States	$	45,415	$	7,435	$	41,207	$	8,795	$	53,124	$	9,610
United Kingdom		10,483		6,405		26,278		4,790		18,010		4,646

Total	$	55,898	$	13,840	$	67,485	$	13,585	$	71,134	$	14,256

Revenues are attributed to geographic areas based on the location of the assets producing the revenues.

F-10

NOTE 2—REORGANIZATION

As of September 1999, the Company was in default of the terms and conditions of its Senior Secured Credit Facility and Industrial Revenue Bond Indenture. In November 1999, the Senior Secured Lenders accelerated their demand for payment in full. During April 2000, certain of the Company’s lenders filed an Involuntary Petition under Chapter 11 of the U.S. Bankruptcy Code. On September 13, 2000 (the “Petition Date”), the Company and certain of its subsidiaries (“the Debtors”) filed voluntary petitions commencing cases under Chapter 11 of the U. S. Bankruptcy Code. The Company and certain of its subsidiaries began operating its businesses as debtors-in-possession under Chapter 11 of the U. S. Bankruptcy Code.

The Amended Plan became effective on December 31, 2001 (the “Effective Date”) and the Company emerged from Chapter 11 in accordance with its earlier confirmed plan of reorganization. Pursuant to the Amended Plan, as of the Effective Date, the approved sale of Consolidated Process Machinery’s (CPM) domestic and foreign pellet operations was to be consummated. The sale was in fact consummated on May 29, 2001 for $52 million. The net proceeds from the sale were used to reduce the outstanding balance of the Senior Secured Lenders. Under the Amended Plan, all of the Company’s debts will be satisfied in full. The Amended and Restated Senior Secured Credit Agreement specified that the remaining claims of the Senior Secured Lenders of approximately $33 million be paid over a four-year period with the remaining debt balance due in 2005. All remaining claims were paid in full and the debt was refinanced in 2003.

NOTE 3—DISCONTINUED OPERATIONS

As part of its planned reorganization, in September 2000, the Company announced its intent to dispose of its food segment. Accordingly, the Company reported the results of the operations of the food processing equipment manufacturing business as discontinued operations.

Certain information with respect to discontinued operations is summarized as follows:

	2002		2001
Net revenue	$	813	$	42,938
Costs and expenses		572		35,427

Income from discontinued operations before income taxes		241		7,511
Income taxes		—		1,816

Income (loss) from discontinued operations, net of income taxes	$	241	$	5,695

F-11

NOTE 3—DISCONTINUED OPERATIONS (Continued)

Assets and liabilities of the discontinued operations included in the Balance Sheets at September 30, were:

	2003			2002
Current assets	$	1,478		$	1,700
Property, plant and equipment, net		3,482			3,659
Other assets		3,173			3,173
Current liabilities		(5,208	)		(5,979	)
Long-term liabilities		(3,309	)		(3,309	)

Net assets (liabilities) of discontinued operations	$	(384	)	$	(756	)

On May 29, 2001, the Company sold the stock of CPM’s foreign pellet subsidiaries and the assets and certain liabilities of the domestic pellet subsidiaries for approximately $52 million in cash. The net sale proceeds were used to pay-down the outstanding loan balance of the senior secured lenders. The Company’s foreign food processing machinery operations located in Sweden and Brazil were not included in the aforementioned sale. The Company intends to dispose of these operations. In September 2001, the Swedish operation was placed into receivership and the business was sold in November 2001.

NOTE 4—INVENTORIES, NET

Inventories, net at September 30 consist of the following:

	2003		2002
Raw materials	$	5,437	$	9,235
Work in process		2,898		3,267
Finished goods		3,274		4,261
Used equipment		951		2,249

	$	12,560	$	19,012

At September 30, 2003, accumulated costs of approximately $2,242 on major contracts, net of progress payments of approximately $2,303, and estimated earnings of approximately $1,154 amount to approximately $1,093 and are included in work-in-process inventory. At September 30, 2002, accumulated costs of approximately $2,522 on major contracts, net of progress payments of approximately $2,059 and estimated earnings of approximately $1,289, amount to approximately $1,752 and are included in work-in-process inventory.

At September 30, 2003 and 2002, cost is determined by the last-in, first-out (LIFO) method for 99% and 90%, respectively, of total inventories, exclusive of progress payments, and the first-in, first-out (FIFO) method for all other inventories. The estimated current cost of inventories exceeded their LIFO basis by approximately $2,573 and $1,028, respectively.

F-12

NOTE 5—PROPERTY AND EQUIPMENT

Property and equipment at September 30 consist of the following:

	2003			2002
Land and improvements	$	3,145		$	3,145
Building and improvements		13,948			17,372
Equipment		13,262			13,156

		30,355			33,673
Less: Accumulated depreciation and amortization		(18,770	)		(17,980	)

	$	11,585		$	15,693

Property and equipment includes approximately $11,724 and $15,500 of fully depreciated assets, which remain in service during fiscal 2003 and 2002.

Substantially all of the Company’s property and equipment is pledged as collateral for the Company’s debt.

Depreciation and amortization expense for the years ended September 30, 2003, 2002 and 2001 was approximately $1,371, $1,088 and $2,715, respectively. There was no interest capitalized during these years.

NOTE 6—OTHER ASSETS

Other assets at September 30 consist of the following:

	2003		2002
Deposits	$	3,189	$	3,229
Deferred acquisition costs, net		—		463
Deferred loan costs, net		443		111
Other		414		557

	$	4,046	$	4,360

NOTE 7—ACCRUED EXPENSES

Accrued expenses consist of the following at September 30:

	2003		2002
Payroll and related accruals	$	1,366	$	1,950
Warranty and related accruals		485		842
Professional fees		107		427
Interest		18		209
Sales and property taxes		145		117
Impairment reserve		4,119		3,458
Other		2,085		2,944

Total	$	8,325	$	9,947

F-13

NOTE 8—INCOME TAXES

The provision for income taxes consists of:

	2003		2002			2001
Current:
Federal	$	1,826	$	—		$	—
State		—		—			—
Foreign		48		(39	)		—

Total current expense (benefit)		1,874		(39	)		—
Deferred		1,811		—			—

Provision for (benefit from) income taxes	$	3,685	$	(39	)	$	—

The difference between the U.S. federal income tax rate and the Company’s effective income tax rate for the continuing operations is as follows:

	2003			2002			2001
Federal income tax rate		34.0	%		34.0	%		34.0	%
Difference arising from transactions with, and profit and loss of, foreign subsidiaries not deductible or includable for U.S. federal income tax purposes		—			(34.0	)		—
Losses for which no tax benefit has been recognized		9.7			—			(34.0	)
Use of net operating loss carryforward		(8.6	)		—			—
Other		(1.2	)		—			—

		33.9	%		—	%		—	%

Deferred taxes are recorded as follows:
Deferred tax assets (liabilities):
Depreciation and amortization	$	(400	)	$	(400	)	$	(7	)
Allowance for doubtful accounts		—			—			(1,157	)
Inventory cost adjustments		—			(140	)		—
Investment in unconsolidated investees		(3,037	)		(371	)		—
Domestic NOL		560			—			—

Long-term deferred tax liabilities	$	(2,877	)		(911	)		(1,164	)

Allowance for doubtful accounts		436			419			—
Accrued expenses and other		498			260			1,800
Inventory cost adjustments		132			—			879
Foreign net operating losses (NOLs)		—			—			5,500
Domestic tax credits and NOLs		—			1,748			727

Current deferred tax assets	$	1,066		$	2,427		$	8,906

					1,516			7,742
Less: Valuation allowance					(1,516	)		(7,742	)

Net deferred tax asset				$	—		$	—

F-14

NOTE 8—INCOME TAXES (continued)

For 2002 and 2001, a valuation allowance has been recorded for all net deferred tax assets.

Accumulated deficits of non-U.S. subsidiaries included in consolidated retained earnings (deficit) amounted to ($16,147), ($23,905) and ($24,816) as of September 30, 2003, 2002 and 2001, respectively. The Company follows the policy of indefinitely reinvesting foreign earnings, if any, to expand its international operations. Accordingly, the Company will not provide U.S. income taxes on any future earnings. In the event any earnings of non-U.S. subsidiaries are repatriated, the Company will provide U.S. income taxes upon repatriation of such earnings which will be offset by applicable foreign tax credits, subject to certain limitations.

Total income taxes paid were $1,916 in 2003. There were no income taxes paid in 2002 and 2001.

NOTE 9—RETIREMENT BENEFITS

401(k) Plan

The Company has a voluntary 401(k) employee benefit plan which covers all eligible domestic employees. The Company makes discretionary matching contributions subject to a maximum level, in accordance with the terms of the plan. The Company charged approximately $88, $101, and $277 to operating expense under the provisions of the plan during the fiscal years 2003, 2002 and 2001, respectively.

NOTE 10—LONG-TERM DEBT

Long-term debt at September 30, 2003 and 2002 consisted of the following:

	2003		2002
Revolving Credit and Security Agreement	$	5,321	$	—
Senior secured credit agreement		—		29,438
Industrial revenue bonds		—		967

		5,321		30,405
Less current maturities		—		(6,068	)

	$	5,321	$	24,337

On August 1, 2003, the Company entered into a Revolving Credit and Security Agreement with PNC Bank, N.A. The Agreement established a three year revolving $20 million credit facility. The facility provides for advances based on accounts receivable, inventory and real estate. The facility includes a $2 million limit on letters of credit. At September 30, 2003, the Company had $.3 million of letters of credit outstanding. The interest rate at September 30, 2003, is at prime (4.00%) and subject to change based upon the Fixed Charge Coverage Ratio. The Company is required to maintain a Fixed Charge Coverage Ratio of 1.1:1. There are no required repayments as long as there are no defaults and there is adequate eligible collateral. Substantially, all of Company’s assets are pledged as security under the Agreement. The borrowings under the previous credit agreements were paid in full with cash and proceeds from this new Revolving Credit and Security Agreement.

F-15

NOTE 10—LONG-TERM DEBT (Continued)

On December 31, 2001, the Senior Secured Lenders and the Company entered into an Amended and Restated Secured Credit Agreement, which required monthly principal payments with the remaining balance due September 6, 2005. The interest rate during the term of the loan was based upon the prime rate plus 2%. The Amended and Restated Secured Credit Agreement contained certain financial and restrictive covenants.

Under the terms of the industrial revenue bond indenture, the Company was required to maintain compliance with certain financial and other covenants. Beginning in fiscal year 2002, the Company was required to make principal and interest payments to bring the loan current as of January 2, 2002, after which monthly principal and interest payments of $38 began in February 2002 and were to continue through March 2005.

During fiscal 2001, the Company was released from certain obligations totaling $1,494, previously included in the stipulated debt amount. For financial statement purposes, this was included in the extraordinary item—debt extinguishment.

The Company paid interest of $1,557, $2,281 and $661 on borrowings during the fiscal years ended 2003, 2002 and 2001, respectively. The weighted-average interest rate on these borrowings was 6.1%, 6.9% and 8.4%, respectively.

NOTE 11—COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain equipment under noncancelable operating leases. Future minimum rental commitments under these leases at September 30, 2003 consist of $375 due over the next three years.

Total rental expense for the fiscal years ended 2003, 2002 and 2001 was $282, $349 and $870, respectively.

Litigation

The Company has various pending litigation and other claims. Those claims which are made in the ordinary course of business may be covered in whole or in part by insurance, and if found against the Company, management does not believe these matters will have a material effect on the Company’s financial position, results of operations or cash flows.

NOTE 12—SHAREHOLDERS’ EQUITY

Under the Company’s amended Certificate of Incorporation, certain rights of the holders of the Company’s Common Stock are modified by shares of Class B Stock for as long as such shall remain outstanding. During that period holders of Common Stock will have the right to elect approximately 25% of the Company’s Board of Directors, and conversely, Class B Stock will be entitled to elect approximately 75%. During the period when Common Stock and Class B Stock are outstanding, certain matters submitted to a vote of shareholders will also require approval of the holders of Common Stock and Class B Stock, each voting separately as a class. Common stock and Class B shareholders have equal rights with respect to dividends, preferences, and rights, including rights in liquidation.

F-16

NOTE 13—STOCK OPTIONS

The Company maintains stock option plans, which provide for the issuance of nonqualified or incentive stock options to certain directors, officers and key employees.

The 1992 Stock Option Plan (the “1992 Plan”) authorizes the granting of options to purchase up to 400,000 shares of the Company’s Common Stock, 400,000 shares of the Company’s Class B Stock and fifteen percent (15%) of the authorized Common Stock of any Company subsidiary. Shares are no longer available for grant under the 1992 Plan since all options authorized under the Plan have been granted.

The 1997 Stock Option Plan (the “1997 Plan”) provides for the issuance of incentive stock options and nonqualified stock options to purchase up to 1,200,000 shares of the Company’s Common Stock, 1,200,000 shares of the Company’s Class B Stock and up to fifteen percent (15%) of the authorized Common Stock of any subsidiary.

Under the terms of the Plans, option holders may tender previously owned shares with a market value equal to the exercise price of the options at exercise date, subject to Compensation Committee approval. Additionally, option holders may, upon Compensation Committee approval, surrender shares of stock to satisfy federal withholding tax requirements.

Options become exercisable in a manner and on such dates and times as determined by a committee of the Board of Directors. Options expire not more than ten years from the date of grant. The option holders have no shareholder rights until the date of issuance of a stock certificate for such shares. Exercise of the options granted during 2002 and 2001 are limited to 20% per year over the next 5 years. As of September 30, 2003, the Company has approximately 1.5 million stock options outstanding and 1.5 million options available for future grants under the plans.

During 2001, the expiration dates on stock options previously issued to certain officers were extended until July 24, 2006. During 2001, 330,000 incentive stock options were granted to non-executive officers, managers and key employees pursuant to the approved amended Plan of Reorganization.

The following table summarizes option activity under the plans:

	Number of Shares		Weighted Option Price Per Share
Outstanding at September 30, 2000	1,450,000		1.99
Options granted (at an exercise price of $1.65 in 2001)	330,000		1.65
Expired	(104,000	)	1.94

Outstanding at September 30, 2001	1,676,000		1.92
Options granted (at an exercise price of $3.66 in 2002)	10,000		3.66
Cancelled	(70,000	)	1.65

Outstanding at September 30, 2002	1,616,000		1.95
Cancelled	(90,000	)	1.65

Outstanding at September 30, 2003	1,526,000		1.95

F-17

NOTE 13—STOCK OPTIONS (continued)

The following table summarizes information about stock options outstanding at September 30, 2003:

Range of Exercise Price	Number of Options Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$ 0.00-$ 1.00	100,000	1.92	$	0.87
$ 1.01-$ 2.00	1,016,000	2.76	$	1.87
$ 2.01-$ 3.00	410,000	1.21	$	2.38

	1,526,000	2.29	$	1.95

The pro forma impact on fiscal 2002 and 2001 net income and per share amounts for the options granted during fiscal 2002 and 2001 is not material. The fair value of options at date of grant was estimated using the Black-Scholes option-pricing model.

NOTE 14—RELATED PARTY TRANSACTIONS

Marcar Leasing Corporation (“Marcar”) was engaged in leasing machinery and vehicles to the public and the Company. Marcar is owned by family members of the Company’s Chairman. The terms of the leases are established based on the rates charged by independent leasing organizations and are believed by the Board of Directors to be more favorable than those generally available from independent third parties. Leases between the Company and Marcar generally provide for equal monthly payments over either thirty-six months or forty-eight months. During fiscal 2003, 2002 and 2001, the Company made lease payments to Marcar totaling $179, $204 and $266, respectively.

NOTE 15—REORGANIZATION OF GENCOR ACP, LTD. (ACP)

In June 2001, the Company’s wholly-owned U.K. subsidiary, ACP was reorganized under the direction of a receiver. The assets and business were sold to Gencor Industries Limited, another wholly-owned subsidiary of the Company. The name of this subsidiary was changed to Gencor International Limited (“Gencor International”). The reorganization resulted in a loss on the restructuring of assets of $1,758 and an extraordinary gain on debt extinguishment of $3,307. In 2003, Gencor International was placed into administration and the assets were sold to Gencor International Limited, a British Virgin Island corporation and subsidiary of the Company, and are included in assets held for sale. Gencor International’s operations were consolidated into the U.S. operations.

F-18

SCHEDULE II

Valuation and Qualifying Accounts

Description	Balance at Beginning of Year		Charges/Credits to Cost and Expenses		Additions/ (Deductions)			Balance at End of Year
Valuation accounts deducted from assets to which they apply:
For doubtful accounts receivable:
September 30, 2003	$	1,234	$	1,463	$	(269	)	$	2,428
September 30, 2002	$	1,629	$	214	$	(609	)	$	1,234
September 30, 2001	$	3,146	$	1,124	$	(2,641	)(1)	$	1,629
For inventory obsolescence:
September 30, 2003	$	3,101	$	276	$	—		$	3,377
September 30, 2002	$	2,638	$	504	$	(41	)	$	3,101
September 30, 2001	$	3,907	$	416	$	(1,685	)(1)	$	2,638

(1)	Significant reductions due to the sale of the domestic and foreign operations of CPM during May 2001.

F-19