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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 1998
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period From ___________________to ___________________
Commission File No. 2-97732
TECHNOLOGY GENERAL CORPORATION
New Jersey 22-1694294
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State of Incorporation I.R.S. Employer Identification No.
12 Cork Hill Road, Franklin, New Jersey 07416
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Address of Principal Executive Office Zip Code
Registrant's Telephone No.: (973) 827-4143
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Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class: Common Stock
------------------- Common Stock Class A
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 such
filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
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State Registrant's Revenues for Most Recent Fiscal Year:
$3,125,041
State the aggregate market value of the voting common stock held by
non-affiliates of the registrant as of March 31, 1998, based on the closing bid
on such day of $3/8:
$999,566
Indicate the number of shares outstanding of the Registrant's class of
common stock as of March 31, 1998:
Common: 5,521,448
Common Stock Class A: 126,839
Transitional Small Business Disclosure Format:
Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Technology General Corporation ("Tech Gen") is the parent company and
successor to Aerosystems Technology Corporation incorporated in the State of New
Jersey in 1957 which operates four (4) divisions and one (1) subsidiary.
In addition, Tech Gen is the owner of a planned substantial industrial park
approved and known as the Franklin Corporate Campus and other local properties
suitable for industrial development, all of which are currently in the
undeveloped planning stage.
The Precision Metalform Division is engaged in the manufacture of a variety
of deep drawn metal components used primarily in the writing instruments
industry and cosmetic industry. The Eclipse Systems Division manufactures
numerous products, including spray coating systems and industrial air-driven
mixers. Their spray coating systems are used mainly for coating industrial
products, and the industrial air-driven mixers are used primarily in the
chemical and food processing industries. The Clawson Machine Division is
engaged in the manufacture of a line of ice crushing equipment that is used by
hotels and restaurants. The Aerosystems Division is the lessor of a 24,000
square foot industrially-zoned building which presently has two tenants.
Transbanc International Investors Corporation ("Transbanc"), a wholly-owned
subsidiary, is a real estate holding company which leases its 107,000 square
foot industrial building.
DIVISION OPERATIONS
The three (3) manufacturing divisions (Precision Metalform, Eclipse
Systems, and Clawson Machine) all operate from Tech Gen's industrial complex
located in Franklin, New Jersey. The corporate offices of Transbanc also are
located at the administrative facilities of Tech Gen.
EMPLOYEES
As of March 31, 1998, the Company had approximately thirty-five (35)
full-time employees. The Company does not have a union, and Management
considers its employee relations to be satisfactory.
DISCUSSION OF DIVISIONS
1. PRECISION METALFORM DIVISION:
Sales for the current fiscal year ended March 31, 1998 decreased slightly
down to $977,537, a decrease of $45,173 in revenues from the $1,022,710 recorded
the previous year.
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2. ECLIPSE SYSTEMS DIVISION:
Eclipse Systems's sales increased 5.4 percent during the past fiscal year
from $1,081,493 for the fiscal year-end March 31, 1997 to $1,140,323 for the
fiscal year-end March 31, 1998. This $58,830 sales increase is a direct result
of continued growth in their core mixer business. Management is confident that
current research and development expenditures and Eclipse's aggressive ongoing
marketing programs will continue to result in increased sales and profitability.
The marketing program will include the introduction of a new line of electric
industrial mixers. Over the past several years, specialized "air-driven"
explosion-proof industrial mixers have become a primary source of Eclipse
Systems's sales, and the division anticipates continued growth in this product
line. Eclipse has recently designed and developed a special line of sanitary
mixers, which is expected to expand sales in the food and pharmaceutical mixer
market. Military sales are anticipated to continue to be soft due to the
improvement of international relations and simultaneous reduction in military
budgets.
Eclipse Systems manufactures spray guns and related items and supplies a
variety of industrial and automotive components. Eclipse is a distributor for
high volume low pressure ("HVLP") spray systems designed to meet current U. S.
Environmental Protection Agency ("E.P.A.") standards for spray coating
operations. These imported guns will provide a solution to customers currently
being forced to switch from conventional spray coating guns.
3. CLAWSON MACHINE DIVISION:
Clawson Machine manufactures a line of ice shavers and crushers used
primarily in the hotel and restaurant fields. All of the models within
Clawson's shaver and crusher lines have been submitted to the National
Sanitation Foundation ("N.S.F.") for listing. With the exception of the
Princess Chipper, all of the models have been authorized to display the N.S.F.
label signifying acceptance within the food industry.
In addition, Clawson's "Plus Crushers" (patented products) are used in
conjunction with many models of ice cube makers; that is to say, Scotsman,
Manitowoc, Ice-O-Matic, and others. This system provides an inline means to
intercept the flow of ice cubes in order to process them as crushed ice during
each ice cube harvest cycle. The "Plus Crusher" has experienced a wider degree
of acceptance over the past few years.
Because of the mandatory requirements for N.S.F. listing on all products
applicable to the food and liquid industries, Clawson's products are becoming
highly acceptable since Clawson is one of the few manufacturers in its category
that has been awarded the N.S.F. label distinction.
The marketing strategy for Clawson includes the listing of selected ads in
The Thomas Register and selected technical journals.
Clawson's overall sales increased $16,291 (5.5 percent) to $311,065 for the
fiscal year ended March 31, 1998 compared to
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sales of $294,774 for the previous fiscal year ended
March 31, 1997.
Management is confident that our aggressive marketing campaign coupled with
contracts to buying groups and the introduction of new products will improve
sales in the coming fiscal year.
Clawson is continuing to investigate a variety of ice shaving and crusher
systems.
DIVISION MARKETING
1. PRECISION METALFORM DIVISION:
The Precision Metalform Division provides its products primarily to
domestic companies engaged in the manufacture of writing instruments and/or
cosmetic closures. Precision Metalform's marketing strategies include the
placement of selected ads in technical journals and/or The Thomas Register and
is generally known through information provided by the Writing Instruments
Association.
Precision Metalform is considered one of two major manufacturers of metal
writing instrument components in the United States. Their primary products
consist of caps, barrels, and refill tubes, which make up the primary components
of writing instrument assemblies. Cosmetic closures are directly provided to
the cosmetic companies that manufacture a variety of products requiring metal
closures.
Precision Metalform's facilities include special operations which create
unique designs on both writing instrument components and cosmetic closures,
which generally are made to customer specifications.
Precision Metalform engages two agents, on a commission selling basis, who
represent the division in specified areas throughout the United States.
2. ECLIPSE SYSTEMS DIVISION:
Eclipse Systems's marketing is also done through a variety of industrial
publications with advertisements highlighting its variety of products. Ads are
primarily focused on reaching industrial consumers for filtration systems, spray
equipment and accessories, and a variety of industrial air-driven mixers.
The Division continues to expand its marketing program through attendance
at selected trade shows held at various locations throughout the United States.
Results have thus far been quite favorable with increased interest being shown
by prospective customers which will ultimately lead to an increase in sales.
Eclipse continues to maintain distributors to export sales in Singapore,
Korea and Canada. Sales negotiations are continuing in an effort to acquire
agreements to expand sales in several Asian countries.
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3. CLAWSON MACHINE DIVISION:
Clawson's ice crushers are also marketed through a number of industrial
magazines primarily geared to the hotel/motel industry. Clawson's ice crushers
are designed to integrate with a number of conventional ice cube making
machines; i.e., Scotsman, Manitowoc, Ice-O-Matic, and Crystal Tips.
Clawson's Plus Crusher is a relatively new patented product which is
gaining worldwide acceptance. This product is also listed in National
Sanitation Foundation and carries its authorized seal (N.S.F.).
Marketing of Clawson's crushers are also done through United States
distributors who provide equipment to the hotel and restaurant industries.
Clawson is looking to expand sales with agreements to buying groups within the
food service industry and franchise establishments that are interested in
marketing N.S.F. listed products because of their wide field of acceptance and
their mandatory use.
COMPETITION
The PRECISION METALFORM DIVISION is believed to be one of two companies
within the United States who supply in excess of 80 percent of the major metal
components for domestic writing instrument manufacturers. Both Precision
Metalform and its competitor enjoy supplying common customers depending on their
needs, lead time, and selected specifications. Precision Metalform is a direct
competitor with several firms engaged in the manufacture of deep drawn metal
components. In this regard, Precision has found competition to be keen and
subject to special fabrication capabilities and pricing strategies.
The ECLIPSE SYSTEMS DIVISION is one of several companies in the United
States and abroad engaged in the manufacture of industrial mixing equipment and
spray coating systems and equipment. In recent years, the industrial mixing
equipment line has accounted for the bulk of Eclipse's sales. Consequently all
of Eclipse Systems's equipment is proprietary in nature and is often custom-made
to the customer's own specifications. In addition, Eclipse Systems has
developed over the past several years an extensive line of industrial air-driven
mixers, which is used primarily where explosive atmospheres are prevalent. Many
of these mixers are currently sold through various distributors throughout the
United States. Because the bulk of Eclipse Systems's mixers are custom-made,
Eclipse enjoys a market that is not subject to strong competition.
The CLAWSON MACHINE DIVISION is one of several small companies throughout
the United States that is engaged in ice crushing equipment for both the hotel
and restaurant industries. Several of Clawson's machines are proprietary in
nature and design, one of which is a unit referred to as the "Plus Crusher",
which is protected by a United States patent. Because Clawson's products are
largely proprietary in nature, it is not subject to severe competition.
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CURRENT OPERATING ENVIRONMENT:
The consolidated statement of operations for the current fiscal year
ended March 31, 1998 reflects a net loss of $124,265 as a result of an
obsolete inventory write-off applicable to the Eclipse Systems Division. In
addition, $22,500 was attributed to the issuance of common stock to key
employees under a stock option plan applicable to performance over a 5-year
period.
TECHNOLOGY GENERAL currently is leasing space at its corporate office
complex to two (2) industrial tenants and is leasing residential property to
another tenant. Total rental revenues are projected to be $150,000 for the
fiscal year ended March 31, 1999 as compared to $143,576 for the current
fiscal year ended March 31, 1998.
The AEROSYSTEMS DIVISION is currently leasing space at its Franklin, New
Jersey location where a Superfund project cleanup restored the property. The
refurbished portion of the plant located there is presently leased to two (2)
tenants. Total rental revenue generated at the Aerosystems facility during the
fiscal year ended March 31, 1998 was $48,953.
TRANSBANC INTERNATIONAL INVESTORS CORPORATION, a 100 percent owned real
estate operation, has established a substantial rental income base developed
from five (5) industrial tenants, and is expected to maintain rental revenues of
approximately $500,000 through March 31, 1999. The earnings potential of
Transbanc is expected to remain strong due to the commitment by management in
maintaining and improving this facility; during the fiscal year ended March 31,
1998, over $90,000 (exclusive of repairs) was spent on improvements to the
building.
In summary of the above leases, the grand total of rental revenue generated
by the Company as at March 31, 1998 was $696,116 as compared to the previous
year at March 31, 1997 of $567,855, which represents a significant increase over
1997 amounting to $128,261 or a gain of 23 percent.
Although the Company still has not completely settled its environmental
claims stemming from a former site occupied in the early 1960's and 1970's (see
Item 3 for further details), the Company has continued its settlement
discussions with the Federal Government, which includes a portion of the claim
as it is applicable to the New Jersey Department of Environmental Protection.
The Company will continue to seek a settlement that will be structured in such a
way as to allow the Company to meet the cash flow requirement to liquidate this
claim on an orderly basis. In conjunction with this effort, various company
insurance carriers have been put on notice, and Management is reviewing the
possibilities of engaging an environmental law firm which specializes in such
matters for the purpose of seeking recovery under its catastrophic portion of
its prior policies.
The following summarizes Management's plans which, if successful and if
implemented on a timely basis, could give the Company the ability to
substantially improve its operating income base:
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1. Continue to evaluate its marketing strategies for the sales of its products
in all divisions.
2. Aggressively pursue new sales for Eclipse's new electric mixer line to
supplement sales of its air-driven mixer line.
3. Continue to pursue legal permits necessary to pave the way for developing
15 new industrial sites known as the Company's Franklin Corporate Campus.
4. Maintain an aggressive program to monitor and control operating costs in an
effort to maintain operational overhead at its lowest possible level with
fully effective management.
5. Continue to negotiate an equitable settlement concerning its environmental
matters so that advancement of the Company's objectives can be achieved.
REGISTRATION
Tech Gen (the Company) is a publicly traded holding company that is listed
currently in the pink sheets and subject to the rules and regulations governed
by the Securities and Exchange Commission. It is required periodically to
submit detailed operating and financial reports to the S.E.C. and to furnish any
other information that the authority may require. The Company's stock is traded
over the counter, and its transfers are handled through The Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016.
SIGNIFICANT CUSTOMERS
For the year ended March 31, 1998, the Clawson Division had sales of
$48,705 to two (2) major customers which accounted for 15 percent of the total
sales of $311,065.
One major customer accounted for $450,047 or 39 percent of Eclipse Systems
Division's sales. The balance of sales were widely distributed among the
Division's varied customers.
The Precision Metalform Division has two customers which together represent
64 percent of Precision Metalform's total sales. Sheaffer Pen represents 28
percent, and Accutec, Inc. represents 36 percent. The balance of customers are
drawn from a wide range of industries, none of which account for more than
10 percent of Precision Metalform's total sales.
ITEM 2. DESCRIPTION OF PROPERTY
The Company occupies approximately 34,100 square feet in its own industrial
park, which houses the administrative offices of all related entities and the
manufacturing facilities for the Precision Metalform, Clawson Machine and
Eclipse Systems Divisions. The remaining space of about 28,000 square feet is
presently leased to two (2) tenants and is expected to generate $150,000 in
rental revenues for the fiscal year ended March 31, 1999.
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The Company also owns an industrial site in Franklin, New Jersey comprising
106 acres, which has been approved for 15 planned plant sites. This site
includes an 86,000 gallon per day sewer allocation and has a main water line
installed through the property.
Adjoining this acreage is a 107,000 square foot industrial building located
on Munsonhurst Road owned by the Company's subsidiary, Transbanc. This facility
is fully leased to various business interests.
The Company's Aerosystems Technology Division owns a 24,000 square foot
industrial building located on 22 acres in Franklin, New Jersey, of which 3.5
acres were the subject of an E.P.A. Superfund cleanup. This property has been
partially restored and is presently occupied by two (2) tenants. The Division
is currently seeking to sell or lease this building. (See Environmental
Matters.)
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
On September 1, 1994, the Company received a memorandum from the United
States Justice Department outlining proposed settlement terms relating to toxic
chemical contamination at a site formerly occupied by a subsidiary of the
Company. The memorandum stipulated that the United States Government ("U.S.G.")
would receive $25,000 upon the execution of the settlement, $206,000 payable
over five years, and a balloon payment of $150,000 payable in five years. In
addition, the U.S.G. would receive 60 percent of the net rental income derived
from the property and 60 percent of the net proceeds from the sale of the
property. The Company has requested a re-negotiation of the settlement terms.
In March of 1997, the Company made a counter-proposal to the U.S.G.
seeking reduction in the proposed terms for restoration expenditures incurred
by the Company resulting from severe zoning changes following the cleanup
phase. As of March 31, 1998, the Company's expenditures to accommodate code
changes in order to permit re-occupancy of the premises were approximately
$200,000. At March 31, 1998, this counter-proposal was being evaluated. In
the event of an unfavorable resolution to this matter, the Company could
experience a material adverse effect on its financial position, results of
operations and cash flows and may have no alternative means by which to
finance such resolution other than to sell certain of its assets.
In July of 1997, the New Jersey Department of Environmental Protection
("D.E.P.") instituted suit against the Company related to toxic chemical
contamination at the site mentioned in the preceding paragraphs. The civil
action is brought pursuant to the Spill Compensation and Control Act ("Spill
Act"), whereby the D.E.P. seeks to recover costs which it has expended and
intends to expend in the future for the cleanup of the hazardous substances.
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As of July 1997, the D.E.P. had incurred costs in excess of $1,150,000 and
is attempting to recover an amount equal to three times the cleanup costs
incurred, and to be incurred, in accordance with a provision in the Spill Act.
The litigation is now in the discovery process, and the ultimate outcome of such
litigation cannot be determined at the present time. In the event of an
unfavorable resolution to this matter, the Company could experience a material
adverse effect on its financial position, results of operations and cash flows
and may have no alternative means by which to finance such resolution other than
to sell certain of its assets.
OTHER LEGAL MATTERS
The Company is a party to a litigation in which a judgment was awarded
against a predecessor of the Company for approximately $170,000 (as of
October of 1996) plus continuing fines, interest, and penalties as permitted
by the Rhode Island Court. Management intends to vigorously defend itself in
this matter.
At March 31, 1998, the Company has accrued $625,000 which it believes will
be sufficient to satisfy any liabilities which may occur in connection with the
settlement of the above-mentioned litigations.
In addition to the above, the Company is party to various lawsuits and
claims arising in the ordinary course of business. While the ultimate effects
of such a litigation cannot be determined at present, it is Management's
opinion, based on the advice of legal counsel, that any liabilities which may
result from these actions would not have a material effect on the Company's
ability to operate.
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
STOCKHOLDER MATTERS
MARKET INFORMATION
The Corporation's Common Stock is traded in the over-the-counter market.
The Company has three security firms to represent the Company.
Since the Company's merger with its subsidiary, Aerosystems Technology
Corporation, the Company (Technology General Corporation) has experienced
limited trading in the over-the-counter market. The following tables show for
the calendar periods
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indicated the representative high and low bid prices as reported by the National
Quotation Bureau, Inc. of the Corporation's Common Stock for its past two fiscal
years. Such prices represent quotations between dealers without adjustments for
retail mark-up, mark-down, or commissions and do not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Common Stock
------------
Bid
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Fiscal Year Ended March 31, 1998 High Low
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<S> <C> <C>
First Quarter 3/16 1/16
Second Quarter 5/8 1/2
Third Quarter 1/2 3/8
Fourth Quarter 5/16 3/8
<CAPTION>
Common Stock
------------
Bid
---
Fiscal Year Ended March 31, 1998 High Low
- -------------------------------- ---- ---
<S> <C> <C>
First Quarter 3/16 1/16
Second Quarter 1/2 1/16
Third Quarter 5/16 1/16
Fourth Quarter 3/16 1/8
</TABLE>
STOCK QUOTATIONS
The above quotations were reported by the Electronic Bulletin Board for
over-the-counter stocks.
HOLDERS
The approximate number of holders of Common Stock of record of the
Corporation on March 31, 1998 was 459. As of
March 31, 1998, the number of holders of Common Stock Class A was 16.
DIVIDENDS
The Company has not paid any cash dividends since its inception, and the
Board of Directors does not contemplate doing so in the near future. Any
decision as to the future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Board of
Directors deems relevant.
FORWARD LOOKING STATEMENTS
The statements contained in this report on Form 10-KSB that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, including statements regarding the Company's
expectations, hopes, intentions or strategies regarding the future. Forward
looking statements include: statements regarding future products or product
development; statements regarding future research and development spending and
the Company's product development strategy; and statements regarding the levels
of increased sales. All forward looking statements included in this document
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statements.
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It is important to note that the Company's actual results could differ
materially from those in such forward looking statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This analysis of the Company's financial condition, capital resources, and
results of operations should be viewed in conjunction with the accompanying
financial statements, including notes thereto.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1998 was $1,190,492 and the current ratio was
3.71 to 1. The increase in working capital of $362,071 over that of the
previous year is mainly a result of the Company increasing its long-term debt by
restructuring its mortgage. Excess funds available from the mortgage moneys
have been set aside primarily for contemplated expansion of Transbanc's building
to meet tenant requirements.
Net cash flow from operations for the fiscal year ended March 31, 1998
amounted to $253,103, a $296,228 decrease from the $549,331 reported for the
fiscal year ended March 31, 1997. The decrease in inventory and accounts
payable and the increase in other accounted for a major portion of this year's
cash flows from operations. Net income of $89,980 and depreciation of $274,544
accounted for the major portion of last year's cash flow from operations.
RESULTS OF OPERATIONS (CONSOLIDATED)
The following table sets forth the statement of operations for the Company
on a consolidated basis for the years ended March 31, 1998 and March 31, 1997.
This information should be read in conjunction with the consolidated financial
statements and notes appearing elsewhere herein.
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<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Revenue:
Product Sales $2,428,925 $2,398,977
Rental Income 696,116 567,855
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3,125,041 2,966,832
Costs and Expenses:
Cost of Product Sales 1,608,972 1,545,966
Cost of Rentals 337,641 328,201
Selling, General, and Administrative 1,601,165 1,231,947
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3,547,778 3,106,114
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Loss From Operations (422,737) (139,282)
Other Income 79,472 293,262
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Income (Loss) Before Income Tax
Expense (Benefit) (343,265) 153,980
Income Tax Expense (Benefit) (219,000) 64,000
---------- ----------
Net Income (Loss) $ (124,265) $ 89,980
Net Income (Loss) Applicable to
Common Shareholders $ (.02) $ .02
Current Ratio 3.71 2.4
Weighted Average Number of Common
Shares Outstanding Used in Computing
Basic and Diluted Earnings (Loss)
Per Common Share 5,720,350 5,702,350
</TABLE>
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997 (SEE DESCRIPTION
OF BUSINESS - DISCUSSION OF DIVISIONS)
Technology General Corporation generated consolidated revenues of
$3,125,041 and $2,966,832 for the years ended March 31, 1998 and 1997,
respectively. The manufacturing divisions' sales for 1998 were $2,428,925, an
increase of $29,948 over the $2,398,977 sales reported for 1997. The Eclipse
Systems Division increased their sales a total of $58,830 from $1,081,493 in
1997 to $1,140,323 in 1998. The Clawson Machine Division also increased sales
to $311,065 for the current year from $294,774 reported in 1997, an increase of
$16,291. Precision Metalform's sales decreased $45,173 from $1,022,710 in 1997
to $977,537 in 1998.
Rental revenues increased $128,261 or 23 percent to $696,116 in 1998
compared to $567,855 in 1997. A significant increase over 1997 in rental
revenues amounting to $99,371 was recorded by Technology General Corporation
while Transbanc International Investors Corporation and the Aerosystems
Technology Division increased their rental revenues $16,569 and $12,321,
respectively.
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During the year, the Precision Metalform Division continued to diversify
its line of deep draw products by searching out a broad range of customers
utilizing deep draw products for a variety of purposes. This effort is intended
to offset the continuing decline of the line of writing instruments components
resulting from higher levels of Asian imports. Items related to lines other
than cosmetic and writing instruments generally command higher price components
due to the specialty of the items involved with comparable improvements in
profitability.
The Eclipse Systems Division continued to expand its air-driven mixer line
of products that are used primarily in the food and chemical industry
businesses. Over the past several years, Eclipse Systems has added a variety of
new designs custom-made to meet special industry requirements and has further
expanded the line by offering for the first time a number of electrical-driven
mixers to broaden its competitive base.
After the allocation of management fees and other expenses from Technology
General Corporation, the three (3) manufacturing divisions had a combined net
loss of $161,395 before provision for income taxes. In 1997, the manufacturing
divisions had a combined net income of $134,764. This $296,159 difference was
mainly the result of insurance proceeds received as a result of losses
sustained in a fire exceeding the cost of replacements, repairs, and renovation
to the damaged or destroyed assets in the fiscal year ended March 31, 1997.
The current fiscal year's net loss from the Company's rental entities after
management fees but before income taxes totaled $181,870, an increase of
$128,528 compared to the previous fiscal year's loss of $53,342. The overall
increase in rental entities' losses were attributable to an increase in the
contingency loss reserve, which was partially offset by an increase in rental
revenues of $128,261. In addition, the 1998 figures reflect other income of
approximately $80,000.
YEAR 2000 COMPLIANCE
The Company has been evaluating proposals for the conversion of its
computer software for the year 2000 and anticipates expenditures will be in the
neighborhood of $30,000 to accomplish this.
NEWLY ISSUED ACCOUNTING STANDARD
In June of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for the way that public business companies report information about
operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", but retains the requirement to report
information about major customers. This Statement is effective
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for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Directors do not receive remuneration for their services as such, but may be
reimbursed for expenses incurred in connection therewith, such as the cost of
travel to Board meetings. All Directors may receive an annual fee of $200.00
payable in stock at the option of the Board of Directors.
CHARLES J. FLETCHER (age 75) was the founder of Aerosystems Technology
Corporation prior to its merger with the Company and has been its President and
a Director since its reorganization in 1987. He has been the President and
Chairman of the Board of Directors of Technology General Corporation and
subsidiary. He is a Lt. Commander of the U.S.N.R. (retired) and former Navy
aviator. He has been associated with several companies in the Aerospace field
as an engineer and holds several U. S. patents. In 1993, he was inducted into
the New Jersey Inventors Hall of Fame and declared the original inventor of the
Hovercraft.
JEFFREY C. FLETCHER (age 44) is President of the Deep Draw Division. He
has been associated with the Deep Draw Division since its inception, starting in
Sales and Administration. Mr. Fletcher attended Husson College in Bangor, Maine
and County College of Morris in New Jersey prior to his employment by Precision
Metalform. He is the son of Charles J. Fletcher and Helen S. Fletcher. He is
also a Director of the subsidiary.
HELEN S. FLETCHER (age 69) served from 1947 to 1951 as a cashier and
bookkeeper for the Bank of Sussex County, Franklin, New Jersey and Seaboard
National Bank, Norfolk, Virginia. From 1952 to 1953, she was cashier of Sussex
and Merchants National Bank, Sparta, New Jersey. She is the wife of Charles J.
Fletcher. She was a co-founder of the Company and currently serves as Secretary
and Treasurer.
DARREN ELG (age 45) is President of the Eclipse Systems and Clawson Machine
Divisions and is an Engineering graduate holding
15
<PAGE>
a B.S.C.E. from Georgia Institute of Technology. He came to Eclipse Systems
with a diversified background in Engineering, Management, and Sales. He was
formerly employed by Interpace Corporation with engineering responsibilities.
He managed a staff of project engineers as well as coordinated procurement of
materials and manufacturing for highly technical systems and projects.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following provides certain information concerning all compensation
awarded to, earned by, paid or accrued by the Registrant for the year ended
March 31, 1998, to each of the named executive officers of the Registrant.
Executive Capacity
------------------
Name Position
- ---- --------
Charles J. Fletcher President, Chairman of the Board
Jeffrey C. Fletcher Executive Vice President, Director
Helen S. Fletcher Secretary/Treasurer, Director
Darren Elg Director
Compensation
------------
Name of Individual Cash
- ------------------ ----
or Group Capacity in Which Served Compensation
- -------- ------------------------ ------------
Charles J. Fletcher President/Chrm. of Board $161,380
No other executive officer receives compensation in excess of $100,000.
(1) The Company owns automobiles for four Executive officers. The cars were
used primarily for business purposes.
(2) None of the Executive officers have employment agreements with the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of March 31, 1998, certain information
with respect to all those known by the Company to be beneficial owners of more
than 5 percent of its outstanding voting stock, each director owning shares of
voting stock and all directors and executive officers as a group. Each
stockholder has sole voting and investment power with respect to the shares
beneficially owned unless otherwise indicated in the footnotes below.
16
<PAGE>
<TABLE>
<CAPTION>
Name & Address Number of Shares Number of Shares Percentage
- -------------- ---------------- ---------------- ----------
Beneficial Owner of Common Stock of Class A Stock Beneficial
- ---------------- --------------- ---------------- ----------
or Identity of Beneficially Beneficially Ownership
- -------------- ------------ ------------ ---------
Group Owned Owned
- ----- ----- -----
<S> <C> <C> <C>
Charles J. Fletcher(1) 1,357,500 25,000 24.4%
7 Valley Road
Sparta, NJ 07871
Jeffrey C. Fletcher(2) 422,439 20,000 7.8%
82 Birch Parkway
Sparta, NJ 07871
Helen S. Fletcher((3) 1,065,500 20.3%
7 Valley Road
Sparta, NJ 07871
Darren Elg(4) 10,500 30,000 0%
11 Tudor Hill Drive
Sussex, NJ 07461
Evelyn Padalino 382,916 5.8%
35 Gail Road
Morris Plains, NJ 07950
</TABLE>
All officers and directors as a group total four and own 2,855,939 Common shares
and 75,000 Class A shares.
____________________
(1) Charles J. Fletcher is also a Trustee of voting trusts covering an
additional 144,000 shares of Common Stock (2.5%).
(2) Jeffrey C. Fletcher is Executive Vice President and Director of the Company
and President of Precision Metalform Division.
(3) Helen S. Fletcher is a co-founder and Secretary/Treasurer and Director of
the Company.
(4) Darren Elg is a Director of the Company, President of Eclipse Systems
Division and Clawson Machine Division.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 1, 1993, the Board of Directors voted to award a grant of shares
of Common Stock and Class A Common Stock to certain individuals. The shares are
to be issued only upon the completion of five (5) years of uninterrupted service
commencing April 1, 1993. Shares are earned at the rate of 20 percent per
annum. Shares issued prior to the 5-year period would only be issued on a pro
rata basis subject to termination of the employee by Management. Grants for
Common Stock and Class A Common Stock have been awarded to the following Key
Employees:
Athalyn M. Hopler 10,000 shares of Class A Common
Lois Elg 10,000 shares of Class A Common
Darren Elg 20,000 shares of Class A Common
Jeffrey C. Fletcher 20,000 shares of Common
Charles J. Fletcher 30,000 shares of Common
17
<PAGE>
Upon issuance of the above-stated Class A Common Shares, such shares may be
converted on a one-for-one basis into shares of the Company's Common Stock at
the option of the shareholder. Such conversion is restricted until two years
after the issuance of the Class A Common Stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
(a) The following documents are filed or part of this report:
1. FINANCIAL STATEMENTS
Independent Auditors Report (F-1)
Consolidated Balance Sheet (F-2)
Consolidated Statements of Operations (F-3)
Consolidated Statements of Stockholders' Equity (F-4)
Consolidated Statements of Cash Flows (F-5-6)
Notes to Consolidated Financial Statements (F-7-16)
2. EXHIBITS
Description Incorporation by reference -
----------- ----------------------------
Previous Designation
--------------------
Certificate of Incorporation *
Voting Trust Agreement *
By-Laws *
Specimen of Stock Certificate
(Common) *
Specimen of Stock Certificate
(Class A Common) *
Statement Regarding Computation
of Per Share Earnings **
*Incorporated herein by reference to Registrant's Registration
Statement on S-14 effective on April 23,1987 (SEC File No. 2-97732).
**See Consolidated Financial Statements.
(b) Reports on Form 8K - None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the Borough of
Franklin, State of New Jersey, on the 7th day of July, 1998.
TECHNOLOGY GENERAL CORPORATION
By: /s/ Charles J. Fletcher
--------------------------------------
Charles J. Fletcher, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Charles J. Fletcher President/Chairman of July 7, 1998
- ------------------------- the Board
Charles J. Fletcher
/s/ Jeffrey C. Fletcher Executive Vice President/ July 7, 1998
- ------------------------- Director
Jeffrey C. Fletcher
/s/ Helen S. Fletcher Secretary/Treasurer July 7, 1998
- ------------------------- Director
Helen S. Fletcher
/s/ Darren A. Elg Director July 7, 1998
- -------------------------
Darren A. Elg
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNOLOGY GENERAL CORPORATION
/s/ Charles J. Fletcher,
----------------------------------------
Charles J. Fletcher,
President, Chief Executive Officer,
Chairman of the Board
/s/ Helen S. Fletcher
----------------------------------------
Helen S. Fletcher
Secretary/Treasurer
Date: July 7, 1998
19
<PAGE>
TECHNOLOGY GENERAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
March 31, 1998
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONTENTS
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5-F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Technology General Corporation
We have audited the accompanying consolidated balance sheet of Technology
General Corporation and Subsidiary as of March 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended March 31, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Technology General Corporation and Subsidiary at March 31, 1998, and the results
of their operations and their cash flows for the years ended March 31, 1998 and
1997, in conformity with generally accepted accounting principles.
Roseland, New Jersey
June 23, 1998
F-1
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 804,090
Accounts receivable, net of allowance for
doubtful accounts of $5,000 353,612
Inventories 368,499
Deferred tax asset 21,000
Prepaid expenses and other current assets 82,801
----------
Total current assets $1,630,002
PROPERTY, PLANT AND EQUIPMENT, net 2,165,440
OTHER ASSETS:
Goodwill, less accumulated amortization of $55,497 36,995
Deferred tax asset 334,000
Other 57,829
----------
428,824
----------
$4,224,266
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current portion $ 51,205
Accounts payable 231,796
Accrued expenses and other 156,509
----------
Total current liabilities $ 439,510
LONG-TERM LIABILITIES:
Long-term debt, less current portion 1,571,197
Other 600,000
Security deposits 74,316
----------
2,245,513
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 1 vote per share,
authorized 30,000,000 shares, issued 5,522,228 shares,
outstanding 5,521,448 shares 5,572
Class A common stock, $.001 par value, .1 vote per share,
authorized 15,000,000 shares, issued and outstanding
126,839 shares 167
Capital in excess of par value 2,399,082
Accumulated deficit (865,338)
----------
1,539,483
Less treasury stock, at cost, 780 shares (240)
----------
Total stockholders' equity 1,539,243
----------
$4,224,266
----------
----------
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Product sales $ 2,428,925 $ 2,398,977
Rentals 696,116 567,855
----------- -----------
3,125,041 2,966,832
----------- -----------
COSTS AND EXPENSES:
Cost of product sales 1,608,972 1,545,966
Cost of rentals 337,641 328,201
Selling, general and administrative expenses 1,601,165 1,231,947
----------- -----------
3,547,778 3,106,114
----------- -----------
LOSS FROM OPERATIONS (422,737) (139,282)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 16,385 13,183
Interest expense (13,006) (15,945)
Other 76,093 904
Insurance recovery 295,120
----------- -----------
79,472 293,262
----------- -----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) (343,265) 153,980
INCOME TAX EXPENSE (BENEFIT) (219,000) 64,000
----------- -----------
NET INCOME (LOSS) $ (124,265) $ 89,980
----------- -----------
----------- -----------
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE $ (.02) $ .02
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN COMPUTING BASIC AND DILUTED
EARNINGS (LOSS) PER COMMON SHARE 5,720,350 5,702,350
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 31, 1998 and 1997
Class A
Common Stock Common Stock Capital in Treasury Stock
---------------- ---------------- Excess of Accumulated ---------------
Shares Amount Shares Amount Par Value Deficit Shares Amount Total
------ ------ ------ ------ --------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, March 31, 1996 5,490,228 $5,490 157,839 $158 $2,376,486 $(831,053) 780 $(240) $1,550,841
ISSUANCE OF CLASS A
COMMON STOCK 1,000 1 186 187
NET INCOME 89,980 89,980
--------- ------ ------- ---- ---------- --------- --- ----- ----------
BALANCES, March 31, 1997 5,490,228 5,490 158,839 159 2,376,672 (741,073) 780 (240) 1,641,008
COMMON STOCK TO BE ISSUED 50,000 50 40,000 40 22,410 22,500
TRANSFER OF SHARES 32,000 32 (32,000) (32)
NET LOSS (124,265) (124,265)
--------- ------ ------- ---- ---------- --------- --- ----- ----------
BALANCES, March 31, 1998 5,572,228 $5,572 166,839 $167 $2,399,082 $(865,338) 780 $(240) $1,539,243
--------- ------ ------- ---- ---------- --------- --- ----- ----------
--------- ------ ------- ---- ---------- --------- --- ----- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (124,265) $ 89,980
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 228,803 274,544
Provision for doubtful accounts 4,000
Deferred income tax expense (benefit) (219,000) 64,000
Issuance of Class A common stock for services 187
Common stock to be issued for services 22,500
Increase (decrease) in cash attributable to
changes in operating assets and liabilities:
Accounts receivable (12,117) 59,558
Inventories 143,492 (6,362)
Prepaid expenses and other current assets 26,872 40,660
Other assets (16,443) (5,299)
Accounts payable (83,350) 26,699
Accrued expenses and other (3,551) (7,945)
Other 269,000
Security deposits 17,162 13,309
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 253,103 549,331
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (268,762) (272,263)
Receipts from cash collateral account for letters of credit 165,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (103,762) (272,263)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,600,000 14,360
Principal payments on long-term debt (1,227,742) (125,554)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 372,258 (111,194)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 521,599 165,874
CASH AND CASH EQUIVALENTS, beginning of year 282,491 116,617
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 804,090 $ 282,491
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid during the year for interest $136,318 $134,950
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITY, debt issuance for equipment purchase $ - $ 20,030
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS:
Technology General Corporation is a manufacturer of deep-drawn
metal-formed products, a manufacturer of ice crushing and shaving
equipment and a manufacturer and distributor of spray coating and
industrial mixer systems, and sells its products to a wide variety of
users primarily throughout the United States. Its subsidiary
(Transbanc International Investors Corporation) owns and leases to
various tenants a 107,000 square foot commercial building in Franklin,
New Jersey.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Technology General Corporation and its
wholly-owned subsidiary, Transbanc International Investors
Corporation, (the "Company"). All intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on
hand and a highly liquid investment account with a maturity of 90 days
or less from the purchase date and, at times, exceeds the Federal
Deposit Insurance Corporation coverage of $100,000. Management
regularly monitors the financial condition of the financial
institution in order to keep the potential risk to a minimum.
INVENTORIES - Inventories, which include material, labor and overhead
costs, are stated at the lower of cost or market, with cost determined
on a first-in, first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost less accumulated depreciation and amortization.
Expenditures for maintenance and repairs are charged to expense as
incurred. The Company provides for depreciation and amortization
primarily using the straight-line method over the estimated useful
lives of the various assets as follows:
ASSET ESTIMATED USEFUL LIVES
----- ----------------------
Buildings and improvements 25-40 Years
Land improvements 10 Years
Machinery and equipment 5-10 Years
Furniture and fixtures 5-10 Years
Office equipment 5-10 Years
Transportation equipment 3-5 Years
GOODWILL - Goodwill is being amortized on a straight-line basis over
its estimated useful life of 20 years.
F-7
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INCOME TAXES - The Company complies with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future, based on enacted tax laws
and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically assesses
the recoverability of the carrying amount of long-lived assets. A
loss is recognized when expected future cash flows (undiscounted and
without interest) are less than the carrying amount of the asset. The
amount of the impairment loss is determined as the difference by which
the carrying amount of the asset exceeds the fair value of the asset.
INCOME (Loss) PER COMMON SHARE - The Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No.
128). SFAS No. 128 requires dual presentation of basic and diluted
earnings per share for all periods presented. Basic earnings per
share excludes dilution and is computed by dividing income (loss)
available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Prior period income information
has been restated as required by SFAS No. 128. The restatement had no
effect on previously reported income per share.
USE OF ESTIMATES - The preparation of 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 and 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.
RECLASSIFICATIONS - Certain 1997 amounts have been reclassified to
conform to the 1998 presentation.
F-8
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
NEWLY ISSUED ACCOUNTING STANDARD - In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for the way that public business companies report
information about operating segments in annual financial statements
and requires that those companies report selected information about
operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
This Statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", but retains the requirement to
report information about major customers. This Statement is effective
for financial statements for periods beginning after December 15,
1997. In the initial year of application, comparative information for
earlier years is to be restated.
NOTE 3 - INVENTORIES:
Inventories consist of the following at March 31, 1998:
Purchased parts and raw materials $ 259,683
Work-in-process 15,840
Finished goods 92,976
-----------
$ 368,499
-----------
-----------
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following at
March 31, 1998:
Land $ 365,314
Land improvements 159,114
Building and improvements 3,778,698
Machinery and equipment 1,481,589
Furniture and fixtures 49,308
Office equipment 100,817
Transportation equipment 113,325
----------
6,048,165
Less accumulated depreciation
and amortization 3,882,725
----------
$2,165,440
----------
----------
F-9
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (CONTINUED):
A parcel of land containing a building, which is being used for rental
to third parties, is subject to claims of the United States Department
of Justice and the New Jersey Department of Environmental Protection.
At March 31, 1998, property, plant and equipment includes $23,824 and
accumulated amortization includes $12,615 related to an asset recorded
under a capital lease.
NOTE 5 - LONG-TERM DEBT:
The following is a summary of long-term debt at March 31, 1998:
Line of credit, due on demand or January 31,
1999 if no demand is made, providing for
maximum borrowing of $15,000 with interest
due quarterly at the base rate (9.25% at
March 31, 1998), as defined in the agreement,
plus 1% $ 8,120
Mortgage note payable in monthly installments
of $13,855, including interest at 8.47% per annum,
through October 15, 2007, at which time the
remaining principal balance is due, and
collateralized by first mortgages on the
Company's real estate holdings and the assignment
of leases and rents from its rental operations 1,589,645
Obligation under capital lease, payable in monthly
installments of $598 through September 1999 9,848
Equipment loan payable in monthly installments
of $401, including interest at 7.5% per annum,
through September 2001 and collateralized by
certain transportation equipment 14,789
----------
1,622,402
Less current portion 51,205
----------
$1,571,197
----------
----------
F-10
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (CONTINUED):
Future aggregate principal maturities by year are as follows:
Year ending March 31:
1999 $ 51,205
2000 43,374
2001 43,373
2002 44,701
2003 46,072
Thereafter 1,393,677
-----------
$ 1,622,402
-----------
-----------
The Company also has available a commercial letter of credit with its
bank. At March 31, 1998, there were no outstanding amounts.
NOTE 6 - ACCRUED EXPENSES AND OTHER:
Accrued expenses and other are comprised of the following at March 31,
1998:
Payroll and related $ 34,169
Interest 12,675
Real estate taxes 9,930
Insurance 40,147
Professional fees 25,000
Other 34,588
-----------
$ 156,509
-----------
-----------
NOTE 7 - STOCKHOLDERS' EQUITY:
The Company has granted options to purchase 50,000 shares of its
common stock and 40,000 shares of its Class A common stock, with an
exercise price of nil, to certain key employees pursuant to a
non-qualified employee stock option plan. These shares are earned by
the employees at the rate of 20% per year beginning April 1, 1994. At
March 31, 1998, 72,000 shares are vested to employees covered by this
plan. In April 1998, the Company issued an aggregate of 90,000 shares
of its common stock and Class A common stock, pursuant to the Stock
Option Plan, to the key employees. The excess of the fair value of
these shares over the options' exercise price has been charged to
expense.
F-11
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASES:
The Company is the lessor under operating leases which expire in
various years through 2003.
Aggregate future minimum rentals to be received under noncancelable
leases as of March 31, 1998 are approximately as follows:
Year ending March 31:
1999 $ 683,000
2000 581,000
2001 546,000
2002 489,000
2003 171,000
-----------
$ 2,470,000
-----------
-----------
NOTE 9 - INCOME TAX EXPENSE (BENEFIT):
The provision for income tax expense (benefit) in the accompanying
consolidated statements of operations consists of the following
deferred federal and state income taxes for the years ended March 31,
1998 and 1997:
1998 1997
------------ ------------
Deferred:
Federal $ (178,000) $ 50,000
State (41,000) 14,000
------------ ------------
$ (219,000) $ 64,000
------------ ------------
------------ ------------
Income tax expense (benefit) differs from income taxes computed at the
federal statutory rate primarily because of the effect of changes in
the valuation allowances.
F-12
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAX EXPENSE (BENEFIT) (CONTINUED):
The components of the Company's deferred tax assets and liabilities are as
follows:
March 31, 1998
Federal State Total
----------- ----------- -----------
Tax benefit attributable to:
Net operating loss carryforward $ 135,000 $ 1,000 $ 136,000
Litigation contingency reserve 194,000 56,000 250,000
Depreciation (34,000) (10,000) (44,000)
Inventories and other 6,000 7,000 13,000
----------- ----------- -----------
$ 301,000 $ 54,000 $ 355,000
----------- ----------- -----------
----------- ----------- -----------
March 31, 1997
Federal State Total
----------- ----------- -----------
Tax benefit attributable to:
Net operating loss carryforward $ 143,000 $ - $ 143,000
Litigation contingency reserve 109,000 30,000 139,000
Depreciation (46,000) (13,000) (59,000)
Inventories and other 8,000 5,000 13,000
----------- ----------- -----------
214,000 22,000 236,000
Less valuation allowance 91,000 9,000 100,000
----------- ----------- -----------
$ 123,000 $ 13,000 $ 136,000
----------- ----------- -----------
----------- ----------- -----------
At March 31, 1998, the Company had net operating loss carryforwards
for federal and state tax purposes of approximately $436,000 and
$9,000, respectively, which expire beginning in 2007.
NOTE 10 - SEGMENT INFORMATION:
Information relative to the Company's business segments is as follows:
Years Ended March 31,
---------------------------
1998 1997
------------ ------------
Product sales:
Deep-drawn metal-formed products $ 977,537 $ 1,022,710
Spray coating and industrial mixer systems 1,140,323 1,081,493
Ice crushing and shaving equipment 311,065 294,774
Rental 696,116 567,855
------------ ------------
$ 3,125,041 $ 2,966,832
------------ ------------
------------ ------------
F-13
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SEGMENT INFORMATION (CONTINUED):
Years Ended March 31,
---------------------------
1998 1997
------------ ------------
Operating profit (loss):
Deep-drawn metal-formed products $ 29,914 $ 166,296
Spray coating and industrial mixer systems 184,558 162,119
Ice crushing and shaving equipment 2,417 25,289
Rental 169,720 103,394
------------ ------------
386,609 457,098
Less unallocated general corporate charges 809,346 596,380
------------ ------------
$ (422,737) $ (139,282)
------------ ------------
------------ ------------
March 31,
---------------------------
1998 1997
------------ ------------
Identifiable assets:
Deep-drawn metal-formed products $ 481,577 $ 592,750
Spray coating and industrial mixer systems 337,715 430,416
Ice crushing and shaving equipment 126,082 116,917
Rental 1,619,683 1,088,861
General corporate 1,659,209 1,525,568
------------ ------------
$ 4,224,266 $ 3,754,512
------------ ------------
------------ ------------
Years Ended March 31,
---------------------------
1998 1997
------------ ------------
Depreciation and amortization:
Deep-drawn metal-formed products $ 81,675 $ 82,791
Spray coating and industrial mixer systems 13,324 9,579
Ice crushing and shaving equipment 1,011 882
Rental 63,255 112,656
General corporate 69,538 68,636
------------ ------------
$ 228,803 $ 274,544
------------ ------------
------------ ------------
F-14
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SEGMENT INFORMATION (CONTINUED):
Years Ended March 31,
---------------------------
1998 1997
------------ ------------
Capital additions:
Deep-drawn metal-formed products $ 35,683 $ 47,804
Spray coating and industrial mixer systems 15,105 32,926
Rental 113,500 105,320
General corporate 104,474 106,243
------------ ------------
$ 268,762 $ 292,293
------------ ------------
------------ ------------
The Company's deep-drawn metal-formed products segment had sales to
one major customer in 1998 and 1997 of approximately $350,000 and
$341,000, respectively. The spray coating and industrial mixer
systems segment had sales to one major customer of approximately
$450,000 and $376,000 in 1998 and 1997, respectively. In addition, at
March 31, 1998, accounts receivable from these customers were
approximately $121,000.
The Company's deep-drawn metal-formed products segment had purchases
from two major suppliers in 1998 and 1997 of approximately $184,000
and $274,000, respectively. The ice crushing machines segment had
purchases from one major supplier in 1998, of approximately $86,000.
The spray coating and industrial mixer systems segment had purchases
from two major suppliers of approximately $271,000 and $349,000 in
1998 and 1997, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
On September 1, 1994, the Company received a memorandum from the
United States Justice Department outlining proposed settlement terms
relating to toxic chemical contamination at a site formerly occupied
by a subsidiary of the Company. The memorandum stipulated that the
United States Government (USG) would receive $25,000 upon the
execution of the settlement, $206,000 payable over five years and a
balloon payment of $150,000 payable in five years. In addition, the
USG would receive 60% of the net rental income derived from the
property and 60% of the net proceeds from the sale of the property.
The Company has requested a renegotiation of the settlement terms. In
March 1997, the Company made a counter-proposal to the USG seeking
reduction in the proposed terms for restoration expenditures incurred
by the Company resulting from zoning changes following the cleanup
phase. As of March 31, 1998, the Company's expenditures to
accommodate code changes in order to permit re-occupancy of the
premises were approximately $200,000. At March 31, 1998, this
counter-proposal was being evaluated by the USG. In the event of an
unfavorable resolution to this matter, the Company could experience a
material adverse effect on its financial position, results of
operations and cash flows and may have no alternative means by which
to finance such resolution other than to sell certain of its assets.
F-15
<PAGE>
TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
In July 1997, the New Jersey Department of Environmental Protection
(DEP) instituted suit against the Company related to toxic chemical
contamination at the site mentioned in the preceding paragraph. The
civil action is brought pursuant to the Spill Compensation and Control
Act ("Spill Act"), whereby the DEP seeks to recover costs which it has
expended and intends to expend in the future for the cleanup of the
hazardous substances. As of July 1997, the DEP had incurred costs in
excess of $1,150,000 and is attempting to recover an amount equal to
three times the cleanup costs incurred, and to be incurred, in
accordance with a provision in the Spill Act. The litigation is now
in the discovery process and the ultimate outcome of such litigation
cannot be determined at the present time. In the event of an
unfavorable resolution to this matter, the Company could experience a
material adverse effect on its financial position, results of
operations and cash flows and may have no alternative means by which
to finance such resolution other than to sell certain of its assets.
The Company is a party to litigation in which a judgement was awarded
against a predecessor of the Company for approximately $170,000 (as of
October 1996), plus continuing fines, interest and penalties as
permitted by the Rhode Island Court. Management intends to vigorously
defend itself in this matter.
At March 31, 1998, the Company has accrued $625,000 which management
believes will be sufficient to satisfy any liabilities which may
result in connection with the settlement of the above mentioned
matters.
In addition to the above, the Company is party to various lawsuits and
claims arising in the ordinary course of business. While the ultimate
effects of such litigation cannot be determined at the present time,
it is management's opinion, based on the advice of legal counsel, that
any liabilities which may result from these actions would not have a
material effect on the Company's ability to operate.
NOTE 12 - INSURANCE RECOVERY:
During the year ended March 31, 1997, there was a fire at the
Company's deep-drawn metal-formed products division, which was
accidentally started by a roofing contractor, resulting in fire, smoke
and water damage to both the building and inventories. The Company
received proceeds of approximately $424,000 for reimbursement of
building damage, machinery and equipment, inventories and emergency
cleanup resulting in a gain of approximately $295,000. The Company
has filed a claim with its insurer for production losses resulting
from this fire. As of March 31, 1998, this claim is still pending and
no provision for this claim has been provided in the accompanying
consolidated financial statements.
F-16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets found on pages F-2 and F-3 of the Company's Form
10-KSB for the year ended March 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 804,090
<SECURITIES> 0
<RECEIVABLES> 358,612
<ALLOWANCES> (5,000)
<INVENTORY> 368,499
<CURRENT-ASSETS> 1,630,002
<PP&E> 6,048,165
<DEPRECIATION> 3,882,725
<TOTAL-ASSETS> 4,224,266
<CURRENT-LIABILITIES> 439,510
<BONDS> 1,622,402
0
0
<COMMON> 5,739
<OTHER-SE> 1,533,504
<TOTAL-LIABILITY-AND-EQUITY> 4,224,266
<SALES> 2,428,925
<TOTAL-REVENUES> 3,125,041
<CGS> 1,608,972
<TOTAL-COSTS> 3,547,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,000
<INTEREST-EXPENSE> 13,006
<INCOME-PRETAX> (343,265)
<INCOME-TAX> (219,000)
<INCOME-CONTINUING> (124,265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,265)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
