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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB Quarterly or Transitional Report
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
Commission File No. 2-97732
TECHNOLOGY GENERAL CORPORATION
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(Exact name of Small Business Issuer in its charter)
New Jersey 22-1694294
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12 Cork Hill Road, Franklin, New Jersey 07416
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 827-4143
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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As of December 31, 1997, the Registrant had 5,489,448 shares of Common Stock
outstanding and 158,839 shares of Class A Common Stock outstanding.
1
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TECHNOLOGY GENERAL CORPORATION
INDEX
Page No.
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Part I. Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet - December 31, 1997 3
Consolidated Statement of Operations
and for the nine months ended
December 31, 1997 and 1996 4
Consolidated Statement of Cash Flows
for the nine months ended
December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation 7- 8
Signatures 9
2
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents................................................... $ 328,262
Cash collateral account for letters of credit............................... 86,840
Investments................................................................. 433,527
Accounts receivable, net of allowance for doubtful accounts of $1,000....... 387,396
Inventories................................................................. 385,364
Deferred tax asset.......................................................... 12,000
Prepaid expenses and other current assets................................... 63,902
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Total current assets...................................................... 1,697,291
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization of
$4,134,031.................................................................... 2,230,667
OTHER ASSETS:
Deferred tax asset.......................................................... 124,000
Other....................................................................... 63,112
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Total other assets........................................................ 187,112
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$4,115,070
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................................ $ 96,380
Accounts payable and accrued expenses....................................... 365,552
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Total current liabilities................................................. 461,932
LONG--TERM DEBT:
Long-term obligations, net of current maturities............................ 1,581,592
Reserve for contingency..................................................... 331,000
Security deposits........................................................... 75,962
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Total long--term debt..................................................... 1,988,554
STOCKHOLDERS' EQUITY:
Common stock,$.001 par value, 1 vote per share, authorized 30,000,000
shares,issued 5,490,228 shares, outstanding 5,489,448 shares.............. 5,490
Class A common stock,$.001 par value, .1 vote per share, authorized
15,000,000 shares, issued and outstanding 158,839 shares.................. 158
Additional paid-in-capital.................................................. 2,376,673
Accumulated deficit......................................................... (717,497)
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1,664,824
Less treasury stock, at cost, 780 shares.................................... (240)
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Total stockholders' equity................................................ 1,664,584
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$4,115,070
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</TABLE>
See accompanying notes to consolidated financial statements
3
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
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1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Product sales........................................ $ 617,120 $ 554,939 $ 1,806,212 $ 1,902,166
Rentals.............................................. 187,777 142,786 512,255 414,441
------------ ------------ ------------ ------------
804,897 697,725 2,318,467 2,316,607
COSTS AND EXPENSES:
Cost of product sales................................ 397,073 359,466 1,162,854 1,228,561
Cost of rentals...................................... 112,016 61,700 278,919 203,086
Selling,general and administrative expenses.......... 323,076 376,915 921,142 1,027,229
------------ ------------ ------------ ------------
832,165 798,081 2,362,915 2,458,876
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS............................ (27,268) (100,356) (44,448) (142,269)
OTHER INCOME (EXPENSE):
Interest expense..................................... (10,756) (2,389) (17,509) (13,302)
Insurance recovery................................... 116,391 468,163
EPA Contingency Reserve.............................. (12,500) (37,500)
Other................................................ 79,664 232 85,533 6,374
------------ ------------ ------------ ------------
68,908 101,734 68,024 423,735
------------ ------------ ------------ ------------
NET INCOME............................................... $ 41,640 $ 1,378 $ 23,576 $ 281,466
------------ ------------ ------------ ------------
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</TABLE>
See accompanying notes to consolidated financial statements
4
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss)...................................................................... $ 23,576 $ 281,466
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 163,045 227,335
Changes in operating assets and liabilities:
(Increase) in accounts receivable................................................... (41,901) (4,400)
(Increase) decrease in inventories.................................................. 126,627 (104,540)
Decrease in prepaid assets and other current assets................................. 45,771 98,429
Decrease in other assets............................................................ 25,606 8,723
(decrease) in accounts payable and accrued expenses................................. (109,654) (67,269)
Increase in accrual for loss contingency............................................ 37,500
Increase in security deposits....................................................... 18,808 266
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NET CASH PROVIDED BY OPERATING ACTIVITIES......................................... 251,878 477,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment........................................... (253,357) (186,474)
Reduction in collateral for letter of credit.......................................... 78,160
Investment in Money Fund.............................................................. (430,657)
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NET CASH USED IN INVESTING ACTIVITIES............................................. (605,854) (186,474)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.................................................. (1,200,253) (148,575)
Proceeds from issuance of long-term debt.............................................. 1,600,000 76,332
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............................... 399,747 (72,243)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 45,771 218,793
CASH AND CASH EQUIVALENTS, beginning of period.......................................... 282,491 116,617
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CASH AND CASH EQUIVALENTS, end of period................................................ $ 328,262 $ 335,410
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</TABLE>
See accompanying notes to consolidated financial statements
5
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments and Contingencies:
In 1994, the Company, following negotiations with the U. S. Justice Department,
received a Memorandum of Settlement relating to an "innocent landowner defense"
regarding toxic chemical contamination at a division's former site. Also, the
New Jersey D.E.P. has objectively entered the negotiations to account for their
portion of the Superfund expenditures. To date, the Memorandum stipulates that
the United States Government ("USG") would receive $25,000 upon 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 percent of the net
proceeds from the sale of the property. At December 31, 1997, the Company has
established an accrual for this loss contingency in the amount of $331,000.
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 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.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the nine-month period ended December 31, 1997, Technology General
Corporation and subsidiary had consolidated revenues of $2,318,467 and net
earnings of $23,576. Technology General Corporation, operating individually as
a holding company managing the various operating segments, does not generate
significant revenue other than allocating management expenses to the operating
entities and leasing space to two tenants.
The Eclipse and Clawson Divisions operate in combination with each
other, and total sales for the nine-month period amounted to $865,555 and
$225,940, respectively, for a total of $1,091,495.
Clawson Machine's ice crushing products featuring the patented "Plus
Crusher" are used in conjunction with major ice cube machines, primarily
Scotsman, Manitowoc, Crystal Tips, and Ice-O-Matic. This system provides an
in-line means to intercept the flow of ice cubes in order to process them into
crushed ice during each ice cube harvest cycle. This device, which is installed
as an integral part of each ice cube machine, is used predominantly by hotels
and restaurants where large volumes of crushed ice are required.
Clawson Machine has received recognition from the National Sanitation
Foundation (N.S.F.) for improvements of its various machines used primarily for
crushing ice applicable to hotels and restaurants. N.S.F. approval is becoming
a mandatory requirement throughout various parts of the country for machines
used in the processing of foods and liquids to assure maintenance of sanitary
conditions. Clawson is one of a few manufacturers in its category who has been
awarded this distinction.
Eclipse Systems's sales for the nine months ended December 31, 1997,
increased $22,967 from the comparable period for 1996. Management expects sales
to gradually increase as a result of the introduction of a new line of
industrial mixers. The division has recently designed and developed a special
line of chemical mixers, which are expected to generate increased sales in the
air-driven mixer market.
The Precision Metalform Division reported sales for the nine months
ended December 31, 1997 and 1996 of $714,716 and $810,595, respectively.
Management anticipates that sales for the balance of the year are expected to
increase in the writing instruments field whereas cosmetic sales are expected to
remain stable. Precision Metalform, along with the Company's other operating
divisions, has taken positive steps to reduce its general and administration
overhead, including efforts to reduce inventories to conserve cash flow.
Transbanc International Investors Corporation, a wholly-owned
subsidiary, is a real estate holding company which leases its 107,000 square
foot building to five (5) industrial tenants. Total rental revenue for the nine
months ended December 31, 1997 amounted to $367,865, a increase of $1,092
compared to the nine months ended December 31, 1996. Management anticipates a
modest increase in revenue from this facility resulting from modified leases for
an extended period of time.
The Company's Aerosystems Technology Division owns a 24,000 square foot
industrially-zoned building situated on 22 acres located in Franklin, New
Jersey, of which 3.5 acres were the subject of an E.P.A. Superfund cleanup.
This property has been fully restored and is presently occupied by two (2)
tenants. Rental revenue for the nine month period ended December 31, 1997,
totaled $38,365 compared to $25,167 for the comparable 1996 period, an increase
of $13,198.
7
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Liquidity
As at December 31, 1997, current assets amounted to $1,697,290 and
current liabilities totaled $461,932, reflecting a working capital of $1,235,359
and a current ratio of 3.67 to 1. There was a increase in cash flow of $45,771
for the current nine-month period mainly due to the recasting of Transbanc's
mortgage for an additional $487,000 of which $431,000 was invested temporarily
in the Money Market.
Results of Operations
Product Sales. Technology General Corporation's manufacturing segment
generated sales of $1,806,212 for the nine-month period ended December 31, 1997.
Rental Sales. Total consolidated rental billings for the nine-month
period ended December 31, 1997 amounted to $512,255, an increase of $97,814 over
the same period for 1996.
Gross Margin. The consolidated gross profit margin for the nine months
ended December 31, 1997, was 38 percent.
Selling, General, and Administrative Expenses. These expenses as a
percent of net sales were approximately 40 percent for the nine months ended
December 31, 1997.
Interest. Total Interest expense for the nine months ended December 31,
1997 amounted to $106,128 of which $88,619 is reflected under "Cost of Rentals"
and the remainder of $17,509 is shown as a separate line item within "Other
Income (Expense)".
Net Income/Loss. The net income for the nine months ended
December 31, 1997 amounted to $23,576, an decrease of $257,890 over the
comparable nine-month period in 1996. The $257,890 difference in earnings
between the nine month periods is mainly due to a large insurance recovery
reflected in the December 31, 1996 statement of operations.
8
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 17, 1998 TECHNOLOGY GENERAL CORPORATION
By: /s/ Charles J. Fletcher
-----------------------------------
Charles J. Fletcher
President, Chief Executive Officer,
Chairman of the Board
By: /s/ Helen S. Fletcher
-----------------------------------
Helen S. Fletcher
Secretary/Treasurer
9
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Operations found on pages 3 and 4 of the Company's
Form 10-QSB for the nine months ended December 31, 1997, and is qualified int
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 415,102
<SECURITIES> 433,527
<RECEIVABLES> 388,396
<ALLOWANCES> 1,000
<INVENTORY> 385,364
<CURRENT-ASSETS> 1,697,291
<PP&E> 6,364,698
<DEPRECIATION> 4,134,031
<TOTAL-ASSETS> 4,115,070
<CURRENT-LIABILITIES> 461,932
<BONDS> 1,988,554
0
0
<COMMON> 5,648
<OTHER-SE> 1,659,176
<TOTAL-LIABILITY-AND-EQUITY> 4,115,070
<SALES> 1,806,212
<TOTAL-REVENUES> 2,318,467
<CGS> 1,162,854
<TOTAL-COSTS> 2,362,915
<OTHER-EXPENSES> (85,533)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,509
<INCOME-PRETAX> 23,576
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,576
<EPS-PRIMARY> .004
<EPS-DILUTED> .004
</TABLE>
