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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 JUNE 30, 1998
OR
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
Commission File No. 2-97732
TECHNOLOGY GENERAL CORPORATION
......................................................................
(Exact name of Small Business Issuer in its charter)
New Jersey 22-1694294
.............................. ...........................
(State or 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
Indicated 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
...... ......
As of June 30, 1998, the Registrant had 5,521,448 share
of Common Stock outstanding and 126,839 shares of Class A Common Stock
outstanding.
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TECHNOLOGY GENERAL CORPORATION
INDEX
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<CAPTION>
PAGE NO.
<S> <C> <C>
Part 1. Financial Information
Item 1. Consolidated Financial Statement (unaudited)
Consolidated Balance Sheet - June 30, 1998 3
Consolidated Statement of Operations
For the three months ended
June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows
For the nine months ended
June 30, 1998 and 1997 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
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $840,905
Accounts receivable, net of allowance for doubtful
accounts of $5,000 359,178
Inventories 325,038
Deferred tax asset 21,000
Prepaid expenses and other current assets 87,101
..........
Total current assets 1,633,222
PROPERTY, PLANT AND EQUIPMENT, net
2,171,645
OTHER ASSETS:
Deferred tax asset 334,000
Other 126,357
..........
Total other assets 460,357
..........
$4,265,224
::::::::::
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $81,571
Accounts payable and accrued expenses 442,271
..........
Total current liabilities 523,842
LONG - TERM DEBT:
Long-term obligations, net of current maturities 1,563,741
Reserve for contingency 600,000
Security deposits 74,316
..........
Total long - term debt 2,238,057
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 5,572
Class A common stock, $.001 par value, .1 vote per share,
authorized 15,000,000 shares, issued and
outstanding 158,839 shares 167
Additional paid-in-capital 2,399,083
Accumulated deficit (901,257)
..........
1,503,565
Less treasury stock, at cost, 780 shares (240)
..........
Total stockholders' equity 1,503,325
..........
$4,265,224
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</TABLE>
See accompanying notes to consolidated financial statements
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
................
1998 1997
...... ........
<S> <C> <C>
REVENUES:
Product sales $570,621 $669,656
Rentals 180,743 151,296
........ ........
751,364 820,952
COSTS AND EXPENSES:
Cost of product sales 384,269 406,960
Cost of rentals 112,427 96,318
Selling, general and
administrative expenses 298,100 287,568
........ ........
794,796 790,846
........ ........
INCOME (LOSS) FROM
OPERATIONS (43,432) 30,106
OTHER INCOME (EXPENSE):
Interest expense (823) (2,540)
Interest income 7,889
Other 445 1,830
....... .......
7,511 (710)
........ ........
NET INCOME (LOSS) ($35,921) ($29,396)
:::::::::: :::::::::
</TABLE>
See Accompanying notes to consolidated financial statements
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Increase (Decrease) in Cash and Cash Equivalents
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
June 30
1998 1997
....... ........
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($35,921) $29,396
Adjustment to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 34,893 48,778
Changes in operating assets
and liabilities:
(Increase) in accounts receivable (5,566) (91,448)
Decrease in inventories 43,461 34,821
(Increase) decrease in
Prepaid assets and other current assets (4,300) 23,821
(Increase) decrease in
other assets (31,533) 10,860
Increase (decrease) in accounts
payable and accrued expenses 53,966 (44,448)
Increase in security deposits 0 2,373
............ ..........
NET CASH PROVIDED BY OPERATING ACTIVITIES 55,000 14,157
............ ..........
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property,
plant, and equipment (41,096) (119,166)
........... ..........
NET CASH USED IN INVESTING ACTIVITIES (41,096) (119,166)
........... ...........
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (15,519) (14,380)
Proceeds from issuance of notes payable 38,430 26,950
......... ..........
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 22,911 12,570
......... ..........
NET INCREASE (DECREASE) IN CASH AND 36,815 (92,439)
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
beginning of period 804,090 282,491
....... ........
CASH AND CASH EQUIVALENTS, end of period $840,905 $190,052
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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
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 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 June 30, 1998, the Company's expenditures to accommodate code
changes in order to permit re-occupancy of the premises were approximately
$200,000 and 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 to meet its obligation
resulting from the ultimate resolution.
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.
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 finanical 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 to meet
its obligation resulting from the ultimate resolution.
OTHER LEGAL MATTERS
The Company is a party to a litigation in which a judgement
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 believes that this
judgement is non-recoverable since the predecessor corporation is no longer
in existance and intends to vigorously defend itself in this matter.
At June 30, 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 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.
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the three-month period ended June 30, 1998, Technology
General Corporation and subsidiary had consolidated revenues of $751,364
and net loss of $35,921. 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 three-month period amounted to
$231,892 and $93,074, respectively, for a total of $324,966. The comparable
sales for the quarter ended June 30, 1997, were $280,893 for Eclipse and
$71,730 for Clawson for a total of $352,623, a combined decrease in sales
of $27,657 in 1998.
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 System's sales for the three months ended
June 30, 1998, decreased $49,000 from the comparable period for 1997.
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 three months
ended June 30, 1998 and 1997 of $245,654 and $317,033, 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 three months ended June 30, 1998 amounted to $130,891, a increase
of $21,650 compared to the three months ended June 30, 1997. 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 three-month period
ended June 30, 1998, totaled $12,300 compared to $12,100 for the comparable
1997 period, an increase of $200.
7
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LIQUIDITY
As at June 30, 1998, current assets amounted to $1,632,222
and current liabilities totaled $523,842, reflecting a working
capital of $1,109,380 and a current ratio of 3.12 to 1. There
was a increase in cash flow of $36,815 for the current three-month period.
RESULTS OF OPERATIONS
PRODUCT SALES. Technology General Corporation's manufacturing segment
generated sales of $570,620 for the three-month period ended June 30, 1998.
RENTAL SALES. Total consolidated rental billings for the
three-month period ended June 30, 1998 amounted to $180,743, an increase of
$29,447 over the same period for 1997.
GROSS MARGIN. The consolidated gross profit margin for the
three months ended June 30, 1998, was 34 percent.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. These expenses as
a percent of net sales were approximately 40 percent for the three months
ended June 30, 1998.
INTEREST. Total interest expense for the three months ended
June 30,1998 amounted to $34,427 of which $33,605 is reflected
under "Cost of Rentals" and the remainder of $822 is shown as a separate
line item within "Other Income (Expense)".
NET INCOME/LOSS. The net loss for the three months ended
June 30, 1998 amounted to $35,921, a decrease of $65,317 compared
to the net income of $29,396 for the period ending June 30, 1997.
The $65,317 decrease is due mainly to revenues decreasing $69,588 while
costs and expenses remained unchanged.
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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: September 29, 1998 TECHNOLOGY GENERAL CORPORATION
Charles J. Fletcher
BY:............................................
Charles J. Fletcher
President, Chief Executive Officer
Chairman of the Board
Helen S. Fletcher
BY:.................................................
Helen S. Fletcher
Secretary/Treasurer
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