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
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12 Cork Hill Road, Franklin, New Jersey 07416
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(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 September 30, 1997, the Registrant had 5,489,448 shares of Common Stock
outstanding and 158,839 shares of Class A Common Stock outstanding.
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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 - September 30, 1997 3
Consolidated Statement of Operations
and for the six months ended
September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows
for the six months ended
September 30, 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
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1997
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 263,205
Cash collateral account for letters of credit 86,840
Accounts receivable, net of allowance for doubtful
accounts of $1,000 334,769
Inventories 411,374
Deferred tax asset 12,000
Prepaid expenses and other current assets 41,566
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Total current assets 1,149,754
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $4,088,086. 2,232,681
OTHER ASSETS:
Deferred tax asset 124,000
Other 77,472
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Total other assets 201,472
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$3,583,907
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $91,564
Accounts payable and accrued expenses 288,267
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Total current liabilities 379,831
LONG - TERM DEBT:
Long-term obligations, net of current maturities 1,175,820
Reserve for contingency 331,000
Security deposits 74,312
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Total long - term debt 1,581,132
STOCKHOLDERS' EQUITY:
Common stock,$.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 (759,137)
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1,623,184
Less treasury stock, at cost, 780 shares (240)
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Total stockholders' equity 1,622,944
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$3,583,907
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See accompanying notes to consolidated financial statements
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
September 30, September 30,
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1997 1996 1997 1996
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REVENUES:
Product sales $519,436 $675,650 $1,189,092 $1,347,227
Rentals 173,182 135,830 324,478 271,655
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692,618 811,480 1,513,570 1,618,882
COSTS AND EXPENSES:
Cost of product sales 358,821 435,399 765,781 869,095
Cost of rentals 70,585 79,556 166,903 141,386
Selling,general and administrative expenses 310,498 315,759 598,066 650,314
-------- -------- ---------- ----------
739,904 830,714 1,530,750 1,660,795
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INCOME (LOSS) FROM OPERATIONS (47,286) (19,234) (17,180) (41,913)
OTHER INCOME (EXPENSE):
Interest expense (4,213) (5,399) (6,753) (10,913)
Insurance recovery 285,064 351,772
EPA Contingency Reserve (12,500) (25,000)
Other 4,039 5,053 5,869 6,141
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(174) 272,218 (884) 322,000
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NET INCOME $(47,460) $252,984 $ (18,064) $ 280,087
======== ======== ========== ==========
See accompanying notes to consolidated financial statements
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TECHNOLOGY GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended September 30, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(UNAUDITED)
Six Months Ended
September 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (18,064) $ 280,087
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 95,374 152,629
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 10,726 (61,042)
(Increase) decrease in inventories 100,617 (29,043)
(Increase) decrease in prepaid assets and other current assets 68,107 103,595
(Increase) decrease in other assets 11,246 5,889
Increase (decrease) in accounts payable and accrued expenses (218,398) (108,178)
Increase (decrease) in accrual for loss contingency 25,000
Increase (decrease) in security deposits 17,158
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NET CASH PROVIDED BY OPERATING ACTIVITIES 66,766 368,937
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (212,911) (172,540)
Reduction in collateral for letter of credit 78,160
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NET CASH USED IN INVESTING ACTIVITIES (134,751) (172,540)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (83,890) (119,199)
Proceeds from issuance of notes payable 132,589 60,712
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 48,699 (58,487)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,286) 137,910
CASH AND CASH EQUIVALENTS, beginning of period 282,491 116,617
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CASH AND CASH EQUIVALENTS, end of period $ 263,205 $ 254,527
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See accompanying notes to consolidated financial statements
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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 September 30, 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.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the six-month period ended September 30, 1997, Technology
General Corporation and subsidiary had consolidated revenues of $1,513,570
and a net loss of $18,064. 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 six-month period amounted to $550,933 and
$148,360, respectively, for a total of $699,293.
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 six months ended September 30,
1997, decreased $24,811 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 six
months ended September 30, 1997 and 1996 of $489,800 and $581,360,
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 six (6) industrial tenants. Total rental revenue for the
six months ended September 30, 1997 amounted to $232,306, a decrease of
$11,436 compared to the six months ended September 30, 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 six month period ended
September 30, 1997, totaled $23,700 compared to $12,744 for the comparable
1996 period, an increase of $10,956.
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LIQUIDITY:
As at September 30, 1997, current assets amounted to $1,149,754
and current liabilities totaled $379,831, reflecting a working capital of
$769,923 and a current ratio of 3.03 to 1. There was negative cash flow for
the current six month period of $19,286 due mainly to the purchase of
building improvements and equipment in the amount of $212,911.
RESULTS OF OPERATIONS
PRODUCT SALES. Technology General Corporation's manufacturing
segment generated sales of $1,189,092 for the six-month period ended
September 30, 1997.
RENTAL SALES. Total consolidated rental billings for the
six-month period ended September 30, 1997 amounted to $324,478, an increase
of $52,823, over the same period for 1996.
GROSS MARGIN. The consolidated gross profit margin for the six
months ended September 30, 1997, was 38 percent.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. These expenses
as a percent of net sales were approximately 39 percent for the six months
ended September 30, 1997.
INTEREST. Total Interest expense for the six months ended
September 30, 1997 amounted to $53,167, of which $46,414 is reflected under
"Cost of Rentals" and the remainder of $6,753 is shown as a separate line
item within "Other Income (Expense)".
NET INCOME/LOSS. The net loss for the six months ended
September 30, 1997 amounted to $18,064, an decrease of $298,151 over the
comparable six-month period in 1996. The $298,151 difference in earnings
between the six month periods is mainly due to a large insurance recovery
reflected in the September 30, 1996 statement of operations.
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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: December 1, 1997 TECHNOLOGY GENERAL CORPORATION
By: /s/ Charles J. Fletcher
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Charles J. Fletcher
President, Chief Executive Officer,
Chairman of the Board
By: /s/ Helen S. Fletcher
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Helen S. Fletcher
Secretary/Treasurer
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