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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended July 31, 1998
-------------------------------------------
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number: 0-13011
- --------------------------------
TNR TECHNICAL, INC.
--------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 11-2565202
-------- ----------
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
301 Central Park Drive
Sanford, Florida 32771
- ---------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (407) 321-3011
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 Par Value
- --------------------------------------------------------------------------------
(Title of Class)
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 ___.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in part III of this
Form 10-K or any amendment to this Form 10-K [x].
As of September 30, 1998, the number of shares held by non-affiliates
was approximately 155,000 shares. Due to the limited market for the Company's
Common Stock, no value has been attributed to the shares held by non-affiliates.
The number of shares outstanding of the issuer's Common Stock, as of
September 30, 1998 was 261,978.
PART I
Item 1. Business
General
TNR Technical, Inc. (the "Company") was incorporated on October 4, 1979
under the laws of the State of New York. The Company designs, assembles and
markets primary and secondary batteries to a variety of industrial markets. The
Company is an authorized distributor for several major battery manufacturers,
which products are distributed nationally by Company. The Company's business is
conducted principally at its two facilities in Sanford, Florida and Irvine,
California.
The Company is an authorized distributor of nickel-cadmium, Ni-MH,
alkaline, lithium and sealed lead-acid batteries manufactured by Saft America,
Powersonic Battery, Varta Battery, Yuasa, Duracell, Renata, GP Battery, Eveready
Battery, and Sanyo Energy. As an authorized distributor, the Company purchases
cells, assembles them into battery packs and maintains an inventory for resale.
The Company sells its battery cells and/or battery packs to the industrial users
and wholesalers without geographical limitation and on a non-exclusive basis.
The Company also designs and assembles battery packs to customers'
specifications. The Company's batteries supply portable power for tools,
instruments, medical equipment, communications equipment, photography, radios
and remote control airplanes, video recorders, lighting and toys. The Company's
batteries supply standby power for electronic equipment, computer memories,
emergency lighting, fire and burglar alarms, electronic cash registers, logic
systems, medical instruments and communications systems.
Sales under industrial and distribution programs accounted for
substantially all of the Company's total revenues during the Company's past
three fiscal years and no one customer accounted for 10% or more of the
Company's total revenues during these years. At July 31, 1998 and 1997, the
Company had no significant backlog.
Competition
There are numerous companies producing and marketing batteries which
compete with those sold by the Company, including larger companies, battery
manufacturers and companies with a wider range of products and greater financial
and technical resources than the Company. It should be noted that the Company's
products and proposed products are technological in nature and that modern
technology often progresses rapidly. Accordingly, the Company's present and
proposed products are subject to the risk of obsolescence because of
technological innovation by competitors.
Employees
At September 30, 1998, the Company had twenty-three employees which
include eight salespersons (including two executive officers), four clerical
employees, three warehouse and shipping personnel and eight factory workers.
Item 2. Properties
The Company's principal executive office, sales, distribution and
assembly facility is located at 301 Central Park Drive, Sanford, Florida 32771.
These facilities, which consist of approximately 8,000 square feet of space, are
leased from RKW Holdings Ltd., a Florida Limited Partnership, controlled by
Wayne Thaw, an executive officer and director of the Company. The Florida lease
provides for a term of ten years with a current monthly rent of $6,646
(including taxes and insurance) with annual increases of five percent over the
preceding year's base rent. The Company's current base monthly rent is $5,879.
The Company is also responsible for the payment of all sales, use and other
taxes related to the leased facilities. The Company also leases a sales,
distribution and assembly facility at 17779 Main Street, Irvine, California
92614. These facilities consist of 1,620 square feet of space. The California
lease expires in June 1999. The Company pays a base rent of approximately $1,328
per month. The Company owns production equipment, primarily welding, soldering,
testing, pneumatic and material handling equipment, and inspection equipment
which has been sufficient for its needs to date.
Item 3. Legal Proceedings
There are no material legal proceedings to which the Company is a
party.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
3
PART II
Item 5. Market for Registrant's Securities and Related Stockholder Matters.
(a) Principal Market and Stock Prices.
The Company's Common Stock may be quoted in the over-the-counter
market. The closing high and low bid prices for fiscal 1997 and the high and low
sales prices for fiscal 1998 of the Common Stock are shown below for the
Company's last two fiscal years ended July 31, 1998.
High Low
---- ---
Fiscal 1998
First Quarter $4.00 $3.38
Second Quarter $3.50 $2.88
Third Quarter $3.88 $2.88
Fourth Quarter $6.00 $3.75
Fiscal 1997
First Quarter $3.44 $3.13
Second Quarter $3.44 $3.00
Third Quarter $3.38 $3.00
Fourth Quarter $3.38 $3.38
The foregoing quotations represent approximately inter-dealers prices,
without retail markup, markdown or commission and do not represent actual
transactions. Such quotations should not be viewed as necessarily indicative of
the price that could have been obtained on that date for a substantial number of
securities due to the limited market and trading volume for the Company's
securities.
The approximate number of holders of record of the Company's Common
Stock, as of September 30, 1998 was 1,475 as supplied by the Company's transfer
agent, American Stock Transfer Company, 40 Wall Street, New York, NY 10005.
No cash dividends have been paid by the Company on its Common Stock and
no such payment is anticipated in the foreseeable future.
4
Item 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from
the Company's financial statements which have been examined by
independent certified public accountants. Such financial
statements should be read in conjunction with the following
financial data.
Statement of Operations Summary:
Year Ended Year Ended Year Ended Year Ended Year Ended
July 31, 1998 July 31, 1997 July 31, 1996 July 31, 1995 July 31, 1994
------------- ------------- ------------- ------------- -------------
Net sales $5,719,806 $4,239,423 $3,792,537 $3,710,805 $3,585,872
Net income 295,012 88,701 135,398 437,982(1) 148,238
Net income per
share 1.13 .34 .52 1.67 .56
Cash dividends -0- -0- -0- -0- -0-
Balance Sheet Data:
July 31, 1998 July 31, 1997 July 31, 1996 July 31, 1995 July 31, 1994
------------- ------------- ------------- ------------- -------------
Working capital $2,021,076 $1,677,501 $1,569,635 $1,456,548 $1,272,929
Total Assets 2,488,793 2,265,123 1,997,399 2,022,611 1,532,215
Long-term debt
(including capital
leases) 17,939 -0- -0- -0- -0-
Total Shareholders'
equity 2,271,643 1,976,751 1,889,814 1,754,416 1,316,434
(1) Includes a credit for income taxes of $239,000.
5
Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
Working capital amounted to $2,021,076 at July 31, 1998 as compared to
$1,677,501 at July 31, 1997. Cash and short-term investments amounted to
$764,864 at July 31, 1998 as compared to $556,468 at July 31, 1997. As more
fully described in the "Statements of Cash Flows" included in the Company's
financial statements elsewhere herein, net cash provided by (used in) operating
activities for the fiscal years ended July 31, 1998, July 31, 1997 and July 31,
1996 were $152,675, $(191,398) and $242,858 respectively.
During the last three years, the Company's net income contributed to
cash flows from operating activities. In 1998, net cash was provided from
operating activities partially offset by changes in operating assets and
liabilities including, without limitation, net purchases of short-term
investments and decrease in accounts payable. In 1997 net cash was used in
operating activities primarily as a result of substantial increases in accounts
receivable and inventories partially offset by the Company's net income and
increases in accounts payable. The substantial increase in inventory is
primarily due to low inventory levels at July 31, 1996 in anticipation of the
Company's move to its new facilities in Sanford, Florida in the summer of 1996.
In 1998, net cash was used in investing activities to purchase property and
equipment. During 1997, net cash was provided by investing activities as a
result of reduction in short term investments partially offset by purchase of
property and equipment.
In 1996, cash flow from operating activities was increased
substantially by decreases in inventories partially offset by increases in
accounts receivable. The substantial decrease in inventory is primarily due to
the Company's move to its new facilities as described above. With respect to
accounts payable, the balance of accounts payable was decreased approximately
$150,000 during the year ended July 31, 1996, as a result of the availability of
cash which was primarily caused by substantially decreased levels of inventory
purchases for the reasons discussed above. During 1996, net cash was provided by
investing activities as a result of reduction in short term investments
partially offset by purchase of property and equipment.
During the past three years, the Company's liquidity needs have been
satisfied from internal sources including cash from operations and amounts
available from the Company's working capital. During fiscal 1999, Management
expects this trend to continue. There are no material commitments for capital
expenditures or any long-term credit arrangements as of July 31, 1998.
6
Results of Operations
Sales for 1998 increased by $1,480,383 or approximately 35% as compared
to fiscal 1997. Sales for 1997 increased by $446,886 or approximately 12% as
compared to fiscal 1996. The sales increases were due to increased demand for
the Company's products from the Company's existing client base and from new
customers including customers derived from the Company's expansion of its
operations into California. During the past three years, no customer accounted
for more than 10% of revenues. The Company's gross margin fluctuated slightly
over the past three years primarily due to changes in product mix and a
concerted effort by management to increase overall profit margins.
Operating (selling, general and administrative) expenses increased
during the past three years substantially due to increases in rent, insurance,
administrative salaries and depreciation. Operating expenses when expressed as a
percentage of net sales was 19.5%, 23.0%, and 22.7%, for fiscal 1998, fiscal
1997 and fiscal 1996, respectively.
During the past three years, the Company did not charge its operations
with any research and development costs.
Net income for fiscal 1998 was $295,012 as compared to $88,701 for
fiscal 1997 as compared to $135,398, for fiscal 1996. Net income per share for
fiscal 1998, fiscal 1997 and 1996 were $1.13, $.34 and $.52, respectively.
Management of TNR Technical, Inc. has received a number of comments
from its odd lot stockholders regarding the costs associated with any sale of
their odd lots. Further, management would like to reduce TNR's expense of
maintaining mailings to odd lot holders. Accordingly, TNR will from time-to-time
privately purchase from odd lot holders of its common stock, such odd lots (i.e.
99 shares or less) from its stockholders of record on December 15, 1995 so long
as such purchases would not have the effect of reducing TNR's record holders to
500 or less. The purchase price to be paid will be based upon the closing asked
price on the NASD electronic bulletin board of TNR's Common Stock for the
preceding trading day. Stockholders will not be permitted to breakup their
stockholdings into odd lots and stockholders or their legal representatives must
affirm to TNR that the odd lot shares submitted for payment represent the
stockholder's entire holdings and that such holdings do not exceed 99 shares.
(This offer shall be open to all odd lot beneficial holders even those held in
street or nominee name so long as the proper representations can be obtained
satisfactory to TNR that the shares are odd lot shares, were owned by the
beneficial stockholder as of December 15, 1995 and represent such stockholder's
entire holdings of TNR). This offer will not be valid in those states or
jurisdictions where such offer or sale would be unlawful.
7
Year 2000 Issue
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
year 2000. The Company has purchased new computers which are year 2000 compliant
and is currently working to correct the problem with certain other computers.
Such costs are estimated to amount to approximately $20,000. The Company's
operations may be impacted by the year 2000 issue.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8, and an index thereto, appears at
pages F-1 through F-12 (inclusive) of this Report, which pages follow Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
8
TNR TECHNICAL, INC.
Index to Financial Statements
Independent Auditors' Report F-1
Financial Statements:
Balance Sheets -- July 31, 1998 and 1997 F-2
Statements of Operations -- Three years ended July 31, 1998 F-4
Statements of Shareholders' Equity -- Three years ended July 31, 1998 F-5
Statements of Cash Flows -- Three years ended July 31, 1998 F-6
Notes to Financial Statements F-8
Independent Auditors' Report
The Shareholders and Board of Directors
TNR Technical, Inc.:
We have audited the accompanying balance sheets of TNR Technical, Inc. as of
July 31, 1998 and 1997, and the related statements of operations, shareholders'
equity and cash flows for the three years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of TNR Technical, Inc. as of July
31, 1998 and 1997 and the results of its operations and its cash flows for the
three years then ended in conformity with generally accepted accounting
principles.
/s/ Parks, Tschopp, Whitcomb and Orr, P.A.
August 27, 1998
Maitland, Florida
F-1
TNR TECHNICAL, INC.
Balance Sheets
July 31, 1998 and 1997
Assets
1998 1997
---------- ----------
Current assets:
Cash and cash equivalents $ 597,683 528,436
Short-term investments (note 2) 167,181 28,032
Accounts receivable - trade, less allowance for doubtful
accounts of $19,300 in 1998 and $14,860 in 1997 599,504 574,939
Income taxes receivable -- 1,360
Inventories (note 3) 814,605 782,389
Prepaid expenses and other current assets 18,614 33,717
Deferred income taxes (note 7) 23,000 17,000
---------- ----------
Total current assets 2,220,587 1,965,873
Deferred income taxes (note 7) 69,000 162,000
Property and equipment, at cost, net of accumulated
depreciation and amortization (notes 4 and 5) 185,361 122,856
Other assets:
Deposits 13,845 14,394
---------- ----------
$2,488,793 2,265,123
========== ==========
See accompanying notes to financial statements. (Continued)
F-2
TNR TECHNICAL, INC.
Balance Sheets , Continued
July 31, 1998 and 1997
Liabilities and Shareholders' Equity
1998 1997
----------- ---------
Current liabilities:
Accounts payable $ 88,964 196,114
Accrued expenses 75,220 92,258
Income taxes payable 23,989 --
Current installments of note payable (note 5) 11,338 --
----------- ---------
Total current liabilities 199,511 288,372
Note payable, excluding current installments (note 5) 17,639 --
----------- ---------
Total liabilities 217,150 288,372
----------- ---------
Shareholders' equity:
Common stock - $.02 par value, authorized 500,000
shares; issued and outstanding 301,581 shares (note 6) 6,032 6,032
Additional paid in capital 2,640,001 2,640,001
Accumulated deficit (178,236) (473,248)
----------- ---------
2,467,797 2,172,785
Less cost of treasury stock 39,630 and 39,600
shares in 1998 and 1997, respectively 196,154 196,034
----------- ---------
Total shareholders' equity 2,271,643 1,976,751
----------- ---------
Commitment (note 8)
$ 2,488,793 2,265,123
=========== =========
See accompanying notes to financial statements.
F-3
TNR TECHNICAL, INC.
Statements of Operations
Years ended July 31, 1998, 1997 and 1996
1998 1997 1996
---------- --------- ---------
Revenues:
Net sales (note 9) $5,719,806 4,239,423 3,792,537
---------- --------- ---------
Costs and expenses:
Cost of goods sold 4,213,673 3,170,948 2,779,595
Selling, general and administrative (note 10) 1,114,194 975,757 859,047
---------- --------- ---------
5,327,867 4,146,705 3,638,642
---------- --------- ---------
Operating income 391,939 92,718 153,895
Non-operating revenue (expense):
Interest income 22,763 35,110 30,538
---------- --------- ---------
Income before income taxes 414,702 127,828 184,433
Income tax expense (note 7) 119,690 39,127 49,035
---------- --------- ---------
Net income $ 295,012 88,701 135,398
========== ========= =========
Net income per share $ 1.13 .34 .52
========== ========= =========
Weighted average number of shares 261,973 262,203 262,422
========== ========= =========
See accompanying notes to financial statements.
F-4
TNR TECHNICAL, INC.
Statements of Shareholders' Equity
Years ended July 31, 1998, 1997 and 1996
Additional
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
------ ------ ------- ------- -----
Balances, July 31, 1995 301,581 $ 6,032 2,640,001 (697,347) (194,270)
Net income - - - 135,398 -
------- ---------- --------- -------- --------
Balances, July 31, 1996 301,581 6,032 2,640,001 (561,949) (194,270)
Net income 88,701
Purchase of Company
stock - - - - (1,764)
------- ---------- --------- -------- --------
Balances, July 31, 1997 301,581 6,032 2,640,001 (473,248) (196,034)
Net income - - - 295,012 -
Purchase of Company
stock - - - - (120)
------- ---------- --------- -------- --------
Balances, July 31, 1998 301,581 $ 6,032 2,640,001 (178,236) (196,154)
======= ========== ========= ======== ========
See accompanying notes to financial statements.
F-5
TNR TECHNICAL, INC.
Statements of Cash Flows
Years ended July 31, 1998, 1997 and 1996
1998 1997 1996
---------- ---------- ----------
Cash flows from operating activities:
Net income 295,012 88,701 135,398
Adjustments to reconcile net income to net cash
provided by operations:
Deferred income taxes 87,000 31,000 40,000
Depreciation and amortization 49,780 36,875 23,530
Unrealized gain on short term investments (860) (3,037) --
Provision for doubtful accounts 8,400 8,400 24,820
Changes in operating assets and liabilities:
Purchases of short term investments (251,667) (24,995) --
Sales of short term investments 113,378 -- --
Accounts receivable (32,965) (141,158) (86,699)
Inventories (32,216) (341,803) 274,852
Prepaid expenses and other assets 15,103 (28,519) 644
Accounts payable and accrued expenses (124,188) 180,787 (155,110)
Deposits 549 (1,011) (7,392)
Income taxes receivable 25,349 325 (7,185)
---------- ---------- ----------
Net cash provided by (used in)
operating activities 152,675 (191,398) 242,858
---------- ---------- ----------
Cash flows from investing activities:
Purchases of short-term investments -- (1,010,853) (1,047,304)
Maturities of short-term investments -- 1,356,066 1,206,917
Purchase of property and equipment (112,285) (49,935) (76,449)
---------- ---------- ----------
Net cash provided by (used in)
investing activities (112,285) 295,278 83,164
---------- ---------- ----------
(Continued)
F-6
TNR TECHNICAL, INC.
Statements of Cash Flows, Continued
Years ended July 31, 1998, 1997 and 1996
1998 1997 1996
---------- ---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (120) (1,764) --
Proceeds from issusance of note payable 35,198 -- --
Principal payments on note payable (6,221) -- --
--------- ------- -------
Net cash provided by (used in)
financing activities 28,857 (1,764) --
--------- ------- -------
Increase in cash and cash equivalents 69,247 102,116 326,022
Cash and cash equivalents - beginning of year 528,436 426,320 100,298
--------- ------- -------
Cash and cash equivalents - end of year $ 597,683 528,436 426,320
========= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,914 -- --
========= ======= =======
Cash paid during the year for income taxes $ 7,341 7,803 10,860
========= ======= =======
See accompanying notes to financial statements.
F-7
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(1) Summary of Significant Policies
(a) Nature of Operations
TNR Technical, Inc. (TNR or the Company) designs, assembles and
markets batteries and multi-cell battery packs to a wide variety of
industrial markets. The Company is a distributor for a number of major
U.S. battery manufacturers and markets its products nationally.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
(c) Property and Equipment
Property and equipment are recorded at cost. The Company provides
depreciation for machinery and equipment using the straight-line
method over the estimated useful lives of the respective assets, which
range from five to ten years. Amortization of leasehold improvements
is computed using the straight-line method over the lesser of the
lease term or estimated useful lives of the improvements.
(d) Research and Development Costs
Research and development costs are charged against income in the year
incurred.
(e) Revenue Recognition
The Company recognizes revenue upon shipment of its product from its
warehouse facilities.
(f) Advertising Costs
Advertising expenditures relating to product distribution and
marketing efforts consisting primarily of product presentation
material, catalog preparation, printing and postage expenses are
amortized over the period during which the benefits are expected.
(Continued)
F-8
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(1), Summary of Significant Accounting Policies (Continued)
(g) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(h) Financial Instruments Fair Value, Concentration of Business and Credit
Risks
The carrying amount reported in the balance sheet for cash, short-term
investments, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the immediate or
short-term maturity of these financial instruments. The carrying
amount reported in the accompanying balance sheet for note payable
approximates fair value because the actual interest rate does not
significantly differ from current rates offered for instruments with
similar characteristics. Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist
principally of trade accounts receivable which amount to approximately
$600,000 and money market funds amounting to approximately $466,000.
The Company performs periodic credit evaluations of its trade
customers and generally does not require collateral. The Company
maintains its cash balances at certain financial institutions in which
balances are insured by the Federal Deposit Insurance Corporation up
to $100,000. The Company's uninsured balances amount to approximately
$400,000 at July 31, 1998 and 1997.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(Continued)
F-9
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(1) Summary of Significant Accounting Policies (Continued)
(j) Cash Flows
For purposes of cash flows, the Company considers all highly liquid
investments with an initial maturity of three months or less to be
cash equivalents.
(k) Earnings Per Common Share
Earnings per common share have been computed based upon the weighted
average number of common shares outstanding during the years
presented. Common stock equivalents resulting from the issuance of the
stock options have not been included in the per share calculations
because such inclusion would not have a material effect on earnings
per common share.
(l) Reclassifications
Certain amounts from 1997 and 1996 have been reclassified to conform
with the 1998 presentation.
(2) Short-Term Investments
Short-term investments are classified as trading securities and are
presented below:
1998 1997
---- ----
Common Stock $ 57,250 -
Equity (Unit Investment) Trusts 109,901 28,032
------------ ------
$ 167,181 28,032
============ ======
The Company's trading securities are carried at fair value, which was
not materially different than cost at July 31, 1998 and 1997. Net
realized and unrealized gains and losses on trading securities are
included in net income.
F-10
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(3) Inventories
Inventories consist of the following:
1998 1997
--------- -------
Finished goods $ 790,982 763,613
Purchased parts and material 23,623 18,776
--------- -------
$ 814,605 782,389
========= =======
(4) Property and Equipment
Property and equipment consists of the following:
1998 1997
--------- -------
Machinery and equipment $ 266,542 202,774
Leasehold improvements 27,457 26,742
--------- -------
293,999 229,516
Less accumulated depreciation and amortization 108,638 106,660
--------- -------
$ 185,361 122,856
========= =======
F-11
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(5) Note Payable
Note payable consists of an obligation payable in monthly installments
of $1,099 including interest at 7.75% expiring December 2000. The note
is secured by vehicles. Total annual principal payments on this
obligation as of July 31,1998 are as follows:
Year Ending July 31,
--------------------
1999 $ 11,338
2000 12,249
2001 5,390
---------
$ 28,977
=========
(6) Stock Option Plan
In November 1992, the Board of Directors approved an Incentive and
Non-Qualified Stock Option Plan, which was ratified by the
stockholders in January 1993. The plan covers 60,000 shares of Common
Stock, subject to adjustment of shares under the anti-dilution
provisions of the Plan. The plan authorizes the issuance of the
options covered thereby as either "Incentive Stock Options" within the
meaning of the Internal Revenue Code of 1986, as amended, or as
"Non-Statutory Stock Options." No options may be granted after
November 16, 2002.
Under the Plan, the aggregate fair market value (determined at the
time the option is granted) of the optioned stock for which Incentive
Stock Options are exercisable for the first time by any employee
during any calendar year shall not exceed $100,000.
In December 1996, the Company granted options to purchase 30,000
shares of stock at an exercise price of $3.25 per share to three of
its officers and directors. The options are exercisable for a ten-year
period expiring in December 2006.
F-12
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(7) Income Taxes
The income tax provision (benefit) for the years ended December 31,
1998, 1997 and 1996 consists of the following:
1998 1997 1996
------------- ---------- ----------
Current:
Federal $ - - -
State 20,000 7,000 9,035
------------- ---------- ----------
20,000 7,000 9,035
------------- ---------- ----------
Deferred:
Federal 98,500 31,000 40,000
State 1,190 1,127 -
------------- ---------- ----------
99,690 32,127 40,000
------------- ---------- ----------
Total $ 119,690 $ 39,127 49,035
============= ========== ==========
Income tax expense (benefit) attributable to income before income tax
differed from the amount computed by applying the U.S. Federal income
tax rate of 34% to income from operations before income taxes as a
result of the following:
1998 1997 1996
------------- ---------- ----------
Computed "expected" tax expense $ 140,000 43,500 62,700
Increase (reduction) in income tax expense resulting from:
State income taxes, net of federal income tax benefit 14,000 4,500 6,000
Adjustment to deferred tax assets to reflect
current effective tax rates (34,310) (8,873) (19,665)
------------- ---------- ----------
$ 119,690 39,127 49,035
============= ========== ==========
(Continued)
F-13
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(7) Income Taxes (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at July 31, 1998 and 1997 are
presented below:
1998 1997
------------ ----------
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes $ 18,000 13,000
Accounts receivable, due to allowance for uncollectible
accounts 5,000 4,000
Net operating losses 69,000 162,000
------------ ----------
92,000 179,000
Less valuation allowance - -
------------ ----------
Total $ 92,000 179,000
============ ==========
Deferred taxes are presented in the accompanying balance sheets as:
1998 1997
------------ ----------
Current deferred tax assets $ 23,000 17,000
Noncurrent deferred tax assets 69,000 162,000
------------ ----------
$ 92,000 179,000
============ ==========
(Continued)
F-14
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(7) Income Taxes (Continued)
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. Management considers the
projected future taxable income and tax planning strategies in making
this assessment. The Company believes that future earnings in addition
to the amount of taxable differences which will reverse in future
periods, will be sufficient to offset recorded deferred tax assets
and, accordingly, a valuation allowance is not considered necessary at
July 31, 1998 and 1997.
At July 31, 1998, the Company has net operating loss carryforwards of
approximately $230,000, which will expire in 2004.
(8) Lease Commitment
Commencing in June 1996, the Company entered into an agreement to
lease its Florida office, warehouse and distribution facilities from a
partnership controlled by an executive officer, shareholder and
director of TNR. The lease agreement provides payment of real estate
taxes and insurance and extends for a term of ten years. Future
minimum rental payments associated with this lease are indicated
below.
Year Ending July 31,
--------------------
1999 66,480
2000 69,804
2001 73,293
2002 76,598
2003 80,806
Thereafter 251,603
------------
$ 618,584
============
(Continued)
F-15
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 1998 and 1997
(8) Lease Commitment (Continued)
Total lease and rental expense amounted to $93,732, $83,928 and
$74,707 in 1998, 1997 and 1996, respectively. In 1998, 1997 and 1996,
lease expense associated with related parties amounted approximately
to $78,000, and $64,000, and $9,966, respectively.
(9) Sales to Major Customers
During the years ended July 31, 1998, 1997, and 1996 no customer
accounted for more than 10% of total revenues.
(10) Supplementary Information
1998 1997 1996
---- ---- ----
Advertising costs $ 64,654 53,103 37,244
Provision for doubtful accounts $ 8,400 8,400 24,820
The provision for doubtful accounts and advertising costs are included
in selling, general and administrative costs in the accompanying
statements of operations.
F-16
PART III
Item 10. Directors and Executive Officers of the Registrant.
The names, ages and principal occupations of the Company's
present directors, and the date on which their term of office commenced and
expires, are listed below.
Term First
of Became Principal
Name Age Office Director Occupation
- ---- --- ------ -------- ----------
Jerrold Lazarus 66 (1) 1987 Chairman of the
Board and Chief
Executive Officer
Norman L. Thaw 65 (1) 1979 President of
Stride Rite
Stables, Inc.,
Private Investor
Wayne Thaw 41 (1) 1983 President and
Chief Operating
Officer
Kathie Thaw 43 (1) 1996 Vice-President
- ------------
(1) Directors are elected at the annual meeting of stockholders and hold office
to the following annual meeting.
Jerrold Lazarus is Chairman of the Board, Chief Executive Officer,
Chief Financial Officer, Secretary and Treasurer of the Company. Wayne Thaw is
President and Chief Operating Officer of the Company. Kathie Thaw is Vice
President of the Company. The terms of all officers expire at the annual meeting
of directors following the annual stockholders meeting. Officers may be removed,
either with or without cause, by the Board of Directors, and a successor elected
by a majority vote of the Board of Directors, at any time.
Jerrold Lazarus has been a full time employee of the Company since
October 1987 and has served as an Executive Officer of the Company since 1987.
Norman L. Thaw is one of the founders of the Company and served as its
Chairman and Chief Executive Officer between March 1987 and April 1988. For more
than the past five years, Mr. Thaw's principal occupation is the President of
Stride Rite Stables, Inc., a
9
thoroughbred racing and breeding farm in South Florida. Norman L. Thaw is the
father of Wayne Thaw.
Wayne Thaw has been a full time employee of the Company since 1980 and
has served as an Executive Officer of the Company since 1981. Wayne Thaw is the
son of Norman L. Thaw.
Kathie Thaw has been Vice-President and a director of the Company since
December 1996. Kathie Thaw has been associated with the Company for the past
five years as a consultant to the President.
10
Item 11. Compensation of Directors and Executive Officers.
The following table provides a summary compensation table with respect
to the compensation of the Company's two executive officers.
SUMMARY COMPENSATION TABLE
===================================================================================================================================
| Long Term Compensation |
|-----------------------------------------|
Annual Compensation | Awards | Payouts |
- ---------------------------------------------------------------------------|-----------------------------|-----------|
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (I)
| | | | Other | | | | All
Name | | | | Annual | Restricted | | | Other
and | | | | Compen- | Stock | Number | LTIP | Compen-
Principal | | | | sation | Award(s) | of | Payouts | sation
Position | Year | Salary ($) | Bonus ($) | ($)(1) | ($) | Options | ($) | ($)
- -----------------|---------|-----------------|----------------|------------|---------------|-------------|-----------|------------
Jerrold Lazarus | 1998 | 75,690 | 7,200 | 0 | 0 | 0 | 0 | 0
CEO, | -------|-----------------|----------------|------------|---------------|-------------|-----------|------------
| 1997 | 67,901 | 1,000 | 0 | 0 | 10,000 | 0 | 0
| -------|-----------------|----------------|------------|---------------|-------------|-----------|------------
Chairman of the | 1996 | 79,627 | 7,500 | 0 | 0 | 0 | 0 | 0
Board | | | | | | | |
- -----------------|---------|-----------------|----------------|------------|---------------|-------------|-----------|------------
Wayne Thaw, | 1998 | 104,500 | 9,503 | 0 | 0 | 0 | 0 | 0
President | -------|-----------------|----------------|------------|---------------|-------------|-----------|------------
| 1997 | 105,751 | 1,250 | 0 | 0 | 10,000 | 0 | 0
| -------|-----------------|----------------|------------|---------------|-------------|-----------|------------
| 1996 | 106,308 | 7,500 | 0 | 0 | 0 | 0 | 0
==================================================================================================================================
- ----------
(1) Does not include the value of a leased or company owned automobile
provided to each officer for business purposes.
11
During the past three fiscal years, the Company has not granted
restricted stock awards or stock appreciation rights. In addition, the Company
does not have a defined benefit or actuarial plan.
The Company has no employment contracts with its executive officers.
Jerrold Lazarus and Wayne Thaw are currently receiving a monthly salary of
$6,283 and $8,675, respectively. Directors do not presently receive compensation
for serving on the Board or on its committees. Depending on the number of
meetings and the time required for the Company's operations, the Company may
decide to compensate its directors in the future.
The Company provides each of its two above named executive officers
with an automobile. The Company has no annuity, pension, or retirement benefits
for its employees. The Company has not afforded any of its officers or directors
any other personal benefits, the value of which exceeds 10% of his cash
compensation, which is not directly related to job performance or provided
generally to all salaried employees.
Stock Option Plan
The 1992 Incentive and Non-Qualified Stock Option Plan, (the "1992
Plan"), was approved by the Board of Directors on November 17, 1992 and ratified
by stockholders on January 29, 1993. The 1992 Plan covers 60,000 shares of
Common Stock, subject to adjustment of shares under the anti-dilution provisions
of the 1992 Plan. The 1992 Plan authorizes the issuance of the options covered
thereby as either "Incentive Stock Options" within the meaning of the Internal
Revenue Code of 1986, as amended, or as "Non-Statutory Stock Options." Persons
eligible to receive options under the 1992 Plan includes employees, directors,
officers, consultants or advisors, provided that bona fide services shall be
rendered by consultants or advisors and such services must not be in connection
with the offer or sale of securities in a capital raising transaction; however,
only employees (who may also be officers and/or directors) are eligible to
receive an Incentive Stock Option. The 1992 Plan also provides that no options
may be granted after November 16, 2002. In December 1996, the Company has
granted ten year non-statutory options to purchase 30,000 shares at an exercise
price of $3.25 per share to Wayne Thaw (10,000 shares), Jerrold Lazarus (10,000
shares) and Kathie Thaw (10,000 shares).
The 1992 Plan is administered by the Company's Board of Directors or a
stock option committee consisting of three members of the Board which has the
authority to determine the persons to whom options shall be granted, whether any
particular option shall be an Incentive Option or a Non-Statutory Option, the
number of shares to be covered by each option, the time or times at which
options will be granted or may be exercised and the other terms and provisions
of the Options.
Under the 1992 Plan, the aggregate fair market value (determined at the
time the option is granted) of the optioned stock for which Incentive Stock
Options are exercisable for the first time by any employee during any calendar
year (under all such Plans of the individual's Employer Corporation and its
parent and subsidiary corporation) shall not exceed $100,000.
12
The 1992 Plan also provides that the Board of directors shall determine
the exercise price of the Common Stock under each option. The 1992 Plan also
provides that: (I) the exercise price of Incentive Stock Options granted
thereunder shall not be less than 100% (110% if the optionee owns 10% or more of
the outstanding voting securities of the Company) of the fair market value of
such shares on the date of grant, as determined by the Board or Committee, and
(ii) no option by its terms may be exercised more than ten years (five years in
the case of an Incentive Stock Option, where the optionee owns 10% or more of
the outstanding voting securities of the Company) after the date of grant. Any
options which are canceled or not exercised within the option period become
available for future grants. All Stock Options are non-transferable except by
will or the laws of descent and distribution.
13
OPTION GRANTS TABLE
The information provided in the table below provides information with
respect to individual grants of stock options during fiscal 1998 of each of the
executive officers named in the summary compensation table above. The Company
did not grant any stock appreciation rights during 1998.
Option Grants in Last Fiscal Year
===================================================================================================================================
| Potential
| Realizable Value at
| Assumed Annual
Individual Grants | Rates of Stock Price
| Appreciation
| for Option Term (2)
- ------------------------------------------------------------------------------------------------|----------------------------------
(a) | (b) | (c) | (d) | (e) | (f) | (g)
| | % of | | | |
| | Total | | | |
| | Options/ | | | |
| | Granted to | | | |
| Options | Employees | Exercise | Expira- | |
| Granted | in Fiscal | Price | tion | |
Name | (#) | Year (1) | ($/Sh) | Date | 5% ($) | 10% ($)
| | | | | |
- -------------------------|-------------------|--------------------|-----------------|-----------|---------------|------------------
Wayne Thaw | -0- | N/A | N/A | N/A | N/A | N/A
- -------------------------|-------------------|--------------------|-----------------|-----------|---------------|------------------
Jerrold Lazarus | -0- | N/A | N/A | N/A | N/A | N/A
- -----------------------------------------------------------------------------------------------------------------------------------
N/A - Not Applicable.
(1) The percentage of total options granted to employees in fiscal year is
based upon options granted to officers, directors and employees.
(2) The potential realizable value of each grant of options assumes that the
market price of the Company's Common Stock appreciates in value from the
date of grant to the end of the option term at annualized rates of 5% and
10%, respectively, and after subtracting the exercise price from the
potential realizable value.
14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The information provided in the table below provides information with
respect to each exercise of stock option during fiscal 1998 by each of the
executive officers named in the summary compensation table and the fiscal year
end value of unexercised options.
===============================================================================
(a) | (b) | (c) | (d) | (e)
| | | | Value of
| | | Number of | Unexercised
| Shares | | Unexercised | In-the-Money
| Acquired | | Options at | Options
| on | Value | FY-End (#) | at Fy-End($)
| Exercise | Realized | Exercisable/ | Exercisable/
Name | (#) | ($)(1) | Unexercisable| Unexercisable(1)
- ------------------|-------------|------------|--------------|------------------
Wayne Thaw | -0- | -0- | 10,000/0 | 20,000/0
- ------------------|-------------|------------|--------------|------------------
Jerrold Lazarus | -0- | -0- | 10,000/0 | 20,000/0
- -------------------------------------------------------------------------------
- ------------
(1) The aggregate dollar values in column (c) and (e) are calculated by
determining the difference between the fair market value of the Common
Stock underlying the options and the exercise price of the options at
exercise or fiscal year end, respectively. In calculating the dollar
value realized upon exercise, the value of any payment of the exercise
price is not included. Fiscal year end value based upon a market price
of $5.25 per share.
Report of the Board of Directors on Executive Compensation
During fiscal 1998, the entire Board which consists of Norman Thaw,
Jerrold Lazarus, Wayne Thaw (and Kathie Thaw held primary responsibility for
determining executive compensation levels. The goals of the Company's
compensation program is to align compensation with business objectives and
performance and to enable the Company to attract, retain and reward executive
officers and other key employees who contribute to the long-term success of the
Company. The Company has provided on a prospective basis annual incentive
opportunity to several of its key employees sufficient to provide motivation to
achieve specific operating goals. The foregoing report has been approved by all
members of the board of directors.
Jerrold Lazarus-Chairman
Norman Thaw
Wayne Thaw
Kathie Thaw
15
Compensation Committee Interlocks and Insider Participation
During fiscal 1998, Jerrold Lazarus and Wayne Thaw, executive officers
of the Company, were involved in determining executive officer compensation
levels as members of the Board of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of September 30, 1998, the Company had outstanding 261,978 shares of
Common Stock. The only persons of record who presently hold or are known to own
(or believed by the Company to own) beneficially more than 5% of the outstanding
shares of such class of stock is listed below. The following table also sets
forth certain information as to holdings of the Company's Common Stock of all
officers and directors individually, and all officers and directors as a group.
(The shares shown in the table below for Norman Thaw and his sons, Wayne Thaw
and Mitchell Thaw are not beneficially owned by each other and are listed
separately).
===============================================================================
Name and Amount and
Address of Nature of
Beneficial Beneficial Approximate
Title of Class Owner Ownership (1) Percent
- -------------------------------------------------------------------------------
Common Stock Wayne Thaw 61,592 22.6
(3)(4)(6)
- -------------------------------------------------------------------------------
Common Stock Norman L. Thaw 55,228 21.1
(2)(3)(6)
- -------------------------------------------------------------------------------
Common Stock Jerrold Lazarus (3)(4) 10,691 3.9
- -------------------------------------------------------------------------------
Common Stock Kathie Thaw (3)(4)(6) 10,000 3.7
- -------------------------------------------------------------------------------
Common Stock All Directors and 137,874 47.2
Officers as a group
(four persons)(5)(6)
- -------------------------------------------------------------------------------
Common Stock Mitchel A. Thaw 21,525 8.3
(3)(6)
===============================================================================
16
* Owns less than 1% of the issued and outstanding shares of the Company's
Common Stock.
- --------------------
(1) All shares are directly owned, and the sole investment and voting power is
held, by the persons named.
(2) May be deemed to be a parent and/or founder of the Company under the
Securities Act of 1933, as amended and may be deemed to be a "control
person" of the Company within the meaning of the Securities Exchange Act of
1934.
(3) Address: 301 Central Park Drive, Sanford, Florida 32771.
(4) Includes options to purchase 10,000 shares.
(5) Includes options to purchase 30,000 shares granted to officers and
directors.
(6) Wayne Thaw and Kathie Thaw are married and their individual stock ownership
is shown separately. Both Wayne Thaw and Kathie Thaw may be deemed to also
own the shares owned by the other person. Norman Thaw is the father of
Wayne Thaw and Mitchel A. Thaw.
The Company does not know of any arrangement or pledge of its
securities by persons now considered in control of the Company that might result
in a change of control of the Company.
17
Item 13. Certain Relationships and Related Transactions.
See Item 2 regarding the description of lease between the Company and a
RKW Holding Ltd., a Florida Limited Partnership, controlled by Wayne Thaw.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1)(2) Financial Statements and Financial Statement
Schedules.
A list of the Financial Statements and Financial
Statement Schedules filed as a part of this Report is
set forth in Item 8, and appears at Page F-1 of this
Report, which list is incorporated herein by
reference.
(a)(3) Exhibits
3 Certificate of Incorporation and Amendments
thereto. (1)
3(A) By-Laws. (1)
3(B) February 1992 Certificate of Amendment to
Certificate of Incorporation (2)
10 Lease Agreement dated January 17, 1996 by and
between RKW Holding Ltd. and the Registrant (3)
11 Earnings per share. See Financial Statements
27 Selected Financial Data*
- -------------------
* Filed herewith
(1) Exhibits 3 and 3(A) are incorporated by reference from Registration No.
2-85110 which were filed in a Registration Statement on Form S-18.
(2) Incorporated by reference to Form 10-K for the fiscal year ended July 31,
1992.
(3) Incorporated by reference to Form 10-K for the fiscal year ended July 31,
1996.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed or required to be
filed during the quarter ended July 31, 1998.
18
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TNR TECHNICAL, INC.
By /s/ Jerrold Lazarus
----------------------------------------
Jerrold Lazarus, Chief Executive Officer
Dated: Sanford, Florida
October 5, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures Title Date
- ---------- ----- ----
/s/ Norman L. Thaw Director October 5, 1998
- ------------------------
Norman L. Thaw
/s/ Wayne Thaw President, Chief October 5,1998
- ------------------------ Operating
Wayne Thaw Officer and
Director
/s/ Jerrold Lazarus Chairman of the October 5, 1998
- ------------------------ Board, Chief
Jerrold Lazarus Executive
Officer, Chief
Financial and
Accounting
Officer,
Treasurer,
and Secretary
/s/ Kathie Thaw Vice President October 5, 1998
- ------------------------ and Director
Kathie Thaw
Norman Thaw, Kathie Thaw, Wayne Thaw and Jerrold Lazarus represent all the
members of the Board of Directors.
19