Back to GetFilings.com
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, 2002
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].
1
As of October 3, 2002, the number of shares held by non-affiliates was
approximately 155,000 shares. The approximate market value (i.e. $8.60 per
share) of the Company's Common Stock on that date held by non-affiliates was
$1,333,000. The number of shares outstanding of the issuer's Common Stock, as of
October 3, 2002 was 270,817.
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 Santa Ana,
California.
The Company is an authorized distributor of nickel-cadmium, Ni-MH,
alkaline, lithium and sealed lead acid batteries manufactured by Saft America,
Power-Sonic Battery, Varta Battery, Enersys, Duracell, Renata, GP Battery,
Eveready Battery, Sanyo Energy, and Universal Battery. As an authorized
distributor, the Company purchases cells, assembles them into battery packs and
maintains inventory for resale. The Company sells its battery cells and/or
battery packs to the original equipment manufacturers 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 have applications in electric mobility, instruments, pay phones,
cordless phones, laptops, surveying equipment, radio control hobby, alarms,
cameras, U.P.S., door locks, medical equipment, and lighting.
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, 2002 and 2001, 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.
2
Employees
At October 1, 2002, the Company leases from a non-affiliated party its
staff which includes 25 persons. Such staff includes nine salespersons
(including two executive officers), three administrative, two warehouse and
shipping clerks and eleven factory workers. For a fee which is paid by the
Company, the leasing company provides the payroll, including, workmen's
compensation, 401(k) plan and health insurance. The Company's agreement with the
leasing company can be terminated on short notice at any time by the Company.
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 $7,146
(including sales taxes) with annual increases of five percent over the preceding
year's base rent. The Company is also responsible for the payment of all
insurance, property, and other taxes related to the leased facilities. Property
taxes estimated at $640 per month, inclusive of sales taxes, are accrued on a
monthly basis.
The Company also leases a sales, distribution and assembly facility at
3400 W. Warner, Suites K, L and M, Santa Ana, CA 92704. These facilities consist
of 6,480 square feet of space. The California lease commenced on July 1, 2000
and expires on June 30, 2003, subject to the right of the Company to renew for
an additional two-year period. The Company currently pays a base rent of $4,766
per month, which is subject to increase for its share of the landlord's
increased operating expenses. The Company owns production equipment consisting
primarily of 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 2002.
3
PART II
Item 5. Market for Registrant's Securities and Related Stockholder Matters.
Principal Market and Stock Prices.
The Company's Common Stock may be quoted in the over-the-counter
market. The high and low sales prices of the Common Stock are shown below for
the Company's last two fiscal years ended July 31, 2002. At July 10, 2002, the
last sales price was $8.50.
High Low
---- ---
Fiscal 2002
- -----------
First Quarter $6.90 $ 6.90
Second Quarter 9.25 6.80
Third Quarter 9.00 7.20
Fourth Quarter 10.25 7.80
Fiscal 2001
- -----------
First Quarter $ 6.25 $ 5.50
Second Quarter 10.25 5.75
Third Quarter 9.00 9.00
Fourth Quarter 9.50 6.90
The closing last sale of the Company's Common Stock on October 3, 2002
was $8.60. 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 October 3, 2002 was 658 as supplied by the Company's transfer
agent, American Stock Transfer Company, 59 Maiden Lane, New York, NY 10038.
No cash dividends have been paid by the Company on its Common Stock and
no such payment is anticipated in the foreseeable future.
4
Recent Sales of Unregistered Securities
During the three years ended July 31, 2002, the Company made the following sales
of unregistered securities:
- ----------------------------------------------------------------------------------------------------------------------
Consideration Received
and Description of
Underwriting or Other If Option, Warrant
Discounts to Market or Convertible
Price or Convertible Exemption from Security, terms of
Date of Title of Number Security, Afforded to Registration exercise or
Sale Security Sold Purchasers Claimed conversion
- ----------------------------------------------------------------------------------------------------------------------
4/26/02 Common Stock 10,000 Options exercised at Section 4(2) Non-Statutory Stock
$3.25 per share; no Options granted to
underwriting Jerrold Lazarus in
compensation paid December 1996.
These options
were fully vested,
exercisable at
$3.25 per share
and would have
expired in
December 2006.
- ----------------------------------------------------------------------------------------------------------------------
4/26/02 Common Stock 2,000 Options exercised at Section 4(2) Non-Statutory Stock
$5.00 per share; no Options granted to
underwriting Jerrold Lazarus in
compensation paid December 1998.
These options
were fully vested,
exercisable at
$5.00 per share
and would have
expired in
December 2008.
- ----------------------------------------------------------------------------------------------------------------------
12/3/01 Common Stock 23,000 Option granted under Section 4(2) Non-Statutory Stock
1992 Stock Option Plan; Options granted to
no cash received Wayne Thaw in
December 2001.
These options
were fully vested,
exercisable at
$6.80 per share
and will expire
on December 3, 2011.
- -----------------------------------------------------------------------------------------------------------------------
5
Equity Compensation Plan
The following summary information relates to our Compensation Plans
described in Item 11 pursuant to which we have granted options to purchase our
Common Stock:
- -----------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- -----------------------------------------------------------------------------------------------------------------------
Plan category Number of securities to Weighted average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options outstanding future issuance under
options (1) equity compensation plan
(excluding securities
reflected in column (a))
- -----------------------------------------------------------------------------------------------------------------------
Equity compensation
Plan approved by
Security Holders 48,000 5.13 30,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------
(1) Based upon 20,000 options exercisable at $3.25 per share, 23,000
options exercisable at $6.80 per share and 5,000 options exercisable at
$5.00 per share.
6
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, 2002 July 31, 2001 July 31, 2000 July 31, 1999 July 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $7,908,632 $8,030,850 $ 8,014,576 $6,126,132 $5,719,806
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 559,448 522,121 440,010 321,192 295,012
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per Share 2.15 2.02 1.69 1.23 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends -0- -0- -0- -0- -0-
====================================================================================================================================
Balance Sheet Data:
====================================================================================================================================
July 31, 2002 July 31, 2001 July 31, 2000 July 31, 1999 July 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $4,009,499 3,363,650 $ 2,890,360 $2,430,337 $2,021,076
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 4,491,653 4,011,867 3,663,315 3,034,415 2,488,793
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt (including
capital leases)
-0- -0- -0- 5,390 17,639
- ------------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' equity 4,140,158 3,535,985 3,018,886 2,586,716 2,271,643
====================================================================================================================================
7
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
Forward Looking Statements
This annual report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risk and uncertainties, and actual results
could be significantly different than those discussed in this annual report on
Form 10-K. Certain statements contained herein are forward-looking statements.
These statements discuss, among other things, expected growth, future revenues
and/or performance. Although we believe the expectations expressed in such
forward-looking statements are based on reasonable assumptions within the bounds
of our knowledge of our business, a number of factors could cause actual results
to differ materially from those expressed in any forward-looking statements,
whether oral or written, made by us or on our behalf. The forward-looking
statements are subject to risks and uncertainties including, without limitation,
the following: (a) changes in levels of competition from current competitors and
potential new competition and (b) costs of acquiring inventory. The foregoing
should not be construed as an exhaustive list of all factors that could cause
actual results to differ materially from those expressed in forward-looking
statements made by us. All forward-looking statements included in this document
are made as of the date hereof, based on information available to the Company on
the date thereof, and the Company assumes no obligation to update any
forward-looking statements.
Liquidity and Capital Resources
Working capital amounted to $4,009,499 at July 31, 2002 as compared to
$3,363,650 at July 31, 2001. Cash and investments amounted to $2,605,548 at July
31, 2002 as compared to cash and investments of $1,871,854 at July 31, 2001. As
more fully described in the "Statement of Cash Flows" included in the Company's
financial statements elsewhere herein, net cash provided by operating activities
for the fiscal years ended July 31, 2002, July 31, 2001, and July 31, 2000 were
$632,820, $392,975, and $540,389, respectively.
During fiscal 2002, cash was provided by operating activities primarily
due to the Company's net income of $559,448. Other changes in cash were related
to reductions in accounts payable and accrued expenses primarily to satisfy
obligations associated with the Company's computer hardware and software
upgrades in late fiscal 2001 and to a reduction in overall inventory levels. The
reduction in inventory levels, ($158,521), was a result of longer vendor lead
times. Accounts receivable was reduced, ($69,901), as a result of increased
credit card sales and increasingly efficient credit collection. Income taxes
payable/receivable was decreased resulting from the payment of tax obligations
and estimated tax payments. During fiscal 2002, cash was used in investing
activities to purchase property and equipment. During fiscal 2002, changes in
cash resulting from financing activities were associated with the purchase of
treasury stock ($13,775) and the issuance of common stock ($58,500) subsequent
to an exercise of stock options by the former chief executive officer.
8
During fiscal 2001, cash was provided by operating activities primarily
due to the Company's net income of $522,121. The primary reduction in cash of
$98,128 in income taxes payable resulted from payment of tax obligations and
estimated tax payments. Another significant reduction of cash included a
decrease in accounts payable and accrued expenses of $65,029 due to the payment
of certain obligations in connection with the retirement of the Company's former
chief executive officer. During fiscal 2001, cash was used in investing
activities to purchase property and equipment of $85,320. During fiscal 2001,
cash was used in financing activities to purchase treasury stock of $5,022 and
to make principal payments on notes payable of $5,390.
During fiscal 2000, net cash was provided by operating activities
primarily due to the Company's net income of $440,010 and an increase in
accounts payable and accrued expenses of approximately $184,000. This increase
is a combination of a reduction in accounts payable of $27,000 resulting from
more timely payments of vendor invoices in order to take advantage of discounts
offered and an increase in accrued expenses of $211,000 resulting from $101,000
in accrued bonuses, $76,000 in retirement accruals, $25,000 in moving expenses
for the Company's California office and the balance in miscellaneous accruals.
The primary reduction in cash resulted from increased spending on inventories of
$177,622 to sustain current sales demand. During fiscal 2000, cash was used in
investing activities to purchase property and equipment of $20,850. During
fiscal 2000, cash was used in financing activities to purchase treasury stock of
$7,840 and to make principal payments on notes payable of $12,249.
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 2002, Management
expects this trend to continue. There are no material commitments for capital
expenditures or any long-term credit arrangements as of July 31, 2002.
Results of Operations
Sales for fiscal 2002, $7,908,632, fell one and a half percent, or
$122,218, as compared to fiscal 2001. Sales for fiscal 2001 increased slightly
from $8,014,576 in fiscal 2000 to $8,030,850, an increase of $16,274 or less
than one percent. Increased competition and a general slowing of the economy
were the leading factors in the overall decrease in sales in 2002. During the
past three years, no customer accounted for more than 10% of revenues.
The Company's gross margin increased less than one percent to 27% in
fiscal 2002 as compared to 26% for fiscal 2001 and fiscal 2000 as a result of
slight differences in the mix of products sold and greater cost efficiencies. As
a result of sales activity and gross margin changes, gross profit increased
$41,057 in fiscal 2002 to $2,133,458, as compared to $2,092,401 and $2,061,643
in fiscal 2001 and fiscal 2000 respectively.
9
Operating (selling, general and administrative) expenses increased
slightly from $1,342,652 in fiscal 2001 to $1,345,246 in fiscal 2002, or $2,594.
Operating expenses of $1,385,526 decreased $42,874 from fiscal 2000 to fiscal
2001. This decrease resulted primarily from decreases in payroll costs and
general office expenses of approximately $83,000 and $15,000, respectively,
offset by increases in rent and computer consulting costs of $35,000 and
$21,000, respectively. Decreases in fiscal 2001 payroll were primarily related
to the retirement of the Company's chief executive officer in 2000 and
associated payroll costs. General office expenses decreased primarily as a
result of moving expenses related to the Company's move to new office space in
California in late 2000. Correspondingly, as a result of this move, rent expense
increased in 2001. Computer consulting and training was necessary during fiscal
2001 as a result of the Company's change from DOS based sales and accounting
software to Windows based software.
During the past three years, the Company did not charge its operations
with any research and development costs, except for $2,337 incurred in fiscal
2001. Decreases in interest income of $23,341 were offset by investment gains of
$61,769 as a result of increased cash balances and changes in investment
strategy in order to maximize interest income and investment return.
Net income for fiscal 2002 was $559,448 as compared to $522,121 for
fiscal 2001 and $440,010 for fiscal 2000. Basic earnings per share for fiscal
2002, fiscal 2001, and fiscal 2000 was $2.15, $2.02 and $1.69 respectively.
Purchase of Treasury Stock
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 the Company'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 the
Company'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 the
Company'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.
10
Item 7(a), Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8, and an index thereto, appears at
pages F-1 through F-18 (inclusive) of this Report, which pages follow Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
11
TNR TECHNICAL, INC.
Financial Statements
July 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
Financial Statements
TNR TECHNICAL, INC.
July 31, 2002 and 2001
TNR TECHNICAL, INC.
Index to Financial Statements
Independent Auditors' Report.................................................F-1
Financial Statements:
Balance Sheets - July 31, 2002 and 2001.................................F-2
Statements of Operations - Three years ended July 31, 2002..............F-4
Statements of Shareholders' Equity - Three years ended July 31, 2002....F-5
Statements of Cash Flows - Three years ended July 31, 2002..............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, 2002 and 2001, and the related statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended July
31, 2002. 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 auditing standards generally accepted
in the United States of America. 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, 2002 and 2001 and the results of its operations and its cash flows for the
three years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Parks, Tschopp, Whitcomb & Orr, P.A.
August 26, 2002
Maitland, Florida
TNR TECHNICAL, INC.
Balance Sheets
July 31, 2002 and 2001
Assets
------
2002 2001
----------- ----------
Current assets:
Cash and cash equivalents $ 854,729 1,871,854
Investments (note 4) 1,750,819 -
Accounts receivable - trade, less allowance for doubtful
accounts of $18,733 in 2002 and $20,333 in 2001 577,050 655,351
Inventories (note 2) 1,092,552 1,251,073
Income taxes receivable 23,000 -
Prepaid expenses and other current assets 16,844 11,254
Deferred income taxes (note 6) 46,000 50,000
----------- ----------
Total current assets 4,360,994 3,839,532
Property and equipment, at cost, net of accumulated
depreciation and amortization (notes 3 and 4) 115,202 156,878
Other assets:
Deposits 15,457 15,457
----------- ----------
$ 4,491,653 4,011,867
=========== ==========
See accompanying notes to financial statements.
F-2
TNR TECHNICAL, INC.
Balance Sheets
July 31, 2002 and 2001
Liabilities and Shareholders' Equity
------------------------------------
2002 2001
------------ -----------
Current liabilities:
Accounts payable $ 121,563 190,383
Accrued expenses 229,932 248,627
Income taxes payable - 36,872
------------ ----------
Total current liabilities 351,495 475,882
------------ ----------
Commitment (note 7)
Shareholders' equity:
Common stock - $.02 par value, authorized 500,000 shares; issued and
outstanding 313,581 and 301,581 shares
in 2002 and 2001, respectfully (note 5) 6,272 6,032
Additional paid in capital 2,698,261 2,640,001
Retained earnings 1,664,535 1,105,087
------------ ----------
4,369,068 3,751,120
Less cost of treasury stock 44,352 and 42,752
shares in 2002 and 2001, respectively (228,910) (215,135)
------------ ----------
Total shareholders' equity 4,140,158 3,535,985
------------ ----------
$ 4,491,653 4,011,867
============ ==========
See accompanying notes to financial statements.
F-3
TNR TECHNICAL, INC.
Statements of Operations
Years ended July 31, 2002, 2001 and 2000
2002 2001 2000
------------ ------------ -----------
Revenues:
Net sales (note 8) $ 7,908,632 8,030,850 8,014,576
------------ ----------- -----------
Cost and expenses:
Cost of goods sold 5,775,174 5,938,449 5,952,933
Selling, general and administrative (note 9) 1,345,246 1,342,652 1,385,526
------------ ----------- -----------
7,120,420 7,281,101 7,338,459
------------ ----------- -----------
Operating income 788,212 749,749 676,117
Non-operating revenue (expense):
Interest income 56,357 79,698 66,620
Investment gains, net (note 4) 61,769 - -
Other, net (note 10) (7,044) 3,012 (11,727)
------------ ----------- -----------
Income before income taxes 899,294 832,459 731,010
Income tax expense (note 6) 339,846 310,338 291,000
------------ ----------- -----------
Net income $ 559,448 522,121 440,010
============ =========== ===========
Basic earnings per share $ 2.15 2.02 1.69
============ =========== ===========
Diluted earnings per share $ 2.02 1.88 1.60
============ =========== ===========
Weighted average number of shares - Basic 260,727 259,116 260,135
============ =========== ===========
Weighted average number of shares - Diluted 275,727 278,449 275,006
============ =========== ===========
See accompanying notes to financial statements.
F-4
TNR TECHNICAL, INC.
Statements of Shareholders' Equity
Years ended July 31, 2002, 2001 and 2000
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
---------- --------- ----------- ---------- ----------
Balances, July 31, 1999 301,581 $ 6,032 2,640,001 142,956 (202,273)
Net income - - - 440,010 -
Purchase of Company
stock - - - - (7,840)
---------- --------- ----------- ---------- ----------
Balances, July 31, 2000 301,581 6,032 2,640,001 582,966 (210,113)
Net income - - - 522,121 -
Purchase of Company
stock - - - - (5,022)
---------- --------- ----------- ---------- ----------
Balances, July 31, 2001 301,581 6,032 2,640,001 1,105,087 (215,135)
Net income 559,448
Purchase of Company
stock (13,775)
Issuance of common
stock upon exercise
of related options 12,000 240 58,260
---------- --------- ----------- ---------- ----------
Balances, July 31, 2002 313,581 $ 6,272 2,698,261 1,664,535 (228,910)
========== ========= =========== ========== ==========
See accompanying notes to financial statements
F-5
TNR TECHNICAL, INC.
Statements of Cash Flows
Years ended July 31, 2002, 2001 and 2000
2002 2001 2000
----------- ---------- ----------
Cash flows from operating activities:
Net income $ 559,448 522,121 440,010
Adjustments to reconcile net income to net cash
provided by operations:
Deferred income taxes 4,000 (2,000) (13,000)
Depreciation and amortization 40,252 35,522 37,186
Provision for doubtful accounts 8,400 8,400 8,400
Investment gains, net (61,769) - -
Loss on disposition of fixed assets 7,044 1,814 22,927
Changes in operating assets and liabilities:
Accounts receivable 69,901 (1,630) 22,511
Inventories 158,521 (11,408) (177,622)
Prepaid expenses and other assets (5,590) (862) (2,982)
Accounts payable and accrued expenses (87,515) (65,029) 183,979
Deposits - 4,175 (6,020)
Income taxes receivable/payable (59,872) (98,128) 25,000
----------- ---------- ----------
Net cash provided by operating activities 632,820 392,975 540,389
----------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (5,620) (85,320) (20,850)
Purchase of investments and accrued interest (1,689,050) - -
----------- ---------- ----------
Net cash used in investing activities (1,694,670) (85,320) (20,850)
----------- ---------- ----------
See accompanying notes to financial statements
F-6
TNR TECHNICAL, INC.
Statements of Cash Flows
Years ended July 31, 2002, 2001 and 2000
2002 2001 2000
------------- ------------ -----------
Cash flows from financing activities:
Purchase of treasury stock $ (13,775) (5,022) (7,840)
Issuance of common stock 58,500 - -
Principal payments on note payable - (5,390) (12,249)
------------------------------------------
Net cash used in financing activities 44,725 (10,412) (20,089)
------------------------------------------
Increase (decrease) in cash and cash
equivalents (1,017,125) 297,243 499,450
Cash and cash equivalents - beginning of year 1,871,854 1,574,611 1,075,161
------------------------------------------
Cash and cash equivalents - end of year $ 854,729 1,871,854 1,574,611
==========================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ - 82 938
==========================================
Cash paid during the year for income taxes $ 387,000 410,466 279,000
==========================================
See accompanying notes to financial statements
F-7
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(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) Investments
Management determines the appropriate classification of
investments at the time of acquisition and reevaluates such
determination at each balance sheet date. Trading securities
are carried at fair value, with unrealized holding gains and
losses included in earnings. Available-for-sale securities are
carried at fair value, with unrealized holding gains and
losses, net of tax reported as a separate component of
stockholders' equity. Investments in equity securities and
limited partnerships that do not have readily determinable
fair values are stated at cost and are categorized as other
investments. Realized gains and losses are determined using
the specific identification method based on the trade date of
a transaction. Interest on corporate obligations, as well as
dividends on preferred stock, are accrued at the balance sheet
date.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
(d) 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.
(e) Research and Development Costs
Research and development costs are charged against income in
the year incurred.
(Continued)
F-8
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(1) Summary of Significant Policies - Continued
(f) Revenue Recognition
The Company, consistent with the practice of most entities
operating in the battery distribution business, recognizes
revenue upon shipment of battery products from its warehouse
facilities. The Company's customers take title to the products
at the time of shipment and bear the cost of freight. There is
no continuing performance obligation by the Company subsequent
to shipment of product.
(g) Advertising Costs
Advertising expenditures relating to product distribution and
marketing efforts consisting primarily of product presentation
material, catalog preparation, printing and postage expenses
are expensed as incurred.
(h) 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.
(i) Financial Instruments Fair Value, Concentration of Business
and Credit Risks
The carrying amount reported in the balance sheet approximates
fair value for cash, investments, accounts receivable,
accounts payable and accrued expenses. Financial instruments,
which potentially subject the Company to concentrations of
credit risk, consist principally of trade accounts receivable
which amount to approximately $580,000. 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 $500,000 and $1,200,000 at July 31,
2002 and 2001, respectively.
(Continued)
F-9
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(1) Summary of Significant Policies - Continued
(j) Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) which
sets forth accounting and disclosure requirements for
stock-based compensation arrangements. The new statement
encourages but does not require, companies to measure
stock-based compensation using a fair value method, rather
than the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 ("APB no. 25".) The Company
has adopted disclosure requirements of SFAS 123 and has
elected to continue to record stock-based compensation expense
using the intrinsic value approach prescribed by APB No. 25.
Accordingly, the Company computes compensation cost for each
employee stock option granted as the amount by which the
quoted market price of the Company's common stock on the date
of grant exceeds the amount the employee must pay to acquire
the stock. The amount of compensation cost, if any, will be
charged to operations over the vesting period. SFAS 123
requires companies electing to continue using the intrinsic
value method to make certain pro forma disclosures (see note
5).
(k) 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.
(l) 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.
(Continued)
F-10
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(1) Summary of Significant Policies - Continued
(m) Earnings Per Common Share
Basic 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 are included in the
calculation of diluted earnings per share information.
(n) Reclassifications
Certain amounts from 2001 and 2000 have been reclassified to
conform with the 2002 presentation.
(2) Inventories
Inventories consist of the following:
2002 2001
---- ----
Finished goods $1,058,683 1,213,541
Work-in-process 33,869 37,532
---------- ----------
$1,092,552 1,251,073
========== ==========
(3) Property and Equipment
Property and equipment consists of the following:
2001 2000
---- ----
Machinery and equipment $ 209,355 251,854
Leasehold improvements 20,347 20,347
---------- ----------
229,702 272,201
Less accumulated depreciation and amortization 114,500 115,323
---------- ----------
$ 115,202 156,878
========== ==========
F-11
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2001 and 2000
(4) Investments
Investments held by the Company are classified as trading securities
and consist of certain government and corporate fixed income
securities.
Unrealized gains and losses associated with trading securities are
included in earnings on a current basis. The Company determines cost on
the specific identification basis. The following table summarizes the
Company's investments at July 31, 2002.
Fair Unrealized
Value Cost Gains
------------ ----------- ----------
U.S. Government notes $ 1,677,611 1,616,422 61,189
Corporate fixed income bonds 50,580 50,000 580
Accrued interest 22,628 22,628
-
------------ ----------- ----------
$ 1,750,819 1,689,050 61,769
============ =========== ==========
(5) Stock Option Plans
In November 1992, the Board of Directors approved an Incentive and
Non-Qualified Stock Option Plan (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 (the fair market value
of the underlying stock at the date of grant) to three of its officers
and directors. The options are exercisable for a ten-year period
expiring in December 2006. In December 1998, the Company granted
additional stock options to purchase 7,000 shares at an exercise price
of $5.00 per share (the fair market value of the underlying stock at
the date of grant) to three of its directors. The options are
exercisable through December 2008.
(Continued)
F-12
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(5) Stock Option Plans (Continued)
The 1998 Incentive and Non-Qualified Stock Option Plan, (the "1998
Plan"), was approved by the Board of Directors effective December 15,
1998 subject to stockholder approval within 12 months. The 1998 Plan
covers 30,000 shares of Common Stock, subject to adjustment of shares
under the anti-dilution provisions of the 1998 Plan. The 1998 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 1998 Plan include 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 1998 Plan also provides that no options may be granted
after December 15, 2008. Except for the foregoing, the 1998 Plan is
identical to the 1992 Plan. As of July 31, 2002, no options have been
granted under the 1998 Plan.
Options granted and issued by the Company consist of the following:
Number Weighted Average Price
------ ----------------------
Balance outstanding, August 1, 1997 30,000 $ 3.25
Options granted - -
Options expired - -
---------- --------------------
Balance outstanding, July 31, 1998 30,000 3.25
Options granted 7,000 5.00
Options expired - -
---------- --------------------
Balance outstanding, July 31, 1999 37,000 3.58
Options granted - -
Options expired - -
---------- --------------------
Balance outstanding, July 31, 2000 37,000 3.58
---------- --------------------
Options granted - -
Options expired - -
---------- --------------------
Balance outstanding, July 31, 2001 37,000 3.58
Options granted 23,000 6.80
Options exercised (12,000) 3.54
---------- --------------------
48,000 $ 5.13
========== ====================
(Continued)
F-13
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(5) Stock Option Plans (Continued)
Information relating to options at July 31, 2002, summarized by
exercise price, is as follows:
Outstanding and Exercisable Weighted Average
--------------------------- ----------------
Exercise Price Equivalent Shares Exercise Price Year
-------------- ----------------- -------------- ----
$ 3.25 20,000 3.25 4.5
5.00 5,000 5.00 6.5
6.80 23,000 6.80 9.3
------
48,000 5.13 7.0
======
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 under which no compensation cost for stock options is
recognized for stock option awards granted at or above fair market
value.
Had compensation expense been determined based upon fair values at the
grant date for the award of options as described herein in accordance
with SFAS No. 123, "Accounting for Stock-Base Compensation," the
Company's net earnings and earnings per share would not be materially
changed from the amounts as reported in the accompanying financial
statements. The computation of the effect on net earnings and earnings
per share with respect to outstanding options in accordance with SFAS
123 was calculated using the Black-Scholes option-pricing model which
included the following significant assumptions:
Risk-free interest rate 5.25%
Expected volatility 10.00%
Expected dividend yield 0.00%
Expected life 10 years
The weighted average fair value at the date of grant of the remaining
options granted during 1999 and the options granted in 2002
approximated $2.12 per option.
Accordingly, management has not presented the pro forma effects of the
application of SFAS No. 123 herein with respect to net earnings and
earnings per share for the years ended July 31, 2002, 2001 and 2000.
F-14
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(6) Income Taxes
The income tax provision for the years ended July 31, 2002, 2001 and
2000 consists of the following:
2002 2001 2000
---- ---- ----
Current:
Federal $273,500 259,338 246,000
State 62,346 53,000 58,000
-------- --------- ---------
335,846 312,338 304,000
-------- --------- ---------
Deferred:
Federal 3,500 (1,600) (11,000)
State 500 (400) ( 2,000)
-------- --------- ---------
4,000 (2,000) (13,000)
-------- --------- ---------
Total $339,846 310,338 291,000
======== ========= =========
Income tax expense 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:
2002 2001 2000
---- ---- ----
Computed "expected" tax expense $305,000 283,000 249,000
Increase (reduction) in income tax
expense resulting from:
State income taxes, net of
federal income tax benefit 47,000 44,000 37,000
Overaccrual of income tax
liability in prior year (9,500) (14,000) -
Adjustment to deferred tax assets
to reflect current effective
tax rates and other (2,654) (2,662) 5,000
-------- ------- -------
$339,846 310,338 291,000
======== ======= =======
(Continued)
F-15
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(6) Income Taxes - Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at July 31, 2002 and 2001 are
presented below:
2002 2001
---- ----
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes $ 39,000 42,000
Accounts receivable, due to allowance for
uncollectible accounts 7,000 8,000
-------- -------
46,000 50,000
Less valuation allowance - -
-------- -------
Total $ 46,000 50,000
======== =======
Deferred taxes are presented in the
accompanying balance sheets as:
2002 2001
---- ----
Current deferred tax assets $ 46,000 50,000
Noncurrent deferred tax assets - -
-------- -------
$ 46,000 50,000
======== =======
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 the 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, 2002 and 2001.
F-16
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(7) Lease Commitments
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. The Company
also leases warehouse and distribution facilities in California from an
unrelated party under a three-year operating lease agreement. Future
minimum rental payments associated with these operating lease
obligations are indicated below:
Year Ending July 31,
--------------------
2003 133,232
2004 85,960
2005 91,117
2006 74,526
Total lease and rental expense amounted to $145,206, $148,499, and
$111,330 in 2002, 2001, and 2000, respectively. In 2002, 2001 and 2000
lease expense associated with related parties amounted approximately to
$86,000, $84,000 and $81,000, respectively.
(8) Sales to Major Customers
During the years ended July 31, 2002, 2001 and 2000 no customer
accounted for more than 10% of total revenues.
(9) Supplementary Information
2002 2001 2000
---- ---- ----
Advertising costs $24,722 28,766 29,184
Provision for doubtful accounts 8,400 8,400 8,400
The provision for doubtful accounts and advertising costs are included
in selling, general and administrative costs in the accompanying
statements of operations.
F-17
TNR TECHNICAL, INC.
Notes to Financial Statements
July 31, 2002 and 2001
(10) Non-Operating Revenue (Expense)
Other non-operating revenue (expense), net, for the years ended July
31, 2002, 2001 and 2000, is comprised of the following:
2002 2001 2000
---- ---- ----
Loss on disposition of fixed assets $ (7,044) (1,814) (22,927)
Miscellaneous income (primarily customer
reimbursed freight costs) - 4,826 11,200
-------- ------- -------
$ (7,044) 3,012 (11,727)
======== ======= =======
(11) Selected Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for
the years ended July 31, 2002 and 2001, respectively:
Quarter ended Quarter ended Quarter ended Quarter ended Year ended
October 31, January 31, April 30, July 31, July 31,
----------- ----------- --------- -------- --------
2002
----
Net revenues $ 2,030,707 1,874,603 1,930,847 2,072,475 7,908,632
Net income from operations 349,596 87,975 195,082 155,959 788,612
Basic earnings per share 0.88 0.22 0.52 0.53 2.15
Weighted-average number of
shares issued and outstanding 258,821 258,306 257,421 259,074 260,727
2001
Revenues $ 2,349,425 1,885,859 1,978,410 1,817,156 8,030,850
Net income from operations 241,470 207,700 210,897 89,682 749,749
Basic earnings per share 0.61 0.54 0.57 0.30 2.02
Weighted-average number of
shares issued and outstanding 259,489 259,190 258,880 258,998 259,116
F-18
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
- ---- --- ------ -------- ----------
Wayne Thaw 45 (1) 1983 Chairman of the Board
Chief Executive Officer
President
Jerrold Lazarus 70 (1) 1987 Retired
Norman L. Thaw 69 (1) 1979 President of
Stride Rite
Stables, Inc.,
Private Investor
Kathie Thaw 47 (1) 1996 Vice-President
Mitchell Thaw 46 (1) 1998 Co-Manager - Hedge Fund
Vice President and
Patrick Hoscoe 39 (1) 1998 Operations Manager
of the Company's West
Coast Division
- ---------
(1) Directors are elected at the annual meeting of stockholders and hold
office until the following annual meeting.
Wayne Thaw is Chairman of the Board, Chief Executive Officer, Chief
Financial Officer and President of the Company. Kathie Thaw and Patrick Hoscoe
each serve as a Vice President of the Company. Kathie Thaw also serves as
Secretary and Treasurer of the Company. The terms of all officers expire at the
annual meeting of directors following the annual stockholders meeting. Officers
serve at the pleasure of the Board and 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.
12
Wayne Thaw has served as Chairman of the Board and Chief Executive
officer since December 2000 and President and Chief Operating Officer of the
Company since November 1987. Mr. Thaw has been a full-time employee since 1980.
Jerrold Lazarus has served as a director of the Company since October
1987. Mr. Lazarus was a full time employee and Chairman of the Board and Chief
Executive Officer of the Company between October 1987 and January 2001. Since
Mr. Lazarus retired from serving as an executive officer of the Company in
January 2001, he has not been affiliated with another company.
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 thoroughbred racing and breeding farm in South
Florida.
Kathie Thaw has been Vice-President and a director of the Company since
December 1996 and his served as a consultant to the President over the past five
years. Since December 2000, she has also served as Secretary and Treasurer of
the Company.
Mitchell Thaw has been director of the Company since December 1998. Mr.
Thaw is currently a co-manager of a hedge fund. From November 2000 until
September 2001, he was Executive Vice President of KBC Securities, an
international securities firm that traded derivatives stock options such as
convertible bonds and Japanese warrants. From May 2000 to October 2000, he acted
as a professional trader for his own account. From April 1999 through May 2000,
Mr. Thaw served as a Director of Institutional Options at Schroder & Co., Inc.
From 1988 through April 1998, Mr. Thaw was an executive for UBS Securities.
Between April 1998 and March 1999, Mr. Thaw was not associated with any firms.
Patrick Hoscoe has been Vice President and a director of the Company
since 1998. Mr. Hoscoe also serves as Operations Manager of the Company's West
Coast operations. Mr. Hoscoe has 18 years experience in the battery industry and
worked for House of Batteries for the past five years prior to joining the
Company in 1997.
Family Relationships
Norman L. Thaw is the father of Wayne Thaw and Mitchell Thaw. Wayne
Thaw and Kathie Thaw are married.
13
Lack of Committees
The Company has no standing audit, nominating and compensation
committees of the Board of Directors or committees performing similar functions.
The Company does not currently have an Audit Committee of its Board of Directors
or independent directors to form an Audit Committee. It is the intention of the
Board of Directors to use its best efforts to obtain two qualified persons to
serve as independent board members on a newly formed Audit Committee.
Independent director is defined in Rule 4200(a)(14) of the NASD's Listing
Standards to mean a person other than an officer or employee of the Company or
its subsidiaries or any other individual having a relationship which, in the
opinion of the Company's Board of Directors, would interfere with the exercise
of independent judgment in carrying out the responsibilities of a director. The
following persons should not be considered independent:
o A director who is employed by the Company or any of its affiliates for
the current year or any of the past three years;
o A director who accepts any compensation from the Company or any of its
affiliates in excess of $60,000 during the previous fiscal year other
than compensation for Board service, benefits under a tax qualified
retirement plan, or non discretionary compensation;
o A director who is a member of the immediate family of an individual who
is, or has been in any of the past three years, employed by the Company
or any of its affiliates as an executive officer. Immediate family
includes a person's spouse, parents, children, siblings, mother-in-law,
father-in-law, sister-in-law, brother-in-law, son-in-law,
daughter-in-law, and anyone who resides in such person's home;
o A director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which the
Company made, or from which the Company received, payments (other than
those arising solely from investments in the Company's securities) that
exceed 5% of the Company's or business organizations consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the
past three years;
o A director who is employed as an executive of another entity where any
of the Company's executives serve on that entity's compensation
committee.
If successful, the Board would likely expand the number of directors to
eight and to fill the vacancies with the two independent persons selected by the
Board. No assurances can be given that the Board's efforts to select two persons
to serve as independent directors and on the proposed Audit Committee will be
successful. In the event an Audit Committee is established, its first
responsibility would be to adopt a written charter. Such charter would be
expected to include, among other things:
o annually reviewing and reassessing the adequacy of the committee's
formal charter;
o reviewing the annual audited financial statements with the Company's
management and its independent auditors and the adequacy of its
internal accounting controls;
o reviewing analyses prepared by the Company's management and independent
auditors concerning significant financial reporting issues and
judgments made in connection with the preparation of its financial
statements;
14
o being directly responsible for the appointment, compensation and
oversight of the independent auditor, which shall report directly to
the Audit Committee, including resolution of disagreements between
management and the auditors regarding financial reporting for the
purpose of preparing or issuing an audit report or related work;
o reviewing the independence of the independent auditors;
o reviewing the Company's auditing and accounting principles and
practices with the independent auditors and reviewing major changes to
its auditing and accounting principles and practices as suggested by
the independent auditor or its management;
o reviewing all related party transactions on an ongoing basis for
potential conflict of interest situations; and
o all responsibilities given to the Audit Committee by virtue of the
Sarbanes-Oxley Act of 2002, which was signed into law by President
George W. Bush on July 30, 2002.
15
Item 11. Compensation of Directors and Executive Officers.
The following table provides a three-year summary compensation table
with respect to the Company's Chief Executive Officer and any executive officers
earning salaries and bonuses of $100,000 or more during fiscal 2002. During the
past three fiscal years, the Company has not granted restricted stock awards or
stock appreciation rights. In addition, the Company does not have a defined
benefit or actuarial plan.
SUMMARY COMPENSATION TABLE
====================================================================================================================================
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted Other
And Compen- Stock Number LTIP Compen-
Principal sation Award(s) of Payout Sation
Position Year Salary ($) Bonus ($) ($)(1) ($) Options ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
2002 125,008 54,164 0 0 23,000 0 0
Wayne Thaw,
CEO, President 2001 123,677 42,404 0 0 0 0 0
---------------------------------------------------------------------------------------------------------------
2000 112,288 38,400 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick Hoscoe, 2002 85,670 26,000 0 0 0 0 0
Vice President ---------------------------------------------------------------------------------------------------------------
2001 82,201 24,147 0 0 0 0 0
---------------------------------------------------------------------------------------------------------------
2000 73,724 22,717 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.
16
The Company has no employment contracts with its executive officers.
Wayne Thaw is currently receiving an annual salary and bonuses of approximately
$180,000 plus such increases as determined by the Board of Directors. The
Company also pays for the cost of gasoline, repairs and insurance related to an
automobile purchased by the Company in December 2000 for Mr. Wayne Thaw's use.
Patrick Hoscoe currently receives an annual salary and bonuses of approximately
$112,000 plus such increases as determined by the Company's Board of Directors.
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 leases its employees from a non-affiliated company which
has established a 401(k) plan pursuant to which the Company matches employees'
contributions of an amount equal to $.50 per employee's contributed dollar up to
a maximum matching contribution of six percent of the income of each respective
employee. The Company has no other annuity, pension, or retirement benefits for
its employees. Except as described herein, 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 Plans
The 1992 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). In December 1998, the Company granted
ten year non-statutory stock options to purchase 7,000 shares at an exercise
price of $5.00 per share to Jerrold Lazarus (2,000 shares), Wayne Thaw (3,000
shares) and Patrick Hoscoe (2,000 shares). In December 2001, the Company granted
Wayne Thaw 10-year Non-Statutory Stock Options to purchase 23,000 shares of the
Company's Common Stock at an exercise price of $6.80 per share. In April 2002,
Jerrold Lazarus exercised his options to purchase 12,000 shares. Accordingly,
all 60,000 options have been granted under the 1992 Plan with 48,000 options
remaining outstanding and 12,000 options have been exercised.
17
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.
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.
The 1998 Plan
The 1998 Incentive and Non-Qualified Stock Option Plan, (the "1998
Plan"), was approved by the Board of Directors effective December 15, 1998
subject to stockholder approval within 12 months. The 1998 Plan covers 30,000
shares of Common Stock, subject to adjustment of shares under the anti-dilution
provisions of the 1998 Plan. The 1998 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 1998 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 1998 Plan also provides
that no options may be granted after December 15, 2008. Except for the
foregoing, the 1998 Plan is identical to the 1992 Plan. As of October 3, 2002,
no options have been granted under the 1998 Plan.
18
OPTION GRANTS TABLE
The information provided in the table below provides information with
respect to individual grants of stock options during fiscal 2002 of each of the
executive officers named in the summary compensation table above. The Company
did not grant any stock appreciation rights during 2002.
Option Grants in Last Fiscal Year
---------------------------------
====================================================================================================================================
Potential
Individual Grants Realizable Value at
Assumed Annual
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 23,000 100 6.80 12/3/11 98,440 249,320
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick Hoscoe 0 0 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.
19
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 2002 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- 36,000/0 102,100/0
- --------------------------------------------------------------------------------
Patrick Hoscoe -0- -0- 2,000/0 7,000/0
- --------------------------------------------------------------------------------
(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 $8.50 per share determined as of the close of business on July 10,
2002, the last trade before the end of our fiscal year on July 31,
2002.
Report of the Board of Directors on Executive Compensation
During fiscal 2002, the entire Board which consists of Norman Thaw,
Jerrold Lazarus, Wayne Thaw, Kathie Thaw, Mitchell Thaw and Patrick Hoscoe,
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.
Wayne Thaw -Chairman
Jerrold Lazarus
Norman Thaw
Kathie Thaw
Mitchell Thaw
Patrick Hoscoe
20
Compensation Committee Interlocks and Insider Participation
During fiscal 2002, Wayne Thaw, Kathie Thaw and Patrick Hoscoe,
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 October 3, 2002, the Company had outstanding 270,817 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 Address of Number of Approximate
Title of Class Beneficial Owner (1) Shares Percent
- --------------------------------------------------------------------------------
Common Stock Wayne Thaw (3)(8) 87,592 29.8
- -------------------------------------------------------------------------------
Common Stock Norman L. Thaw (2)(8) 55,228 20.4
- -------------------------------------------------------------------------------
Common Stock Jerrold Lazarus (5) 141 *
- -------------------------------------------------------------------------------
Common Stock Kathie Thaw (4)(8) 10,000 3.6
- -------------------------------------------------------------------------------
Common Stock Patrick Hoscoe (6) 2,000 *
- -------------------------------------------------------------------------------
Common Stock Mitchell A. Thaw (8) 33,525 12.4
- -------------------------------------------------------------------------------
Common Stock All Directors and
Officers as a group
(six persons) (7) 188,486 59.1
- --------------------------------------------------------------------------------
- --------------
* Less than one percent of the outstanding shares of Common Stock.
(1) All shares are directly owned, and the sole investment and voting power
is held, by the persons named. The address for all officers and
directors is 301 Central Park Drive, Sanford, Florida 32771.
(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) Includes options to purchase 36,000 shares.
21
(4) Includes options to purchase 10,000 shares.
(5) Includes options to purchase 12,000 shares.
(6) Includes options to purchase 2,000 shares.
(7) Includes options to purchase 48,000 shares granted to officers and
directors.
(8) 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 Mitchell 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.
Item 13. Certain Relationships and Related Transactions.
See Item 2 regarding the description of lease between the Company and a
RKW Holding Ltd. ("RKW"), a Florida Limited Partnership, controlled by Wayne
Thaw. In fiscal 2002, 2001, 2000 and 1999, $82,345, $78,424, $74,690 and
$71,133, respectively, were paid by the Company to RKW, which amount is expected
to increase by approximately 5% for fiscal 2003. The foregoing amounts paid to
RKW do not include insurance reimbursement of approximately $2,000 per year and
property taxes paid of approximately $7,700 per year.
Item 14. Controls and Procedures
(a) Item 307(a) of Regulation SK is effective for registrants reporting
on periods ending after August 29, 2002. Accordingly, this item is not
applicable in the report.
(b) While the evaluation required by Item 307(a) is not required to
have been performed within 90 days of the filing of this report on Form 10-K, at
this time, there have been no significant changes in the registrant's internal
controls or in other factors that could significantly affect these controls and
there have not been any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 15. 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.
22
(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
99 1998 Incentive and Non-Statutory Stock Option Plan (4)
- -------------
(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.
(4) Incorporated by reference to Form 10-K for the fiscal year ended July
31, 1999.
(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, 2002.
23
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/ Wayne Thaw
------------------------------------
Wayne Thaw, Chief Executive Officer
Dated: Sanford, Florida
October 18, 2002
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 18, 2002
- ----------------------
Norman L. Thaw
/s/ Jerrold Lazarus Director October 18, 2002
- -----------------------
Jerrold Lazarus
/s/ Wayne Thaw Chairman of the October 18, 2002
- --------------------- Board, Chief
Wayne Thaw Executive Officer
President,
Chief Financial
and Accounting
Officer
/s/ Kathie Thaw Vice President, October 18, 2002
- ----------------------- Treasurer,
Kathie Thaw Secretary
and Director
/s/ Mitchell Thaw Director October 18, 2002
- ----------------------
Mitchell Thaw
/s/ Patrick Hoscoe Vice President October 18, 2002
- -------------------- and Director
Patrick Hoscoe
Norman Thaw, Kathie Thaw, Wayne Thaw, Mitchell Thaw, Patrick Hoscoe and Jerrold
Lazarus represent all the members of the Board of Directors.
24
CERTIFICATION
I, Wayne Thaw, Chief Executive Officer and Chief Financial Officer of
the Registrant, certify that:
1. I have reviewed this annual report on Form 10-K of TNR
Technical, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
Date: October 18, 2002 /s/ Wayne Thaw
--------------------------------------------
Wayne Thaw, Chief Executive Officer
and Chief Financial Officer
25