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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended January 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 0-13011
TNR TECHNICAL, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 11-2565202
--------------------------------- -------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
301 Central Park Drive
Sanford, Florida 32771
---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (407) 321-3011
--------------
None
(Former name, former address and former fiscal year if changed
since last report)
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 |_|.
265,849 Common Shares, $.02 par value were issued and outstanding at March
16, 2005.
TNR TECHNICAL, INC.
INDEX
Page
Number
------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
January 31, 2005 (Unaudited)
and July 31, 2004 3
Statements of Operations
Three and six months ended
January 31, 2005 (Unaudited) and
January 31, 2004 (Unaudited) 4
Statements of Cash Flows
Six months ended
January 31, 2005 (Unaudited) and
January 31, 2004 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION 9
2
TNR TECHNICAL, INC.
BALANCE SHEETS
JANUARY 31, 2005
JULY 31, 2004 (UNAUDITED)
------------- ----------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 710,636 1,003,019
Investments 2,608,710 2,841,126
Accounts receivable - trade, less allowance for doubtful
accounts of $19,652 and $24,290 649,018 697,720
Inventories 1,127,143 1,041,681
Income taxes receivable 70,258 -
Prepaid expenses and other current assets 32,742 44,709
Deferred income taxes 102,000 102,000
----------- -----------
Total current assets 5,300,507 5,730,255
Property and equipment, at cost, net of accumulated
depreciation and amortization 140,886 143,789
Deposits 16,191 16,191
----------- -----------
Total assets $ 5,457,584 5,890,235
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 124,280 300,689
Accrued expenses 176,575 96,086
Income taxes payable - 37,181
----------- -----------
Total current liabilities 300,855 433,956
Deferred tax liability 19,000 15,000
----------- -----------
Total liabilities 319,855 448,956
----------- -----------
Shareholders' equity:
Common stock - $0.02 par value, authorized 500,000
shares; issued 313,581 shares 6,272 6,272
Additional paid-in capital 2,698,261 2,698,261
Retained earnings 2,703,667 3,014,041
Treasury stock - 47,373 and 47,732 shares (270,471) (277,295)
----------- -----------
Total shareholders' equity 5,137,729 5,441,279
----------- -----------
$ 5,457,584 5,890,235
=========== ===========
See accompanying notes to financial statements
3
TNR TECHNICAL, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------------- ---------------------------
2005 2004 2005 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
Revenue:
Net sales $ 1,985,775 1,893,663 3,951,514 4,002,101
----------- ----------- ----------- -----------
Cost and expenses:
Cost of goods sold 1,384,445 1,376,701 2,750,734 2,917,450
Selling, general and administrative 374,552 362,231 745,455 729,951
----------- ----------- ----------- -----------
1,758,997 1,738,932 3,496,189 3,647,401
----------- ----------- ----------- -----------
Operating income 226,778 154,731 455,325 354,700
Non-operating revenue:
Interest income 2,574 113 3,449 709
Investment income (12,461) 32,627 44,730 54,834
----------- ----------- ----------- -----------
Income before income taxes 216,891 187,471 503,504 410,243
Provision for income taxes 84,996 74,026 193,130 161,833
----------- ----------- ----------- -----------
Net income $ 131,895 113,445 310,374 248,410
=========== =========== =========== ===========
Basic earnings per share $ 0.50 0.43 1.17 0.93
=========== =========== =========== ===========
Diluted earnings per share $ 0.44 0.38 1.03 0.83
=========== =========== =========== ===========
Weighted average number of shares outstanding - basic 266,075 266,461 266,125 266,752
=========== =========== =========== ===========
Weighted average number of shares outstanding - diluted 300,386 298,034 300,436 298,325
=========== =========== =========== ===========
See accompanying notes to financial statements
4
TNR TECHNICAL, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JANUARY 31,
--------------------------
2005 2004
(UNAUDITED) (UNAUDITED)
----------- -----------
Cash flows from operating activities:
Net income $ 310,374 248,410
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,639 25,283
Deferred income taxes (4,000) (3,000)
Net investment income (44,730) (54,834)
Changes in operating assets and liabilities:
Accounts receivable (48,702) 60,447
Purchase of investments and accrued interest (187,686) (637,979)
Income tax payable/receivable 107,439 (89,851)
Inventories 85,462 (32,826)
Prepaid expenses and other assets (11,967) (5,414)
Deposits - (8,000)
Accounts payable and accrued expenses 95,920 (49,797)
----------- -----------
Net cash provided by (used in) operating activities 329,749 (547,561)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (30,542) (28,633)
----------- -----------
Net cash used in investing activities (30,542) (28,633)
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (6,824) (23,724)
----------- -----------
Net cash used in financing activities (6,824) (23,724)
----------- -----------
Increase (decrease) in cash and cash equivalents 292,383 (599,918)
Cash and cash equivalents - beginning of period 710,636 833,901
----------- -----------
Cash and cash equivalents - end of period $ 1,003,019 233,983
=========== ===========
See accompanying notes to financial statements
5
TNR TECHNICAL, INC.
Notes to Financial Statements
(1) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements have been prepared in accordance
with rules of the Securities and Exchange Commission and, therefore, do
not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash
flows, in conformity with generally accepted accounting principles. The
information furnished, in the opinion of management, reflects all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of January 31, 2005, and
results of operations and cash flows for the three and six month
periods ended January 31, 2005 and 2004. The results of operations are
not necessarily indicative of results which may be expected for any
other interim period, or for the year as a whole.
(2) SALES TO MAJOR CUSTOMERS
During the six months ended January 31, 2005 and 2004, no customer
accounted for more than 10% of total revenue.
(3) INVENTORIES
Inventories consist of the following:
January 31, 2005
July 31, 2004 (UNAUDITED)
------------- ----------------
Purchased parts and materials $1,093,329 1,005,222
Finished goods 33,814 36,459
----------- ----------
$1,127,143 1,041,681
=========== ==========
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Forward Looking Statements
The information contained in this Form 10-Q are intended to update the
information contained in the Company's Annual Report on Form 10-K for the year
ended July 31, 2004 and such information presumes that readers have access to,
and will have read the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other information contained in such
Form 10-K and other Company filings with the Securities and Exchange Commission
("SEC").
This Quarterly Report on Form 10-Q 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 risks and uncertainties, and actual results
could be significantly different than those discussed in this quarterly report
on Form 10-Q. 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 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.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements require management to make estimates and
disclosures on the date of the financial statements. On an on-going basis, we
evaluate our estimates including, but not limited to, those related to revenue
recognition. We use authoritative pronouncements, historical experience and
other assumptions as the basis for making judgments. Actual results could differ
from those estimates.
Liquidity and Capital Resources
Working capital amounted to $5,296,299 at January 31, 2005 as compared to
$4,999,652 at July 31, 2004. Cash and investments amounted to $3,844,145 at
January 31, 2005 as compared to $3,319,346 at July 31, 2004. 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
six months ended January 31, 2005 was $329,749.
7
During the six months ended January 31, 2005, cash flow from operating
activities was provided primarily by the Company's net income of $310,374.
Increased sales activity, particularly during the second quarter, resulted in
increased accounts receivable balances ($48,702) and decreased inventory levels
($85,462). In addition, investments in treasury securities were made ($187,686).
Changes in accounts payable and accrued expenses ($95,920) are the result of
decreases in accrued expenses offset by increases in accounts payable
($176,409). Accrued expenses decreased mainly as the result of bonus payouts
during the first quarter, combined with payment of expenses associated with the
previous fiscal year audit and costs associated with the printing, mailing and
filing of the proxy statement and annual report. The increase in accounts
payable is primarily related to the timing of vendor payments beyond quarter
end. Net cash was used in investing activities to purchase equipment ($30,542)
and in financing activities to purchase treasury stock.
During the six months ended January 31, 2004, cash flow from operating
activities was provided primarily by the Company's net income of $248,410,
offset by the purchase of treasury securities, income tax payments, and
increases in inventory. Reduced sales activity during the second quarter
resulted in decreased accounts receivable balances and increased inventory
levels. Changes in accounts payable and accrued expenses are primarily comprised
of bonus payouts during the first quarter. Net cash was used in investing
activities to purchase equipment and in financing activities to purchase
treasury stock.
The Company's short term and long term liquidity needs have been satisfied from
internal sources including cash from operations and amounts available from the
Company's working capital. During the balance of fiscal 2005 and on a long-term
basis, management expects this trend to continue. There are no material
commitments for capital expenditures or any long-term credit arrangements as of
January 31, 2005.
Results of Operations
Sales for the three months ended January 31, 2005 increased $92,112 (5%) over
sales for the comparable period of the prior year as strategic buying of
offshore product enabled the recovery of a portion of the sales previously lost
when customers moved directly to the Chinese market during the first quarter
ended October 31, 2004. Cost of goods sold and gross profit for the three months
ended January 31, 2005 increased 1% ($7,744) and 3% respectively, as compared to
the three months ended January 31, 2004 primarily as a result of increased sales
volume.
Sales for the six months ended January 31, 2005 decreased $50,587 (1%) over
sales for the comparable period of the prior year. Cost of goods sold decreased
$166,716 (6%) for the six months ended January 31, 2004 primarily as a result of
reduced sales, decreased cost of shop salaries resulting from leasing our
employees with a new professional employment organization at lower negotiated
worker's compensation rates, and reduced inventory costs resulting from buying
of cheaper offshore products. Accordingly, gross profit increased for the
six-month period ended January 31, 2005 by $116,129 (11%).
8
Operating (selling, general and administrative) expenses increased $12,321 for
the three months ended January 31, 2005 as compared to the second quarter ended
January 31, 2004 primarily as a result of increases in general insurance costs
of approximately $6,800 resulting from a new policy for director and officer
liability insurance required by our new independent directors before joining the
Board and depreciation expense of approximately $9,600, offset by decreases in
payroll and employee related expenditures of approximately $4,200. This decrease
occurred due to the suspension of pension matching while a change was made in
our professional employer organization from which we lease our employees.
Operating expenses when expressed as a percentage of sales decreased less than
1% for the three months ended January 31, 2005 as compared to the three months
ended January 31, 2004 as a result of these factors and decreased sales volume.
Operating (selling, general and administrative) expenses increased $15,504 for
the six months ended January 31, 2005 as compared to the same period of the
prior year primarily as a result of increases in general insurance of
approximately $14,000 for the reasons as stated above and depreciation expense
of approximately $12,000 offset by decreases in salary and other employee
related expenditures of approximately $11,500. This decrease was the result of a
reduction of overall employee related expenditures as a result of obtaining a
new professional employment organization to lease our employees and the
associated suspension of pension matching. Operating expenses when expressed as
a percentage of sales were approximately 19% for the six months ended January
31, 2005 as compared to 18% for the six months ended January 31, 2004.
The Company did not charge its operations with any research and development
costs during the six months ended January 31, 2005 or 2004. Interest and
investment income decreased from $55,543 for the six months ended January 31,
2004 to $48,179 for the six months ended January 31, 2005 due to lower interest
rates and fluctuating market values of certain investments in U.S. Treasury
securities.
Net income for the three months ended January 31, 2005 was $131,895 as compared
to $113,445 for the three months ended January 31, 2004 as a result of factors
previously discussed herein. Net income for the six months ended January 31,
2005 was $310,374 as compared to $248,410 for the six months ended January 31,
2004. Basic earnings per share for the six months ended January 31, 2005 and
January 31, 2004 were $1.17 and $0.93 respectively.
During fiscal 2005, 2004, 2003, 2002, and 2001, the Company redeemed a total of
359 shares from 5 persons, 1,558 shares from 35 persons, 608 shares from 29
persons, 1,600 shares from 68 persons and 729 shares from 22 persons,
respectively, pursuant to the Company's program to repurchase odd lots. In June
2003, the Company also repurchased a total of 691 shares held by a director and
the Company's former chief executive officer at a purchase price of $12.00 per
share. In January 2005, the Company also repurchased 250 shares from one
stockholder at $18.00 per share.
- ---------------------- --------- ---------- ---------- -------- ----------
2004 - 2005 QTR 1 QTR 2 QTR 3 QTR 4 YTD
- ---------------------- --------- ---------- ---------- -------- ----------
# SHARES REPURCHASED 58 51 109
- ---------------------- --------- ---------- ---------- -------- ----------
# SHAREHOLDERS 2 2 4
- ---------------------- --------- ---------- ---------- -------- ----------
AVG SHARE PRICE $15.60 $18.04
- ---------------------- --------- ----------- ---------- -------- ----------
9
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based closely on the definition of
"disclosure controls and procedures" in Rule 13a-15(e). In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. The Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective
at the reasonable assurance level at the end of our most recent quarter. There
have been no changes in the Company's disclosure controls and procedures or in
other factors that could affect the disclosure controls subsequent to the date
the Company completed its evaluation. Therefore, no corrective actions were
taken.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds:
(a) None.
(b) Not applicable.
(c) TNR's Stock Repurchase Plan of odd lots began in December
1995. There is no announced expiration date of this Stock Repurchase Plan. The
following table provides information as to the number of shares repurchased by
TNR in the second quarter of 2005, the average price paid per share and the
historical number of shares repurchased under the Plan as of the last day of
each of the months shown in the table below. Also shown as of the last day of
each month in the last column to the right is the number of odd lot shares that
may be repurchased under the Plan.
10
ISSUER PURCHASES OF EQUITY SECURITIES - SECOND QUARTER 2005
(D) MAXIMUM NUMBER (OR
(C) TOTAL NUMBER OF APPROXIMATE DOLLAR
(A) TOTAL NUMBER OF SHARES (OR UNITS) VALUE) OF SHARES (OR
SHARES (B) AVERAGE PRICE PURCHASED AS PART OF UNITS) THAT MAY YET BE
(OR UNITS) PAID PER SHARE (OR PUBLICLY ANNOUNCED PURCHASED UNDER THE
PERIOD PURCHASED UNIT) PLANS OR PROGRAMS PLANS OR PROGRAMS
- --------------- ------------------- ------------------ --------------------- -------------------------
Nov. 1 - 31,
2004 -0- $-0- -0- 11,394 shs.
- --------------- ------------------- ------------------ --------------------- -------------------------
Dec. 1-30,
2004 -0- $-0- -0- 11,394 shs.
- --------------- ------------------- ------------------ --------------------- -------------------------
Jan. 1-31,
2005 301 $19.67 51 (1) 11,343 shs.
- --------------- ------------------- ------------------ --------------------- -------------------------
Total 301 $19.67 51 11,343 shs.
- --------------- ------------------- ------------------ --------------------- -------------------------
(1) An additional 250 shares were repurchased from one person outside the
plan in a private transaction requested by the shareholder.
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders:
On January 10, 2005, TNR held its Annual Meeting of Stockholders. At
the meeting, TNR re-elected Jerrold Lazarus, Norman L. Thaw, Wayne Thaw,
Mitchell Thaw and Patrick Hoscoe to the Board of Directors. TNR also added to
the Board two independent directors namely, Larry Kaczmarek and Anthony
Guadagnino. Also seven directors were elected for a period of one year and until
their successors are elected and qualify. The following table indicates the
number of votes cast for and against each director.
For Withheld
--- --------
Jerrold Lazarus 229,617 2,637
Norman L. Thaw 229,617 2,637
Wayne Thaw 229,645 2,609
Mitchell Thaw 221,245 11,009
Patrick Hoscoe 223,245 9,009
Larry Kaczmarek 229,645 2,609
Anthony Guadagnino 229,645 2,609
Item 5. Other Information:
On March 1, 2005, the Board of Directors of TNR approved a resolution
to change its fiscal year to end on June 30th of each year commencing on June
30, 2005. TNR is filing herewith a Form 10-Q for its recent quarter ended
January 31, 2005 and intends to file a Form 10-Q for its current quarter ended
April 30, 2005 and subsequently filing a transitional report on Form 10-K for
its year ended June 30, 2005.
The change in fiscal year was made to move TNR to a more natural
calendar quarter. This change in fiscal year also has the effect of delaying
compliance with Section 404 of Sarbanes-Oxley Act of 2002, as amended, and Item
308 of Regulation S(K) until TNR files its Form 10-K for its year ended June 30,
2007. TNR is not aware of any weaknesses, nor have there been any material
changes in internal controls over financial reporting.
11
Item 6. 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 and Notes
thereto.
31.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (5)
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (5)
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.
(5) Filed herewith.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TNR TECHNICAL, INC.
-------------------
(Registrant)
Dated: March 17, 2005
By: /s/ Wayne Thaw
------------------------------
Wayne Thaw, President, Chief Executive
Executive Officer and Chief Financial
Officer
13