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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 April 30, 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
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TNR TECHNICAL, INC.
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(Exact name of Registrant as specified in its charter)
New York 11-2565202
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
301 Central Park Drive
Sanford, Florida 32771
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(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 .
--- ---
263,544 Common Shares, $.02 par value were issued and outstanding at June
8, 2005.
TNR TECHNICAL, INC.
INDEX
Page
Number
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
April 30, 2005 (Unaudited)
and July 31, 2004 1
Statements of Operations
Three and nine months ended
April 30, 2005 (Unaudited) and
April 30, 2004 (Unaudited) 2
Statements of Cash Flows
Nine months ended
April 30, 2005 (Unaudited) and
April 30, 2004 (Unaudited) 3
Notes to Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-9
PART II. OTHER INFORMATION 10
TNR TECHNICAL, INC.
BALANCE SHEETS
ASSETS
APRIL 30, 2005
JULY 31, 2004 (UNAUDITED)
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Current assets:
Cash and cash equivalents $ 710,636 1,160,747
Investments 2,608,710 2,791,873
Accounts receivable - trade, less allowance for doubtful
accounts of $19,652 and $25,198 649,018 647,349
Inventories 1,127,143 1,026,542
Income taxes receivable 70,258 --
Prepaid expenses and other current assets 32,742 38,551
Deferred income taxes 102,000 119,000
----------- -----------
Total current assets 5,300,507 5,784,062
Property and equipment, at cost, net of accumulated
depreciation and amortization 140,886 131,302
Deposits 16,191 16,191
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Total assets $ 5,457,584 5,931,555
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 124,280 213,234
Accrued expenses 176,575 151,793
Income taxes payable -- 45,180
----------- -----------
Total current liabilities 300,855 410,207
Deferred tax liability 19,000 16,000
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Total liabilities 319,855 426,207
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Shareholders' equity:
Common stock - $0.02 par value, authorized 500,000
shares; issued 313,581 shares 6,272 6,272
Additional paid-in capital 2,698,261 2,698,261
Retained earnings 2,703,667 3,126,227
Treasury stock - 47,373 and 50,037 shares (270,471) (325,412)
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Total shareholders' equity 5,137,729 5,505,348
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$ 5,457,584 5,931,555
=========== ===========
See accompanying notes to financial statements.
1
TNR TECHNICAL, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
2004 2005 2004 2005
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- ----------- ----------- ------------
Revenue:
Net sales $ 2,044,975 2,026,846 6,047,076 5,978,360
----------- ----------- ----------- -----------
Cost and expenses:
Cost of goods sold 1,493,313 1,460,139 4,410,763 4,210,873
Selling, general and administrative 396,201 375,040 1,126,152 1,120,495
----------- ----------- ----------- -----------
1,889,514 1,835,179 5,536,915 5,331,368
----------- ----------- ----------- -----------
Operating income 155,461 191,667 510,161 646,992
Non-operating revenue:
Interest income 164 2,939 873 6,388
Investment income (loss) (25,700) (9,420) 29,134 35,310
----------- ----------- ----------- -----------
Income before income taxes 129,925 185,186 540,168 688,690
Provision for income taxes 50,167 73,000 212,000 266,130
----------- ----------- ----------- -----------
Net income $ 79,758 112,186 328,168 422,560
=========== =========== =========== ===========
Basic earnings per share $ 0.30 0.42 1.23 1.59
=========== =========== =========== ===========
Diluted earnings per share $ 0.27 0.37 1.10 1.40
=========== =========== =========== ===========
Weighted average number of shares outstanding - basic 266,313 264,688 266,615 265,578
=========== =========== =========== ===========
Weighted average number of shares outstanding - diluted 297,886 300,955 298,188 301,845
=========== =========== =========== ===========
See accompanying notes to financial statements
2
TNR TECHNICAL, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
APRIL 30,
2004 2005
(UNAUDITED) (UNAUDITED)
----------- -----------
Cash flows from operating activities:
Net income $ 328,168 422,560
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 32,251 41,619
Deferred income taxes 1,000 (20,000)
Net investment income (29,134) (35,310)
Changes in operating assets and liabilities:
Accounts receivable 23,697 1,669
Inventories 102,292 100,601
Prepaid expenses and other assets (10,086) (5,809)
Accounts payable and accrued expenses (20,900) 64,172
Income taxes receivable/payable (142,484) 115,438
Purchase of investments and accrued interest (609,958) (147,853)
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Net cash provided by (used in) operating activities (325,154) 537,087
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Cash flows from investing activities:
Purchase of property and equipment (39,950) (32,035)
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Net cash used in investing activities (39,950) (32,035)
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Cash flows from financing activities:
Purchase of treasury stock (25,425) (54,941)
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Net cash used in financing activities (25,425) (54,941)
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Decrease in cash and cash equivalents (390,529) 450,111
Cash and cash equivalents - beginning of period 833,901 710,636
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Cash and cash equivalents - end of period $ 443,372 1,160,747
========== ==========
See accompanying notes to financial statements
3
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 April 30, 2005, and results
of operations and cash flows for the three and nine month periods ended
April 30, 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 nine months ended April 30, 2005 and 2004, no customer
accounted for more than 10% of total revenue.
(3) INVENTORIES
Inventories consist of the following:
April 30, 2005
July 31, 2004 (UNAUDITED)
-------------- ----------------
Purchased parts and materials $1,093,329 995,664
Finished goods 33,814 30,878
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$1,127,143 1,026,542
============== ================
4
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 requires 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.
5
Liquidity and Capital Resources
Working capital amounted to $5,373,855 at April 30, 2005 as compared to
$4,999,652 at July 31, 2004. Cash and investments amounted to $3,952,620 at
April 30, 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
nine months ended April 30, 2005 was $537,087.
During the nine months ended April 30, 2005, cash flow from operating activities
was provided primarily by the Company's net income of $422,560. The increase in
income taxes payable and the decrease in income taxes receivable are a
reflection of recording the third quarter tax provision. Reduced inventory
levels ($100,601) are the result of increased sales during the second quarter
ended January 31, 2005, combined with management's decision to maintain reduced
inventory levels as a result of sales declines for the first and third quarters
ended October 31, 2004 and April 30, 2005, respectively. Changes in accounts
payable and accrued expenses ($64,172) are the result of decreases in accrued
expenses offset by increases in accounts payable. Accrued expenses decreased
mainly as the result of bonus payouts during the first quarter, combined with
payment of previously accrued expenses 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. In addition, investments in treasury securities were made ($147,853). Net
cash was used in investing activities to purchase equipment and in financing
activities to purchase treasury stock.
During the nine months ended April 30, 2004, cash flow used in operating
activities resulted primarily from the purchase of treasury securities and
income tax payments. Cash was provided primarily from the Company's net income
of $328,168 and decreased inventory of $102,292. Increased collection efforts
during the third quarter resulted in slightly decreased accounts receivable
balances. Changes in accounts payable are primarily related to the timing of
vendor payouts. Net cash was used in investing and financing activities to
purchase equipment and treasury stock respectively.
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
April 30, 2005.
6
Results of Operations
Sales for the three months ended April 30, 2005 decreased $18,129 or less than
1% over sales for the comparable period of the prior year. Cost of goods sold
for the three months ended April 30, 2005 decreased 2% ($33,174) primarily as a
result of reduced payroll costs (reduced commissions were earned by sales staff
and shop labor decreased due to lower negotiated rates with our current
Professional Employer Organization - PEO) and by slightly reduced inventory
costs resulting from the purchase of cheaper offshore product. Accordingly,
gross profit increased 1% ($15,045) as compared to the three months ended April
30, 2004.
Sales for the nine months ended April 30, 2005 decreased $68,716 (1%) over sales
for the comparable period of the prior year. Cost of goods sold decreased
$199,890 (5%) from the corresponding period of the prior year primarily as a
result of reduced sales, decreased cost of shop salaries (lower negotiated
worker's compensation rates with new PEO), and reduced inventory costs resulting
from the purchase of cheaper offshore product. Accordingly, gross profit
increased for the nine month period ended April 30, 2005 by $131,174 (8%).
Operating (selling, general and administrative) expenses decreased approximately
$21,000 for the three months ended April 30, 2005 as compared to the third
quarter ended April 30, 2004 primarily as a result of decreased advertising
expense ($5,800), reduced computer consulting expense ($4,200), and decreased
employee related expenses ($11,000). Employee related expenditures were reduced
as the result of lower negotiated worker's compensation and health insurance
rates negotiated with a new PEO as well as suspended pension matching caused by
the delay in transferring pension plans to the new PEO. Operating expenses when
expressed as a percentage of sales decreased from 19.4% for the three months
ended April 30, 2004 to 18.5% for the three months ended April 30, 2005 as a
result of these factors and decreased sales volume.
Operating (selling, general and administrative) expenses decreased approximately
$5,700 for the nine months ended April 30, 2005 as compared to the same period
of the prior year. Operating expenses when expressed as a percentage of sales
were approximately 19% for both the nine months ended April 30, 2005 and the
nine months ended April 30, 2004.
The Company did not charge its operations with any research and development
costs during the nine months ended April 30, 2005 or 2004. Interest and
investment income increased from $30,007 for the nine months ended April 30,
2004 to $41,698 for the nine months ended April 30, 2005 due to fluctuations in
the market values of certain investments (U.S. Treasury securities).
7
Net income for the three months ended April 30, 2005 was $112,186 as compared to
$79,758 for the three months ended April 30, 2004 as a result of factors
previously discussed herein. Net income for the nine months ended April 30, 2005
was $422,560 as compared to $328,168 for the nine months ended April 30, 2004.
Basic earnings per share for the nine months ended April 30, 2005 and April 30,
2004 were $1.59 and $1.23 respectively.
8
During fiscal 2005, 2004, 2003, 2002, and 2001, the Company redeemed a total of
2,664 shares from 104 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.
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2004 - 2005 QTR 1 QTR 2 QTR 3 QTR 4 YTD
- ---------------------------------------------------------------------------------------------------------
# SHARES REPURCHASED 58 301 2,305 2,664
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# SHAREHOLDERS 2 3 99 104
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AVG SHARE PRICE $15.60 $19.67 $20.88 $20.63
- ---------------------------------------------------------------------------------------------------------
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.
Management has not yet completed, and is not yet required to have
completed, its assessment of the effectiveness of internal control over
financial reporting as required by Section 404 of the Sarbanes-Oxley Act.
9
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 as described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In June 2005, TNR terminated this Stock
Repurchase Plan. The following table provides information as to the number of
shares repurchased by TNR in the third 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 - THIRD QUARTER 2005
- -------------------------------------------------------------------------------------------------------------
(D) MAXIMUM NUMBER (OR
(A) TOTAL (C) TOTAL NUMBER OF APPROXIMATE DOLLAR
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
- -------------------------------------------------------------------------------------------------------------
Feb. 1-28,
2005 649 $20.84 649 10,435 shs.
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Mar. 1-31,
2005 1,042 $21.17 1,042 9,243 shs.
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Apr. 1-30,
2005 614 $20.43 614 8,779 shs.
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Total 2,305 $20.88 2,305 8,779 shs.
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Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
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 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
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 original
Florida lease provided for a term of ten years with a current monthly base rent
of $8,272 (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. In
fiscal 2004, 2003, 2002, 2001 and 2000, $90,785, $88,462, $85,345, $78,424,
$74,690 and $71,133, respectively, were paid by the Company to RKW, which amount
increased by approximately 5% for fiscal 2005 over 2004. The foregoing amounts
paid to RKW do not include insurance reimbursement of approximately $2,000 per
year and property taxes paid of approximately $9,000 per year.
On June 1, 2005, the Board of Directors of TNR Technical, Inc. approved
a five year extension of the expiration date of its lease with RKW from May 31,
2006 to May 31, 2011 and an annual four percent increase in the monthly base
rent. It should be noted that, the Company's Form 8-K dated June 1, 2005
erroneously refers to an annual five percent increase.
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)
10.1 Amendment to lease dated January 17, 1996 by and between RKW
Holdings Ltd. and the Company. (6)
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.
12
(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.
(6) Incorporated by reference to Form 8-K dated June 8, 2005 (date of earliest
event June 1, 2005).
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: June 10, 2005
By: /s/ Wayne Thaw
----------------------------------------
Wayne thaw, President, Chief Executive
Executive Officer and Chief Financial
Officer
13