U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission File Number 1-4142
TENNEY ENGINEERING, INC.
(Exact name of small business issuer as
specified in its charter)
NEW JERSEY 22-1323920
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1090 Springfield Road, Union, New Jersey 07083
(Address of principal executive offices)
(908) 686-7870
(Issuer's telephone number)
NONE
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Class Outstanding at March 31, 1995
Common Stock $.10 par value 3,685,592
Transitional Small Business Disclosure Format:
Yes No X
TENNEY ENGINEERING, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1995
I N D E X
PAGE
Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet - March 31, 1995 3
Consolidated Condensed Statements of Operations -
Three months ended March 31, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows -
Three months ended March 31, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - Other Information 14
TENNEY ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1995
(In Thousands of Dollars - unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,022
Accounts receivable, net 1,401
Current portion of installment receivables 128
Inventories 1,320
Prepaid expenses and other current assets 64
Total current assets 3,935
Equipment, net 156
Installment receivables, noncurrent portion 265
Other assets 132
Totals $ 4,488
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Note payable - bank and current portion of
long-term debt $ 377
Debt deficiency - deferred forgiveness 579
Accounts payable and other accrued liabilities 2,006
Accrued payroll and payroll taxes 173
Billings in excess of estimated revenue on
long-term contracts 1,551
Pension obligation, current portion 290
Total current liabilities 4,976
Long-term debt, noncurrent portion 36
Pension obligation, noncurrent portion 248
Total liabilities 5,260
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock
Common stock at par value 369
Additional paid-in capital 1,960
Retained earnings (deficit) (3,064)
(735)
Less treasury stock 37
Total stockholders' equity (deficiency) (772)
Totals $ 4,488
See Notes to Consolidated Condensed Financial Statements.
TENNEY ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(In Thousands of Dollars Except per Share Amounts - unaudited)
1995 1994
Net revenue:
Product and product related $1,727 $ 872
Service 219 318
Parts 173 163
Totals 2,119 1,353
Cost of sales:
Product and product related 1,236 819
Service 155 232
Parts 72 93
Totals 1,463 1,144
Gross profit 656 209
Selling and administrative expenses 526 420
Income (loss) from operations 130 (211)
Other expense (income):
Interest expense 44 109
Other income, net (11) (11)
Totals 33 98
Income (loss) before income taxes
and extraordinary items $ 97 $ (309)
Income taxes 2 -
Income (loss) before extraordinary
items 95 (309)
Extraordinary item - gain on
restructuring of debt net of income
taxes of four thousand dollars 285 -
Net income (loss) $ 380 $ (309)
Income (loss) per common share before
extraordinary items .02 (.08)
Extraordinary item per common share .08 -
Net income (loss) per common share $ .10 $ (.08)
Exercise of options would not be dilutative.
See Notes to Consolidated Condensed Financial Statements.
TENNEY ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
QUARTER ENDED MARCH 31, 1995 AND 1994
(In Thousands of Dollars - unaudited)
1995 1994
Operating activities:
Net income (loss) from continuing operations $ 380 $ (309)
Adjustments to reconcile income (loss) to
net cash provided by (used in) operations:
Depreciation and amortization 15 36
Gain of debt forgiveness, principal and interest (290) -
Provision for pension withdrawal liability 36 -
Changes in operating assets and liabilities:
Accounts and installment receivables (244) 138
Inventories (1,036) 120
Prepaid expenses and other current assets 22 (1)
Other assets - 2
Accounts payable and other accrued liabilities 658 66
Accrued payroll and payroll taxes 48 1
Billings in excess of estimated revenues 830 36
Accrued restructuring costs - (17)
Pension obligation - 8
Net cash provided by operating activities 419 80
Investing activities:
Acquisition of equipment (26) (5)
Cash used in investing activities (26) (5)
Financing activities:
Payments of note payable - bank and long-term debt (213) (164)
Cash used in financing activities (213) (164)
Net increase (decrease) in cash and cash
equivalents 180 (89)
Cash and cash equivalents, beginning of year 842 289
Cash and cash equivalents, end of period $ 1,022 $ 200
Supplemental disclosure of cash flow information:
Interest paid $ 6 $ 96
Income taxes paid $ 28 $ -
See Notes to Consolidated Condensed Financial Statements.
TENNEY ENGINEERING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1:
The financial information enclosed herewith as at March 31, 1995,
and for the three months ended March 31, 1995 and 1994 is
unaudited, and, in the opinion of the Company, reflects all
adjustments (which included only normal recurring accruals)
necessary for a fair presentation of the financial position as of
March 31, 1995, the changes in cash flows for the three months
ended March 31, 1995 and 1994 and the results of operations for
these periods.
This quarterly report should be read in conjunction with the
Company's 1994 Annual Report and the March 31, 1995 Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
NOTE 2:
The results of operations for the three months ended March 31, 1995
are not necessarily indicative of the results to be expected for
the full year.
NOTE 3:
Financial Condition and Results of Operation:
At March 31, 1995, the Company's deficiencies in working
capital and stockholders' equity continue to be reduced due
to profits generated from operations and debt forgiveness (see
Note 8).
Significant obligation:
As discussed in Note 9, with the cessation of its
manufacturing operations at the Union Facility, the Company
received a revised notification for payment of a withdrawal
liability from its union employees' multi-employer pension
plan in the amount of approximately $502,000. The Company
has engaged counsel to advise it with respect to this matter.
The Company must reduce or eliminate its multi-employer
pension liability and/or obtain favorable installment payment
terms. Failure to achieve such reduction or to obtain
favorable installment payment terms will have a material
adverse effect on the Company.
NOTE 4:
License Agreement:
In December 1992, the Company entered into a six-year licensing
agreement ending December 31, 1998, with a privately owned
manufacturer (the "Licensee") of environmental conditioning
equipment. The terms of the agreement, among others, provide for:
the Licensee to manufacture and sell environmental test chambers
and other equipment under the Tenney name with the Company also
retaining the right to manufacture such products; the Company to
receive license fees (up to a maximum of $1,900,000; through March
31, 1995, the Company has earned approximately $681,000) equal to
5% of qualifying sales during the term of the agreement with
specified minimum amounts payable annually; an option for the
Licensee to purchase the Company's rights, title and interest in
the Tenney trademark for $100,000 at the end of the license term
in the event the Company is no longer manufacturing such products.
In conjunction with such transaction, in February 1993 the Company
ceased manufacturing operations at its Union, New Jersey facility.
In addition, the Company entered into an agreement with the
Licensee whereby, for an annual fee of $120,000 ending on December
31, 1996, the Company will make the services of the Company's
president available to the Licensee for specified periods.
NOTE 5:
Accounts Receivable:
Accounts receivable consist of the following:
March 31,
1995
(In Thousands
of Dollars)
Accounts receivable, billed $1,418
Due from Licensee, net 70
1,488
Allowance for doubtful accounts 87
Totals $1,401
At March 31, 1995, sales recognized on the percentage of
completion method approximated $1,566,000.
NOTE 6:
Inventories:
Inventories consist of the following:
March 31,
1995
(In Thousands
of Dollars)
Raw materials $ 234
Work in process 1,154
1,388
Less:
Customer advances on contracts included
in work in process (68)
Totals $1,320
Accumulated costs on long-term contracts recognized by the
percentage of completion method were approximately $1,219,000 in
1995.
NOTE 7:
Property:
On December 12, 1994, in accordance with the Settlement Agreement
(see Note 8), the Company conveyed to the bank the title to all
real estate located in Union, New Jersey, with a net book value of
approximately $340,000 net of accumulated depreciation.
In conjunction with the conveyance of the property, the Company
entered into a Use and Occupancy Agreement for approximately 9,500
square feet of space at an annual rental of $50,000 and 25% of
building operating costs (excluding real estate taxes). The term
of the Use and Occupancy Agreement is on a monthly basis and the
termination date is dependent upon the bank selling the property
(see Note 8).
NOTE 8:
Short-term note payable:
As of December 12, 1994, the Company was indebted to the Bank in
the amount of $1,017,648 principal, pursuant to a line of credit
agreement, the bank having a security interest in substantially all
of the Company's assets, and $2,480,474 principal pursuant to a
mortgage loan, in addition to $260,541 in interest and fees. The
Company and the Bank entered into a Settlement Agreement as at
December 12, 1994, in which the Company conveyed the title to the
real estate located in Union, New Jersey, for a credit of
$1,800,000 against the total indebtedness of $3,758,663, the
remaining balance of $1,958,663 was converted to a non-interest-
bearing Note due September 30, 1995, in the amount of $800,000,
payable $200,000 in December, 1994, and the balance of $600,000 due
in nine monthly non-interest-bearing amounts of $66,667, and
forgiveness of debt of $1,158,663. The security interest held by
the bank in substantially all the Company's assets remains in
effect until 93 days after the date of the last payment. Upon
failure to pay any amount when due, after a five-day remedy period,
the bank may obtain a writ or other appropriate action to attach
or seize assets of the Company to satisfy the total remaining
amount due, including interest from the date of default. During
the three-month period ending March 31, 1995, the Company paid the
$200,000 due during such period and prepaid the installment due
September 30, 1995, which reduced the balance of the non-interest-
bearing Note to $333,699. On April 30, 1995, the Company made the
April 1995 payment of $66,667, reducing the amount due on the non-
interest-bearing Note to $267,032. The forgiveness of $1,158,663
will be recognized quarterly upon the Company's paying the periodic
amounts when due. During the fourth quarter of 1994, the Company
recognized forgiveness of approximately $289,666 principal and
interest. For the quarter ended March 31, 1995, the Company
recognized forgiveness of $289,666, leaving a balance of $579,331
to be recognized, $289,666 during the second quarter of 1995 and
$289,665 during the third quarter of 1995 if payments are made
timely.
NOTE 9:
Multi-Employer Pension Obligation:
The Company's union employees were included in a separate multi-
employer pension plan to which the Company made monthly
contributions in accordance with a contractual union agreement
based on monthly hours worked. Related pension expense amounted
to approximately $0 in 1995 and 1994. Due to the cessation of
manufacturing operations at the Company's Union Facility (see Note
4), the Company ceased being a participant in the multi-employer
pension plan in February 1993. Under the Multi-Employer Pension
Plan Amendments Act of 1980, the Company may, under certain
circumstances, become subject to liabilities in excess of
contributions made under its collective bargaining agreement.
Generally, a liability may be incurred upon the termination,
withdrawal or partial withdrawal from an underfunded plan which
would be based upon a formula specified by the plan.
During the fourth quarter 1993, the Company received a demand from
the Sheet Metal Workers' National Pension Fund (the "Fund"), that
it make payment of $529,743.28 as a result of the Company's
withdrawal from the Fund. The demand was for 18 quarterly payments
of $33,879.28 except for a final payment of $32,797.59, with the
initial payment to be made by January 19, 1994. The Company
engaged counsel to advise it in these matters and made a provision
for this amount in the 1993 Consolidated Financial Statements. The
demand also states that the amount due was subject to adjustment
for performance of the Fund during 1992.
The Company did not make the January 19, 1994 payment. In a letter
dated March 16, 1994, the Fund advised the Company that it was
delinquent in making its first withdrawal liability payment and
that failure to correct the delinquency within sixty days will
constitute a default. If a default is declared, the Fund can bring
suit to collect the delinquent withdrawal liability payment(s)
and/or the full amount of the withdrawal liability due.
In May 1994 the Company proposed an amount significantly less than
the amount demanded of $530,000. In June 1994 the Company received
notification from the Fund rejecting the Company's offer. In
November 1994 the Company submitted another offer, still
significantly less than the amount demanded by the Fund, and in
addition tendered a monthly payment less than the periodic payment
requested. The Company has continued to tender these periodic
payments through April 1995. In December 1994 the Company received
from the Fund a modified calculation reducing the withdrawal
liability to approximately $502,000 principal. The Company is
attempting to resolve the amount and timing of payments;
accordingly, the provision is being classified as being current and
non-current.
If the Company is unable to substantially reduce the amount being
demanded and/or obtain favorable installment payment terms, it will
have a material adverse effect on the Company. The balance sheet
presentation of the obligation to the Fund reflects the obligation
being due in installments.
NOTE 10:
Net Revenue:
Product and product-related net revenue includes revenue from the
Company's manufacturing operation, license and technology fees.
Service revenue includes revenue from the servicing and
installation of environmental equipment and from the services of
the Company's president provided to the Licensee (see Note 4).
Parts revenue includes revenue from the sale of replacement and
spare parts for equipment previously manufactured by the Company
as well as equipment now being manufactured by the Licensee.
NOTE 11:
Income Taxes:
Effective January 1, 1993, the Company has adopted the Statement
of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes," which applies a balance sheet
approach to income tax accounting. The new standard requires the
Company to reflect on its balance sheet the anticipated tax impact
of future taxable income or deductions implicit in the balance
sheet in the form of temporary differences. The Company has not
reflected any future tax benefits on its balance sheet as the value
of the deferred tax asset resulting from the net operating loss
carryforwards was offset by a valuation allowance of equal amount.
At March 31, 1995, the Company has available, for tax reporting
purposes, net operating loss carryforwards of approximately
$3,800,000, which expire through 2008.
The components of income tax expenses are:
March 31,
1995
(In Thousands
of Dollars)
Income taxes currently payable:
Federal income tax--regular $ 120
Federal alternative minimum tax 6
State income tax 35
Tax benefit arising from carryforward
of net operating losses $(155)
1995 Income Tax Expenses $ 6
The income tax expense in 1995 results from the federal
alternative minimum tax rate of 20%, which was allocated as
follows:
March 31,
1995
(In Thousands
of Dollars)
Income before extraordinary items $ 2
Extraordinary item 4
1995 Income Tax Expenses $ 6
NOTE 12:
Profit (Loss) Per Common Share:
Profit (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period. On
February 3, 1995, the Board of Directors of the Company approved
a new ten-year incentive stock option plan for officers and key
employees in the amount of 400,000 shares, to be put up for a vote
of approval at the Annual Meeting to be held on May 26, 1995. The
assumed exercise of outstanding stock options would not have a
significant effect on the per share computations. The weighted
average number of common shares outstanding was 3,685,592 for the
three-month period ending March 31, 1995 and 1994, respectively.
NOTE 13:
Extraordinary item:
Extraordinary item consists of gain on restructuring of debt net
of income taxes. The Settlement Agreement provided for the
forgiveness of debt of $1,158,000, principal and interest, to be
forgiven quarterly, if periodic quarterly payments totaling
$200,000 are made timely. The Company during the three months
ended March 31, 1995 made the required payments totaling $200,000
and recognized the forgiveness of $289,666 principal and interest
(see Note 8).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Operating revenues are currently at a level sufficient enough to
cover corporate and associated administrative costs. There still
remains a working capital and stockholders' equity deficit, which
deficits will be reduced if profitability continues.
The Company has been able to generate cash from operations and has
been paying down bank debt as per the Settlement Agreement (see
Note 8 of the Notes to Consolidated Condensed Financial
Statements). The Company has prepaid the September 1995 periodic
payment during the first quarter of 1995. The April 1995 payment
has been made when due and the balance due the bank as of May 12,
1995, is approximately $268,000.
At March 31, 1995, the Company's cash and cash equivalents totaled
$1,022,000, an increase of $180,000 from the December 31, 1994
total of $842,000. Contributing to the change in cash during the
1995 first quarter was cash provided by operating activities of
$419,000. The principal sources of the cash provided by operating
activities was the profit generated from operations, coupled with
an increase in billings in excess of estimated revenue on long-
term contracts and increases in accounts payable and other accrued
liabilities. The increase of work in process inventory was the
principal use of cash by operating activities (see Note 6 of the
Notes to Consolidated Condensed Financial Statements). Offsetting
the cash provided by operating activities were payments made
against the Company's Note payable - bank and current portion of
long-term debt of approximately $213,000 (see Note 8 of the Notes
to Consolidated Condensed Financial Statements).
The Company's operations now consist of manufacturing through its
DynaTenn, Inc. subsidiary (d/b/a "DynaVac") diversified vacuum
systems for space simulation, optic coating and plasma treatment
for medical labware and servicing, refurbishing, upgrading and
installing environmental equipment and earning license and
technology fees.
Significant obligation:
As discussed in Note 4, with the cessation of its manufacturing
operations at the Union Facility, the Company received a revised
notification for payment of a withdrawal liability from its union
employees' multi-employer pension plan in the amount of
approximately $502,000 principal. The Company has engaged counsel
to advise it with respect to this matter. The Company must reduce
or eliminate its multi-employer pension liability and/or obtain
favorable installment payment terms. Failure to achieve such
reduction or to obtain favorable installment payment terms will
have a material adverse effect on the Company.
RESULTS OF OPERATIONS
Total net revenue for the three months ended March 31, 1995 of
$2,119,000 compares to net revenue of $1,353,000 in the
corresponding 1994 period.
Product and product-related net revenue for 1995 and 1994 was
$1,727,000 and $872,000, respectively. The increase in net revenue
within this classification, between years, as due primarily to the
increased recognition of revenue under the percentage of completion
method of revenue for long-term projects that were being worked on
in our vacuum system subsidiary.
Service-related revenue of $219,000 for the three months ended
March 31, 1995 compares to first quarter 1994 revenue of $318,000,
a decrease of 31%. The major factor that caused the decrease in
service-related revenue was that key service support personnel were
involved with the Company moving and consolidating its office space
which was required under the Use and Occupancy Agreement (see Note
7). Included in the 1995 and 1994 service revenue was $30,000
revenue received during each period from the Licensee for the
services of the Company's president.
Revenue related to the sale of parts totaled $173,000 and $163,000
for the quarters ended March 31, 1995 and 1994, respectively. The
increase in the 1995 parts revenue was due to an increase in parts
orders.
The Company's order backlog at March 31, 1995, December 31, 1994
and March 31, 1994 was approximately $4,070,200, $5,300,000 and
$1,800,000, respectively. The decrease in backlog since December
31, 1994 was due primarily to a decline in backlog at the Company's
DynaVac subsidiary. The increase in backlog in the March '95/94
comparison was due to the Company's DynaVac subsidiary.
The total cost of sales as a percentage of net revenue was 69% for
the quarter ended March 31, 1995 and compares to 85% for the
corresponding 1994 period.
The first quarter 1995 cost of sales percentage of product and
product-related sales was 72% and compares to a cost of sales of
94% during 1994. During 1994, the Company was negatively impacted
by certain long-term contracts for which estimated costs to
complete have increased and have adversely affected the cost of
sales percentage. The Company completed in 1994 all long-term
contracts that had been impacting costs negatively. Cost of sales
for products and product-related sales were strictly for sales for
the period ending March 31, 1995. The cost of sales percentage for
vacuum system products was unchanged between years.
Service cost of sales as a percentage of sales was 70% and 73% for
the 1995 and 1994 quarters, respectively. The decrease in the cost
of sales percentage between years was due to the continuation of
cost control programs and the ability to use manpower for billable
time rather than projects that were associated with discontinued
activities.
Cost of sales as a percentage of sales during 1995 for parts was
42% and compares to 57% for the 1994 corresponding period. The
decrease in the cost of sales percentage in the '95/94 comparison
was due primarily to the continued focus on inventory cost
containment programs.
Selling and administrative expenses for the first quarter of 1995
was $526,000 and compares to expenses of $420,000 in the 1994
period. The increase in the 1995/94 period was due to legal and
professional fees and additional payroll costs.
Interest expense was $44,000 in 1995 and compares to expense of
$109,000 in the 1994 period. The decrease was due primarily to no
interest being charged on the non-interest-bearing Note due to the
bank (see Note 9).
The first quarter net income (loss) was $380,000 and $(309,000) in
1995 and 1994, respectively. The Company has and will continue
to increase its revenue from operating activities and continue to
reduce costs.
PART II - OTHER INFORMATION
NONE.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tenney Engineering, Inc.
Registrant
Dated: May 12, 1995.
Martin Pelman
Vice President
Principal Finance Officer