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 June 30, 1996
____ 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 June 30, 1996
Common Stock $.01 par value 3,685,592
Transitional Small Business Disclosure Format:
Yes ____ No X
TENNEY ENGINEERING, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 1996
I N D E X
PAGE
Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet - June 30, 1996 3
Consolidated Condensed Statements of Operations -
Three months ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows -
Three months ended June 30, 1996 and 1995 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 18
Part II - Other Information 20
TENNEY ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996
(In thousands of dollars - unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 320
Accounts receivable - net 2,163
Current portion of installment note receivables 25
Inventories 627
Prepaid expenses and other current assets 52
Deferred tax asset 250
Total Current Assets 3,437
Plant and equipment, net 301
Installment note receivable, noncurrent portion 293
Other assets 148
Total Assets $ 4,179
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities $ 1,762
Current portion of long-term capital leases 44
Accrued payroll and payroll taxes 275
Billings in excess of estimated revenue on
long-term contracts 430
Pension obligation, current portion 95
Total Current Liabilities 2,606
Long-term debt, net of current portion 635
Total Liabilities 3,241
Commitments and contingencies
Stockholders Equity:
Preferred stock $.01 par value:
Authorized 5,000,000 shares
Issued and outstanding - none
Common stock $.01 par value:
Authorized 50,000,000 shares
Issued 3,694,980 shares 37
Additional paid-in-capital 2,293
Retained earnings (deficit) (1,355)
975
Less treasury stock, 9,388 shares at cost 37
Total Stockholders Equity 938
Total Liabilities and Stockholders Equity $ 4,179
See Notes to Consolidated Financial Statements.
TENNEY ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
(In thousands of dollars -
except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Net Revenue:
Product and product related $2,383 $2,716 $4,524 $4,443
Service 179 276 377 495
Parts 171 219 355 392
Totals 2,733 3,211 5,256 5,330
Cost of Sales:
Product and product related 1,826 2,324 3,494 3,560
Service 143 167 262 322
Parts 57 91 134 163
Totals 2,026 2,582 3,890 4,045
Gross Profit 707 629 1,366 1,285
Selling and administrative
expenses 519 435 1,038 961
Income from operations 188 194 328 324
Other expense (income):
Interest expense 6 23 10 67
Other income, net ( 4) (12) ( 5) (23)
Totals 2 11 5 44
Income before income taxes
and extraordinary items $ 186 $ 183 $ 323 $ 280
Income taxes (benefit) ( 11) 3 ( 24) 5
Income before extraordinary
items 197 180 347 275
Extraordinary item - gain on
restructuring of debt net of
income taxes of four thousand
dollars, and nine thousand
dollars, respectively -0- 284 -0- 569
Net Income $ 197 $ 464 $ 347 $ 844
Income per common share before
extraordinary item $ 0.05 $ 0.05 $ 0.09 $ 0.07
Extraordinary item per common
share 0.00 0.08 0.00 0.16
Net Income per common share $ 0.05 $ 0.13 $ 0.09 $ 0.23
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
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands of dollars - unaudited)
1996 1995
Operating activities:
Net income $ 347 $ 844
Adjustments to reconcile income to net
cash provided by (used in) operations:
Depreciation and amortization 41 29
Gain of debt forgiveness, principal
and interest 0 (578)
Provision for pension withdrawal liability 0 59
Changes in operating assets and liabilities:
Accounts and installments receivables (398) (635)
Inventories (316) (85)
Prepaid expenses and other current assets 45 23
Deferred tax asset ( 22) 0
Other assets ( 3) 3
Accounts payable and other accrued
liabilities 244 (218)
Accrued payroll and payroll taxes 113 48
Billings in excess of estimated revenues 112 474
Net cash provided by operating activities 163 (36)
Investing activities:
Acquisition of equipment (31) (39)
Cash used in investing activities (31) (39)
Financing activities:
Payments of note payable - bank and debt (35) (440)
Cash used in financing activities (35) (440)
Net increase (decrease) in cash and cash
equivalents 97 (515)
Cash and cash equivalents, beginning of year 223 842
Cash and cash equivalents, end of period $ 320 $ 327
Supplemental disclosure of cash flow
information:
Interest paid $ 10 $ 6
Income taxes paid $ -- $ 28
See Notes to Consolidated Condensed Financial Statements.
Note 1:
Summary of Accounting Policies:
The financial information enclosed herewith as at June 30, 1996 and for the
three and six months ended June 30, 1996 and 1995 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 June 30, 1996, the changes in cash flow for the six months
ended June 30, 1996 and 1995 and the results of operation for these periods.
This quarterly report should be read in conjunction with the Company's 1995
Annual Report and the June 30, 1996 Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Note 2:
Results of Operations:
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
Note 3:
Financial Condition and Results of Operation:
As shown in the accompanying consolidated financial statements, the Company
has earned net income for the six months ended June 30, 1996 and 1995,
respectively, from operations, which has resulted in an improvement in the
Company's financial position.
Significant Obligation:
As discussed in Note 4, with the cessation of its manufacturing operations at
the Union, New Jersey, facility, the Company received a 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 met with a
representative of the pension plan and has made a proposal to the Fund for
extended terms and a reduction of the principal. Failure to reach an accord
will have an adverse material effect on the Company.
Note 4:
Restructuring:
The Company in February, 1993, ceased manufacturing operations at its Union,
New Jersey, facility. The Company's operations now consist of manufacturing,
through its wholly owned subsidiary, diversified vacuum systems for space
simulation, optic coating and plasma treatment for medical labware, the
servicing and installation of environmental equipment, and earning license
and technology fees and rental income.
During the fourth quarter of 1993, the Company received a demand from the
Sheet Metal Workers' National Pension Fund (the "Fund") for payment of a
withdrawal liability from its union employees' multi-employer pension plan
in the amount of approximately $530,000, to be paid in quarterly payments
starting in January, 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 Company failed to make the first payment when due
in January 1994. In March 1994, the Company received notice that they were
in default. In May 1994, the Company proposed, through counsel, an amount
significantly less than the original amount. In June, the Company received
notification from the Fund rejecting the Company's offer.
In November 1994, the Company proposed, through counsel, a modified offer
significantly less than the total demanded, along with a significantly less
periodic payment. In December 1994, the Company received from the Fund a
modified calculation of the withdrawal liability in the amount of
approximately $502,000. On May 31, 1995, the Company received a rejection of
its proposals.
On December 7, 1995, the Company was served with a Complaint of Civil Action
filed in the U.S. District Court, Eastern District of Virginia, by the Fund,
demanding payment of past-due installments of withdrawal liability
(aggregating $271,034 at the date of the Complaint), plus interest on
overdue installments, statutory liquidated damages, attorneys' fees and
injunctive relief requiring payment of future quarterly withdrawal
installments and in the alternative immediate payment of the entire
withdrawal liability plus accrued interest, statutory liquidated damages,
and attorneys' fees.
In February 1996, the Company filed an Answer and Affirmative Defense to the
action. The Company and its counsel are having discussions with
representatives of the Fund in an attempt to reduce the amount of the
liability and agree to an installment payment schedule. At June 30, 1996,
the Company had in reserve $581,000 with respect to a possible liability to
the Fund.
In the expectation that an agreement can be arrived at with the Fund to pay
the obligation in installments, the amount reserved has been classified as
being current and non-current.
The Company is not in a position to make immediate payment of the entire
amount or a significant portion of the entire amount demanded by the Fund in
the Complaint. If the Company is required to make immediate payment of the
entire amount or of the past-due installments alleged to be due, it would
have a material adverse effect on the Company.
Note 5:
License agreement:
Concurrent with the Company's announcement to discontinue manufacturing at
the Union Facility, the Company entered into a six-year licensing agreement
(expiring December 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) 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; the Company to perform all servicing and installation of the
aforementioned equipment. In addition, the Company entered into a four-
year consulting agreement with the Licensee whereby, for an annual fee of
$120,000, expiring December 31, 1996, the Company will make the services
of the Company's president available to the Licensee for a specified
period of time.
For the six months ended June 30, 1996 and 1995, respectively, the Company
earned License fees of approximately $222,600 and $192,900. At June 30, 1996
the Company earned License fees of approximately $1,203,700 since inception.
Net revenue for the periods ended June 30, 1996 and 1995 includes consulting
revenue of $60,000.
Note 6:
Accounts receivable:
Accounts receivable consist of the following:
June 30,
1996
(In thousands
of dollars)
Accounts receivable, billed $ 2,091
Due from Licensee, net 100
2,191
Allowance for doubtful accounts (28)
Totals $ 2,163
At June 30, 1996, sales recognized on the percentage of completion method
approximated $4,162,000.
Note 7:
Inventories:
Inventories consist of the following:
June 30,
1996
(In thousands
of dollars)
Raw materials $ 610
Work in process 327
Totals 937
Less:
Provision for write-downs to estimated
realizable value 310
Totals $ 627
Accumulated costs on long-term contracts recognized by the percentage of
completion method (see Note 6) were approximately $3,327,000.
Note 8:
Property and Equipment:
Property and equipment, which is stated at cost, is summarized as follows at
June 30, 1996:
June 30,
1996
(In thousands
of dollars)
Property (see below) $ 0
Equipment 1,295
Equipment under capital leases 324
1,619
Accumulated depreciation (1,318)
Total equipment - net $ 301
On December 12, 1994, in accordance with a Settlement Agreement, the Company
conveyed to First Fidelity Bank, N.A. (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 (see Note 9).
In conjunction with the conveyance of the property, the Company entered into
a Use and Occupancy Agreement for approximately 10,500 square feet of space
at an annual rental of $50,000 and 25% of building operating costs
(excluding real estate taxes), which was terminated on December 14, 1995.
On that date the Company entered into a three-year lease with the new owner
of the property for approximately 10,500 square feet at an annual rental of
$70,000. On January 12, 1996, the Company and the new owners entered an
amendment to the lease for an additional 8,000 square feet of space at an
annual rental of $20,000, occupancy not to take effect until July 1996.
Rent totaled $35,000 and $25,000 for the six months ended June 30, 1996 and
1995, respectively.
In addition, the Company leases certain equipment for use in its operations
under capital leases. Property and equipment at June 30, 1996, included
capital leases of $324,000 and related accumulated depreciation of $136,000.
At June 30, 1996, the aggregate minimum rental commitments under non-
cancelable leases for the period shown are as follows:
Year Capital Leases Operating Leases
(In thousands of dollars)
1996 $ 32 $ 52
1997 51 90
1998 51 90
1999 50 0
2000 30 0
Total $ 214 $ 232
Less imputed interest 21
Present value of net
lease payments $ 193
Less current installments 44
Long-term debt obligation
at June 30, 1996 $ 149
Imputed interest was calculated using rates between 7.06% - 9.76%
Note 9:
Debt:
Debt maturing within one year consists of the following at
June 30,
1996 1995
(In thousands
of dollars)
Notes payable - bank $ 0 $ 150
Current portion of capital leases 44 0
Current portion of pension obligation 95 0
(see Note 4)
Total $ 139 $ 150
The Company was indebted to the Bank in the amount of $1,020,000 principal
at June 30, 1994, pursuant to a line of credit agreement evidenced by a
promissory note (the "Term Note"), the maturity date of which had been
extended from time to time. The Company was also indebted to the Bank in the
amount of $2,480,474 principal pursuant to a mortgage loan secured by the
Company's real property in Union, New Jersey. The Bank also had a security
interest in substantially all of the Company's other assets.
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, 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 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 remained in effect until 93 days after the date of the
last payment. The Company made the payments due during the six month period
ended June 30, 1995 and recognized forgiveness of $289,666 for the quarter
and $579,333 for the year.
Long-term debt consists of the following at June 30, 1996:
(In thousands
of dollars)
Capital lease obligations $ 193
Multi-employer pension obligation (see Note 4) 581
Total long-term debt including
current maturities 774
Less: current maturities 139
Total long-term debt $ 635
Long-term liabilities consist of capital leases entered into for equipment of
$194,000 in 1995, and the long-term portion of the multi-employer pension
fund liability (see Note 3). As stated in Note 4 of the Notes to
Consolidated Financial Statements, the Company has not concluded any
agreement with the Fund as to the amount and method of payment of the
obligation. The Company has estimated the maturities under the multi-
employer pension fund liability to be $95,000--1996; $80,000--1997; $80,000--
1998; $80,000--1999; $80,000--2000 and $56,000--2001.
Note 10:
Net Revenue:
Product and product-related net revenue includes revenue from the Company's
manufacturing operation, license and technology fees and rental income.
Service revenue includes revenue from the servicing and installation of
equipment and from the services of the Company's president provided to the
Licensee (see Note 5). 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 and
competitors.
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." SFAS 109 requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities are
recorded based on differences between the financial statement and tax bases
of assets and liabilities at the tax rates in effect when these differences
are expected to reverse.
Deferred tax assets are reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that all or some
portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax asset depends on the Company's ability to
generate sufficient taxable income in the future. While management believes
that the total deferred tax asset will eventually be fully realized by future
operations, as a result of the losses experienced prior to 1994, management
recorded a valuation allowance equal to 100% of the deferred tax asset
upon adoption of SFAS 109 on January 1, 1993. As a result, the initial
adoption of SFAS 109 has no impact on the Company's consolidated financial
statements.
At June, 30 1996, it was determined that the valuation allowance should be
reduced by $28,000. This determination was based primarily on the
improvement in the Company's net income during 1996 and 1995.
Accordingly, management believes that it is more likely than not that the
Company will generate sufficient taxable income to realize these future tax
benefits. The changes in the valuation allowance resulted in the recording
at June 30, 1996, of an income tax benefit of $24,000.
If the Company is unable to generate sufficient taxable income in the future,
increases in the valuation allowance will be required through a charge to
expense. If, however, the Company achieves sufficient profitability to
realize all of the deferred tax assets, the valuation allowance will be
further reduced and reflected as an income tax benefit in future periods.
The components of the net deferred tax asset are as follows at June 30,
1996
(In thousands
of dollars)
Deferred tax assets:
Inventory reserve $ 105
Accounts receivable reserve 10
Deferred revenue 38
Deferred compensation 10
Deferred pension obligation 197
Tax loss carryforward 1,016
Total deferred tax assets 1,376
Deferred tax liabilities:
Depreciation (1)
Valuation allowance (1,125)
Total deferred tax assets $ 250
At June 30, 1996 and June 30, 1995, the Company utilized net operating loss
carryforwards of $408,000 and $1,164,000, respectively. The income tax
expense results from the federal alternative tax which was allocated as
follows:
1996 1995
(In thousands of dollars)
Income before extraordinary item $ 4 $ 5
Extraordinary item 0 9
Current income tax expense 4 14
Deferred income tax benefit ( 28) 0
Net income tax (benefit) $( 24) $ 14
At June 30, 1996, the Company has available, for tax reporting purposes, net
operating loss carryforwards of approximately $2,988,600 which expire
through 2008.
A reconciliation of income tax provision at federal statutory rate to the
income tax provision at the effective tax rate as follows:
The effective rate for 1996 is 34% and for 1995 was 34%.
1996 1995
(In thousands of dollars)
Income taxes computed at the federal
statutory rates $ 152 $ 266
Federal alternative minimum tax 4 14
State taxes (net of federal benefit) 27 77
Realization of benefits of tax loss
carryforwards (179) (343)
Reduction of valuation allowance ( 28) 0
Net income tax (benefit) $ (24) $ 14
Note 12:
Common stock:
On May 24, 1996, at the annual meeting, two amendments to the Restated
Certificate of Incorporation of the Company were adopted as follows:
(1) An amendment to provide that the number of shares of the Common Stock
the corporation is authorized to issue be increased from 10,000,000 shares
to 50,000,000 shares and that the par value of such stock be reduced from
$.10 per share to $.01 per share. The amendment further provides that the
corporation would be authorized to issue Common Stock in series, in each case
at the dicretion of the Board of Directors, without further action by the
shareholders unless otherwise required by law or regulation or the rules of
any stock exchange on which the corporation's securities may then be listed,
and that the Board of Directors may fix the number of shares in each such
series and the designation and relatives voting and other rights thereof, and
(2) An amendment to provide that the number of shares of Preferred Stock the
corporation is authorized to issue be increased from 1,000,000 shares to
5,000,000 shares, and the par value of such stock be reduced from $1.00 per
share to $.01 per share.
At the May 26, 1995, annual meeting, a new ten-year incentive stock option
plan for officers and key employees was approved and adopted. The plan
provided that options could be granted from time to time at a price of not
less than 100% of the fair market value of the common stock as of the date
of grant for officers and employees who own less than 10% of the voting stock
of the Company and 110% of fair market value for those officers and
employees who own more than 10% of the voting stock (affiliate employees).
Options granted are exercisable immediately and terminate no later than
ten years from date of grant (five years from date of grant for affiliate
employees). On June 1, 1995, the Board of Directors of the Company granted
and issued, to officers and key employees, the option to purchase 155,000
shares of common stock under the 1995 ten-year incentive stock option plan
for officers and key employees. Certain employees with the right to purchase
57,000 shares of stock under the 1991 ten-year incentive stock option plan
surrendered all outstanding options.
A summary of plan transactions follows:
Number of Option Price
Shares per Share
Outstanding and exercisable -
January 1, 1995 57,000 $.31250 - $.34375
Outstanding and exercisable -
June 1, 1995 155,000 $.23437 - $.25781
Canceled (57,000) $.31250 - $.31250
Outstanding and exercisable -
December 31, 1995 155,000 $.23437 - $.25781
Outstanding and exercisable -
June 30, 1996 155,000 $.23437 - $.25781
Note 13:
Commitments and contingencies:
Employment agreement:
In connection with the license agreement which provides for the Company to
receive $120,000 annually pursuant to a consulting agreement (see Note 5),
the Company entered into a four-year employment agreement with its president
which requires a minimum annual salary of $200,000 commencing in 1993.
Lease commitment:
DynaTenn, Inc. (d/b/a "DynaVac"), a wholly-owned subsidiary which
manufactures diversified industrial vacuum equipment, leases its facility in
Weymouth, Massachusetts under an operating lease on a month-to-month basis.
At June 30, 1996 and 1995 rent charged to operations for this facility
approximated $35,000, respectively.
Tenney Engineering, Inc. leases its facility in Union, New Jersey under an
operating lease which expires in December 1998 (see Note 8).
Contingencies:
The Company is involved in various lawsuits. Other than the one explained
in Note 4, all the others are covered by insurance and subject to deductible
amounts. Management believes that the outcome of these lawsuits will not
have a material adverse effect on the Company's consolidated financial
condition.
Note 14:
Extraordinary item:
Extraordinary item consists of gain on restructuring of debt net of income
taxes. The Settlement Agreement also provided for the forgiveness of debt
to be forgiven quarterly when periodic quarterly payments totaling $200,000
were made timely. The Company during the three months and the six months
ended June 30, 1995 made the required payments and recognized forgiveness of
$289,666, and $579,332 principal and interest, respectively.
* * *
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Operating revenues continue to be sufficient to cover corporate and
associated administrative costs. Working capital and stockholders equity
continue to grow due to profitability.
At June 30, 1996 the Company's cash and cash equivalents totaled $320,000 an
increase of $97,000 from the balance of $223,000 as at December 31, 1995.
The major sources of cash were operating profit of $347,000 and an increase
of $244,000 in accounts payable and other accrued payables, this increase is
due to the extending of payment terms by our suppliers. The uses of cash was
the increase in receivables of $398,000 due to longer time needed to
complete progress billing milestones, and $316,000 of work in process
inventory. Net cash provided by operations totaled $163,000 while
acquisition of equipment and payment of debt totaled $66,000.
The Company's operations 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
licenses and technology fees and rental income.
Significant obligation:
The Company is not in a position to make immediate payment of the entire
amount or a significant portion of the entire amount demanded by the Fund,
as discussed fully in Note 4. If the Company is required to make immediate
payment of the entire amount or of the past-due installments alleged to be
due, it would have a material adverse effect on the Company.
RESULTS OF OPERATIONS
Total net revenue for the second quarter and year-to-date period ended June
30, 1996 of $2,733,000 and $5,256,000 compares to net revenue of $3,211,000
and $5,330,000 in the corresponding 1995 period.
Product and product-related net revenue for the second quarter and year-to-
date periods ended June 30, 1996 was $2,383,000, and $4,524,000,
respectively, and compares to 1995 revenue of $2,716,000 and $4,443,000 in
the corresponding periods, respectively. The change is due to the amount of
revenue recognized under the percentage of completion for long-term projects
that were being worked on in our DynaVac subsidiary.
Service-related revenue of $179,000 for the second quarter and $377,000 for
the year-to-date period ended June 30, 1996, compare to the same periods in
1995 of revenue of $276,000, and $495,000, respectively, a decrease of 35%
and 24%. The decrease is due to both the harsh weather conditions in the
northeast, and the use of service personnel in the refurbishing of used
equipment, which is classified in product and product related sales.
Included in the six months ended June 30, 1996 and 1995 service revenue from
the Licensee's agreement for the services of the Company's president of
approximately 60,000, respectively.
Revenue related to the sale of parts totaled $171,000 and $355,000 for the
second quarter and year-to-date periods ended June 30, 1996, respectively.
For the second quarter and year-to-date periods ended June 30, 1995, revenue
related to the sale of parts was $219,000 and $392,000, respectively. The
decrease was due to the relocation of the warehouse, at our Union,
New Jersey facility, during the second quarter of 1996.
The Company's order backlog at June 30, 1996, December 31, 1995 and June 30,
1995 was approximately $5,059,000, $3,870,000 and $1,371,890, respectively.
The increase in backlog since June 30, 1995 is due primarily to an increase
in backlog at the Company's DynaVac subsidiary.
The total cost of sales as a percentage of net revenue was 74% for the
second quarter and year-to-date periods ended June 30, 1996, and compares to
80% and 76% for the corresponding 1995 periods.
The second quarter and year-to-date periods ended June 30, 1996 cost of sales
percentage of product and product-related sales was 76% and 77% and compares
to a cost of sales of 85% and 80% during same periods in 1995. The decrease
is due to utilizing manpower more efficiently and controlling overhead costs.
Service cost of sale as a percentage of sales was 80% and 69% for the 1996
second quarter and year-to-date periods ended June 30. This compares to 60%
and 65% for 1995 periods ended June 30, 1995. The increase in the cost of
sales percentage between years was due to the idle time created by first
quarter adverse weather and the relocation of the warehouse.
Cost of sales as a percentage of sales for the second quarter and year-to-
date period ended June 30, 1996 for parts was 33% and 39%, respectively, and
compares to 41% and 42% for the 1995 corresponding periods. The decrease is
due to the sales mix of parts sold.
Selling and administrative expenses for the second quarter and year-to-date
for the period ended June 30, 1996 was $519,000, and $1,038,000 and compares
to expenses of $435,000 and $961,000 in the 1995 periods. The increase was
due to the increase in payroll costs.
Interest expense was $6,000 and $10,000, respectively, for the second quarter
and year-to-date period ended June 30, 1996 and compares to expense of
$23,000 and $67,000, respectively in the 1995 periods. The decrease is due
to not accruing interest on the Pension Obligation (see Note 4).
The second quarter and year-to-date periods ended June 30, 1996 net income
was $197,000 and $347,000, respectively, and compares to $464,000 and
$844,000 for the corresponding periods ended June 30, 1995. During the second
quarter and year-to-date of 1995 the Company recognized an extraordinary
item (see Note 9) of $284,000 and $569,000, respectively.
PART II - OTHER INFORMATION
Item 6. Exhibits
(a)(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1996.
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)
s/Martin Pelman
Martin Pelman
Vice President, Finance
Principal Finance Officer
Dated: August 13, 1996.
26TENNEY ENGINEERING, INC.AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS