<PAGE> 1
TNR TECHNICAL, INC.
ANNUAL REPORT
1996
<PAGE> 2
[TNR TECHNICAL, INC. LETTERHEAD]
October 15, 1996
Dear Shareholder:
We are pleased to report to you that our revenues for fiscal 1996 were
$3,792,537 as compared to fiscal 1995 revenues of $3,710,805 as compared to
fiscal 1994 revenues of $3,585,872. Our net income for fiscal 1996 was
$135,398 as compared to $437,982 for fiscal 1995 and $148,238 for fiscal 1994.
Net income for fiscal 1995 includes a credit for income taxes of $239,000.
The pages that follow contain additional information about our
Company.
Sincerely,
Jerrold Lazarus,
Chairman of the Board
<PAGE> 3
BUSINESS
TNR TECHNICAL is an authorized distributor for Sanyo Energy,
Powersonic Battery, Saft America, Varta Battery, Eveready Battery, Yuasa,
Duracell, GP Battery, Sony and Renata batteries and stocks one of the largest
battery inventories in the southeastern part of the United States. TNR designs
and builds custom battery pack assemblies in technologies ranging from
rechargeable nickel cadmium and sealed lead acid to primary chemistries such as
alkaline, carbon zinc, lithium, nickel metal hydride and zinc air batteries.
TNR pledges a commitment to total service. If the customer needs
pricing, availability, technical information or just order status, TNR is
committed to delivering complete satisfaction in the shortest possible time.
Most orders, if received before noon, are shipped the same business day.
Since 1979, TNR has competed in the growing demand for custom battery
pack assemblies. TNR gives the customer a variety of different cells from
which to choose. We produce cordless phone pack products as well as complete
battery assemblies. TNR has cost effective battery solutions for OEM (original
equipment manufacture) instruments, medical equipment, computers, UPS
(uninterrupted power supply), emergency lighting, communications, alarms, video
and other products.
In designing and assembling custom battery packs, our applications
department will work with the customer to determine specifications which are
vital to their design, including voltage, temperature, current requirements,
the length of time the battery must operate, size of the battery and its total
weight. Generally, the customer will have a first prototype within one to four
weeks of placing the order.
In 1989, TNR opened "TNR, Your Battery Store." TNR's Battery Store
stocks a full line of batteries for cellular phones, cordless phones,
camcorders, computers, emergency lighting, hobbies, watches, radios and all
hard to find batteries. The battery industry has grown and we pride ourselves
in keeping up with the market demand.
EMPLOYEES
At September 16, 1996, the Company had twenty employees which include
seven salespersons (including two executive officers), five clerical persons,
two warehouse and shipping personnel and six factory workers.
<PAGE> 4
PROPERTIES
The Company's executive office, sales, distribution assembly facility
and retail store 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 lease
provides for a term of ten years with a base annual rent of $59,800 in year one
of the term with annual increases of five percent over the preceding year's
base rent. The Company is also responsible for the payment of all sales, use
and other taxes related to the leased facilities. The Company owns production
equipment, primarily welding, soldering, testing, pneumatic and material
handling equipment, and inspection equipment which has been sufficient for its
needs to date.
MARKET FOR REGISTRANT'S SECURITIES
AND RELATED STOCKHOLDER MATTERS.
Principal Market and Stock Prices.
The Company's Common Stock may be quoted in the over-the-counter
market. The high and low bid prices of the Common Stock, as reported by
National Quotation Bureau, Incorporated are shown below for the Company's last
two fiscal years.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1995
- -----------
First Quarter $ 4.00 $ 1.50
Second Quarter $ 4.00 $ 3.75
Third Quarter $ 3.75 $ 3.25
Fourth Quarter $ 3.50 $ 3.00
Fiscal 1996
- -----------
First Quarter $ 3.50 $ 3.25
Second Quarter $ 3.50 $ 3.25
Third Quarter $ 3.50 $ 3.00
Fourth Quarter $ 3.25 $ 3.00
</TABLE>
The foregoing quotations represent approximately inter-dealers
prices, without retail markup, markdown or commission and do not represent
actual transactions. Such quotations should not be viewed as necessarily
indicative of the price that could have been obtained on that date for a
substantial number of securities due to the limited market for the Company's
securities. On September 16, 1996, the last sale was 4-5/8.
The approximate number of holders of record of the Company's Common
Stock, as of September 16, 1996 was 1,575 as supplied by the Company's transfer
agent, American Stock Transfer Company, 40 Wall Street, New York, NY 10005.
No cash dividends have been paid by the Company on its Common Stock
and no such payment is anticipated in the foreseeable future.
2
<PAGE> 5
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the Company's
financial statements which have been examined by independent certified public
accountants, as indicated in their reports included elsewhere herein. Such
financial statements should be read in conjunction with the following financial
data.
STATEMENT OF OPERATIONS SUMMARY:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
July 31, 1996 July 31, 1995 July 31, 1994 July 31, 1993 July 31, 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $3,792,537 $3,710,805 $3,585,872 $2,804,053 $ 2,385,209
Net income 135,398(1) 437,982(1) 148,238 129,963 101,069
Net income per
share
.52 1.67 .56 .50 .39
Cash dividends -0- -0- -0- -0- -0-
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
July 31, 1996 July 31, 1995 July 31,1994 July 31, 1993 July 31, 1992
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Working capital $1,569,635 $1,456,548 $1,272,929 $1,129,220 $ 993,387
Total Assets 1,997,399 2,022,611 1,532,215 1,364,331 1,226,389
Long-term debt
(including capital
leases) -0- -0- -0- -0- -0-
Total Shareholders'
equity
1,889,814 1,754,416 1,316,434 1,168,196 1,038,233
</TABLE>
- ----------------
(1) Includes a credit for income taxes of $239,000. See "Note 6 in Notes
to Financial Statements."
3
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital amounted to $1,569,635 at July 31, 1996 as compared to
$1,456,548 at July 31, 1995 as compared to $1,272,929 at July 31, 1994. Cash
and short-term investments amounted to $774,570 at July 31, 1996 as compared to
$608,161 at July 31, 1995 as compared to $727,573 at July 31, 1994. As more
fully described in the "Statements of Cash Flows" included in the Company's
Financial Statements elsewhere herein, net cash provided by (used in) operating
activities for the fiscal years ended July 31, 1996, July 31, 1995 and July 31,
1994 were $242,858, ($83,021) and $51,533, respectively. During 1996, 1995 and
1994, the Company's net income contributed to cash flows from operating
activities. In 1996, cash flow from operating activities were increased
substantially by decreases in inventories partially offset by increases in
accounts receivable. In 1995 and 1994, cash flows from operating activities
were substantially reduced by increases in accounts receivable and inventories.
During 1996 net cash was provided by investing activities as a result of
reduction in short term investments partially offset by purchase of property
and equipment. During 1995 and 1994, net cash was used in investing activities
to increase short term investments and purchase property and equipment. During
the past three years, the Company did not have any external sources of
financing.
During the past three years, the Company's liquidity needs has been
satisfied from internal sources including cash from operations and amounts
available from the Company's working capital. During fiscal 1997, Management
expects this trend to continue. There are no material commitments for capital
expenditures or any long-term credit arrangements as of July 31, 1996.
Results of Operations
Sales for 1996 increased by approximately $82,000 or 2% as compared to
fiscal 1995. Sales for fiscal 1995 increased by approximately $125,000 or 3%
as compared to fiscal 1994. The sales increases were due to increased demand
for the Company's products from the Company's existing client base and from new
customers. During fiscal 1994, one customer accounted for 13% of the Company's
revenues. The Company's gross margin fluctuated slightly over the past three
years primarily due to changes in product mix.
Operating (selling, general and administrative) expenses increased
during fiscal 1996 as compared to fiscal 1995 and for fiscal 1995 as compared
to fiscal 1994, substantially due to increases in administrative salaries and
bad debt expense. Operating expenses when expressed as a percentage of net
sales was 22.7%, 21.5%, and 21.2%, for fiscal 1996, fiscal 1995 and fiscal
1994, respectively.
4
<PAGE> 7
During the past three years, the Company did not charge its operations
with any research and development costs.
Net income for fiscal 1996 was $135,398 as compared to $437,982, for
fiscal 1995 as compared to a net income for fiscal 1994 of $148,238. Net
income per share for fiscal 1996, fiscal 1995 and 1994 were $.52, $1.67 and
$.56, respectively. The substantial increase in net income for fiscal 1995
over fiscal 1994 was due to a $250,000 credit to income tax expense as a result
of the elimination of a valuation allowance with respect to existing deferred
tax assets as of July 31, 1995. See Note 6 to the financial statements
included elsewhere herein.
Management of TNR Technical, Inc. has received a number of comments
from its odd lot stockholders regarding the costs associated with any sale of
their odd lots. Further, Management would like to reduce TNR's expense of
maintaining mailings to odd lot holders. Accordingly, TNR will from
time-to-time privately purchase from odd lot holders of its common stock, such
odd lots (i.e. 99 shares or less) from its stockholders of record on December
15, 1995 so long as such purchases would not have the effect of reducing TNR's
record holders to 500 or less. The purchase price to be paid will be based
upon the closing asked price on the NASD electronic bulletin board of TNR's
Common Stock for the preceding trading day. Stockholders will not be permitted
to breakup their stockholdings into odd lots and stockholders or their legal
representatives must affirm to TNR that the odd lot shares submitted for
payment represent the stockholder's entire holdings and that such holdings do
not exceed 99 shares. (This offer shall be open to all odd lot beneficial
holders even those held in street or nominee name so long as the proper
representations can be obtained satisfactory to TNR that the shares are odd lot
shares, were owned by the beneficial stockholder as of December 15, 1995 and
represent such stockholder's entire holdings of TNR). This offer will not be
valid in those states or jurisdictions where such offer or sale would be
unlawful.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
In November 1995, the Company reported the death of Burton R. Abrams
CPA, 22 Julliard Drive, Plainview, New York 11803, the Company's certifying
accountant. Mr. Abrams was a sole practitioner. The Burton R. Abrams' firm
was terminated as a result of the death of Mr. Abrams. Burton R. Abrams'
report on the financial statements of the Company for the past two fiscal years
ended July 31, 1995 and July 31, 1994 did not contain an adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope, or accounting principles.
During the Company's fiscal years ended July 31, 1995 and July 31,
1994 and during the period August 1, 1995 through November 20, 1995, there were
no disagreements between the Company and its former accountant on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or
5
<PAGE> 8
procedure that if not resolved to the satisfaction of the former accountant
would have caused the former accountant to refer to the subject matter of the
disagreement in connection with the report. During the Company's fiscal years
ended July 31, 1995 and July 31, 1994 and during the period August 1, 1995
through November 20, 1995: (i) the accountant did not advise the Company of
the lack of internal controls necessary to develop reliable financial
statements; (ii) the accountant did not advise the Company that it could no
longer rely on representations of the Company's management or that it was
unwilling to be associated with the financial statements prepared by the
Company's management; (iii) the accountant did not advise the Company of the
need to significantly expand the scope of its audit or of the existence of
information that if further investigated could materially impact the fairness
or reliability of audited reports or financial statements or cause the
accountant to be unable to rely on management's representation; and (iv) the
accountant did not advise the Company of information that, in the opinion of
the accountant, materially impacted the fairness or reliability or a previously
issued audit report or underlying financial statement.
James, Parks, Tschopp & Whitcomb, P.A., was engaged by the Company on
November 20, 1995 as the Company's new certifying accountants to perform an
audit of the Company for its fiscal year ended July 31, 1996. During the
fiscal years ended July 31, 1995 and 1994 and during the period August 1, 1995
to the date of engagement of James, Parks, Tschopp & Whitcomb, P.A., the
Company did not consult the firm of James, Parks, Tschopp & Whitcomb, P.A.,
regarding (i) the application of accounting principles to a specified
transaction, either completed or proposed; (ii) the type of audit opinion that
might be rendered on the Company's financial statements; or (iii) any matter
that was the subject of a disagreement with the Company's former accountant or
any other matter as required under the Securities Act of 1933 as amended.
The financial statements of TNR Technical, Inc. as of July 31, 1996
and for the year then ended as listed in Item 8 were audited by James, Parks,
Tschopp and Whitcomb P.A. and include their report thereon dated August 30,
1996. The financial statements as of July 31, 1995 and for the two years then
ended also listed in Item 8 were audited by Burton R. Abrams, CPA, a sole
practitioner who died in November 1995. The Company's Form 10-K for the fiscal
year ended July 31, 1995 includes his report dated August 25, 1995 wherein Mr.
Abrams expressed an unqualified opinion on the financial statements of TNR
Technical, Inc. as of July 31, 1995 and for the two years then ended which he
manually executed. However, this report cannot be included herein without his
consent, and as a result of his death has not been included. Based upon the
audit of the financial statements of TNR Technical, Inc. as of July 31, 1996
and the year then ended the firm of James, Parks, Tschopp and Whitcomb P.A. has
indicated that no matters have come to their attention which might have a
material effect on, or require disclosure in the financial statements reported
on previously by Mr. Abrams.
6
<PAGE> 9
OFFICERS AND DIRECTORS
The names, ages and principal occupations of the Company's
present directors, and the date on which their term of office commenced and
expires, are listed below.
<TABLE>
<CAPTION>
Term First
of Became Principal
Name Age Office Director Occupation
---- --- ------ -------- ----------
<S> <C> <C> <C> <C>
Jerrold Lazarus 64 (1) 1987 Chairman of the
Board and Chief
Executive Officer
of the Company
Norman L. Thaw 63 (1) 1979 President of
Stride Rite
Stables, Inc.,
Private Investor
Wayne Thaw 39 (1) 1983 President and
Chief Operating
Officer of the
Company
</TABLE>
________________
(1) Directors are elected at the annual meeting of stockholders and hold
office to the following annual meeting.
Jerrold Lazarus is Chairman of the Board, Chief Executive
Officer, Chief Financial Officer, Secretary and Treasurer of the Company.
Wayne Thaw is President and Chief Operating Officer of the Company.
AVAILABILITY OF FORM 10-K
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K WITH EXHIBITS FOR
THE FISCAL YEAR ENDED JULY 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WILL BE PROVIDED FREE OF CHARGE TO ANY SHAREHOLDER UPON WRITTEN
REQUEST TO TNR TECHNICAL, INC., 301 CENTRAL PARK DRIVE, SANFORD, FLORIDA 32771
ATTENTION: CORPORATE SECRETARY.
7
<PAGE> 10
TNR TECHNICAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report -- July 31, 1996 F-2
Report of Independent Certified Public Accountant -- July 31, 1995 F-3
Balance Sheets -- July 31, 1996 and 1995 F-4
Statements of Operations -- Three years ended July 31, 1996 F-5
Statements of Stockholders' Equity -- Three years ended July 31, 1996 F-6
Statements of Cash Flows -- Three years ended July 31, 1996 F-7
Notes to Financial Statements F-8
</TABLE>
F-1
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
TNR Technical, Inc.:
We have audited the accompanying balance sheet of TNR Technical, Inc. as of
July 31, 1996, and the related statements of operations, shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TNR Technical, Inc. as of
July 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ James, Parks, Tschopp & Whitcomb P.A.
August 30, 1996
F-2
<PAGE> 12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The financial statements of TNR Technical, Inc. as of July 31, 1995 and for the
two years then ended were audited by Burton R. Abrams, CPA, a sole practitioner
who died in November 1995. The Company's Form 10-K for the fiscal year ended
July 31, 1995 includes his report dated August 25, 1995 wherein Mr. Abrams
expressed an unqualified opinion on the financial statements of TNR Technical,
Inc. as of July 31, 1995 and for the two years then ended which he manually
executed. However, his report cannot be included herein without his consent,
and as a result of his death has not been included. Based upon the audit of the
financial statements of TNR Technical, Inc. as of July 31, 1996 and the year
then ended, the firm of James, Parks, Tschopp and Whitcomb, P.A. has indicated
that no matters have come to their attention which might have a material effect
on, or require disclosure in, the financial statements reported on previously
by Mr. Abrams.
F-3
<PAGE> 13
TNR TECHNICAL, INC.
BALANCE SHEETS
July 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 426,320 100,298
Short-term investments (note 2) 348,250 507,863
Accounts receivable - trade, less allowance for doubtful
accounts of $20,000 in 1996 and $18,000 in 1995 442,181 380,302
Income taxes receivable 1,685 -
Inventories (note 3) 440,586 715,438
Prepaid expenses and other current assets 5,198 5,842
Deferred income taxes (note 6) 13,000 15,000
----------- ----------
Total current assets 1,677,220 1,724,743
Deferred income taxes (note 6) 197,000 235,000
Property and equipment, at cost, net of accumulated depreciation
and amortization (note 4) 109,796 56,877
Other assets:
Deposits 13,383 5,991
----------- -----------
Total assets $ 1,997,399 2,022,611
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,077 220,038
Accrued expenses 46,508 42,657
Income taxes payable - 5,500
----------- -----------
Total current liabilities 107,585 268,195
----------- -----------
Shareholders' equity:
Common stock - $.02 par value, authorized 500,000 shares;
issued and outstanding 301,581 shares (note 5) 6,032 6,032
Additional paid in capital 2,640,001 2,640,001
Accumulated deficit (561,949) (697,347)
----------- -----------
2,084,084 1,948,686
Less cost of treasury stock - 39,159 shares 194,270 194,270
----------- -----------
Total shareholders' equity 1,889,814 1,754,416
----------- -----------
Commitment (note 7) $ 1,997,399 2,022,611
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 14
TNR TECHNICAL, INC.
STATEMENTS OF OPERATIONS
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net sales $3,792,537 3,710,805 3,585,872
Interest 30,538 34,483 19,340
---------- ---------- -----------
3,823,075 3,745,288 3,605,212
---------- ---------- -----------
Costs and expenses:
Cost of goods sold 2,779,595 2,746,734 2,690,768
Selling, general and administrative 859,047 799,572 758,706
---------- ---------- -----------
3,638,642 3,546,306 3,449,474
---------- ---------- -----------
Income before income taxes 184,433 198,982 155,738
Income tax expense (benefit) (note 6) 49,035 (239,000) 7,500
---------- ---------- -----------
Net income $ 135,398 437,982 148,238
========== ========== ===========
Income per share $ .52 1.67 .56
========== ========== ===========
Weighted average number of shares 262,422 262,422 262,422
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 15
TNR TECHNICAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK
------ ------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1993 301,581 $ 6,032 2,640,001 (1,283,567) (194,270)
Net income - - - 148,238 -
---------- ---------- ------------- -------------- ----------
Balance, July 31, 1994 301,581 6,032 2,640,001 (1,135,329) (194,270)
Net income - - - 437,982 -
---------- ---------- ------------- -------------- ----------
Balance, July 31, 1995 301,581 6,032 2,640,001 (697,347) (194,270)
Net income - - - 135,398 -
---------- ---------- ------------- -------------- ----------
Balance, July 31, 1996 301,581 $ 6,032 2,640,001 (561,949) (194,270)
========== ========== ============= ============== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 16
TNR TECHNICAL, INC.
STATEMENTS OF CASH FLOWS
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 135,398 437,982 148,238
Adjustments to reconcile net income to net cash
provided by operations:
Deferred income taxes 40,000 (250,000) -
Depreciation and amortization 23,530 17,028 14,730
Gain on sale of transportation equipment - (2,728)
Provision for doubtful accounts 2,000 6,000 -
Changes in operating assets and liabilities:
Accounts receivable (63,879) (91,912) (3,056)
Inventories 274,852 (270,260) (118,170)
Prepaid expenses and other assets 644 15,727 (7,127)
Accounts payable and accrued expenses (155,110) 52,414 19,646
Deposits (7,392) - -
Income taxes (7,185) - -
---------- ---------- -----------
Net cash provided by (used in) operating
activities 242,858 (83,021) 51,533
---------- ---------- -----------
Cash flows from investing activities :
Reduction (increase) in short-term investments 159,613 (134,094) (43,769)
Purchase of property and equipment (76,449) (36,391) (16,531)
---------- ----------- -----------
Net cash provided by (used in) investing
activities 83,164 (170,485) (60,300)
---------- ----------- -----------
Increase (decrease) in cash and cash equivalents 326,022 (253,506) (8,767)
Cash and cash equivalents - beginning of year 100,298 353,804 362,571
---------- ----------- -----------
Cash and cash equivalents - end of year $ 426,320 100,298 353,804
========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ - - 461
========== ============ ===========
Cash paid during the year for income taxes $ 10,860 13,000 -
========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 17
TNR TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS
TNR Technical, Inc. (TNR or the Company) designs, assembles and
markets batteries and multi-cell battery packs to a wide variety of
industrial markets. The Company is a distributor for a number of major
U.S. battery manufacturers and markets its products nationally.
(b) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
(c) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The Company provides
depreciation for machinery and equipment using the straight-line
method over the estimated useful lives of the respective assets which
range from five to ten years. Amortization of leasehold improvements
is computed using the straight-line method over the lesser of the
lease term or estimated useful lives of the improvements.
(d) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged against income in the year
incurred.
(e) USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(Continued)
F-8
<PAGE> 18
TNR TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1996 and 1995
(1), CONTINUED
(f) FINANCIAL INSTRUMENTS FAIR VALUE, CONCENTRATION OF BUSINESS AND CREDIT
RISKS
The carrying amount reported in the balance sheet for cash, short-term
investments, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the immediate or
short-term maturity of these financial instruments. Financial
instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable which
amount to approximately $450,000. The Company performs periodic credit
evaluations of its trade customers and generally does not require
collateral.
(g) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) CASH FLOWS
For purposes of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less to be cash
equivalents.
(i) EARNINGS PER COMMON SHARE
Earnings per common share has been computed based upon the weighted
average number of common shares outstanding during the years
presented. The inclusion of common stock issuable upon the exercise of
stock options are not included in these calculations as their impact
would be anti-dilutive.
(j) RECLASSIFICATIONS
Certain amounts from 1995 and 1994 have been reclassified to conform
with the 1996 presentation.
(Continued)
F-9
<PAGE> 19
TNR TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1996 and 1995
(2) SHORT-TERM INVESTMENTS
Short-term investments in 1996 and 1995 consist of United States
Treasury Bills.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished goods $430,061 706,430
Work-in-process - -
Purchased parts and material 10,525 9,008
-------- --------
$440,586 715,438
======== ========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Machinery and equipment $ 164,450 114,605
Leasehold improvements 23,467 3,701
--------- --------
187,917 118,306
Less: Accumulated depreciation and amortization
78,121 61,429
--------- --------
$ 109,796 56,877
========= ========
</TABLE>
(5) STOCK OPTION PLAN
In November 1992, the Board of Directors approved an Incentive and
Non-Qualified Stock Option Plan which was ratified by the stockholders
in January 1993. The plan covers 60,000 shares of Common Stock,
subject to adjustment of shares under the anti-dilution provisions of
the Plan. The plan authorizes the issuance of the options covered
thereby as either "Incentive Stock Options" within the meaning of the
Internal Revenue Code of 1986, as amended, or as "Non-Statutory Stock
Options." No options may be granted after November 16, 2002.
(Continued)
F-10
<PAGE> 20
TNR TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1996 and 1995
(5), CONTINUED
Under the Plan, the aggregate fair market value (determined at the
time the option is granted) of the optioned stock for which Incentive
Stock Options are exercisable for the first time by any employee
during any calendar year shall not exceed $100,000.
No options have been granted under the Plan as of July 31, 1996.
(6) INCOME TAXES
The income tax provision (benefit) for the years ended December 31,
1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ - - -
State 9,035 11,000 7,500
----------- ---------- --------
9,035 11,000 7,500
----------- ---------- --------
Deferred:
Federal 40,000 (250,000)
-
State - - -
----------- ---------- --------
40,000 (250,000) -
----------- ---------- --------
Total $ 49,035 (239,000) 7,500
=========== ========== ========
</TABLE>
Income tax expense (benefit) attributable to income before income tax differed
from the amount computed by applying the U.S. Federal income tax rate of 34% to
income (loss) from operations before income taxes as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 62,700 67,700 53,000
Increase (reduction) in income tax expense (benefit)
resulting from:
State income taxes, net of federal income tax
benefit 6,000 7,000 5,500
Utilization of net operating loss carryforwards - (52,500) (39,000)
Rate differences (19,965) (11,200) (12,000)
Reduction in valuation allowance - (250,000) -
----------- ---------- ---------
$ 49,035 (239,000) 7,500
=========== ========== =========
</TABLE>
F-11
<PAGE> 21
TNR TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1996 and 1995
(6), CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at July 31, 1996 and 1995 are
presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes $ 8,000 11,000
Accounts receivable, due to allowance for uncollectible
accounts 5,000 4,000
Net operating losses 197,000 235,000
---------- ---------
210,000 250,000
Less valuation allowance - -
---------- ---------
Total $ 210,000 250,000
========== =========
</TABLE>
Deferred taxes are presented in the accompanying balance sheets as:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current deferred tax assets $ 13,000 15,000
Noncurrent deferred tax assets 197,000 235,000
------------ ----------
$ 210,000 250,000
============ ==========
</TABLE>
In the year ended July 31, 1994, the Company adopted the Financial
Accounting Board Statement No. 109, "Accounting for Income Taxes" and
recorded a gross deferred tax asset of $250,000 which was offset by a
valuation allowance in the same amount as of July 31, 1994. During
fiscal 1995, the Company reversed the entire valuation allowance and,
accordingly, credited $250,000 to income tax expense.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. Management considers the
projected future taxable income and tax planning strategies in making
this assessment. The Company believes that future earnings in addition
to the amount of taxable differences which will reverse in future
periods, will be sufficient to offset recorded deferred tax assets
and, accordingly, a valuation allowance is not considered necessary at
July 31, 1996 and 1995.
(Continued)
F-12
<PAGE> 22
TNR TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1996 and 1995
(6), CONTINUED
At July 31, 1996, the Company has net operating loss carryforwards of
approximately $950,000 which will expire at various dates through 2004.
(7) LEASE COMMITMENT
Commencing in June 1996, the Company entered into an agreement to lease
its office, warehouse and distribution facilities from a partnership
controlled by an executive officer, shareholder and director of TNR.
The lease agreement provides for a term of ten years including the
payments as indicated below:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
--------------------
<S> <C>
1997 $ 60,298
1998 63,313
1999 66,480
2000 69,804
2001 73,293
Thereafter 409,007
------------
$ 742,195
============
</TABLE>
(8) SALES TO MAJOR CUSTOMERS
During the years ended July 31, 1996 and 1995, no customer accounted
for more than 10% of total revenues. During the year ended July 31,
1994, one customer accounted for approximately 13% of total revenues.
(9) SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Advertising costs $37,244 56,810 78,249
</TABLE>
Advertising costs are included in selling, general and administrative costs in
the accompanying statements of operations.
F-13
