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 September 30, 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 September 30, 1994
Common Stock $.10 par value 3,685,592
Transitional Small Business Disclosure Format:
Yes No X <PAGE>
TENNEY ENGINEERING, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1995
I N D E X
PAGE
Part I - Financial Information
Consolidated Condensed Balance Sheet - September 30, 1995 3
Consolidated Condensed Statements of Operations -
Three and nine months ended September 30, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended September 30, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Part II - Other Information 14
<PAGE>
TENNEY ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1995
(In thousands of dollars)
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 68
Accounts receivable, net 1,627
Current portion of installment receivables 99
Inventories 212
Prepaid expenses and other current assets 18
Total current assets 2,024
Equipment, net 194
Installment receivables, noncurrent portion 266
Other assets 135
Totals $ 2,619
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 1,106
Accrued payroll and payroll taxes 159
Billings in excess of estimated revenue on
long-term contracts 539
Current portion of long-term debt 11
Pension obligation 581
Total current liabilities 2,396
Long-term debt, noncurrent portion 35
Total liabilities 2,431
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock at par value 369
Additional paid-in capital 1,960
Retained earnings (deficit) (2,104)
225
Less treasury stock 37
Total stockholders' equity 188
Totals $ 2,619
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
TENNEY ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands of dollars -
except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Net revenue:
Product and product related $1,523 $1,742 $5,966 $3,498
Service 264 305 669 960
Parts 160 133 642 454
Totals 1,947 2,180 7,277 4,912
Cost of sales:
Product and product related 1,066 1,278 4,626 2,909
Service 187 223 509 678
Parts 67 78 230 256
Totals 1,320 1,579 5,365 3,843
Gross profit 627 601 1,912 1,069
Selling and administrative
expenses 394 481 1,355 1,294
Income (loss) from operations 233 120 557 (225)
Other expense (income):
Interest expense 24 90 91 287
Other income, net (4) (46) (27) (73)
Totals 20 44 64 214
Income (loss) before income
taxes and extraordinary item $ 213 $ 76 $ 493 $ (439)
Income taxes 3 - 8 -
Income (loss) before
extraordinary item 210 76 485 (439)
Extraordinary item - gain on
restructuring of debt net of
income taxes of five thousand
and fourteen thousand dollars,
respectively 286 - 855 -
Net income (loss) $ 496 $ 76 $1,340 $(439)
Income (loss) per common share
before extraordinary items $ .06 $ .02 $ .13 $(.11)
Extraordinary item per common
share .07 - .23 -
Net income (loss) per common
share $ .13 $ .02 $ .36 $ (.11)
Exercise of options would not be dilutative.
See Notes to Consolidated Condensed Financial Statements.<PAGE>
TENNEY ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited) (000's)
Nine Months Ended
September 30,
1995 1994
Operating activities:
Net income (loss) $ 1,340 $ (437)
Adjustments to reconcile loss to net cash
provided by (used in) operations:
Depreciation and amortization 42 89
Gain on debt forgiveness, principal and
interest (855) -
Provision for bad debts 43 -
Provision for pension withdrawal liability 79 -
Changes in operating assets and liabilities:
Accounts and installment receivables (485) (22)
Inventories 72 367
Prepaid expenses and other current assets 68 (4)
Other assets 3 (11)
Accounts payable and other accrued liabilities (257) 311
Accrued payroll and payroll taxes 34 (47)
Billings in excess of estimated revenues (182) 13
Accrued restructuring costs - (50)
Net cash provided by operating activities (98) 209
Investing activities:
Acquisition of equipment (97) (8)
Net cash used in investing activities (97) (8)
Financing activities:
Payments of note payable - bank and long-term debt (579) (223)
Net cash used in financing activities (579) (223)
Net decrease in cash and cash equivalents (774) (22)
Cash and cash equivalents, beginning of year 842 289
Cash and cash equivalents, end of period $ 68 $ 267
Supplemental disclosure of cash flow information:
Interest paid $ 6 $ 287
Income taxes paid $ 28 $ -
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
TENNEY ENGINEERING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1:
The financial information enclosed herewith as at September 30,
1995, and for the three and nine months ended September 30, 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
September 30, 1995, the changes in cash flows for the nine months
ended September 30, 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 September 30, 1995
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
NOTE 2:
The results of operations for the nine months ended September 30,
1995 are not necessarily indicative of the results to be expected
for the full year.
NOTE 3:
Financial Condition and Results of Operation:
At September 30, 1995, the Company continues to have a deficit
in working capital. The deficit is partially due to high
billings in excess of revenue recognized under the percentage
of completion method of reporting sales.
Significant obligation:
As discussed in Note 9, on June 5, 1995, the Company received
an amended demand for withdrawal liability resulting from the
cessation of manufacturing activities at the Union, New
Jersey, facility. The Plan Trustees demanded payment of
$203,275.68 within 60 days from the receipt of the notice and
the balance of $368,123.89 in eleven (11) quarterly
installments. Failure to make the payments could constitute
a default in which case the Plan Trustees may file suit to
collect either the amount claimed to be currently due or the
full withdrawal liability. The Company has not made the
payment demanded in the time period specified. The Company,
through its counsel, is negotiating to obtain more favorable
installment payment terms. Failure to achieve more favorable
terms may force the Company to seek protection under the
Federal Bankruptcy Laws.
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
September 30, 1995, the Company has earned approximately $869,000)
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:
September 30,
1995
(In thousands
of dollars)
Accounts receivable, billed $1,545
Due from Licensee, net 126
1,671
Allowance for doubtful accounts 44
Totals $1,627
At September 30, 1995, sales recognized on the percentage of
completion method approximated $5,614,000.
NOTE 6:
Inventories:
Inventories consist of the following:
September 30,
1995
(In thousands
of dollars)
Raw materials $ 122
Work in process 90
Totals $ 212
Accumulated costs on long-term contracts recognized by the
percentage of completion method were approximately $4,477,000 in
1995.
NOTE 7:
Property:
On December 12, 1994, in accordance with the Settlement Agreement
(see Note 8), the Company conveyed to its bank lender (the "Bank")
the title to all real estate located in Union, New Jersey, with a
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 11,000
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, pursuant to which the Company conveyed to the
Bank 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. As of August 29,
1995, the Company paid the final amount due the Bank. The security
interest held by the Bank in substantially all the Company's assets
expires 93 days after August 29, 1995. The forgiveness of
$1,158,663 has been recognized $289,666 quarterly during the fourth
quarter of 1994 and the first three quarters of 1995.
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. Due to the cessation of
manufacturing operations at the Company's Union Facility, 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 letter from
the Plan Trustees alleging $529,743.28 principal due as withdrawal
liability. The Plan Trustees demanded 18 quarterly payments of
$33,879.28 and 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 Plan during 1992.
The Company did not make the January 19, 1994 payment. In a letter
dated March 16, 1994, the Plan Trustees 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 Plan Trustees
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 less than the amount
demanded of $529,743. In June 1994 the Company received
notification from the Plan Trustees rejecting the Company's offer.
In November 1994 the Company submitted another offer, still less
than the amount demanded by the Plan Trustees, and in addition
tendered a monthly payment less than the periodic payment
requested. In December 1994 the Company received from the Plan
Trustees a modified calculation reducing the withdrawal liability
to $502,665 principal. On June 5, 1995, the Company received from
the Plan Trustees a formal rejection of the proposed settlement and
the return of the uncashed checks submitted under such proposal.
In addition, the Plan Trustees demanded payment of the first six
installments totalling $203,275.68 within 60 days from the receipt
of the notice, an additional ten (10) quarterly installment
payments of $33,879.28, and a final payment of $29,151.09. Failure
to make the payments could constitute a default in which case the
Plan Trustees may file suit to collect either the amount claimed
to be currently due or the full withdrawal liability. The Company
has not made the payment demanded in the time period specified.
The Company, through its counsel, is still negotiating to obtain
more favorable installment payment terms. Failure to achieve more
favorable terms may force the Company to seek protection under the
Federal Bankruptcy Laws.
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 September 30, 1995, the Company has available, for tax reporting
purposes, net operating loss carryforwards of approximately
$2,800,000, which expire through 2008.
The components of income tax expenses are:
September 30,
1995
(In thousands
of dollars)
Income taxes currently payable:
Federal income tax--regular $ 422
Federal alternative minimum tax 22
State income tax 122
Tax benefit arising from carryforward
of net operating losses $ (544)
1995 Income Tax Expenses $ 22
The income tax expense in 1995 results from the federal
alternative minimum tax rate of 20%, which was allocated as
follows:
September 30,
1995
(In thousands
of dollars)
Income before extraordinary items $ 8
Extraordinary item 14
1995 Income Tax Expenses $ 22
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. At
the Annual Meeting of Shareholders held on May 26, 1995, a new ten-
year Incentive Stock Option Plan for officers and key employees was
approved. At the first meeting of the Stock Option Committee held
on June 1, 1995, options for 165,000 shares were granted to
officers and key employees. The exercise of outstanding options
would not be dilutive on the per share computation. The weighted
average number of common shares outstanding was 3,685,592 for the
nine-month period ending September 30, 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 $1,158,663, principal and interest, to be
forgiven quarterly, if periodic quarterly payments totaling
$200,000 are made timely. During the fourth quarter of 1994 and
the first three quarters of 1995, the Company recognized
forgiveness of approximately $289,666 principal and interest for
each quarter. For the third quarter and nine months ended
September 30, 1995, the Company recognized forgiveness of $289,666
and $868,997, respectively.
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 current corporate and associated administrative costs. The
Company continues to have a deficit in working capital. The
deficit is partially due to billings in excess of revenue
recognized under the percentage of completion method of reporting
sales.
The Company has been able to generate cash from operations and has
paid down bank debt as per the Settlement Agreement (see Note 8 of
the Notes to Consolidated Condensed Financial Statements). As of
August 29, 1995, the Company paid the final amount due the Bank.
On September 30, 1995, the Company's cash and cash equivalents
totaled $68,000, a decrease of $774,000 from the December 31, 1994
total of $842,000. Operating activities used net cash of $98,000.
The principal source of cash was operating profit of $1,338,000 and
the principal use of cash was the increase of accounts receivable
(see Note 5 of the Notes to Consolidated Condensed Financial
Statements). In addition, the payment of $579,000 against the
Company's Note payable - bank and current portion of long-term debt
was the principal non-operating activity that contributed to the
use of cash (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 testing equipment and earning license and
technology fees.
Significant obligation:
As discussed in Note 9, the Company received on June 5, 1995,
formal rejection of the proposed settlement from the Plan Trustees
and the return of the uncashed checks submitted under such
proposal. In addition, the Plan Trustees demanded payment of the
first six installments totalling $203,275.68 within 60 days from
the receipt of the notice. Failure to make the payments could
constitute a default in which case the Plan Trustees may file suit
to collect either the amount claimed to be currently due or the
full withdrawal liability. The Company has not made the payment
demanded in the time period specified. The Company, through its
counsel, is still negotiating to obtain more favorable installment
payment terms. Failure to achieve more favorable terms may force
the Company to seek protection under the Federal Bankruptcy Laws.
RESULTS OF OPERATIONS
Total net revenue of $1,947,000 and $7,277,000 in the third quarter
and year-to-date periods ended September 30, 1995, respectively,
compares to net revenue of $2,180,000 and $4,912,000 for the same
periods, respectively, in 1994.
Product and product-related net revenue for the third quarter and
year-to-date periods in 1995 was $1,523,000 and $4,443,000,
respectively, and compare to 1994 revenue of $1,742,000 and
$3,498,000 in the corresponding periods, respectively. The
increase in revenue within this classification between years was
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 DynaVac subsidiary.
Service-related revenue for the third quarter and year-to-date
periods ended September 30, 1995, of $264,000 and $759,000,
respectively, compare to the same periods in 1994 of revenue of
$305,000 and $960,000, respectively, a decrease of 13% and 21%.
The decrease is due primarily to having field service technicians
working on product-related projects rather than service-related
projects. Included in the quarter and year-to-date ended September
30, 1995, and September 30, 1994, was revenue from the Company's
Leased Employee Agreement of approximately $30,000 and $90,000,
respectively.
Revenue related to the sale of parts totaled $160,000 and $552,000
for the third quarter and year-to-date periods ended September 30,
1995, respectively. For the third quarter and year-to-date periods
ended September 30, 1994, revenue related to the sale of parts was
$133,000 and $454,000, respectively.
The Company's order backlog at September 30, 1995, December 31,
1994, and September 30, 1994, was $3,838,900, $5,300,000 and
$4,358,200, respectively. The decrease in backlog has been due to
a decline in backlog at the Company's DynaVac subsidiary.
The total cost of sales as a percentage of net revenue was 68% and
73% for the third quarter and year-to-date periods ended September
30, 1995, respectively, and compares to cost of sales percentages
of 72% and 78%, respectively, for the same periods in 1994.
For the third quarter and year-to-date periods ended September 30,
1995, the cost of sales percentage for product and product-related
sales was 70% and 77%, respectively. The cost of sales percentage
related to this category for the same periods in 1994 were 73% and
83%, respectively. During 1994, the Company was negatively
impacted by certain long-term contracts for which the costs to
complete had increased over the estimated costs. These contracts
were completed during 1994 and no impact was felt in 1995. The
cost of sales percentage for vacuum system products remained
unchanged between years.
Service cost of sales as a percentage of sales was 76% and 67%,
respectively, for the third quarter and year-to-date periods ended
September 30, 1995. For the third quarter and year-to-date periods
ended September 30, 1994, the service cost of sales was 73% and
71%, respectively. The increase between quarters is due to the
higher concentration of vacations and sick time in the quarter
ended September 30, 1995.
Cost of sales as a percentage of parts revenue for the third
quarter and year-to-date periods ended September 30, 1995, was 27%
and 36%, respectively, as compared to 58% and 56% for the
corresponding periods in 1994. The decrease in the cost of sales
percentage in the 1995/1994 comparison is due to a favorable sales
mix.
Selling and administrative expenses for the nine months ended
September 30, 1995 was $1,355,000 and compares to $1,294,000 in the
1994 period. The increase was due to increased professional fees
and additional payroll costs.
Interest expense was $91,000 for the nine months ended September
30, 1995, and compares to $287,000 interest expense for the
comparable 1994 period. The decrease is due primarily to no
interest being charged on the Note due to the Bank (see Note 9 of
the Notes to the Consolidated Condensed Financial Statements).
The third quarter and year-to-date periods ended September 30,
1995, net income was $494,000 and $1,338,000, respectively, and
compares to a net income (loss) of $76,000 and ($439,000),
respectively, for the comparable periods in 1994. The Company
continues to increase revenue from its operating activities and to
reduce costs.
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 September 30, 1995.
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: October 30, 1995.
s/Martin Pelman
Martin Pelman
Vice President, Finance
Principal Finance Officer
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0
0
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