SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14(a)-11(c) or
Section 240.14a-12
TENNEY ENGINEERING, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act
Rule 14a-6(i)(4) and 0-11.
[ ] Fee computed on table below per exchange Act Rules
14a-6(i)(4)and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
TENNEY ENGINEERING, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 22, 1998
NOTICE IS HEREBY GIVEN, that the Annual Meeting of
Shareholders of Tenney Engineering, Inc., a New Jersey corporation
(the "Company") will be held at the offices of the Company, 1090
Springfield Road, Union, New Jersey 07083 on Friday, May 22, 1998,
at 9:15 a.m., local time, to consider and act upon the following
matters:
1. To elect one (1) Director of the Company to serve
until the third succeeding annual meeting after his election and
until his respective successor is duly elected and qualified.
2. To transact such other business as may properly come
before the meeting and any and all adjournments thereof.
The Board of Directors has fixed the close of business on
March 27, 1998 as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting and
any adjournments thereof.
You are cordially invited to attend the meeting in person.
Whether or not you plan to attend the meeting, you are urged to
complete, date and sign the enclosed proxy and mail it promptly in
the return envelope provided for this purpose.
By order of the Board of Directors
SAUL S. SCHIFFMAN
Secretary
March 31, 1998
1090 Springfield Road
Union, New Jersey 07083
ALL SHAREHOLDERS ENTITLED TO VOTE AT THE MEETING ARE REQUESTED TO
COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY TO
TENNEY ENGINEERING, INC., 1090 SPRINGFIELD ROAD, UNION, NEW JERSEY
07083. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.
TENNEY ENGINEERING, INC.
1090 Springfield Road
Union, New Jersey 07083
Tel. No. (908) 686-7870
PROXY STATEMENT
Annual Meeting of Shareholders
May 22, 1998
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Tenney
Engineering, Inc., a New Jersey corporation (the "Company"), for
use at the Annual Meeting of Shareholders to be held at the offices
of the Company, 1090 Springfield Road, Union, New Jersey 07083, on
Friday, May 22, 1998, at 9:15 a.m., local time. The approximate
date on which the form of proxy and this proxy statement are first
being mailed to shareholders is April 15, 1998.
You are requested to complete, sign and date the accompanying
proxy and return it promptly to the Company in the enclosed
envelope. The enclosed proxy may be revoked at any time before it
is exercised, by written notice to the Company bearing a later date
than the proxy, provided said notice is received by the Company
prior to the start of the meeting.
Furthermore, any shareholder attending the meeting may vote in
person whether or not they had previously submitted a proxy. Where
instructions are indicated, proxies will be voted in accordance
therewith. Where no instructions are indicated, proxies will be
voted FOR the nominee for Director set forth below, and with regard
to all other matters as recommended by the Board of Directors or,
if no such recommendation is given, in the discretion of the proxy
holders. Directors will be elected by a plurality of the votes of
the shares present in person or represented by a proxy at the
annual meeting and entitled to vote on the election of directors.
The Board of Directors has fixed the close of business on
March 27, 1998, as the record date for the determination of
shareholders who are entitled to notice of and to vote at the
meeting. The presence of the holders of shares entitled to cast a
majority of the votes at the meeting shall constitute a quorum.
The Company has outstanding on March 27, 1998, and entitled to vote
with respect to all matters to be acted upon at the meeting,
3,714,842 shares of Series A common stock, $.01 par value, each of
which is entitled to ten(10) votes, and 3,714,842 shares of Series
B common stock, $.01 par value, each of which is entitled to one(1)
vote on all matters to come before the meeting.
The cost of preparing, assembling and mailing this proxy
statement, the notice of meeting and the enclosed proxy is to be
borne by the Company.
In addition to the solicitation of proxies by use of the
mails, the Company may utilize the service of some of the officers
and regular employees of the Company (who will receive no
compensation therefor in addition to their regular salaries) to
solicit proxies personally and by telephone and telegraph. The
Company may request banks, brokers, and other custodians, nominees
and fiduciaries to forward copies of the proxy material to their
principals and to request authority for the execution of proxies.
PRINCIPAL SHAREHOLDERS
As of February 27, 1998, the following have advised the
Company that they are beneficial owners of more than five (5)
percent of the outstanding shares of the Company's Series A and
Series B Common Stock:
<TABLE>
<CAPTION>
Name and Address of Amount Beneficially Owned Percentage
Beneficial Owner of Each Series as of by Series
February 27, 1998 of Common
<S> <C> <C>
Robert S. Schiffman Series A 541,309(1) 13.9%
1090 Springfield Road Series B 541,309(1) 13.9%
Union, New Jersey 07083
</TABLE>
(1) Includes options to purchase 180,000 shares of Series A and
180,000 shares of Series B common stock which Mr. Schiffman may
purchase under the 1995 Incentive Stock Option Plan.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation classifies the
Board of Directors into three classes, each of which is elected for
a three-year term. One director is to be elected at the annual
meeting, to serve until the 2001 Annual Meeting of the Shareholders
and until his successor is elected and qualified. The Board has
nominated Saul S. Schiffman, a director whose term is expiring, for
re-election to the Company's Board of Directors at the 1998 Annual
Meeting, for a term of three years, to expire at the annual meeting
in 2001 and until his successor is elected and qualified. The term
of the other three directors will continue as indicated below. Mr.
Schiffman was elected to his present term as Director by
shareholders in May 1995.
If such nominee should be unable to serve, an event not now
anticipated, the proxies will be voted for such persons, if any, as
shall be designated by the Board of Directors to replace such
nominee.
A description of the nominee and incumbent directors is
provided below:
Position with the Company Year First
or Principal Occupation Elected
Nominee and Age During the Past Five Years Director
Saul S. Schiffman Vice Chairman of the Board 1945
84 (1)(2) and since July 8, 1994
Secretary
Director Not Standing for Election Whose Term Expires in 1999:
David C. Schiffman Associate Professor of 1981
58 (2) (3) Psychology, State University
of New York at New Paltz
Directors Not Standing for Election Whose Terms Expire in 2000:
Robert S. Schiffman Chairman of the Board, 1975
54 (1) (2) President and Chief Executive
Officer of the Company
David A. Schuh Self-Employed Real Estate and 1993
58 (3) Insurance Broker
(1) Member of Executive Committee.
(2) Saul S. Schiffman is the father of Robert S. Schiffman and
David C. Schiffman.
(3) Member of Stock Option Committee.
The Company has no standing audit, nominating or compensation
committee or committees performing similar functions.
The Board of Directors held 4 meetings, the Executive
Committee held 4 meetings, and the Stock Option Committee held 1
meeting in 1997. No Director attended fewer than 75% of the Board,
and Committee, meetings, of which he was a member, held during
1997.
Security Ownership of Management
The following table sets forth the information as of February
27, 1998, regarding the beneficial ownership of Series A and Series
B common stock by each Director, Nominee for Director and the Chief
Executive Officer of the Company and by all Directors and Executive
Officers as a group.
Amount Percentage
Name Beneficially Owned of Class
Robert S. Schiffman (1) Series A 541,309 13.8%
Series B 541,309 13.8%
David A. Schuh None N/A
Saul S. Schiffman Series A 107,675 2.7%
Series B 107,675 2.7%
David C. Schiffman Series A 179,707 4.6%
Series B 179,707 4.6%
All Directors and Officers
as a group (2) Series A 879,941 22.4%
Series B 879,941 22.4%
(1) Includes options to purchase 180,000 shares of Series A Common
Stock, and 180,000 shares of Series B Common Stock which Mr.
Schiffman may purchase under the 1995 Incentive Stock Option Plan.
(2) Includes options to purchase 217,000 shares of Series A Common
Stock and 217,000 shares of Series B Common Stock which all
Officers and Directors may purchase under the 1995 Incentive Stock
Option Plan.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the annual and long-term
compensation of the Company's Chief Executive Officer for fiscal
1997, 1996 and 1995. No other executive officer or employee of the
Company received salary and bonus in 1997 in excess of $100,000.
<TABLE>
<caption
Long Term
Annual Compensation
Compensation Awards
Name and All Other Options
Principal Position Year Salary Compensation(1) (# of units)(5)
<S> <C> <C> <C> <C>
Robert S. Schiffman 1997 $ 212,501 3,751 50,000
(2)
Chairman of the 1996 205,000 8,508 65,000 (3)
Board, President 1995 215,000 8,243 65,000
(4)
and CEO
</TABLE>
(1) Inclusive of Company-paid life insurance in the amount of
$400,000 for Robert S. Schiffman and dollar value of personal
use of Company-provided automobile.
(2) Option granted pursuant to the Company's 1995 Incentive Stock
Option Plan exercisable at $.704688 per unit, between July 28,
1997 and January 27, 2000.
(3) Option granted pursuant to the Company's 1995 Incentive Stock
Option Plan exercisable at $.945312 per unit, between February
16, 1997 and August 14, 1999.
(4) Option granted pursuant to the Company's 1995 Incentive
Stock Option Plan exercisable at $.257812 per unit, between
December 2, 1995 and May 31, 1998.
(5) Each unit consists of the right to buy one share of Series A
Common Stock and one share of Series B Common Stock.
Compensation of Directors
During 1997 each Director who was not an employee of the
Company earned an annual fee at the rate of $4,800 ($400 per
month).
AUDITORS
Zeller Weiss & Kahn have audited the financial statements of
the Company since 1993 and have been selected by the Board of
Directors to audit the Company's financial statements for the year
1998.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Shareholders may present proposals which are proper subjects
for consideration at the 1999 Annual Meeting of shareholders of the
Company for inclusion in its proxy material relating to that
meeting. These proposals should be submitted in writing and
otherwise in the manner specified by Securities and Exchange
Commission rules to Tenney Engineering, Inc., 1090 Springfield
Road, Union, New Jersey 07083, Attention: Secretary. They must be
received by January 31, 1999, in order to be included in the proxy
materials for the 1999 Annual Meeting.
GENERAL INFORMATION AND OTHER MATTERS
Management does not know of any other matters which are
likely to be brought before the meeting. However, in the event
that any other matters properly come before the meeting, the
persons named in the enclosed proxy will vote the proxy in
accordance with their judgment on such matters.
By order of the Board of Directors
SAUL S. SCHIFFMAN
Secretary
March 31, 1998
1090 Springfield Road
Union, New Jersey 07083
TENNEY ENGINEERING, INC.
PROXY
SERIES A COMMON STOCK
Proxy Solicited by Board of Directors for Annual Meeting of
Shareholders
The undersigned hereby appoints SAUL S. SCHIFFMAN and ROBERT
S. SCHIFFMAN, and each of them, proxies and attorneys, with full
power of substitution at the Annual Meeting of Shareholders of
TENNEY ENGINEERING, INC. (the "Company") to be held at the offices
of the Company, 1090 Springfield Road, Union, New Jersey 07083, at
9:15 a.m. on Friday, May 22, 1998, and any adjournment, with
authority to vote all the Series A Common Stock of said Company
which the undersigned is entitled to vote as follows:
1. ELECTION OF 1 DIRECTOR to serve until the third annual
meeting after his election:
[ ] FOR the nominee listed below (except as marked to
the contrary below),
[ ] WITHHOLD AUTHORITY to vote for the nominee listed
below.
Saul S. Schiffman
(Instructions: To withhold authority to vote for the nominee,
write the nominee's name in the space provided below.)
2. In their discretion, on such other business as may
properly come before the meeting or any adjournment.
PLEASE SIGN AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE
Every properly signed proxy will be voted by the proxies in
accordance with the specifications made thereon. If no
specification is made, it is the intention of the proxies to vote
this proxy FOR the election of Director.
Receipt is acknowledged of the Notice of Annual Meeting and
Proxy Statement of the Company dated March 31, 1998.
Dated: , 1998
Signature(s) of Shareholder(s)
Note: Executors, administrators,
trustees, and others signing in
a representative capacity
should indicate the capacity in
which they sign. If shares are
held jointly, EACH holder
should sign.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
TENNEY ENGINEERING, INC.
PROXY
SERIES B COMMON STOCK
Proxy Solicited by Board of Directors for Annual Meeting of
Shareholders
The undersigned hereby appoints SAUL S. SCHIFFMAN and ROBERT
S. SCHIFFMAN, and each of them, proxies and attorneys, with full
power of substitution at the Annual Meeting of Shareholders of
TENNEY ENGINEERING, INC. (the "Company") to be held at the offices
of the Company, 1090 Springfield Road, Union, New Jersey 07083, at
9:15 a.m. on Friday, May 22, 1998, and any adjournment, with
authority to vote all the Series B Common Stock of said Company
which the undersigned is entitled to vote as follows:
1. ELECTION OF 1 DIRECTOR to serve until the third annual
meeting after his election:
[ ] FOR the nominee listed below (except as marked to
the contrary below),
[ ] WITHHOLD AUTHORITY to vote for the nominee listed
below.
Saul S. Schiffman
(Instructions: To withhold authority to vote for the nominee write
the nominee's name in the space provided below.)
2. In their discretion, on such other business as may
properly come before the meeting or any adjournment.
PLEASE SIGN AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE
Every properly signed proxy will be voted by the proxies in
accordance with the specifications made thereon. If no
specification is made, it is the intention of the proxies to vote
this proxy FOR the election of Director.
Receipt is acknowledged of the Notice of Annual Meeting and
Proxy Statement of the Company dated March 31, 1998.
Dated: , 1998
Signature(s) of Shareholder(s)
Note: Executors, administrators,
trustees, and others signing
in a representative capacity
should indicate the capacity in
which they sign. If shares are
held jointly, EACH holder
should sign.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
??
TO TENNEY SHAREHOLDERS:
Through our DynaVac subsidiary, the Company engineers, markets
and manufactures diversified high-technology vacuum systems for
space simulation, optic coating and sputtering. In addition to its
engineering and manufacturing at DynaVac, Tenney has a Service
Division which provides service and parts for environmental
equipment of all manufacturers. The service operation has expanded
to include the sale of reconditioned equipment by refurbishing and
upgrading equipment manufactured by us since our start of business
in 1932.
In 1997 the DynaVac operation was moved from Weymouth to
Hingham, Massachusetts. The facility is better in layout and is
twice the size of the old, with additional equipment and potential.
The move was to put us in a position to more efficiently handle the
higher volume of business anticipated, which did not immediately
materialize. The cost of the move and the lack of timely orders
severely impacted profit margins. Currently, backlogs are holding
fairly steady with orders replacing deliveries. We have reorganized
the manufacturing operation to operate profitably at present levels
of sales.
Tenney Engineering, Inc. in 1997 had revenues of $6,718,000,
as compared to $10,640,000 in 1996, with a net loss of ($1,268,000)
in 1997, ($0.17) per share Series A Common Stock and ($0.17) per
share Series B Common Stock, and a net profit of $730,000 in 1996,
$0.20 per share Common Stock, as only one series existed in 1996.
1996 figures included a number of non-recurring items as
detailed in "Management's Discussion and Analysis." The 1997 sales
reduction resulted in a negative cash flow situation which is
anticipated to improve. The loss has required us to seek a
replacement line of credit appropriate to our business levels, and
we feel that profits in 1998 will enable us to do so.
Please accept our sincere thanks for your continued support.
Sincerely,
Robert S. Schiffman
Chairman, President and Chief Executive Officer
March 30, 1998
TENNEY ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1997
(In thousands of dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 47
Accounts receivable, net 1,312
Current portion of installment note receivable 270
Inventories 627
Prepaid expenses and other current assets 38
Deferred tax asset 95
Total current assets 2,389
Equipment, net 454
Other assets 212
Deferred tax asset - long-term portion 185
Total Assets $ 3,240
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank Term Note Payable $ 750
Accounts payable and other accrued liabilities 1,197
Current portion of long-term capital leases 80
Accrued payroll and payroll taxes 171
Billings in excess of estimated revenue on
long-term contracts 414
Pension obligation, current portion 73
Total current liabilities 2,685
Long-term debt, net of current portion 497
Total liabilities 3,182
Commitments and contingencies
Stockholders' equity:
Preferred stock $0.01 par value:
Authorized 10,000,000 shares
Issued and outstanding - none
Common stock $.01 par value:
Authorized 50,000,000 shares
Issued 3,727,980 shares Series A 37
Issued 3,727,980 shares Series B 37
Additional paid-in capital 2,263
Retained earnings (deficit) (2,239)
98
Less treasury stock, 26,276 shares, at cost 40
Total stockholders' equity 58
Total liabilities and stockholders' equity $ 3,240
See Notes to Consolidated Financial Statements.
TENNEY ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
(In Thousands of Dollars
Except per Share Amounts)
Net revenue:
Product and product related $ 5,203 $ 8,148
Service 1,015 940
Parts 500 633
License Fees 0 919
Totals 6,718 10,640
Cost of sales:
Product and product related 5,049 7,128
Service 622 776
Parts 320 271
Totals 5,991 8,175
Gross profit 727 2,465
Selling and administrative expenses 1,952 2,049
Income (loss) from operations (1,225) 416
Other income (expense):
Interest expense (76) (21)
Other income, net 33 283
Totals (43) 262
Income (Loss) before income taxes (1,268) 678
Income taxes (benefit) 0 (52)
Net Income (Loss) $(1,268) $ 730
Net income (loss) per
Common Share: Series A $ (0.17) $ 0.10
Series B (0.17) 0.10
Exercise of options would not be dilutative.
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
TENNEY ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In Thousands of Dollars)
Additional Retained Less
Common Stock Paid-in Earnings Treasury Stock
Shares Amount Capital (Deficit) Shares Amount Totals
<S> <C> <C> <C> <C> <C> <C> <C>
Balance --
January 1, 1996 3,694,980 $ 369 $ 1,960 $(1,701) 9,388 $ 37 $ 591
Net income 730 730
Issuance of Stock
Pursuant to Option
granted under 1995
Stock Option Plan 10,000 3 3
Restatement of
Par Value (332) 332
Balance --
December 31, 1996 3,704,980 37 2,295 (971) 9,388 37 1,324
Issuance of Stock
Pursuant to Options
granted under 1995
Stock Option Plan 23,000 5 5
Stock received in
payment of Exercise
Price of Stock Option 3,750 3 (3)
Issuance of new
Common Stock
Series A 3,727,980 37 (37) 13,138
Net (loss) (1,268) (1,268)
Balance --
December 31, 1997 $ 2,263 $(2,239) 26,276 $ 40 $ 58
Series A 3,727,980 $ 37
Series B 3,727,980 $ 37
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
TENNEY ENGINEERING, INC.
AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(In Thousands of Dollars)
1997 1996
<S> <C> <C>
Operating activities:
Net income (loss) $ (1,268) $ 730
Adjustments to reconcile income to net cash
provided by (used in) continuing operations:
Depreciation and amortization 53 105
Deferred tax asset 0 (52)
Changes in operating assets and liabilities:
Accounts and installment receivables 373 63
Inventories (162) (154)
Prepaid expenses and other current assets 17 42
Other assets 6 (8)
Accounts payable and other liabilities (263) (58)
Accrued payroll and payroll taxes (66) 75
Billings in excess of estimated revenues 128 (32)
Pension obligation (73) (135)
Net cash provided by (used in)
continuing operations (1,255) 576
Investing activities:
Acquisition of equipment (45) (68)
Net cash used in investing activities (45) (68)
Financing activities:
Exercise of Options and Issuance of
Common Stock 2 3
Proceeds from working capital
line of credit 750 300
Payments of note payable and
long-term capital leases (66) (373)
Net cash used in financing activities 686 (70)
Net increase (decrease) in cash and
cash equivalents (614) 438
Cash and cash equivalents, beginning of year 661 223
Cash and cash equivalents, end of period $ 47 $ 661
Supplemental disclosure of cash flow information:
Interest paid $ 76 $ 21
Income tax paid 0 4
</TABLE>
See Notes to Consolidated Financial Statements.
Note 1 - Summary of accounting policies:
Principles of consolidation: The consolidated financial
statements include the accounts of Tenney Engineering, Inc. (the
"Company") and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
Net Revenues: Revenue from product sales and short-term
contracts and services are recognized when the transactions are
consummated. The Company generally recognizes revenue on long-term,
large installation contracts under the percentage of completion
method. Under this method, revenue is recognized according to the
ratio of costs incurred to currently estimated total contract
costs. At the time a loss on a contract becomes known, the entire
amount of the estimated ultimate loss is recorded.
Product and product-related net revenue includes revenue from
the Company's manufacturing operation. In 1997 service revenue
includes revenue from the servicing and installation of
environmental equipment and in 1996 included additional revenue
from the services provided under the Leased Employee Agreement with
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. License fees in 1996 are fees received under a
License Agreement (see Note 4).
Cash equivalents: The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Inventories: Inventories are valued at the lower of cost
(first-in, first-out) or market. Work-in-process inventories are
stated at actual production cost, including factory overhead.
Machinery and equipment: Machinery and equipment are carried
at cost, less accumulated depreciation. Depreciation is provided
using primarily the straight-line method over the estimated useful
lives of the assets. Estimated useful lives vary from 3 to 10
years.
Research and development costs: Costs and expenses related to
research and product development are expensed as incurred.
Gain (loss) per common share: Gain (loss) per common share is
computed based on the weighted average number of common shares
outstanding during the year. The assumed exercise of outstanding
stock options would not have a significant effect on the per share
computations. The weighted average number of common shares
outstanding was 3,711,661 Series A and 3,711,661 Series B in 1997
and 3,689,390 Series A and 3,689,390 Series B in 1996, respectively
(see Note 11). 1996 was recast to show the effect of the issuance
of Series A Common Stock.
Stock-based compensation: The Company has adopted SFAS No.
123, "Accounting for Stock-Based Compensation." This standard
establishes a fair value method of accounting for stock-based
compensation plans either through recognition or disclosure. We
intend to adopt this standard by disclosing the pro forma net
income and earnings per share amounts assuming the fair value
method was adopted on January 1, 1995. The adoption of this
standard will not impact our results of operations, financial
position or cash flows (see Note 11).
Use of estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported.
Actual results could differ from those estimates. Estimates are
used when accounting for long-term contracts, allowance for
doubtful accounts, inventory obsolescence, product warranty
reserves, depreciation and amortization, employee benefit plans,
taxes, restructuring reserves and contingencies. Certain
reclassifications have been made to prior year amounts to conform
with current year presentations.
Note 2 - Financial condition and results of operation:
As shown in the accompanying consolidated financial
statements, the Company realized a net (loss) for the year ended
December 31, 1997 and net income for the year ended December 31,
1996, respectively, from operations, which has resulted in a
decrease in the Company's stockholders equity.
On September 12, 1996, the Company and Summit Bank, (the
"Bank") entered into a Loan and Security Agreement ("Term Note")
for a $300,000 renewable working capital line of credit expiring
May 31, 1997. At April 23, 1997 the Term Note was renewed until May
31, 1998, and increased to the amount of $750,000. The Bank was
granted a security interest in substantially all the Company's
assets. As at December 31, 1997, the Company had borrowed $750,000
under the Term Note. On November 5, 1997 the Bank notified the
Company that covenants under the Credit Agreement to maintain
certain levels of debt to tangible net worth and current assets to
current liabilities were not met on the Company's financial
statements. Payments of interest are being met in accordance with
the terms of the Note. The Bank has not made a demand for the
principal amount of the Term Note. The Bank has made it known that
it will not renew the Term Note on May 31, 1998. The Company is
actively pursuing available alternate financing sources; however,
there is no assurance that alternate sources can be found. If the
Term Note is not replaced, this would have a material adverse
effect that may cause insolvency proceedings.
As at December 31, 1996, the Licensee paid all license fees
due under the License Agreement (see Note 4).
Note 3 - Restructuring:
The Company is engaged in one industry segment: the
engineering, marketing and manufacturing of diversified
high-technology vacuum systems for space simulation, optic coating
and sputtering; and provides service, refurbishing, upgrading,
installation and sale or rental of reconditioned test equipment.
The Company formerly had employees who were members of a union
and the Company contributed to a multi-employer pension plan for
such employees in accordance with a collective bargaining agreement
based on monthly hours worked. Due to the cessation of
manufacturing operations at the Company's Union, New Jersey
manufacturing plant, 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.
On December 7, 1995 the Company was served with a Summons and
Complaint in an action filed in the U.S. District Court for the
Eastern District of Virginia, Alexandria Division (Case Number
95-1609A) by the Plan Trustees.
On September 6, 1996, the Company agreed to a settlement of
the matter proposed by the Plan Trustees and it executed a
Settlement Agreement (the "Agreement"). Among other matters, the
Agreement provides that the Company shall pay the Plan Trustees
$720,090.49 (the "Settled Amount") on account of the withdrawal
liability, statutory interest and counsel fees, provided, however,
that if the Company pays to Plan Trustees $397,330 plus interest
scheduled to be paid $75,000 on or before September 13, 1996 and
sixty (60) monthly payments of $6,613.09 over a five (5) year
period commencing October 1, 1996, Plan Trustees will accept such
reduced amount in full satisfaction of the withdrawal liability.
The Agreement contains various representations and warranties by
the Company. In the event that the Company does not make timely
payments or otherwise defaults under the Agreement, the Settled
Amount will be due to Plan Trustees.
In conjunction with the Agreement, the Company has executed a
confession of judgment for the Settled Amount in the form annexed
to the Agreement, which may be filed by the Plan Trustees in the
event the Company fails to make timely payments or otherwise
defaults under the Agreement.
At December 31, 1995, the Company had reserved on its balance
sheet the amount of $581,835.64 for the withdrawal liability to
Plan Trustees. Payments to Plan Trustees under the Agreement, an
initial payment of $75,000 and monthly payments of $6,613.09 will
be charged against this reserve when made. If the Company does not
default and if all payments are made in accordance with the
provisions of the Agreement, any balance in the reserve will be
recognized as forgiveness of indebtedness when payments are
completed. The Company has timely made all payments due under the
Agreement.
In the event that payments to Plan Trustees are not timely
made or in the event of any other default under the Agreement, Plan
Trustees may enter judgment against the Company for the Settled
Amount and the Company would owe to Plan Trustees an amount in
excess of the amount reserved for the withdrawal liability.
Note 4 - License agreement:
Concurrent with its announcement to discontinue manufacturing
at the Union Facility, the Company entered into a six-year
licensing agreement with a 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. The agreement further
requires the Licensee to purchase annually, from a former
subsidiary of the Company, depending on market conditions, certain
minimum amounts of inventory with cash payments thereon being made
directly to the Company (see Note 6).
In addition, the Company entered into a four-year consulting
agreement which expired in December 1996 with the Licensee whereby,
for an annual fee of $120,000, the Company made the services of the
Company's president available to the Licensee for a specified
period of time.
During November 1996, the Company and the Licensee agreed to
accelerate payment of license fees by having the Licensee prepay
$532,000, representing the amount remaining of the total $1,900,000
license fees. In addition, the sum of $100,000 for the purchase of
the Company's rights, title and interest in the "Tenney" trademark
were received. The installation and servicing agreement and the
inventory purchase agreement remain in effect through 1998.
Net revenue for 1996 includes consulting revenue of $120,000.
Purchases by the Licensee from the Company's former subsidiary in
1997 and 1996 totaled approximately $42,100 and $55,200,
respectively.
Note 5 - Accounts receivable:
Accounts receivable consist of the following:
1997
(In Thousands
of Dollars)
Accounts receivable, billed $ 955
Accounts receivable, unbilled 385
1,340
Allowance for doubtful accounts (28)
Totals $ 1,312
At December 31, 1997, sales recognized on the percentage of
completion method approximated $4,900,000.
Note 6 - Note receivable:
In December 1992, the Company sold all of the outstanding
stock of its wholly-owned insulated enclosure subsidiary, Gloekler
Refrigerator Company ("Gloekler") for aggregate consideration of
approximately $858,000, of which $300,000 was cash. The balance was
evidenced by installment receivables which provide for payments by
Gloekler either in cash or by credits issued for inventory
purchases through 2005. The receivables, which have been discounted
to reflect imputed interest are secured by a second lien on all of
Gloekler's assets and the common stock and are personally
guaranteed by the purchaser.
Note 7 - Inventories:
Inventories consist of the following:
1997
(In Thousands
of Dollars)
Raw materials $ 779
Less:
Provision for write-downs
to estimated realizable value 152
Totals $ 627
Accumulated costs on long-term contracts recognized by the
percentage of completion method (see Note 5) were approximately
$5,084,000 and $5,685,000 in 1997 and 1996, respectively.
Note 8 - Property and Equipment:
Property and equipment, which is stated at cost, is summarized
as follows at December 31, 1997:
1997
(In Thousands
of Dollars)
Leasehold Improvements $ 70
Equipment 1,444
Equipment under capital leases 375
1,889
Accumulated depreciation (1,435)
Total equipment - net $ 454
The Company leases certain equipment for use in its operations
under capital leases. Property and equipment at December 31, 1997,
included capital leases of $375,000 and related accumulated
depreciation of $134,000.
The Company entered into a three-year lease on December 15,
1995, with the new owner of the Company's former Union, New Jersey,
facility for approximately 18,500 square feet at an annual rental
of $90,000. The lease expires in December 1998.
The Company's DynaVac subsidiary leased a 15,000 square feet
facility in Weymouth, Massachusetts, on a month-to-month basis.
During September 1996, DynaVac leased a 27,900 square feet facility
in Hingham, Massachusetts, for a term of six years. Effective
January 1997, annual rentals are as follows: 1997--$147,000;
1998--$151,000; 1999--$157,000; 2000--$163,000; 2001--$169,000 and
2002--$176,000.
At December 31, 1997, the aggregate minimum rental commitments
under non-cancelable leases for the period shown are as follows:
Capital Operating
Year Leases Leases
(In Thousands
of Dollars)
1998 $ 102 $ 241
1999 102 157
2000 79 163
2001 33 169
2002 21 176
Total $ 337 $ 903
Less imputed interest 55
Present value of net lease payments $ 282
Less current installments 80
Long-term debt obligation at 12/31/97 $ 202
Imputed interest was calculated using rates between 7.06% - 9.76%
Note 9 - Debt:
Debt maturing within one year consists of the following at
December 31,
1997 1996
(In Thousands
of Dollars)
Notes payable - bank $ 750 $ 0
Current portion of capital leases 80 43
Current portion of pension obligation 73 73
Total $ 903 $ 116
On September 12, 1996, the Company and Summit Bank, (the
"Bank") entered into a Loan and Security Agreement ("Term Note")
for a $300,000 renewable working capital line of credit expiring
May 31, 1997. At April 23, 1997 the Term Note was renewed until May
31, 1998, and increased to the amount of $750,000. The Bank was
granted a security interest in substantially all the Company's
assets. As at December 31, 1997, the Company had borrowed $750,000
under the Term Note. On November 5, 1997 the Bank notified the
Company that covenants under the Credit Agreement to maintain
certain levels of debt to tangible net worth and current assets to
current liabilities were not met on the Company's financial
statements. Payments of interest are being met in accordance with
the terms of the Note. The Bank has not made a demand for the
principal amount of the Term Note. The Bank has made it known that
it will not renew the Term Note on May 31, 1998. The Company is
actively pursuing available alternate financing sources; however,
there is no assurance that alternate sources can be found. If the
Term Note is not replaced, this would have a material adverse
effect that may cause insolvency proceedings.
Long-term debt consists of the following at December 31,
1997
(In Thousands
of Dollars)
Capital lease obligations $ 282
Multi-employer pension obligation 368
Total long-term debt including
current maturities 650
Less: current maturities 153
Total long-term debt $ 497
Long-term liabilities consist of capital leases entered into
for equipment of $161,000 in 1997 and $27,300 in 1996,
respectively, and the long-term portion of the multi-employer
pension fund liability (see Note 3). The debt to mature under the
multi-employer pension fund liability is $79,400--1998;
$79,400--1999; $79,400--2000; and $59,500--2001.
Note 10 - Income taxes:
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards ("SFAS No. 109"),
"Accounting for Income Taxes," which requires an asset and
liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income
tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
A reconciliation of the Company's income tax provision that
would be provided based on a statutory federal income tax rate of
34% to the Company's effective rate is as follows:
1997 1996
(In Thousands
of Dollars)
Income taxes computed at the
federal statutory rates $ 0 $ 230
State taxes (net of federal benefit) 0 40
Realization of benefits of tax loss
carryforwards 0 (200)
Valuation allowance adjusted 0 (122)
Net income tax (benefit) $ 0 $ (52)
Deferred income taxes are provided for temporary differences
between the financial reporting and income tax basis of the
Company's assets and liabilities. Temporary differences, net
operating loss carryforwards and valuation allowances comprising
the net deferred taxes on the balance sheet at December 31, 1997,
are as follows:
(In Thousands
of Dollars)
Deferred tax assets:
Inventory reserve $ 52
Accounts receivable reserve 10
Deferred revenue 147
Deferred compensation 24
Deferred pension obligation 12
Tax loss carryforward 1,530
Total deferred tax assets 1,775
Deferred tax liabilities:
Depreciation (10)
Valuation allowance (1,485)
Total net deferred tax assets $ 280
The ultimate realization of the deferred tax asset depends on
the Company's ability to generate sufficient taxable income in the
future.
At December 31, 1997, the Company has available income tax net
operating loss carryforwards of approximately $4,500,000, which
expire through 2009.
Note 11 - Common stock:
On March 11, 1997 the Board of Directors resolved to amend the
Certificate of Incorporation to provide that Common Stock, $0.01
par value, be issued in two series, denominated Series A and Series
B, both series having the same rights, powers and privileges,
except that Series A has ten (10) votes per share.
The Board also resolved that all issued shares of Common Stock
on April 10, 1997 be classified as Series B Common Stock, $0.01 par
value.
In addition the Board resolved that a stock distribution of
one (1) share of Series A Common Stock, $0.01 par value, be
distributed for each share of Series B Common Stock owned by
shareholders of record on April 10, 1997. The distribution was paid
on May 27, 1997.
This transaction was accounted for as a stock split.
Outstanding options were adjusted effective the close of
business April 10, 1997, so that Optionees have the right to buy a
unit consisting of one share of Series A Common Stock and one share
of Series B Common Stock for each share of Common Stock to which
the option relates at a price per unit equal to the price per share
of Common Stock specified in the outstanding option. The 1995
Incentive Stock Option Plan was amended to relate to an additional
330,000 shares of Series A Common Stock.
On May 26, 1995, at the annual meeting, a new ten-year
incentive stock option plan for officers and key employees was
approved and adopted relating to 400,000 share of Common Stock. 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).
The fair value of each option granted is estimated on the
grant date using the Black-Scholes model. The following assumptions
were made in estimating fair value:
Assumption 1995 Plan
Dividend Yield 0%
Risk-free Interest Rate 7.50%
Expected Life 3 Years
Expected Volatility 24.89%
The Company applies APB Option 25 in accounting for its stock
compensation plan. Accordingly, no compensation cost has been
recognized for the 1995 Plan in 1997 or 1996. Had compensation cost
been determined on the basis of fair value pursuant to FASB
Statement No. 123, net income (loss) and earnings per share would
have been reduced as follows:
1997 1996
Net income (loss)
As reported (1,263,000) 730,000
Pro forma (1,266,000) 687,000
Primary earnings (loss) per share
As reported (0.34) 0.20
Pro forma (0.34) 0.19
Fully diluted earnings (loss) per share
As reported (0.34) 0.20
Pro forma (0.34) 0.19
Following is a summary of the status of the 1995 Plan during
1997 and 1996:
Weighted
Average
Number of Exercise
Shares/Units Price
Outstanding at 1/1/97 290,000 $ 0.24420
Granted 50,000 0.704688
Exercised (23,000) 0.23437
Canceled (10,000) 0.89789
Outstanding at 12/31/97 307,000 $ 0.608968
Options exercisable at 12/31/97 290,000 $ 0.57104
Weighted average fair value
of options granted during 1997 $ 0.21708
Weighted
Average
Number of Exercise
Shares Price
Outstanding at 1/1/96 155,000 0.24420
Granted 145,000 0.89789
Exercised (10,000) 0.23431
Outstanding at 12/31/96 280,000 $ 0.51104
Options exercisable at 12/31/96 290,000 $ 0.24420
Weighted average fair value
of options granted during 1996 $ 0.01000
<TABLE>
Following is a summary of the status of options outstanding at
December 31, 1997:
<CAPTION>
Outstanding Units Exercisable Units
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Number Life Price Number Price
<S> <C> <C> <C> <C> <C>
$0.23437-$0.25781 122,000 1 year $0.24420 122,000 $0.24420
$0.85937-$0.94531 135,000 2 years $0.89789 135,000 $0.89789
$0.704688 50,000 3 years $0.704688 50,000 $0.704688
</TABLE>
Note 12 - Retirement and pension plans:
The Company maintains a retirement plan for salaried employees
(the "Salaried Plan") which provides for defined benefits. The
Company's funding policy is to contribute annually at least the
minimum amount required by the Employee Retirement Income Security
Act of 1974. In June 1989, the Company amended the Salaried Plan so
that benefits would no longer accrue. During 1997, the Company
accrued no pension costs pursuant to Statement of Financial
Accounting Standards No. 87, "Employer's Accounting for Pension
Costs." The Company accounted for the curtailment in 1989 pursuant
to Statement of Financial Accounting Standards No. 88, "Employer's
Accounting for Settlements and Curtailments of Defined Benefit
Plans and for Termination Benefits."
The following table sets forth the funded status of the
Salaried Plan assuming a discount rate of 5% at December 31, 1997:
1997
(In Thousands
of Dollars)
Actuarial present value of projected
benefit obligation including vested
benefits of $671,000 $ 671
Plan assets at fair value 689
Plan assets less than projected
benefit obligation consisting of: $ (17)
Unrecognized net transition liability $ 0
Net accrued pension costs 0
Total $ 0
The expected long-term rate of return on assets was 7.0%.
Unionized 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. There was no related pension expense in 1996 and
1995. Due to the cessation of manufacturing operations at the
Company's Union, New Jersey, facility, the Company ceased being a
participant in the multi-employer pension plan in February 1993
(see Note 3).
Note 13 - Commitments and contingencies:
Lease commitment: DynaTenn, Inc. (d/b/a "DynaVac"), a
wholly-owned subsidiary which manufactures diversified industrial
vacuum equipment, leased its facility in Weymouth, Massachusetts
under an operating lease which expired on January 1, 1997. Rent
charged to operations under this lease approximated $73,000 and
$68,000 in 1996 and 1995, respectively. During September 1996,
DynaVac leased a 27,900 square feet facility in Hingham,
Massachusetts, for a term of six years. Effective January 1997,
annual rentals are as follows: 1998--$151,000; 1999--$157,000;
2000--$163,000; 2001--$169,000 and 2002--$176,000.
The Company entered into a three-year lease on December 15,
1995, with the new owner of the Company's former Union, New Jersey,
facility for approximately 18,500 square feet at an annual rental
of $90,000. The lease expires in December, 1998.
Contingencies: The Company is not a party to any material
pending legal proceeding.
Note 14 - Other income and (expense):
Other income and (expense) consist of the following:
1997 1996
(In Thousands
of Dollars)
Interest expense $ (76) $ (21)
Sale of Trademark (A) 0 100
Other, net 33 183
Totals $ (43) $ 262
(A) In November 1996, the Company and Licensee agreed to the
purchase by the Licensee of the rights, title and interest in the
"Tenney" trademark (see Note 4).
Note 15 - Major customer and concentrations of credit risk:
Major customer: During the years ended December 31, 1997 and
1996, the Company did not have any major customer who contributed
more than 10% of net revenue.
Concentrations of credit risk: The Company's financial
instruments that are exposed to concentrations of credit risk
consist primarily of cash equivalents, accounts receivable and
inventories. The Company places its cash and cash equivalents in
highly liquid instruments with high credit quality financial
institutions.
In general, the Company's accounts receivable result from its
manufacturing and servicing operations and reflect a broad customer
base to primarily large-sized companies both nationally and
internationally. Also, the Company routinely assesses the financial
strength of its customers. As a consequence, concentrations of
credit risk are limited.
The Company maintains cash balances at several financial
institutions located in the Northeast. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation up to
$100,000. At December 31, 1997, the Company's uninsured cash
balances total approximately zero.
Note 16 - Supplemental schedule of noncash investing and
financing activities:
During 1997 the Company entered into several 5-year capital
leases totaling $161,000 for service vans, machinery and equipment.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Tenney Engineering, Inc.
We have audited the accompanying consolidated balance sheet
of Tenney Engineering, Inc. and Subsidiaries as of December 31,
1997 and the related consolidated statements of operations, changes
in stockholders' equity (deficiency) and cash flows for the years
ended December 31, 1997 and 1996. 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 audits.
We conducted our audits 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 audits
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Tenney Engineering, Inc. and Subsidiaries as
of December 31, 1997, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1997
and 1996 in conformity with generally accepted accounting
principles.
ZELLER WEISS & KAHN, LLP
Mountainside, New Jersey
March 31, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
On September 12, 1996, the Company and Summit Bank, (the "Bank")
entered into a Loan and Security Agreement ("Term Note") for a
$300,000 renewable working capital line of credit expiring May 31,
1997. At April 23, 1997 the Term Note was renewed until May 31,
1998, and increased to the amount of $750,000. The Bank was granted
a security interest in substantially all the Company's assets. As
at December 31, 1997, the Company had borrowed $750,000 under the
Term Note. On November 5, 1997 the Bank notified the Company that
covenants under the Credit Agreement to maintain certain levels of
debt to tangible net worth and current assets to current
liabilities were not met on the Company's financial statements.
Payments of interest are being met in accordance with the terms of
the Note. The Bank has not made a demand for the principal amount
of the Term Note. The Bank has made it known that it will not renew
the Term Note on May 31, 1998. The Company is actively pursuing
available alternate financing sources; however, there is no
assurance that alternate sources can be found. If the Term Note is
not replaced, this would have a material adverse effect that may
cause insolvency proceedings.
During 1997, the Company has not been able to generate a positive
cash flow from operations.
At December 31, 1997, the Company's cash and cash equivalents
totaled $47,000 as compared to $661,000 at December 31, 1996.
Contributing to the change in cash between years was cash used in
operating activities of $1,255,000 in 1997 and cash provided by
operating activities of $579,000 in 1996. The principal reason for
cash being used in operating activities in 1997 was the loss from
operations and paying of Accounts Payable. The principal reason for
cash being provided by operating activities in 1996 was the
prepayment of License Fees. (See Note 4 of the Notes to
Consolidated Financial Statements.)
During November 1996, the Company and the domestic Licensee agreed
to a prepayment of the remaining balance of the fees due under a
six-year License Agreement. In addition, the Licensee exercised its
option to purchase the "Tenney" trademark.(See Note 4 of the Notes
to Consolidated Financial Statements.)
The Company is engaged in one industry segment: the engineering,
marketing and manufacturing of diversified high-technology vacuum
systems for space simulation, optic coating and sputtering; and
provides service, refurbishing, upgrading, installation and sale or
rental of reconditioned test equipment.
The Company formerly had employees who were members of a union and
contributed to a multi-employer pension plan for such employees in
accordance with a collective bargaining agreement based on monthly
hours worked. Due to the cessation of manufacturing operations at
the Company's Union, New Jersey, facility (see Note 3 of the Notes
to Consolidated Financial Statements), 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.
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 $529,743, 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 December 1994, the Company received from the Fund a modified
calculation of the withdrawal liability in the amount of $502,665.
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.
The Company negotiated with the Fund the amount of the liability
and an installment payment schedule.
On September 6, 1996, the Company agreed to a settlement of the
matter proposed by the Fund and it executed a Settlement
Agreement(the "Agreement"). Among other matters, the Agreement
provides that the Company shall pay the Fund $720,090 (the "Settled
Amount") on account of the withdrawal liability, statutory interest
and counsel fees; provided, however, that if the Company pays to
the Fund the amount of $397,330 principal, plus interest of
$74,455, totaling $471,785 -- $75,000 upon signing and sixty (60)
monthly payments of $6,613.09 commencing October 1, 1996 -- the
Fund would accept the total of $471,785 in satisfaction of the
total withdrawal liability.
The Agreement contains various representations and warranties by
the Company. In the event that timely payments are not made or the
Company otherwise defaults under the Agreement, the Settled Amount
will be due the Fund, less any payments received. The Company has
made all payments to the Fund when they are due through March,
1998.
The Company had reserved on its balance sheet as at December 31,
1995, the sum of $581,835 for the withdrawal liability to the Fund.
The Company will charge all the payments made to the Fund to this
reserve account; and if all payments are made in accordance with
the provisions of the Agreement, any balance in the reserve will be
recognized as forgiveness of indebtedness when payments are
complete. At December 31, 1997, the reserve approximated $368,000.
(See Note 3 of the Notes to Consolidated Financial Statements.)
Management believes that during 1998 the Company will not be able
to satisfy the payment of principal of the Term Note. The Company
must renew this Term Note or experience an adverse material effect
on operations.
Results Of Operations
Total net revenue from continuing operations of $6,718,000 for 1997
compares to 1996 net revenue of $10,640,000.
Product and product-related net revenue for 1997 and 1996 was
$5,203,000 and $8,148,000, respectively. The decrease in net
revenue within this classification, between years, was due to
vacuum system revenue decreasing primarily because of a decline in
orders received during 1997.
Service-related revenues of $1,015,000 for the year 1997 compare to
1996 revenues of $940,000. The 1996 service revenue included
revenue of $120,000 per year from the Licensee for part-time
services of the Company's president. Such agreement expired on
December 31, 1996. Service revenue in 1997 was up due to an
increase of service-related orders being received.
Revenue related to the sale of parts totaled $500,000 and $633,000
for the years ended December 31, 1997 and 1996, respectively. The
decrease is due to a lower level of parts orders being received.
License fees of $0 for the year 1997 compare to 1996 fees of
$919,000. The decrease of fees is due to the prepayment of fees by
the Licensee during 1996, which completed payments due under the
License Agreement. (See Note 4 of the Notes to Consolidated
Financial Statements.)
The Company's order backlog at December 31, 1997 and 1996 was
approximately $2,200,000 and $2,440,000, respectively.
The total cost of sales as a percentage of net revenue was 88% for
the year 1997 and compares to 76% for the year 1996.
The 1997 cost of sales related to product and product-related sales
were approximately 97% as compared to 87% for 1996. The increase in
the cost of sales percentage between years was primarily due to
non-manufacturing use of labor and overhead increases due to the
move to larger facilities at our DynaTenn subsidiary.
Cost of sales of service as a percentage of sales was 61% and 82%
for the years ending December 31, 1997 and 1996, respectively. The
decrease is primarily due to closing service locations which did
not have sales sufficient to cover overhead expenses.
Cost of sales as a percentage of sales during 1997 for parts was
64% and compares to 43% for the year 1996. The increase in the cost
of sales percentage in the 1997/96 comparison was due primarily to
the inventory sales mix.
Selling and administrative expenses were $1,952,000 and $2,049,000
for 1997 and 1996, respectively. The decrease was due to continuing
cost control programs put in place in late 1996.
Interest expense was $76,000 in 1997 and reflects an increase of
$55,000 from the 1996 interest expense of $21,000. The increase is
due primarily to paying interest on bank debt during the year.
Other income, net was $33,000 and $283,000 in 1997 and 1996,
respectively. Other income in 1996 was comprised primarily of
income received from the domestic Licensee for the purchase of the
title and interest to the "Tenney" trademark. (See Note 4 of the
Notes to Consolidated Financial Statements.)
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards ("SFAS No. 109"),
"Accounting for Income Taxes," which requires an asset and
liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income
tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Deferred income taxes are provided for temporary differences
between the financial reporting and income tax basis of the
Company's assets and liabilities. The ultimate realization of the
deferred tax asset depends on the Company's ability to generate
sufficient taxable income in the future. At December 31, 1997, the
Company has available income tax net operating loss carryforwards
of approximately $4,500,000, which expire through 2009. (See Note
10 of the Notes to Consolidated Financial Statements.)
The net (loss) for 1997 was ($1,268,000) as compared to net income
of $730,000 in 1996.
Currently, the Company has its Series A and Series B Common Stock
listed on the OTC Bulletin Board under the symbols "TNNYA" and
"TNNYB", respectively.
MARKET FOR COMPANY'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Company is listed on the OTC Bulletin Board under the
symbols "TNNYA" and "TNNYB." The approximate number of holders of
record of the Company's Series A Common Stock was 1,019 and Series
B Common Stock was 1,029 at December 31, 1997. In addition,
approximately 50% of the outstanding shares are held for
shareholders' account at brokerage firms and financial
institutions.
On March 11, 1997 the Board of Directors resolved to amend the
Certificate of Incorporation to provide that Common Stock, $0.01
par value, be issued in two series, denominated Series A and Series
B, both series having the same rights, powers and privileges,
except that Series A has ten (10) votes per share.
In addition the Board resolved that a stock distribution of
one (1) share of Series A Common Stock, $0.01 par value, be
distributed for each share of Series B Common Stock owned by
shareholders of record on April 10, 1997. The distribution was paid
on May 27, 1997.
The following table sets forth the range of high and low
closing prices of Common Stock for 1996 and January 1, 1997 through
May 26, 1997; and of Series A Common Stock and Series B Common
Stock for the balance of 1997:
PRICE RANGE OF COMMON STOCK
1997 1996
High Low High Low
First Quarter .8125 .59375 .75 .34375
Second Quarter
Common Stock* .8125 .40625 1.00 .54
Series A .125 .0625
Series B .1875 .15625
Third Quarter
Common Stock* 1.00 .50
Series A .25 .125
Series B .15625 .09375
Fourth Quarter
Common Stock* .75 .41
Series A .3125 .08
Series B .11 .0625
*Effective date of split was May 27, 1997.
It has been the Company's policy not to pay cash dividends.
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