SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
[x] Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 29, 1996.
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _________________
Commission File Number 0-3063
TINSLEY LABORATORIES, INC.
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(Exact name of issuer as specified in its charter)
California 94-1049146
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3900 Lakeside Drive, Richmond, California 94806
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(Address of principal executive offices and zip code)
Issuer's telephone number (510)222-8110
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
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(Title of Class)
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 _
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
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State issuer's revenues for its most recent year.
$17,408,410
State the aggregate value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within the past 60 days. (See
definition of affiliate in Rule 12b-2 of the Exchange Act).
$14,064,529 (computed on the basis of $9.0625 per share, which was the
last reported sales price on the over-the-counter market as reported by
the National Association of Securities Dealers, Inc. for March 7,
1997.)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
1,555,548
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE
<S> <C>
Annual Report to Shareholders for fiscal year ended December 29, 1996 (the Part II
"1996 Annual Report")
Proxy Statement for 1997 Annual Meeting of Shareholders to be held on April Part III
23, 1997, filed pursuant to Section 14(a) of the Exchange Act (the
"1997 Proxy Statement")
</TABLE>
Transitional Small Business Disclosure Format: Yes No X
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PART I
Item 1. BUSINESS.
General
Tinsley Laboratories, Inc. (the "Company") was incorporated in California in
1946. Headquartered in Richmond, California, the Company operates entirely
within a single industry, the precision optical components and assemblies
industry. Within this industry, the Company designs, manufactures and sells
precision optical components, assemblies and systems.
The Company's customers have historically included aerospace firms, instrument
and equipment manufacturers, defense system manufacturers, color television tube
manufacturers, agencies of the U.S. Government and universities. Products sold
to these customers are generally designed and produced to meet customer
specifications, as distinguished from proprietary products offered in the
general market. With its May 1993 acquisition of Century Precision Industries,
Inc. ("Century"), the Company began selling optical components and accessories
(primarily lenses) to cinematographers, professional photographers and
educational institutions in the general commercial market.
The range of applications of the Company's products have traditionally included
optical projection systems used in advanced avionics, pilot training and forward
looking and target acquisition systems and simulation equipment and aspheric
mirrors for large-scale telescopes. Discrete optical components produced by the
Company are used as optical windows for reconnaissance aircraft for laser fusion
research and as tooling for the manufacture of color television tubes. As noted
above, the Company's 1993 acquisition of Century has enabled the Company in
recent years to penetrate the commercial market for lenses and accessories.
The Company specializes in the design and manufacture of aspheric lenses and
mirrors produced both as discrete optical components and intrinsic parts of
complex optical assemblies.
In late 1996, the Company and a consortium of three other governmental and
private industrial organizations, including NASA's Goddard Space Flight Center,
SEMATECH, Inc. and Silicon Valley Group Lithography, entered into a Joint
Sponsored Research Agreement ("JSRA") relating to the development of
ultra-precision optics manufacturing and systems technologies for NASA's future
exploration of space and for application in the United States semiconductor
industry.
The JSRA consortium is being coordinated and largely funded by SEMATECH, Inc.
The Company anticipates that the research and development undertaken as a result
of the JSRA will enable the Company to develop and demonstrate its ability to
produce high-precision optical components which will be needed by the
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United States semiconductor industry to produce ever faster computer chips
during the next century.
The Company believes that it leads the optical industry in the design and
fabrication of aspheric lenses and mirrors. Aspheric lenses, by performing the
work of a number of optical surfaces, permit the use of highly compact optical
systems. They are especially desirable where weight and space are at a premium
as in high performance aircraft.
Through its computer-controlled optical manufacturing technology, the Company is
in a position to design and make aspheres in production quantities.
Recent Sales and Income Trends
The Company's fiscal 1996 net sales of $17,408,410 was approximately 32.8%
higher than fiscal 1995 net sales of $13,109,144 and approximately 34% higher
than its fiscal 1994 net sales of $12,968,892. Net income of $878,644, or 53
cents a share, for fiscal 1996 was significantly higher than fiscal 1995
earnings of $121,630, or 8 cents a share, and fiscal 1994 earnings of $345,785,
or 23 cents a share.
Government Sales
Sales to agencies of the U.S. Government by the Company are made primarily
through subcontracts with prime contractors. In fiscal 1996, such sales by the
Company were approximately $5,405,000 compared to approximately $3,901,000 in
fiscal 1995 and $5,819,000 in fiscal 1994.
Marketing
The Company's domestic sales and certain foreign sales are handled directly by
its in-house sales staff. The Company's domestic customers are widely
distributed throughout the U.S. market.
Major Customers
Due to the highly specialized nature of the Company's business, a few customers
have historically accounted for an important percentage of its sales. These
major customers vary from year to year. In fiscal 1996, sales to five domestic
customers (three in 1995 and four in 1994), none of which has any other material
relationship with the Company, totaled approximately $4,717,000 ($3,111,000 and
$4,041,000 in fiscal 1995 and fiscal 1994, respectively).
Foreign Sales
The Company's revenues from sales to government or non-government customers
outside the United States in fiscal 1996 amounted to approximately 18% of total
revenues as compared to approximately 19% in fiscal 1995 and 17% in fiscal 1994.
International sales during the last fiscal three years were as follows:
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1996 1995 1994
Europe $1,622,937 $1,375,361 $914,004
Asia 1,138,740 781,690 478,915
Canada & Mexico 194,167 165,632 563,037
South Pacific 26,628 41,223 140,960
Latin & South America 58,032 58,971 47,245
Other 13,372 18,314 53,632
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$3,053,876 $2,441,191 $2,197,793
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Competition
The Company faces varying degrees of competition within the optical components
and assemblies industry, depending upon the product specifications stipulated by
prospective customers. As previously mentioned, the Company believes it enjoys a
competitive advantage in the manufacture and sale of certain types of aspheric
lenses.
Many of the Company's competitors or potential competitors are subsidiaries or
divisions of large, diversified companies and therefore have access to financial
resources substantially in excess of those available to the Company.
Backlog
The Company's backlog at the end of fiscal 1996 was approximately $10,300,000
which was an increase of 16% over the Company's backlog of approximately
$8,885,000 at the end of fiscal 1995 and approximately 157% above the Company's
backlog of approximately $4,002,000 at the end of fiscal 1994. Because of
variations in the magnitude and duration of orders received by the Company, and
because the Company's contracts may be canceled or rescheduled by the customer
without significant penalty, the Company's backlog at any particular date may
not be a meaningful indicator of future financial results.
Raw Materials
Raw materials for the Company's operations, or acceptable substitutes, are
normally available. The Company is not dependent on a single source for a
significant portion of its raw material requirements. In certain instances, raw
materials are supplied by customers at no cost to the Company.
Patents and Licenses
The Company owns three patents but does not regard any of them as material at
the present time. As a general rule, the Company does not seek patent or process
licenses from others.
The Company believes that the success of its products depends generally on its
proprietary technology, computer software, manufacturing skills and speed of
response to sales opportunities.
Research and Development
The Company's research and development expenditures decreased slightly in fiscal
1996 to approximately $349,000 from approximately $355,000 expended in
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fiscal 1995. In fiscal 1994, the Company expended approximately $383,000 for
research and development. The Company's research and development program is
dedicated to improvement of its design capability, aspheric process technology
and computer controlled equipment. The Company has also continued to spend
product development funds to expand Century's product lines.
Employees
The Company employed 113 people on a full-time basis at the end of fiscal 1996,
as compared to 104 full-time people at the end of fiscal 1995 and 92 full-time
people at the end of fiscal 1994. None of the Company's employees is represented
by a labor organization. The Company considers its relations with its employees
to be satisfactory. The Company does not generally employ part-time employees;
however, the Company does utilize the services of consultants from time to time
on either a full-time or part-time basis in connection with the fulfillment of
certain of its major subcontracts.
Government Regulations and Environmental Laws
Compliance with existing or probable governmental regulations and with federal,
state and local environmental laws has not had any material effect on the
Company's operations. The Company does not expect that continued compliance with
such existing or probable governmental regulations and laws will materially
affect its capital expenditures, earnings or competitive position.
Item 2. PROPERTIES
In fiscal 1984, the Company moved its headquarters to a 60,000 square foot
facility which it built and owns in Richmond, California. To support its
requirements for a significant contract, the Company constructed a 4,000 square
foot building addition in fiscal 1989.
The Company's headquarters are presently encumbered by a deed of trust securing
a $1,267,010 loan made to the Company by The Mechanics Bank of Richmond in
connection with the Company's acquisition of Century. As of the end of its 1996
fiscal year, the Company owed approximately $795,000 on such loan. Such loan
bears interest at the rate of 8.5% per annum and provides for payments of
principal and interest at the rate of $17,715 per month until July 15, 2000 when
the entire remaining principal balance becomes due and payable.
To satisfy its need for additional facilities due to its growth, the Company
purchased a 5,952 square foot office and research and development facility
located on approximately two acres of land adjacent to the Company's
headquarters in 1996. As part of the terms of this purchase, the Company issued
a $750,000 promissory note secured by the property to the previous owner. Such
secured promissory note bears interest, payable monthly, at 8% per annum on
unpaid principal and the principal amount is due and payable on April 1, 1998.
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Century's operations are presently conducted out of an approximately 12,000
square foot facility located in North Hollywood, California. Such facility is
leased by Century from Mr. Steven E. Manios, a Vice President and a Director of
the Company, and his spouse pursuant to a lease agreement for base rent
currently equal to approximately $113,000 per annum on a month-to month-basis.
To satisfy its need for additional facilities due to its anticipated growth,
Century recently entered into a lease agreement for a new facility located in
North Hollywood, California. Century expects to move from its present facility
into this new, larger building early in April or May of 1997. The new facility
is approximately 21,300 square feet. The lease agreement requires base rent of
approximately $241,000 in 1997 and increases to approximately $282,000 for
fiscal 1998, 1999, and 2000. The base rent increases again in 2001 to
approximately $312,000 per year to the end of the initial term of the lease in
February 2004.
Item 3. LEGAL PROCEEDINGS.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Reference is hereby made to the material appearing under the caption "Stock
Prices and Dividends" set forth in the Company's 1996 Annual Report, which
material is incorporated herein.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Reference is hereby made to the material appearing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth in the Company's 1996 Annual Report, which material is
incorporated herein.
Item 7. FINANCIAL STATEMENTS.
Reference is hereby made to the Consolidated Financial Statements, Notes to
Consolidated Financial Statements and Report of Independent Auditors set forth
in the Company's 1996 Annual Report, which items are incorporated herein.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a)
OF EXCHANGE ACT.
Directors
Reference is hereby made to the materials appearing under the caption
"Information About Nominees for Director" set forth in the Company's 1997 Proxy
Statement, which materials are incorporated herein.
<TABLE>
Executive Officers
The following table sets forth the names, ages and positions held by each of the
executive officers of the Company as of the date hereof:
<CAPTION>
NAME AGE POSITIONS
---- --- ----------
<S> <C> <C>
Robert J. Aronno 62 Chairman of the Board of Directors, President, Chief
Executive Officer and Chief Financial Officer
Daniel J. Bajuk 48 Executive Vice President
Robert J. Johnson 66 Vice President-Marketing and Secretary
James A. Kennon 42 Vice President
Steven E. Manios 58 Vice President
</TABLE>
Robert J. Aronno has been the Chairman of the Board of Directors since March
1993, the President and Chief Executive Officer since April 1985 and the Chief
Financial Officer since April 1979. Mr. Aronno also served as the Company's
Executive Vice President and Chief Operating Officer from May 1974 through April
1985 and as the Company's Treasurer from July 1972 through April 1985. From 1970
to May 1974, Mr. Aronno also served as the Company's Senior Vice President.
Daniel J. Bajuk has been a Vice President of the Company since July 1985. Mr.
Bajuk has worked for the Company since 1967 in various other capacities,
including Manager of the Company's Optical Division.
Robert J. Johnson has served as the Company's Vice President-Marketing since
1966 and Secretary since 1957.
James A. Kennon has been a Vice President of the Company since April 1990. Mr.
Kennon previously worked for the Company as an Electronics Engineer and Manager
of the Electronics Department from August 1976 to December 1982. Mr. Kennon was
a full-time consultant to the Company from 1983 through 1987, at which time he
again became a full-time employee of the Company.
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Steven E. Manios has been a Vice President of the Company since April 1994 and
an employee of the Company since May 19, 1993. For more than five years prior to
May 19, 1993, Mr. Manios served as President, Chief Executive Officer, a
Director and sole shareholder of Century.
There are no family relationships between any of the executive officers of the
Company. There are no arrangements or understandings between any of the
executive officers or any other person pursuant to which any of them is selected
as an executive officer. The term of office of each executive officer will
continue until his successor is elected and qualified or until he is removed in
accordance with law or the Company's Bylaws.
Item 10. EXECUTIVE COMPENSATION.
Reference is hereby made to the materials appearing under the captions "Board
and Committee Meetings and Committee Functions" and "Management Compensation and
Transactions-Executive Officers' Compensation" set forth in the Company's 1997
Proxy Statement, which materials are incorporated herein.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Reference is hereby made to the materials appearing under the captions "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of Management"
set forth in the Company's 1997 Proxy Statement, which materials are
incorporated herein.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is hereby made to the material appearing under the caption "Management
Compensation and Transactions-Other Transactions with Directors and Executive
Officers" set forth in the Company's 1997 Proxy Statement, which material is
incorporated herein.
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Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Attached hereto are the following Exhibits1:
3.1 Articles of Incorporation.2
3.2 Certificate of Amendment of Articles of Incorporation filed
July 16, 1968.2
3.3 Certificate of Amendment of Articles of Incorporation filed
June 16, 1988.3
3.4 Certificate of Amendment of Articles of Incorporation, filed
April 30, 1989.4
3.5 Certificate of Ownership, filed August 20, 1990.4
3.6 Certificate of Amendment of Articles of Incorporation filed
August 15, 1996.
3.7 Bylaws.2
3.8 Certificate of Adoption of Amendment to Bylaws, effective
April 23, 1987.3
3.9 Certificate of Adoption of Amendment to Bylaws, effective
April 28, 1988.3
3.10 Certificate of Adoption of Amendment to Bylaws, effective
March 9, 1990.5
10.1 Adoption Agreement re Defined Benefit Pension Plan, dated
December 19, 1985.6
10.2 1993 Incentive Stock Option Plan.7
10.3 Stock Redemption Agreement, dated March 19, 1993.8
10.4 Cooperative Research and Development Agreement, dated April
30, 1993, with Lawrence Livermore National Laboratory. 9
10.5 Stock Purchase Agreement, dated May 19, 1993.10
10.6 Standard Industrial/Commercial Single-Tenant Lease-Net and
Addendum thereto, each dated May 19, 1993.10
11
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10.7 Salary Continuation Agreement, dated December 12, 1986, with
Mr. Daniel J. Bajuk.11
10.8 Real Estate Promissory Note and Deed of Trust and Assignment
of Rents, each dated June 10, 1993, in favor of The Mechanics
Bank of Richmond.11
10.9 Employment Agreement, dated June 28, 1995, with Mr. Robert J.
Aronno. 9
10.10 Salary Continuation Agreement, dated June 28, 1995, with Mr.
Robert J. Johnson. 9
10.11 PR Taylor Multiple Employer 401(k) Plan as Adopted by Tinsley
Laboratories, Inc. effective as of July 1, 1995. 9
10.12 Note secured by Deed of Trust. dated March 11, 1996, in favor
of Mikuni American Corporation.
13.1 Annual Report to Shareholders for the Company's fiscal year
ended December 29, 1996 (to the extent that it is
incorporated, either in whole or in part, into this
Form 10-KSB).
21.1 List of Subsidiaries.11
23.1 Consent of Independent Auditors.
- ------------------------------------------
1. Required classification of exhibits which are not referred to herein
have been eliminated because they are not applicable.
2. Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 28, 1980.
3. Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 25, 1988.
4. Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 23, 1990.
5. Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 24, 1989.
6. Incorporated by reference from the Company's Form 10-K for its fiscal
year ended December 28, 1986.
7. Incorporated by reference from the Company's Proxy Statement utilized
in connection with its 1993 Annual Meeting of Shareholders held April
28, 1993.
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8. Incorporated by reference from the Company's Form 10-KSB for its fiscal
year ended December 27, 1992.
9. Incorporated by reference from the Company's Form 10-KSB for its fiscal
year ended December 31, 1995.
10. Incorporated by reference from the Company's Form 8-K dated May 19,
1993.
11. Incorporated by reference from the Company's Form 10-KSB for its fiscal
year ended December 26, 1993.
(b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TINSLEY LABORATORIES, INC.
August __, 1997 By:____________________________
Robert J. Aronno, Chairman of
the Board of Directors, President,
Chief Executive Officer and Chief
Financial Officer
<TABLE>
In accordance with the Exchange Act,, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<CAPTION>
Signature Capacity Date
- --------- -------- -----
<S> <C> <C>
___________________ Chairman of the Board of Directors, August ___, 1997
Robert J. Aronno President, Chief Executive Officer,
Chief Financial Officer and Director
___________________ Vice President-Marketing and Secretary August ___, 1997
Robert J. Johnson
___________________ Executive Vice President August ___, 1997
Daniel J. Bajuk
___________________ Vice President August ___, 1997
James A. Kennon
___________________ Controller August ___, 1997
Bruce W. Layne
___________________ Director August ___, 1997
Stephen L. Davenport
___________________ Director August ___, 1997
Stephen E. Globus
___________________ Vice President and Director August ___, 1997
Steven E. Manios
</TABLE>
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State of California
[State SEAL logo here]
A480037
SECRETARY OF STATE
CORPORATION DIVISION
I. BILL JONES. Secretary of State of the State of California, hereby
certify:
That the annexted transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal of
the State of California this
Aug 15, 1996
----------------------------------------
[SEAL] /s/ Bill Jones
Secretary of State
<PAGE>
A480037
ENDORSED - FILED
In the office of the Secretary of State
of the State of California
AUG 15, 1996
BILL JONES, Secretary of State
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
ROBERT J. ARONNO and ROBERT J. JOHNSON certify that:
1. They are the President and Secretary, respectively, of Tinsley
Laboratories, Inc., a California corporation.
2. Article IV of the Articles of Incorporation of the corporation is
amended to read in its entirety as follows:
"IV
This corporation is authorized to issue two classes of
shares designated, respectively, as Common Stock and
Preferred Stock. The authorized number of shares of Common
Stock is 6,000,000 and the authorized number of shares of
Preferred Stock is 500,000. All shares of Common Stock and
all shares Preferred Stock shall be without par value. Upon
the amendment of this Article IV to read as hereinabove set
forth, each outstanding share of Common Stock of this
corporation is divided into two shares of such Common Stock.
The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of this corporation
is authorized to fix the number of shares of any series of
Preferred Stock and to determine the designation of such
series. The Board of Directors of this corporation is also
authorized to determine or alter the rights, preference,
privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the
limits and restriction stated in any resolution or
resolutions of the Board of Directors of this corporation
originally fixing the number of shares constituting any such
series, to increase or decrease (but not below the number of
shares of that series then outstanding) the number of shares
of any such series subsequent to the issue of shares of the
series."
3. The foregoing Amendment of Articles of Incorporation has been duly
approved by the Board of Directors of the corporation.
<PAGE>
4. The foregoing Amendment of Articles of Incorporation is one that may be
approved by the corporation's Board of Directors alone in accordance with the
provisions of Section 902(c) of the Corporations Code since the corporation has
771,974 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding and since the increase in the authorized number of shares of Common
Stock is in proportion to the two-for-one stock split effected hereby with
respect to outstanding shares of the Corporation's Common Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
and of our own knowledge.
Dated: August 1, 1996
/s/ Robert J. Aronno
-----------------------------------
Robert J. Aronno, President
/s/ Robert J. Johnson
-----------------------------------
Robert J. Johnson, Secretary
2
<PAGE>
DO NOT DESTROY THIS NOTE: When paid, this note, with Deed of Trust securing
same, must be surrendered to Trustee for cancellation before reconveyance will
be made.
- --------------------------------------------------------------------------------
NOTE SECURED BY DEED OF TRUST
(STRAIGHT NOTE)
$750,000.00 OAKLAND, California March 11, 1996 ON OR BEFORE APRIL 1, 1998, after
date, for value received I/we promise to pay to MIKUNI AMERICAN CORPORATION, A
CALIFORNIA CORPORATION or order, at 8910 Mikuni Avenue, Northbridge, CA 91324,
the sum of SEVEN HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS, with interest from
April 1, 1996 until paid, at the rate of 8.000 precent per annum, payable in
interest only monthly installments of $5,000.00 or more beginning May 1, 1996,
and continuing monthly thereafter until April 1, 1998, at which time the
principal balance and any interest owing shall become due and payable.
If the Trustor shall sell, convey, transfer, dispose of or encumber the real
property described in the deed of trust securing this note or any part of it
without first obtaining the written consent of the holder of this note, then the
holder may declare all obligations secured by this note to be due and payable.
Holder's consent to one transaction of this type will not constitute a waiver of
the holder's right to require consent to future or successive transaction.
Trustor agrees to pay a late charge to the holder of this note for any
installment of principal or interest, or both, due under this note and not
received by such holder on or before the tenth calendar day following the date
the same is due. The amount of the late charge shall be five percent (5%) of the
installment due. This late charge is a fair and reasonable sum that takes into
consideration all of the circumstances existing on the date of this note and is
a fair and reasonable estimate of the costs and expenses that will be incurred
by the holder by reason of our failure to make timely payment. The parties to
this note agree that it would be impracticab;e or extremely difficult to fix the
actual damages resulting to the holder from our failure to make timely payments.
Should default be made in payment of principal or interest, the whole sum of
principal and interst shall, at the option of the holder of this note, become
immediately due. Principal and interest payable in lawful money of the United
States. If action be instituted on this note, the undersigned promise(s) to pay
such sum as the Court may adjudge as attorney's fees. This note is secured by a
DEED OF TRUST to CHICAGO TITLE COMPANY, a California corporation, as Trustee.
- ---------------------------------- ---------------------------------------
TINSLEY LABORATORIES, INC.
- ---------------------------------- ---------------------------------------
BY:
????????????????
- ---------------------------------- ---------------------------------------
?????????????????
- ---------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
THIS FORM FURNISHED BY
CHICAGO TITLE COMPANY
DO NOT DESTROY THIS NOTE
<PAGE>
Tinsley Laboratories, Inc.
Annual Report and
Consolidated Financial Statements For the fiscal years
ended December 29, 1996 and December 31, 1995
With Independent Auditor's report
<PAGE>
To Our Shareholders:
The Company's operating results improved markedly in 1996. Sales increased to
$17,408,410, in 1996, an increase of 33 percent over sales for the previous year
of $13,109,144.
Net income for 1996 was $878,674 or 53 cents a share, which was more than seven
times net income of $121,630 or 8 cents a share for the prior year. Per share
earnings reflect the 2-for-1 stock split declared by the Board of Directors in
the third quarter of 1996.
Fourth quarter sales in 1996 of $4,337,763 exceeded those for the comparable
quarter in the previous year of $3,268,875 but were below our sales for the
third quarter of 1996 of $4,918,550. Fourth quarter earnings in 1996 of
$252,878, or 12 cents a share, while better than the comparable quarter of the
prior year, were below our third quarter of 1996 net income of $295,528, or 19
cents a share.
The favorable trend in our non-defense related lines, as we have previously
reported, was sustained in 1996. This was evident not only in our traditional
precision optics business but also in film and video products, the market we
entered in May, 1993 with our acquisition of Century Precision Optics. Since the
acquisition we have introduced a number of new Century products, several during
the past two years, and expect to introduce others in the year ahead.
With our strong position in precision optics and growing film and video
business, we have maintained a strong backlog of orders. We began 1996 with a
consolidated backlog of $8,885,000 and closed the year with a backlog of
$10,300,000.
One promising development for the growth of our precision optics business is
Tinsley's participation in the High Precision Optics Joint Sponsored Research
Agreement ("JSRA"). JSRA brings together a national team of four government and
industry organizations whose objective is to provide significant technological
advancement for the U.S. semiconductor industry.
The consortium is coordinated by SEMATECH, Inc. of Austin, Texas, which is the
leading participant for funding the program. The other participants include
NASA's Goddard Space Flight Center of Greenbelt, Maryland and SVG Lithography
Systems, Inc. of Wilton, Connecticut. We anticipate that through sponsorship of
the JSRA, Tinsley will develop and demonstrate the production of ultra-precision
optical components. This is an enabling technology needed to produce faster
computer chips in the 21st Century.
We have had a long association with Lawrence Livermore National Laboratory
("LLNL"), providing precision optics for its continuing experiments with laser
fusion. The U.S. Department of Energy has selected LLNL to build and operate
<PAGE>
a $1.2 billion super laser project, the National Ignition Facility ("NIF"),
whose goal is to produce a quantum improvement in fusion technology.
The initial phase of the construction of NIF will be the development of the
optical manufacturing technology needed to make precision optics for the new
facility, which will make use of high powered lasers. Improved technology is
required to bring down production costs of NIF's optical components.
We expect Tinsley to be included among the companies that will be involved in
the production of the optical components for the National Ignition Facility.
In NASA's first servicing mission to the Hubble Space Telescope in December,
1993, astronauts installed a series of Tinsley mirrors, which successfully
corrected Hubble's original focusing problems, attested by Hubble's subsequent
(and brilliant) photographs of stellar bodies in space.
In mid-February 1997, astronauts, in making several space-walks aboard the Space
Shuttle Discovery, conducted the second Hubble servicing mission. One of their
assignments was the installation of scientific instruments designed to upgrade
Hubble's capacity to image light from infrared objects in space. Among the new
instruments is the Near Infrared Camera Multi-object Spectrometer and the Space
Telescope Imaging Spectrograph, both of which employ very precise Tinsley
optics.
In anticipating the Company's further progress during the coming year, we
believe Tinsley is achieving a much better balance between our military orders,
on which we have relied so much in the past, and non-military business in our
growing commercial/industrial and scientific markets.
Drawing on our backlog and looking toward the Company's general prospects in the
year ahead, we believe Tinsley will maintain its improved performance in 1997.
We again wish to avail ourselves to the Annual Report to express our thanks and
appreciation to all Tinsley employees for their continuing contributions to the
progress of the Company.
Robert J. Aronno
Chairman of the Board
President and Chief Executive Officer
March 28,1997
<PAGE>
Management's Discussion
and
Analysis of Financial Condition and Results of Operations
Results of Operations:
Sales for 1996 of $17,408,410 represented an increase of 32.8% as compared to
sales of $13,109,144 in 1995. Net income for 1996 increased to $878,674, which
was more than seven times net income of $121,630 in 1995.
The Company's operating results for 1996 reflect increasing sales from its
commercial business sectors.
Cost of goods sold was 69% of net sales in both 1996 and 1995. Selling,
administrative, research and development expense in 1996 increased to
$3,539,314, as compared to $3,423,398 in 1995, representing a 3% increase.
As a result of the increase in net sales and related profits during 1996, income
from operations increased to $1,567,992 in 1996 as compared to $375,426 in 1995.
In 1995, sales of $13,109,144 represented a 1.0% increase as compared to 1994
sales of $12,968,892. Cost of goods sold was 69% of net sales in 1995 versus 70%
in 1994. Net income in 1995 of $121,630 was approximately 65%
<PAGE>
below 1994 earnings of $345,785, reflecting reduced defense-related sales and
lower than expected revenues due to delays in certain projects.
LIQUIDITY AND CAPITAL RESOURCES
At December 29, 1996, the Company's principal sources of liquidity included
$946,222 of cash and cash equivalents and a secured $1.0 million revolving line
of credit which expires in April, 1997. There were no borrowings outstanding
under the line of credit as of December 29, 1996. The increase in cash and cash
equivalents of $385,530 for 1996 was principally due to $2,003,053 of funds
provided by operations, offset by $1,051,899 of funds used to purchase property,
plant and equipment and $502,386 of funds used to repay outstanding
indebtedness. The net cash provided by operating activities for 1996 was
primarily due to the Company's net income. Cash provided by increases in
accounts payable, accrued liabilities, accrued compensation and related
liabilities, deferred compensation and income taxes payable, was offset by
increases in accounts receivable.
Net cash used in investing activities of $1,115,137 for 1996 related primarily
to expenditures for property, plant and equipment of $1,051,899. Net cash used
in financing activities of $502,386 for 1996 related primarily to the repayment
of outstanding indebtedness which was partially offset by $48,675 of proceeds
from the exercise of employee stock options.
<PAGE>
At December 29, 1996, the Company had $2,981,599 in working capital. The
Company's current ratio was 1.9 to 1 at December 29, 1996, compared to 2.0 to 1
for at December 31, 1995. The Company's debt to equity ratio remained at 23% for
1996 and 1995. The Company currently has no significant capital commitments
other than commitments under facilities and operating leases. The Company
believes that its available sources of funds and anticipated cash flow from
operations will be adequate to finance current operations, capital expenditures
and current maturities of outstanding indebtedness for at least the next twelve
months.
<PAGE>
tinsley
THE ASPHERE COMPANY
- --------------------------------------------------------------------------------
REPORT OF
INDEPENDENT
AUDITORS
The Board of Directors and Stockholders
Tinsley Laboratories, Inc.
We have audited the accompanying consolidated balance
sheets of Tinsley Laboratories, Inc. as of December 29, 1996
and December 31, 1995, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of
the three years in the period ended December 29, 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 provide 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 Tinsley Laboratories, Inc.
at December 29, 1996 and December 31, 1995, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 29, 1996
in conformity with generally accepted accounting principles.
San Francisco, California
March 14, 1997
<PAGE>
<TABLE>
tinsley
the asphere company
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
BALANCE SHEETS
December 29, 1996 and
December 31, 1995
<CAPTION>
ASSETS 1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 946,222 $ 560,692
Trade receivables (net of allowance for doubtful accounts
of $75,000 in 1996 and $49,000 in 1995) 2,245,186 1,521,097
Unbilled receivables 680,600 837,701
Inventories:
Raw materials 229,640 230,271
Contracts in progress (net of progress billings of $576,000
in 1996 and $431,000 in 1995) 637,390 874,604
Finished goods 918,691 760,113
-------------------------------------------------------------------------------------------------
Total inventories 1,785,721 1,864,988
Prepaid expenses and other receivables 144,545 127,816
Deferred income taxes 521,891 316,057
-------------------------------------------------------------------------------------------------
Total current assets 6,324,165 5,228,351
Property, plant and equipment, at cost:
Land 1,144,803 644,553
Building 2,960,708 2,550,875
Machinery and equipment 6,614,870 5,878,788
Leasehold improvements 235,844 191,094
Equipment construction in process 371,439 260,455
-------------------------------------------------------------------------------------------------
11,327,664 9,525,765
Less accumulated depreciation 5,039,576 4,240,278
-------------------------------------------------------------------------------------------------
Net property, plant and equipment 6,288,088 5,285,487
Cash surrender value of life insurance (net of loans thereon of
$279,000 in 1996 and $283,000 in 1995) 627,263 564,025
Goodwill (net of amortization of $438,000 in 1996 and
$316,000 in 1995) 1,394,791 1,516,963
Noncompetition agreement and other assets (net of amortization
of $358,000 in 1996 and $258,000 in 1995) 245,364 345,364
-------------------------------------------------------------------------------------------------
$14,879,671 $12,940,190
-------------------------------------------------------------------------------------------------
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
tinsley
the asphere company
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED
BALANCE SHEETS
December 29, 1996 and
December 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 640,397 $ 491,296
Accrued liabilities 538,474 540,905
Accrued compensation and related liabilities 861,115 634,905
Income taxes payable 691,945 362,008
Current portion - long-term debt obligations 160,635 151,878
Current portion - notes payable to related parties 450,000 400,000
-------------------------------------------------------------------------------------------------
Total current liabilities 3,342,566 2,580,992
Long-term debt obligations, less current portion 1,491,110 900,928
Long-term notes payable to related parties, less current portion 10,000 460,000
Deferred income taxes 324,686 270,985
Deferred compensation 613,777 557,102
Stockholders' equity:
Preferred stock, with no par value; 500,000 shares authorized;
none issued or outstanding -- --
Common stock, stated value $.16-2/3 per share; 6,000,000
shares authorized; 1,551,948 shares issued and
outstanding (1,534,248 in 1995) 258,633 255,706
Capital in excess of stated value 1,261,776 1,216,028
Retained earnings 7,704,963 6,826,289
Minimum pension liability (127,840) (127,840)
-------------------------------------------------------------------------------------------------
Total stockholders' equity 9,097,532 8,170,183
-------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 14,879,671 $ 12,940,190
-------------------------------------------------------------------------------------------------
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
tinsley
the asphere company
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED
STATEMENTS OF
INCOME
Years ended
December 29, 1996,
December 31, 1995, and
December 25, 1994
1996 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 17,408,410 $ 13,109,144 $ 12,968,892
Costs and expenses:
Cost of goods sold 12,078,932 9,088,148 9,025,794
Selling, administrative and research
and development expenses 3,539,314 3,423,398 3,069,899
Amortization of intangible assets 222,172 222,172 222,172
-------------------------------------------------------------------------------------------------
15,840,418 12,733,718 12,317,865
-------------------------------------------------------------------------------------------------
Income from operations 1,567,992 375,426 651,027
Other income 71,025 21,307 155,622
Interest expense (214,539) (179,366) (215,783)
-------------------------------------------------------------------------------------------------
Income before income taxes 1,424,478 217,367 590,866
Provision for income taxes 545,804 95,737 245,081
-------------------------------------------------------------------------------------------------
Net income $ 878,674 $ 121,630 $ 345,785
-------------------------------------------------------------------------------------------------
Net income per common share $ .53 $ .08 $ .23
-------------------------------------------------------------------------------------------------
Number of shares used in per
share calculation 1,671,715 1,534,248 1,539,934
-------------------------------------------------------------------------------------------------
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
tinsley
the asphere company
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS'
EQUITY
Years ended
December 29, 1996,
December 31, 1995, and
December 25, 1994
Common Capital in Minimum Total
shares Common excess of Retained pension stockholders'
outstanding stock stated value earnings liability equity
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 26, 1993 1,523,048 $ 253,842 $ 1,187,467 $ 6,358,874 -- $ 7,800,183
Exercise of stock
options 1,000 166 2,209 -- -- 2,375
Net income -- -- -- 345,785 -- 345,785
--------------------------------------------------------------------------------------------------------
Balances,
December 25, 1994 1,524,048 254,008 1,189,676 6,704,659 -- 8,148,343
Exercise of stock
options 10,200 1,698 26,352 -- -- 28,050
Net income -- -- -- 121,630 -- 121,630
Adjustment for
minimum pension
liability -- -- -- -- (127,840) (127,840)
--------------------------------------------------------------------------------------------------------
Balances,
December 31, 1995 1,534,248 255,706 1,216,028 6,826,289 (127,840) 8,170,183
Exercise of stock
options 17,700 2,927 45,748 -- -- 48,675
Net income -- -- -- 878,674 -- 878,674
--------------------------------------------------------------------------------------------------------
Balances,
December 29, 1996 1,551,948 $ 258,633 $ 1,261,776 $ 7,704,963 $ (127,840) $ 9,097,532
--------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
tinsley
the asphere company
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
Years ended
December 29, 1996,
December 31, 1995, and
December 25, 1994
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 878,674 $ 121,630 $ 345,785
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,021,470 945,550 844,960
Deferred income taxes (152,133) (235,911) 92,665
Changes in operating assets and liabilities:
Trade and unbilled receivables (566,988) 325,869 (1,047,827)
Inventories 79,267 (348,461) 435,964
Prepaid expenses and other receivables (16,729) (20,444) (11,184)
Trade accounts payable and accrued liabilities 146,670 234,599 138,924
Accrued compensation and related liabilities
and deferred compensation 282,885 206,666 5,059
Income taxes payable 329,937 135,026 124,490
--------------------------------------------------------------------------------------------------------
Total adjustments 1,124,379 1,242,894 583,051
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,003,053 1,364,524 928,836
Cash flows from investing activities:
Purchase of property, plant and equipment (1,051,899) (1,113,865) (581,474)
Other assets (63,238) (68,502) (63,722)
--------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,115,137) (1,182,367) (645,196)
--------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (551,061) (542,756) (575,428)
Borrowings under line of credit 500,000 -- --
Repayments of borrowings under line of credit (500,000) -- --
Proceeds from exercise of stock options 48,675 28,050 2,375
--------------------------------------------------------------------------------------------------------
Net cash used in financing activities (502,386) (514,706) (573,053)
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 385,530 (332,549) (289,413)
Cash and cash equivalents at beginning of year 560,692 893,241 1,182,654
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 946,222 $ 560,692 $ 893,241
--------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 225,491 $ 167,409 $ 227,113
Income taxes $ 368,000 $ 196,622 $ 136,000
--------------------------------------------------------------------------------------------------------
Minimum pension liability and related
deferred tax asset -- $ 213,067 --
--------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing and
financing activities:
Issuance of note payable for the purchase of a
research and development facility and office space $ 750,000 -- --
=========================================================================================================================
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 29, 1996
- --------------------------------------------------------------------------------
1. Summary of
significant
accounting
policies.
Nature of Business
Tinsley Laboratories, Inc., (ithe Companyi) designs and
manufactures precision optical components and systems, including color
television tooling products, optical instruments, aspheric lenses,
metal mirrors and massive optical components. The Company also
manufactures and distributes video, cinematography and camera lenses.
The Company's fiscal year is the 52/53 week period which ends on the
Sunday closest to December 31. The fiscal years ended December 29, 1996
and December 25, 1994 were 52 week periods and the fiscal year ended
December 31, 1995 was a 53 week period.
The Company sells its products primarily to large corporations
that act as prime government contractors or to the U.S. Government
directly and to distributors and end users in the photography and
cinematography industries. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses and such
losses have not historically been material to the Company.
Restatement
As described in Note 9, the Company entered into employment agreements
with its President and Chief Executive Officer and Vice President of
Marketing in June 1995. The Company had not recorded the annual bonus
or deferred compensation under the employment agreements for 1996 and
1995. To correctly record compensation related to the employment
agreements, the Company has restated its consolidated financial
statements for the years ended December 29, 1996 and December 31, 1995.
The effect of the restatement on the results of operations was a
reduction of net income of $54,804 or $.03 per share for the year ended
December 29, 1996 and a reduction of net income of $146,755 or $.10 per
share for the year ended December 31, 1995. In the opinion of
management, all material adjustments necessary to restate the 1996 and
1995 consolidated financial statements have been recorded.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its two active wholly owned subsidiaries, Century Precision
Industries, Inc. d/b/a Century Precision Optics (iCenturyi) and Tinsley
International, Inc., after elimination of intercompany transactions and
balances.
Business Combination
On May 19, 1993, the Company acquired all of the outstanding
capital stock of Century which manufactures and distributes video,
cinematography and camera lenses. The purchase price was $2,250,000, of
which $1,500,000 was paid in cash and the balance was financed with a
promissory note to Century's former owner in the amount of $750,000
(see Note 4). An additional $200,000 was paid and capitalized as costs
for outside professional and financing expenses directly related to the
acquisition. This acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at
their estimated fair value at the date of acquisition. The excess of
the purchase price over the estimated fair market value of the assets
(goodwill) was approximately $1,833,000 and is being amortized using
the straight-line method over 15 years. The operating results of this
acquisition are included in the Company's consolidated results of
operations from the date of acquisition.
As part of the purchase, the Company entered into a Noncompetition
Agreement with the former owner of Century that required the Company to
pay a total of $600,000, of which $100,000 was paid in cash upon
closing of the purchase, an additional $50,000 was paid in November
1993, $140,000 was paid in May 1994, $100,000 was paid in May 1995 and
$100,000 was paid in May 1996, in consideration of the former owner's
promise not to compete with the business of Century for a period of six
years after the closing. As of December 29, 1996, the remaining
liability was $110,000 payable in installments of $100,000 on May 19,
1997 and $10,000 on May 19, 1998. This liability (and the related
intangible asset which is being amortized over six years) has been
recorded in the consolidated financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less from the date of purchase to be cash
equivalents. Substantially all of the Company's cash and cash
equivalents are maintained in two financial institutions.
Revenue Recognition
The majority of the Company's sales are from fixed price contracts
and product sales for which revenue is recognized as units are
delivered or accepted. Sales under cost-plus contracts are recognized
as services are performed. At the time a loss on a contract becomes
known, the entire
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
amount of the estimated loss on the contract is accrued. Differences
between invoiced amounts and revenue recognized are reflected as
unbilled contract receivables.
Inventories
Inventories are stated at the lower of cost or market. Finished
goods and raw materials are removed from inventory on the first-in,
first-out method. Inventoried costs related to contracts in process
include actual production cost and factory overhead, reduced by amounts
related to revenue recognized. The Company provides for obsolete
inventories in the period when obsolescence is determined to have
occurred.
Property, Plant and Equipment
Property, plant and equipment, stated at cost is being depreciated
on the straight-line basis. Estimated useful lives for purposes of
depreciation are as follows:
Buildings 40 years
Machinery and equipment 3 to 10 years
Leasehold improvements Life of lease
Long-Lived Assets
The Company assesses long-lived assets, including goodwill, for
impairment under FASB Statement No. 121, iAccounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.i
Under those rules, goodwill associated with assets acquired in a
purchase business combination is included in impairment evaluations
when events or circumstances exist that indicate the carrying amount of
those assets may not be recoverable.
Income Taxes
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 (SFAS No. 109), iAccounting
for Income Taxes.i Under SFAS No. 109, the liability method is used to
calculate deferred income taxes. Under this method, deferred tax assets
and liabilities are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). In accordance with the provisions
of SFAS 123, the Company applies APB Opinion No. 25 and related
Interpretations in accounting for its stock option plans and, as a
result, has not recognized compensation cost in connection with such
plans. Note 6 to the consolidated financial statements contains a
summary of the pro forma effects on reported net income and net income
per share for 1996 and 1995 as if the Company had elected to recognize
compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS 123.
Net Income Per Share
Net income per share is computed using the weighted average number
of shares of common stock outstanding. Common equivalent shares from
stock options (using the treasury stock method) are also included in
the computation when dilutive. The difference between primary and fully
diluted earnings per share is not material for all periods presented.
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 amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
Stock Split
In August 1996, the Company's Board of Directors approved a
two-for-one stock split. All shares and per share data in the
accompanying consolidated financial statements have been retroactively
adjusted to reflect this stock split.
- --------------------------------------------------------------------------------
2. Research and
development
Research and development expenditures of $349,000, $355,000 and
$383,000 were charged against operations as incurred in 1996, 1995 and
1994, respectively.
- --------------------------------------------------------------------------------
<TABLE>
3. Provision for
income taxes
The components of income tax expense were as follows:
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $585,283 $249,570 $108,334
State 112,654 82,078 44,082
---------- ---------- -------
$697,937 $331,648 $152,416
-------------------------------------------------------------------------------------
Deferred:
Federal $(128,991) $(200,024) $74,750
State (23,142) (35,887) 17,915
---------- ---------- -------
$(152,133) $(235,911) $92,665
-------------------------------------------------------------------------------------
Total:
Federal $456,292 $ 49,546 $183,084
State 89,512 46,191 61,997
---------- ---------- -------
$545,804 $ 95,737 $245,081
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
A reconciliation of total income tax expense with the statutory federal
income tax rate appears as follows:
<CAPTION>
1996 1995 1994
---------------------- --------------------- -----------------------
% of % of % of
Pretax Pretax Pretax
Income Income Income
---------------------- --------------------- -----------------------
<S> <C> <C> <C>
Income tax expense
at federal statutory rate 34.0% 34.0% 34.0%
State franchise tax, net of
federal benefit 3.8 6.1 6.1
Life insurance proceeds -- -- (4.3)
Amortization of goodwill 2.9 19.1 7.0
Foreign sales corporation
commission (2.7) (12.3) (1.5)
Other, net .3 (2.9) .2
-----------------------------------------------------------------------------------------------------------
38.3% 44.0% 41.5%
-----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
<TABLE>
Deferred income taxes reflect the net tax effect of timing differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income and tax purposes.
Significant components of the Company's deferred tax assets and
liabilities as of December 29, 1996 and December 31, 1995, are as
follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory reserve $171,417 $123,830
Deferred compensation 263,068 223,398
Accounting for long-term contracts 91,894 34,073
Accrued vacation 99,668 91,674
State franchise tax 38,847 30,763
Other 72,526 56,028
Minimum pension liability 85,227 85,227
---------------------------------------------------------------------------------------------------------
Total deferred tax asset 822,647 644,993
Deferred tax liabilities:
Depreciation and amortization (589,101) (582,888)
Prepaid property taxes (16,291) (17,033)
Other (20,050) --
---------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (625,442) (599,921)
---------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 197,205 $ 45,072
==========================================================================================================
</TABLE>
<TABLE>
The following is a summary of deferred tax assets and liabilities at December 29, 1996 and December 31, 1995
classified as current and non-current:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Current $ 558,232 $ 333,090
Non-current 264,415 311,903
--------- ---------
822,647 644,993
Deferred tax liabilities:
Current (36,341) (17,033)
Non-current (589,101) (582,888)
--------- ---------
(625,442) (599,921)
--------- ---------
Net deferred tax assets (liabilities):
Current $ 521,891 $ 316,057
Non-current (324,686) (270,985)
--------- ---------
$ 197,205 $ 45,072
========= =========
</TABLE>
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
<TABLE>
4. Long-term debt
obligations
Long-term debt and notes payable to related parties consist of:
<CAPTION>
December 29, December 31,
1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.5% loan agreement dated June 30, 1993, principal and interest
payable monthly with a final payment of $209,000
due July 15, 2000 $795,269 $933,778
8% promissory note dated May 19, 1993, principal and interest
payable in four annual installments from May 1994
through May 1997 to a related party 150,000 350,000
8% subordinated promissory note dated June 1, 1993, principal
payable in four installments and interest payable
quarterly through June 1997 to a related party 200,000 300,000
Noncompetition agreement, dated May 19, 1993, payable
annually through May 1998 to a related party 110,000 210,000
8% promissory note dated March 11, 1996, interest payable monthly
with principal balance of $750,000 due April 1, 1998
750,000 --
6% special assessment bond dated April 2, 1974, principal and
interest payable semiannually through April 1999
9,935 12,039
12% special assessment bond dated April 2, 1982, principal and
interest payable semiannually through April 2007
96,541 102,024
Other -- 4,965
-------------------------------------------------------------------------------------------------------------
2,111,745 1,912,806
Less current portion 610,635 551,878
-------------------------------------------------------------------------------------------------------------
$1,501,110 $1,360,928
=============================================================================================================
</TABLE>
The aggregate maturities of long-term debt at December 29, 1996 are as
follows:
1997 $610,635
1998 933,878
1999 187,372
2000 309,502
2001 8,270
Thereafter 62,088
----------------------------------------------------------
$2,111,745
==========================================================
At December 29, 1996, the Company had outstanding an irrevocable
standby letter of credit for $162,000, which secures the required
payments on the 8% promissory note, dated May 19, 1993, to a related
party. The letter of credit is subject to renewal in June 1997.
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
During 1996, the Company established a $1,000,000 bank line of credit.
Borrowings under the line of credit are secured by the Company's
assets. Borrowings under this line of credit bears interest at prime
rate plus 1% per annum. The line of credit, which expires on April 30,
1997, requires the Company to meet various financial covenants. The
Company was not in compliance with the current ratio covenant as of
December 29, 1996. The Company received a waiver from the bank for this
covenant as of December 29, 1996. There were no borrowings under this
line of credit at December 29, 1996.
During 1996, the Company purchased a research and development facility
and office space for $900,000. The Company paid $150,000 in cash upon
closing of escrow and issued a $750,000 promissory note secured by the
property bearing interest at 8% per annum due and payable on April 1,
1998.
- --------------------------------------------------------------------------------
5. Lease
commitments
The Company leases certain facilities, manufacturing equipment and
operating equipment under noncancelable leases. Future minimum rental
payments under these leases as of December 29, 1996 are as follows:
1997 $314,998
1998 288,863
1999 288,863
2000 288,863
2001 311,544
Thereafter 735,950
-----------------------------------------------------
Total remaining $2,229,081
=====================================================
During 1993, Century entered into a lease agreement with a related
party for the office building occupied by Century. Base rent was $8,667
per month through October 1994. An option to extend the term of the
lease for an additional two years from the original date of termination
was exercised in 1994 and extended the term through October 1996 at
$9,398 per month. The Company is currently occupying this building
under a month-to-month cancelable lease. Rent expense paid to this
related party by Century during 1996, 1995 and 1994 was approximately
$113,000, $113,000 and $105,000, respectively.
Total rent expense for 1996, 1995 and 1994 approximated $223,000,
$210,000, and $197,000, respectively.
- --------------------------------------------------------------------------------
6. Stock
options
Effective February 4, 1993, the Company's Board of Directors approved
the 1993 Incentive Stock Option Plan ("1993 Plan") and reserved 200,000
shares of common stock for issuance under the 1993 Plan, which was
subsequently approved by the Company's stockholders. All full-time
employees are eligible to receive options under the 1993 Plan. The 1993
Plan will expire in February 2003 and is intended to qualify as an
incentive stock option plan pursuant to Section 422 of the Internal
Revenue Code. The exercise price per share of all incentive stock
options granted under the 1993 Plan must be at least equal to the fair
market value of the shares at the date of the grant. Vesting is
established by the Company's Board of Directors or Compensation
Committee and generally occurs at the rate of 20% per year.
From time to time, the Company has issued non-qualified stock options
to certain key employees, consultants and board members at the
discretion of the Board of Directors or Compensation Committee. The
non-qualified stock options have a per share exercise price equal to or
in excess of 100% of the market value of the shares of the Company's
common stock on the date of grant. Vesting is established by the
Company's Board of Directors or Compensation Committee.
The Company has adopted SFAS 123 which was issued in October 1995. In
accordance with the provisions of SFAS 123, the Company applies APB
Opinion 25 and related Interpretations in
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
accounting for its stock option plans and, accordingly, does not
recognize compensation cost. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS 123, net income and net income per
share would have been reduced to the pro forma amounts indicated in the
table below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 29, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Net income -- as reported $878,674 $ 21,630
Net income -- pro forma $872,268 $ 85,966
Net income per share -- as reported $ 0.53 $ 0.08
Net income per share -- pro forma $ 0.52 $ 0.06
</TABLE>
<TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
<CAPTION>
Year Ended Year Ended
December 29, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Expected volatility 0.264 0.264
Risk-free interest rate 6.40% 5.90%
Expected life of options in years 4.5 4.5
Expected dividend yield 0.00% 0.00%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options
have characteristics significantly different from those of traded
options, and because changes in these subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not provide a reliable single measure of the fair
value of its stock options.
<TABLE>
Price data and activity for all stock options are summarized as
follows:
<CAPTION>
Outstanding Options
in Number of Shares Price Range
------------------- -----------
<S> <C> <C>
Balance at December 26, 1993 228,200 $2.38 - 2.94
Exercised (1,000) 2.38
Canceled (40,000) 2.75
------------------------------------------------------------------------------------------------
Balance at December 25, 1994 187,200 2.75 - 2.94
Granted 151,000 3.07 - 3.50
Exercised (10,200) 2.75
------------------------------------------------------------------------------------------------
Balance at December 31, 1995 328,000 2.75 - 3.50
Granted 67,500 7.50
Exercised (17,700) 2.75
Canceled (40,000) 3.07 - 3.50
------------------------------------------------------------------------------------------------
Balance at December 29, 1996 337,800 $2.75 - 7.50
================================================================================================
</TABLE>
At December 29, 1996, options to purchase 232,000 common shares were
exercisable at prices ranging from $2.75 to $7.50 per share.
Outstanding options had a weighted average exercise price of $3.91 and
an average remaining life of 2.7 years.
- --------------------------------------------------------------------------------
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
7. Major Customers
and geographical
information
A significant portion of the Company's sales has been derived from
major customers:
Five customers accounted for approximately $4,717,000 in sales of
1996;
Three customers accounted for approximately $3,111,000 in sales of
1995;
Four customers accounted for approximately $4,041,000 in sales of
1994.
<TABLE>
International sales during the last three fiscal years were as follows:
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $1,622,937 $1,375,361 $914,004
Asia 1,138,740 781,690 478,915
Canada & Mexico 194,167 165,632 563,037
South Pacific 26,628 41,223 140,960
Latin & South America 58,032 58,971 47,245
Other 13,372 18,314 53,632
-------------------------------------------------------------------------------------------------------
$3,053,876 $2,441,191 $2,197,793
=======================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
8. Employee
Benefit Plans
Effective January 1985, the Company adopted a defined benefit pension
plan (the "Plan") for eligible employees with at least one year of
service. Substantially all employees of the Company are covered by the
Plan. Benefits are payable in the form of a life annuity at an annual
rate of up to fifty percent of average compensation in a five year
measurment period, less a portion of social security benefits. For
service of less than twenty-five years, the fifty percent of average
compensation, as defined, is to be reduced proportionately. All
eligible employees must participate in the Plan for at least five years
in order to receive applicable benefits thereunder.
During 1995, the Company decided to terminate the Plan and is in the
process of finalizing the plan of termination. As of December 29, 1996,
the Company has recorded an additional minimum pension liability of
$213,037 representing the excess of the estimated accumulated benefit
obligation of $1,691,792 over the actual fair market value of the Plan
assets (primarily money market funds) of $1,478,755 at December 29,
1996. The minimum pension liability resulted in a charge to
stockholders' equity, (net of income taxes of $85,227) of $127,840.
During 1996, the Company made contributions to the Plan of $45,000
which were expensed.
When the termination of the Plan is finalized, the minimum pension
liability (adjusted for subsequent changes in the accumulated benefit
obligation and plan assets) will be charged to the results of
operations.
Effective July 1, 1995, the Company adopted a contributory defined
contribution plan (the "Plan") in which the Company's employees may
participate provided they have completed at least six months of
permanent employment. The Company, at its discretion, may make
contributions on behalf of all eligible employees to the Plan on an
annual basis. During 1996, the Company accrued $140,000 for
contributions to the Plan. No contributions were made by the Company to
the Plan in 1995 and 1994.
In 1986, the Company entered into deferred compensation agreements with
certain key employees under which the Company agreed to pay certain
fixed amounts over a ten year period after the employees reach the age
of 65. Payments provided for in these agreements began vesting five
years after the date of the agreements and become fully vested only if
the employees remain employed by the Company through the age of 65. For
accounting purposes, the present value of these payments is being
charged ratably to expense over the period until the employees reach
the age of 65 using a discount rate of 8%. The charge to expense for
these agreements was $17,000 in 1996, $14,000 in 1995 and none in 1994.
In 1995, the Company entered into an employment agreement with its
President and Chief Executive Officer (the "President") and Vice
President of Marketing (the "Vice President"). Under the agreement with
the President, the Company may be required to pay annual bonuses for
three years to the President, based on the Company's performance.
Additionally, the Company agreed to make annual payments of $50,000 to
the President over a ten year period, beginning on the month after the
President's retirement, which vested immediately, and annual payments
of $10,000 to the Vice President over a ten year period, beginning on
the month after the Vice President's retirement. The charge to expense
for deferred compensation under these agreements was $53,000 in 1996
and $245,000 in 1995.
- --------------------------------------------------------------------------------
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
<TABLE>
SELECTED
FINANCIAL DATA
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales $17,408,410 $13,109,144 $12,968,892 $12,238,052 $11,051,062
Net income $878,674 $121,630 $345,785 $483,188 $586,500
Net income per
common share $0.53 $0.08 $0.23 $0.31 $0.35
At year end:
Total assets $14,879,671 $12,940,190 $12,841,710 $12,818,036 $9,994,468
Total long-term debt
and notes payable $1,501,110 $1,360,928 $1,907,938 $2,449,368 $131,615
--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
STOCK PRICES
AND DIVIDENDS
The following table indicates the quarterly high and low bid prices for
Tinsley's stock on the Over-The-Counter market (NASDAQ Symbol: TNSL)
for the past two years.
<CAPTION>
1996 1995
---- ----
Quarter High bid Low bid High bid Low bid
------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
First quarter 4-1/4 3-1/8 2-11/16 2-3/8
Second quarter 6-7/8 3-1/2 3 2-7/16
Third quarter 7-1/2 5-3/8 3-3/8 2-3/4
Fourth quarter 8-1/2 6 3-1/4 3
--------------------------------------------------------------------------------------------------------------
</TABLE>
As of February 28, 1997, the approximate number of holders of common
stock was 300.
- --------------------------------------------------------------------------------
FORM 10-KSB
The Company's Form 10-KSB annual report to the Securities and Exchange
Commission provides certain additional information and will be
available in April 1997. A copy of this report may be obtained upon
written request addressed to the Secretary of the Company.
- --------------------------------------------------------------------------------
ANNUAL
MEETING OF
STOCKHOLDERS
The annual stockholders' meeting this year will be held on Wednesday,
April 23, 1997, at 10:00 a.m., Local Time, at the office of the Company
located at 3900 Lakeside Drive, Richmond, California.
<PAGE>
tinsley
the asphere company
- --------------------------------------------------------------------------------
TINSLEY LABORATORIES, INC.
Founded in 1926, Tinsley Laboratories is the leading
independent company in the precision optics industry specializing in
the design and fabrication of aspherical optical surfaces. Tinsley's
discrete lenses and mirrors and its optical assemblies are used in
precision optical and electro-optic systems with space, military,
scientific and industrial applications.
For many years, Tinsley has been in the forefront in the
development of computer aided processes and unique equipment for the
manufacture of optical components. The range of applications
facilitated by our technology is considerable. They include head-up
display optics for military and commercial aircraft, as well as the
optics for the Viking and Voyager space missions that returned striking
images of the outer planets. Tinsley has produced both the large
optical components for the Keck Observatory in Hawaii and the small
lithographic optics incorporated in the equipment that etches on
computer chips.
Recently, Tinsley was widely recognized for having produced
the required corrective optics to clear up the Hubble Space Telescope's
blurred vision. Tinsley also received the prestigious NASA Goddard
Space Flight Center Contractor Excellence Award for 1994, Goddard's
highest award.
Tinsley is also internationally known for its phosphor
exposure aspheric lenses, a critical tool in the manufacture of color
television tubes. Through its subsidiary, Century Precision Optics of
North Hollywood, California, Tinsley also makes specialty lenses and
accessories for the film and video industries.
TINSLEY SUPPORTS EQUAL OPPORTUNITY
In our hiring practices and in dealing with our employees,
Tinsley follows the letter and spirit of equal employment opportunity.
The Company does not discriminate because of race, religion, national
origin, age or gender.
We have an ongoing affirmative action program to ensure equal
opportunity.
OFFICERS AND BOARD OF DIRECTORS
OFFICERS
Robert J. Aronno
Chairman of the Board, President and
Chief Executive Officer
Robert J. Johnson
Vice President, Marketing and
Secretary
Daniel J. Bajuk
Executive Vice President
James A. Kennon
Vice President
Steven E. Manios
Vice President
DIRECTORS
Robert J. Aronno
Stephen L. Davenport
Retired
Stephen E. Globus
Chairman of the Board, Globus
Growth Group, Inc.
Steven E. Manios
Transfer Agent: Chase Mellon
Shareholder Services
San Francisco, California
Registrar: Chase Mellon
Shareholder Services
San Francisco, California
Auditors: Ernst & Young LLP
San Francisco, California
Counsel: Clark & Trevithick
Los Angeles, California
EXHIBIT 23.1
TINSLEY LABORATORIES, INC.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form
10-KSB of Tinsley Laboratories, Inc. of our report dated March 14, 1997,
included in the Annual Report to Shareholders of Tinsley Laboratories, Inc. for
the year ended December 29, 1996.
Ernst & Young LLP
San Francisco, California
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 946,222
<SECURITIES> 0
<RECEIVABLES> 2,925,786
<ALLOWANCES> 0
<INVENTORY> 1,785,721
<CURRENT-ASSETS> 6,324,165
<PP&E> 11,327,664
<DEPRECIATION> 5,039,576
<TOTAL-ASSETS> 14,879,671
<CURRENT-LIABILITIES> 3,302,566
<BONDS> 0
<COMMON> 258,633
0
0
<OTHER-SE> 9,040,458
<TOTAL-LIABILITY-AND-EQUITY> 14,879,671
<SALES> 17,408,410
<TOTAL-REVENUES> 17,408,410
<CGS> 12,078,932
<TOTAL-COSTS> 15,525,246
<OTHER-EXPENSES> 222,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214,539
<INCOME-PRETAX> 1,517,478
<INCOME-TAX> 584,000
<INCOME-CONTINUING> 933,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 933,478
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
