UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
[ ] 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 0-8422
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TRANSACT INTERNATIONAL INC.
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(Exact name of small business issuer as specified in its charter)
CONNECTICUT 06-0732124
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
22 THORNDAL CIRCLE, DARIEN, CONNECTICUT 06820
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(Address of principal executive offices)
(203) 656-0777
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(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of August 14, 1998 was 6,123,235.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
<PAGE>
TRANSACT INTERNATIONAL INC.
FORM 10-QSB - QUARTER ENDED JULY 31, 1998
CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets
July 31, 1998 (Unaudited) and April 30, 1998 .................. 3
Statements of Operations (Unaudited)
Three Months Ended July 31, 1998 and July 31, 1997 ............ 4
Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 1998 and July 31, 1997 ............ 5
Notes to the Financial Statements (Unaudited) ................. 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 8
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K ............................... 9
SIGNATURE ............................................................... 9
2
<PAGE>
PART I: FINANCIAL INFORMATION
-----------------------------
TRANSACT INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1998 1998
----------- -----------
ASSETS (UNAUDITED)
CURRENT ASSETS
<S> <C> <C>
Cash $ 1,412 $ 53,307
Accounts receivable, net of allowance for doubtful
accounts of $58,000 738,947 643,109
Inventories 180,903 209,121
Costs and estimated earnings in excess of billings on
incomplete contracts 106,092 114,602
Prepaid expenses and other current assets 11,488 20,382
----------- -----------
TOTAL CURRENT ASSETS 1,038,842 1,040,521
PROPERTY, PLANT AND EQUIPMENT, AT COST 301,628 301,628
Less accumulated depreciation (281,995) (278,677)
----------- -----------
19,633 22,951
OTHER ASSETS 2,300 2,300
----------- -----------
TOTAL ASSETS $ 1,060,775 $ 1,065,772
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bank borrowings $ 37,500 $ 56,250
Note payable to stockholder 65,000 85,000
Trade accounts and notes payable 1,346,641 1,328,721
Accrued expenses 373,506 354,065
Current portion of long-term debt 23,657 23,657
Billings in excess of costs and estimated earnings on
Incomplete contracts 354,056 417,807
----------- -----------
TOTAL CURRENT LIABILITIES 2,200,360 2,265,500
STOCKHOLDERS' DEFICIENCY
Preferred stock, no par value, authorized
2,000,000 shares, none issued -- --
Common stock, no par value, authorized
12,000,000 shares, issued 6,201,735 shares 852,541 852,541
Additional paid-in capital 5,224,726 5,224,726
Treasury stock, at cost : 78,500 shares (29,606) (29,606)
Deficit (7,187,246) (7,247,389)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (1,139,585) (1,199,728)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,060,775 $ 1,065,772
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
TRANSACT INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
----------------------------
7/31/98 7/31/97
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SALES:
Net Sales $ 380,827 $ 959,461
Licensing Fees 400,000 --
----------- -----------
780,827 959,461
COSTS AND EXPENSES :
Cost of sales 472,085 889,300
Selling and administrative 240,397 326,978
----------- -----------
712,482 1,216,278
----------- -----------
INCOME (LOSS) FROM OPERATIONS 68,345 (256,817)
OTHER (EXPENSE) INCOME:
Interest expense (8,202) (3,004)
Other income -- 12,161
----------- -----------
(8,202) 9,157
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NET INCOME (LOSS) $ 60,143 $ (247,660)
=========== ===========
NET INCOME (LOSS) PER SHARE OF
COMMON STOCK - BASIC AND DILUTED $ .01 $ (.04)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,123,235 6,123,235
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
TRANSACT INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
7/31/98 7/31/97
--------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 60,143 $(247,660)
Adjustments to reconcile net income (loss) to cash used in operations:
Depreciation of property, plant and equipment 3,318 6,332
Changes in assets and liabilities :
Accounts receivable (95,838) 152,349
Inventories 28,218 (22,997)
Other current assets 8,894 7,714
Costs and estimated earnings in excess of billings on
incomplete contracts - net (55,241) (15,000)
Trade accounts and notes payable and accrued expenses 37,361 15,724
--------- ---------
NET CASH USED IN OPERATIONS : (13,145) (103,538)
INVESTING ACTIVITIES :
Capital expenditures -- (5,414)
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES: -- (5,414)
FINANCING ACTIVITIES :
Proceeds from stockholder loan -- 100,000
Repayment of debt (38,750) (18,750)
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES: (38,750) 81,250
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (51,895) (27,702)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 53,307 85,370
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,412 $ 57,668
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION :
Cash paid during the period for Interest $ 8,202 $ 3,004
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
TRANSACT INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying financial statements have been prepared assuming that
Transact International Inc. (the "Company") will continue as a going
concern. The Company's ability to continue as a going concern is uncertain
based on the matters discussed in the next three sentences. The Company has
a stockholders' deficiency and working capital deficiency of $1,139,585 and
$1,161,518, respectively, at July 31, 1998. The Company's backlog is $2.4
million at July 31, 1998 and the Company is seeking additional orders and
is exploring the sale or licensing of certain product lines that would
enable the Company to continue as a going concern. However, there is no
assurance that the Company will be successful in attaining additional
profitable orders or in selling or licensing certain product lines.
The balance sheet as of July 31, 1998, and the statements of operations and
cash flows for the three months ended July 31, 1998 and 1997 have been
prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, the results of operations and cash
flows at July 31, 1998 and all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's April 30, 1998 annual report to
stockholders. Seasonality is not a major factor in the Company's
operations. The results of operations for the three-month period ended July
31, 1998 are not necessarily indicative of those for a full fiscal year.
2. Inventories consist of raw materials and manufacturing supplies.
3. On June 4, 1997 a stockholder of the Company loaned the Company $100,000
with interest at 8% per annum. The Company has repaid $35,000 of the loan
with the balance including interest payable with the proceeds of a project
in India.
Due to the loss for the year ended April 30, 1998 the Company was in
default of its term loan with its bank and therefore the balance owed at
April 30, 1998 of $56,250 was classified as a current liability in the
April 30, 1998 balance sheet. The Company is continuing to repay the bank
$6,250 per month plus interest.
4. The Company's licensing agreement with CIMC-TianDa, a Chinese manufacturer
was amended. The revision provided for total compensation if $680,000 of
which $200,000 was recorded in April 1998, $400,000 in the quarter ended
July 31, 1998 and $80,000 will be recorded when received in November 1998.
The $400,000 recorded in the quarter ended July 31, 1998 was received
$100,000 in June and $300,000 in August 1998. The Company has no further
obligations to CIMC-TianDa pursuant to this licensing agreement.
6
<PAGE>
TRANSACT INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. Amounts per share have been computed using the weighted average number of
common shares outstanding during each period. No effect has been given to
shares issuable pursuant to outstanding options as their effect would be
not material or antidilutive.
6. There were no income taxes in the three month period ended July 31, 1998
because the Company had a substantial net operating loss carryforward.
There was no benefit for income taxes in the three month period ended July
31, 1997, as the loss generated cannot be carried back to offset income in
prior years.
The Company has operating loss carryovers and investment tax credit
carryforwards for tax return purposes of approximately $7,000,000 and
$2,000 respectively, expiring in 1998 through 2010.
The tax effects of temporary differences giving rise to the Company's
deferred tax assets at July 31, 1998 are as follows:
Net operating loss carryforward $ 2,600,000
Investment tax credit carryforward 2,000
Other reserves and liabilities 83,000
-----------
2,685,000
Valuation allowance (2,685,000)
-----------
$ --
===========
Due to the Company's cumulative losses, management does not consider that
enough support to overcome the "more likely than not" criteria existed at
July 31, 1998 to record a deferred tax asset. As a result, for financial
reporting purposes, deferred tax assets are reduced by a full valuation
allowance.
7
<PAGE>
TRANSACT INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The Company had net income of $60,143 in the first quarter of fiscal 1999
compared to a net loss of $247,660 for the first quarter of fiscal 1998. The net
income results primarily from licensing fees of $400,000 that the Company earned
applicable to a license agreement as amended for certain terminal equipment with
a Chinese manufacturer. Excluding the licensing fees the revenue for the first
quarter of fiscal 1999 was $380,827 compared to $959,461 for the first quarter
of fiscal 1998. The decline in revenue is due to the stoppage on the New Delhi,
India project which is expected to resume in October 1998 and the lack of any
new major projects. Gross profit as a percentage of net sales was negative and
7% respectively for the three months ended July 31, 1998 and 1997. The negative
gross profit was due to very low net sales, the gross profit from which, was
less than costs including the operations in the Memphis plant facility. Selling
and administrative expenses decreased approximately $86,600 in the fiscal
quarter ended July 31, 1998 compared to July 31, 1997. The decrease was
primarily a reduction in officer salaries and legal expenses net of an increase
in uncollectible accounts receivable written off.
The Company sales order backlog as of July 31, 1998 is approximately $2.4
million of which $1.7 million is for the New Delhi, India project which is not
expected to resume in production until October 1998. This compares to a $3.0
million backlog at July 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES:
During the three months ended July 31, 1998, the Company used approximately
$13,000 in cash in its operations. This usage primarily resulted from the
increase in accounts receivable offset by net income. At July 31, 1998 the
Company has a working capital deficiency of $1,161,518.
The Company's ability to continue in business is dependent upon its ability to
increase profitability and/or sell or license certain product lines. The Company
is currently seeking additional orders and is exploring the sale or license of
certain product lines that would enable the Company to continue as a going
concern. However, there is no assurance that the Company will be successful in
attaining additional profitable orders or in selling or licensing certain
product lines.
8
<PAGE>
PART II: OTHER INFORMATION
--------------------------
TRANSACT INTERNATIONAL INC.
Item 6. Exhibits and Reports of Form 8-K.
- ------- ---------------------------------
(a) Exhibits - 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements 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.
TRANSACT INTERNATIONAL INC.
---------------------------
Registrant
Date: September 11, 1998 /s/ Bruno S. Frassetto
- ------------------------- -----------------------------------
Bruno S. Frassetto
President and Acting Chief Financial
Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JUL-31-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 796
<ALLOWANCES> 58
<INVENTORY> 181
<CURRENT-ASSETS> 1,039
<PP&E> 301
<DEPRECIATION> 282
<TOTAL-ASSETS> 1,061
<CURRENT-LIABILITIES> 2,200
<BONDS> 0
0
0
<COMMON> 852
<OTHER-SE> (1,991)
<TOTAL-LIABILITY-AND-EQUITY> 1,061
<SALES> 381
<TOTAL-REVENUES> 781
<CGS> 472
<TOTAL-COSTS> 221
<OTHER-EXPENSES> (19)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 60
<INCOME-TAX> 0
<INCOME-CONTINUING> 60
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
