U. S. 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 April 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________.
Commission File Number 0 - 14835
TRANSNATIONAL INDUSTRIES, INC.
(Name of small business issuer as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
22-2328806
(I.R.S. Employer
Identification Number)
Post Office Box 198
U.S. Route 1
Chadds Ford, Pennsylvania 19317
(Address of principal executive offices)
(610) 459-5200
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Act during the past 12 months (which is the period
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common stock, $0.20 par value
Outstanding at May 31, 1996: 324,220
Transitional Small Business Disclosure Format (check one):
YES NO X
1
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TRANSNATIONAL INDUSTRIES, INC.
INDEX PAGE
Part I. FINANCIAL INFORMATION
1. Financial Statements
Condensed consolidated balance sheets --
April 30, 1996, and January 31, 1996. 3-4
Condensed consolidated statements of operations --
Three months ended April 30, 1996, and 1995. 5
Condensed consolidated statements of cash flows --
Three months ended April 30, 1996, and 1995. 6
Notes to condensed consolidated financial statements --
April 30, 1996. 7-8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
Part II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
2
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I. FINANCIAL INFORMATION
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
April 30, January 31
1996 1996
------------ ----------
(Unaudited) (Audited)
Assets
Current Assets
Cash $ 210 $ 339
Accounts receivable 743 1,178
Inventories 1,466 1,197
Other current assets 114 111
------- -------
Total Current Assets 2,533 2,825
Machinery and Equipment
Machinery and equipment, at cost 2,169 2,147
Less accumulated depreciation 1,601 1,563
------- -------
Net Machinery and Equipment 568 584
Other Assets
Repair and maintenance inventories, less
provision for obsolescence 206 206
Computer software, less amortization 195 199
Excess of cost over net assets of business
acquired, less amortization 2,011 2,028
------- -------
Total Other Assets 2,412 2,433
------- -------
Total Assets $5,513 $5,842
======= =======
See notes to condensed consolidated financial statements.
3
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TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
April 30, January 31,
1996 1996
----------- -------------
(Unaudited) (Audited)
Liabilities and stockholder's equity
Current Liabilities:
Accounts payable $ 363 $ 408
Deferred maintenance revenue 390 536
Other current liabilities 325 297
Billings in excess of cost and
estimated earnings 442 441
Current maturities of long-term debt 170 190
------- -------
Total Current Liabilities 1,690 1,872
Long-Term Debt, less current maturities 1,522 1,734
Stockholders' Equity
Series B Cumulative Convertible
Preferred Stock,$0.01 par value - 1,744
shares authorized, issued and outstanding
(liquidating value $699,780) 399 399
Common Stock, $0.20 par value - authorized
1,000,000 shares; issued and
outstanding:
324,420 shares 65 65
Additional paid-in capital 8,502 8,502
Accumulated deficit (6,665) (6,730)
------- -------
Total stockholders' equity 2,301 2,236
------- -------
Total liabilities and stockholders' equity $5,513 $5,842
====== ======
See notes to condensed consolidated financial statements.
4
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TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended
April 30,
1996 1995
Revenues $1,710 $1,264
Cost of Sales 1,207 909
-------- --------
Gross Margin 503 355
Selling expenses 121 82
Research and development 105 108
General and administrative expenses 183 158
-------- --------
409 348
-------- --------
Operating income 94 7
Interest expense (income) 23 (5)
-------- --------
Income before income tax 71 12
Provision for income taxes 6 --
-------- --------
Net income 65 12
Preferred dividend requirement 12 12
-------- --------
Income applicable to common shares 53 --
Income per common share $0.12 --
======== ========
Weighted average common shares outstanding 433,133 433,133
======== ========
See notes to condensed consolidated financial statements.
5
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TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
April 30,
1996 1995
Net cash provided (used) by operating
activities $ 112 $ (198)
------- -------
Net cash provided (used) by investing
activities (27) (7)
Net cash provided (used) for financing
activities (214) (36)
------- -------
Increase (decrease) in cash (129) (241)
Cash at beginning of period 339 670
------- -------
Cash at end of period $ 210 $ 429
======= =======
See notes to condensed consolidated financial statements.
6
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TRANSNATIONAL INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1996
Note A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments are
of a normal recurring nature. Operating results for the three-month period ended
April 30, 1996, are not necessarily indicative of the results to be expected for
the fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended January 31, 1996, contained
in the Registrant's Annual Report on Form 10- KSB for the year ended January 31,
1996.
Note B -- CONTINGENCIES
In the fiscal year ended January 31, 1996, Spitz became involved in a
dispute in connection with a public bid for the supply of planetarium equipment
for an expansion project at a public community college. Spitz's subcontract bid
was the lowest submitted and the general contractor for the project allegedly
used Spitz's pricing in submitting its total contract bid to the college. After
the total contract was awarded to the general contractor, however, the college's
architect alleged that Spitz's equipment did not conform to the bid
specifications. The bid for the equipment which the architect deemed to be in
conformance with the specifications was allegedly approximately $150,000 higher
than Spitz's bid. Because the Contractor has been forced to supply the more
expensive equipment, it is attempting to recover the $150,000 price differential
plus alleged related amounts due to adverse impacts on the project schedule from
various parties. At various times, the Contractor has threatened to assert its
claim against Spitz because it has been unsuccessful in its attempts to recover
its alleged damages from the College or other involved parties. The Company
believes the bid specifications, to the extent that they excluded Spitz's
equipment, constituted an improper sole-source of equipment which violates
competitive bidding laws because the specifications appear to have been copied
from a competitor's equipment. The Company also believes that the Spitz
equipment meets all of the valid functional requirements in the bid
specifications. No lawsuit has been filed against Spitz or the Company and the
parties have discussed settling the matter. The Company believes that it is
likely that the parties will reach an agreement to resolve the dispute short of
litigation. It is too early to estimate a probable outcome and its effect, if
any, on Spitz. Accordingly, no liability for the potential claim has been
recorded at April 30, 1996.
7
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The Company had outstanding standby letters of credit of $129,000 and
$267,000 at April 30, 1996 and January 31, 1996, respectively. Cash of $138,000
was pledged as collateral for outstanding standby letters of credit at January
31, 1996. No cash was pledged as collateral for the outstanding standby letter
of credit at April 30, 1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
Revenues in the first quarter of fiscal 1997 were $1,710,000 compared to
$1,264,000 in the first quarter of fiscal 1996, an increase of $446,000 or 35%.
The increase was primarily due to higher dome revenues. Dome revenues were
$1,234,000 in the first quarter of fiscal 1997 compared to $835,000 in the first
quarter of fiscal 1996, an increase of $399,000 or 48%. The increase in dome
revenues was attributable to a high level of production and installation
activity on orders for film theaters. Planetarium revenues were $476,000 in the
first quarter of fiscal 1997 compared to $429,000 in the first quarter of fiscal
1996 an increase of $47,000 or 11%. The increase in planetarium revenues was due
to production activity on new systems for recent orders from the educational
market. Planetarium revenues include $294,000 in the first quarter of fiscal
1997 and $285,000 in the first quarter of fiscal 1996 for the sale of
maintenance and parts.
Gross margins were on the low side of historical averages at 29.4% in the first
quarter of fiscal 1997 and 28.1% in the first quarter of fiscal 1996. Gross
margins in the first quarter of fiscal 1997 were affected by low margins on
simulator domes sold for military training and high costs of temporary labor
used to install domes for film theaters. Gross margins in the first quarter of
fiscal 1996 were lowered by volume related inefficiencies and simulator domes
sold for military training. Also lowering gross margins in the first quarter of
fiscal 1996 was the learning cost related to the production and installation of
a curved projection screen for a customer's new ride simulator. Selling expenses
increased 48% ($39,000) as compared to the first quarter of fiscal 1996 due to
the restoration of selling staff levels, promotional expenditures related to
Spitz's fiftieth anniversary, and costs of market research for new video
production products. Research and development costs decreased 3% ($3,000) as
compared to the first quarter of fiscal 1996 as efforts continue to modify and
expand the Company's products. The decrease was due to the low utilization of
engineering resources on customer contract activities in the first quarter of
fiscal 1996 which directed more effort to research of development projects.
General and administrative expenses increased 16% ($25,000) due to inflationary
increases and the reinstatement of directors fees.
Reported interest expense was reduced in the first quarter of fiscal 1997 and
eliminated in the first quarter of fiscal 1996 as a result of the accounting in
accordance with Statement of Financial Accounting Standards No. 15 (Accounting
by Debtors and Creditors for Troubled Debt Restructuring) by which interest
payments on modified debt agreements are not expended but applied to the
adjusted book value of the debt. Since the original maturity of the restructured
debt agreements was February 1, 1996, the balance of the estimated interest
payments carried as debt had been reduced to $18,000 as of January 31, 1996. In
the first quarter of fiscal 1997, interest amounting to $42,000 was paid on
modified debt agreements, of which $18,000 was applied against debt and $24,000
was expended. Combined with interest paid on capital lease obligations and
interest income from temporary cash investments, this resulted in net interest
expense of $23,000 recorded in the first quarter of fiscal 1997. In the first
quarter of fiscal 1996, interest amounting to $46,000 was paid on modified debt
agreements, of which the entire amount was applied against debt. Interest income
from temporary cash investments combined with interest paid on capital lease
obligations resulted in net interest income of $5,000 recorded in the first
quarter of fiscal 1996.
No federal income tax expense was recorded, as federal taxable income was offset
by net operating loss carryforwards. In fiscal 1996, the Company was able to
also offset state taxable income with prior net operating losses. A $6,000
provision for income taxes was recorded for the estimated state income tax
attributable to the net income in the first quarter of fiscal 1997. As a result
of the above, net income of $65,000 was recorded in the first quarter of fiscal
1997 compared to $12,000 in the first quarter of fiscal 1996.
9
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Liquidity and Capital Resources
Net cash provided by operating activities was $112,000 in the first quarter of
fiscal 1997 compared to net cash used by operating activities of $198,000 in the
first quarter of fiscal 1996. The $112,000 provided by operations in the first
quarter of fiscal 1997 consisted of $139,000 provided from earnings offset by
$18,000 of interest payments booked against debt and $9,000 used by changes in
operating assets and liabilities. The $198,000 used by operations in the first
quarter of fiscal 1996 consisted of $91,000 provided from earnings offset by
$46,000 of interest payments and $243,000 used by changes in operating assets
and liabilities.
The $112,000 provided by operations in first quarter of fiscal 1997 was offset
by $169,000 principal paid on the revolving credit note, $45,000 principal paid
on term debt and capital leases and $27,000 invested in capital assets. In
addition to the $198,000 used by operations in first quarter of fiscal 1996,
$36,000 was used to make principal payments on debt and capital leases and
$7,000 was invested in capital assets. The net result was a $129,000 reduction
in cash balances during the first quarter of fiscal 1997 compared to a reduction
of $241,000 during the first quarter of fiscal 1996.
Total debt at April 30, 1996 was $1,692,000, a decrease of $232,000 from
$1,924,000 at January 31, 1996. In summary, this decrease was achieved through
net cash payments of $169,000 applied to the revolving credit note plus $63,000
(including $18,000 of interest payments) applied to term debt and capital lease
obligations.
At April 30, 1996 the balance on the revolving credit note was $99,000 compared
to $269,000 at January 31, 1996. At April 30, 1996 and January 31, 1996 the
$500,000 borrowing limit under the revolving credit agreement was reduced by
$129,000 for standby letters of credit. This resulted in unused borrowing
capacity of $272,000 at April 30, 1996 compared to $102,000 at January 31, 1996.
Additional standby letters of credit totalling $138,000 were collateralized by
cash at January 31, 1996. There were no standby letters of credit collateralized
by cash at April 30, 1996. Additional liquidity was provided by unrestricted
cash balances of $210,000 at April 30, 1996 compared to $201,000 at January 31,
1996. Other sources of liquidity are trade accounts receivable and costs and
profit on contracts in progress in excess of billings. Trade accounts receivable
decreased to $743,000 at April 30, 1996 from $1,178,000 at January 31, 1996.
Costs and profit on contracts in progress, recorded net of billings, increased
to $260,000 at April 30, 1996 from $25,000 at January 31, 1996. The changes in
the various liquidity sources are due primarily to changes in operating assets
resulting from the timing of work and progress payments on customer contracts.
The Company is in compliance with all material covenants required under its new
credit agreements.
The Company believes that with the extension of its debt agreements to May 1,
1997, its cash flow from operations and existing cash balances will be
sufficient to meet its cash requirements through fiscal 1997. Liquidity beyond
May 1, 1997 will likely depend on the Company's ability to refinance the
maturities of the restructured debt agreements. The Company is seeking new
financing to replace its existing debt agreements and to provide added liquidity
for the expansion of its products. The Company believes that the ability to
refinance the existing debt agreements will be influenced by future revenue
levels as well as external credit markets.
10
<PAGE>
II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description of Document
27 Financial Data Schedules
(b) The Registrant did not file any reports on Form 8-K during the three months
ended April 30, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TRANSNATIONAL INDUSTRIES, INC.
/s/ Paul L. Dailey, Jr.
-------------------------
Date: June 13, 1996 Paul L. Dailey, Jr.
Secretary-Treasurer
Signing on Behalf of Registrant
and as Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Transnational Industries, Inc. as of
April 30, 1996 and the related condensed consolidated statement of operations
and statement of cash flows for the three months then ended and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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<PERIOD-END> APR-30-1996
<CASH> 210
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<ALLOWANCES> 0
<INVENTORY> 1,466
<CURRENT-ASSETS> 2,533
<PP&E> 2,169
<DEPRECIATION> 1,601
<TOTAL-ASSETS> 5,513
<CURRENT-LIABILITIES> 1,690
<BONDS> 0
0
399
<COMMON> 65
<OTHER-SE> 1,837
<TOTAL-LIABILITY-AND-EQUITY> 5,513
<SALES> 1,710
<TOTAL-REVENUES> 1,710
<CGS> 1,207
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</TABLE>
