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 October 31, 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 November 30, 1996: 324,220
Transitional Small Business Disclosure Format (check one):
YES NO X
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TRANSNATIONAL INDUSTRIES, INC.
INDEX PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets -- 3-4
October 31, 1996, and January 31, 1996.
Condensed consolidated statements of 5
operations -- Three months ended October 31,
1996, and 1995; nine months ended
October 31, 1996 and 1995.
Condensed consolidated statements of cash 6
flows -- Nine months ended October 31, 1996,
and 1995.
Notes to condensed consolidated financial 7-8
statements -- October 31, 1996.
Item 2. Management's Discussion and Analysis of Financial 9-11
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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I. FINANCIAL INFORMATION
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
October 31, January 31
1996 1996
------------- -----------
(Unaudited) (Audited)
Assets
Current Assets
Cash $ 442 $ 339
Accounts receivable 1,727 1,178
Inventories 1,040 1,197
Other current assets 190 111
------------- -----------
Total Current Assets 3,399 2,825
Machinery and Equipment
Machinery and equipment, at cost 2,270 2,147
Less accumulated depreciation 1,680 1,563
------------- -----------
Net Machinery and Equipment 590 584
Other Assets
Repair and maintenance inventories, less
provision for obsolescence 206 206
Computer software, less amortization 184 199
Excess of cost over net assets of business
acquired, less amortization 1,977 2,028
------------- -----------
Total Other Assets 2,367 2,433
------------- -----------
Total Assets $6,356 $5,842
============= ===========
See notes to condensed consolidated financial statements.
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TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
October 31, January 31,
1996 1996
------------ ----------
(Unaudited) (Audited)
Liabilities and stockholder's equity
Current Liabilities:
Accounts payable $ 406 $ 408
Deferred maintenance revenue 612 536
Other current liabilities 316 297
Billings in excess of cost and 1,042 441
estimated earnings
Current maturities of long-term debt 1,475 190
------------ ----------
Total Current Liabilities 3,851 1,872
Long-Term Debt, less current maturities 65 1,734
Stockholders' Equity
Series B Cumulative Convertible
Preferred Stock,$0.01 par value - 1,744
shares authorized, issued and outstanding
(liquidating value $723,760) 399 399
Common Stock, $0.20 par value - authorized
1,000,000 shares; issued and outstanding:
324,220 shares 65 65
Additional paid-in capital 8,502 8,502
Accumulated deficit (6,526) (6,730)
------------ ----------
Total stockholders' equity 2,440 2,236
------------ ----------
Total liabilities and stockholders' equity $6,356 $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 Nine Months Ended
October 31, October 31,
-------- -------- -------- --------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues $ 1,648 $1,385 $ 4,844 $ 3,982
Cost of Sales 1,096 960 3,282 2,769
-------- -------- -------- --------
Gross Margin 552 425 1,562 1,213
Selling expenses 148 115 396 320
Research and development 93 64 303 279
General and administrative expenses 190 205 552 561
-------- -------- -------- --------
431 384 1,251 1,160
-------- -------- -------- --------
Operating income 121 41 311 53
Interest expense (income) 36 (5) 101 (15)
-------- -------- -------- --------
Income before income tax 85 46 210 68
Provision for income taxes -- -- 6 --
-------- -------- -------- --------
Net income 85 46 204 68
Preferred dividend requirement 12 12 36 36
-------- -------- -------- --------
Income applicable to common shares $ 73 $ 34 $ 168 $ 32
======== ======== ======== ========
Income per common share $0.16 $0.07 $ 0.38 $0.07
======== ======== ======== ========
Weighted average common
shares outstanding 443,633 433,133 438,966 433,133
======== ======== ======== ========
See notes to condensed consolidated financial statements.
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TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
October 31,
---------------------
1996 1995
---------------------
Net cash provided (used) by operating activities $ 604 $ (15)
Net cash provided (used) by investing activities (99) (116)
Net cash provided (used) for financing activities (402) (106)
------- -------
Increase (decrease) in cash 103 (237)
Cash at beginning of period 339 670
------- -------
Cash at end of period $ 442 $ 433
======= =======
See notes to condensed consolidated financial statements.
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TRANSNATIONAL INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
October 31, 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 and nine
month periods ended October 31, 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 -- DEBT MATURITIES
The convertible term note and revolving credit agreement payable to the
Company's primary lender mature on May 1, 1997. The maturity date requires any
amounts due under the debt agreements to be reclassified with current
liabilities as of October 31, 1996. The balance of the convertible term note at
October 31, 1996 was $1,450,000. There was no balance outstanding under the
revolving credit agreement at October 31, 1996. Both debt agreements originally
matured on February 1, 1996 but were extended to May 1,1997. The Company is in
the process of evaluating the availability of alternative financing from other
sources. It is expected that the note will be extended under new terms or
refinanced prior to the May 1, 1997 maturity date.
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
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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 Contractor has not threatened to
carry out its assertion nor has it communicated with the Company since July
1996. 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 October 31, 1996.
The Company had outstanding standby letters of credit of $129,000 and
$267,000 at October 31, 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 October 31, 1996.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
Revenues in the third quarter and first nine months of fiscal 1997 were
$1,648,000 and $4,844,000 compared to $1,385,000 and $3,982,000 in the
comparable periods of fiscal 1996. The increases of $263,000 (19%) for the
quarter and $862,000 (22%) for the nine month period were due to a high level of
work on recent orders for planetarium systems and film theater domes.
Planetarium revenues were $602,000 and $1,032,000 in the third quarter and first
nine months of fiscal 1997 compared to $472,000 and $913,000 in the comparable
periods of fiscal 1996, an increase of $130,000 (28%) and $480,000 (37%),
respectively. Also contributing to revenues in the third quarter of fiscal 1997
was the first order received for one of the Company's new video projection
products, ElectricSky(TM). ElectricSky is a video projection system which uses
the new Spitz ImmersaVision(TM) video format to enhance traditional mechanical
optical planetarium theaters. Revenue from work completed on the ElectricSky
order amounted to $15,000 in the third quarter of fiscal 1997. The first sale
was for a new planetarium theater scheduled to open in 1997 and includes a Spitz
planetarium system and dome for a total contract value of $923,000. ElectricSky
represents approximately 50% of the total contract value. The increase in
planetarium revenues was due to production activity on new systems for recent
orders from the educational market. Planetarium revenues include amounts
attributable to the sale of maintenance and parts of $289,000 and $854,000 in
the third quarter and first nine months of fiscal 1997 compared to $304,000 and
$840,000 in the comparable periods of fiscal 1996. The fluctuations in
maintenance and parts revenues was primarily due to the timing of performance on
preventive maintenance agreements. Dome revenues were $1,032,000 and $3,046,000
in the third quarter and first nine months of fiscal 1997 compared to $913,000
and $2,678,000 in the comparable periods of fiscal 1996, a increase of $119,000
(13%) and $368,000 (14%), respectively. The increase in dome revenues was
attributable to a high level of production and installation activity on orders
for film and planetarium theaters. This was partially offset by lower dome
revenues from military simulation projects.
Gross margins were 33.5% and 32.2% in the third quarter and first nine months of
fiscal 1997 compared to 30.7% and 30.5% in the comparable periods of fiscal
1996. The higher margins in the third quarter of fiscal 1997 resulted from more
profitable revenues on the sale of planetarium systems and film theater domes.
Also improving gross margins in the third quarter of fiscal 1997 was the volume
related reduction of inefficiencies. The improvement in the third quarter of
fiscal 1997 offset low margins in the first quarter on simulator domes sold for
military training and high costs of temporary labor used to install domes for
film theaters. Selling expenses increased $33,000 (29%) and $76,000 (24%) in the
third quarter and first nine months of fiscal 1997 compared to the comparable
periods of fiscal 1996. The increase in selling expenses was due to the
restoration of selling staff levels, promotional expenditures related to Spitz's
fiftieth anniversary, and costs of introducing the new ImmersaVision products.
Research and development expenses increased $29,000 (45%) and $24,000 (9%) in
the third quarter and first nine months of fiscal 1997 compared to the
comparable periods of fiscal 1996. The increase was due to third quarter
development efforts on ImmersaVision products. General and administrative
expenses decreased $15,000 (7%) and $9,000 (2%) in the third quarter and first
nine months of fiscal 1997 compared to the comparable periods of fiscal 1996.
The decrease was due to reductions in professional fees and costs associated
with the annual shareholders meeting.
Reported interest expense was reduced in fiscal 1997 and eliminated in 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 expensed but applied to the adjusted book value of the debt. At January 31,
1996, debt book value included $18,000 of expected interest payments remaining
from the estimate based on the original maturity date of February 1, 1996.
9
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Interest paid on modified debt agreements amounted to $39,000 and $124,000 in
the third quarter and first nine months of fiscal 1997. In the first quarter of
fiscal 1997, $18,000 of interest payments were applied against the balance
carried as debt, reducing reported interest expense on modified debt agreements
to $106,000 for the first nine months of fiscal 1997. Combined with interest
paid on capital lease obligations and interest income from temporary cash
investments, this resulted in net interest expense of $36,000 and $101,000
reported for the third quarter and first nine months of fiscal 1997. Interest
paid on modified debt agreements amounted to $44,000 and $136,000 in the third
quarter and first nine months of fiscal 1996. In fiscal 1996, the entire amount
of interest paid on modified debt agreements was applied to the book value of
the debt eliminating reportable interest expense. Interest income from temporary
cash investments combined with interest paid on capital lease obligations
resulted in net interest income of $5,000 and $15,000 reported in the third
quarter and first nine months of fiscal 1996.
No federal income tax expense was recorded, as federal taxable income was offset
by net operating loss carryforwards. In fiscal 1996, state taxable income was
also offset by 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 nine months of fiscal 1997. As a result of the above, the Company
reported net income of $85,000 and $204,000 in the third quarter and first nine
months of fiscal 1997 compared to $46,000 and $68,000 for the comparable periods
of fiscal 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $604,000 in the first nine months
of fiscal 1997 compared to $15,000 used in the first nine months of fiscal 1996.
The $604,000 provided by operations in the first nine months of fiscal 1997
consisted of $429,000 provided from earnings offset by $18,000 of interest
payments booked against debt plus $193,000 provided by changes in operating
assets and liabilities. The $15,000 used by operations in the first nine months
of fiscal 1996 consisted of $301,000 provided from earnings offset by $136,000
of interest payments and $180,000 used by changes in operating assets and
liabilities.
Of the $604,000 provided by operations in the first nine months of fiscal 1997,
$268,000 was used to make principal payments on the revolving credit note,
$134,000 was used to make principal payments on term debt and capital leases and
$99,000 was invested in capital assets. Additional capital assets were acquired
through a new $36,000 lease obligation. In addition to the $15,000 used by
operations in first nine months of fiscal 1996, $106,000 was used to make
principal payments on debt and capital leases and $116,000 was invested in
capital assets. The net result was a $103,000 increase in cash balances during
the first nine months of fiscal 1997 compared to a $237,000 decrease during the
first nine months of fiscal 1996.
Total debt at October 31, 1996 was $1,540,000, a decrease of $384,000 from
$1,924,000 at January 31, 1996. In summary, this decrease was achieved through
net cash payments of $268,000 applied to the revolving credit note plus $152,000
(including $18,000 of interest payments) applied to term debt and capital lease
obligations offset by $36,000 from a new capital lease obligation.
At October 31, 1996 there was no balance outstanding on the revolving credit
note compared to $269,000 at January 31, 1996. At October 31, 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 $371,000 at October 31, 1996 compared to $102,000 at
January 31, 1996. Additional standby letters of credit totaling $138,000 were
collateralized by cash at January 31, 1996. There were no standby letters of
credit collateralized by cash at October 31, 1996. Additional liquidity was
provided by unrestricted cash balances of $442,000 at October 31, 1996 compared
to $201,000 at January 31, 1996. Other sources of liquidity are trade accounts
receivable and contracts in progress. Trade accounts receivable increased to
$1,727,000 at October 31, 1996 from $1,178,000 at January 31, 1996. Liquidity
continues to be aided by advanced payments from customers as net billings in
10
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excess of costs and profit on contracts in progress amounted to $747,000 at
October 31, 1996 compared to $25,000 of costs and profit on contracts in
progress in excess of billings 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 its cash flow from operations and existing cash balances
will be sufficient to meet its cash requirements through the maturity date of
its debt agreements, May 1, 1997. Liquidity beyond May 1, 1997 will likely
depend on the Company's ability to refinance its 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.
11
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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 October 31, 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.
Date: December 13, 1996 /s/ Paul L. Dailey, Jr.
------------------- -------------------------
Paul L. Dailey, Jr.
Secretary-Treasurer
Signing on Behalf of Registrant
and as Chief Financial Officer
12
<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
October 31, 1996 and the related condensed consolidated statement of operations
and statement of cash flows for the nine months then ended and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 442
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<RECEIVABLES> 1727
<ALLOWANCES> 0
<INVENTORY> 1040
<CURRENT-ASSETS> 3399
<PP&E> 2270
<DEPRECIATION> 1680
<TOTAL-ASSETS> 6356
<CURRENT-LIABILITIES> 3851
<BONDS> 0
0
399
<COMMON> 65
<OTHER-SE> 1976
<TOTAL-LIABILITY-AND-EQUITY> 6356
<SALES> 4844
<TOTAL-REVENUES> 4844
<CGS> 3282
<TOTAL-COSTS> 3282
<OTHER-EXPENSES> 303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
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<INCOME-TAX> 6
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</TABLE>
