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 July 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 August 31, 1996: 324,220
Transitional Small Business Disclosure Format (check one):
YES NO X
1
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
INDEX PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets --
July 31, 1996,and January 31, 1996. 3-4
Condensed consolidated statements of
operations -- Three months ended July 31,
1996, and 1995; six months ended July 31,
1996 and 1995. 5
Condensed consolidated statements of cash
flows -- Six months ended July 31, 1996,
and 1995. 6
Notes to condensed consolidated financial
statements -- July 31, 1996. 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
<PAGE>
I. FINANCIAL INFORMATION
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
July 31, January 31,
1996 1996
------------- -----------
(Unaudited) (Audited)
Assets
Current Assets
Cash $ 633 $ 339
Accounts receivable 606 1,178
Inventories 1,223 1,197
Other current assets 126 111
--------- --------
Total Current Assets 2,588 2,825
Machinery and Equipment
Machinery and equipment, at cost 2,200 2,147
Less accumulated depreciation 1,639 1,563
--------- --------
Net Machinery and Equipment 561 584
Other Assets
Repair and maintenance inventories, less
provision for obsolescence 206 206
Computer software, less amortization 190 199
Excess of cost over net assets of business
acquired, less amortization 1,994 2,028
--------- --------
Total Other Assets 2,390 2,433
--------- --------
Total Assets $5,539 $5,842
========= ========
See notes to condensed consolidated financial statements.
3
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
July 31, January 31,
1996 1996
----------- --------
(Unaudited) (Audited)
Liabilities and stockholder's equity Current
Liabilities:
Accounts payable $ 261 $ 408
Deferred maintenance revenue 505 536
Other current liabilities 246 297
Billings in excess of cost and estimated
earnings 622 441
Current maturities of long-term debt 1,503 190
--------- -------
Total Current Liabilities 3,137 1,872
Long-Term Debt, less current maturities 47 1,734
Stockholders' Equity
Series B Cumulative Convertible
Preferred Stock,$0.01 par value - 1,744
shares authorized, issued and outstanding
(liquidating value $711,770) 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 (6,611) (6,730)
--------- -------
Total stockholders' equity 2,355 2,236
--------- -------
Total liabilities and stockholders' equity $5,539 $5,842
========= =======
See notes to condensed consolidated financial statements.
4
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
July 31, July 31,
1996 1995 1996 1995
------- -------- ------- --------
Revenues $ 1,486 $1,333 $ 3,196 $ 2,597
Cost of Sales 979 900 2,186 1,809
----------------- ----------------
Gross Margin 507 433 1010 788
Selling expenses 127 123 248 205
Research and development 105 107 210 215
General and administrative expenses 179 198 362 356
----------------- ----------------
411 428 820 776
----------------- ----------------
Operating income 96 5 190 12
Interest expense (income) 42 (5) 65 (10)
----------------- ----------------
Income before income tax 54 10 125 22
Provision for income taxes -- -- 6 --
----------------- ----------------
Net income 54 10 119 22
Preferred dividend requirement 12 12 24 24
----------------- ----------------
Income applicable to common shares $ 42 $ (2) $ 95 $ (2)
================= ================
Income per common share $0.10 -- $ 0.22 --
================= ================
Weighted average common shares 440,133 433,133 436,633 433,133
outstanding ================= ================
See notes to condensed consolidated financial statements.
5
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
July 31,
----------------------
1996 1995
----------------------
Net cash provided (used) by operating activities $ 712 $222
Net cash provided (used) by investing activities (62) (106)
Net cash provided (used) for financing activities (356) (71)
----------------------
Increase (decrease) in cash 294 45
Cash at beginning of period 339 670
----------------------
Cash at end of period $ 633 $ 715
======================
See notes to condensed consolidated financial statements.
6
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
July 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 six
month periods ended July 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 July 31, 1996. The balance of the convertible term note at
July 31, 1996 was $1,489,000. There was no balance outstanding under the
revolving credit agreement at July 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
7
<PAGE>
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 July 31, 1996.
The Company had outstanding standby letters of credit of $129,000 and
$267,000 at July 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 July 31, 1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
Revenues in the second quarter and first six months of fiscal 1997 were
$1,486,000 and $3,196,000 compared to $1,333,000 and $2,597,000 in the
comparable periods of fiscal 1996. The increase of $153,000 (11%) for the
quarter was due to higher planetarium revenues which were partially offset by
lower dome revenues. The increase of $599,000 (23%) for the six month period
resulted from higher planetarium and dome revenues. Planetarium revenues were
$706,000 and $1,182,000 in the second quarter and first six months of fiscal
1997 compared to $403,000 and $832,000 in the comparable periods of fiscal 1996,
an increase of $303,000 (75%) and $350,000 (42%), respectively. 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 $284,000 and $565,000 in
the second quarter and first six months of fiscal 1997 compared to $280,000 and
$536,000 in the comparable periods of fiscal 1996. The increase in maintenance
and parts revenues was primarily due to the timing of performance on preventive
maintenance agreements. Dome revenues were $780,000 and $2,014,000 in the second
quarter and first six months of fiscal 1997 compared to $930,000 and $1,765,000
in the comparable periods of fiscal 1996, a decrease of $150,000 (16%) and an
increase of $249,000 (14%), respectively. The increase in dome revenues for the
six month period was attributable to a high level of production and installation
activity on orders for film theaters during the first quarter of fiscal 1997.
This was partially offset by higher revenues related to a special theme park
exhibit and trade show exhibit in the second quarter of fiscal 1996.
Gross margins were 34.1% and 31.6% in the second quarter and first six months of
fiscal 1997 compared to 32.5% and 30.3% in the comparable periods of fiscal
1996. The higher margins in the second 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 second quarter of fiscal 1997 was the volume
related reduction of inefficiencies. The improvement in the second 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 $4,000 (3%) and $43,000 (21%) in the
second quarter and first six months of fiscal 1997 compared to the comparable
periods of fiscal 1996. The increase in the first six months was due to higher
first quarter costs resulting from the restoration of selling staff levels,
promotional expenditures related to Spitz's fiftieth anniversary, and costs of
market research for new video projection products. Research and development
expenses decreased $2,000 (2%) and $5,000 (2%) in the second quarter and first
six months of fiscal 1997 compared to the comparable periods of fiscal 1996. The
decrease was due to the low utilization of engineering resources on customer
contract activities in the first six months of fiscal 1996 which directed more
effort to research and development projects. General and administrative expenses
decreased $19,000 (10%) in the second quarter and increased $6,000 (2%) in the
first six months of fiscal 1997 compared to the comparable periods of fiscal
1996. The decrease in the second quarter was due to reductions in professional
fees and costs associated with the annual shareholders meeting. The second
quarter decrease offset higher first quarter costs which resulted from the
reinstatement of director fees.
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.
Interest paid on modified debt agreements amounted to $42,000 and $85,000 in the
second quarter and first six 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 $67,000 for the first six months of fiscal 1997. Combined with interest paid
on capital lease obligations and interest income from temporary cash
investments, this
9
<PAGE>
resulted in net interest expense of $42,000 and $65,000 reported for the second
quarter and first six months of fiscal 1997. Interest paid on modified debt
agreements amounted to $46,000 and $92,000 in the second quarter and first six
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 $10,000 reported in the second quarter and first
six 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, 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 six months of fiscal 1997. As a
result of the above, the Company reported net income of $54,000 and $119,000 in
the second quarter and first six months of fiscal 1997 compared to $10,000 and
$22,000 for the comparable periods of fiscal 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $712,000 in the first six months
of fiscal 1997 compared to $222,000 provided in the first six months of fiscal
1996. The $712,000 provided by operations in the first six months of fiscal 1997
consisted of $267,000 provided from earnings offset by $18,000 of interest
payments booked against debt plus $463,000 provided by changes in operating
assets and liabilities. The $222,000 provided by operations in the first six
months of fiscal 1996 consisted of $180,000 provided from earnings offset by
$92,000 of interest payments plus $134,000 provided by changes in operating
assets and liabilities.
Of the $712,000 provided by operations in the first six months of fiscal 1997,
$268,000 was used to make principal payments on the revolving credit note,
$88,000 was used to make principal payments on term debt and capital leases and
$62,000 was invested in capital assets. Of the $222,000 provided by operations
in first six months of fiscal 1996, $71,000 was used to make principal payments
on debt and capital leases and $106,000 was invested in capital assets. The net
result was a $294,000 increase in cash balances during the first six months of
fiscal 1997 compared to a $45,000 increase during the first six months of fiscal
1996.
Total debt at July 31, 1996 was $1,550,000, a decrease of $374,000 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 $106,000
(including $18,000 of interest payments) applied to term debt and capital lease
obligations.
At July 31, 1996 there was no balance outstanding on the revolving credit note
compared to $269,000 at January 31, 1996. At July 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 July 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 July 31, 1996. Additional liquidity was provided by unrestricted cash
balances of $633,000 at July 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 decreased to $606,000 at July 31, 1996 from
$1,178,000 at January 31, 1996. Net billings in excess of costs and profit on
contracts in progress amounted to $119,000 at July 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
10
<PAGE>
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
<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 July 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.
/s/ Paul L. Dailey, Jr.
-------------------------
Date: September 14, 1996 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
July 31, 1996 and the related condensed consolidated statement of operations
and statement of cash flows for the six months then ended and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 633
<SECURITIES> 0
<RECEIVABLES> 606
<ALLOWANCES> 0
<INVENTORY> 1223
<CURRENT-ASSETS> 2588
<PP&E> 2200
<DEPRECIATION> 1639
<TOTAL-ASSETS> 5539
<CURRENT-LIABILITIES> 3137
<BONDS> 0
0
399
<COMMON> 65
<OTHER-SE> 1891
<TOTAL-LIABILITY-AND-EQUITY> 5539
<SALES> 3196
<TOTAL-REVENUES> 3196
<CGS> 2186
<TOTAL-COSTS> 2186
<OTHER-EXPENSES> 210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 125
<INCOME-TAX> 6
<INCOME-CONTINUING> 119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0
</TABLE>
