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, 1997
[ ] 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 22-2328806
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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, 1997: 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 --
April 30, 1997, and January 31, 1997. 3-4
Condensed consolidated statements of
operations -- Three months ended
April 30, 1997, and 1996. 5
Condensed consolidated statements of
cash flows -- Three months ended
April 30, 1997, and 1996. 6
Notes to condensed consolidated
financial statements -- April 30, 1997. 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)
April 30, January 31
1997 1997
------------------------
(Unaudited) (Audited)
Assets
Current Assets
Cash $ 849 $ 953
Accounts receivable 953 1,077
Inventories 935 983
Other current assets 119 123
------------------------
Total Current Assets 2,856 3,136
Machinery and Equipment
Machinery and equipment, at cost 2,543 2,308
Less accumulated depreciation 1,767 1,723
------------------------
Net Machinery and Equipment 776 585
Other Assets
Repair and maintenance inventories, less
provision for obsolescence 190 190
Computer software, less amortization 197 187
Excess of cost over net assets of business
acquired, less amortization 1,944 1,961
------------------------
Total Other Assets 2,331 2,338
------------------------
Total Assets $5,963 $6,059
========================
See notes to condensed consolidated financial statements.
(3)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
April 30, January 31
1997 1997
------------------------
(Unaudited) (Audited)
Liabilities and stockholder's equity
Current Liabilities:
Accounts payable $ 189 $ 228
Deferred maintenance revenue 478 574
Other current liabilities 398 287
Billings in excess of cost and estimated earnings 724 940
Current maturities of long-term debt 167 542
------------------------
Total Current Liabilities 1,956 2,571
Long-Term Debt, less current maturities 1,307 979
Stockholders' Equity
Series B Cumulative Convertible Preferred Stock,
$0.01 par value - 1,744 shares authorized, issued
and outstanding (liquidating value $747,740) 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 (6,266) (6,457)
------------------------
Total stockholders' equity 2,700 2,509
------------------------
Total liabilities and stockholders' equity $5,963 $6,059
========================
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
April 30,
------------------------
1997 1996
------------------------
Revenues 2,324 $1,710
Cost of Sales 1,709 1,207
------------------------
Gross Margin 615 503
Selling expenses 126 121
Research and development 73 105
General and administrative expenses 186 183
------------------------
385 409
------------------------
Operating income 230 94
Interest expense (income) 28 23
------------------------
Income before income tax 202 71
Provision for income taxes 11 6
------------------------
Net income 191 65
Preferred dividend requirement 12 12
------------------------
Income applicable to common shares 179 53
========================
Income per common share $0.41 $0.12
========================
Weighted average common shares outstanding 433,133 433,133
========================
See notes to condensed consolidated financial statements.
(5)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
April 30,
------------------------
1997 1996
------------------------
Net cash provided (used) by operating activities 197 $ 112
Net cash provided (used) by investing activities (254) (27)
Net cash provided (used) for financing activities (47) (214)
------------------------
Increase (decrease) in cash (104) (129)
Cash at beginning of period 953 339
------------------------
Cash at end of period $ 849 $ 210
========================
See notes to condensed consolidated financial statements.
(6)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1997
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, 1997, 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, 1997, contained
in the Registrant's Annual Report on Form 10-KSB for the year ended January 31,
1997.
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's
management 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's management 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's management 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,
1997.
Spitz had an outstanding standby letter of credit in the amount of
$129,000 at April 30, 1997 and January 31, 1997 which served as collateral on
outstanding surety bonds required to guarantee the performance of Spitz on
certain customer contracts. In June 1997, the Surety Company returned the
standby letter of credit for cancellation.
(7)
<PAGE>
Note C -- SUBSEQUENT EVENT
On June 12, 1997, the Company and Spitz executed a series of agreements,
whereby the proceeds from two new promissory notes issued by a new lender were
used to retire all existing debt and a Stock Subscription Warrant held by the
Company's previous lender. Under an agreement with the previous lender, all
existing debt amounting to $1,373,000 and a Stock Subscription Warrant to
purchase 108,913 shares of the Company's Common Stock for $0.20 per share were
retired for a cash payment of $1,230,000. Debt agreements executed with the new
lender consist of an $820,000 term loan and an $800,000 Revolving Credit
Agreement. The term loan is payable with interest at 9.25% over five years in
equal monthly installments of $17,122. The Revolving Credit Agreement permits
borrowing, subject to an asset based formula, of up to $800,000 under a
Revolving Credit Note. The Revolving Credit Note requires monthly interest
payments at prime plus 2% and also matures in five years. The new debt
agreements are secured by virtually all of the assets of Company and Spitz. Upon
execution of the new debt agreements, proceeds of $820,000 from the term note
and $410,000 from the revolving credit agreement were used to fund the
$1,230,000 payment to the previous lender. The current portion of long term debt
at April 30, 1997 reflects the maturity of the new debt agreements.
The retirement of the previous debt agreements and the Stock
Subscription Warrant for $1,230,000 results in a redemption of Additional Paid
in Capital of $196,000 and an extraordinary gain from the forgiveness of debt of
approximately $250,000, net of related expenses, to be recorded in the second
quarter of fiscal year ended January 31,1998.
The retirement of the Stock Subscription Warrant will also reduce the
common stock equivalents used in computing earnings per share. Supplemental
earnings per share data illustrating the proforma effect of the retirement of
the Stock Subscription Warrant for the three month periods ending April 30, 1997
and 1996 are as follows:
1997 1996
------------------------
As reported:
Income per common share $0.41 $0.12
Weighted average common shares outstanding 433,133 433,133
Proforma:
Income per common share $0.55 $0.16
Weighted average common shares outstanding 324,220 324,220
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations
Revenues for the first quarter of fiscal 1998 were $2,324,000 compared to
$1,710,000 for the first quarter of fiscal 1997, an increase of $614,000 (36%).
The increase resulted from higher revenues from all of the Company's products.
Revenues from ImmersaVision, the Company's new line of video projection
products, amounted to $155,000 in the first quarter of fiscal 1998, as the
Company successfully completed its first installation of ElectricSky.
Planetarium revenues were $850,000 in the first quarter of fiscal 1998 compared
to $476,000 in the first quarter of fiscal 1997 an increase of $374,000 (79%).
The increase in planetarium revenues was primarily due to sales of new and
refurbished systems for the educational market. Planetarium revenues include
$327,000 for the sale of maintenance and parts in the first quarter of fiscal
1998 compared to $281,000 in the first quarter of fiscal 1997, an increase of
$46,000 (16%). The increase in maintenance and parts revenues was due to an
increase in sales to customers without preventive maintenance agreements as well
as the timing of performance on preventive maintenance agreements. Dome revenues
were $1,319,000 in the first quarter of fiscal 1998 compared to $1,234,000 in
the first quarter of fiscal 1997, an increase of $85,000 (7%). Dome revenue
levels were high for both periods compared to prior quarterly levels. The high
level of dome revenue in first quarter of fiscal 1998 was attributable to
installation activity on a dome for a large ride simulator, exterior and
interior domes for a special museum, and a dome used for a special projection
application at a retail complex. This increase was largely offset by lower
revenue from film theater domes, which was higher than normal in the first
quarter of fiscal 1997. Revenue levels in the first quarter are not necessarily
indicative of the levels expected for the remaining quarters of fiscal 1998.
While sales prospects remain good, the revenue backlog has been depleted by
recent deliveries. Uncertainty in the timing and delivery of new sales are
expected to result in fluctuating revenue levels in the remaining quarters of
fiscal 1998.
Gross margins were on the low side of historical averages at 26.5% in the first
quarter of fiscal 1998 and 29.4% in the first quarter of fiscal 1997. Gross
margins in the first quarter of fiscal 1998 improved from volume related
efficiencies in production but were offset by lower gross margins on dome
installation activity and introductory pricing on the sale of the first
ImmersaVision system. The low margins on dome installation activity resulted
from the lower profit margins on change orders to recover costs overruns as
dictated by construction contract terms inherent in many of the Company's
customer contracts. Selling expenses increased by only $5,000 (4%) in the first
quarter of fiscal 1998 as increased costs of introducing the new ImmersaVision
products were offset in the comparison of fiscal 1997 promotional expenditures
related to Spitz's fiftieth anniversary. Research and development costs
decreased 32,000 (31%) in the first quarter of fiscal 1998 as compared to the
first quarter of fiscal 1997. The decrease in research and development expenses
was due to the high utilization of engineering resources on customer contract
activities and a $19,000 investment of engineering resources in capitalized
computer software production in the first quarter of fiscal 1998. Research and
development expenses are expected to increase in subsequent quarters as efforts
continue in the development and enhancement of ImmersaVision and existing
planetarium products. General and administrative expenses were relatively
constant, increasing by only $3,000 (2%).
Reported net interest expense amounted to $28,000 in the first quarter of fiscal
1998 compared to $23,000 in the first quarter of fiscal 1997. The $28,000
reported in the first quarter of fiscal 1998 consisted of $36,000 paid on bank
debt agreements and $3,000 paid on capital lease obligations, offset by $11,000
of interest income earned on cash invested. In the first quarter of fiscal 1997,
$42,000 was paid on bank debt agreements (of which $18,000 was applied against
the book value of debt and $24,000 was charged to expense). The $23,000 reported
in the first quarter of fiscal 1997 consisted of the $24,000 from bank debt
agreements and $2,000 paid on capital lease obligations, offset by $3,000 of
interest income earned on cash invested. The Company continues to pay no
(9)
<PAGE>
federal income taxes as federal taxable income is offset by the utilization of
net operating loss carryforwards. The provision for income taxes consists of
state income taxes.
As a result of the above, net income of $191,000 was recorded in the first
quarter of fiscal 1998 compared to $65,000 in the first quarter of fiscal 1997.
As stated above, revenue levels are expected to fluctuate in the remaining
quarters of fiscal 1998. Accordingly, the profit recorded in the first quarter
should not be considered indicative of the results expected for the remaining
quarters of fiscal 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $197,000 in the first quarter of
fiscal 1998 compared to $112,000 in the first quarter of fiscal 1997. The
$197,000 provided by operations in the first quarter of fiscal 1998 consisted of
$271,000 provided from earnings offset by $74,000 used by changes in operating
assets and liabilities. 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 $197,000 provided by operations in first quarter of fiscal 1998 was offset
by $47,000 principal paid on term debt and capital leases and $254,000 invested
in capital assets. The $112,000 provided by operations in first quarter of
fiscal 1998 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. The net result was a $104,000 reduction in cash balances during
the first quarter of fiscal 1998 compared to a reduction of $129,000 during the
first quarter of fiscal 1997.
Most of the $254,000 invested in capital assets in the first quarter of fiscal
1998 consisted of equipment to create an in house demonstration of
ImmersaVision. Financing alternatives for the ImmersaVision demo equipment were
heavily influenced by the outcome of efforts to extend or replace existing bank
debt agreements. Therefore the equipment was purchased for cash and the
financing was deferred. On June 12, 1997 the existing debt agreements were
replaced. The Company is currently evaluating financing lease proposals which
will provide approximately $240,000 to retroactively fund the purchase of the
ImmersaVision demo equipment.
There was no balance outstanding under the revolving credit agreement at April
30, 1997 and January 31,1997. At April 30, 1997 and January 31, 1997 the
$500,000 borrowing limit under the existing revolving credit agreement was
reduced by $129,000 for standby letters of credit resulting in unused borrowing
capacity of $371,000. Additional liquidity was provided by remaining cash
balances of $849,000 at April 30, 1997 compared to $953,000 at January 31, 1997.
The next source of liquidity, trade accounts receivable, decreased to $953,000
at April 30, 1997 compared to $1,077,000 at January 31, 1997.
Total debt at April 30, 1997 was $1,474,000, of which $1,393,000 represented
balances under bank debt agreements which were scheduled to mature on August 1,
1997. The bank debt was subsequently reduced to $1,373,000 by a scheduled
payment, then on June 12, 1997, proceeds from two new promissory notes issued by
a new lender were used to retire the bank debt and a Stock Subscription Warrant
held by the bank. The previous lender agreed to accept $1,230,000 in full
satisfaction for all existing debt and the Stock Subscription Warrant to
purchase 108,913 shares of the Company's Common Stock for $0.20 per share. Debt
agreements executed with the new lender consist of an $820,000 term loan and an
$800,000 Revolving Credit Agreement. The term loan is payable with interest at
9.25% over five years in equal monthly installments of $17,122. The Revolving
Credit Agreement permits borrowing, subject to an asset based formula, of up to
$800,000 under a Revolving Credit Note. The Revolving Credit Note requires
monthly interest payments at prime plus 2% and also matures in five years. Upon
execution of the new debt agreements, proceeds of $820,000 from the term note
and $410,000 from the revolving credit agreement were used to fund the
(10)
<PAGE>
$1,230,000 payment to the previous lender. The initial advance under the new
revolving credit agreement also included an additional amount to partially fund
closing cost, which increased the total to $429,000. This resulted in unused
borrowing capacity under the new $800,000 revolving credit agreement to
$371,000, which matches the unused capacity on the previous revolving credit
agreement. Principal and interest payments over the next year required under the
new loan agreements will be approximately $40,000 lower than previously
scheduled payments under the old loan agreements.
The retirement of the previous debt agreements and the Stock Subscription
Warrant for $1,230,000 results in a redemption of Additional Paid in Capital of
$196,000 and an extraordinary gain from the forgiveness of debt of approximately
$250,000, net of related expenses, to be recorded in the second quarter of
fiscal year ending January 31,1998. The retirement of the Stock Subscription
Warrant will also eliminate the corresponding twenty-five percent dilution of
common shareholders equity.
In summary, as a result of the replacement of the debt agreements, total debt
was lowered by $124,000 while maintaining overall credit capacity, payment
schedules were favorably adjusted, near term maturity dates were extended to
five years, and the Company's common shareholders benefited by the return of a
beneficial ownership of twenty five percent of their equity in the Company.
The new debt agreements combined with current assets and cash flow from
operations, assuming reasonably consistent revenue levels, should provide the
Company with adequate liquidity for the foreseeable future. The strengthening
financial condition of the Company should also improved the Company's ability to
raise additional funds for expansion of its products through other capital
resources.
(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 April 30, 1997.
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 20, 1997 Paul L. Dailey, Jr.
----------------
Secretary-Treasurer
Signing on Behalf of Registrant
and as Chief Financial Officer
<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, 1997 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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<PERIOD-END> APR-30-1997
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<ALLOWANCES> 0
<INVENTORY> 935
<CURRENT-ASSETS> 2856
<PP&E> 2543
<DEPRECIATION> 1767
<TOTAL-ASSETS> 5963
<CURRENT-LIABILITIES> 1956
<BONDS> 0
0
399
<COMMON> 65
<OTHER-SE> 2236
<TOTAL-LIABILITY-AND-EQUITY> 5963
<SALES> 2324
<TOTAL-REVENUES> 2324
<CGS> 1709
<TOTAL-COSTS> 1709
<OTHER-EXPENSES> 73
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</TABLE>
