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, 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 November 20, 1997: 324,220
Transitional Small Business Disclosure Format (check one):
YES NO X
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
INDEX PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets -- October 31, 1997,
and January 31, 1997. 3-4
Condensed consolidated statements of operations -- Three
months ended October 31, 1997 and 1996; nine months ended
October 31, 1997 and 1996. 5
Condensed consolidated statements of cash flows -- Nine
months ended October 31, 1997 and 1996. 6
Notes to condensed consolidated financial statements --
October 31, 1997. 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
(2)
<PAGE>
I. FINANCIAL INFORMATION
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
October 31, January 31
1997 1997
---------------------------------
(Unaudited) (Audited)
Assets
Current Assets
Cash $ 932 $ 953
Accounts receivable 610 1,077
Inventories 1,154 983
Other current assets 181 123
---------------------------------
Total Current Assets 2,877 3,136
Machinery and Equipment
Machinery and equipment, at cost 2,619 2,308
Less accumulated depreciation 1,868 1,723
---------------------------------
Net Machinery and Equipment 751 585
Other Assets
Repair and maintenance inventories, less
provision for obsolescence 190 190
Computer software, less amortization 241 187
Excess of cost over net assets of business
acquired, less amortization 1,910 1,961
---------------------------------
Total Other Assets 2,341 2,338
---------------------------------
Total Assets $5,969 $6,059
=================================
See notes to condensed consolidated financial statements.
(3)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
October 31, January 31,
1997 1997
---------------------------
(Unaudited) (Audited)
Liabilities and stockholders' equity
Current Liabilities:
Accounts payable $ 229 $ 228
Deferred maintenance revenue 661 574
Other current liabilities 220 287
Billings in excess of cost and estimated earnings 590 940
Current maturities of long-term debt 198 542
---------------------------
Total Current Liabilities 1,898 2,571
Long Term Debt, less current maturities 1,267 979
Stockholders' Equity
Series B Cumulative Convertible Preferred Stock,
$0.01 par value - 1,744 shares authorized, issued
and outstanding (liquidating value $771,720) 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 8,204 8,502
Accumulated deficit (5,864) (6,457)
---------------------------
Total stockholders' equity 2,804 2,509
---------------------------
Total liabilities and stockholders' equity $5,969 $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 Nine Months Ended
October 31, October 31,
-------------------- -----------------
1997 1996 1997 1996
-------------------- -----------------
Rvenues $ 1,540 $ 1,648 $ 5,625 $ 4,844
Cost of Sales 1,061 1,096 3,978 3,282
-------- -------- -------- --------
Gross Margin 479 552 1,647 1,562
Selling expenses 142 148 409 396
Research and development 99 93 318 303
General and administrative expenses 186 190 563 552
-------------------- -----------------
427 431 1,290 1,251
-------------------- -----------------
Operating income 52 121 357 311
Interest expense 35 36 95 101
-------------------- -----------------
Income before income tax 17 85 262 210
Provision for income taxes -- -- 14 6
-------------------- -----------------
Net income before extraordinary item 17 85 248 204
Extraordinary gain on elimination
of debt -- -- 345 --
-------------------- -----------------
Net income 17 85 593 204
Preferred dividend requirement 12 12 36 36
-------------------- -----------------
Income applicable to common shares $ 5 $ 73 $ 557 $ 168
==================== =================
Income per common share
Before extraordinary item $ 0.02 $ 0.17 $ 0.57 $ 0.39
Extraordinary gain on eliminatio
of debt -- -- 0.93 --
-------------------- -----------------
Net income applicable to common shares $ 0.02 $ 0.17 $ 1.49 $ 0.39
==================== =================
Weighted average common and common
equivalentshares outstanding 324,220 433,133 372,626 433,133
==================== =================
See notes to condensed consolidated financial statements.
(5)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
October 31,
---------------------
1997 1996
---------------------
Net cash provided (used) by operating activities $ 380 $ 604
Net cash provided (used) by investing activities (172) (99)
Net cash provided (used) for financing activities (229) (402)
---------------------
Increase (decrease) in cash (21) 103
Cash at beginning of period 953 339
---------------------
Cash at end of period $ 932 $ 442
=====================
See notes to condensed consolidated financial statements.
(6)
<PAGE>
TRANSNATIONAL INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
October 31, 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 and nine
month periods ended October 31, 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 -- REFINANCING
On June 12, 1997, the Company and Spitz executed a series of agreements
with a new lender, whereby the proceeds from two new promissory notes 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 as of June 12, 1997, 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 the Company
and Spitz. Upon execution of the new debt agreements, proceeds of $820,000 from
the term note and $429,000 from the revolving credit agreement were used to fund
the $1,230,000 payment to the previous lender and a portion of other costs
related to the refinancing transactions. The initial revolving credit note
advance remained outstanding at October 31, 1997 and is recorded as debt with
the new term note and balances due under capital lease obligations in accordance
with the new maturity dates.
(7)
<PAGE>
At October 31, 1997, $429,000 remained outstanding on the revolving
credit note, resulting in unused borrowing capacity of $371,0000 under the new
$800,000 Revolving Credit Agreement. At January 31, 1997, the borrowing limit
under the previous $500,000 Revolving Credit Agreement, reduced by $129,000 for
an outstanding standby letter of credit, also resulted in unused borrowing
capacity of $371,0000. The $129,000 standby letter of credit served as
collateral on outstanding surety bonds required to guarantee the performance of
Spitz on certain customer contracts. In June 1997, the Surety Company determined
that the Company's financial strength was sufficient for the level of bonding
outstanding and returned the standby letter of credit for cancellation.
The retirement of the $1,373,000 balance from the previous debt
agreements and the Stock Subscription Warrant for cash of $1,230,000 resulted in
a second quarter recording of a reduction of Additional Paid in Capital of
$298,000 and an extraordinary gain from the forgiveness of debt of $345,000, net
of related expenses of $96,000.
The retirement of the Stock Subscription Warrant also reduces the common
stock equivalents used in computing earnings per share resulting in an increase
in per share earnings on a proforma basis of approximately thirty-three percent.
Note C -- NEW CAPITAL LEASE
In July, 1997, a capital lease transaction was completed, whereby
$235,496 of equipment acquired over the previous four months was sold to be
leased back to Spitz over a period of five years. The lease agreement requires
sixty monthly installments of $5,032 with a one dollar purchase option at the
end of the term. The equipment is used in a factory demonstration of the
Company's new ImmersaVision(TM) products. The new capital lease obligation is
recorded as debt with other lease obligations and the new bank notes payable.
Note D -- 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 in 1996, the Contractor threatened to assert
its claim against Spitz because it had 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
(8)
<PAGE>
Company and the parties had 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. At this time, the outcome of a settlement and its effect, if any, on
Spitz can not be determined. Accordingly, no liability for the potential claim
has been recorded at October, 31 1997.
At October 31, 1997 there were no outstanding standby letters of credit
issued by the Company. At January 31, 1997, there was an outstanding standby
letter of credit issued in the amount of $129,000 which was canceled in June
1997.
Note E -- SERIES B PREFERRED CUMULATIVE CONVERTIBLE PREFERRED STOCK
On September 26, 1997 the Company offered the holders of the 1,744
outstanding shares of the Company's Series B Cumulative Convertible Preferred
Stock (Preferred) to exchange each share of the Preferred for 125 shares of the
Company's Common Stock (Common). The offer expired on November 28, 1997. Holders
of 1,414 shares of Preferred have accepted the exchange offer. Accordingly, the
Company will be issuing 176,750 of its authorized Common in exchange for the
1,414 shares of Preferred, which will be retired. The holders of the remaining
330 shares of Preferred did not respond to the solicitation and their shares
will remain outstanding, unless, either (i) the Company redeems the Preferred,
in accordance with its terms, in the future or (ii) the holders of the Preferred
request and the Company agrees to exchange their shares at a future time (which
neither side is obligated to do and which, if done, would be at an exchange
ratio to be negotiated in conjunction therewith). Upon completion of the
exchange of the shares tendered, there will be 500,970 shares of Common
outstanding. The current redemption value of the 330 remaining outstanding
shares of Preferred will be $146,025. The remaining holders of the Preferred
will continue to be entitled to receive dividends, when and if declared by the
Company's Board of Directors, at an annual per share amount of $27.50. The new
total quarterly preferred dividend requirement will be $2,269. The proforma
effect on the net income per common share for the three and nine month periods
ending October 31, 1997 are as follows:
Three Months Ended Nine Months Ended
October 31, 1997 October 31, 1997
------------------ ------------------
Reported Proforma Reported Proforma
------------------ ------------------
Net income before extraordinary item 17 17 248 248
Extraordinary gain on elimination of debt -- -- 345 345
------------------ ------------------
Net income 17 17 593 593
Preferred dividend requirement 12 2 36 7
------------------ ------------------
Income applicable to common shares $ 5 $ 15 $ 557 $ 586
================== ==================
Income per common share
Before extraordinary item $ 0.02 $ 0.03 $ 0.57 $ 0.44
Extraordinary gain on elimination of debt -- -- 0.93 0.63
------------------ ------------------
Net income applicable to common shares $ 0.02 $ 0.03 $ 1.49 $ 1.07
================== ==================
Weighted average common and common
equivalent shares outstanding 324,220 500,970 372,626 549,376
================== ==================
(9)
<PAGE>
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 1998 were
$1,540,000 and $5,625,000 compared to $1,648,000 and $4,844,000 in the
comparable periods of fiscal 1997. The decrease of $108,000 (7%) for the quarter
was due to lower dome revenues, which were partially offset by higher
planetarium revenues. The increase of $781,000 (16%) for the nine month period
resulted from higher revenues from all of the Company's products. In the third
quarter of fiscal 1998, there was no revenue recorded from ImmersaVision, the
Company's new line of video projection products, compared to $15,000 in the
third quarter of fiscal 1997. Revenues from ImmersaVision amounted to $177,000
in the first nine months of fiscal 1998, compared to $15,000 in the first nine
months of fiscal 1997. The ImmersaVision revenue was attributable to the first
sale of an ElectricSky system which was completed in the second quarter of
fiscal 1998. Planetarium revenues were $677,000 and $2,126,000 in the third
quarter and first nine months of fiscal 1998 compared to $602,000 and $1,784,000
in the comparable periods of fiscal 1997, an increase of $75,000 (12%) and
$342,000 (19%), respectively. The increase in planetarium revenues in fiscal
1998 was due to the completion of new and refurbished systems in the third
quarter combined with higher revenue from maintenance and parts. Planetarium
revenues include amounts attributable to the sale of maintenance and parts of
$326,000 and $1,028,000 in the third quarter and first nine months of fiscal
1998 compared to $289,000 and $854,000 in the comparable periods of fiscal 1997,
an increase of $37,000 (13%) and $174,000 (20%), respectively. 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 $863,000 and $3,322,000
in the third quarter and first nine months of fiscal 1998 compared to $1,032,000
and $3,046,000 in the comparable periods of fiscal 1997, a decrease of $169,000
(16%) and an increase of $276,000 (9%), respectively. There was a high level of
dome revenue in the first half of fiscal 1998 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 theme
retail complex. This increase was largely offset by lower revenue from film
theater domes, which was higher than normal in the first nine months of fiscal
1997. Revenue levels were low in the third quarter of fiscal 1998 compared to
the year's previous two quarters as the revenue backlog has been depleted by the
high volume of work completed in the prior months. While sales prospects remain
good and bookings have improved, uncertainty in the timing and delivery of new
sales are expected to cause revenue levels to continue fluctuating in future
quarters. Accordingly, the revenue levels recorded in the first three quarters
of fiscal 1998 are not necessarily indicative of the levels expected for future
quarters.
Gross margins were on the low side of historical averages at 31.1% and 29.3% in
the third quarter and first nine months of fiscal 1998 compared to 33.5% and
32.2% in the comparable periods of fiscal 1997. Gross margins in the first nine
months of fiscal 1998 improved from volume related efficiencies in production
but were offset by lower gross margins on dome installation activity, cost
overruns on certain planetarium projects 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 decreased $6,000 (4%) in the
(10)
<PAGE>
third quarter and increased $13,000 (3%) in the first nine months of fiscal 1998
compared to the comparable periods of fiscal 1997. The decrease in selling
expense for the quarter is attributable to the initial expense associated with
the introduction of ImmersaVision in the third quarter of fiscal 1997. The
increase in selling expenses for the nine month period is attributable to the
introduction of ImmersaVision products and costs associated with the hosting by
Spitz of a regional planetarium society meeting. Research and development
expenses increased $6,000 (6%) and $15,000 (5%) in the third quarter and first
nine months of fiscal 1998 compared to the comparable periods of fiscal 1997.
The increase in the third quarter was due to increased efforts in the
development and enhancement of ImmersaVision and existing planetarium products.
In addition to the increase in research and development expenses, engineering
resources of $81,000 were invested in capitalized computer software production
in the first nine months of fiscal 1998. Research and development expenses are
expected to continue at increased levels in subsequent quarters as efforts
continue in the development and enhancement of ImmersaVision and existing
planetarium products. General and administrative expenses were relatively
constant, decreasing $4,000 (2%) in the third quarter and increasing $11,000
(2%) in first nine months of fiscal 1998 compared to the comparable periods of
fiscal 1997.
Reported net interest expense amounted to $35,000 and $95,000 in the third
quarter and first nine months of fiscal 1998 compared to $36,000 and $101,000 in
the comparable periods of fiscal 1997. The $35,000 and $95,000 reported in the
first quarter and first nine months of fiscal 1998 consisted of $39,000 and
$116,000 paid on debt obligations, offset by $4,000 and $21,000 of interest
income earned on cash invested. The $36,000 and $101,000 reported in the first
quarter and first nine months of fiscal 1997 consisted of $41,000 and $129,000
(of which $18,000 was applied against the book value of debt and $111,000 was
charged to expense) paid on debt obligations, offset by $5,000 and $10,000 of
interest income earned on cash invested. The Company continues to pay no 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, the Company reported net income before extraordinary
item of $17,000 and $248,000 in the third quarter and first nine months of
fiscal 1998 compared to net income of $85,000 and $204,000 for the comparable
periods of fiscal 1997. In the second quarter of fiscal 1998, an extraordinary
gain from the elimination of debt of $345,000 was recorded as a result of the
refinancing of the Company's debt agreements. The extraordinary gain increased
net income to $593,000 for the first nine months of fiscal 1998. As stated
above, revenue levels are expected to fluctuate in future quarters. Accordingly,
the profit recorded in the first nine months should not be considered indicative
of the results expected for the remaining portion of fiscal 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $380,000 in the first nine months
of fiscal 1998 compared to $604,000 provided in the first nine months of fiscal
1997. The $380,000 provided by operations in the first nine months of fiscal
1998 consisted of $501,000 provided from earnings offset by $121,000 used by
changes in operating assets and liabilities. 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.
(11)
<PAGE>
The $380,000 provided by operations in the first nine months of fiscal 1998 was
offset by $152,000 of scheduled principal payments on debt obligations, payment
of $77,000 of expenses related to refinancing transactions, and $172,000
invested in capital assets. 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 debt
obligations and $99,000 was invested in capital assets. The net result was a
$21,000 decrease in cash balances during the first nine months of fiscal 1998
compared to a $103,000 increase during the first nine months of fiscal 1997.
In addition to $172,000 invested in capital assets in the first nine months of
fiscal 1998, the Company acquired $235,000 of equipment which it financed
through a capital lease obligation. The equipment is used in an in-house demo of
the Company's ImmersaVision products. The financing alternatives for the
ImmersaVision demo equipment were heavily influenced by the outcome of efforts
to refinance the Company's bank debt agreements. Therefore, the equipment was
purchased for cash in the first and second quarters of fiscal 1998 and the
financing was deferred. On June 12, 1997 the bank debt agreements were
refinanced. In July, 1997, a capital lease transaction was completed, whereby
the $235,000 of equipment was sold to be leased back to Spitz over a period of
five years. The lease agreement requires sixty monthly installments of $5,032
with a one dollar purchase option at the end of the term.
On June 12, 1997, the Company entered into a series of debt agreements with a
new lender, a commercial bank, whereby proceeds from two new promissory notes
payable to the new lender were used to retire previous bank debt and a Stock
Subscription Warrant. The prior debt agreements were scheduled to mature in
August 1997 and carried a balance due at June 12, 1997 of $1,373,000. The
previous lender agreed to accept $1,230,000 in full satisfaction for all
existing debt and the surrender of 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
$1,230,000 payment to the previous lender. 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 initial advance under the new revolving credit agreement also included an
additional amount to partially fund closing costs, which increased the total to
$429,000. This resulted in unused borrowing capacity under the new $800,000
revolving credit agreement of $371,000. At January 31, 1997 the borrowing limit
under the previous $500,000 Revolving Credit Agreement, reduced by $129,000 for
an outstanding standby letter of credit, also resulted in unused borrowing
capacity of $371,0000. The $129,000 standby letter of credit served as
collateral on outstanding surety bonds required to guarantee the performance of
Spitz on certain customer contracts. In June 1997, the Surety Company determined
that the Company's financial strength was sufficient for the level of bonding
outstanding and returned the standby letter of credit for cancellation.
In addition to the unused borrowing capacity of $371,000, liquidity is provided
by cash balances of $932,000 at October 31, 1997 compared to $953,000 at January
(12)
<PAGE>
31, 1997. The next sources of liquidity are trade accounts receivable and
contracts in process. Trade accounts receivable decreased to $610,000 at October
31, 1997 compared to $1,077,000 at January 31, 1997. The higher liquidity
available at January 31, 1997 from cash and accounts receivable was attributable
to advances on customer contracts as reflected by net billings in excess of cost
and profit of $658,000 at January 31, 1997 compared to $186,000 at October 31,
1997.
The retirement of the previous debt agreements and the Stock Subscription
Warrant for $1,230,000 resulted in a reduction of Additional Paid in Capital of
$298,000 and an extraordinary gain from the forgiveness of debt of approximately
$345,000, net of related expenses, recorded in the second quarter of fiscal
1998. The retirement of the Stock Subscription Warrant eliminated its effective
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 the same 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 improve the Company's ability to
raise additional funds for expansion of its products through other capital
resources.
(13)
<PAGE>
II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description of Document
27 Financial Data Schedules*
- ---------------------------
*filed electronically herewith
(b) The Registrant did not file any reports on Form 8-K during the three months
ended October 31, 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: December 12, 1997 Paul L. Dailey, Jr.
--------------------
Secretary-Treasurer
Signing on Behalf of Registrant
and as Chief Financial Officer
(14)
<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, 1997 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 932
<SECURITIES> 0
<RECEIVABLES> 610
<ALLOWANCES> 0
<INVENTORY> 1154
<CURRENT-ASSETS> 2877
<PP&E> 2619
<DEPRECIATION> 1868
<TOTAL-ASSETS> 5969
<CURRENT-LIABILITIES> 1898
<BONDS> 0
0
399
<COMMON> 65
<OTHER-SE> 2340
<TOTAL-LIABILITY-AND-EQUITY> 5969
<SALES> 5625
<TOTAL-REVENUES> 5625
<CGS> 3978
<TOTAL-COSTS> 3978
<OTHER-EXPENSES> 318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 262
<INCOME-TAX> 14
<INCOME-CONTINUING> 248
<DISCONTINUED> 0
<EXTRAORDINARY> 345
<CHANGES> 0
<NET-INCOME> 593
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 0
</TABLE>
