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, 1998
[ ] 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.
(Exact 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, 1998: 500,970
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 -- April 30, 1998,
and January 31, 1998. 3-4
Condensed consolidated statements of operations -- Three
months ended April 30, 1998 and 1997. 5
Condensed consolidated statements of cash flows -- Three
months ended April 30, 1998 and 1997. 6
Notes to condensed consolidated financial statements --
April 30, 1998. 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
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Transnational Industries, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
----------- -----------
Assets (Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash $ 293 $ 471
Accounts receivable 953 737
Inventories 1,488 1,412
Other current assets 128 135
----------- ----------
Total current assets 2,862 2,755
Machinery and equipment:
Machinery and equipment $ 2,695 $ 2,675
Less accumulated depreciation 1,986 1,927
----------- ----------
Net machinery and equipment 709 748
Other assets:
Repair and maintenance inventories, less provision
for obsolescence 165 165
Computer software, less amortization 373 322
Excess of cost over net assets of business acquired,
less amortization 1,876 1,893
----------- ----------
Total other assets 2,414 2,380
----------- ----------
Total assets $ 5,985 $ 5,883
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Transnational Industries, Inc.
Condensed Consolidated Balance Sheets (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
---------- -----------
Liabilities and stockholders' equity Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 498 $ 468
Deferred maintenance revenue 507 641
Accrued expenses 295 224
Billings in excess of cost and estimated earnings 482 241
Current portion of long-term debt 228 215
---------- -----------
Total current liabilities 2,010 1,789
Long-term debt, less current portion 1,349 1,384
Stockholders' equity:
Series B cumulative convertible preferred stock,
$0.01 par value - authorized 100,000 shares;
issued and outstanding 330 shares (liquidating
value $150,563) 76 76
Common stock, $0.20 par value -authorized
1,000,000 shares; issued and outstanding 500,970
shares 100 100
Additional paid-in capital 8,482 8,479
Accumulated deficit (6,032) (5,945)
---------- -----------
Total stockholders' equity 2,626 2,710
---------- -----------
Total liabilities and stockholders' equity $ 5,985 $ 5,883
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Transnational Industries, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------
1998 1997
---------- ---------
<S> <C> <C>
Revenues 1,513 2,324
Cost of Sales 1,082 1,709
---------- ---------
Gross Margin 431 615
Selling expenses 189 126
Research and development 105 73
General and administrative expenses 187 186
---------- ---------
481 385
---------- ---------
Operating income (loss) (50) 230
Interest expense (income) 37 28
---------- ---------
Income (loss) before income tax (87) 202
Provision for income taxes - 11
---------- ---------
Net income (loss) (87) 191
Preferred dividend requirement 2 12
========== =========
Income (loss) applicable to common shares (89) 179
========== =========
Basic and diluted income (loss) per common share ($ 0.18) $ 0.41
========== =========
Weighted average common shares outstanding 500,970 433,133
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Transnational Industries, Inc.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
Three Months Ended
April 30,
--------------------
1998 1997
---------- ---------
<S> <C> <C>
Net cash provided (used) by operating activities (75) 197
Net cash provided (used) by investing activities (49) (254)
Net cash provided (used) for financing activities (54) (47)
---------- ---------
Increase (decrease) in cash (178) (104)
Cash at beginning of period 471 953
---------- ---------
Cash at end of period $ 293 $ 849
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Transnational Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1998
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, 1998, 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, 1998, contained
in the Registrant's Annual Report on Form 10-KSB for the year ended January 31,
1998.
Note B - EARNINGS PER SHARE
SFAS No. 128, Earnings Per Share, requires restatement of the prior
year's earnings per share to reflect basic and diluted earnings per share.
Common shares potentially issuable under the contractual conversion rights of
the Preferred B shares and employee stock options would have an antidilutive
effect on earnings per share. As a result, basic and diluted earnings per share
were the same for the periods reported herein. Weighted average common shares
issuable under the contractual conversion rights of the Preferred B shares
amounted to 1,941 and 10,259 in the three months ended April 30, 1998 and 1997,
respectively.
Note C - NEW ACCOUNTING PRONOUNCEMENTS.
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
the reporting and display of comprehensive income in financial statements. SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information,
changes the way public companies report segment information in financial
statements. The Statements become effective for all financial statements for
fiscal years beginning after December 15, 1997. The Company has reviewed those
Statements and does not believe that they will have a material impact on its
financial statements and related disclosures.
7
<PAGE>
Note D -- CONTINGENCIES
In 1995, Spitz became involved in a dispute in connection with a public bid for
the supply of planetarium equipment for an expansion project at a public
community college. Spitz's subcontract bid was the lowest submitted and the
general contractor for the project allegedly used Spitz's pricing in submitting
its total contract bid to the college. After the total contract was awarded to
the general contractor, however, the college's architect alleged that Spitz's
equipment did not conform to the bid specifications. The bid for the equipment
which the architect deemed to be in conformance with the specifications was
allegedly approximately $150,000 higher than Spitz's bid. Because the Contractor
has been forced to supply the more expensive equipment, it is attempting to
recover the $150,000 price differential plus alleged related amounts due to
adverse impacts on the project schedule from various parties. At various times,
the Contractor has threatened to assert its claim against Spitz because it has
been unsuccessful in its attempts to recover its alleged damages from the
College or other involved parties. The Company believes the bid specifications,
to the extent that they excluded Spitz's equipment, constituted an improper
sole-source of equipment which violates competitive bidding laws because the
specifications appear to have been copied from a competitor's equipment. The
Company also believes that the Spitz equipment meets all of the valid functional
requirements in the bid specifications. No lawsuit has been filed against Spitz
or the Company and the parties have discussed settling the matter. The
Contractor has not communicated any threats to carry out its assertion against
Spitz since July 1996, but it has indicated to Spitz that proceedings continue
in an effort to recover damages from the other parties involved. The Company
believes that the parties will reach an agreement to resolve the dispute without
litigation involving Spitz. It is too early to estimate a probable outcome and
its effect, if any, on Spitz. Accordingly, no liability for the potential claim
has been recorded at April 30, 1998.
8
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of operations
Revenues for the first quarter of fiscal 1999 were $1,513,000 compared to
$2,324,000 for the first quarter of fiscal 1998, a decrease of $811,000 (35%).
The decrease resulted from lower revenues from all of the Company's products.
There was no revenue from ImmersaVision, the Company's new line of video
projection products, in the first quarter of fiscal 1999 compared to $155,000 in
the first quarter of fiscal 1998. The ImmersaVision revenue in fiscal 1998 was
attributable to the first sale of an ElectricSky system which was completed in
May 1997. Planetarium revenues were $370,000 in the first quarter of fiscal 1999
compared to $850,000 in the first quarter of fiscal 1998, a decrease of $480,000
(56%). The decrease in planetarium revenues was due to a lack of sales of new
and refurbished systems for the educational market. Planetarium revenues include
$288,000 for the sale of maintenance and parts in the first quarter of fiscal
1999 compared to $327,000 in the first quarter of fiscal 1998, a decrease of
$39,000 (12%). The decrease in maintenance and parts revenues was due to lower
sales to customers without preventive maintenance agreements as well as the
timing of performance on preventive maintenance agreements. Dome revenues were
$1,143,000 in the first quarter of fiscal 1999 compared to $1,319,000 in the
first quarter of fiscal 1998, a decrease of $176,000 (13%). The lower 1999 dome
revenues were attributable to the absence of special dome projects compared to
1998 which benefited from the completion of special exterior and interior domes
for a new museum and a dome used for a special projection application at a
retail complex. Otherwise, higher 1999 revenues from film and military
simulation domes were mostly offset by lower revenues from ride simulator domes.
Revenue levels in the first quarter are not indicative of the levels expected
for the remaining quarters of fiscal 1999. Several sales prospects have delayed
order placement decisions which has delayed the expected revenue impact from
ImmersaVision. In June 1998, the Company was notified that it has been selected
to supply an ElectricSky ImmersaVision system to a new planetarium theater for
delivery in 2001. The actual Contract is expected to be awarded within the next
quarter at a total contract price in excess of $1,500,000 depending on the
selection of system options. In May 1998, the Company won a bid to supply a
public high school with a new planetarium system to be delivered in late 1998
for approximately $485,000. The new orders along with other promising sales
prospects are expected to positively impact ImmersaVision and planetarium
revenues in the later part of fiscal 1999 and beyond. 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 to fluctuate in
future periods.
Gross margins increased to 28.5% in the first quarter of fiscal 1999 from 26.5%
in the first quarter of fiscal 1998. In the first quarter of fiscal 1999 margin
improvements resulting from successful efforts on certain projects were
partially offset by a lower margin on a project which required a subcontract to
supply a special device to rotate a large film theater dome. Gross margins in
the first quarter of fiscal 1998 were weighted down by low 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 $63,000 (50%) in the first
quarter of fiscal 1999 compared to the first quarter of fiscal 1998 due to the
use of engineering resources in several major proposal efforts and the
introduction of ImmersaVision products. Research and development expenses
9
<PAGE>
increased 32,000 (44%) in the first quarter of fiscal 1999 as compared to the
first quarter of fiscal 1998 due to efforts in the development of proprietary
programming tools for software content development for ImmersaVision and
improvements to the electronics of optical planetarium products. General and
administrative expenses were relatively constant, increasing by only $1,000
(1%).
Interest expense amounted to $37,000 in the first quarter of fiscal 1999
compared to $28,000 in the first quarter of fiscal 1998. The $37,000 reported in
the first quarter of fiscal 1999 consisted of $29,000 paid on bank debt
agreements and $8,000 paid on capital lease. The $28,000 reported in the first
quarter of fiscal 1999 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. 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 in the first quarter of fiscal
1998 consists of state income taxes.
As a result of the above, a net loss of $87,000 was recorded in the first
quarter of fiscal 1999 compared to net income of $191,000 in the first quarter
of fiscal 1998. As stated above, revenue levels are expected to fluctuate in
future periods. Accordingly, the results of the first quarter should not be
considered indicative of the results expected for the remaining quarters of
fiscal 1999.
Liquidity and Capital Resources
Net cash used by operating activities was $75,000 in the first quarter of fiscal
1999 compared to net cash provided of $197,000 in the first quarter of fiscal
1998. The $75,000 used by operations in the first quarter of fiscal 1999
consisted of $87,000 used by changes in operating assets and liabilities offset
by $12,000 provided from earnings. 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.
In addition to the $75,000 used by operations in first quarter of fiscal 1999,
$54,000 was used for principal payments on term debt and capital leases and
$49,000 was invested in capital assets. The $197,000 provided by operations in
the 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 net result
was a $178,000 reduction in cash balances during the first quarter of fiscal
1999 compared to a reduction of $104,000 during the first quarter of fiscal
1998.
The $49,000 invested in capital assets in the first quarter if fiscal 1999
consisted of computer software created to automate and integrate the control and
show production process of ImmersaVision into a theater environment with other
products. In addition, $32,000 of computer hardware for the development of
ImmersaVision software was financed through a capital lease.
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 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.
Subsequently, in July 1997, a capital lease transaction was completed, whereby
equipment totaling $235,000 was sold to be leased back to the Company over five
years.
At April 30, 1998 the balance on the new revolving credit note remained at
10
<PAGE>
$600,000 as it was at January 31, 1998. The unused borrowing capacity on the new
$800,000 revolving credit agreement was $200,000 at April 30, 1998 and January
31, 1998. Additional liquidity was provided by remaining cash balances of
$293,000 at April 30, 1998 compared to $471,000 at January 31, 1998. The next
sources of liquidity are trade accounts receivable and contracts in process.
Trade accounts receivable increased to $953,000 at April 30, 1998 compared to
$737,000 at January 31, 1998. Liquidity available from contracts in process
decreased from $372,000 of net revenue recorded in excess of billings at January
31, 1998 to $186,000 at April 30, 1998.
Total debt at January 31, 1998 was $1,577,000, an decrease of $22,000 from the
$1,599,000 at January 31, 1998. The decrease resulted from $54,000 of principal
payments on debt and lease obligations offset by a new lease obligation for
$32,000.
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.
Forward-Looking Information
The statements in this Quarterly Report on Form 10-QSB that are not statements
of historical fact constitute "forward-looking statements." Said forward-looking
statements involve risks and uncertainties which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performances or achievements, expressly predicted or implied by
such forward-looking statements. These forward-looking statements are identified
by their use of forms of such terms and phrases as "expects," "intends,"
"goals," "estimates," "projects," "plans," "anticipates," "should," "future,"
"believes," and "scheduled."
The important factors which may cause actual results to differ from the
forward-looking statements contained herein include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain key management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
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, 1998.
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 15, 1998 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
April 30, 1998 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 293
<SECURITIES> 0
<RECEIVABLES> 953
<ALLOWANCES> 0
<INVENTORY> 1488
<CURRENT-ASSETS> 2862
<PP&E> 2695
<DEPRECIATION> 1986
<TOTAL-ASSETS> 5985
<CURRENT-LIABILITIES> 2010
<BONDS> 0
0
76
<COMMON> 100
<OTHER-SE> 2450
<TOTAL-LIABILITY-AND-EQUITY> 5985
<SALES> 1513
<TOTAL-REVENUES> 1513
<CGS> 1082
<TOTAL-COSTS> 1082
<OTHER-EXPENSES> 105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> (87)
<INCOME-TAX> 0
<INCOME-CONTINUING> (87)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
