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, 1999
[ ] 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 Exchange 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, 1999: 502,470
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, 1999,
and January 31, 1999. 3-4
Condensed consolidated statements of operations -- Three
months ended April 30, 1999 and 1998. 5
Condensed consolidated statements of cash flows -- Three
months ended April 30, 1999 and 1998. 6
Notes to condensed consolidated financial statements --
April 30, 1999. 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Transnational Industries, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
------------- -------------
Assets (Unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash $ 53 $ 455
Accounts receivable 2,058 1,712
Inventories 1,462 1,281
Other current assets 100 85
------------- -------------
Total current assets 3,673 3,533
Machinery and equipment:
Machinery and equipment 2,822 2,784
Less accumulated depreciation 2,222 2,172
------------- -------------
Net machinery and equipment 600 612
Other assets:
Repair and maintenance inventories, less provision
for obsolescence 165 165
Computer software, less amortization 482 501
Excess of cost over net assets of business acquired,
less amortization 1,808 1,825
------------- -------------
Total other assets 2,455 2,491
============= =============
Total assets $6,728 $6,636
============= =============
</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,
1999 1999
------------ -------------
Liabilities and stockholders' equity (Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 647 $ 366
Deferred maintenance revenue 558 686
Accrued expenses 317 338
Billings in excess of cost and estimated earnings 1,488 1,447
Current portion of long-term debt 223 238
------------ -------------
Total current liabilities 3,233 3,075
Long-term debt, less current portion 527 731
Stockholders' equity:
Series B cumulative convertible preferred stock,
$0.01 par value - authorized 100,000 shares;
issued and outstanding 318 shares (liquidating value
value $153,833) 73 73
Common stock, $0.20 par value - authorized
1,000,000 shares; issued and outstanding 502,470
shares 100 100
Additional paid-in capital 8,496 8,493
Accumulated deficit (5,701) (5,836)
------------ -------------
Total stockholders' equity 2,968 2,830
------------ -------------
Total liabilities and stockholders' equity $6,728 $ 6,636
============ =============
</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,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues $2,550 $ 1,513
Cost of Sales 1,808 1,082
----------- -----------
Gross Margin 742 431
Selling expenses 179 189
Research and development 189 105
General and administrative expenses 210 187
----------- -----------
578 481
----------- -----------
Operating income (loss) 164 (50)
Interest expense 20 37
----------- -----------
Income (loss) before income tax 144 (87)
Provision for income taxes 9 -
----------- -----------
Net income (loss) 135 (87)
Preferred dividend requirement 2 2
=========== ===========
Income (loss) applicable to common shares $ 133 $ (89)
=========== ===========
Basic and diluted income (loss) per common share $ .26 $ (.18)
=========== ===========
<S> <C> <C>
Weighted average common shares outstanding 502,470 500,970
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Transnational Industries, Inc.
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------
1999 1998
---------- ---------
<S> <C> <C>
Net cash provided (used) by operating activities (130) (75)
Net cash provided (used) by investing activities (53) (49)
Net cash provided (used) for financing activities (219) (54)
---------- ---------
Increase (decrease) in cash (402) (178)
Cash at beginning of period 455 471
---------- ---------
Cash at end of period $ 53 $ 293
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
Transnational Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1999
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,
1999, 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, 1999, contained
in the Registrant's Annual Report on Form 10-KSB for the year ended January 31,
1999.
Note B -- EARNINGS PER SHARE
There were 325 dilutive potential common shares issuable under employee stock
options for the purpose of computing dilutive earnings per share in accordance
with SFAS 128. As a result, basic and diluted earnings per share were not
materially different for the periods reported herein. Common shares potentially
issuable under the contractual conversion rights of the Preferred B shares would
have an antidilutive effect on earnings per share. Weighted average common
shares issuable under the contractual conversion rights of the Preferred B
shares amounted to 1,871 and 1,941 in the three months ended April 30, 1999 and
1998, respectively.
Note C -- 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,
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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 it is likely that the parties will reach an agreement to resolve
the dispute short of litigation. The Company is unable 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, 1999.
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of operations
Revenues for the first quarter of the fiscal year ended January 31, 2000 (Fiscal
2000) were $2,550,000 compared to $1,513,000 for the first quarter of the fiscal
year ended January 31, 1999 (Fiscal 1999), an increase of $1,037,000 (69%). The
increase resulted from higher revenues from all of the Company's products.
ImmersaVision revenue amounted to $474,000 in the first quarter of Fiscal 2000
compared to no revenue in the first quarter of Fiscal 1999. Revenue from
ImmersaVision is expected to continue at this level through Fiscal 2000 and into
the following year as work continues on the two current orders as well as other
anticipated new sales. Planetarium revenues were $740,000 in the first quarter
of Fiscal 2000 compared to $370,000 in the first quarter of Fiscal 1999, an
increase of $370,000 (100%). The increase in planetarium revenues was due to
several orders for new and refurbished systems for the educational market booked
in the second and third quarters of fiscal 1999. Planetarium revenues include
$298,000 for the sale of maintenance and parts in the first quarter of Fiscal
2000 compared to $288,000 in the first quarter of Fiscal 1999, an increase of
$10,000 (3%). The increase in maintenance and parts revenues was due to higher
sales to customers without preventive maintenance agreements. Dome revenues were
$1,336,000 in the first quarter of Fiscal 2000 compared to $1,143,000 in the
first quarter of Fiscal 1999, an increase of $193,000 (17%). The higher Fiscal
2000 dome revenues were mainly attributable to two special dome projects that
created an architectural treatment for an urban port facility and a simulation
attraction for a major aquarium. Otherwise, higher Fiscal 2000 revenues from
planetarium and military simulation domes were offset by lower revenues from
film domes.
Revenues are expected to continue at the first quarter level for the remainder
of Fiscal 2000 as work continues on sales booked through late Fiscal 1999. The
backlog of unearned revenue remained high by historical comparison at
$8,000,000, but declined due to the low bookings of new sales in the first
quarter of Fiscal 2000. Although bookings were lower than expected, it was not a
result of lost orders to competition but rather the delay of decisions by sales
prospects. Sales prospects remain strong and the Company still expects
significant revenue contributions from ImmersaVision products in future years as
the installed base grows and new applications of the product are developed.
While revenue levels are expected to continue at historically high levels over
the next year, uncertainty in the timing and delivery of sales may cause revenue
levels to continue to fluctuate in interim periods.
Gross margins remained relatively constant at 29.1% in the first quarter of
Fiscal 2000 compared to 28.5% in the first quarter of Fiscal 1999. In the first
quarter of Fiscal 2000, margin improvements resulted from volume-related
efficiencies and successful efforts on many dome projects. The improved gross
margins were weighted down by expected lower margins on subcontracted work for a
special device to rotate a large film theater dome and the large ImmersaVision
projects. Also, higher costs related to the first deliveries of a newly updated
planetarium system weighted down strong gross margins in the first quarter of
Fiscal 2000. Selling expenses decreased by $10,000 (5%) in the first quarter of
Fiscal 2000 compared to the first quarter of Fiscal 1999 due to higher use of
engineering resources on several major proposal efforts and foreign sales
presentations in Fiscal 1999. Otherwise, sales and marketing efforts increased
through the reassignment of personnel and a sales staff addition. Research and
development expenses increased 84,000 (80%) in the first quarter of Fiscal 2000
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as compared to the first quarter of Fiscal 1999. The increase in research and
development expenses is due to product development efforts to meet delivery
obligations for existing ImmersaVision customers as well as continuing research
and development of proprietary programming tools for software content
development for ImmersaVision, improvements to ImmersaVision subsystems, and
improvements to optical planetarium products. General and administrative
expenses increased $23,000 (12%) due primarily to increases in professional
services related to information system improvements and strategic planning.
Interest expense amounted to $20,000 in the first quarter of Fiscal 2000
compared to $37,000 in the first quarter of Fiscal 1999, a decrease of $17,000
attributable mainly to lower use of the bank line of credit. The $20,000
reported in the first quarter of Fiscal 2000 consisted of $16,000 paid on bank
debt agreements and $6,000 paid on capital lease offset by $2,000 earned on cash
invested. 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
obligations. 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 state income taxes amounted to $9,000 in the first quarter of
Fiscal 2000. As a result of the above, net income of $135,000 was recorded in
the first quarter of Fiscal 2000 compared to a net loss of $87,000 in the first
quarter of Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $130,000 in the first quarter of
Fiscal 2000 compared to $75,000 in the first quarter of Fiscal 1999. The
$130,000 used by operations in the first quarter of Fiscal 2000 consisted of
$249,000 provided from earnings offset by $379,000 used by changes in operating
assets and liabilities. The $75,000 used by operations in the first quarter of
Fiscal 1999 consisted of $12,000 provided from earnings offset by $87,000 used
by changes in operating assets and liabilities.
In addition to the $130,000 used by operations in the first quarter of Fiscal
2000, $219,000 was used for principal payments on revolving credit debt, term
debt and capital leases and $53,000 was invested in capital assets. 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 net result was a $402,000 reduction in cash
balances during the first quarter of Fiscal 2000 compared to a reduction of
$178,000 during the first quarter of Fiscal 1999.
The $53,000 invested in capital assets in the first quarter of Fiscal 2000
consisted of $18,000 in computer software and $35,000 of various machinery and
equipment additions. Also in the first quarter of Fiscal 2000 the installation
of a new computer infrastructure began for the purpose of improving the
Company's information systems. Hardware cost and installation is expected to be
completed in the second quarter of Fiscal 2000 at a cost of approximately
$85,000. The Company plans to finance this cost along with new computer software
to be installed in Fiscal 2000 through capital leases. The $49,000 invested in
capital assets in the first quarter of Fiscal 1999 consisted entirely of
computer software. In addition, $32,000 of computer hardware for the development
of ImmersaVision software was financed through a capital lease in the first
quarter of Fiscal 1999.
At April 30, 1999 there was no balance on the revolving credit note compared to
$150,000 at January 31, 1999. This resulted in unused borrowing capacity of
$800,000 at April 30, 1999 compared to $650,000 at January 31, 1999. Additional
10
<PAGE>
liquidity was provided by remaining cash balances of $53,000 at April 30, 1999
compared to $455,000 at January 31, 1999. The next source of liquidity, trade
accounts receivable, increased to $2,058,000 at April 30, 1999 compared to
$1,712,000 at January 31, 1999. Contracts in progress remained in an advanced
funded position as billings exceeded revenue recorded by $638,000 at April 30,
1999 compared to $763,000 at January 31, 1999. Contracts in progress at April
30, 1999 will use the other sources of liquidity as performance catches up to
the billings through the completion of each project. The payment terms on new
contracts remain uncertain and will also affect liquidity.
Total debt at April 30, 1999 was $750,000, a decrease of $219,000 from the
$969,000 at January 31, 1999. The decrease resulted from $69,000 of scheduled
principal payments on debt and lease obligations and $150,000 in net payments on
revolving credit debt.
The existing 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.
YEAR 2000 IMPACT
The Year 2000 Issue is the result of computer programs being unable to
distinguish between the year 1900 and 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, or engage in
similar normal business activities.
The Company currently uses a combination of mini computer applications,
microcomputer applications and manual procedures to account for and manage its
business processes. The very unique nature of the Company's business, its small
size, and the variety of activities it is involved in, along with past financial
constraints, have perpetuated the use of the current systems. The mini computer
applications are not currently Year 2000 compliant. Year 2000 corrections to the
mini computer applications have been proposed by vendors and consultants;
however, the Company believes that such changes could be costly and uncertain.
Improvements in the Company's financial condition, the availability of more
affordable technology solutions, and anticipated increases in business volume
now justify major improvement to the Company's information systems. Therefore,
the Company has concluded that it would be better served by an alternative
solution. As part of this wider objective to improve its information systems,
the Company has evaluated its overall data processing resources and plans to
make substantial changes in the fiscal year ended January 31, 2000. In this
process, the Company will select new products that are Year 2000 compliant. The
Company has completed an analysis of its business processes and requirements,
which were matched to the capabilities of available enterprise software
products. A list of enterprise software products best suited for the Company's
business was compiled and a determination was made on the basic computer
infrastructure required to run the list of software products. Installation of
the new computer infrastructure started in the first quarter of Fiscal 2000 and
will cost approximately $85,000. Several enterprise software products have been
evaluated and the list has been narrowed down to two products. Final software
selection is being made in June 1999, with installation and implementation over
the following six months. Cost of the enterprise software, installation and
implementation is estimated at $265,000. The cost is expected to be capitalized
and funded through operating cash flow and leasing of computer hardware and
software.
The Company is not integrated with and does not rely heavily on vendors',
clients' and other third parties' data processing systems. The bulk of the
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Company's revenue is generated from new public or commercial projects.
Maintenance and parts revenue comes from repeat customers, mainly museums and
schools. As such, revenue is generally not dependent upon repeat sales to
commercial customers' inventory management systems or enterprise resource
planning systems the way many businesses may be. The Company uses a network of
vendors to obtain its parts and supplies. Many parts and supplies are
commodities available from numerous sources. The effect of critical vendors'
ability to continue to supply the Company though Year 2000 has not been
determined. However, the Company believes that the lack of integration with
vendors systems and numerous available sources will reduce the risk from
vendors Year 2000 potential problems.
The Company's products rely on a number of widely used third party software
products, which claim to be Year 2000 compliant or do not perform date-oriented
tasks. Evaluation and testing of the Year 2000 impact on software used in the
Company's products is planned in conjunction with other research and development
efforts over the next year. Evaluation and any required corrections are not
expected to have a material cost impact.
As a contingency plan, in the event that all of the necessary changes are not
completed by the Year 2000, the portions of the operations that rely on date
sensitive data can be accommodated by manual procedures and date adjustments to
existing software applications. The Company believes this contingency plan,
although not the most efficient solution, could be accomplished without a
material interruption to the Company's business.
In addition to the specific anticipated costs described above, the Company will
incur additional costs as salaried personnel utilize their time to work on Year
2000 matters. The Company does not anticipate that the use of internal personnel
will have a material adverse effect upon the Company's operations or earnings;
however, the Company is not yet able to quantify such costs and, because the
Company has not reserved any amounts therefore, any amounts so expended will
reduce the Company's earnings. In addition, in the event that the economy as a
whole is materially and adversely effected by widespread interruptions, or by
failures of key infrastructure providers (such as banks and utilities), it is
likely that the Company's financial condition and results of operations would be
materially adversely effected.
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 (without limitation)
"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
12
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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.
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II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description of Document
27 Financial Data Schedules (Filed electronically herewith)
(b) The Registrant did not file any reports on Form 8-K during the three months
ended April 30, 1999.
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 11, 1999 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
April 30, 1999 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-31-2000
<PERIOD-END> APR-30-1999
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 2058
<ALLOWANCES> 0
<INVENTORY> 1462
<CURRENT-ASSETS> 3673
<PP&E> 2822
<DEPRECIATION> 2222
<TOTAL-ASSETS> 6728
<CURRENT-LIABILITIES> 3233
<BONDS> 0
0
73
<COMMON> 100
<OTHER-SE> 2795
<TOTAL-LIABILITY-AND-EQUITY> 6728
<SALES> 2550
<TOTAL-REVENUES> 2550
<CGS> 1808
<TOTAL-COSTS> 1808
<OTHER-EXPENSES> 189
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 144
<INCOME-TAX> 9
<INCOME-CONTINUING> 135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.26
</TABLE>
